M/S.pentafour Products Limited332 v. The Deputy Commissioner Of Income Taxcentral Circle Iii (4)Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 07.03.2022CORAM : THE HONOURABLE MR. JUSTICE R. MAHADEVANandTHE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASADTax Case Appeal No. 1108 of 2009andTax Case Appeal No. 284 of 2010 TCA No. 1108 of 2009 M/s.Pentafour Products Limited332/2, Arcot Road,KodambakkamChennai - 600 024 .. Appellant Versus The Deputy Commissioner of Income TaxCentral Circle III (4)Chennai - 600 034 .. Respondent TCA No. 284 of 2010Commissioner of Income Tax IIIChennai.. Appellant Versus M/s.Pentafour Products Limited,'Chitra Towers'333/2, Arcot Road,Kodambakkam, Chennai 600 024.. Respondent Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961 against the order dated 05.06.2009 passed by theIncome Tax Appellate Tribunal, Chennai “B” Bench, in I.T(SS).A.No.70/Mds/2004. Against the order of the Commissioner ofIncome Tax Appeals Central II, Chennai 34, dated 20.06.2003 inITA.No.147 / 2002-03 for the Assessment Years 1989-1990 to 1999-2000. Against the Assessment Order of the Income Tax Departmentdated 30.05.2001 PANo/GINo AADPB1269K/34102P for the AssessmentYears 1989-1990 to 1999-2000. TCA No. 1108 of 2009For Appellant:Mr. A.S. SriramanFor Respondent:Mr.T.RavikumarSenior Standing Counsel TCA No. 284 of 2010For Appellant:Mr.T.RavikumarSenior Standing CounselFor Respondent:Mr. A.S. Sriraman COMMON JUDGMENT (Judgment of the Court was delivered by R. MAHADEVAN, J.) These tax case appeals have been filed by the Assessee aswell as Revenue, calling in question the correctness of theorder dated 05.06.2009 passed by the Income Tax AppellateTribunal, 'B' Bench, Chennai, in I.T(SS).A.No.70/Mds/2004,relating to the assessment years 1989 -1990 to 1999-2000. 2. By order dated 03.11.2009, this Court admitted TaxCase Appeal No. 1108 of 2009 on the following substantialquestions of law:- "1. Whether the Appellate Tribunal is correctin law in dismissing the ground of appeal challengingthe addition of disclosed income relating to the'depreciation claim' based on the revised financialstatements filed in the block assessment proceedingsoverlooking the 'real income' theory? 2. Whether the appellate Tribunal is correctin law in dismissing the appeal relating to theassessment of undisclosed income referable to thedifferential quantum on the depreciation claim incomparison with the regular returns filed for theassessment years comprised in the block period underconsideration even though the cumulative effect ofthe reworking nullified the attempt of therespondent?3. Whether the appellate Tribunal is correctin law in dismissing the appeal challenging theassessment of differential quantum on thedepreciation claim overlooking the admitted positionof non-availability of seized materials indicatingfalse claim of depreciation in the regular returnsfiled comprised in the block period underconsideration within the scope of Section 158 B (b)of the Act." 3. On 06.07.2010, T.C.A. No. 284 of 2010 was admitted onthe following substantial question of law:(i) Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in deleting the various additions made in theBlock Assessment made under Section 158BC of theIncome Tax Act on the ground that such additionsrelated to regular assessments, without appreciatingthe amendments made by the Finance Act, 2002 withretrospective effect from 01.07.1995 to Section 158(b), 158BB(1) and the Explanation (a) to Section 158BB(1)? 4. For the sake of convenience, the parties to theseappeals shall be referred to as "assessee" and "revenue" inthese appeals. 3. On 06.07.2010, T.C.A. No. 284 of 2010 was admitted onthe following substantial question of law:(i) Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in deleting the various additions made in theBlock Assessment made under Section 158BC of theIncome Tax Act on the ground that such additionsrelated to regular assessments, without appreciatingthe amendments made by the Finance Act, 2002 withretrospective effect from 01.07.1995 to Section 158(b), 158BB(1) and the Explanation (a) to Section 158BB(1)? 4. For the sake of convenience, the parties to theseappeals shall be referred to as "assessee" and "revenue" inthese appeals. 5. The assessee is a limited company engaged in thebusiness of manufacture of electrical, electronic and automobilerelated products. During the course of their business, a searchand seizure operation under Sec. 132 of the Income Tax Act, 1961(in short, the Act) was conducted on 11.01.1999 during whichbooks of accounts and other documents were seized. The booksand accounts so seized unfolded that the assessee neverdisclosed the income arising out of (i) depreciation on nonexisting assets and (ii) expenses debited to profit and lossaccount but not paid the taxes before the due date. Theassesssing officer, based on such books of accounts, finalisedthe block assessment proceedings for the assessment years 1989-1990 to 1999-2000 and passed an order of assessment dated30.05.2001 against the assessee determining the undisclosedincome at Rs. 33,75,28,601/- by making additions on variousheads. 6. Aggrieved against the assessment order dated30.05.2001, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals) in IT Appeal No. 147/2002-2003. Before the Appellate authority, it was the contention ofthe assessee that the additions made by the assessing officerformed part of regular assessments and they did not come withinthe fold of 'undisclosed income' under the provisions of Section158 B(b) of the Act. It was also contended that the assesseehas filed the statement of affairs along with the block returnsin respect of the assessment years falling within the blockperiod, while so, the additions made by the Assessing Officerare unwarranted. It was also submitted that the AssessingOfficer erred in taking only the debits for making additions andnot considering the correct income/ credit, which does notresult in determination of undisclosed income in real term as contemplated under Section 158B of the Act. 7. The appellate authority, by order dated 20.06.2003rejected the submissions so made by the assessee by holding thatthe additions were made on the basis of the documents recoveredduring the search, which clearly shows that the assessee failedto disclose the income truly and precisely by filing returnsafter the search and that the income earned by the assesseeremained undisclosed until the date of search. However, theAppellate Authority has re-determined the total undisclosedincome at Rs.33,40,82,480/- as against the sum ofRs.33,75,28,601/- assessed by the Assessing Officer and partlyallowed the appeal. contemplated under Section 158B of the Act. 7. The appellate authority, by order dated 20.06.2003rejected the submissions so made by the assessee by holding thatthe additions were made on the basis of the documents recoveredduring the search, which clearly shows that the assessee failedto disclose the income truly and precisely by filing returnsafter the search and that the income earned by the assesseeremained undisclosed until the date of search. However, theAppellate Authority has re-determined the total undisclosedincome at Rs.33,40,82,480/- as against the sum ofRs.33,75,28,601/- assessed by the Assessing Officer and partlyallowed the appeal. 8. As against the order dated 20.06.2003 of the AppellateAuthority, the assessee filed a further appeal before theTribunal in I.T. (SS) A. No.70/Mds/ 2004. The Tribunal heldthat the assessee falsely claimed expenses, deduction orallowance claimed under this Act which would also come withinthe definition of undisclosed income as per the amendment to theFinance Act, 2002, with effect from 01.07.1995. As the assesseehas claimed depreciation on non-existing assets, the same is afalse expenditure which could not be ordinarily detected in thecourse of regular assessment proceedings. Further, the assesseehad debited various expenditures in the profit and loss account,but those expenses were not paid within the due date for filingthe return. However, the Tribunal noted that the expenditureswhich were debited to the profit and loss account already, butthe same were not paid till the due date of return under Section139 of the Act, therefore, the same cannot be treated as false.The expenditures have already become due and were recorded inthe books, as such, the expenditure, which became due and wererecorded in the books of account, cannot be treated asundisclosed income of the assessee under the block assessment.Accordingly, the Tribunal confirmed the additions made by theAssessing Officer as well as the Appellate Authority on accountof excess claim of depreciation of non-existing assets, but allthe other additions made were deleted as they cannot be treatedas undisclosed income under the block assessment. 