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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ B ’
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
composite order. The grounds raised for the assessment year 2004-05 are as under:
“ That the order of the learned Commissioner of Income-tax (Appeals) in so far it is prejudicial to the interests of the appellant IS bad and erroneous in law and against the facts and circumstances of the case.
That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in holding that the proceedings uls 147 have been validly initiated.
That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in holding that a sum of Rs. 28,65,487/- does not represent the sale proceedings but are un-explained deposits and therefore, the entire account is to be added uls 69.
4. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in ignoring the findings of the learned Commissioner of Central Excise that the amounts deposited into HDFC Bank and Central Bank represent the sale proceeds of manufactured goods, 5. That the learned Commissioner of Income-tax (Appeals) ought to have held that only the gross profits earned on Rs. 28,65,4811- should be assessed. 6. That the finding of the learned Commissioner of Income-tax (Appeals) that the total unaccounted sales is Rs. 3,85,73,4891- is perverse as being contrary to materials on record and not supported by any evidence. 7. That even the accounted transactions have not been accounted in the books of account and such a finding is perverse as being contrary to materials on records. Each of the above grounds is without prejudice to one another and the appellant craves leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify one or more of the above ground either before or at the time of hearing of this appeal.”
adjudication.
Ground No.2 is regarding validity of initiation of proceedings under section 147 of the Income Tax Act, 1961 (in short 'the Act') for reopening of the assessment. The assessee is a company and engaged in the design and manufacturing furniture. The assessee filed its return of income belatedly declaring a loss of Rs.5,79,531. The return was processed under section 143 (1) of the Act on 15.3.2008. Subsequently, the AO gathered information that the assessee made deposits of Rs. 28,66 060/- during the financial year 2003-04 and Rs.33,01,268/- during the financial year 2004-05 in two undeclared bank accounts. The source of information received by the assessee officer is an order dated 15/12/2008 passed by the Commissioner of Central Excise, Bangalore-I subsequent to a inspection carried out by the Excise Department at the business place of the assessee in which it was found that the assessee made deposits of these amounts out of unaccounted sale of goods. The AO accordingly, re-opened the assessment for these two assessment years by issuing the notice under section 148. In the the assessment assessee officer made the addition of the respective amounts found deposited in the two bank accounts which were not disclosed to the Department. The assessee challenged the action of the AO before the CIT(appeals) and also raised the ground of validity of re-opening of the assessments by contending that the proceedings initiated under section 147 is without Jurisdiction as the assessee officer merely relied upon information from Central Excise authorities and has not form an independent belief that the income has escaped assessment. The CIT (Appeals) did not accept the contention of the assessee and thereby upheld the action of the AO in initiating the proceedings under section 147 of the act.
Before us the Learned AR of the assessee has submitted that the Assessing Officer has reopened the assessment on the basis of the information received from the Excise authorities without forming independent belief and application of mind that the income assessable to tax has escaped assessment. In support of his contention he has relied upon the judgement of Hon’ble Delhi High Court in case of Sarthak The Learned AR has submitted that the reasons recorded by the assessee officer for reopening of the assessment do not disclose the basis on which the amount deposit in the bank account was believed to be undisclosed income of the assessee. Thus, in the absence of any independent enquiry and formation of belief the mere reliance on the information received from the Excise Authorities is not sufficient to satisfy the condition for reopening of the assessment. The learned AR has then relied upon the decision of the coordinate benches of this Tribunal in case of the Kushalraj Devi Chand Oswal Vs. ACIT reported in 5 ITR (Trib) 118 (Bangalore) and submitted that even in the case of suppressed turnover/sales the entire amount cannot be treated as income of the assessee without allowing the corresponding expenditure and only the net profit can be added as income of the assessee. The Learned AR has further submitted that the assessee officer has assessed the entire amount as undisclosed income, which is contradictory to the reasons recorded for the reopening wherein the AO has stated that the amount deposited in the bank was from the sales of goods and AR of the assessee has submitted that the reopening is bad in law and the same is liable to quashed.
