The appellant contended that the decision was fully covered by the Tribunal decision in the case of Plastiblends India Ltd. vs. ITO [ITA No. 4542 (Mum) of 1999, dated 10-2-2004]. However, the revenue contended that the Tribunal had subsequently taken a different view in favour of the revenue in the case of Prince SWR Systems (P.) Ltd. vs. DCIT [ITA No. 2811 (Mum) of 2004 dated 10-9-2004] & in ITO vs. Venus Jewels [ITA No. 3842 (Mum) of 2001, dated 25-10-2004].

The Tribunal held that the decision of Prince SWR Systems (supra), did not follow the co-ordinate Bench decision in Plastiblends India Ltd. (supra) and had decided the case against the assessee by following the Bombay High Court decision in Indian Rayon Corpn. vs. CIT (2003) 261 ITR 98. However, the Tribunal in decision of Plastiblends case had duly considered the Bombay High Court decision in Indian Rayon’s case and then come to the conclusion that Indian Rayon’s decision had no bearing on the question before the Tribunal. Once a co-ordinate Bench came to that conclusion, it was not open to another co-ordinate Bench to come to any other conclusion on that issue. Following the decision of Supreme Court in Union of India vs. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 it was held that the decision in Prince SWR Systems appeared to be per incurium. It is beyond dispute that a decision which is per incurium is not a binding precedent. It is also well settled that when it is not open to a High Court Bench to differ from the decision of a Bench of equal strength, it cannot also be open to a Bench of the Tribunal to differ from the view taken by a co-ordinate Bench of equal strength. The only option in case one doubts the correctness of such a decision is to refer the matter for constitution of a larger bench. A decision ignoring this rule of precedent, which is duly approved by the Courts from time to time, cannot but be viewed as per incurium. Therefore, such a decision of the co-ordinate Bench was of no precedence value. Therefore the only option open to the Tribunal was to follow the co-ordinate Bench decision in the case of Plastiblends India, supra. Accordingly, it is not open to the AO to thrust depreciation allowance while computing deduction u/s. 80-IA in a case where assessee has not claimed the depreciation in the books of account.

2. Block assessment – S.158BB r.w.s. 158 BC – Computation of Undisclosed Income – Only on the basis of evidence found as a result of search – If there is no evidence or evidence has already come on record or has been disclosed by the assessee in assessment proceedings, that evidence cannot be said to have been found as a result of search – Block period 1-4-1986 to
18-7-1996

The undisclosed income, which can be assessed under Chapter XIV-B, should be that amount which is computed on the basis of evidene found as a result of search and such other material or information as are available with the AO and are relatable to such evidence. The core thing to be seen is the evidence found which will be the basis for making the assessment. If there is no evidence or the evidence has already come on record or has been disclosed by the assessee in the assessment proceedings, then that evidence cannot be said to have been found as a result of search and in that case, the material or information available with the AO and relatable to such evidence cannot also help in computing undisclosed income. In the instant case, search was undertaken on 19th & 20th July. The statements of the three officials of the assessee-company were recorded and in those statements, no incriminating material was there which could be termed as evidence on the basis of which the undisclosed income could be computed. Certain documents in the form of lease agreement, etc. were seized at the time of search, but entries based on those documents were already found recorded in the books of account of the assessee, in the sense that the lease rent income on the basis of such lease agreements had been recorded in the books of account as income of the assessee and the depreciation and interest with regard to those very lease transactions had been claimed as a deduction. Lease agreements might be an evidence by itself but there was nothing in those agreements which could establish that assessee had undisclosed income. On the contrary, disclosure of income had been made by the assessee in the books and return of income pursuant to those very lease agreements. The department, had no doubt, collected the material subsequent to raid but that might not be very material and relevant for framing the assessment under Chapter XIV-B because as per the mandate given under section 158BB, it had to be income computed on the basis of evidence found as a result of search and not otherwise. If any material is collected by the revenue after the search, that may not give authority to the department to make the computation of undisclosed income u/s. 158BB or assessment u/s. 158BC.

Therefore, the assessment made under section 158BC was required to be vacated as the same was not authorized by the provisions of Chapter XIV-B, it being based on the material already collected and appearing on record or on the material collected after the search proceedings were over and it was not made on the basis of the material and evidence found as a result of the search nor on basis of other material or evidence available with the AO and relatable to such evidence found as a result of the search.

