TMI Blog2011 (5) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2007, I.T.A. No.446 of 2007 - - - Dated:- 19-5-2011 - KALYAN JYOTI SENGUPTA, KANCHAN CHAKRABORTY, JJ. K.J. Sengupta, J.:- Both the appellants in the aforesaid two appeals have preferred their respective appeals against the common judgment and order dated 30th November, 2006 passed by the Income Tax Appellate Tribunal, B Bench, Kolkata in IT. (S.S.) A. No.49/Kol/2006. Hence both the matters were argued analogously and this Court decided to dispose of the same by the common judgment. The first mentioned appeal (hereinafter referred to assessee s appeal) was admitted by order dated 7th May, 2007 on the following substantial questions of law:- 1. Since the Income Tax Act, 1961 has been purported to be extended but not yet implemented in the State of Sikkim and the appellant, a company registered under the Sikkim Companies Act, and resident of Sikkim and having its registered office in Sikkim and paying Sikkim Income Tax as per Sikkim Income Laws, is liable to tax under the Income Tax Act, 1961 in respect of income accruing/arising to it in Sikkim? 2. Whether the Tribunal could proceed on the basis of unamended provision of S.158BB of Income Tax Act, 1967, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited Balance Sheets, which were materially different from the original one and filed after the search, without any supporting explanations of the assessee and its auditors reconciling the differences on a simple view that this is a matter of regular assessment? 2. Whether in facts and circumstances of the case Learned Tribunal was justified in law in ignoring the fact that the Original Balance sheet filed along with the Original Return was Unaudited and the Balance Sheet filed along with the Block Return was Audited one and the difference was noticed only after filing the audited Balance Sheet along with Block Return? 3. Whether in the facts and circumstances of the case the order dated November 30, 2006 passed by the Learned Tribunal having been obtained by the Assessee Company is perverse? The fact leading to preferring both the appeals are as follows:- The assessee is a private limited company incorporated under the Companies Act, Sikkim, 1961 on 12th March, 1975. The contention of the assessee is that ever since its incorporation it has been regularly filing returns and as such being assessed to income tax under the provisions of Income Tax Manual, Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh assessment orders. Aggrieved by the said fresh assessment order the appeal was preferred before the learned Tribunal against which the aforesaid two appeals have been preferred. It appears from the fresh order of Assessing Officer it was decided that the assessee is alleged to have failed to disclose the following incomes and following years:- Assessment Year Undisclosed income 1987-88 Rs. 6,95,55,434/- 1988-89 Rs.1,25,65,408/- 1989-90 Rs.3,44,97,206/- 1990-91 Rs.1,30,12,621/- 1991-92 Rs.82,93,834/- 1992-93 Rs.31,43,638/- 1993-94 Rs.36,13,456/- 1994-95 Rs.1,18,58,987/- 1995-96 Rs.46,24,330/- 1996-97 Rs.3,08,13,822/- 1997-98 Rs.1,00,86,034/-. The learned Tribunal after considering the contention and rival contention both on law and fact passed the impugned judgment and order rejecting all the contentions raised by the assessee except the contention that addition of sum of Rs.10,08,265/- being the amount of loss claimed on account of the leased cylinders and amount of Rs.1,00,23,000/- whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year 1996-97 when the return for the assessment year 1997-98 was not even due (due date was 30th November 1997). No claim for the loss was made before search and the said loss was reflected in the accounts for the year 1996-97 filed with the block return and disallowed in the block assessment year dated November 30, 1998 by holding that the purchase and leasing was mere paper transactions. The said notice for block assessment was issued pursuant to the letter of intimation of the Assessing Officer at Chennai who in its turn found that there is no existence of lease in fact and it was a mere paper transaction. Ultimately it was found in the arbitration proceeding between the assessee and the said Feena (lessee), that the assessee purchased the cylinders which were delivered to the lessee under lease. The arbitration award was put into execution and the Hon ble Madras High Court passed various orders in such execution proceedings. Thus by the award followed by the orders in execution by the Hon ble Madras High Court it has clearly been established the fact that there has been a lease and the assessee owns the said cylinders and thereby the findings of the Assessing Officer who c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the merit of the addition unrelated to the search materials on the basis that the proceedings