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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
Date of Hearing – 14.06.2017 Date of Order – 06.09.2017
2 Induja Traders Pvt. Ltd. O R D E R PER SAKTIJIT DEY, J.M.
Aforesaid appeals by the assessee are against two separate orders, both dated 26th March 2014, passed by the learned Commissioner (Appeals)–36, Mumbai, for the assessment year 2007– 08 and 2010–11.
ITA no.4075/Mum./2014
In this appeal, assessee has raised three grounds.
In ground no.1, assessee has challenged the re–opening of assessment under section 147 of the Income-tax Act, 1961 (for short "the Act").
Brief facts are, the assessee a Private Limited Company, filed its return of income for the assessment year under dispute on 30th October 2017, declaring income of ` 16,09,660. The return of income so filed was processed under section 143(1) of the Act. Subsequently, the Assessing Officer received information from the ITO, Ward– 18(2)(4), Mumbai, that during the assessment proceedings in case of one Ms. Sandhya V. Purecha, it was found that the assessee had purchased painting on payment of cash amounting to ` 12,50,000. The aforesaid fact was confronted to the assessee in the course of assessment proceedings for assessment year 2008–09 and ultimately
3 Induja Traders Pvt. Ltd. the said amount was added to the income of the assessee for assessment year 2008–09. However, while deciding assessee’s appeal for the said assessment year, the learned Commissioner (Appeals) deleted the addition but directed the Assessing Officer to add the amount in assessment year 2007–08. In view of the aforesaid, the Assessing Officer proceeded to re–open the assessment for the impugned assessment year by issuing notice under section 148 of the Act. In the course of assessment proceedings, it was found that as per the information obtained during the assessment proceedings for assessment years 2008–09 and 2009–10, the assessee was engaged in the activity of providing accommodation bills on commission basis. It was also found that during a survey operation, Jintendra B. Salecha, director of the assessee company in his statement recorded on 22nd December 2008, had accepted the fact of providing accommodation entry on commission basis and also admitted and explained the modus–oprandi of providing accommodation entries through cheque discounting. On the basis of director’s statement as well as other material on record, the Assessing Officer found that the assessee was only providing accommodation entry and receiving commission between 0.5% and 1.5%. He also found that in assessment years 2008–09 and 2009–10, while deciding assessee’s appeal, the learned Commissioner (Appeals) has restricted the rate of commission to 0.5% of the total turnover as against 0.75% adopted by the Assessing
4 Induja Traders Pvt. Ltd. Officer. He also noted that the orders passed by the learned Commissioner (Appeals) in those assessment years were accepted by the Department. On the basis of aforesaid facts, the Assessing Officer called upon the assessee to show cause why his books of account should not be rejected and commission income @ 0.5% of the total turnover should not be added back to the income of the assessee. In response to the query raised by the Assessing Officer, it was submitted by the assessee that out of the total sales of ` 75.08 crore booked during the year an amount of ` 40.01 crore related to domestic transactions. Further, the assessee submitted that it has earned commission @ 0.1% to 0.3% and on the major part of the transactions assessee has earned commission @ 0.15%. He, therefore, requested the Assessing Officer to apply same rate of commission. The Assessing Officer, however, did not find merit in the submissions of the assessee and after rejecting the books of account computed the commission income at 0.5% of the total sales turnover shown by the assessee at ` 75.08 crore. The assessee having declared income of ` 16,09,660, the Assessing Officer added the balance amount of ` 21,54,730.
Further, the Assessing Officer called upon the assessee to explain the source of cash payment of ` 12.50 lakh for purchase of painting. As alleged by the Assessing Officer, the assessee could not satisfactorily explain the source of cash payment of ` 12.50 lakh with 5 Induja Traders Pvt. Ltd. supporting evidence. Accordingly, the Assessing Officer after rejecting the books of account added back the amount of ` 12.50 lakh to the income of the assessee. Being aggrieved of the assessment order so passed, assessee preferred appeal before the learned Commissioner (Appeals) on the legal issue of re–opening of assessment under section 147 of the Act and on the merit of addition made.
However, the learned Commissioner (Appeals) did not find merit in any of the grounds raised by the assessee, hence, dismissed the appeal.
Learned Authorised Representative reiterating the stand taken before the learned Commissioner (Appeals) submitted, the Assessing Officer without supplying reasons recorded and giving an opportunity to raise objection against the re–opening has completed the assessment. Therefore, the assessment order passed under section 143(3) r/w section 147 of the Act is invalid. He submitted, even otherwise also, the Assessing Officer did not have sufficient material to form his belief that income has escaped assessment. Merely on the basis of observations made by the first appellate authority assessment cannot be re–opened.
