2013 (12) TMI 1051 - AT - Income Tax

Validity of notice u/s 148 Held that - Following ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. 2007 (5) TMI 197 - SUPREME Court - If the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147 The collection of information of bank deposit of the appellant has provided a cause for reopening of the assessment of the appellant after the AO found that amount of turnover of draft discounted by appellant was not disclosed in the return of income and also no basis for earning of draft discounting commission was declared by her by giving the rate of draft discounting commission charged by her. The relevant material the basis on which the assessee declared income in return of income are not available in the return - The complete and true facts for determination of income were also not found in return of income filed by the assessee - Even applying various rates of commission the income declared by the assessee was under assessed - The income declared could not find supported by material - The reasons recorded are that the assessee s case is a case of escapement of assessment as true and correct details were not found in the return of income filed by the assessee particularly in respect of amount deposited in Bank - Decided against assessee. Rejection of books of accounts - Held that - the books of account produced was not maintained correctly and the rate of commission shown by the appellant was quite low compared to the rate of commission being charged by the persons engaged in such business of draft discounting The assessee failed to explain satisfactorily the basis on which the income was accounted for - The A.O. issued summons to seven parties in A.Y. 2000-01 but the same were returned back - The assessee expressed inability to produce the parties. The A.O. noticed that books of account produced could not be verified as the assessee did not produce supporting documents, vouchers and other materials - The A.O. has rightly rejected the books of account for want of verification as the assessee has failed to furnish evidences in this regard - Decided against assessee. Excessive estimation of income Held that - Following CIT vs. British Paints India Ltd. 1990 (12) TMI 2 - SUPREME Court - The A.O. is justified under section 145 of the Act to reject the books of account and determine the correct profit if ordinary principle of accounting are not followed - It is the duty of the A.O. to consider whether books of accounts disclosed the true statement of accounts from which the correct income can be derived - The source of the said huge cash deposits were not explained by the assessee by a single document, evidence or by any convincing reasons - The addition of entire gross amount is warranted for want of evidence but the A.O. himself has applied 0.5% rate of profit Decided in favour of Revenue. Interest u/s 234B Held that - Following Kapur Chand Shrimal vs. CIT 1981 (8) TMI 2 - SUPREME Court - An appellate authority has the jurisdiction as well as the duty to correct all errors in the proceeding under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from the doing so by statute - In India most of the business activities, circulation of money and other financial activities are administrated through Income Tax Act, providing exemption in tax, incentives, allowances and dalliances of expense, labour and other welfare activities etc - Assessee is running an unusual business activity not in accordance with Indian Laws appears to be with collusion with the Department Decided against assessee.

Summary

Issues Involved:
1. Validity of notice issued under section 148 of the Income Tax Act, 1961.
2. Rejection of books of account under section 145(3) of the Act.
3. Excessive estimation of income.
4. Charging of interest under section 234B of the Act.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148 of the Income Tax Act, 1961:
The primary issue was whether the notice issued under section 148 was valid. The Assessing Officer (A.O.) issued the notice after recording reasons to believe that the assessee did not declare the turnover in the return of income, discovered from the bank account maintained with Syndicate Bank, showing deposits totaling Rs.16,22,44,276/-. The assessee declared only the commission received without showing the total drafts discounted. The CIT(A) upheld the validity of the notice, stating that the A.O. had a legitimate reason to believe that the income had escaped assessment. The Tribunal confirmed this, noting that the A.O.'s belief was based on substantial material, including significant unexplained bank deposits, which justified reopening the assessment.

2. Rejection of Books of Account Under Section 145(3) of the Act:
The A.O. rejected the books of account under section 145(3) due to the assessee's failure to substantiate the correctness of the books during the assessment proceedings. The A.O. found that the entries in the books could not be verified and that the summons issued to verify the commission rates were not complied with. The CIT(A) confirmed this rejection, emphasizing that the assessee could not produce necessary documentary evidence or witnesses to support the entries in the books. The Tribunal upheld this decision, agreeing that the books of account were not reliable and the A.O. was justified in rejecting them.

3. Excessive Estimation of Income:
The A.O. estimated the income by applying a net profit rate of 0.5% on gross receipts, resulting in an income determination of Rs.14,65,100/-. The CIT(A) reduced this estimation to 0.1%, citing a decision by the ITAT, Agra, which held that a net commission rate of Rs.1/- per thousand was reasonable for draft discounting in Aligarh. The Tribunal, however, reinstated the A.O.'s estimation of 0.5%, noting that the assessee failed to explain the substantial bank deposits and that the lower rate applied by the CIT(A) was not justified under the circumstances.

4. Charging of Interest Under Section 234B of the Act:
The issue of charging interest under section 234B was deemed consequential. The Tribunal directed the A.O. to follow the statutory provisions regarding the computation of interest under this section.

Conclusion:
The Tribunal dismissed the assessee's appeals and allowed the Revenue's appeals, confirming the A.O.'s actions in reopening the assessment, rejecting the books of account, and estimating the income at a higher rate. The Tribunal emphasized the need for transparency and proper documentation in financial transactions, especially in cases involving substantial unexplained bank deposits.