EMPIRE FOOTWEAR,MUMBAI vs. DCIT CEN CIR 20, MUMBAI

The first issue in this appeal of the assessee is against the order of the learned CIT (A) in upholding the reopening of assessment u/s 148 of The Act beyond four years despite the fact that the fact that the original assessment was completed u/s 143(3) of the Act. For this, the assessee has raised the following ground No.1:-

Briefly stated facts leading to the above issue are that for the assessment year 2005-06, the assessee filed its return of income on 02-10-2005. The original assessment was completed u/s 143 (3) of the Act on 28-12-2007. Subsequently, the AO issued notice u/s 148 of the Act dated 28-03-2012 i.e. beyond four years. The reason recorded in the reopening assessment is enclosed at page 65 of the assessee’s paper book which reads as under:- “In this case, the assessee has filed Return of Income on 2.10.2005 declaring total income of Rs.27,81,620/-. Afterwards, the assessment u/s. 143(3) of the Act has been completed on 28.12.2007 assessing the total income at Rs.28,20,810/-. The assessee derives income from trading activity of shoes and sports apparels and accessories. The assessee does its trading activity as a Commission Agent. 2. On perusal of the records this is noticed that the assessee has entered into the „Commission Agreement‟ dated 01.02.2003 with Adidas India Marketing Pvt. Ltd. New Delhi. As per the said Agreement Adidas India Marketing Pvt. Ltd. New Delhi is the “Principals” and the assessee is the “Commission Agents”. As per the said Agreement the assessee has agreed to operate a Store for retailing and selling the products of the Principals from the shop no.1 & 2 York House, Colaba, Mumbai as Commission Agents. As per Para 4 of the said Agreement the Principals has agreed to provide commission of 24% of the net sale value at regular sales affected by the Commission Agents. On perusal of the Profit & Loss A/c. for the year ended 31.03.2005 filed along with the return of income this is noticed that net sales of the product during the year was Rs.2,92,98,469/- and the commission of 24% on it works out to Rs.70,31,633/-. However the receipt of commission has been shown at Rs.65,69,525/- only by the assessee as against the said receipt of Rs.70,31,633/-. The said receipt of commission of Rs.65,69,523/- was allowed in the assessment order dtd. 28.12.2007. Thus, income to the extent of Rs.4,62,110/- has escaped assessment. 3. Further, the assessee in the return of income has not made disclosure regarding „Commission Agreement‟ dtd. 01.02.2003 and the basis on which the receipt of commission of Rs.65,69,523/- is arrived at in the Profit & Loss A/c. Further, auditor of assessee has wrongly certified such claim without even giving any note for the same. The assessee, during the assessment proceedings, has also not made full and true disclosure regarding the receipt of commission to the Assessing Officer. Thus, I am of the view that this escapement is because of failure on part of assessee, by not disclosing the facts truly and fully”.

The learned Counsel for the assessee first of all took me through the original assessment order which is passed u/s 143 (3) of the Act and enclosed at pages 56 and 57 3 of the assessee’s paper book. The learned Counsel for the assessee also drew my attention to the notice issued u/s 142 (1) of the Act and the questionnaire issued along with the same, which are enclosed at pages 16 to 19 of the assessee’s paper book. From these, the learned Counsel for the assessee drew my attention questionnaire dated 12-06- 2007. The relevant question Nos. 2, 11 and 16 of the same reads as under:- “2. Details of business activities during the year.

Details of stock by giving quantity details item wise of opening stock, purchase, sales and closing stock.

Details of commission income”. The learned Counsel for the assessee also stated that the AO has applied his mind in respect of receipt of commission declared at Rs.65,69,523/- and framed assessment u/s 143(3) of the Act. Subsequently, the AO going into the records noticed that the commission as per the agreement dated 01-02-2003 with Addidas India Marketing Pvt. Ltd., New Delhi has earned commission @24% on a total sale of Rs.2,92,98,469/-. According to the AO the commission is worked out at Rs.70,31,633/-. Accordingly, the difference is of only Rs.4,62,110/-. According to the AO, this amount has escaped assessment. The learned Counsel for the assessee explained that this fact was very much available before the AO and the AO has framed assessment u/s 143 (3) of the Act after going through all the details available before him. The learned Counsel for the assessee explained that in terms of the provisions of Section 147 of the Act there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for this assessment year. Accordingly, the reopening of the assessment is very much bad in law. He also argued on merits that the entire commission amount of Rs.65,69,523/- was disclosed up to the date of 16th March, 2005. According to him, the sale for balance 15 days was assessee’s own sale on which no commission was paid but only the profit was offered by the assessee. For this the learned Counsel for the assessee took me through the profit & loss account wherein he has declared the profit of Rs.4,57,993/- for the balance 15 days transactions. The learned Counsel for the assessee 4 also drew my attention to the profit & loss account and trading account which is enclosed at page 8 of the assessee’s paper book. He explained before the AO during the course of the original assessment proceedings as well as during the reassessment proceedings. He further argued that in response to the notice issued by the AO dated 30- 05-2008 wherein the very same query was raised and the relevant portion of the letter reads as under:- “Particulars of mistake proposed to be rectified “It is noticed that as per commission agreement dated 1.2.2003 between you and M/s. Adidas India Marketing P. Ltd., New Delhi, the commission agent have to operate a store for retailing and selling products of the principal and the principal will provide 24% on net sale value as commission. In the P & L account, as on 31.3.2005, the total sales of product was Rs.2,92,469/- and the commission @24% should have been Rs.70,31,633/- as against this commission has been shown by you of Rs.65,69,633/- only. This has resulted under assessment of income to the extent of Rs.4,61,110/- by showing short receipt of commission.” The assessee has explained the above query vide letter dated 05-06-2008 that the entire commission was booked at Rs.65,69,523/- and further profit booked on sales effected from 17-03-2005 at Rs.4,57,993/-. According to the learned Counsel for the assessee there is no discrepancy even on merits and even the issue of reopening is bad in law.

From the above facts, it is clear that first of all there is no failure on the part of the assessee to disclose truly and fully all material facts necessary for completion of the assessment for the relevant assessment year. I find from the records that the entire material was available before the AO during the course of the original assessment proceedings and admittedly the assessment was framed u/s 143 (3) of the Act. It is also a fact that the reopening notice u/s 148 of the Act was issued beyond four years and the assessee’s case consequently does fall under the proviso to Section 147 of the Act. I find that this issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT Vs Foramer France (2003) 264 ITR 567 (SC) affirming the decision of the 5 Hon’ble Allahabad High Court in the case of Foramer Vs CIT (2001) 247 ITR 436has held that even after amendment in Section 147 of the Act by Direct Tax Laws (Amendment) Act 1987, with effect from April 1, 1989, under the proviso where the original assessment has been made u/s 143(3) of the Act and notice issued u/s 148 of the Act beyond four years after the end of the relevant assessment year, and there is no failure on the part of the assessee to disclose material facts fully and truly necessary for his assessment for that assessment year, reassessment notice is bad in law. In terms of the above and in the given facts of the case, I am of the view that the reopening is bad in law and even on merits; the assessee has a case as discussed above. Accordingly, assessee’s appeal is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 14/07/2016.