Learned Departmental Representative on the other hand, justified the re–opening of assessment by submitting that the 6 Induja Traders Pvt. Ltd. Assessing Officer had specific information before him, the assessee had purchased painting by making payment in cash for an amount of ` 12.50 lakh. Learned Departmental Representative submitted, during the assessment proceedings, the assessee was confronted with the reasons for re–opening of assessment and the assessee was very much aware of the reasons for re–opening of assessment and the assessee was very much aware of the reasons on which assessment was re–opened. He submitted, the assessee never asked for communication of reasons in writing neither the assessee raised objection against re–opening of assessment under section 147 of the Act. Therefore, the allegation of the assessee that reasons recorded were not communicated to the assessee or not giving opportunity to raise objection against re–opening are incorrect statement of facts, hence, should be rejected.
We have heard rival contentions and perused the material available on record. Undisputedly, for the impugned assessment year, originally there was no scrutiny assessment and the return of income filed by the assessee was proposed under section 143(1) of the Act. Therefore, it is manifest, the issue relating to the source of purchase of painting amounting to ` 12.50 lakh was never examined by the Assessing Officer. It is also evident from record, subsequently, during the survey conducted in case of a third party it come to the notice of 7 Induja Traders Pvt. Ltd. the Assessing Officer that the assessee had purchased the painting on cash payment of ` 12.50 lakh. This fact was confronted to the assessee in the course of assessment proceedings for assessment year 2008–09. When the assessee could not satisfactorily explain the source of cash payment, the Assessing Officer added the amount in assessment year 2008–09. However, the learned Commissioner (Appeals) finding that the cash payment was made on 24th January 2007, i.e., in financial year 2006–07, deleted the addition made in assessment year 2008–09, while directing the Assessing Officer to make the addition in assessment year 2007–08. From the aforesaid facts, it is clear that not only the Assessing Officer was in possession of information that the assessee has made cash payment of ` 12.50 lakh while purchasing the painting, but, there was a direction by the learned Commissioner (Appeals) to add the amount in assessment year 2007–08. In view of the aforesaid, the Assessing Officer was justified in re–opening the assessment under section 147 of the Act. Therefore, the contention of the learned Authorised Representative that without sufficient material assessment has been re–opened under section 147 of the Act is devoid of merit. As far as the alternative contention of the learned Authorised Representative that the Assessing Officer had not provided him in writing the reasons recorded for re– opening of assessment and further, has not provided opportunity to the assessee to raise objections against the re–opening of assessment,
8 Induja Traders Pvt. Ltd. it is evident on record, in compliance to the notice issued under section 148 of the Act, the assessee simply requested the Assessing Officer to treat the original return of income filed as a return in response to the notice under section 148 of the Act. The assessee never requested the Assessing Officer to communicate the reasons for re–opening the assessment in writing nor he raised any objections before the Assessing Officer challenging the validity of proceedings under section 147 of the Act. On the contrary, the facts on record reveal that in course of assessment proceedings, the Assessing Officer specifically brought to the notice of the assessee the reasons for which the assessment was re–opened. In fact, the assessee on a query raised by the Assessing Officer has submitted his reply on 27th December 2012, explaining the source of cash payment for ` 12.50 lakh. Thus, from the aforesaid fact, it is evident that the assessee was aware of the reason for which the assessment was re–opened. In any case of the matter, when the assessee did not ask for communication of reasons recorded and has not raised any objection during the assessment proceedings challenging the validity of re–opening under section 147 of the Act, after completion of assessment, assessee cannot raise these issues, therefore, ground no.1 raised by the assessee being devoid of merit is dismissed.
9 Induja Traders Pvt. Ltd. 10. In ground no.2, assessee has challenged the addition of ` 12.50 lakh made by the Assessing Officer and confirmed by learned Commissioner (Appeals).
