TMI Blog2000 (8) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. Apart from these firms, there were 42 AOPs, 23 partnership firms, 3 HUFs, 3 family trusts and 15 individuals. We are mainly concerned with those cases of the assessees consisting of AOPs and partnerships which are owning trucks and running transport businesses. These entities had been maintaining regular accounts right from the beginning, though such accounts had remained incomplete and unadjusted. All the books of accounts maintained by the AOPs and firms were seized during the course of search along with all the primary data, such as vouchers for expenses, truck purchase registers, bank details, etc. The Department also found an upto-date truck history register which was maintained upto-date giving details of every truck purchased, sold and transferred. 2. Some mention may be made regarding the method of truck transport business carried out by these different entities. There are two main concerns, namely, M/s Bafna Auto Carriers and M/s Bafna Motor Transport Co., Pune, which undertook contracts from various firms and industrial companies for transporting their products like scooters, cars, three-wheelers as well as goods. M/s Bafna Auto Carriers is mainly engaged in transp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e possession of all facts and knowledge of his case, the higher income as mentioned below to be substituted in place of the income computed. So stating, he has adopted the income of Rs. 6,54,840 for asst. yr. 1990-91 though as per his computation income was Rs. 6,10,274. Thus, the AO, on the one hand, states that he is ignoring the returns which were filed beyond the time and on the other hand, he did take cognisance of the returns where the returned income was more. 7. Though the ground states that the assessment order passed by the AO was null and void, Shri K.A. Sathe, the learned counsel for assessee, at the time of hearing, did not press this point by stating that the assessment order was not null and void, but he emphasized that the AO should have considered the returns of income for all the years and should have computed the income as per the returns. He submitted that the block return was filed before the finalisation of order and hence, it cannot be said to be invalid. In this behalf, he invited our attention to s. 158BC(a)(1). Shri Sathe submitted that the impression is gathered from the reading of the block assessment order under appeal that the assessee had not co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As the matters turned out, the actual work of granting xerox copies started only in May, 1997, and thereafter, it was being carried on upto July, 1997. Even after taking the xerox copies, the work of finalisation of accounts was very much necessary because in each case the accounts were unadjusted and not closed. P L a/c and balance sheet of each assessee was to be prepared. This also took some time because the assessment also was taken up by the learned AO in the course of which he started asking for various details. These also were simultaneously required to be attended to. The returns, therefore, could not be filed and the assessees by their letters dt. 18th Aug., 1997 and 22nd Aug., 1997 requested for extending the time for filing the returns. The extension of time, however, could not be granted as there is no provision in Chapter XIV-B of the IT Act. The learned counsel submitted that in large number of cases, the returns could not be filed till the finalisation of draft assessment order. Draft orders were prepared on 9th Sept., 1997, and were served on the assessees on 15th Sept., 1997. It was at that time that in most of the cases, the assessees could file their returns of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn has in fact been filed before the assessment is completed and is admittedly available for taking congnizance by the AO such returns cannot be branded as invalid. The AO is, therefore, directed to take cognizance of the entire return instead of taking cognizance of only part of the return. This ground, accordingly, succeeds in part. Ground No. 2 10. The ground reads as under: "On facts and circumstances prevailing in the case and as per provisions of law, it be held that the undisclosed income should have been assessed at Rs. 21,78,530 as is admitted by the appellant as against Rs. 50,06,797 computed by the AO. The appellant be granted just and proper relief in this respect." This is general ground challenging various additions made to the undisclosed income returned. This ground has to be read along with other grounds. So, this ground does not call for any specific comments. Ground No. 3 11. Ground No. 3 reads as under: "On facts and circumstances prevailing in the case and as per provisions of law it be held that AO ought to have granted depreciation on value of trucks declared by the appellant. It may further be held that not accepting the value of truck declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly assessed to tax, but here the assessee was not filing returns at all and ultimately, the Supreme Court found that WDV may also be the actual cost of the assets of the assessee under s. 43(6)(b) if no depreciation was computed, actually allowed or carried for no fault of the assessee. In the instant case, according to the AO, it is the assessee s fault that he had not filed the returns and, therefore, no occasion to allow depreciation had arisen. Thereafter, the learned AO stated at length how the assessees of Bafna group have been transferring trucks from one entity to another and he drew conclusion regarding tax evasion for which purpose, he relied on the decision of the Supreme Court in the McDowell Co. vs. CIT (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). He also invoked Expln. 