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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI AMARJIT SINGH & SHRI OM PRAKASH KANT
PER OM PRAKASH KANT, AM These cross appeals by the assessee and the Revenue are directed against order dated 14/12/2017 passed by the Ld. Commissioner of Income-tax(Appeals)-14, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2009-10.
The grounds raised by the assessee in its appeal are reproduced as under:
The order of the Assessing Officer and of the First Appellate Authority is against law, facts and circumstances of the case. 2. The First Appellate Authority has erred in estimating the net profit at 3% when the assessee has produced data showing that the Textile Industry was passing through a very bad phase over a period of five years and was making an average net loss of 4% on turnover grounds of appeal of the assessee. 3. The First Appellate Authority is not justified in directing the Assessing Officer to examine the claim of the assessee with regard to interest payment when the accounts are rejected and profits are estimated. 4. The First Appellate Authority has grossly erred in sustaining the disallowance of Rs. 5,53,92,352/- u/s. 40(a)(ia) of the Income Tax Act when the books of accounts are rejected and income is estimated. Further when the department has not brought evidence with respect to
ITA No. 1484/M/2018 & ITA No. 487/M/2019 3 M/s Vibgyor Texotech Pvt. Ltd. details of these payments and payees, the disallowance ought to be deleted. 5. The First Appellate Authority is not justified in sustaining the addition of Rs.7,23,82,604 /- for the simple reason that it is not appearing as a loan in the Balance Sheet as at 31-03-2008. As the Profit and Loss Account and Balance Sheet has been rejected by the department and profits are estimated, no addition should have been made on the basis of unaudited book figures whether given to the bank or not. 6. When Books of Accounts are rejected and profits are estimated, the First Appellate Authority should not have upheld any addition with respect to fixed assets when department has not given any depreciation allowance. 7. In the light of the decision rendered by the ITAT Amritsar Bench in (2015) 60 Taxmann.com 447.(Amritsar-Trib.), the Assessment order is void abinitio as it has been framed under Section 143(3) r.w.s.147 instead of Section 144. 8. For these and other grounds that may be raised at the time of hearing the income tax demand may kindly be deleted. 2.1 Thereafter, the assessee filed additional ground challenging the validity of the notice issued under section 148 of the Act. The assessee, further raised additional ground, challenging the assumption of jurisdiction by the Assessing Officer. The assessee further raised additional ground that no notice under section 143(2) of the Income-Tax Act, 1961 (in short ‘the Act’) was issued. The said
ITA No. 1484/M/2018 & ITA No. 487/M/2019 4 M/s Vibgyor Texotech Pvt. Ltd. additional grounds along with revised form No. 36 filed by the
assessee on 21/06/2021 are reproduced as under:
The issue of notice u/s. 148 invalid for various reasons. 10. The appellant reserves the right to add amend or alter any or all grounds of appeal Section 264A. 11. The Assessing Officer has erred in adding Rs.26,35,198/- as interest income. 12. The Assessment Order is void abinitio as the notice and assumption of jurisdiction by ACIT 8(3)(2) was illegal. 13. The assesseee is eligible for exemption u/s. 10AA hence if loss is assessed into profit then such exemption should given. 14. Additions on issues other than the issues of reopening are not sustainable if there is no addition on the issue of reopening. 15. The assessment is null and void as no notice u/s. 143(2) was issued by LAO. The records of assessee do not show that any such notice was issued. The issue be decided on the basis of records of LAO. As per order sheet entry, no such notice was issued and thus observation in assessment order without mentioning date of service and date of hearing is contrary to records.
2.2 The grounds raised by the Revenue are reproduced as under:
“1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A), is justified in directing the AO to rework the estimation of profit @ 3% instead of 5% of turnover holding that the AO has not based his estimation on any comparable cases, without appreciating the fact that the AO has considered the audited accounts for A. Y 2007-08, in the absence of audited accounts for the year under consideration”.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 5 M/s Vibgyor Texotech Pvt. Ltd. 3. The additional grounds filed by the assessee are admitted in view of the decision of the Hon’ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 (SC), as these are purely legal ground and no investigation of fresh facts is required.
Briefly stated facts of the case are that the Assessing Officer received information that the assessee is a beneficiary of accommodation entries during the financial year 2008-09 through the concerns managed by ‘Shri Praveen Kumar Jain’. The assessing officer after recording reasons to believe that income escaped assessment, issued notice under section 148 of the Act, on 10/03/2015. The assessee filed return of income and assessment under section 147 read with section 143(3) of the Act has been completed on 30/03/2016. The Assessing Officer rejected books of accounts of the assessee and estimated profit at the rate of 5% on the turnover of Rs.173,69,18,226/-which was worked out to Rs.8,68,45,911/-. The income of Rs.5,10,37,137/- shown under the head non-operating income was further added and in this manner
ITA No. 1484/M/2018 & ITA No. 487/M/2019 6 M/s Vibgyor Texotech Pvt. Ltd. total income was estimated at Rs.13,78,83,048/-. The Assessing Officer also disallowed interest under section 43B of the Act amounting to Rs.5,68,87,489/- paid towards secured loans obtained from the banks on the ground that same has not been paid on or before the due date of the filing of the return of income. The service tax amounting to Rs.8,62,289/-has also been disallowed by the Assessing Officer in terms of section 43B of the Act. For non- deduction of tax at source (TDS) also the Assessing Officer disallowed expenditure amounting to Rs.3,97,90,291/-in terms of section 40(a)(ia) of the Act. Additions for unexplained cash credit in terms of section 68 of the Act amounting to Rs.1,46,24,270/- and difference in valuation of fixed asset of Rs.2,50,19,760/- being written off were also made. The Assessing Officer made addition of Rs.80,45,300/- against accommodation entry received i.e. basis on the which assessment was reopened. In this manner, the Assessing Officer made total addition of Rs.28,31,12,447/-. On further appeal, the Ld. CIT(A), partly allowed the appeal. Aggrieved, both the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 7 M/s Vibgyor Texotech Pvt. Ltd. assessee and the Revenue are before the ‘Tribunal’ by way of raising grounds as reproduced above.
The Revenue filed a paper book containing pages 1 to 37. The assessee filed a paper book containing pages 1 to 10.
First of all, the grounds of the appeal challenging validity of the reassessment are being adjudicated.
In the additional ground (listed as ground No. 9 ), the assessee has challenged validity of notice issued under section 148 of the Act.
We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. For adjudication of the ground, it is relevant to reproduce the reasons recorded by the Assessing Officer as under:
“The assessee M/s. Vigbyor Textech Ltd., having PAN No AACCV0752D is assessed to tax in this charge. The assessee has no filed the return of income for the year under consideration. In this case, the information available on record shows that the assessee is beneficiary of accommodation entry in respect of unsecured loan from the following parties
ITA No. 1484/M/2018 & ITA No. 487/M/2019 8 M/s Vibgyor Texotech Pvt. Ltd. during the financial year 2008-09 through the concerns managed by Mr. Pravin Kumar Jain, the details of which are as under:- SR Name of the Concern Amount (Rs.) 1. R.S. Enterprises 80,45,300/-
Analysis of the information on record shows that the above entities are providers of accommodation entry for bogus sales. The above parties are non-genuine and the accommodation entries provided for amount aggregating to Rs. 80,45,300/- has resulted suppression of the income of the assessee for the A. Y. 2009-10. The assessee has not filed the return of income for the year under consideration. In view of the above, I have reason to believe that the income chargeable to tax, in the garb of bogus purchase by way of accommodation entries to the tune of Rs. 80,45,300/- from the aforesaid entities have escaped assessment for A. Y. 2009-10 for the reasons of omission on part of the assessee in the return within the meaning of Section 147 of the I. T. Act, 1961. Therefore, I am satisfied that this is a fit case to issue notice u/s. 148 r.w.s. 147 of the I. T. Act, 1961. 9. Before us, the Ld. counsel of the assessee assailed the reasons recorded on 26/02/2015 by the Assessing Officer on many grounds. Firstly, on the ground of non-application of mind by the Assessing Officer. He submitted that in second paragraph, the assessee has been stated to be beneficiary of unsecured loan of Rs.80,45,300/- through the concern namely M/s R S Enterprises, which was managed by Sh Praveen Jain, whereas in third paragraph, the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 9 M/s Vibgyor Texotech Pvt. Ltd. Assessing Officer mentioned that analysis of the information shows that above entity has provided accommodation entry for bogus sales. The Ld. counsel further submitted that in fourth para of reasons recorded, the Assessing Officer says that it is a case of bogus purchase. Thus, according to him the reasons recorded are vague without any clarity as to the transactions.
9.1 But, we find that same transaction, which is sale for the accommodation entry provider, is purchase as far as the assessee is concerned. The Ld. Assessing Officer has recorded that entity has provided bogus sales to the assessee, whereas with reference to the assessee, the Ld. Assessing Officer has recorded as bogus purchase. Though in the first para the Assessing Officer has noted the transaction as accommodation entry in the form of the loan but in subsequent paras, he has specifically pointed out the transaction as accommodation entry of bogus sales provided by the entry operator. In our opinion, Assessing Officer has made it clear to the assessee in the reasons recorded that the transactions under reference was
ITA No. 1484/M/2018 & ITA No. 487/M/2019 10 M/s Vibgyor Texotech Pvt. Ltd. sales in the case of the entry provider and purchase in the case of the assessee. Thus, the allegation of non-application of mind by the AO are unfounded.
Secondly, the Ld. counsel submitted that no return of income was filed by the assessee, whereas the Assessing Officer has recorded that income had escaped assessment in view of the omission on the part of the assessee in the return of income, therefore, there is no application of the mind by the Assessing Officer while recording reasons.
