Income Tax Appellate Tribunal - Hyderabad
Srinivasa Resorts Ltd. vs Asstt. Cit on 29 November, 2002
Equivalent citations: (2004)86TTJ(HYD)797
ORDER
M.Y.R. Prasad, A.M. This is an appeal filed by the assessee. It is directed against the block assessment order, passed by Asstt, CIT, Circle 4(1), Hyderabad, dated 24-4-1998. The block period of assessment was from 1-4-1985 to 6-3-1996, spanning over assessment years 1986-87 to 1996-97.
2. In the present appeal, the assessee has raised the following ground :
"The assessing officer erred on facts and in law in not allowing deduction for interest paid on borrowed funds against the interest income assessed under the head income from "other sources" under section 57(iii) of Income Tax Act. "
Subsequently, the assessee sought to raise the following additional grounds :
1. That on the facts and in the circumstances of the case, the order of the assessing officer allegedly passed under section 158BD read with section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act) is without jurisdiction, beyond limitation, bad in law and- void ab initio.
2. That the assessing officer erred on facts and in law in computing the block assessment de hors the materials and evidence found as a result of search under section 132 of the Act.
3. That the assessing officer erred on facts and in law in assessing the interest income amounting to Rs. 47,65,712 as 'undisclosed income' of the appellant for the 'block period' under Chapter XIV-B of the Act."
It appears that the assessee has sought to raise certain other additional grounds on an earlier occasion, but they were not even referred to in the course of hearing. So, we are not dealing with them.
3. The learned counsel for the assessee argued that the additional grounds, extracted above, do not require any investigation into fresh facts, and as such, they deserve to be admitted in the light of the following decisions .-
(a) National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC)
(b) Jute Corpn. of India v. CIT (1991) 187 ITR 688 (SC)
(c) National News Print & Paper Mills Ltd. v. CIT (1997) 223 ITR 688 (MP)
(d) CIT v. Mohd. Ayyub & Sons Agency (1992) 197 ITR 637 (All)
(e) CIT v. Ashok Leyland Ltd. (2002) 253 ITR 425 (Mad)
(f) Orissa Cement Ltd. v. CIT (2001) 250 ITR 856 (Del)
(g) CIT v. Cochin Refineries Ltd. (1996) 220 ITR 398 (Ker) We agree with the learned counsel for the assessee, and accordingly admit the above three additional grounds.
4. The assessee- company runs a hotel known as 'Kakatiya Sheraton Towers'. It was under construction upto 6-3-1996. Commercial operations started on 12-4-1996, viz., after the block period of assessment mentioned above. During the period of construction, the assessee deposited its surplus funds in various avenues like Bank deposits, and derived interest income as under :
Financial year Amount (Rs.) 1989-90 17,358 1990-91 3,02,466 1991-92 2,18,657 1992-93 69,316 1994-95 3,08,767 1995-96 40,07,942 49,24,506 During the hearing, it was explained by the learned counsel for the assessee that in the accounts of the assessee- company, the above income was netted against the project cost in the light of the decision of the A.P. High Court in the case of CIT v. Nagarjuna Steels Ltd. (1988) 171 ITR 663 (AP). In the returns of income filed by it 'for the assessment years 1991-92 to 1994-95, the assessee did not show any income, as according to it, the interest income derived by it was not taxable, as it went only to reduce the project cost.
5. While the matter stood thus, a search action was undertaken by the department on 6-3-1996, on a concern called M/s Cosmos Finance Enterprises (sic) found during the search action on that concern, a notice under section 158BD was issued to the assessee. The reasons recorded by the assessing officer for issuing the said notice under section 158BD to the assessee, as per the order-sheet entry dated 13-12-1996, on the file of the assessing officer, are as under :
"13-12-1996 : Please see the report of ADIT, Unit-II(3), Hyderabad
1. F. No. SR/95-96 dated 5-11-1996 and (ii) reported dated 23-7-1996.
During the source of search & seizure operations at the business premises of M/s Cosmos Finance Enterprises on 6-3-1996 some documents relating to M/s Srinivasa Resorts Ltd. were also found :
(a) A bundle of money receipts showing receipt of cash from different investors marked "share application money" in M/s Srinivasa Resorts Ltd. ;
(b) A bundle of loose sheets showing miscellaneous notings relating to M/s Srinivasa Resorts Ltd.
In the report dated 5-11-1996, it was mentioned that sworn statements of Sri Purnachander Rao and Sri G. Sivakumar Reddy were recorded and that the revenue stamps were affixed on the money receipts on the dates when the cash was received from different persons, whereas as per the report of the Nasik Printing Press, the revenue stamps were affixed on those documents were printed the issued for circulation subsequent to the issue of the money receipts. The ADIT in his report dated 23-7-1996, encosing a copy of the survey report dated 6-3-1996, has suggested that a notice under section 158BD may be issued. Secondly, M/s. Srinivasa Resorts Ltd. details of assessment year-wise cost of construction of the Hotel Grand Kakatiya have already been called for.
Issue notice under section 158BD of the Income Tax Act, 1961.
Sd/ Assistant Commissioner, Circle-4(1), Hyderabad..."
In pursuance of the above notice under section 158BD, the block assessment has been framed on the assessee bringing to tax the above mentioned interest income derived by the assessee of Rs. 49,24,506 during the financial years 1989-90 to 1992-93, 1994-95 and 1995-96.