were required to be confined to the search materials and that search material did not reveal any undisclosed income on this ground alone and judgment and order of the learned Tribunal is liable to be set aside so far as it relates to the addition of Rs.18,10,505/- is concerned. He contends even if the Income Tax Act, 1961 was brought into force in Sikkim it was so done with effect from the assessment year 1990-91, under Section 26 of the Finance Act 1989. As such, the assessment years 1986-87, 1989-90 and addition of Rs.11,60,18,048/- made for the said year could not have been included in the block assessment. He submits that the levy of surcharge is not applicable if it is held in favour of the assessee on the aforesaid point. If 1961 Act is applicable and the levy of surcharge is not imposable as applicability of the decisions of the Supreme Court reported in 297 ITR 322 and 310 ITR 105 have been referred by decision of the Supreme Court reported in 314 ITR 338 (SC) to the Larger Bench. Learned Counsel for the Revenue while contesting the appeal filed by the assessee Himal an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turns were unaudited and the balancesheet filed along with the block return were audited ones and two differed from each other. The learned Tribunal therefore was wrong in deleting the sum of Rs.1,31,47,355/- and Rs.13,64,727/-. We have considered the contention and rival contention of the parties. The interesting point in this appeal has arisen as it is contended that Income Tax Act, 1961 is not applicable to the State of Sikkim until 1989. Therefore, the matter has to be looked into from this angle also. We shall discuss this issue at last as we feel that it is possible for this Court to deal with the matter even applying the provisions of 1961 Act (assuming it has application in the State of Sikkim). It is an admitted position that block assessment proceeding has been initiated under Section 158BD of the said Act by the Assessing Officer on receipt of communication made by the counter part of lessee, Feena at Chennai. Indisputably assessment for the block period has been initiated pursuant to the said notice for the assessment years 1987-88, till 1997-98. It is contended by the learned counsel for the appellant in assessee s appeal that the various legal issues were urged be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of this Act or (any expense deduction or allowance claimed under this Act which is found to be false. ) Therefore, in order to invoke provision of Section 158BD pre-condition of satisfaction of undisclosed income of the Assessing Officer who conducted the search and seizure of some other assessee has to be fulfilled. The Chennai Assessing Officer by his communication has mentioned that the appellantassessee might have claimed for depreciation in respect of the gas cylinders which were alleged to have been leased out to Feena and such possible claim of depreciation was an undisclosed income and it was noted that there is no existence of the gas cylinders said to have been leased out to Feena. So claim of depreciation would be unfounded. Actually in the said letter it was never mentioned that the said undisclosed income is false. We find some force in the argument of Mr. Khaitan learned Senior Advocate that claim of depreciation going by definition of undisclosed income in Section 158B(b) of the Act cannot be said to be allowable or deductable expense as it is really written down value of the assets hence it cannot be said to be an income. It would appear fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Hence, we are of the view that both factually and legally initiation of the Block Assessment under Section 158BD is legally incompetent. The learned Tribunal however, failed to take note or discuss the aforesaid point or legal issues. We, therefore, set aside the judgment and order of the Assessing Officer as well as the learned Tribunal holding that the said block assessment done by the Assessing Officer is without jurisdiction. We are informed that the Assessing Officer pursuant to the remand order has already deleted by an order dated 31st May, 2010 the addition/disallowance of Rs.10,08,265/- and Rs.1,00,23,000/-. As far as the issue of surcharge is concerned this levy of surcharge does not arise at the moment as this issue is sent to the Larger Bench of the Supreme Court by Division Bench decision of Supreme Court reported in 314 ITR 338 (SC). Moreover when we have found that the block assessment proceeding is without jurisdiction question of levy of surcharge in this connection does not and cannot arise. As far as the applicability of the Income Tax Act, 1961 to the State of Sikkim is concerned we are of the view when the judgment of the learned Single Judge of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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