2001 (11) TMI 224 - AT - Income Tax

Tribunal allows appeal, deletes Rs. 31,50,000 addition, deems gas cylinder transactions genuine

Ellenbarrie Industrial Gases Ltd. Versus Joint Commissioner Of Income-tax.

The Tribunal partially allowed the appeal, deleting the addition of Rs. 31,50,000. It held that the sale-cum-lease-back transactions of gas cylinders were ... Block Assessment in search case, Business Expenditure, Allowable As Issues Involved:1. Legality of the continuation of search operations.2. Genuineness of the sale and lease-back transactions of gas cylinders.3. Validity of block assessment and the inclusion of lease rentals as undisclosed income.Summary:Issue 1: Legality of the Continuation of Search OperationsThe assessee contended that the continuation of the search from January 1997 to April 1997 by passing a prohibitory order u/s 132(3) was for collateral purposes and hence illegal. The Tribunal found that there was no clear evidence to support the claim that the search was deferred for collateral purposes. Consequently, the preliminary ground against the validity of the assessment order from the limitation angle was rejected.Issue 2: Genuineness of the Sale and Lease-Back TransactionsThe Assessing Officer (AO) concluded that the sale and lease-back transactions of gas cylinders were not genuine, citing various reasons such as the lack of physical verification of cylinders, non-mentioning of distinctive numbers, and the voluntary disclosure by Shrutaa Builders (SB) under the VDIS scheme. The Tribunal, however, found that the transactions were bona fide, supported by legally enforceable agreements, bank transactions, and payment of Central Sales Tax. The Tribunal held that minor discrepancies did not render the transactions bogus and emphasized that the AO should have issued summons u/s 131 to verify the parties involved.Issue 3: Validity of Block Assessment and Inclusion of Lease Rentals as Undisclosed IncomeThe Tribunal concluded that the block assessment u/s 158BC was not justified as the transactions were already disclosed and assessed in regular assessments for the relevant years. The Tribunal noted that the AO did not bring any new material evidence from the search to substantiate the claim of undisclosed income. The Tribunal held that the disallowance of lease rentals was not based on any material found during the search and hence should be deleted.Separate Judgment:The Judicial Member dissented, supporting the AO's view that the transactions were sham and the assessment u/s 158BC was justified. However, the Third Member agreed with the Accountant Member, leading to the majority decision to delete the addition of Rs. 31,50,000 on account of disallowance of lease rental payments.Conclusion:In conclusion, the appeal was partly allowed, with the Tribunal deleting the addition of Rs. 31,50,000, holding that the sale-cum-lease-back transactions were genuine and the disallowance of lease rentals was not justified under the block assessment.