6. There is no dispute about the quantum of the above interest income derived by the assessee or about the respective years in which the said incomes were derived. The only dispute is whether the said interest incomes accruing to the assessee in those years can be brought to tax in the block assessment under appeals.
7. The learned counsel for the assessee has filed in the paper book before us, relevant extracts of the audited financial statements relating to the treatment given to the interest income in question, for the financial years ending on 31-3-1990 to 31-3-1996. In Sch. 'H', forming part of the Balance Sheet as at 31-3-1991, appearing at p. 62 of the paper book, we find the following note against Sl. No. 6 "Schedule 'H' 1 to 5 .........
6. Interest on term loan represents the net debit balance after crediting the interest accrued on short-term deposit with Scheduled Bank.
7 ..............."
Similarly, in Sch. F forming part of the balance sheet as at 31-3-1991, appearing on p. 61 of the paper book, under 'Current Assets, Loans and Advances', we find the following item Schedule 'F' As at 31-3-1991 As at 31-3-1990 (Rs.) (Rs.) Current Assets, Loans & Advances :
Short-term deposit with Bank of Baroda (Including interest accrued thereon) 2,03,02,466.00
---
Total 2,19,59,769.76 1,30,997,00"
From the above, it is evident that the accrued interest has been debited to the Bank deposit account and credited to the interest paid account, thus reducing the debit of interest paid account and it appears that the netted interest paid was capitalised under 'project cost'. The amount of interest actually accrued is not reflected in the final accounts, but there is no dispute before us about the quantum of interest that had accrued and had been brought to tax in the block assessment in the respective years. Neither of the parties before us could tell us, from where exactly the assessing officer took his figures, but we are told that there is no dispute about the figures adopted. So, the only question that remains for adjudication before us is whether the above-mentioned interest incomes aggregating to Rs. 49,24,506 was correctly brought to tax in the impugned block assessment.
8. The main plank of the argument advanced by the learned counsel for the assessee before us is that the special procedure prescribed in Chapter XIV-B of the Income Tax Act is intended to provide a mode of assessment for undisclosed income which has been detected as a result of search, and that it is not intended to be a substitute for regular assessment. The scope of procedure under Chapter XIV-B is limited to assessment of undisclosed income detected on the basis of material unearthed during the search. When there is any material unearthed during the search, warranting an inference of undisclosed income, block assessment can be made on the assessee or in the specified circumstances on a third party, as in the present case. But, when there is no material unearthed during the search, no inference of undisclosed income can be drawn and no block assessment can be made. For this proposition, the assessee has relied on a plethora of decisions, out of which, we may mention the following :
(a) CIT v. Vikram A. Doshi & Anr. (2002) 256 ITR 129 (Bom)
(b) CIT v. Shamlal Balram Gurbani (2001) 249 ITR 501 (Bom)
(c) Bhagwati Prasad Kedia v. CIT (2001) 248 ITR 562 (Cal)
(d) CIT v. GOM Industries Ltd. (2002) 123 Taxman 978 UP)
(e) CIT v. Rajendra Prasad Gupta (2001) 248 ITR 350 (Raj)
(f) CIT v. Ravi Kant Jain (2001) 250 ITR 141 (Del) It is further pleaded that in the present case, the assessee- company had filed the returns for the assessment years 1991-92 to 1994-96 before the date of search, and the assessee has duly enclosed the audited final accounts along with the returns. Hence, the department was quite aware of the treatment given by the assessee to its interest income even before the search, and no new material relating to receipt of the interest income was located during the search action on the premises of M/s Cosmos Enterprises. So, it is pleaded that there is no justification at all for initiating the proceedings under section 158BD against the assessee. At any rate; even if the proceedings under section 158BD were justifiably initiated, it is pleaded that the proceedings should have been dropped, instead of bringing to tax the amount of Rs. 49,24,506, as done by the assessing officer, as it does not constitute by any stretch of imagination, undisclosed income of the assessee.
9. The learned Departmental Representative, on the other hand, strongly relied on the order of the assessing officer, and defended the same.
10. We are of the view that the assessee deserves to succeed. We find no reference in the block assessment order to the material found during the search on M/s. Cosmos Enterprises, which has any bearing on the question of undisclosed income in the hands of the assessee. The department was quite aware of the interest income derived by the assessee in the respective years, and at any rate, no material relating to the said income was detected in the search action on M/s Cosmos Enterprises. We find from the order-sheet entry extracted in para 5 above, that notice under section 158BD was issued giving different reasons. There was no discussion of those reasons in the impugned order of assessment. The case-law cited by the learned counsel for the assessee supported the proposition that no block assessment under Chapter XIV-B can be made unless there is some material found during the search, which can lead to an inference of undisclosed income. In this view of the matter, we find that there is no justification at all for bringing to tax the amount of Rs. 49,24,506 in the impugned block assessment. We find that the assessing officer has relied heavily on the decision of the apex court in the case of Tuticorin Alkali & Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) in the impugned assessment for bringing to tax the interest incomes. This issue has to be considered only in a regular assessment, but not in a block assessment. In this view of the matter, we find no justification for the impugned block assessment, which is accordingly cancelled,
11. Before parting, we may mention that the department is free to take whatsoever action is deemed fit or valid in the context of regular assessments made for the respective years.
12. In the result, assessee's appeal is allowed and the impugned block assessment is cancelled.