We find that the learned the Assessing Officer in first para of the reasons recorded has clearly mentioned that no return of income was filed by the assessee for the year under consideration. In third paragraph of reasons recorded also, the Ld. Assessing Officer emphasized that the assessee had not filed return of income for the year under consideration. In the last para, the Assessing Officer is referring to omission on the part of the assessee in filing
ITA No. 1484/M/2018 & ITA No. 487/M/2019 11 M/s Vibgyor Texotech Pvt. Ltd. the return of income. In our opinion, the word “filing” is missing in that sentence. Therefore, only on the basis of the fourth para to presume that he did not apply his mind while recording reasons, is not justified. The Assessing Officer has duly recorded the fact of non- filing of the return of income, not once but twice. Accordingly, we reject the contention of the Ld. Counsel of the assessee that AO has not applied mind, while recording reasons. Further the Ld. counsel submitted that in the case, no return of income was filed and therefore satisfaction was to be recorded under Explanation 2(a) below section 147 of the Act. The Ld. counsel relied on the decision of the Hon’ble Bombay High Court in the case of General Electoral trust Vs Income-tax Officer, Mumbai reported in 289 CTR 284 (Bom). The relevant funding of the Hon’ble High Court is reproduced as under:
“7. Mere non filing of return of income does not give jurisdiction to the Assessing Officer to re-open the assessment unless the person concerned has total income which is assessable under the Act exceeding maximum amount which is not chargeable to Income Tax. This is provided in Explanation 2 to Section 147 of the Act.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 12 M/s Vibgyor Texotech Pvt. Ltd. This is for the reason that in terms of Section 139(1) of the Act the obligation to file a return of income is only when the total income of a person exceeds the maximum amount not chargeable to tax. So also the obligation to obtain PAN only arises on the income being in excess of the maximum amount not chargeable to tax. Therefore, non filing of return of income and/or not obtaining of PAN does not ipso facto give jurisdiction to reopen an assessment under Section 147/148 of the Act. Prima facie the jurisdiction even in case of non filing of return of income to issue notice of re- opening notice is a reasonable belief of the Assessing Officer that income chargeable to tax has escaped assessment. The condition precedent for issuance of notice under Section 147/148 of the Act is no different in cases where no return of income has been filed. If clause (a) of explanation 2 to Section 147 of the Act is to be applied then it must be established that the income of the person to whom the notice is issued is in excess of the maximum amount not chargeable to tax. This could have been done by collecting information under Section 133B of the Act. 8. In this case the reasons in support do not indicate any reasonable belief that income chargeable to tax has escaped assessment nor does it hold that income of the petitioner is in excess of the maximum amount chargeable to tax. It proceeds on basis that all receipts is income. The re-opening notice has to be tested by the terms recorded for issuing the notice and the order disposing of the objection cannot be the basis for sustaining the impugned notice. No prejudice to the Assessee, as contended by the Revenue, cannot be the basis for acquiring jurisdiction to issue a re-opening notice.”
ITA No. 1484/M/2018 & ITA No. 487/M/2019 13 M/s Vibgyor Texotech Pvt. Ltd. 11.1 However, we find that ratio laid down in the above case is not applicable on the facts of the case before us. In the instant case, assessment has been reopened in view of the information of bogus purchases by the assessee exceeding Rs. 80 lakh, and therefore it was not of the case that income escaped was below taxable limit. In view of the clear statement of income more than the taxable limit, the decision relied upon is distinguishable.
Thirdly, the Ld. counsel submitted that there is no reference of source of information for reopening the assessment except that information was available on record. The Ld. DR refer to page 6 to 8 of the paperbook filed by him and referred to the source of information. According to the Ld. DR, said information was duly provided to the assessee by the Assessing Officer during the course of the assessment proceeding after filing return of income in response to notice under section 148 of the Act. However, the Ld. counsel has not produced any evidence to support that source of the information was asked from the Assessing Officer. It was the onus of
ITA No. 1484/M/2018 & ITA No. 487/M/2019 14 M/s Vibgyor Texotech Pvt. Ltd. the assessee to file necessary evidence in support of its claim that such information was asked from the Assessing Officer and he had not supplied. In absence of any such evidence before us, no adverse inference can be drawn against the Revenue.
Fourthly, The Ld. counsel submitted that information of the bogus purchase cannot be prima-facie be true as it was against normal human behaviour. The Ld. counsel submitted that assessee was having huge limits from the bank and there was no requirement of such entries. He submitted that assessee was eligible for 100% tax-exemption under section 10AA of the Act and therefore there was neither a necessity of loan nor of any need for bogus purchase to reduce the profit. He further submitted that anyway the assessee was already running into heavy losses and therefore there was no need for bogus purchases. The Ld. counsel submitted that Assessing Officer should have examined the possibility of truthfulness of such transactions.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 15 M/s Vibgyor Texotech Pvt. Ltd. 14. In our opinion, these arguments of the Ld. counsel are devoid of any merit. As far as recording of reasons is concerned in terms of finding of Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Broker P. Ltd. [2007] (7 SCR 765) that at the initiation stage, what is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials could conclusively prove the escapement is not the concern at the stage. Further, the Hon’ble Supreme Court in the caes of Raymond Wollen Mills Ltd. V. ITO & Other reported in 326 ITR 34 (SC) held that sufficiency or correctness of material is not a thing to be considered at the stage of recording reasons. In the case, information of providing accommodation entry was available with the Assessing Officer and he formed requisite belief on the basis of the said information. There was no requirement in the law for the Assessing Officer to presume that the assessee is an honest
ITA No. 1484/M/2018 & ITA No. 487/M/2019 16 M/s Vibgyor Texotech Pvt. Ltd. entity and will not enter into transactions of the accommodation entry. Further, deed to no return of income being on record, the Assessing Officer cannot presume that it was having huge bank loans or hundred percent tax exemption unit or a loss-making unit. These arguments of the Ld. counsel of the assessee are accordingly rejected.
Fifthly, the Ld. counsel submitted that reasons were recorded on the basis of the borrowed satisfaction and no information was verified by the Assessing Officer.
In our opinion, the Assessing Officer has formed requisite belief on the basis of the records available before him. As no return of income was filed by the assessee for the relevant assessment year, it was not possible for him to verify from the assessment record for the year under consideration and ascertain, whether the accommodation entry was recorded as ‘loan transactions’ or ‘transactions of purchase’ in the books of accounts of the assessee.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 17 M/s Vibgyor Texotech Pvt. Ltd. As per the provisions of the Act, the Assessing Officer can make inquiries from the assessee invoking section 133(6) of the Act or section 131 of the Act, but during the relevant time, the law did not authorize the Assessing Officer for carrying out any enquiry from the assessee prior to issue of notice under section 148 of the Act. Therefore, the contentions of the Ld. Counsel are accordingly rejected.
Sixthly, the Ld. counsel submitted that approval by the Joint Commissioner of Income-Tax was without application of the mind, as he did not see the reasons recorded as well as supporting material. He also submitted that Ld. JCIT had not asked for a copy of the return of income by the assessee.
We find that before us, the assessee has submitted a copy of proforma (PB-7), wherein the approval has been granted by the Ld. Add. CIT/JCIT. No other documentary evidence to support that reasons recorded as well as supporting material was not available
ITA No. 1484/M/2018 & ITA No. 487/M/2019 18 M/s Vibgyor Texotech Pvt. Ltd. with the authority approving the reasons recorded. No adverse inference can be drawn on the basis of the arguments without supporting any material. The onus is on the assessee to substantiate its claim. It is for the assessee to obtain complete copy of correspondence between the Assessing Officer and the authority who has approved the reasons recorded, including record from the office of the Add CIT or JCIT, who has approved the reasons. In absence of any such documentary evidence, the contention of the Ld. counsel are rejected.
Seventhly, the Ld. counsel submitted that no such information was available with the Assessing Officer as he could not provide details of the information to the assessee despite specific request.
Before us, the assessee has filed an undated letter addressed to the Assessing Officer to support that such information was asked specifically. The relevant part of the said letter is reproduced as under:
ITA No. 1484/M/2018 & ITA No. 487/M/2019 19 M/s Vibgyor Texotech Pvt. Ltd. “To, The Assistant Commissioner of Income Tax 8 (3) (2), Room No.615, 6th Floor, Aaykar Bhawan, M.K. Road, Mumbai 400 020. Dear Madam, Ref: ITO-8(3)3)/Reopened/148/Reasons/VGPL/2015-16 Dtd.26.10.2015 With reference to the above letter giving us the reasons for the issue of notice u/s 147, we wish to submit that we had no transactions of any nature with the party referred to in the letter. In the circumstances, we request your honour to drop the proceedings or give us some more proof to enable us to rebut the presumptions of the Department”. 21. On perusal of the above letter, we are unable to find as when this letter was addressed to the Assessing Officer. More so, it does not appear from the said letter that assessee had asked for source of the information or copy of the material relied upon.
21.1 Under the procedure laid down by the Hon’ble Supreme Court in the case of GKN Drive Shafts (India) Limited v. ITO (2003) 259 ITR 19 (SC), the assessee can claim copy of reasons recorded after filing the return of income and the assessee had been duly provided copy of reasons recorded. Therefore, to presume that no material
ITA No. 1484/M/2018 & ITA No. 487/M/2019 20 M/s Vibgyor Texotech Pvt. Ltd. was available with the Ld. AO at the time of recording reasons is baseless.
The ground No. 9 (additional ground) of the appeal is accordingly dismissed.
In further additional ground (ground listed at No. 12), the assessee has challenged the legality of assumption of jurisdiction by the Assessing Officer i.e. ACIT-8(3)(2).
The Ld. counsel submitted that the notice under section 148 of the Act was issued by the ITO 8(3)(3) after obtaining approval from the JCIT range. Thereafter, he issued notice under section 142(1) of the Act and then transferred the case to DCIT 8(3)(2), Mumbai. Thus according to the Ld. counsel, the ITO did not have jurisdiction of the case and therefore issuing notice by him was illegal. Further, he submitted that if the notice issued by the ITO was legal, then subsequent assumption of jurisdiction by the DCIT was illegal and therefore order passed by the present Assessing Officer is either
ITA No. 1484/M/2018 & ITA No. 487/M/2019 21 M/s Vibgyor Texotech Pvt. Ltd. way null and void. In support of the contention, the Ld. counsel relied on the decision of the Cuttak Bench of Tribunal in the case of Dilip Kumar Chatterjee Vs ACIT (OSD), Bhubneshwar reported in (2018) 97 taxmann.com 283 (Cuttak-Trib).
The Ld. DR on the other hand submitted that as per the territorial jurisdiction order dated 15/11/2014 issued by the Additional Commissioner of Income Tax-8(3), Mumbai the ITO 8(3)(3) was having jurisdiction of the alphabet ‘Va’ to ‘Vn’ having returned income or loss of upto Rs.30 lakh under jurisdiction of Principal Commissioner of Income-Tax-1 to 5 and 16 and in case of return income exceeding Rs.30 lakh, the jurisdiction lied with ACIT/DCIT 8(3)(2). The Ld. DR submitted that in view of the no regular return of income filed by the assessee, the ITO 8(3)(3) was justified in issuing notice for reopening of the case. Subsequently, in view of the income/loss exceeding Rs.30.00 lakhs, he has validly transferred the case to the DCIT 8(3)(2). He further submitted that in terms of section 124(3)(b) of the Act the assessee could not call in
ITA No. 1484/M/2018 & ITA No. 487/M/2019 22 M/s Vibgyor Texotech Pvt. Ltd. question jurisdiction of the Assessing Officer after expiry of one month from the date of the service of the reassessment notice and therefore notice issued by ITO remains valid. In support of his contention, he relied on the
(i) decision of the Hon’ble Delhi High Court in the case of Abhisek Jain Vs ITO reported in (2018) 94 taxmann.com 355. (ii) Decision of Hon’ble Punjab and Haryana High Court in the case of Subhash Chander Vs CIT, Rohtak reported in (2008) 166 Taxman 307 ( Punjab and Haryana). (iii) decision of Hon’ble Allahabad High Courtin the case of CIT vs All India Children Care and Educational Development Society reported in (2014) 41 taxmann.com 20 (Allahabad).
From the held portion of the decision in the case of Dilip Chatarjee Vs ACIT (supra) submitted by the assessee before us, it
ITA No. 1484/M/2018 & ITA No. 487/M/2019 23 M/s Vibgyor Texotech Pvt. Ltd. is evident that in said case notice was u/s section 143(2) of the Act was issued by one Assessing Officer whereas assessment was completed by another officer, without valid transfer of jurisdiction under section 127 of the Act, and therefore the Tribunal set aside the order of the Assessing Officer.
But in the present case jurisdiction is within the same range officer and transfer of the case is in terms of jurisdiction under section 120 of the Act. The section 124(1) of the Act prescribe that when a question arises as to the jurisdiction of the Assessing Officer issued under section 120, the same shall be determined by the Income-Tax Authorities mentioned in section 124(2) of the Act. Further, the section 124(3) prescribe that no person shall be entitled to call in question jurisdiction of the Assessing Officer in following circumstances:
“124(3) No person shall be entitled to call in question the jurisdiction of an Assessing - (a) where he has made a return "(under sub-section (1) of section 115WD or] under sub-section (1) of section 139, after the expiry of one month from the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 24 M/s Vibgyor Texotech Pvt. Ltd. date on which he was served with a notice under sub-section (1) of section 142 or "[sub-section (2) of section 115WE or] sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier; (b) where he has made no such return, after the expiry of the time allowed by the notice under *{sub-section (2) of section 115WD or sub-section (1) of section 142 or under sub-section (1) of section 115WH or under section 148 for the making of the return or by the notice under the first proviso to section 115WF or under the first proviso to section 144] to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier: (c) where an action has been taken under section 132 or section 132A. after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.] 28. Further as per section 124(4), if the assessee calls and question the jurisdiction of the Assessing Officer, then the Assessing Officer shall, if not satisfied with the correctness of claim, refer the matter to the Income-tax Authorities mentioned in section 124(2) for determination of correct jurisdiction before the assessment made.
In the instant case before us, being case of no return filed, jurisdiction lied with ITO ward 8(3)(3) under territorial jurisdiction/class of persons in terms of section 120 of the Act and
ITA No. 1484/M/2018 & ITA No. 487/M/2019 25 M/s Vibgyor Texotech Pvt. Ltd. jurisdiction was not assigned to him under section 127 of the Act. Merely proposed escapment being more than Rs. 30.00 lakh, it cannot be presumed that taxable income of the assessee will be more than Rs. 30.00 lakhs. There might be losses and resultant total income might be less than Rs.30.00 lakhs. Where no return of income has been filed in regular course, the quantum of income can be ensure only after filing return of income by the assessee in response to the notice u/s 148 of the Act. On being noticed the income/loss falling under the jurisdiction of the ACIT Circle 8(3)(2) , the ITO transferred the case to him. The jurisdiction was transferred to ACIT and assessment has been completed by the ACIT Circle 8(3)(2), Mumbai , but ,there is nothing on record which shows that the assessee has challenged the jurisdiction of the Assessing Officer i.e. ACIT Circle 8(3)(2), Mumbai, within the limitation prescribed under section 124(3) of the Act.
The Ld Counsel relied on the decision dated 11th July 2017 of Hon’ble Bombay High Court (Nagpur Bench) in the case of CIT v.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 26 M/s Vibgyor Texotech Pvt. Ltd. Lalit Kumar Bardia ITA No. 127 of 2006 to support that if there is no jurisdiction u/s 120 of the Act, there is no need to challenge territorial jurisdiction under section 124(3) of the Act. The Hon’ble High Court in the case of Lalit Kumar Bardia (supra) anlysed the applicability of section 124(3) in the case of notice issued u/s 158BC as well as jurisdiction in absence of order u/s 127 of the Act subsiting at the time of issue of notice u/s 158BC of the Act. Relevant finding of the Hon’ble High Court is reproduced as under:
“17. In this case, it is undisputed position that the return of income was filed declaring undisclosed income at 'Nil' on 5.5.2000 in response to the notice dated 22.9.1999 issued under Section 158 BC of the Act and not consequent to notice u/ss.142(1)(i) of the Act which was issued as late as 12.8.2000. In the above view, it is clear that the bar of Section 124(3) of the Act would not prohibit the respondent/assessee from calling in question the jurisdiction of the Deputy Commissioner of Income Tax, Nagpur in passing the Assessment Order beyond the period provided therein. It needs to be pointed out that amendment by Finance Act, 2016 which is w.e.f. 1.6.2016 brings within ambit of Section 124(3) of the Act cases when notice is issued consequent to search u/s.153(A) or 153(C) of the Act preventing/prohibition an assessee from raising the issue of jurisdiction. It does not include notices issued u/s.158 BC of the Act. This further supports the view that time bar u/s.124(3) of the Act to question the jurisdiction of the Income Tax Officer would not apply to the cases where return has been filed consequent to notice u/s.158 BC of the Act.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 27 M/s Vibgyor Texotech Pvt. Ltd. 18. It was next submitted that even absent statutory provision, the respondent/assessee is barred from raising the issue of jurisdiction after having participated in the proceedings before the Deputy Commissioner of Income Tax, Nagpur on 18 itl127.06.odt principle of waiver of its right to question his jurisdiction. A waiver would mean a case where a party decides not to exercise its right to a particular privilege, available under the law. In this case, the Respondent/assessee has a right not to be assessed to tax by an Income Tax Officer, who is not the Assessing Officer. However, the waiver can only be of one's right/privilege but non- exercise of the same will not bestow jurisdiction on a person who inherently lacks jurisdiction. Therefore, the principle of waiver cannot be invoked so as to confer jurisdiction on an Officer who is acting under the Act when he does not have jurisdiction. The Act itself prohibits an Officer of Income Tax from exercising jurisdiction u/s.158 BC of the Act, unless he is an Assessing Officer. This limit in power of the Income Tax Officer in exercise of jurisdiction is independent of conduct of any party. Waiver can only be of irregular exercise of jurisdiction and not of lack of jurisdiction. The decision of the Delhi High Court in Venad Properties v. CIT, 340 ITR 463 relied upon by the Appellant/Revenue is a case of non-service of notice before passing of an order by an Officer having inherent jurisdiction. Therefore, it is a case of irregular exercise of jurisdiction and not absence of jurisdiction to issue notice. Therefore, it will have no application.
It is a settled position in law that mere participation in 19 itl127.06.odt proceedings or acquiescence will not confer jurisdiction. The Apex Court in Kanwar Singh Saini (supra) made observations, which are apposite to the issue at hand and which read as under :
"22.There can be no dispute regarding the settled legal proposition that conferment of jurisdiction is a legislative function and it can neither be conferred with the consent of the parties nor by a superior court, and if the court passes order/decree having no jurisdiction over the matter, it
ITA No. 1484/M/2018 & ITA No. 487/M/2019 28 M/s Vibgyor Texotech Pvt. Ltd. would amount to a nullity as the matter goes to the roots of the cause. Such an issue can be raised at any belated stage of the proceedings including in appeal or execution. The finding of a court or tribunal becomes irrelevant and unenforceable/inexecutable once the forum is found to have no jurisdiction. Acquiescence of a party equally should not be permitted to defeat the legislative animation. The court cannot derive jurisdiction apart from the statute. (Vide United Commercial Bank Ltd v. Workmen, Nai Bahu v. Lala Ramnarayan, Natraj Studios (P) Ltd. v. Navrang Studios, Sardar Hasan Siddiqui v. STAT, A.R. Antulay v. R.S. Nayak, Union of India v. Deoki Nandan Aggarwal, Karnal Improvement Trust v. Parkash Wanti, U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd., State of Gujarat v. Rajesh Kumar ChimanlalBarot, Kesar Singh v. Sadhu, KondibaDagadu Kadam v. Savitribai Sopan Gujar and CCE v. Flock (India) (P) Ltd.) 20 itl127.06.odt
It was lastly submitted that, by virtue of the subsequent Order dated 18.1.2000 passed by the Commissioner of Income Tax, Raipur, the earlier order dt.6.7.1999 passed u/s.127 of the Act by him stands revived. Consequently, all the proceedings taken between 6.7.1999 till the Order dated 18.1.2000 by the Deputy Commissioner of Income Tax, Nagpur become regular and he will retrospectively enjoy the status of the Assessing Officer even on 22.9.1999, when he issued the notice u/s.158 BC of the Act.
Transfer of proceedings u/s.127 of the Act cannot be retrospective so as to confer jurisdiction on a person who does not have it. Section 127 of the Act does not empower the Authorities under the Act to confer jurisdiction on a person who does not have jurisdiction with retrospective effect. In fact, the explanation under Section 127 of the Act clearly provides that all the proceedings under the Act which are pending on the date of such order of transfer and all the proceedings which may be commenced after date of such order of transfer would stand transferred to the Assessing Officer to whom the case is transferred
ITA No. 1484/M/2018 & ITA No. 487/M/2019 29 M/s Vibgyor Texotech Pvt. Ltd. by Section 127(1) of the Act. This provision makes it clear that though transfer would come into effect from the date the order of Commissioner passed under Section 127(1) of the Act, the proceedings already commenced would not abate and continue with new Assessing Officer, who assumes charge consequent to transfer subject ofcourse to the pending notices 21 itl127.06.odt being within jurisdiction of the Officer issuing the notices. It is not a provision which validates without jurisdiction notice issued by an Income Tax Officer. If the submission of the Revenue on the above account is to be accepted, then an order which is without jurisdiction could be bestowed with jurisdiction by passing an order of transfer with retrospective effect. Section 127 of the Act does not validate notices/orders issued without jurisdiction, even if they are transferred to a new Officer by an Order under Section 127 of the Act.”
The Hon’ble Delhi High Court in the case of Abhisekn Jain (supra) held that in terms of section 124(3)(b) of the Act, the assessee could not call in question jurisdiction of an Assessing Officer after expiry of one month from date of the service of reassessment notice upon him. The said finding of the Hon’ble High Court is reproduced as under:
“19. We would reiterate that sub-section (1) to Section 124 states that the Assessing Officer would have jurisdiction over the area in terms of any direction or order issued under sub-section (1) or sub-section (2) to Section 120 of the Act. Jurisdiction would depend upon the place where the person carries on business or profession or the area in which he is residing. Sub- section (3) clearly states that no person can call in question jurisdiction of an Assessing Officer in case of
ITA No. 1484/M/2018 & ITA No. 487/M/2019 30 M/s Vibgyor Texotech Pvt. Ltd. non-compliance and/or after the period stipulated in clauses (a) and (b), which as observed in S.S. Ahluwalia (supra) would negate and reject arguments predicated on lack of subject matter jurisdiction. Where an assessee questions jurisdiction of the Assessing Officer within the time limit and in terms of sub- section (3), and the Assessing Officer is not satisfied with the correctness of the claim, he is required to refer the matter for determination under sub-section (2) before the assessment is made. Reference of matter under sub-section (2) would not be required when Assessing Officer accepts the claim of the assessee and transfers the case to another Assessing Officer in view the objection by the assessee. (In terms of sub-section (3) to Section 124 of the Act, the petitioner had lost his right to question jurisdiction of the Income Tax Officer, Ward No. 1(1), Noida.)”
Further, the Hon’ble High Court also rejected the plea of the
assessee of invoking section 127 of the Act. The relevant finding of the Hon’ble High Court is reproduced as under:
“21. Contention of the petitioner that the transfer by Income-Tax Officer, Ward- 1(1), Noida to Income-Tax Officer, Ward-58 (2), Delhi required an order under Section 127 of the Act is fallacious and without merit. Section 127 relates to transfer of case from one Assessing Officer having jurisdiction to another Assessing Officer, who is otherwise not having jurisdiction as per directions of the Board under Section 120 and Section 124 of the Act. Under sub-section (1), transfer order under Section 127 can be passed by the Director General, Chief Commissioner or Commissioners from one Assessing Officer to another Assessing Officer subordinated to them. Sub-section (2) applies where the Assessing Officer to whom the case is to be transferred is not subordinated to the same Director General, Chief Commissioner or Commissioners of the Assessing Officer from whom the case is to be transferred. This is not a case of a transfer under Section
ITA No. 1484/M/2018 & ITA No. 487/M/2019 31 M/s Vibgyor Texotech Pvt. Ltd. 127 of the Act. This is a case in which the assessee had raised an objection stating that the Income-Tax Officer, Ward-1 (1), Noida should not continue with the assessment as the petitioner-assessee was regularly filing returns with the Income-Tax Officer, Ward-58 (2), Delhi. Objection as raised were treated as made in terms of sub-section (3) to Section 124, notwithstanding the fact that there was delay and non-compliance. The Income-Tax Officer, Ward-1 (1), Noida accepted the request/prayer of the petitioner and had transferred pending proceeding to the Assessing Officer, Ward-58 (2), Delhi. Therefore, there was no need to invoke and follow the procedure mentioned in sub-section (2) to Section 127 of the Act. Section 127 of the Act would come into play when the case is to be transferred from the Assessing Officer having jurisdiction to a third officer not having jurisdiction over an assessee (a case) in terms of the directions of the Board under section 120 of the Act. Section 127 of the Act could also apply when the department wants transfer of a case, and Sections 120 and 124 of the Act are not attracted.
Counsel for the petitioner had relied upon judgment of the Supreme Court in Hasham Abbas Sayyad Vs. Usman Abbas Sayyad & Ors., (2007) 2 SCC 355 which draws distinction between a person or authority lacking inherent jurisdiction which makes the order passed by them a nullity, and therefore, principle of estoppel, waiver and acquiescence or even res judicata which are procedural in nature, would not have any application. Such orders passed without jurisdiction would suffer lack of coram non judice and cannot be given effect to. This decision refers to Harshad Chiman Lal Modi Vs. DLF Universal Ltd. & Anr., (2005) 7 SCC 791, which classifies and draws jurisprudential difference amongst - territorial or local jurisdiction; pecuniary jurisdiction; and jurisdiction over the subject matter. As far as territorial or pecuniary jurisdictions are concerned, objection should be taken at the earliest possible opportunity and /or before the settlement of issues and not at the subsequent stage. Jurisdiction as to the subject matter is distinct and stands on a different footing.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 32 M/s Vibgyor Texotech Pvt. Ltd. 23. In view of the above discussion, objections as to the jurisdiction of assessing officer in the present case cannot be equated with lack of subject matter jurisdiction. They relate to place of assessment. Income-Tax Officer Ward 1(1), Noida would not per se lack jurisdiction, albeit he had concurrent jurisdiction with the Income-Tax Officer Ward 36(1)/58, Delhi. In the facts of the present case the contention raised about the lack of jurisdiction would not justify quashing the notice under Section 147 /148 of the Act”.
In the case of Subhash Chander (supra) also the Hon’ble Punjab
and High Court has held as under:
“6. A perusal of sub-section (3)(b) of section 124 of the Act shows that the jurisdiction of an Assessing Officer cannot be called in question by an assessee after the expiry of one month from the date of which he was served with a notice under sub-section (1) of section 142 of the Act or after completion of assessment, which was to be earlier. It is further evident that sub-section (4) of section 124 has been made subject to the provisions of sub-section (3) in case an assessee has questioned the jurisdiction of an Assessing Officer. It is only in those jurisdictions that the Assessing Officer is to refer the matter for determination to the Director General or the Chief Commissioner or the Commissioner as per the provisions of section 124(2) of the Act. It is, thus, evident that before the expiry of the period of one month from the date of ,service of notice under sub-section (1) of section 142 of the Act, no right to question the jurisdiction of an Assessing Officer would survive.
In the present case, notice under section 142(1) of the Act was issued to the appellant-assessee on 25-2-1993 and the return was to be filed on or before 15-3-1993, which, in fact, has been filed on 1-3-1993. No objection to the jurisdiction till 6-9-1994 was raised when the appellant-assessce requested for transfer of the case to Delhi. Therefore, it is not possible to conclude that the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 33 M/s Vibgyor Texotech Pvt. Ltd. Assessing Officer was under obligation to refer the question of jurisdiction to the Director General or Chief Commissioner as per the provisions of section 124(2) read with section 124(4) of the Act, as is contended by learned counsel for the appellant-assessee.
We are further of the view that it would not make any difference even if at one stage accounts for assessment year 1992-93 were transferred to New Delhi, which were returned to the Assessing Officer, Sirsa, because there was no effective transfer of record. Moreover, the substantial business in the financial year 1992-93 was transacted at Sirsa. The argument that the record at one stage was transferred and, therefore, the assessment order passed by the Assessing Officer at Sirs is bad cannot be accepted and we have no hesitation to reject such an argument.”
In the case of All India Children Care and Educational Development Society (supra), before the Hon’ble Allahabads High Court, question was raised whether the jurisdiction of the assessing authority not raised before the assessing officer, could it be raised for the first time before the Tribunal. The Hon’ble High Court held as under:
“14. The answer to the question posed by the respondent is pure and simple. The scheme of the Act shows that no appeal in regard to the place of assessment is contemplated under the Act. Under Section 124, a question as to the place of assessment, when it arises is determined by the Commissioner, by the Commissioners if more than one Commissioner is involved and then by the Board. The Apex Court in the case of Rai Bahadur Seth Teomal (supra) has quoted with
ITA No. 1484/M/2018 & ITA No. 487/M/2019 34 M/s Vibgyor Texotech Pvt. Ltd. approval a judgment in the case of Wallace Bros. & Co. Ltd. v. CIT [1945] 13 ITR 39 (FC). The relevant extract is reproduced below:
"The question then-arises whether the objection as to the place of assessment, i. e., by the Income-tax Officer of Calcutta could be challenged in appeal to the Appellate Assistant Commissioner and then before the Appellate Tribunal. In our opinion it could not be. The scheme of the Act shows that no appeal in regard to the objection to the place of assessment is contemplated under the Act. Under s. 64(3) of the Act a question as to the place of assessment, when it arises, is determined by the Commissioner. Any such order cannot be made a ground of appeal to the Appellate Assistant Commissioner under s. 30 of the Act which provides for appeals against orders of assessment and other orders enumerated in s. 30 but no appeals is there provided against orders made under s. 64(3). Similarly appeals to the Appellate Tribunal which lie under s. 33 of the Act also do not provide for any appeal on the question of the place of assessment. In Wallace Brothers' case (3) at p. 79 Spens, C. J., after referring to s. 64(3) and the proviso thereto said: " These provisions clearly indicate that the matter is more one of administrative convenience than of (1) (1927) I.L.R. 49 All. 616. (2) Seth Kanhaiyal Lal v. CIT [1937] 5 ITR 736 (All.) (3) Wallance Bros. & Co. Ltd. v. CIT [1945] 13 ITR 39 (FC). Jurisdiction and in any event it is not one for adjudication by the Court…….. This confirms us in the view that the scheme of the Act does not contemplate an objection as to the place of assessment being raised on an appeal against the assessment after the assessment has been made. As we have already pointed out, the objection was not raised in the present case even before the Appellate Income-tax Officer but only before the Appellate Tribunal ". There is nothing in the Bidi Supply case (1) which in any way detracts from the efficacy of the decision of the Federal Court in Wallace Brothers' case (2). We have already said that Bidi Supply case (1) deals with the vires of s. 5(7A)."
