2011 (1) TMI 689 - AT - Income Tax

Reassessment - Accommodation entries - validity of issuance of notice u/s 148 - completion of assessment barred by limitation - Initiation of proceedings u/s 147/148 during the pendency of the earlier year assessment - notices under section 148 of the Act for assessment years 2000-01 to 2004-05 were issued on 23-9-2005, the assessments for these years were to be completed by 31-12-2006. However, the assessments have been framed on 24-12-2007. - whether issue of notice under section 148 during the period when assessment/reassessment is pending is a 'nullity' or an 'irregularity'. - Held that - The safest rule of distinction between 'irregularity' and 'nullity' is to see whether a party can waive the objection; if he can waive, it amounts to irregularity and if he cannot, it is nullity. Further a waiver is an intentional relinquishment of a known right, but obviously an objection to jurisdiction cannot be waived, for consent cannot give a court jurisdiction where there is none. As discussed above the power to assess get vested in the Assessing Officer the moment he issues notice under section 148. The assessment is re-opened when notice is issued under section 148. It is for the completion of the assessment the notice under section 148 should be served on the assessee. From these judicial pronouncements referred to above it is clear that where the reassessment proceedings initiated under section 147 were not concluded to a logical end the Assessing Officer cannot issue fresh reassessment notice under section 148. Therefore, in our considered opinion, the assessments for assessment years 2001-02 to 2004-05 framed with reference to the notice issued under section 148 on 24-11-2006 during the pendency of assessment are bad in law. Entry providing business - commission on accommodation entries by way of purchase and sale bills to the needy parties - AO has simply taken all cash entries in the bank account and the total of the same had been assessed as income from undisclosed sources - while taking the above entries, the AO had not considered withdrawals made by the assessee before the cash deposits in the bank account. - Held that - assessee was engaged in the business of providing accommodation entries and, therefore, the amounts deposited in the account of dummy concerns was to be treated as total receipts on which commission was to be determined. - only commission can be determined on the deposits made in the bank accounts of the dummy concerns. - commission is taxable as 25p however credit of 5p out of 25p received as commission has to be allowed. - AO directed to estimate commission income by applying 0.2 per cent net commission on turnover

Issues Involved:
1. Reopening of assessments under section 147 of the Income-tax Act, 1961.
2. Validity and service of notices under section 148.
3. Estimation of commission income.
4. Addition of cash deposits in bank accounts as unexplained income.

Issue-wise Detailed Analysis:

1. Reopening of Assessments under Section 147:
The first issue for consideration pertains to the reopening of assessments under section 147 for the assessment years 2000-01 to 2004-05. The assessee contended that the reopening was invalid as the Assessing Officer failed to provide reasons for reassessment and did not follow the procedures laid down by the Apex Court. The CIT (Appeals) verified the records and found that the Assessing Officer had properly recorded the reasons and obtained necessary approvals before issuing notices under section 148. The Tribunal upheld the CIT (Appeals)'s decision, noting that the proper procedure was followed, and the reopening of assessments was valid.

2. Validity and Service of Notices under Section 148:
The Tribunal examined whether the notices under section 148 were validly issued and served. For assessment year 2000-01, it was found that although the reasons were recorded on 22-9-2005, there was no evidence of a notice issued on 23-9-2005. The notice issued on 25-9-2006 was based on the reasons recorded earlier, and the Tribunal held that the initiation of proceedings was valid as the same Assessing Officer was involved. For assessment years 2001-02 to 2004-05, the Tribunal found that notices issued on 23-9-2005 were deemed served as they were not returned unserved. However, the issuance of subsequent notices during the pendency of earlier reassessment proceedings was deemed invalid, rendering the assessments for these years bad in law and barred by limitation.

3. Estimation of Commission Income:
The Assessing Officer estimated the commission income at 1.75% of the turnover, while the CIT (Appeals) reduced it to 1%. The Tribunal noted that the assessee admitted to charging a commission of 0.25% during the survey, with 0.10% paid to others and 0.05% incurred as expenses. The Tribunal found no comparable cases to support the higher rates adopted by the Assessing Officer and CIT (Appeals) and directed the estimation of net commission income at 0.2% of the turnover for both assessment years 2000-01 and 2005-06.

4. Addition of Cash Deposits in Bank Accounts as Unexplained Income:
The Assessing Officer added the cash deposits in various bank accounts as unexplained income. The CIT (Appeals) deleted these additions, noting that the deposits were part of the assessee's business of providing accommodation entries. The Tribunal upheld this decision, agreeing that the cash deposits should be treated as turnover of the accommodation entry business, and only commission income should be estimated on these deposits.

Conclusion:
The Tribunal annulled the assessments for the years 2001-02 to 2004-05 due to invalid issuance of subsequent notices during the pendency of earlier reassessment proceedings. For the years 2000-01 and 2005-06, the Tribunal directed the estimation of net commission income at 0.2% of the turnover and upheld the deletion of additions related to cash deposits in bank accounts. The appeals filed by the assessee for these years were partly allowed, while the appeals filed by the Revenue were dismissed.

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