Income Tax Appellate Tribunal - Mumbai
Jt. Cit Cir. , vs Department Of Income Tax on 22 January, 1998
1 M.A.No.704/M/2010
D.C. Silk Mills Private Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
"F" BENCH, MUMBAI.
Before Shri Pramod Kumar, Accountant Member
and R.S. Padvekar, Judicial Member
M.A.No.704/M/2010
(arising out of I.T.(ss)A No.714/ Mum/2002)
Block Period: 1.4.1987 to 22.1.1998
DY.CIT 8(1), ..... Appellant
Room No.210, 2nd floor, Aayakar Bhavan,
M.K. Road, Mumbai-20.
Vs
D.C. Silk Mills Private Limited ,.... Respondent
5, Chunawala Industrial Estate,
Kondivitta, Andheri Kurla Road,
Andheri(East),
Mumbai-59
Appearances:
Jitendra Yadav, for the appellant
Sashi Tulsiyan, for the respondent
ORDER
1. By way of this miscellaneous application, the Assessing Officer seeks modification of our order dated 22nd January, 1998 by -
a) Restoring the undisclosed income of Rs.21,66,452 on account of foreign travel expenses, offered by the assessee for tax in the block return of income.
b) Disallowing unabsorbed losses, as per Chapter VI and unabsorbed depreciation as per Section 32(2) of the Income tax Act, claimed by the assessee in violation of the provisions of Explanation (a) of section 158BB(1) of the I.T.Act.
2. As far as Ground (b) above is concerned, learned Departmental Representative does not point out any findings in our order to the effect that the 2 M.A.No.704/M/2010 D.C. Silk Mills Private Limited unabsorbed losses and unabsorbed depreciation under section 32(2) of the Income tax Act were to be allowed in the case of the assessee. We, therefore, unable to see any merits in the mistake so pointed out to us. As a matter of fact, there is no discussion of any such direction in our order and there is no direction by the Tribunal to allow such unabsorbed losses and unabsorbed depreciation as has been referred in the miscellaneous application. As there is no finding by the Tribunal on this issue, there is clearly no occasion to rectify this alleged mistake which have been pointed out.
3. Coming back to point No.(a) above, the relevant material facts are like this. During the course of block assessment proceedings, the disallowance of amount of Rs.21,66,652 was made by the assessee, on account of foreign traveling expenses, on the basis of statement recorded during the course of search operations. While the assessee had himself offered the said expenses as undisclosed income, a grievance was subsequently raised that the additions, which have not been made on the basis of seized material, cannot be made during block assessment proceedings. When the matter finally traveled before us, following the esteemed views of the co-ordinate benches in the case of Siddarth Kumar bagla vs DCIT (IT(ss)A No.76/Kol/2003; order dated 2nd April, 2004) as also Hon'ble Jurisdictional High Court in the case of CIT vs Dr MKE Menon (248 ITR 310), we upheld the contentions of the assessee and directed the AO to delete the addition as undisclosed income and left the matter open for the same being considered in the course of regular assessment proceedings. Not satisfied with the stand so taken by the Tribunal, the Assessing Officer carried the matter in appeal before the Hon'ble Bombay High Court and Their Lordships upheld our action by observing as follows:
"The basic question which arises in the present appeal pertains to a disallowance of an amount of Rs.21.66 lakhs by the assessing officer, which was claimed by the assessee on account of foreign traveling expenses. The aforesaid amount was disclosed in the books of account of the assessee in the course of regular assessment for assessment years 1995-96, 1996-97 and 1997-98. Based on a search, an addition was sought to be made by the assessing officer during the course of a block assessment. It appears that a Director of the assessee had made a statement during the course of search that the amount has been incurred towards traveling expenses of his spouse but this statement was 3 M.A.No.704/M/2010 D.C. Silk Mills Private Limited retracted. The Tribunal has held that admittedly no evidence was found as a result of the search to indicate the inadmissibility of the traveling expenses. The statement which was made by the Director, as already noted, was retracted. Hence, while directing deletion of the disallowance of Rs.21.66 lakhs, the Tribunal clarified that its decision should not be construed to mean that the disallowance of foreign traveling expenses cannot be made at all in the regular assessment of income as well on the basis of the statement recorded by the director. The Tribunal was concerned only about the connotation of undisclosed income under the scheme of block assessment. In view of the finding of the Tribunal that there was no evidence found during the course of search to indicate that the expenses were inadmissible and having regard to the clarification of the Tribunal noted earlier, we do not find any substantial question of law would arise in this appeal. The appeal is accordingly dismissed. There shall be no order as to cost."