In view of the above, question as to place of assessment could not have been gone into by the Tribunal and it definitely committed error of law on the facts of the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 35 M/s Vibgyor Texotech Pvt. Ltd. present case in entertaining it and adjudicating it. The decision taken by the Tribunal is based on ignorance of scheme of the Income Tax Act, 1961 as also Section 124 thereof. Probably, attention of the Tribunal was not drawn to the relevant statutory provisions by the department.
Our above view find support from the following decisions of this Court :-
(1) CWT v. Ravi Malhotra [2007] 292 ITR 171/[2008] 166 Taxman 253 (All.) ; and (2) Hindustan Transport Co. v. Inspecting Asstt. CIT [1991] 189 ITR 326/[1992] 63 Taxman 246 (All.).”
Respectfully following the above decisions of the Hon’ble High Court’s, we reject the contention of the Ld. Counsel of the assessee challenging the jurisdiction of the Assessing Officer in issuing notice as well as completing the assessment. The ground No. 12 (additional ground) of the appeal is dismissed.
In ground No. 14 (additional ground), the assessee has raised the plea that if addition on the issues other than the issues of reopening are not sustainable, if there is no addition on the issue of the reopening.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 36 M/s Vibgyor Texotech Pvt. Ltd. 37. We find that Assessing Officer in reasons to believe has recorded bogus purchase of Rs.80,45,300/-. In the assessment order in para 13, he made addition for the said amount as under:
“13. The case was reopened on the basis of an information of accommodation entry of Rs 80,45,300/-: The assessee was asked to produce details in support of the entry, but tailed to produce. Hence, Rs.80,45,300/- is added back to total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Act, is being initiated for furnishing inaccurate particulars and concealing the taxable income.” 38. The Ld. CIT(A) treated the said addition as subsumed in the addition for net profit sustained by him. The relevant finding of the Ld. CIT(A) is reproduced as under:
“4.6 So far as sixth ground of appeal challenging the addition of Rs.80,45,300/- towards accommodation entry taken from R. S. Enterprises is concerned, it is seen from the reasons recorded by the AO that the allegation is that the same represents bogus purchase by the appellant. Since the net profit of the appellant from the business has already been estimated, there is no case for making separate addition in respect of this entry. Accordingly, the AO is directed to delete the addition of Rs.80,45,300 because the same is subsumed in the net profit estimation. This ground of appeal is treated as allowed.”
ITA No. 1484/M/2018 & ITA No. 487/M/2019 37 M/s Vibgyor Texotech Pvt. Ltd. 38.1 In view of the above, in our opinion the contention of the Ld. counsel of the assessee that no addition has been made in respect of the basis on the which assessment was reopened, is not correct and therefore his request for considering the decision on the issue that no other addition could be made if the Assessing Officer has not made addition on the issue for which the assessment was reopened, is also rejected. The reliance placed on the decision of Hon’ble Bombay High court in the case of CIT v. Jetaieways (I) Ltd. (2011) 331 ITR 236 (Bom) Ltd is of no help to the assessee. The ground No. 14 (additional ground) of the appeal is accordingly dismissed.
In the ground No. 15 (Additional Ground), the assessee challenged legality of the assessment on the ground that no notice under section 143(2) of the Act was issued.
The Ld. Counsel before us submitted that in the assessment order there is no mention of issuance of any notice under section 143(2) of the Act and therefore it is presumed that no such notice
ITA No. 1484/M/2018 & ITA No. 487/M/2019 38 M/s Vibgyor Texotech Pvt. Ltd. was issued by the Assessing Officer before completion of the assessment. On the contrary the Ld. DR filed copy of the notice under section 143(2) of the Act dated 10/03/2015 issued by the ITO Ward 8(3)(3) and notice dated 11/01/2016 issued by the ACIT - 8(3)(2). The Ld. DR has also filed report of the service of these notices. The Ld. counsel of the assessee could not controvert this factual finding of issue and service of the notice under section 143(2) of the Act. The ground has been filed by the assessee in very casual manner without verifying its records. The action of the assessee is highly deplorable. Therefore, the additional ground (ground No. 15) raised by the assessee is accordingly dismissed.
In ground No. 13 (additional ground) , the assessee has raised the issue that in case the income of the assessee is assessed into profit, the exemption under section 10AA of the Act should be allowed as assessee fulfilled the eligibility criteria for said exemption.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 39 M/s Vibgyor Texotech Pvt. Ltd. 42. In our opinion, if the assessee is otherwise eligible for deduction under section 10AA of the Act and fulfilling all the criteria as laid down in the relevant section, then there is no reason as why the assessee should be denied the deduction under section 10AA of the Act. If the income of the relevant unit is finally positive, then assessee may be considered for deduction under section 10AA if the assessee so satisfies the terms and conditions specified therein. The ground of the appeal of the assessee is accordingly allowed for statistical purposes.
The ground Nos. 1, 8 and 10 of the appeal of the assessee are general in nature and therefore we are not required to adjudicate upon specifically. Accordingly same are dismissed as infructuous.
In ground No. 2 (two), the assessee has challenged applying of net profit rate of 3% on the turnover by the Ld. CIT(A) as against the net profit rate of 5% applied by the Assessing Officer. The plea of the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 40 M/s Vibgyor Texotech Pvt. Ltd. assessee is that as per the data of the textile industry there was an average net loss of 4% on turnover across the textile industry.
The Revenue in the solitary ground raised in its appeal has challenged reducing by the Ld. CIT(A) of the net profit rate from 5% to 3%.
We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record.
Brief facts qua the issue in dispute are that no regular return of income was filed by the assessee. In response to notice under section 148 of the Act, the assessee filed return of income along with unaudited accounts in support of income declared in the return of income. In the said unaudited account total turnover of the assessee was shown at Rs.92,35,35,456/- on which loss of Rs.2,13,96,780/- was shown. The Assessing Officer asked audited accounts of the assessee for the year under consideration from the banker of the assessee, i.e. the state Bank of India, invoking section 133(6) of the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 41 M/s Vibgyor Texotech Pvt. Ltd. Act however, the Banker provided audited accounts for AY 2010-11 (FY 2009-10), which were furnished by the assessee while sanctioning loan to the assessee company. The said audited accounts for AY 2010-11, also contained comparative figure of accounts for assessment year under consideration i.e. AY 2009-10 ( FY 2008-09). The Assessing Officer found following differences in the unaudited accounts submitted along with the return of income and audited accounts filed with the State Bank of India:
From the accounts submitted by the Bank in the case of the assessee, it is seen that the assessee has shown unsecured loan as on 31-03-2009 of Rs.1,46,24,270/-. However, in the accounts submitted before me for the year ending 31-03-2009, the assessee has not shown the unsecured loan creditor. Thus, for the year under consideration there is a discrepancy of Rs.1,46,24,270/- in the account of assessee. In the fixed assets schedule the net block was shown as on 31-03- 2009 at Rs.17,63,26,729/-, whereas the assesse: has shown the opening block of Rs.15,13,06,969 /-. Thus there is a discrepancy of valuation of block of asset at Rs.2,50,19,760/-(17,63,26,729 - 15,13,06,969). This year the assessee has shown turnover of Rs. 92,35,35,456/- against which it has shown loss of Rs.(-2,13,96,780/-, the profit ratio of which is works out to 0.023%. In this regard it is to
ITA No. 1484/M/2018 & ITA No. 487/M/2019 42 M/s Vibgyor Texotech Pvt. Ltd. mention here that the based on the audited accounts obtained from bank, the profit ratio for the A.Y.2010-11 was worked out at 5% of the turnover in the order passed u/s. 143(3) of the Act. Accordingly, the profit ratio shown by the assessee for the year under consideration is not correct. 47.1 In view of the discrepancies in accounts, the Assessing Officer issued show cause to the assessee as why the books results of the assessee might not be rejected invoking section 145(3) of the Act. In view of non-compliance by the assessee, the Assessing Officer rejected the book results i.e. loss declared on the basis of unaudited accounts of the assessee and estimated the net profit. The Assessing Officer noticed net profit rate of 5% estimated by the assessee in audited accounts for assessment year 2010-11. Taking the guidance from the assessment year 2010-11, the Assessing Officer proposed net profit at the rate of 5% on the turnover of Rs.173,69,18,226/- for the year under consideration, which was available in audited accounts for AY 2010-11 and computed net profit of Rs.8,68,45,911/-. The Assessing Officer also observed income under the head non-operative income of Rs.5,10,37,137/-for the year
ITA No. 1484/M/2018 & ITA No. 487/M/2019 43 M/s Vibgyor Texotech Pvt. Ltd. under consideration in the audited accounts for AY 2010-11, therefore, he added the said income to the estimated income from operation of Rs.8,68,45,911/- and thus added total income of Rs.13,78,83,048/- (8,68,45,911 + 5,10,37,137) .