On the other hand, the Learned DR has submitted that the AO received the order of the Commissioner of Central Excise and therefore, it is not mere information from the investigation wing but it is an order of the adjudicating authority. Further there was no original assessment but the return of income was processed under section 143(1) and therefore, once the AO received the tangible material showing the undisclosed income in the shape of the deposits is in the two bank accounts then the said material is sufficient for forming the belief that income assessable to tax has escaped assessment. He has further pointed out that these two bank accounts have not been disclosed by the assessee to the Department and therefore, when the AO received this information and material that the assessee has made substantial deposits in these two bank accounts, then the reopening is based on tangible material in the possession of the AO. He has relied upon the orders of the authorities below. material on the record. The main objection of the assessee against the reopening of the assessment is that the AO has not form independent belief by applying his mind but the reopening is based on the information received from the Excise authorities. At this stage it is apt to reproduce the reasons recorded by the AO in para 2 of the assessment order as under :
“2. The reasons recorded for issuing notice under Section 148 was provided to the assessee vide letter dt.8.11.2011 and the same is reproduced below :
“The assessee company has been engaged in the design and manufacturing of furniture. It is learnt that the central excise agencies had conducted an inspection in the premises of the assessee on 22.12.2006 for evasion of excise duty. In this connection, the Commissioner of Central Excise, Bangalore-1, Commissionerate, Bangalore has examined the issue and after verification of the relevant materials has passed an order dt.15.12.2008. ; In the said order, it is clearly brought out during the FY 2002-03 to 2006-07, the assessee company has made sales to 7 different parties on which no duty was paid. It was also found the assessee has made a deposit ofRs.28,66,060 out of the sales of the goods in two undeclared bank accounts in Central Bank and HDFC Bank during the FY 2003-04 relevant to assessment year 2004-05. As verified from the order, the assessee has not been able to provide any satisfactory explanation regarding deposits in the bank accounts.
The assessee for the Assessment Year 2004-05 has filed a belated return of income declaring a loss of Rs.579531 and a MAT liability of Rs.93777.
8 & 1684/Bang/2013 Since it is clearly brought out in the foresaid order that there have been deposits in undeclared bank accounts on account of sale of goods, I have a reason to believe that Rs.28,66,060 do not form the part of the sales turn over in the P/L account for FY 2003-04 relevant to assessment year 2004-05 and to that extent the income chargeable to tax has escaped assessment.”
It is apparent from the reasons recorded by the AO that on the receipt of the order passed by the Commissioner of Central Excise, Bangalore-I dated 15/12/2008 the AO found that the Central Excise department had conducted an inspection in the premises of the assessee on 22/12/2006 for the evasion of Excise duty. It was found that the assessee has made deposits of Rs.28,66, 060 during the financial year 2003-04 and Rs.33,01,268/- for the financial year 2004-05 in two bank’s accounts.
Since these two bank accounts were not disclosed by the assessee to Department therefore, on the verification of the assessment record the assessee officer formed the belief that the income assessable to tax to the extent of the deposits made in these two bank accounts has escaped assessment as the said amount does not form part of the sale turnover shown in the profit and loss account for these assessment years. It is pertinent to note that the information gathered by the that assessee passed by the Commissioner of Central Excise giving the finding that the assessee has suppressed the sales to avoid the Excise duty to the tune of the mounts found deposited in the bank accounts of the assessee.
