S. Bandyopadhyay, A.M. - (1.) THE instant appeal has been filed by the assessee M/s. Microland Ltd, a limited company which was incorporated during 1989-90, against the assessment order passed by the AO under Chapter XIV-B of the IT Act, in respect of block assessment years stated to be from 1986-87 to 1996-97. THE facts of the case as discussed by the AO in detail in the impugned assessment order, may be summarised as below. However, with regard to certain aspects of the facts, the assessee has different versions, to which we shall advert at relevant places, later on.
(2.) The assessee-company is stated to the engaged in buying and selling computer hardwares and also in net-working. From the records however, it appears that this was the main business of the assessee. As per the AO, the business premises of the assessee-company were searched under s. 132 of the IT Act, 1961, on 29th March, 1996 and that the search was finally concluded on 23rd May, 1996. The assessee has tried to draw our attention to several points with regard to different aspects of the search, to which we shall refer at appropriate places. In the assessment order passed by the AO on 30th May, 1997, the AO states that during the search proceedings it was noticed that the assessee had claimed 100% depreciation on certain assets like industrial gas cylinders, solar testing plant, etc., claimed to have been purchased by the assessee from different parties for a total consideration of 445.30 lakhs. All these assets, were shown by the assessee as having been leased to M/s. Miga Gases (P) Ltd., and certain other parties, as detailed below : ----------------------------------------------------------------------- Sl. Name of the Name of the Invoice Invoice Name of the No. supplier Lessee Date Value Asset ----------------------------------------------------------------------- 1. D.D.K. Indus- Miga Gases (P) 10-3-1994 48,05,000 Industrial tries, Banglore Ltd. Banglore Gas Cylinders 2. -do- -do- 23-9-1994 40,30,000 -do- 3. MM Industries, -do- 15-9-1995 52,66,280 -do- 4. -do- -do- 15-9-1995 1,56,28,960 -do- 5. Tamil Nadu Tamil Nadu Air 17-9-1994 78,00,000 46.7 kg. Oxygen, Madras Products (P) water Ltd. Madras cylinders 6. Vishakha Ele- Savik Vijai 12-3-1994 42,00,000 Shunt tricals (P) Engg. (P) capacitors Ltd., Ltd. Banglore Banglore 7. Akshay Engin- Tejuns Solar 9-9-1994 28,00,000 Solar eering, (P) Ltd., Testing Banglore Banglore Plant ----------- Total 4,45,30,240 ----------------------------------------------------------------------- The AO states thereafter that on an examination under oath, during the course of a search proceeding carried on in the case of M/s. Miga Gases (P) Ltd., during the period from March to May 1996, Mr. Krishna Mohan, the managing director of the said company had admitted that the entire lease transactions of the assessee with them were merely paper transactions and that actually on cylinders had been received by M/s. Miga Gases from the assessee. The AO also mentions that similarly Sri Prasanna Kumar, the managing director of M/s. Tejus Solar (P) Ltd., also stated that the lease transaction of the assessee with that company was also not genuine. The assessee, however, contended before the AO that the lease transactions were genuine and also properly supported by various documents. The AO states thereafter that based on the search proceeding and the seized materials, a notice under s. 158BC of the IT Act, 1961 was issued to the assessee on 9th July, 1996, requiring it to file the return of income for the block period ended on 29th March, 1996, in the prescribed form within 16 days from receipt of the said notice. The assessee not only asked for time to file the return, but also by a letter dt. 8th August, 1996, demanded from the AO the reasons for issue of the notice under s. 158BC. The AO states that thereafter a letter dt. 20th August, 1996 was issued to the assessee explaining the reasons for issue of the notice under s. 158BC. The assessee was also asked to show cause why penalty should be levied on it under s. 271(1)(b) of the IT Act, 1961. An examination of this letter of AO dt. 20th August, 1996, however shows that no mention was made in this particular letter about the lease transaction with M/s. Miga Gases or other concerns and that it was simply stated therein in a general manner that the burden of proving to the satisfaction of AO that any undisclosed income had already been disclosed in the returns of income filed by the assessee before the commencement of the search, lay with the assessee. It was, however, not at all mentioned as to what exactly constituted undisclosed income of the assessee.
(3.) IN response to the said letter, the assessee filed a letter dt. 31st August, 1996, submitting that since no valid search and seizure proceeding had been effected in the case of the assessee under s. 132, the assessee was not liable for filing the return under s. 158BC. IN the said letter, it is found to have been mentioned by the assessee that all entries/transactions found in the seized materials were transactions which had been carried on by the assessee during the course of its regular business through the banking channels and that the same had also duly been recorded in the regular books of account of the assessee which had again duly been audited by the statutory auditors. The letter also mentioned that no undisclosed article or thing was found out by the Department during the course of search and seizure proceedings in the premises of the assessee. The AO issued another letter on 9th September, 1996, asking the assessee to file the return of income under consideration on or before 18th September, 1996. IN response to the same, the assessee-company filed the return of income for the block period in Form No. 2B, on 30th September, 1996, admitting NIL undisclosed income for the block period.;