On further appeal, the Ld. CIT(A) observed that the assessee has not produced any material to show correctness of the book results, which were rejected by the Assessing Officer invoking section 145(3) in view of the discrepancies in unaudited accounts enclosed with the return of income vis-a-vis, audited accounts provided by the state Bank of India, however, the Ld. CIT(A) accepted the argument of the assessee that whole of the textile industry was not doing well. The assessee submitted a report of ICRA management consulting services Ltd and the impact of economic slowdown on Indian textile and clothing industry. In view of the said report, the Ld. CIT(A) directed the Assessing Officer to accept the book results of the assessee. The Ld. CIT(A) observed that non-operative income consist of fixed deposit interest and
ITA No. 1484/M/2018 & ITA No. 487/M/2019 44 M/s Vibgyor Texotech Pvt. Ltd. export incentives. He directed the Assessing Officer not to consider the export incentive for addition because the said receipt were part of the business of the assessee. The Ld. CIT(A) directed the Assessing Officer to verify the amount of interest earned by the assessee on the fixed deposit and make addition for the same to the loss declared by the assessee from operation of textile products. The relevant finding of the Ld. CIT(A) is reproduced as under:
“4.2 So far as estimation of profit by the AO at the rate of 5% of the turnover is concerned, it is seen from the assessment order that the AO had to resort to the estimation of net profit of the appellant because the appellant failed to submit audited accounts for the previous year under consideration even though it was required to get its accounts audited in view of the provisions of section 44AB of the IT Act. Moreover, there were discrepancies in the balances as shown in the balance sheet filed by the appellant with the department vis-a-vis the balance sheet of the appellant submitted by the State Bank of India as on 31/03/2009. Considering all these facts, and the fact that the accounts of the appellant were not supported by any evidence, the AO estimated net profit of the appellant @5% of the turnover as was done in the case of the appellant for A. Y. 2007 - 08 and A. Y. 20 10 - 11. Before the undersigned, the appellant has not produced any material to show the correctness of the unaudited book results. Its only objection is that the estimation of the AO is not based on any comparable cases. The appellant has also not filed any material to show that the comparable cases were incurring losses during the previous year under consideration. However, it has submitted a report published by ICRA Management Consulting Services Limited
ITA No. 1484/M/2018 & ITA No. 487/M/2019 45 M/s Vibgyor Texotech Pvt. Ltd. on Impact of Economic Slowdown on Indian Textile and Clothing Industry which was on account of a study assigned by CITI (Confederation of Indian Textile Industry), Texprocil (The Cotton Textiles Export Promotion Council), AEPC and SRTEPC. This report tells that the average net profit margin in India of Textile and Clothing companies in made ups segment, in which the appellant is operating, in Q3 of FY 08 was 3%, in Q4 FY 08 was 0%, in Q1 FY 09 was -4% in 02 FY 09 was -4% and in Q3 FY 09 was -2%. These figures were based on analysis of sample of 81 Indian companies. In view of the fact that the AO has not based his estimation on any comparable cases and also in view of the data furnished by the appellant, I am of the opinion that net loss shown by the appellant in the book results may be accepted. The AO is directed to rework the net profit accordingly, So far as addition of non operating income amounting to Rs.5,10,37,137/- by the AO to the net profit is concerned, the appellant has clarified before the AO during the course of remand report proceedings that the same consists of FD interest and export incentives received by the appellant. So far as export incentives are concerned, no separate addition in respect of the same is required to the net loss shown by the appellant because the receipts are part of the business of the appellant. However, I'm of the opinion that the interest income is required to be added separately. The AO shall obtain the details of interest received by the appellant and add the same to the net loss of Rs.2,13,96,780 shown by the appellant in its Profit and Loss account for the purpose of estimating net profit of the appellant for the assessment year under consideration. Second ground of appeal is decided accordingly”.
Before us, both the assessee and the Revenue are aggrieved
with the above finding of the Ld. CIT(A) on the issue of estimation of profit of the business by way of respective grounds.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 46 M/s Vibgyor Texotech Pvt. Ltd. 50. We find that the assessee as well as Revenue in their grounds has assumed the net profit rate applied by the CIT(A) the rate of the 3%, whereas from the above finding of the Ld. CIT(A), we notice that Ld. CIT(A) has accepted the loss declared by the assessee in unaudited accounts, which were enclosed along with the return of income.
As far as finding of the Ld. CIT(A) of accepting the loss declared in unaudited accounts pertaining to business operation of manufacturing and sale of textile products is considered , we are of the opinion that the finding of the Ld. CIT(A)is self-contradictory. In his finding he is admitting that assessee has not produced any material to show the correctness of the unaudited book results, despite ,he is directing the Assessing Officer to accept the same result after referring to the report of ICRA management consulting services Ltd (supra). In our opinion, the result of the assessee for subsequent assessment year i.e. AY 2010-11 is more comparable to the result for assessment year 2009-10. The profit results discussed
ITA No. 1484/M/2018 & ITA No. 487/M/2019 47 M/s Vibgyor Texotech Pvt. Ltd. in Report (supra) might be of companies having varied assets and turnover, therefore averaging out of the result of multiple No. of companies, is not correct comparable for the assessee. In our opinion, the action of the Ld. Assessing Officer in estimating the profit on the basis of book result for AY 2010-11 is justified as far as comparability is concerned. The assessee has not provided any instances of other companies along with their asset base and turnover, which could form a basis for estimating the profit of the assessee for the year under consideration. The Ld. CIT(A) has observed that while estimating net profit rate at the 5% of turnover, the Assessing Officer as relied on the book result for assessment year 2007-08 and assessment year 2010-11. In view of above circumstances, we set aside the finding of the Ld. CIT(A) on the issue in dispute and uphold the finding of the Assessing Officer. Further, the direction of the Ld. CIT(A) to exclude the export incentives from the non-operative income is also not justified . The Assessing Officer has applied the net profit rate of assessment year 2010-11 worked
ITA No. 1484/M/2018 & ITA No. 487/M/2019 48 M/s Vibgyor Texotech Pvt. Ltd. out on the basis of audited accounts. If the said incentive has been separately considered as part of the non-operative income in assessment year 2010-11, same cannot be considered as part of book result for the year under consideration. Accordingly, we direct the Assessing Officer to examine the addition of export incentive as non-operative income on comparative book results for assessment year 2010-11. Accordingly, the ground No. two of the appeal of the assessee is dismissed, whereas solitary ground No. one of the appeal of the revenue is allowed.
In ground No. 3, the assessee is aggrieved with the direction of the Ld. CIT(A) with regard to the interest payment received. In ground No. 11 (additional ground), the assessee has challenged addition of Rs.26, 35, 198/-as interest income.
We find that the Ld. CIT(A) directed the Assessing Officer for considering the interest income from fixed deposits being non- operative income, for addition separately from the estimation of
ITA No. 1484/M/2018 & ITA No. 487/M/2019 49 M/s Vibgyor Texotech Pvt. Ltd. profit from business operations. We are of the opinion that when the Assessing Officer has applied the book results for AY 2007-08 and 2010-11 for estimating the book results for the year under consideration, then treatment for the interest income has also to be given in the year under consideration, what has been given by the assessee in assessment year 2007-08 and 2010-11. Before us, the assessee has not substantiated that said interest income for assessment year 2010-11, was not part of business operations. In absence of any supporting evidence by the assessee, the action of the Ld. CIT(A) in directing to add the interest income from fixed deposit to the estimated profit from business operation is justified and accordingly upheld. The ground No. three and additional ground No. 11 of the appeal are accordingly dismissed.
The ground no. 4 of the assessee relates to disallowance of Rs.5,53,92,352/-under section 40(a)(ia) of the Act for non- deduction of tax at source on various expenditure incurred. The
ITA No. 1484/M/2018 & ITA No. 487/M/2019 50 M/s Vibgyor Texotech Pvt. Ltd. Assessing Officer in para 11.1 of the assessment order observed as
under:
11.1 The assessee company has not filed its accounts audited and it has also not filed the TDS return. In view of the above, in the course of assessment proceedings the assessee has been asked to file party- wise details of expenditure claimed on account of following heads alongwith details of TDS deducted while making such payments. It has also been show caused as to why the expenditure claimed without deduction of TDS should not be disallowed u/s.40a(ia) of the Act. S.N. Nature of Expenditure Amount (Rs.) Section under which the expenditure liable for TDS 1. Professional charges 47,95,423/- 194J 2. Clearing & forwarding 1,64,73,891/- 194C charges 3. Labour & processing 1,72,47,682/- 194C charges 4. Commission 12,73,295/- 194J Total 3,97,90,291/- 55. The Ld. CIT(A) upheld the disallowance relying on the decision
of the Patna Bench of the Tribunal in the case of Prabhat
construction company (supra). The Tribunal in said case held that
provision of section 40(a)(ia) shall apply in case of estimation of the
income under section 145(3) of the Act.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 51 M/s Vibgyor Texotech Pvt. Ltd. 56. Before us the Ld. counsel of the assessee relied on the decision dated 10/03/2017 of the Hon’ble Supreme Court in the case of M/s Pradeep Singh Wazir Vs CIT in civil appeal No. 3891/2017, wherein the Hon’ble Supreme Court held as under:
“The appellant/assessee is involved in undertaking transport contracts. During the relevant year, it entered into a contract with the army for carriage of goods and personnel etc. In this regard, an amount of Rs. 74,81,106/- is said to have been received from the army including interest element of Rs. 1043/-. An amount of Rs. 57,98,885/- was debited by the assessee as hiring charges. Upon verification, the Assessing Officer found that the details of the vehicles provided by the assessee through which the contract was supposed to be executed and hiring charges paid were cars, scooters, tractors etc. Confronted with the situation, the assessee withdrew the details of the vehicles furnished earlier, which were stated to have been hired by it, and furnished another list of vehicles with some details of trips undertaken by each vehicle. Return of income was filed by the appellant for the Assessment Year 2008-09. The Assessing Officer vide its order dated 27.12.2010 by invoking the provisions of Section 40(a) (ia) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'), disallowed the amount of Rs.55,59,585/- and added it back to the income of the assessee. The Assessing Officer computed the income of the assessee as per the provisions of Section 144 of the Act which worked out to RS.9,93,069/-. Against the order of the Assessing Officer, an appeal was preferred by the assessee. The Commissioner of Income Tax (Appeals) vide its order dated 09.07.2012 reduced the net profit
ITA No. 1484/M/2018 & ITA No. 487/M/2019 52 M/s Vibgyor Texotech Pvt. Ltd. rate from 12.5% to 5% and held that the Assessing Officer could not have made any disallowance under Section 40(a) (ia) of the Act. Aggrieved by the said order, the Revenue filed an appeal before the Income Tax Appellate Tribunal(hereinafter referred to as the 'Tribunal'). The Tribunal vide its order dated 29.11.2012 set aside the findings of disallowance under Section 40(a)(ia)of the Act. The assessee being aggrieved filed an appeal before the High Court. The High Court vide impugned judgment dated 01.06.2015 dismissed the appeal. Hence, the present appeal.
