TaxTMI 
TaxTMI 
2006 (11) TMI 115
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act. The question, therefore, to be considered in all these petitions is, whether the CIT (Appeals) has in fact issued such directions and if so, whether such directions are valid ? 5. To appreciate the dispute, we may note few facts. The petitioner (hereinafter referred to as "the assessee") is an investment company. The return of income for assessment year 1989-1990 (writ petition No.2465 of 2006) was filed by the assessee on 31st December, 1991 declaring income of Rs.19,56,261/-. In the return of income, the assessee had claimed depreciation on depreciable assets under Section 32 of the Act. 6. On 30th March, 1995 an assessment order under Section 143(3) of the Act was passed by the Assessing Officer for assessment year 1989-1990 determining total income at Rs.21,71,830/-. By the said assessment order, depreciation as claimed by the assessee was allowed. The appeal filed by the assessee against the said assessment order was disposed of by the CIT (Appeals) on 29th August, 1996. Similarly, in all other group petitions the depreciation claimed by the assessee have been allowed in the respective assessment orders passed under Section 143(3) of the Act. 7. For assessment y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee and, therefore, the depreciation allowed thereon amounting to Rs.10,66,429/- was not allowable. Accordingly, by disallowing the bank interest and depreciation, the undisclosed income of the assessee for the block period was computed at Rs.2,50,31,927/-. 11. On an appeal filed by the assessee, the CIT (Appeals) by his order dated 24th December, 2004 set aside the block assessment order by holding that the undisclosed income computed by the Assessing Officer cannot be sustained inter alia on the ground that there was no evidence or any material found during the search proceedings on the basis of which the undisclosed income could be assessed under Section 158BC of the Act. The CIT (Appeals) further held that even the statements of Mr. Stany Saldanha, Director of the assessee company do not contain any admission regarding the undisclosed income. Accordingly, the CIT (Appeals) held that the undisclosed income computed in the block assessment order by making disallowances of bank interest and depreciation cannot be sustained. The CIT (Appeals) however observed that the Assessing Officer is free to look into and consider the said disallowances under Section 148 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmining undisclosed income does not have any leg to stand. The CIT(A) further in the order, quoted that "the Assessing Officer is free to look into and consider these disallowances u/s.148 of the I T Act, in relevant assessment years in terms of Section 150(1) read with Explanation 2 of Section 153 in respect of deletion of both amounts made in this order." In the light of the above and reckoning the interest of the revenue and following the guidance / directions issued by the CIT(A) in his order, the assessments for the relevant assessment years involved in the block period are reopened under section.148 of the Act in terms of Section 150(1) read with Explanation 2 of Section 156 of the Act. Issue notices under section 148 of the Act." 14. The assessee objected to the reopening of the assessments by addressing a letter dated 15th June, 2006, through their Chartered Accountants. By an order dated 21st August, 2006, the said objections have been rejected. Hence, these petitions have been filed to challenge the validity of the notices all dated 30th March, 2006 issued under Section 148 of the Act and also the order dated 21st August, 2006 passed by the ACIT rejecting the objections....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at the same time contend that the alleged income which has already been assessed in the block assessment has escaped assessment. The submission is that it is not permissible for the same income to be assessed twice, i.e. once in the block assessment and again in the regular assessment. 16. Relying upon a decision of the Apex Court in the case of ITO v. Murlidhar Bhagwandas reported in [1964] 52 ITR 335, Mr. Mistry submitted that the expression "finding" used in Section 150(1) of the Act would mean a finding which is necessary for the disposal of an appeal and giving relief in respect of the assessment of the year in question. Similarly, the expression "direction" means a direction which the appellate or the revisional authority is empowered to give under the Section mentioned therein. In the present case, the CIT (Appeals) has neither given any finding that the income has escaped assessment nor given any direction to the effect that the interest and depreciation has to be disallowed by initiating reassessment proceedings. 17. Mr. Mistry submitted that the observations made by CIT (Appeals) to the effect that the I.T.O. is free to look into and consider the disallowances un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obtained by the assessee from Vysya Bank has been used for non business purposes. The loan amounts were kept as share application money in the front companies of GMR Vasavi Group in violation of the terms of loan agreement. Since the interest paid to Vysya Bank did not relate to the business of the assessee, the said interest paid to the bank could not be allowed as business expenditure. 