Further the AO has verified the assessment record and particularly the return of income filed by the assessee to ascertain whether the amount deposited in these two bank accounts were disclosed by the assessee in the return of income and found that the assessee has not disclosed these two bank accounts to the Department. Therefore, the amount found deposited in these two bank accounts which were not disclosed to the Department constitute tangible material on the basis of which the AO has formed the belief that the income assessable to tax has escaped assessment. The assessee has relied upon the decision of the Hon’able Delhi High Court in case of Sarthak Securities Company Pvt. Limited vs. ACIT (supra), the Court found in the said case the original assessment was completed under section 143 (3) of the Income Tax Act and the reopening of the assessment was purely based on the report of the Additional DIT. The Assessing Officer, therefore, to the information section 148 of the Act. On the contrary in the case in hand, the assessee officer has received the order passed by the Commissioner of Central Excise and further, the AO verified from the record that these two bank accounts in which the assessee deposited the amount were not disclosed to the Department. Therefore, the said decision of the Hon’ble Delhi High Court is not applicable in the case of the assesse. The CIT(appeals) has dealt with this issue of validity of reopening in para 6.1 as under :
6.1 I have carefully considered the issue. In the instant case, the Central Excise Authorities had conducted an inspection in the premises of the assessee on 22.12.2006. it was also found that the assessee had deposited an amount ofRs.28,66,060 out of sale proceeds in two bank accounts i.e. Central Bank of India and HDFC Bank during the FY : 03-04. These bank accounts had not been disclosed to the department. Thus, it emerges that there is a failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment. On receiving information regarding these bank accounts, Assessing Officer had reason to believe that income chargeable to tax has escaped assessment. I am therefore unable to appreciate the contention of the appellant tht Assessing Officer has not independently applied his mind to form an opinion whether income has escaped assessment. It has been held by the Hon'ble Supreme Court in the case of Pholchand Bajranglal Vs. ITO 203 ITR 456 (SC) that sufficiency of reasons for forming a belief cannot be adjudicated. Further, it has also been held by the Hon'ble Apex Court in the case of ITO Vs. Purushottam Das Bangore 224 ITR 362 (SC) and ITO Vs. Selected Dalurband Coal Co. P. Ltd. 217 ITR 597 that communication received by Assessing Officer in discharge of official duties is to be considered as information for issue of 147 notice.
In view of the facts and circumstances of the case when the AO found the amounts deposited in the bank accounts which were not disclosed to the Department, we do not find any error or illegality in the impugned order as well as the reasons recorded by the AO for the opening of the assessment. Further, at the time of initiating the proceedings under section 147 of the Act and issuing the notice under section 148 what is required is the prima facie belief that income assessable to tax has escaped assessment. Accordingly, we uphold the impugned order of the CIT(appeals) qua this issue.
The remaining grounds of the appeals are regarding the addition made by the AO of the entire amount of the deposits in the bank. The Learned AR of the assessee has submitted that the Assessing Officer has reopened the assessment by recording the reasons that the amount was deposited in the bank from the sale of goods therefore, the AO was not justified in making the addition of the entire amount as undisclosed income instead business income and only to the extent of the profit element in the said sale. In support of his contention he has relied upon the decision of the coordinate bench of this Tribunal in case of Kushalraj that only the profit element in the undisclosed sales can be assessed as income of the assessee and not the entire deposit in the bank account.
On the other hand, the Learned DR has submitted that the addition is made in business income of the assesse therefore, the AO has treated it as undisclosed business income. He has further contended that when the assessee has not recorded any expenditure or produce any evidence to show the expenditure incurred for earning the said income the claim of the assessee cannot be accepted. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. There is no dispute that the AO has reopened the assessment on receipt of the order of the Commissioner of Central Excise, wherein it was found that the assessee has made the deposits in two bank accounts from the sale proceeds. As per the Excise Authorities the assessee has not disclosed these sales to avoid the Excise duty and therefore, the amounts found deposited in the bank accounts were treated as sales of the assessee and accordingly the Excise duty was assessee was treated as sale proceeds then the entire amount cannot be treated as income of the assessee without considering the claim of the incidental expenditure for the earning the said revenue. The CIT appeal has rejected the contention of the assessee on the ground that the amount deposited in the bank may not be the entire undisclosed sale of the assessee. Once the AO has formed the belief at the time of reopening of the assessment that the amount deposited in the bank is from the sale proceeds of the assessee, then at the time of completing the assessment the AO cannot take a different view. Accordingly, when the AO has accepted that the amount deposited in the bank accounts is from the sale proceeds then the treatment of the said amount cannot be given other than the business income of the assessee from the sale proceeds of the goods. In view of the facts and circumstances of the case when the Central Excise authorities have treated the said amount as sale proceeds, the income tax officer cannot take a different stand particularly, when the assessments were opened based on the order of the Commissioner of Central Excise. Accordingly, we direct the AO to the compute the the basis of the GP addition.
For the assessment year 2005-06 the facts and issue are identical.
Therefore, the appeal for A Y 2005-06 stands disposed off in the above terms.
In the result, the appeals of the assessee are partly allowed.
Order pronounced in the open court on the 24th day of June, 2016.