By Sri. A Shankar Senior Withsri v. Chandrasekhar And Bhairav Kuttaiah Advs

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE O8 DAY OF FEBRUARY 2071. PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’‘’BLE MR. JUSTICE NATARAJ RANGASW A BETWEEN: 1LT.A. NO.88 OF 2O15 M/S KARNATAKA FINANCIAL SERVICES LIMITED.(IN LIQUIDATION) REP. BY THE OFFICE OF THEOFFICIAL LIQUIDATORHIGH COURT OF KARNATAKANO.26-2/7CORPORATE BHAVAN127TH FLOOR RAHEJA TOWERS|M.G. ROAD|BANGALORE - 560001. — APPELLANT. (BY SRI. A SHANKAR SENIOR WITHSRI. V. CHANDRASEKHAR AND BHAIRAV KUTTAIAH ADVS.,) AND" ASSISTANT COMMISSIONER OF INCOME TAX!CENTRAL CIRCLE- V.C.R. BUILDINGQUEENS ROADBANGALORE - 560 O0OO1 ~. RESPONDENT (BY SRI.K.V. ARAVIND FOR ADV.,) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 17.10.2014 PASSED IN IT(SS)A NO.115/BANG/1997 FOR THE ASSESSMENT YEAR.1986-87 TO 1996-97, PRAYING TO: |(i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO.THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY.THE INCOME TAX APPELLANT TRIBUNAL, BANGALORE “B” BENCHIN IT(SS)A NO.115/BANG/1997 DATED: 17.10.2014 FOR THEASSESMENT YEARS 1986-87 TO 1996-9 / THIS I.T.A. COMING ON FOR FURTHER HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee. The subject matter|of the appeal pertains to the Block Assessment years 1986-87 to 1996-97. The appeal was admitted by ajbench of this Court vide order dated 31.08.2015 on the.following substantial questions of law:| T_|Where the Tribunal is justified inlaw in not nolding that the block assessment|order passed by the assessing office for the|block assessment years 1986-87 to 1996-97is barred by TIimitation on the facts andcircumstances of the case? ?D_Whether the Tribunel Is correct [n-law in holding there was material evidence|found and seized in the course of search|Under section 137 of the Act on the besis of|which the alleged excess depreciation is to bebrought to tax in the block assessment madeunder chapter XIV-B of the Act on the facts|and circumstances of the case? 3.Whether the Tribunal is Justified inupholding the action of the assessing Officer|in invoking the provisions of explanation 3 tosection 43(1) of the Act even when the same.ISnotwarranted,Of)thefacts|andcircumstances of the case? q |Whether the Tribunal is Justified inlaw in holding that the value of the assets is|to be adopted at Rs.2,00,00,000/- for theDUFDOSEeofdepreciationIn|placeOF|Rs.1,00,00,000/- adopted by the assessingofficer as against the actual incurred by theappellant of Rs.3,62,52,209/- on the factsand circumstances of the case? 5.| Without prejudice, whether the Tribunal erred in law in not appreciating that.if the value of the assets is adopted at an.amount lower than the value agreed upon by the parties of Rs.32,62,52,209/-, then a.proportionate reduction in lease rentals willhave to be made as otherwise It would result|In|doubletaxationOf)thefactsand|circumstances of the case? 2.|Facts leading to filing of this appeal brieflystated are that the assessee is a company in liquidation.and for the relevant Block Assessment Year viz., 1986-87 to 1996-97 was carrying on the business of financialactivity in equipment leasing. A search under Section|132 of the Act was conducted at the premises of the|appellant and its Directors on 29.03.1996. Thereafter, a.notice was issued to the appellant under Section 158BC.requiring the assessee to file return of income from.block period pending on 29.03.1996. The return of income in Form-2B was filed on O2.127.1996. TheAssessing Officer by an order dated 30.05.1997 interalia held that the assessee purchased the assets from. 2.|Facts leading to filing of this appeal brieflystated are that the assessee is a company in liquidation.and for the relevant Block Assessment Year viz., 1986-87 to 1996-97 was carrying on the business of financialactivity in equipment leasing. A search under Section|132 of the Act was conducted at the premises of the|appellant and its Directors on 29.03.1996. Thereafter, a.notice was issued to the appellant under Section 158BC.requiring the assessee to file return of income from.block period pending on 29.03.1996. The return of income in Form-2B was filed on O2.127.1996. TheAssessing Officer by an order dated 30.05.1997 interalia held that the assessee purchased the assets from. M/s PL Finance and Investments Ltd. at a higher value|of Rs.3,62,52,309/-, with a view to claim depreciation|on the enhanced value as against actual written down|value of Rs.8/7,/75,621/- in the books of accounts of M/PL Finance and Investments Ltd. The Assessing Officer|concluded the assessment for the block Assessment|Yearsand|adoptedthevalue|ofassetsal Rs.1,00,00,000/- and allowed depreciation on this value.alone and disaliowed the depreciation claimed by theassessee in excess of depreciation. 3The assessee filed an appeal before theIncome Tax Appellate Tribunal (hereinafter referred to.as the tribunal for snort). The tribunal by an orderdated 21.11.2003 deleted disallowance of depreciation.and decided the issue in favour of the assessee. The|revenue filed an appeal before this court against the|order of the tribunal during the pendency of the appealbefore this court, the Reserve Bank of India filed a)company petition before this court to wind up the assessee. This court by an order dated 20.07.2005directed the company to be wound up and appointed theOfficial Liquidator to take charge of the assets of the|COM padaNThiscourt|by|an|orderpassed|inI.T.A.No.146/2004 dated 25.11.2009 set aside the orderof the tribunal dated 21.11.7013 and remitted the'matter to the tribunal for fresh adjudication consideringthe amended provision of Section 158BB of the Act. Thetribunal after hearing the parties, passed an order on.17.10.2014 and did not adjudicate the ground raised by|the assessee with regard to the limitation and held that|the aforesaid ground is not subject matter of the