3 to s. 43(1) which, according to him, was applicable in respect of the assets transferred during the course of block period. According to him, Expln. 3 to s. 43(1) authorised him to adopt WDV which, according to him, was to be determined at Rs. 1,000 or WDV of the transferee. 13. Shri K.A. Sathe, the learned counsel for assessee, vehemently challenged the method of computing of WDV of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the case of Madeva Upendra Sinai (sic) is totally misplaced. The learned counsel further submitted that for limiting the depreciation, the learned AO also referred to Expln. 3 to s. 43(1) for which there is no justification at all. The learned counsel accordingly concluded that method adopted by the AO is legally incorrect and the AO may be directed to allow depreciation on trucks on the basis of WDV on the basis of actual cost to the assessee in case of trucks acquired in the previous year and in the case of trucks acquired before the previous year; actual cost to the assessee less of the depreciation. 14. Shri Naresh Kumar, the learned Departmental Representative, strongly supported the order of the learned AO. He submitted that for the assessment year prior to the beginning of the block period, no returns were filed by the assessee even though regular accounts were maintained. Consequently, no assessments were completed. He submitted that the insertion of provision of s. 139(10) has changed the entire scenario. Sec. 139(10) was introduced by the Taxation Law (Amendment and Misc. Provisions) Act, 1986, with retrospective effect from 1st April, 1986. Sec. 139(10) is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean in case of assets acquired in the previous year, actual cost to the assessee and in the case of assets acquired prior to previous year, actual cost to the assessee less all the depreciation actually allowed to him, under this Act, or under the Indian IT Act, 1922, etc. In short, if the asset has been acquired in the previous year, WDV is equal to actual cost. In case where asset has been acquired earlier to the previous year, it is equal to actual cost, less depreciation actually allowed. The crucial words are "depreciation actually allowed" which mean that the depreciation may be allowed by the AO in computation of the income of the assessee. If the process of computation by way of assessment is not made, there cannot be said to be any depreciation actually allowed. For example, if an asset is purchased in asst. yr. 1985-86 at Rs. 1,00,000, if the assessment was made in asst. yr. 1985-86 by allowing depreciation at the rate of 40 per cent, its WDV for the asst. yrs. 1986-87 could be only Rs. 60,000. If, however, no assessment has been made for asst. yr. 1986-87 WDV would be actual cost, i.e., Rs. 1,00,000 minus depreciation actually allowed, which is zero, there being no depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed to it, there was nothing to be deducted from the original cost of the assets in order to determine their WDV for the asst. yr. 1950-51. The word "actually" used in s. 10(5)(b) was not redundant and must be given its full effect. Depreciation deemed to have been allowed or which might have been allowed if the profits and gains of business had been assessed to income-tax in previous years is certainly not depreciation "actually allowed" and cannot be deducted from the original cost. The assessee while calculating its profits and gains of business went on depreciating the value of the assets year after year and it was contended on behalf of the CIT that this amounted to depreciation being actually allowed. The assessee went on deducting the depreciation from its profits only for the purpose of its calculating what profits were divisible to shareholders. It itself deducted the depreciation every year from the profits and this deduction by itself does not amount to depreciation being allowed to it under the IT Acts. The depreciation that is deducted every year from its profits was not deducted under any provision of any IT Act. The only depreciation allowed under any IT Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee and depreciation allowed to him as used in cl. (b) of s. 10(5). That the legislature bore always in mind the difference between the expression what is actually allowed and what is allowable could also be gleaned from s. 9(1)(iv) in which the word payable is used and s. 10(5) which defines paid as actually paid. All these indications are pointers to the conclusion that it is only such depreciations as are in fact granted to an assessee that should enter in the determination of the WDV." In our opinion, the above observations of the Allahabad High Court in no unmistakable terms interpret s. 43(6) to mean that in case of assets acquired prior to previous year, WDV has to be equal to the actual cost if no depreciation has been allowed to the assessee in the previous case. 16. The contention of the learned AO that the decision of the Supreme Court in the case of Madeva Upendra Sinai was distinguishable on facts is not correct. In considering the decision, what one has to see is the ratio and not the relevant facts, unless they are shown to have any bearing on the ratio involved. In the case before the Supreme Court, the Hon ble apex Court was considering the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC). The Hon ble Supreme Court held in the context of interpretation of deeds that where the language of the deed was plain and admitted of no ambiguity, there was no scope for considerations of tax avoidance. What applies to the interpretation or construction of deeds will apply with more force in the context of construction of a statute. We, therefore, hold that the decision of the Hon ble Supreme Court in McDowell s case is not at all applicable in deciding the issue before us. 18. For limiting the depreciation, the learned AO has also referred to Expln. 