Brief facts are, during the assessment proceedings, on the basis of information obtained during the assessment proceedings, Ms. Sandhya V. Kurcha, it came to the notice of the Assessing Officer that the assessee had purchased a painting on payment of cash amounting to ` 12.50 lakh. This fact was confronted to the assessee in the course of assessment proceedings for assessment year 2008–09 and ultimately, the Assessing Officer added the amount to the income of the assessee. However, the learned Commissioner (Appeals) noticing that the assessee had purchased painting in assessment year 2007–08 deleted the addition in assessment year 2008–09 while directing the Assessing Officer to make the addition in assessment year 2007–08. In the course of assessment proceedings for the impugned assessment year, the Assessing Officer again called upon the assessee to explain source of cash payment of ` 12.50 lakh. In reply dated 27th December 2012, it was explained by the assessee that the painting was purchased out of funds available with the assessee. However, the Assessing Officer did not find merit in the explanation of the assessee and proceeded to add the amount of ` 12.50 lakh as unexplained investment. The assessee challenged the addition before the learned
10 Induja Traders Pvt. Ltd. Commissioner (Appeals). On the basis of submissions made by the assessee, learned Commissioner (Appeals) called for a remand report. On the basis of the remand report submitted by the Assessing Officer learned Commissioner (Appeals) ultimately sustained the addition made by the Assessing Officer. Learned Authorised Representative submitted, the assessee had sufficient funds in its books to make the cash payment for purchase of the paining. In this context, he drew our attention to the extract of the cash book, a copy of which is at Page– 74 of the paper book. He also drew our attention to the confirmation of the seller. Learned Authorised Representative submitted, since the source of cash payment was duly explained the addition should be deleted.
Learned Departmental Representative submitted, the assessee admittedly, is a entry provider, therefore, the books of account maintained by the assessee being unreliable were rejected. That being the case, assessee’s contention that cash payment was out of cash in hand as reflected in the cash book is irrelevant.
We have heard rival contentions and perused the material available on record. The issue before us is, whether the assessee has satisfactorily explained the source of cash payment of ` 12.50 lakh for acquiring the painting. It is the contention of the assessee that the cash payment was made out of the cash in hand available with the 11 Induja Traders Pvt. Ltd. assessee as per the cash book. Apart from the aforesaid explanation, assessee has not furnished any other corroborative evidence to either prove the opening cash balance or availability of cash in hand. It is also a fact on record that the assessee has indulged in activities of providing accommodation entries. This fact has been admitted by the director of the company in a statement recorded from him. Therefore, it is proved beyond doubt that the books of account maintained by the assessee are not reliable. In the aforesaid circumstances, onus is heavily on the assessee to prove the source of cash payment which, in our view, the assessee has failed to discharge. The extract of cash book referred to by the learned Authorised Representative being self– serving, the document cannot be accepted on its face value. Therefore, we find no merit in the submissions of the assessee. Ground no.2 raised by the assessee is dismissed.
In ground no.3, the assessee has challenged the addition of ` 21,54,730.
During the assessment proceedings, the Assessing Officer on the basis of information available on record found that the assessee was engaged in providing accommodation bills on commission basis. As observed by the Assessing Officer, in the course of survey proceedings on 22nd December 2008, one of the directors of the assessee company has categorically admitted that the company was providing
12 Induja Traders Pvt. Ltd. accommodation bills on commission basis. On the basis of the aforesaid facts, assessment in case of the assessee for assessment year 2008–09 and 2009–10, were completed by assessing commission income @ 0.75% of the total turnover which was reduced to 0.50% by the learned Commissioner (Appeals). In fact, in response to a query raised by the Assessing Officer during the assessment proceedings, the assessee in its reply dated 4th January 2013, accepted the fact that it was providing accommodation bills and earning commission @ 0.1% to 0.3%. On the basis of the aforesaid facts, the Assessing Officer rejected the books of account and proceeded to compute commission income @ 0.5% on the total turnover shown by the assessee. Though, the assessee challenged the addition made by the Assessing Officer, however, the learned Commissioner (Appeals) sustained the addition.
Learned Authorised Representative submitted, the total turnover shown by the assessee comprised of export sales as well as local sales. He submitted, as far as local sales are concerned, the assessee has actually not carried out the sales transactions but was providing accommodation bills. However, as far as export sales are concerned, they are genuine. He, therefore submitted, the commission income should be restricted to the turnover relating to domestic sales. He further submitted, the estimation of commission income @ 0.5% is on higher side, hence, should be reduced to 0.35%.
13 Induja Traders Pvt. Ltd.
Learned Departmental Representative, though, supported the reasoning of the Assessing Officer and learned Commissioner (Appeals), however, he submitted, assessee’s claim regarding export turnover can be sent for examination by the Assessing Officer and the unverifiable exports should be added fully. As far as rate of commission is concerned, the learned Departmental Representative submitted, during the survey, the director of the company has admitted that the company was earning 0.5% to 0.15%. Therefore, the rate of commission applied by the Assessing Officer is correct.