order|of remand in the light of directions contained in theorder dated 25.11.2009 passed by this court. Tnetribunal further neld that during the course of the searcnunder Section 132 of the Act, the excess depreciation isto be Drought to tax in block assessment made under|Chapter XIVB of the Act. The tribunal also upheld theaction of tne Assessing Officer in invoking Explanation 3. to Section 43(1) of the Act and held that for the purposeof depreciation, the value of assets has to be adopted atRs.2,00,00,000/- instead of Rs.1,00,00,000/-. In the)aforesaid factual background, this appeal Nas been filed.4Learned Senior counsel for the assessee with.regard to first substantial question of law pertaining to non adjudication of the question of limitation submitted|that search was conducted under Section 1327 of the Acton 29.03.1996 and on 31.03.1997 i.e., from one yearfrom the month in which last of the authorizations for|search has been executed, the limitation for passing the|block assessment period expired on 31.03.1997 and inthe instant case tne pDiock assessment order nas beenpassed on 31.05.1997 i.e., beyond the period of oneyear from the end of month in which last of.authorization of the search was executed. However, thetribunal has failed to appreciate the aforesaid aspect ofthe matter and has erroneously refused to adjudicatethe issue witn regard to the limitation. It is further Submitted that this court had remanded the matter to tribunal for fresh consideration and therefore, the issue.with regard to the limitation could have been raised by |the assessee in the appeal. In support of aforesaidsubmissions, reliance has been placed on decision of theSupreme Court InCOMMISSIONER OF INCOME TAXT.N. VS. V.DAMODARAN’, 121 ITR 472 (SC). Submitted that this court had remanded the matter to tribunal for fresh consideration and therefore, the issue.with regard to the limitation could have been raised by |the assessee in the appeal. In support of aforesaidsubmissions, reliance has been placed on decision of theSupreme Court InCOMMISSIONER OF INCOME TAXT.N. VS. V.DAMODARAN’, 121 ITR 472 (SC). 5.|On the other hand, learned counsel for therevenue submitted that the tribunal by an order dated21.11.2003 held that the block assessment order was|within the period of limitation. The revenue had|challenged the aforesaid order in an appeal before this.court viz., I.T.A.No.146/2004 to the extent it wasdecided against the revenue. It is further submitted thatthis court remanded the matter to the tribunal to'adjudicate the issue only to decide the same in.accordance with law by applying the amended provisions.of Section 158BB of the Act. Tnerefore, the tridDunal nasrigntly refused to adjudicate the issue urged by tne assessee with regard to limitation. In Support of aforesaid submission, reliance has been placed on the.decision of the Supreme Court in-VYLS FINANCE LTD.VS. COMMISSIONER OF INCOME-TAX, (2016) 68|TAXMANN.COM 368 (SC). 6.|We have considered the submissions made.by learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite tot ake|note of legal effect of quashing of an order. The|Supreme Court InSHREE CHAMUNDI MOPEDS LTD.VS.CHURCHOF|SOUTH|INDIATRUSTASSOCIATION, (1992) 3 SCC 1Nas neld tnat.quashing of an order results in restoration of a position.as it stood on the date of passing of the order whicn nadbeen quashed. It has further been held that if an orderpassed by an Appellate Authority is quashed and thematter is remanded the result would be the appealwhich nad been disposed of by the said order of theAppellate Authority would be restored and can be said to. be pending before the Appellate Authority after quashingorder passed by the Appellate Authority. Thus, the effectof quashing of an order of Appellate Authority is that theappeal is restored before the Appellate Authority. 7In the backdrop of aforesaid legal position, itis pertinent to have a look at the memo of appeal filedon behalf of the revenue. From perusal of the prayer.clause, it is evident that the revenue had sought|quashment of the order dated 21.11.2013. This courtNas passed an order on 25.11.2009. The relevantextract of paragraphs 2 and 3 are reproduced below for|tne facility of reference: 2. ssssseeeeees LNEFefore, in the afocase, by setting aside the order of theIncome Tax Appellate Tribunal, we areremanding the matter to the tribunal forfresh consideration. 3.In the circumstances, following thedecision in I.T.A.No.146/2002, we allow thisappeal without considering the questions oflaw and remand the metter to the tribunal forfresh|considerationconsideringtheamended provision of Section 158 BB of theIncome Tax Act, 1961. 8 _Thus, from perusal of the aforesaid relevantextract, it is evident that the matter was remitted totribunal for fresh consideration. The finding of the|tribunal that the issue with regard to limitation cannot|be adjudicated as the same would be beyond the!purview of the order of remand cannot but be said to be.perverse. The order passed by the tribunal was set aside.in its entirety by this court. Therefore, it was open for.the assessee to raise the plea of limitation. Therefore,the first substantial question of law Is answeredaccordingly. Since, the tribunal has not adjudicated theissue with regard to limitation, the impugned orderdated 17.10.2014 passed by the tribunal insofar as it.pertains to finding with regard to the issue of limitation|is hereby quashed and the tribunal is directed to decidethe issue of limitation with regard to the order of assessment passed by the Assessing Officer for the|block assessment years 1986-86 to 1996-97. Needless.to state that it will be open for the parties to raise allcontentions before the tribunal on the aforesaid issue.|Therefore, it is not necessary for us to answer theremaining substantial questions of law. In the result, the appeal is disposed of. Sd/-—JUDGE. SS| Sd/-JUDGE.