3 to s. 43(1). In our opinion, there is no justification in invoking Expln. 3. It is first necessary before invoking the said Explanation that the AO should be satisfied that the main purpose of the transfer of assets from one assessee to other was reduction of a liability to income-tax by claiming depreciation with enhanced cost. In the present case, the reason for transferring of trucks from one entity to another was purely commercial, such as getting national permits within limits for vehicles or for obtaining advantage of IDBI loans. The purpose of transfers was not for purpose of tax evasion. In any case, there could be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making the assessments. If the wording of s. 139(10) precludes existence of the return, assessment cannot be presumed and necessarily it would mean that depreciation was not actually allowed. Thus, the interpretation of s. 139(10) by the learned Departmental Representative has no relevance at all as regards interpretation of s. 43(6). As stated earlier, even notional allowance of depreciation cannot be considered for the purpose of s. 43(6). 20. In the light of above discussion, we set aside the order of the AO; restore the issue to his file and direct him to allow depreciation on each truck acquired in the previous year on the actual cost to the assessee and in case trucks acquired before the previous year, on actual cost to the assessee less the depreciation actually allowed to him, under this Act as per the provisions of s. 43(6), after getting necessary details from the assessee. Ground No. 4 21. Ground No. 4 reads as under: "On facts and circumstances prevailing in the case and as per provisions of law, it be held that the depreciation determined for any of the years remained unabsorbed in the block period is adjustable and is eligible for set off against the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referable to unabsorbed depreciation in regular assessments of concerned years and not to unabsorbed depreciation accounted in the process of computing undisclosed income. The learned counsel drew our attention to s. 32(2), as it then existed and submitted that unabsorbed depreciation of one year was to be considered as part of next year s depreciation and for this reason also, unabsorbed depreciation of one year had to be considered in computing the income of second year in the block. The learned counsel further submitted that even assuming that the Explanation applies and a negative income of one year cannot be set off against profits of subsequent year for computing undisclosed income for the entire block, such negative income in any case has to be computed. Lastly, the learned counsel submitted that even assuming that no unabsorbed depreciation is to be adjusted in computing the undisclosed income of the block, this will have reflection on the WDV of subsequent years. If depreciation of one year remains unabsorbed and cannot be adjusted to the subsequent year or years, to that extent, depreciation cannot be said to be actually allowed and WDV of subsequent years will have to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to broken period from 1st April, 1996 to 12th Sept., 1996, the learned AO granted depreciation at 5/12th of the allowable depreciation, to which the assessee has objected. 27. Shri K.A. Sathe, the learned counsel for the assessee submitted that depreciation should have been allowed at one-half of the allowable depreciation. 28. Shri Naresh Kumar, the learned Departmental Representative submitted that the broken period not being a previous year, the assessee was not entitled to any depreciation at all and the learned AO was more than fair in allowing at least proportionate depreciation. 29. After hearing both the parties, we find no merit in the contention of the learned Departmental Representative. The expression previous year need not be a period of 12 moths. The depreciation of previous year in s. 3 will bear out this point. In case the business is newly set up or a source of income newly coming into existence in the financial year, previous year of such assessee will be the period beginning with the date of setting up of the business or profession, the date on which the source of income newly comes into and ending with the said financial year. For example, if an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been discussed by the AO at para 11 of his order. In computing the income of the assessees, the learned AO allowed truck expenses, trip expenses and administrative expenses subject to certain disallowances. According to the AO truck trip expenses were not supported by outside vouchers. There was no uniform proportion in these expenses vis-a-vis receipts. According to him, the assessee had inflated these expenses by claiming bogus expenses in part or full under various sub-heads of trip expenses. For this, he relied on the detailed reasons discussed in the case of K.I. Raka, HUF and Bafna Road Lines and Bafna Translines. In view of the defects mentioned by him, he disallowed 10 per cent of such expenses. Out of truck expenses, the AO disallowed 1 per cent on the same grounds. In regard to administrative expenses, same were allowed at 2 per cent of the receipts for asst. yrs. 1987-88 to 1989-90 and from asst. yr. 1990-91, the same were not allowed as according to the AO the assessee started getting fixed hire charges of truck. All the above disallowances have been challenged by the assessee in this ground. 33. Shri K.A. Sathe, the learned counsel for the assessees, submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be filled-in, diesel expenses were recorded. The learned counsel submitted that all such expenses were supported by vouchers and it may be appreciated that the assessee was maintaining these records not for tax purposes as such, but for having a control over his organization which was fully dependent on his employees. He further submitted that the assessee s receipts as also major expenses were paid by cheques and in the nature of things, there could not have been supporting vouchers for expenses like Hamali and Naka expenses. As far as truck expenses are concerned, these included the diesel charges, RTO taxes, insurance paid, spare parts, tyres, etc. Major part of these expenses were also paid by cheques and were fully verifiable. 35. The learned counsel further submitted that while allowing expenses, the learned AO went only by records seized and information furnished from time to time during the course of assessment. Since the books seized were not complete in many respects and many adjustments had not been passed, full extent of expenses were not debited in the books of account. While preparing the P L a/c for the purpose of block return, it was found that in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flating expenses incurred for different trucks for every trip made. Bundles 1 to 75 containing the truck trip summary registers were seized. These are primary documents kept by the assessee to record freight receipts and expenses incurred on different trucks for every trip made. The learned Departmental Representative further submitted that from the seized records, it was found that the assessee was indulging in inflation of expenses by an amount of Rs. 500 for each trip of the trucks. In this connection, he drew our attention to the statement of Shri Satish C. Bafna recorded on 10th Oct., 1996. He especially drew our attention to question No. 7 and submitted that it would be seen from the said reply that such expenses are not allowable expenses because such expenses are not supported by vouchers. He further submitted that apparently, the nature of such expenses is such that these are disallowable in view of Explanation to s. 37(1). The learned Departmental Representative made reference to pp. 6 and 8 of the Departmental paper book which were, according to him, were sample trip expenses. According to him, there was an attempt made by the assessee to inflate the expenses by interpol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons are fully allowable one while computing the income for the purpose of assessment. The appellant be granted just and proper relief." The assessee claimed interest on borrowed funds for the purpose of trucks, etc. The AO allowed only a part of claim observing on p. 11 of his order as follows: "Interest Interest has been allowed on the basis of entries recorded in the truck loan accounts obtained from the banks." 41. Shri K.A. Sathe, the learned counsel for the assessee, submitted that his contentions are the same as were in the case of truck expenses. In the books of account the entire amount of interest was not debited, particularly, interest paid to IDBI and remained to be debited in the books of account which was subsequently debited while preparing the P L a/c for the purpose of block return. He further brought to our notice that interest as claimed in the P L a/c is much more than the interest which has been allowed by the learned AO. He further submitted that the item of interest is a permissible outgoing and is fully allowable business expenditure and prayed that the AO may be directed to verify the assessee s claim regarding interest with basic supporting data a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular assessment and not in the block assessment. 44. Rival submissions have been considered, but we do not find any force in the submissions of the learned counsel for the assessee. It has already been held by us in the case of Parakh Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) that regular assessment proceedings and proceedings under Chapter XIV-B are independent proceedings and both the proceedings can be continued simultaneously. The legislature has also amended the Act retrospectively w.e.f. 1st July, 1995, in this regard by insertion of Explanation after sub-s. (2) of s. 158BA. The advance tax is paid by the assessee on the current income which assessee is likely to disclose in regular assessment proceeding. Therefore, it is the tax which can be adjusted against tax due in regular assessment proceeding. Reference can also be made to s. 219 which clearly provides that credit for advance tax is to be given in regular assessment. In our opinion, the same logic would apply to tax deducted at source against the known sources which are not subject-matter of block assessment. Further, there is no provision for adjustment of any advance tax or TDS against the tax due under Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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