9. Aggrieved by the order of the Tribunal, the presentappeals are filed by the Assessee as well as Revenue. 10. During the course of hearing, the learned counsel forthe assessee submitted that by the Finance Act, 2002, amendmentshave been made to Section 158BB of the Act with effect from01.07.1995. As per the amendment, the undisclosed income forblock period shall be the aggregate of the total income of theprevious years falling within the block period "in accordancewith the provisions of this Act, on the basis of evidence found 9. Aggrieved by the order of the Tribunal, the presentappeals are filed by the Assessee as well as Revenue. 10. During the course of hearing, the learned counsel forthe assessee submitted that by the Finance Act, 2002, amendmentshave been made to Section 158BB of the Act with effect from01.07.1995. As per the amendment, the undisclosed income forblock period shall be the aggregate of the total income of theprevious years falling within the block period "in accordancewith the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account orother documents and such other materials or information as areavailable with the Assessing Officer and relatable to suchevidence". However, the applicability of the amendments broughtto the Finance Act, 2002 with effect from 01.07.1995 to the caseof the assessee has not been considered by the Tribunal whilepassing the impugned order dated 05.06.2009. It is furthersubmitted that the Finance Act, 2002 has made a clarificatoryamendment to include a reference to Sec. 145 so as to make theprovisions of that section applicable in the block assessment.However, the Tribunal, while rejecting the claim of theadditions made by the assessing officer, has failed to reckonwith the amendment made by the Finance Act, 2002 to theprovisions of Section 158B(D) with retrospective effect from01.07.1995 to redefine the term 'undisclosed income' to includeany expenses, deduction or allowance claimed under the Act.Since the amendment is of the year 2002, they have not beentaken into consideration and it needs examination. Therefore, itis prayed by the learned counsel for the assessee that thematter may be remitted back to the Tribunal for considering theclaim of the assessee for deleting the various additions made inthe block assessment made under Section 158BC of the Income TaxAct related to regular assessments, without appreciating theamendments made by the Finance Act, 2002 with retrospectiveeffect from 01.07.1995 to Sections 158B(b), 158BB(i) and 158BB(1)(c). 11. The learned counsel for the revenue also does notseriously object to the said prayer of the counsel for theassessee to remand the case to the Tribunal for freshconsideration taking note of the amendments brought to theFinance Act, 2002 with effect from 01.07.1995. 12. Considering the facts and circumstances of the caseand having regard to the submissions made by the learned counselon either side, we are inclined to remit the matter back to theTribunal leaving the questions of law raised in these appealsopen to be decided in appropriate cases. 13. Accordingly, the impugned order dated 05.06.2009passed by the Tribunal is set aside and the matter is remandedto the Tribunal to consider the effect of the amendments broughtto the Finance Act, 2002 with effect from 01.07.1995 to the caseof the assessee on merits and in accordance with law. Such anexercise be completed within a period of six months from thedate of receipt of a copy of this order. 14. The Tax Case Appeals are disposed of in the aboveterms. No costs. Sd/- Assistant Registrar(CS-II) //True Copy// Sub Assistant Registrar rsh/vkr To 1. The Income Tax Appellate Tribunal, Madras “B” Bench, Chennai. Madras “B” Bench, Chennai. 2. The Commissioner of Income Tax III Chennai. Chennai. 3. The Commissioner of Income Tax (Appeals)Central II Chennai – 600 034. Chennai – 600 034. 4. The Deputy Commissioner of Income Tax, Central Circle III (4), Chennai – 34. +2ccs to Mr.Ravikumar, Advocate, S.R.Nos.15114, 15116 TCA No. 1108 of 2009andTCA No. 284 of 2010 MG(CO)SU(05/04/2022)