4 The Assessing Officer is now back before us contending that the statement was made by the Director on the basis of loose papers found during the course of search operations and, therefore, the same should have been held to be taxable as undisclosed income. The Assessing Officer further contends that since the assessee himself had offered this income for tax in its Block return of income, the directions of the Tribunal have resulted in assessment of income at Rs.12,000 as against the income returned by the assessment in the Block Return at Rs.7,48,931. In other words, the contention of the AO is that assessed income cannot be lower than the returned income.
5. We have heard the rival contentions, perused the material on record and duly considered the factual matrix of the case as also the legal position.
6. As regards the question as to whether the assessed income can be lower than the returned income, it is now well settled law that there is no such bar under the scheme of the Act. In the case of Gujarat Gas Co Ltd Vs JCIT (245 ITR 84), Hon'ble Gujarat High Court has held that the Assessing Officer cannot be influenced by the direction of the Board to the effect that the assessed income cannot be lower than the returned income. While doing so, Their Lordships took note of the judgement of the Hon'ble Hon'ble Andhra Pradesh High Court in the case of CIT Vs Bakelite Hylm Ltd (237 ITR 392), wherein, similar view has been taken by the Hon'ble A.P. High 4 M.A.No.704/M/2010 D.C. Silk Mills Private Limited Court as well. In any event, neither the issue was agitated by the department at any stage nor is it an issue which is, even according to Revenue, not capable of more than one views being taken. Therefore, the question as to whether the assessed income can not be lower than the returned income, even in the case of block assessment, cannot influence outcome of appeal at the stage of the rectification proceedings. As regards the contentions that the disclosure by the Director has been made on the basis of seized material, the Tribunal has clearly dealt with the same and observed that a statement being obtained from the Director and evidence being found in the course of search proceedings are two distinct things and Hon'ble Bombay High Court has also taken note of this aspect of the matter. In any event, all that the Tribunal was really concerned was whether the disallowance in respect of the foreign traveling expenses could be made in the course of block assessment or not and it was specifically clarified, as noted by Hon'ble Bombay High Court also in their judgment dated 3rd February, 2010, that "its decision should not be construed to mean that the disallowance of foreign traveling expenses cannot be made at all in the regular assessment of income as well on the basis of the statement recorded by the director" and that "the Tribunal was concerned only about the connotation of undisclosed income under the scheme of block assessment". There is no dispute that no material was found during the course of search to indicate that the expenses claimed by the assessee were bogus expenses or unrelated to the business of the assessee. There is also no dispute that all these expenses were made by banking channels and duly reflected in the books of account. In fact during the course of hearing of this miscellaneous application, we requested the learned Departmental Representative to inspect our files and points out any evidence of any seized material indicating inadmissibility of deduction in respect of foreign traveling expenses. While he was unable to find out any such material, he referred to the loose papers found by the search team, in the light of which, one of the Directors made a statement admitting that the foreign traveling expenses were incurred for non business purposes. However, at the cost of repetition, we must point out that a statement recorded by the Director is qualitatively different in connotation and scope than material found during the search operation. When no material was found during the search, even though there is an admission by the Director to the 5 M.A.No.704/M/2010 D.C. Silk Mills Private Limited effect that the foreign traveling expenses were not for the business purposes, in the light of settled legal position, such disallowance cannot be made in the block assessment proceedings. We may also add that it was in view of such difficulties and experiences in the block assessment proceedings that the very scheme of block assessment was altered and section 153A was introduced so as to ensure that assessee do not get undue benefit by this line of demarcation between what can brought to as undisclosed income and what can not be brought to tax as undisclosed income. The assessment was made in the pre 153A legal position in which line of demarcation between undisclosed income and income other than undisclosed income, had a crucial role to play at that point of time. All that we had held was that disallowance in question could not be made as 'undisclosed income' during block assessment proceedings, and the issue of such disallowance being made in the regular assessment proceedings was left open.
7. In view of the above discussion and bearing in mind the entirety of the case, we are unable to see any legal sustainable merits in the rectification petition filed by the revenue. In any event, the Hon'ble Bombay High Court has already approved the stand so taken by the Tribunal and declined to admit the appeal against the same. We have also perused the appeal filed by the Assessing Officer before Hon'ble Bombay High Court and we find that the grievance against deletion of Rs.22.66 lakhs on accounts foreign traveling expenses was comprehensively covered in the appeal filed before Their Lordships and once Their Lordships declined to interfere, it would not be appropriate for us to tinker with the order passed by us. We, therefore, reject this grievance also.
8. In the result, miscellaneous application is dismissed.
Pronounced in the open court on 22nd March, 2011
Sd/- Sd/-
(R.S.Padvekar) (Pramod Kumar)
Judicial Member (Accountant Member)
Mumbai, Dated 22nd March, 2011
Parida
6 M.A.No.704/M/2010
D.C. Silk Mills Private Limited
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals)VIII, Mumbai
4. Commissioner of Income Tax, MC-VIII , Mumbai
5. Departmental Representative, Bench 'F, Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI