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TMI Blog1991 (2) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... nsultants with respect to tenders floated by Oil and Natural Gas Commission (ONGC) regarding the supply of Saw Line Pipe and Seamless Casing Pipe to the Gas Authority of India Ltd. (GAIL) and the ONGC respectively. The assessee (sic SC) in order to be able to supply certain goods to the ONGC sought the services of the assessee. The schedule of payments of commission under the agreements was as under: Date of Immediately after Immediately after Immediately after the Agreement the receipt of firm the receipt of letter shipment of pipes . contract of credit . 30.08.1984 2.1 % 1.2 % 1.2 % 5.11.1984 1.75 % 0.875 % 0.875 % In terms of cl. 2(b) of the Compensation Cl. II of the agreement dt.30th Aug., 1984, all consultancy fees were remitted in Japanese Yen to the account of Eljay consultants INC Panama in the Bank of Credit and Commerce International at 29, Sloane Street London SWIU.K.Similarly as per cl. 2(b) of the Compensation Cl.II of the agreement dt.5th Nov., 1984all consultancy fees were remitted in U.S. Dollars in the aforesaid account. The fee according to the assessee, was to be held in this account and the assessee was entitled to receive it upon certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter on 4th Oct., 1988 it moved applications before the first appellate authority, namely, the Commissioner (A) for leave to raise additional grounds of appeal on the basis that the entire consultancy fee was assessable only in the asst. yr. 1988-89 since that income accrued only in Aug., 1987 (when all the conditions regarding accrual were fulfilled) and was also received by the assessee only on 11 Sept., 1987 and that the earlier voluntary agreement was against law. It was said that the entire consultancy fee had been accordingly offered for taxation on accrual basis in the asst. yr. 1988-89 for which the return was filed and was pending. 3. The learned CIT was, however, of the prima facie view that the assessment orders dt.23rd March, 1988,28th March, 1988and28th March, 1988were erroneous in so far as they were prejudicial to the interests of the Revenue on the following grounds : (i) The company had claimed and was allowed depreciation on aircraft @ 40 per cent of the written down value though the prescribed rate was only 30 per cent. (ii) In terms of the agreement dt. 30th Aug., 1984 and 5th Nov., 1984 between the company and M/s Sumitomo Corporation, commission amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. So far as ground No. (i) is concerned, it conceded that the depreciation allowable on aircraft is 30 per cent and not 40 per cent of the written down value. The contention raised was that the assessee missed to notice the amendment of the Rules w.e.f.2nd April, 1983and had moved the Assessing Officer for the rectification of the assessment order for the three years, which applications were pending. The assessee denied that the assessment orders were erroneous or prejudicial to the interests of the Revenue. According to the assessee the assessment orders were in fact prejudicial to its interests in so far as the consultancy fee which was assessable for the asst. yr. 1988-89 was in fact assessed for the asst. yrs. 1985-86, 1986-87 and 1987-88 and had thereby paid more tax. However, the learned Commissioner in a detailed order, held that the assessment orders in question were erroneous in so far as they were prejudicial to the interests of Revenue. Broadly stated he took the view that so far as the allowance of depreciation is concerned, the assessee had itself admitted that it had been wrongly allowed at 40 per cent. So far as the other three points are concerned, he held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousing and Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC). He further submitted that the assessee's method of accounting in regard to consultancy fee was cash although on31st July, 1987the assessee had tendered the same for taxation in the asst. yr. 1987-88 on accrual basis wrongly. He pointed that the commission was accounted for in the account ending31st Jan., 1988. In any case he pointed out that both on accrual as well as receipt basis the fee became taxable only in the asst. yr. 1988-89. So far as the question of enquiry is concerned he pointed out that enquiry could be needed only if there was a provocation for it. In this connection reference was made by him to the following decisions : (i) Grindlays Bank Ltd. vs. ITO (1978) 115 ITR 799 (Cal) at page 810 (ii) Grindlays Bank Ltd. vs. ITO (1980) 15 CTR (SC) 157 : (1980) 122 ITR 55 (SC). He further submitted that r. 115 had no application whatsoever to the case because the accrual of receipt took place inIndiain the asst. yr. 1988-89. He pointed out that Yens became Dollars when they came to Eljay and became rupees when they came toIndia. He pointed out that artificial conversion could not be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that even under the cash system the entire consultancy fee could not be included in the asst. yr. 1988-89 and that the mere factum of repatriation on11th Sept., 1987was not enough. According to him there were constructive receipts in the three years of which the assessee became the owner. Reference was also made to the case of R.R. Holdings P. Ltd. which was also controlled by the same family as the directors of the assessee company. Reference was also made to the certificate dt.20th Feb., 1985of Eljay whereby two remittances were made under instructions from the assessee to its Bankers. He pointed out that the identity and connection of Shri B.S. Gill with the assessee company and Eljay was also not ascertained. He pointed out that a firm contract was awarded and the amounts were remitted and credited to a designated account and, therefore, the question of paying back could arise only after receiving the money. He submitted that the letters dt.4th June, 1984and23rd July, 1984being of dates prior to the subject agreements, lost their identity as the agreements themselves recited that they were complete in themselves. He also pointed out that assessee had resiled again and again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer regarding the real identity, creditworthiness and source of investment made by Eljay Consultants, who had been registered on 27th Dec., 1983 and whose paid up capital was only 200 $ on 4th Dec., 1984. He pointed out that the amounts were received mutually as advance/deposit/investment, which was subsequently shown as share application money. He also stated that there were many unusual features suggesting close connection, Eljay being the front company of the assessee and, therefore, s. 68 of the IT Act, 1961 was attracted. Reference was made by him to the well-known decision of the Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) where the nature of the jurisdiction under s. 263 was examined and principles laid down as to when an assessment order could be said to be erroneous in so far as it is prejudicial to the interests of the Revenue. With reference to this decision Shri Gupta submitted that the Assessing Officer simply accepted the submissions of the assessee; that the documents filed were looked into perfunctorily and that the assessments were made in undue hurry. He also submitted that no prejudice wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnated account of Eljay in the Bank of Credit and Commerce International inLondon(vide cl. 2(b)). The ld. Dep. Representative is indeed right in saying that since cl. III(ii) of these agreements stated that they set forth an entire agreement of parties and that they superseded any prior agreement and understanding, the letters dt.4th June, 1984and23rd July, 1984relied upon by the assessee stood superseded by the agreements which were of a later date. Since the subject matter contained in these letters did not get incorporated in the agreements themselves, these letters would not have the effect of amending or supplementing the agreements. There was an addendum dt.24th June, 1985to these agreements but it did not refer to the subject matter contained in the aforesaid letters. However, the subsequent letters are important namely those dt.9th Feb., 1987,25th Aug., 1987,1st Sept., 1987,4th Aug., 1988and7th Oct., 1988. There was no material before the learned Commissioner nor before us to discard them as procured or self serving evidence. The letter dt.9th Feb., 1987was written by Eljay to the assessee regarding its inability to remit the consultancy fee to the assessee, which had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims and non further payments receivable form SC that Eljay asked its bankers to remit the money to the assessee's bank inNew Delhi. Thus these letters show that they operated as supplements or amendments to the subject contracts and that it is only after 1st Sept., 1987 that the assessee's right in respect of the consultancy fee got perfected under the contract and resulted in the accrual of income. Eljay, therefore became an agent of the assessee as well after and w.e.f.1st Sept., 1987. The SC itself confirmed this position in its letter dt.7th Oct., 1988in response to the assessee's letter dt.4th Aug., 1988. The learned Commissioner, therefore erred in so far as without examining the nature, content and effect of the aforesaid letters on the subject contracts as well as on the accrual of consultancy fee income to the assessee, he held that the same accrued in the three assessment years in question. The learned Commissioner was not right in taking the dates of remittances of the consultancy fee by SC to Eljay's London Bank account as the dates of the accrual of the said income. The accrual took place when remittances were repatriated toIndiaon11th Sept., 1987which is relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promissory estoppel could be said to have arisen from it, in as much as, the assessee took action which was "in line with the thinking of the Department". If the assessee is able to satisfy that the earlier admission or declaration was the result of a mistake of law or fact or had been made due to ignorance or other factors, it may not come in its way. The assessee's applications for raising additional grounds in the appeals filed on20th April, 1988are in this direction, which are pending before the learned Commissioner (A), to the effect that the consultancy fee was taxable only in the asst. yr. 1988-89. It is not a question of the assessee resiling again and again from the admissions made from time to time since an admission or consent does not confer jurisdiction on the assessing authority to tax a receipt in an year in which it is not taxable in law. That is why admissions though relevant, are not conclusive and as we have seen, the accrual of income depended upon the interpretation of the Contracts. 7.5 Share application money of Rs. 1,98,68,081.75 had been shown by the assessee in its balance sheet as on31st Jan., 1985, as having been received from Eljay. This amount had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner to call for and examine the record of any proceeding under the IT Act, 1961. Expln. (b) to s. 263(1) as amended by the Finance Act, 1988 w.e.f. 8th June, 1988 provides that "record" shall include and shall be deemed always to have included all records relating to any proceeding under the IT Act., 1961 available at the time of examination by the Commissioner. Thus though the assessments for the assessment years in question had been completed on23rd March, 1988,28th March, 1988and28th March, 1988the learned Commissioner could examine the record as at the time of giving the show cause notice. i.e.,1st Feb., 1990. That is how the communications dt.4th Aug., 1988and7th Oct., 1988referred to by us in para 7.2 of this order have significance even though the latter of these communications was after the issue of notices dt.10th Aug., 1988under Companies (Profits) Surtax Act and. 104 of the IT Act., 1961. As already observed by us, the learned Commissioner did not consider the nature and effect of these communications or the communications dt.9th Feb., 1981,25th Aug., 1987and1st Sept., 1987. Thus though we agree with the learned Commissioner that the jurisdiction under s. 263 could be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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