3. Deduction u/s. 80-I – Interest on deposits with banks, IDBI and other companies and profit on sale of raw material – Not income derived from industrial undertaking - A.Y. 1992-93

For the relevant assessment year, the assessee claimed deduction under section 80-I on interest received on fixed deposit and on profit on sale of raw material. The AO disallowed the claim and the CIT(A) confirmed the same.

The Tribunal held that there must be a direct or immediate nexus between the profit and gains and the industrial undertaking. Then only the profit and gains can be said to be derived from the industrial undertaking. The assessee could not satisfy that there was any direct nexus between the earning of interest on fixed deposits with IDBI and with a company and the industrial undertaking. The interest was earned because the assessee made fixed deposits with bank, IDBI and a company. The direct or immediate source of earning of interest was the deposits made by the assessee and not the industrial undertaking. Though the funds, which were deposited by the assessee, might have been generated from the profit and gains of the industrial undertaking, the nexus between the interest income and the industrial undertaking was not direct or immediate. Therefore the same was not qualified for the deduction under section 80-I. As regards the profit on sale of raw material, the assessee could not justify how the profit on sale of raw material had direct or immediate nexus with the industrial undertaking. Therefore, the profit on sale of raw material was not the profit from the industrial undertaking for the purposes of section 80-I.

4. Deduction u/s. 80-I – Interest on delayed payments of sale proceeds – Not income derived from industrial undertaking – A.Y. 1992-93

The assessee claimed deduction u/s. 80-I on late payment of interest received from debtors; on insurance refund; on sale of bardana and waste material, etc. The AO, while computing the deduction u/s. 80-I excluded the said income. The CIT(A) allowed the claim of the assessee and included the said income for the profit of industrial undertaking.

The Tribunal held that the income which has direct or immediate nexus with the industrial undertaking only is eligible for computing deduction as provided in section 80-I. The assessee was in the business of sale of detergent powder/cake to various customers. The sale proceeds had a direct/immediate nexus with the industrial undertaking. If the amount of sale proceeds was not paid within the credit period allowed, the buyer had to pay interest on such delayed payment. The interest was not arising because of manufacturing of detergent powder/cake by the industrial undertaking but because of the sale proceeds remaining unpaid for a stipulated period. Thus, interest from debtors does not have either direct or immediate nexus with the industrial undertaking. Therefore, the interest on the delayed payment of sale proceeds could not be said to be the income derived from the industrial undertaking.

5. Interest on borrowed capital – Sec. 36(1)(iii) – Amount withdrawn from bank overdraft for payment of income-tax – Assessee deposited entire income in the bank account from where withdrawal was made for payment of income-tax – Withdrawal of money for payment to income-tax could be accepted to be out of the income earned and not out of the borrowings – Disallowance of interest held not justified – A.Y. 1992-93

The AO found that the assessee had withdrawn money for payment of income-tax from the bank overdraft and hence, held that the money borrowed for the payment of income tax was not borrowed for the purpose of business and therefore, disallowed the interest on borrowed money. The CIT(A) deleted the disallowance.

The Tribunal held that the assessee had deposited its entire income in the same bank account from where the withdrawal for payment of income-tax was made. The claim of the assessee that the withdrawal for payment of income-tax was out of the income generated during the year under consideration and not out of the borrowed funds was to be accepted.

6. Speculation business – Losses – Sec. 73 r.w.s. Ss. 56 & 71 – Loss in purchase and sale of shares to be set off first with other business income – Thereafter gross total income to be seen as to income under which head comprising of higher income as compared to speculation loss remaining after such set off – A.Y. 1989-90

The assessee-company derived income from business of trading in steel, yarn, fabrics as also from service charges, and it was also engaged in the business of buying and selling of shares and holding them as a stock-in- trade. It showed its gross total income consisting of income from business which was a loss and its income from other source, i.e., the dividend income earned from shares held by the assessee as stock-in-trade. It worked out the net loss after setting off of the share trading loss against dividend income. The AO held that the said share trading loss was in the nature of speculation loss within the meaning of Explanation to sec. 73 and, therefore, it was not permissible to set off the same against other items of business income, and hence, disallowed the same. The learned CIT(A) accepted the contentions of the assessee and held that the provisions of section 73 and Explanation thereto could not be invoked without adjusting the losses and gains from various sources under the head ‘Business’ as permitted by sections 70 and 71 and hence, allowed the appeal.