TaxTMI 
TaxTMI 
2008 (4) TMI 519
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....h the appeals. These substantial questions of law are reframed without affecting the substance of each of them and they read as under : "(1) Whether on facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the dis-allowances of depreciation as made by the Assessing Officer under section 143(3) of the Income-tax Act, 1961 in the respective orders of assessment on protective basis for the respective assessment years (1996-97 and 1997-98), are liable to be deleted on the ground that the same disallowances were the subject-matter of the block assessment order dated January 29, 1999, passed under section 158BC of the Act in respect of the same assessment years ? (common question in both the appeals). (2) Whether on facts and in the circumstances of the case, the Tri-bunal is justified in setting aside the addition made in respect of the disallowances on `provision for bad and doubtful debts' that were made by the Assessing Officer in the assessment order for the year 1997-98 and remanding the matter to the Assessing Officer for fresh consideration of the claim of the assessee ? (in I. T. A. No. 633 of 2004 only). &....
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..... T. A. No. 633 of 2004 are as under : (i) The respondent-assessee filed its return of income on November 29, 1997 for the assessment year 1997-98 disclosing loss of Rs. 18,23,58,670. It was processed under section 143(1)(a) of the Income-tax Act (hereinafter referred to as "the Act"). After disallowing certain claims of the assessee with regard to the depreciation, provision for doubtful debts, provision for contingencies and supply items and after making certain additions based on the search which was conducted on January 3, 1997, in the premises of the assessee, the Assessing Officer passed the assessment order dated March 16, 2000 determining the taxable income at Rs. 17,31,20,662 as against the loss of Rs. 18,23,58,670 shown by the assessee in its returns. (ii) Aggrieved by the said order of assessment, the assessee preferred its appeal before the Commissioner of Income-tax (Appeals) which came to be allowed in part giving some reliefs to the assessee. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), so far as it related to the refusal to allow some of its claims, the assessee-company preferred its further appeal before the Tribunal.....
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....ssed in the block assessment on the ground that it was undisclosed one. 6. It is not in dispute that a search was commenced in the premises of the assessee on January 3, 1997, and it came to be concluded on February 28, 1997, and, during the said search, the authorities found and seized certain documents pertaining to the assets in respect of which depreciation was claimed by the assessee in the previous years falling within the block period besides being relevant to the assessment years 1996-97 and 1997-98. It is also not in dispute that based on the said documents the assessing authority concluded the block assessment for the block period comprising of the previous years 1991-92 to 1996-97 and passed the block assessment order dated January 29, 1999, and this order was challenged by the assessee initially before this court by filing Writ Petition No. 5053 of 1999 and, after it came to be withdrawn, before the Tribunal by filing an appeal. It is also not in dispute that the Tribunal allowed the said appeal holding that the said block assessment was barred by limitation and, thereafter, challenging the said order, the appellant-Revenue filed I. T. A. No. 296 of 2003 which....
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...., protective assess-ments do create the possibility of double assessment of the same income, may be in the hands of two persons, or in the hands of the same person but its effect is only temporary and only for a limited purpose, i.e., to ensure that the interest of the Revenue in ensuing that the income to be assessed is not left unassessed and ultimately only one assessment of the same income is going to stand, and there would be no double assessment". He has further observed at paragraph 11 on page 34 of his order that in case the block assessment is held to be null and void by the hon'ble High Court there would not be any case of double assessment of the wrong claim of depreciation (once in block assessment and then in regular assess-ment) and the disallowance of depreciation in regular assessment made on a protective basis would become regular assessment on a regular basis and that, on the other hand, the hon'ble High Court holds that the block assessment subsists, then the disallowance of depreciation in regular assessment would get deleted. 9. While observing so the learned Commissioner of Income-tax (Appeals) confirmed the order of the assessing authority so far as....
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....lternative assessments may also be framed. It is also equally true that while a protective assessment is permissible, it is not open to the income-tax appellate authorities constituted under the Act to make a protective order. The law does not permit assessment of the same income successively in different hands. The tax can only be levied and collected in the hands of the person who has really earned the income and is liable to pay tax thereon." 14. On a careful reading of the above observations, it could be noticed that the assessment of the same income on protective basis was made in the said case in respect of two different persons on the ground that there was doubt as to which of the two persons therein was liable to be assessed and the Tribunal, after considering both the assessment orders, had upheld one of them by cancelling the other. But the same is not in the instant cases here inasmuch as the protective assessment has been made in each case herein in respect of the same disallowance, which was made in the block assessment and in respect of the same assessee. The protective assessment herein is so made on the ground that the correctness of the said block assessm....
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....Courts of Allahabad and Gauhati in first and second of the decisions referred to above, these observations of the hon'ble Supreme Court are also not applicable to the facts of this case. 19. In the fourth of the above decisions relied upon by the learned senior counsel for the appellant-Revenue, viz., N. R. Paper and Board Ltd. v. Deputy CIT [1998] 234 ITR 733 (Guj), the facts narrated on page 734 of the judgment were as under : "There was a search and seizure operation in the case of the asses-sees and the block assessment under Chapter XIV-B of the said Act was made for the block period from April 1, 1985, till January 6, 1996,which included the assessment year 1995-96. In those proceedings, the total income of the assessees for the said period was worked out in accordance with the provisions of section 158BB of the Act and after giving credit for the amount disclosed, the assessment order was made. The assessees' appeals in respect of the said assessment orders passed under Chapter XIV-B of the Act were pending before the Tri-bunal. The Assessing Officer issued notices to the assessees under section 143(2) with a view to completing the assessment for the asse....
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....ar assessments and, both the block assess-ment and regular assessment have been made in respect of the same asses-see. 22. In support of its findings that the same amount of disallowance on depreciation relating to the block period could not be simultaneously assessed in the regular assessments in relation to the same previous years which fell within the block period, the Tribunal has referred to in its impugned orders the provisions of section 158BA of the Act including Explanation (c) to sub-section (2) of section 158BA. The said provisions read as under: "158BA. Assessment of undisclosed income as a result of search.-(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the blo....
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....Revenue. 24. The second substantial question of law pertains to "provision for bad and doubtful debts". The assessee had claimed for the assessment year 1996-97 allowance of a sum of Rs. 85,88,515 as provision for bad and doubtful debts and for the assessment year 1997-98 he had also claimed such allowance to the tune of Rs. 10,36,92,864 which is inclusive of a sum of Rs. 1,17,61,000, which has been "written off" during the relevant pre-vious year. The Assessing Officer allowed this sum of Rs. 1,17,61,000 which had been "written off" and disallowed the claim for Rs. 9,18,21,864 for the assessment year 1997-98 and nothing is mentioned in the assessment order as to the claim of the assessee for Rs. 85,88,515 for the assessment year 1996-97. When the said disallowance was challenged before the Com-missioner of Income-tax (Appeals) in the appeal filed by the assessee, the Commissioner of Income-tax (Appeals) confirmed the same. 25. The concurrent findings of the Assessing Officer and the first appellate authority were challenged by the assessee-company in its appeal before the Tribunal. The Tribunal, while observing in its impugned order that since the assessing aut....
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....er the entire issue afresh after calling for the details required to consider the claim. The assessee shall also furnish such details as may be called by the Assessing Officer. In case the assessee fails to furnish the complete details even after reasonable opportunity claim for provision may be disallowed. However, in such event the Assessing Officer shall allow the claim for the bad debts in any subsequent year where the claim is ascertained and crystallised." 27. As to the opportunity given to the assessee by the Assessing Officer for furnishing the details in respect of its claim on provision for bad and doubtful debts the Commissioner of Income-tax (Appeals) has observed at paragraph 13 on page 20 of his order as under : "The assessee has claimed the amounts debited to the profit and loss account as bad debts written off as well as provision for `doubtful debts and advances' are items eligible for deduction under section 36(1)(vii). These being claim for deduction, the onus is on the asses-see to prove that the claim was allowable under the Income-tax Act. There are certain tests which have to be complied for examining the correctness of the claim. In my op....
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....irmative" and "against the appellant-Revenue". 29. The third and fourth substantial questions of law as framed above per-tain to deletion of disallowance of the claim of the assessee for the assess-ment year 1997-98 to the tune of Rs. 1,10,53,509 and allowance of addi-tional claim of the assessee for Rs. 2,46,04,418 for the same assessment year that was made by the assessee before the Tribunal for the first time (which is the subject-matter of I. T. A. No. 633 of 2004) in respect of the increased liability of the assessee due to exchange fluctuations. The said disallowance was made by the assessing authority on the ground that the same has been "capital in nature" but not "revenue in nature" as con-tended by the assessee and this disallowance had been confirmed by the Commissioner of Income-tax (Appeals). 30. The case of the assessee-company is that in pursuance of the agreement dated December 31, 1994, that was entered into by it with Common Wealth Development Corporation (CDC for short), the assessee availed of from CDC certain amount of foreign currency loan in pounds and, on the restatement/resettlement of the said loan as on March 31, 1997, its value jumped....
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....n I. T. A. No. 633 of 2004 contended that since the very business of the assessee-company has been that of hire purchase, leasing of assets and intercorporate deposits, etc., the said loan in foreign currency was availed of by the assessee for financing the purchase of the assets for the purpose of leasing as part of its business and, therefore, the said amount of increased liability incurred by the assessee as a result of exchange fluctuations was rightly held by the Tribunal as revenue in nature and hence the impugned order so far as it relates to the deletion of dis-allowance of this amount does not call for any interference in this appeal. As to the additional claim of the assessee for Rs. 2,46,04,418 allowed by the Tribunal though the said claim was made by the assessee for the first time before the Tribunal, the learned counsel for the respondent-assessee con-tended that the assessee was not prohibited under law from claiming the said amount as allowance for the first time before the Tribunal and, there-fore, the finding of the Tribunal as to allowance of the said amount cannot be held to be illegal as the same was allowed after considering the material that was available on ....
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....the statement showing the accounting for exchange fluctuation which is found at page 63 of the paper book, the assessee has shown that exchange fluctuation relating to leased assets to the tune of Rs.2,46,04,418 (which was claimed as additional allowance before the Tri-bunal for the first time) was capitalised and a sum of Rs. 1,07,98,149 which has been claimed as deduction has been shown to be the exchange fluc-tuation relating to "stock on hire" debited to the profit and loss account. 36. In this regard, the assessing authority has observed at paragraph 16 of his order that a part of the exchange fluctuations has been capitalised and the balance portion has been debited to the profit and loss account stating that such an exchange fluctuation relates to stock on hire and that although section 10 of the agreement between the assessee-company and the CDC speaks of the manner in which the leasing and hire purchase business of the assessee-company has to be conducted, there is no direct link between the assets on lease or hire and the loan availed of and there are no ownership titles created on the assets in favour of the CDC inasmuch as all the leased assets have been owned....
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....the above concurrent findings of the assessing authority and the Commissioner of Income-tax (Appeals) and the view taken by the Tribunal that section 43A of the Act is not appli-cable to this issue is quite contrary to the very case of the assessee as borne out from the records inasmuch as, one Sri R. Shivakumar, the manager, taxation and accounts section of the assessee-company has stated in his letter dated March 10, 2000 as : "the exchange fluctuations attributed to loan used for acquiring leased assets was added to the cost of asset as per section 43A of the Act. 39. Further, though the Tribunal has stated in its impugned order as : "for these reasons we hold that section 43A is not applicable for the issue before us", it is quite apparent from the impugned order that no reason whatsoever is assigned by the Tribunal supporting this view. Furthermore, the observation of the Tribunal that "funds borrowed were utilised for the purpose of regular finance business carried on by the assessee" is also not supported by any reasons besides being not founded on any facts on record. Besides this, the Tribunal has not recorded its reasoned finding in its impugned order as to how ....