21. Mr. Chatterjee further submitted that during the course of search it was seen that the assets on which depreciation has been allowed were not found in the premises. Some of the assets like refrigerator, air-conditioner etc. which were purchased by the assessee were not used for business purposes but the same were used by the Directors of the Company. If the assets were not in existence or were not used for business purposes, then, depreciation could not be allowed on those assets. Since these facts were suppressed and were noticed during the course of search, the CIT (Appeals) by his order dated 24th December, 2004 has directed the ITO to initiate proceedings under Section 148 of the Act. 22. Relying upon the decision of the Apex Court in the case of McDowell & Co. v. CTO reported in [1985] 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct (as substituted by Finance Act, 2001) provides that no notice under Section 148 shall be issued after the expiry of six years from the end of the relevant assessment years in cases where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs.1 lakh or more. In the present case, the assessments for AY 1989-1990 to AY 1999-2000 are sought to be reopened by issuing notices on 30th March, 2006 which is beyond six years (except for AY 1999-2000) from the end of the relevant assessment year. Thus, the notices issued for all the assessment years (except for AY 1999-2000) are beyond the period of limitation prescribed under Section 149 of the Act and hence they are time-barred. 27. To get over this difficulty, it is contended by the revenue that in the present case the limitation prescribed under Section 149 of the Act has no application because, the impugned notices have been issued to give effect to the findings and directions given by the CIT (Appeals) on 24th December, 2004 and, therefore, the impugned notices are saved from limitation in view of Section 150 read with Explanation 2 to Section 153. Section 150 of the Act provides that notwi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ikram A Doshi and [2001] 247 ITR 448 in CIT v. Vinod Danachand Ghodavant. Disallowance of interest in respect of which regular entries are made in books of accounts and no evidence is found there against during search on 17.9.98 and entries in respect of depreciation being part of regular entry to compute total income in its regular return of income and no material hearing been found during search dt.17.9.98 to deny such a claim, no undisclosed income can be determined u/s 158BC of the IT Act. The asstt. u/s.158BC dt.29-9-2000 has been finalized on the basis of statements recorded of Mr.Stany Saldanha on 22.10.98. No evidence in respect of disallowance was found during the search on 17.9.98. Thus, it cannot be said that any material was found on 22.10.98 relating to any evidence found on 17.9.98. Even the statements recorded on 22.10.98 in form of preliminary or final statements do not show any admission by Mr.Stany Saldanha which can be used as a material relatable to any evidence found on 17.9.98 as none was found on that date, i.e. the day of search (17.9.98) on the Appellant. Thus, asstt. u/s.158BC r.w.sec. 158BB in determining undisclosed income does not have any l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Apex Court to mean a direction which the appellate or revisional authority as the case may be, is empowered to give under the Sections mentioned therein. In the present case, the CIT (Appeals) has neither given a finding to the effect that the income chargeable to tax has escaped assessment nor given any direction to the ITO to initiate reassessment proceedings for the block period by issuing notices under Section 148 of the Act. The clear finding recorded by the CIT (Appeals) is that there is no evidence or any material found during the search proceedings on the basis of which undisclosed income can be computed under Section 158BC of the Act. The CIT (Appeals) has recorded a finding (see page 141 of the petition) that even the statements recorded in the form of preliminary or final statements do not show any admission by Mr. Stany Saldanha (director of the assessee) which can be used as a material relatable to any evidence found on 17th September, 1998 as none was found on that date. It is further held (see page 142 of the petition) that there is nothing in the statement expressing any doubt for non genuineness of the loan transaction as also disallowance of depreciation on f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ITO to take or not to take action as he deems fit and such an observation cannot be said to be a 'direction' given by the CIT (Appeals) as contemplated under Section 150 of the Act. 34. The decisions of this Court in the case of CIT v. Vikram A. Doshi [2002] 256 ITR 129, CIT v. Ghodawat Pan Masala Products Pvt. Ltd. [2001] 250 ITR 570 were relied upon by the counsel for the revenue in support of his contention that the disallowances in question were liable to be made in regular assessment and not in the block assessment. In both these cases neither the scope of reassessment proceedings nor the powers of CIT (Appeals) to direct the ITO to initiate reassessment proceedings was an issue. In any event, once it is held that the CIT (Appeals) has not given any finding or direction for reopening the assessments, the extended period of limitation contained in Section 150 of the Act is not available to the revenue. Therefore, these two decisions do not support the case of the revenue. As stated earlier, the findings recorded by the CIT (Appeals) may be erroneous, but till it is reversed, it is not open to the revenue to contend that the CIT (Appeals) has given a finding that the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 2 to Section 153 of the Act would not be available to the Revenue. 36. It was contended on behalf of the revenue that if the reassessment proceedings are allowed to be continued during the pendency of the appeal filed by the revenue before the ITAT against the order of CIT (Appeals), no prejudice would be caused to the assessee. This argument is wholly misconceived. Validity of the impugned notices cannot be decided on the basis of the prejudice that may or may not be caused to the assessee. Whether any prejudice is caused or not, if the notices are without jurisdiction, they are liable to be quashed and set aside. 37. As stated earlier, validity of the order passed by CIT (Appeals) are not questioned in these petitions and, therefore, we are not expressing any opinion on merits regarding the allowability or disallowability of bank interest and depreciation. In these writ petitions, we are only concerned with the issue as to whether the impugned notices have been issued pursuant to the directions of the CIT (Appeals). Once we hold that no directions have been given by the CIT (Appeals) for reopening the assessments, the benefit of Section 150 is not available to the re....