We have heard rival contentions and perused the material available on record. The factual matrix emerging from record clearly establishes that the assessee was providing accommodation bills without entering into actual sales transactions. Therefore, the books of account were rightly rejected. In fact, the assessee in the course of survey as well as during the impugned assessment proceedings has accepted the fact that it was providing accommodation bills. However, it is the contention of the assessee that as far as export sales are concerned, they are genuine transactions. Hence, such turnover should be excluded for estimating commission income. As could be seen from the facts on record, out of total sales turnover of ` 75.08 crore an amount of ` 34.87 crore relates to export sales. On the direction of the first appellate authority, the export sales were re–
14 Induja Traders Pvt. Ltd. examined by the Assessing Officer on remand. In the remand report, the Assessing Officer has observed that out of the total export sales of ` 34.87 crore transactions with Torrent Ltd., aggregated to ` 3,58,14,240, could not be proved by the assessee through documentary evidences. The Assessing Officer also observed that in respect of two invoices raised for ` 29,20,225 each, the name of the consignee is mentioned as solar trade link and assessee’s name does not appear. Thus, the Assessing Officer reported that out of the export sales, the turnover of ` 3,58,14,240 and ` 58,40,450 could not be proved by the assessee through documentary evidence. In other words, the Assessing Officer in the remand report accepted balance export sales to be genuine. In the aforesaid facts and circumstances of the case, assessee’s claim that the export sales made by the assessee being genuine should be excluded from the purview of computing commission income requires to be considered. Since, the Assessing Officer in remand has examined / verified the authenticity of the export sales and has not made any adverse comment with regard to the quantum of export sales, except the amounts of ` 3,58,14,240 and ` 58,40,450, rest of the export sales being genuine should be excluded from the sales turnover for computing commission thereon. As far as the rate of commission is concerned, we find no reason to interfere with the order of the Departmental Authorities in adopting the rate of commission at 0.5%. This ground is partly allowed.
15 Induja Traders Pvt. Ltd.
In the result, assessee’s appeal is partly allowed.
ITA no.4076/Mum./2014
The assessee has not pressed ground no.1.3, hence, this ground is dismissed as not pressed.
The only issue arising in the surviving ground relates to addition of commission income amounting to ` 57,72,529.
This issue is identical to the issue raised by the assessee in ground no.3 of ITA no.4075/Mum./2014. Facts involved relating to the issue in dispute are also more or less common with the facts involved in assessment year 2007–08. The only difference being, in the impugned assessment year it is a regular assessment under section 143(3) of the Act and total sales turnover declared by the assessee for the year under consideration amounted to ` 175,69,39,355. Similar to assessment year 2007–08, the Assessing Officer computed commission income on the total sales turnover by applying the rate of 0.5%. The assessee having already shown income of ` 30,12,168, the balance amount of ` 57,72,529 was added by the Assessing Officer.
The learned Commissioner (Appeals) confirmed the addition while deciding assessee’s appeal.
16 Induja Traders Pvt. Ltd.
We have heard rival contentions and perused the material available on record. In this appeal also, the learned Authorised Representative contended that there being no dispute about genuineness of export sales, it should be reduced from the total sales turnover for computing commission income. Of–course, the learned Authorised Representative also pleaded for reducing the rate of commission to 0.35%. On a perusal of the remand report submitted by the Assessing Officer to the first appellate authority, a copy of which is at Page–40 of the paper book, it is noticed that the Assessing Officer after verifying the authenticity of export sales has commented that export sales of ` 35,00,76,317 was supported through proper documentation which, in original, were produced before the Assessing Officer for verification. However, the Assessing Officer has stated that out of the sales turnover of DEPB license amounting to ` 2,63,19,092, the assessee could not produce evidence in respect of DEPB sales of ` 41,47,543. Thus, as could be seen, except, the amount of ` 41,47,543, the Assessing Officer has not found any discrepancy or made any adverse comment in respect of balance amount. Therefore, in our considered opinion, the export sales whose authenticity after verification by the Assessing Officer was not doubted should be excluded from the total sales turnover for computing commission income. As far as the rate of commission income is concerned, we
17 Induja Traders Pvt. Ltd. uphold the decision of the Assessing Officer in applying the rate of 0.5%. This ground is partly allowed.
In the result, both the appeals of the assessee are partly allowed. Order pronounced in the open Court on 06.09.2017