We find that the High Court has referred to the provisions of Sub- Section (3) of Section 194C of Act as well as Rule 29D of Income Tax Rules. Sub-Rule (3) of Rule 29D stipulates that the particulars under the third proviso to clause (i) of sub-section (3) of Section 194C to be furnished by a contractor responsible for paying any sum to such sub-contractor shall be in Form No. 15J. The High Court has treated the filling of the said Form as a prerequisite and on that basis held that provisions of Section 40 (a) (ia) of the Act could not be invoked. In the process the High Court has failed to notice that even that aspect of not filling Form No. 15J is kept aside, in the present case, the income of the assessee on the total contract receipts of Rs.74,81,106/- had been reached at by applying the net rate of profit after reduction and, thus, no further addition could be made under Section 40 (a) (ia) of the Act. This is the reason whichis rightly ascribed by the Commissioner of Income Tax (Appeals) to the order.”
56.1 Respectfully following the ratio of the decision of the Hon’ble
Supreme Court, no disallowance under section 40(a)(ia) Act is called
ITA No. 1484/M/2018 & ITA No. 487/M/2019 53 M/s Vibgyor Texotech Pvt. Ltd. for when invoking section 145(3) of the Act net, profit rate has been applied for estimation of profit. The ground No. four of the appeal of assessee is accordingly allowed.
The ground No. 5 (five) of the appeal of the assessee relates to addition of Rs.7,23,82,604/- for loan outstanding held as unexplained. Inground No. six, the assessee has challenged addition in respect of fixed assets.
The finding of the Assessing Officer in relation to unsecured loan and fixed assets is reproduced as under:
“12.1 As enumerated above, in the audited balance sheet for the year ending 31- 03-2009 submitted by the assessee with SBI, there is an unsecured loan of Rs. 1,46,24,270/-. However for the year ending 31-03-2009 the assessee has submitted unaudited accounts wherein it has no unsecured loan creditor. Therefore in the course of assessment proceedings the assssee has been asked to file the name, address, PAN and the source of payment in respect of repayment of loan credit outstanding as on 31-03-2009 Rs.1,46,24,270/-In response, the assessee has not stated anything. In absence of any explanation and also considering the facts of the case and time barring mattering involved in this case, the payment made by the assessee to clear the unsecured loan amounting to Rs. 1,46,24,270/- is considered as unexplained. Accordingly, the payment inade by the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 54 M/s Vibgyor Texotech Pvt. Ltd. assessee to the loan creditor of Rs. 1,46,24,270/- is considered as deemed income of the assessee. Thus, an addition of Rs. 1,46,24,270/- is made to the total income of the assessee.
12.2 Similarly, for the year ended 31-03-2009 the assessee has shown net block of asset of Rs. 17.63,26,729/-. However, in the accounts submitted before me the opening WDV of the same was shown at Rs. 15,13,06,969/- Thus there is a difference in the opening balance of fixed assets of Rs.2,50,19,760/- (17,63,26,729- 15,13,06,969). When this fact was brought to the notice of the assess: for explanation, it failed to file any details/explanation thereof. In absence of any lanation and considering the facts of the case the difference of Rs. 2,50,19,760/- in the value of fixed asset is considered as written off by the assessee, which is not an allowable deduction under the provisions of the Act. Thus, the difference in the value of fixed asset of Rs.2,50,19,760/- being the written off is rejected and added to the total income. Thus, an addition of Rs.2,50,19,760/- is made to the total income of the assessee.”
58.1 The Ld. CIT(A) the upheld the addition of unsecured loan,
however deleted the addition in respect of fixed asset. The relevant finding of the Ld. CIT(A) is reproduced as under:
“4.5 So far as fifth ground of appeal is concerned, it is seen that the AO has made addition of Rs. 1,46,24,270 in respect of unexplained repayment of loan by the appellant. Similarly, the AO has made addition of Rs.2,50,19,760 towards discrepancy in asset block because as per the balance sheet submitted to the bank closing value of net block of asset was Rs. 17,63,26,729/- whereas in the unaudited balance sheet filed along with
ITA No. 1484/M/2018 & ITA No. 487/M/2019 55 M/s Vibgyor Texotech Pvt. Ltd. the return of income opening WDV was shown at Rs.15,13,06,969/-. In this regard the appellant has submitted that the amount of Rs.1,46,24,270 represented fictitious unsecured loans, it was appearing in the balance sheet given to the bank only as a balancing figure. Therefore, there could have been no repayment. Moreover, the AO has rejected the books of accounts and has also admitted that information collected from the bank is incorrect, therefore, the addition was not justified. As regards discrepancy in fixed asset figures, the appellant has submitted that the value of fixed assets shown in the balance sheet received from the bank is as per provisions of the Companies Act whereas the balance sheet submitted alongwith the return of income is as per the provisions of Income Tax Act. Moreover, the books of account have been rejected by the appellant therefore, the comparison is not justified. The appellant has also stated that the copy of balance sheet obtained from the bank has not been provided to it. I have considered the submission of the appellant. So far as providing copy of balance sheet obtained from the bank to the appellant is concerned, the same has been filed with the bank by the appellant only, therefore, it is not understood as to why the AO should have provided the same to the appellant once again. Moreover, no evidence has been furnished by the appellant in respect of the submission made before the undersigned, therefore, in view of the ratio of the decision quoted above, the additions made by the AO towards unexplained repayment of loan is hereby confirmed. So far as addition towards difference in block of assets is concerned, the same is not justified because the appellant has not taken any benefit for the same in the accounts submitted before the AO. The appellant has not written off the difference in the unaudited accounts submitted before the A and depreciation has also been claimed only on the opening WDV of the block of assets as appearing in the accounts filed before the AO, therefore, there is no case for making any further addition.
ITA No. 1484/M/2018 & ITA No. 487/M/2019 56 M/s Vibgyor Texotech Pvt. Ltd. Accordingly, the AO is directed to delete the addition of Rs.2,50,19,760 made in this regard”. 59. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We are of the opinion that as far as estimation of the income is concerned, the computation of the profit by the assessee has been rejected, which does not mean that entries of unsecured loan recorded in those books of accounts are of no relevance. The addition for unsecured loan is made in terms of section 68 of the Act where the assessee failed to explain source and nature of the credit in its books of accounts. The credit in books of accounts shown as received by way of unsecured loan are independent from estimation of profit from business operation. It is for the assessee to explain source of the said credit and in failure to do so, said credit is liable to be added under section 68 of the Act. We find that Tribunal Hyderabad Bench in the case of Smt. Shoba Gupta v. ITO in ITA No. 461/Hyd/2013 for AY 2009-10 has discussed this issue in detail and held that addition u/s 68 of the Act can be made along with estimation of income unless
ITA No. 1484/M/2018 & ITA No. 487/M/2019 57 M/s Vibgyor Texotech Pvt. Ltd. the assessee establish that unexplained cash credit was arising out
of the profit of business of assessee. The relevant finding in para 6 to
7 is reproduced as under :
“6. We have heard both the parties and perused the material on record. In this case, original assessment has been completed u/s 144 of the Act. The assessee has not produced necessary evidences before the lower authorities in support of her case. Before us, the assessee has filed certain evidences to say that the assessee is in the first year of business and also filed confirmation of income tax details in the form of PAN and copy of returns of income in case of Smt. Radhika Gupta. Being so, we deem it fit and proper to remit the issues back to the file of the Assessing Officer for fresh consideration. Further, we also make it clear that even if the income is estimated, the Assessing Officer may invoke the provisions of section 68/69 of the Act as Smt. Shobha Gupta ==================== held by the Tribunal in case of Sri P.V. Sitaramaswamy Naidu in ITA No. 264/Hyd/12 vide order dated 09/01/2013.
We have carefully gone through this judgement. This judgement is with regard to allowability of deduction while computing business income of the assessee. Now, we are concerned with the addition made u/s. 68 of the Act. In the present case, the Assessing Officer made addition with regard to credit shown in the name of Ms. Devi Indukuri at Rs. 30,07,392 and in the name of Mr. Nandyala Bhaskar Reddy at Rs. 80,00,000 totalling to Rs. 1,10,07,392. When the credit entry is shown in the books of account it is incumbent upon the assessee to explain the nature and source of credit, creditworthiness of the party and genuineness of the transaction. The fact that the entries are shown in the books of account of the assessee whose income had already been computed on the basis of the estimate but not on the return filed by the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 58 M/s Vibgyor Texotech Pvt. Ltd. assessee, that does not prevent the ITO from treating, but entitles him to treat, the unexplained cash credit as income from undisclosed sources which falls under the head of income "income from other sources". Unless the assessee, by independent and satisfactory evidence, establishes that those amounts relate or referable to the undisclosed income from known or disclosed sources viz., the business, whose income had already been estimated. In the present case, the assessee did not able to establish the cash credits mentioned above as genuine credits. The assessee's stand from the beginning and also before us is that the cash credits are genuine. The assessee never took specific stand that these unexplained cash credits are referable to the income from disclosed sources viz., business, whose income has been estimated by the Revenue authorities. In order to delete this addition, the assessee is bound to explain the source of credit, genuineness of the transaction and the capacity of the lender to advance the same. As the assessee failed to explained these criteria, we have no hesitation in confirming the action of the CIT(A). For this purpose, we place reliance on the judgement of jurisdictional High Court in the case of CIT v. Maduri Rajaiahgari Kistaiah (120 ITR 294). Further, we Smt. Shobha Gupta ==================== place reliance on the judgement of Hon'ble Supreme Court in the case of CIT v. Devi Prasad Viswanath Prasad (72 ITR 194) wherein held that on rejection of books of account, business income estimated, addition towards unexplained cash credit separately valued.
Further, the approach of the various High Courts' is not uniform on the above aspect as would be seen from the following cases. In CIT v. Aggarwal Engg. Co. (Jai.) (2006) 206 CTR (P&H) 648, the Punjab & Haryana High Court held, relying on decision in CIT vs. Banwarilal Banshidhar (1998) 148 CTR (All) 533; (1998) 229 ITR 229 (All), that no separate addition on account of cash credit and on account of unexplained payments for purchases made outside the books can be made
ITA No. 1484/M/2018 & ITA No. 487/M/2019 59 M/s Vibgyor Texotech Pvt. Ltd. once the net profit rate is applied on contract receipts of an assessee for estimating his income from contract work. Even when the books of account relating to the assessee's business are rejected and income from such business is determined on estimate basis, a separate addition (which may not exceed the difference between the income as estimated by the Department and the income/loss as per books) may be made under section 68 towards cash credits which are not explained or which are not properly explained. This is because the source of the former is business whereas for the latter the Department does not have to locate any particular source [Kale Khan Mohammed Hanif vs. CIT (1963) 50 ITR 1 (SC) impliedly overruling Ramcharitar Ram Harihar Prasad vs. CIT (1953) 23 ITR 301 (Pat) and impliedly approving Srinivas Ramkumar vs. CIT (1948) 16 ITR 254 (Pat) and G.M. Chenna Basappa vs. CIT (1958) 34 ITR 576 (AP) on this point]. In this case, the Supreme Court held that the ITO having assessed the income of the assessee on a percentage basis, was also justified in treating the unexplained cash credit as profits from an undisclosed source. Repelling the contention that the entries found in the books of account of the business must be referable to the income of the business which had been computed on the basis of an estimate without accepting the return filed by the assessee, which amounts to double taxation of the same income, the Court ruled thus:
"The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by a credit entry in the books of account of that source Smt. Shobha Gupta ==================== cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held ..... if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no
ITA No. 1484/M/2018 & ITA No. 487/M/2019 60 M/s Vibgyor Texotech Pvt. Ltd. double taxation. It is not a case where the income sought to be taxed was held to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate ..... the question whether income represented by an entry in the books of a business is income of that business or of another business would have to be decided on the facts which showed the business to which it belonged. But quite clearly, the answer to that question would not depend on whether the income from the first mentioned business had been computed on the basis of a return filed or of an estimate of the income made by the taxing authorities Therefore, it cannot be said that the taxing authorities were precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income they had previously computed on a percentage basis."
There is no presumption that any cash credit entry found in the business accounts of the assessee is related to his concealed income from the same business [CIT vs. Maduri Rajaiahgari Kistaiah (1979) 120 ITR 294 (AP) where the assessee pleads that the impugned cash credits came out of suppressed profits which are already included in the income estimated from business on rejection of the books, it is for him to prove that it is so [CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) reversing Devi Prasad Vishwanath Prasad vs. CIT (1963) 50 ITR 641 (All) and impliedly approving on this point Maddi Sudarsanam Oil Mills Co. vs. CIT (1959) 37 ITR 369 (AP) and CIT vs. Krishna Mining Co. (1972) 83 ITR 860 (AP). The Supreme Court in this case of CIT vs. Devi Prasad Vishwanath Prasad observed thus :
"There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is Smt. Shobha Gupta ==================== not satisfactorily explained and the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 61 M/s Vibgyor Texotech Pvt. Ltd. business income estimated by him under section 13 of the IT Act, after rejecting the books of account of the assessee as unreliable ..... Whether in a given case the ITO may tax the cash credit entered in the books of account of business, and at the same time estimate the profit must, however, depend upon the facts of each case ..... Where there is an unexplained cash credit, it is open to the ITO to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed."
The Andhra Pradesh High Court in CIT vs. Janab Mohd. Suleman [Referred Case No. 13 of 1968 dt. 11th Nov., 1970] has expressed the same view on similar facts and circumstances. In Karnal Motors vs. CIT (2003) 180 CTR (Raj) 166 it was held that additions under s. 68 could not be telescoped with the trading addition where the assessee had not admitted that unexplained cash credits came out of black money earned in the current year or in an earlier year. In our opinion, a separate addition under s. 68 towards unexplained credit is sustainable in spite of addition made to the declared trading results is a question of fact which is to be decided based on circumstances in each case.
The benefit of telescoping was also considered by the Supreme Court in Anantharam Veerasingaiah & Co. vs. CIT (1980) 16 CTR (SC) 187 : (1980) 123 ITR 457 (SC) approving Lagadapati Sunna Ramaiah vs. CIT (1956) 30 ITR 593 (AP) observed that:
"There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of
ITA No. 1484/M/2018 & ITA No. 487/M/2019 62 M/s Vibgyor Texotech Pvt. Ltd. that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such Smt. Shobha Gupta ==================== a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the Revenue to rely on all the circumstances pointing to that conclusion."
Thus, as explained by the Supreme Court, income from intangible additions is available to the assessee for, inter alia, introducing amounts in his account books. If any unexplained cash credits can be reasonably related to the amount covered by the intangible additions made in the past or in that very year, necessary set off may be given by the authorities on that account. In each case, the true nature of the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. However, where in the earlier years, there was
ITA No. 1484/M/2018 & ITA No. 487/M/2019 63 M/s Vibgyor Texotech Pvt. Ltd. disallowance of expenditure on the ground that there was no evidence though the requisite amount was in fact paid, it cannot be said that the corresponding amount is available to the assessee for use later.
Smt. Shobha Gupta ====================
Under section 68, the burden is on the assessee to prima facie prove the nature and source of the cash credit found in his books and the explanation in regard thereto must necessarily be factual but not argumentative. A view that the cash credits to the extent of the past intangible additions stand automatically explained would practically dispense with the necessity of the assessee giving any explanation of fact under section 68 where intangible additions were made in the earlier years and hence such a view is untenable. In the case of CIT vs. Manik Sons (1969) 74 ITR 1 (SC) it was held that only if the unexplained cash credit can reasonably be related to the amount covered by the intangible addition made in the past, or in the very year, necessary set off can be allowed. The principle that it is the assessee who should give a satisfactory explanation regarding cash credits is in no way rendered inapplicable merely because the assessee was found to have earned some undisclosed income in some earlier years for which additions had been made in the relevant assessments. If it is the assessee's case that the cash credits found in his books came out of the addition made to his income for an earlier year, it is undoubtedly open to him to put forward such a plea while furnishing explanation regarding such cash credits. While the fact of making of intangible additions in the earlier years is undoubtedly a matter to be considered by the Assessing Officer in judging whether the cash credits are satisfactorily explained by the assessee, the burden of proof rests squarely on the shoulders of the assessee to establish the truth and tenability of the explanation furnished by him. In other words, the assessee's explanation must satisfy the Income-tax authorities that the
ITA No. 1484/M/2018 & ITA No. 487/M/2019 64 M/s Vibgyor Texotech Pvt. Ltd. cash credits represent intangible additions made in the earlier years. For weighing the assessee's explanation, the assessee's conduct, his explanation at the initial stage and the shift, if any, in later stages and also the material, if any, linking up the cash credit entries would be relevant factors. The assessee, instead of merely raising an argument, must support his claim by proper explanation, affidavit and material. Thus, there is no general or absolute rule to the effect that whenever additions to profits are made, they must be regarded as funds represented in the books of account as cash credits. The question depends on the findings of fact. If there is no connection found between the cash credits and the additions made to profits, the assessee would not be entitled to set off cash credits against the past intangible addition.
Smt. Shobha Gupta ====================
Since it is for the assessee to provide the explanation for cash credits, when the assessee has not pleaded that the cash credits came out of the past intangible additions, it would not be open to the Tribunal to hold that the cash credits would be covered by such additions [CIT vs. G. M. Chennabasappa (1959) 35 ITR 261 (AP). The omission to claim set off of past intangible additions against cash credits would give rise to a presumption that the former amounts were not available for set off. When the alternate plea that tangible additions in the past could take care of cash credits of current year is not taken at the earlier stage and no materials are placed on record to substantiate the same, rejection of such plea would be justified. [R. Dalmia (Decd.) vs. CIT; (2002) 172 CTR 180 (Del) : (2002) 255 ITR 401 (Del)]. "
Further, regarding estimation of income, as we have directed the assessee to produce the books of account maintained by her, if the Assessing Officer finds any discrepancy in the books of account, he is at liberty to make his best judgment in accordance with law.”
ITA No. 1484/M/2018 & ITA No. 487/M/2019 65 M/s Vibgyor Texotech Pvt. Ltd. Accordingly, respectfully following finding of the Tribunal (supra), we uphold the finding of the Ld. CIT(A) on the issue in dispute. The ground No. 5 (five) of the appeal of the assessee is accordingly dismissed.
As for as ground 6 (six) of the appeal is concerned, the Ld. CIT(A) has already allowed relief to the assessee on the addition of the fixed assets discrepancy and revenue has not challenged said finding of the Ld. CIT(A), therefore the ground No. six raised by the assessee is infructuous and accordingly, dismissed.
In ground No. 7 (seven), the assessee has challenged the legality of the order being passed under section 143(3) of the Act read with 147 instead of section 144 of the Act, relying on the decision of Amritsar Bench (supra).
Before us, neither any copy of the decision of the Amritsar Bench cited in ground was submitted nor it was demonstrated as why the order should have been passed by the Assessing Officer
ITA No. 1484/M/2018 & ITA No. 487/M/2019 66 M/s Vibgyor Texotech Pvt. Ltd. under section 144 of the Act despite appearance put up by the assessee in assessment proceedings. In view of above, the ground No. 7 (seven) of the appeal is dismissed.
In the result, the appeal of the assessee is partly allowed, whereas appeal of the Revenue is allowed.
Order pronounced in the open Court on 28/04/2022.
Sd/- Sd/- (AMARJIT SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/04/2022 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai