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TMI Blog1987 (5) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Judge, Delhi, in CC No. 13 of 1975, wherein certain payments were indicated by Sri Narendra Gopal on behalf of the company; a report was also received from the CBI authorities through the Deputy Director of Inspection, Delhi. On the basis of the above communications, the assessment was reopened under s. 147(a). The assessee objected to the reopenment of the assessment on the ground that the original assessment was never completed and therefore there was no question of reopening the assessment. The Income-tax Officer rejected the preliminary objection on the ground that as per his records, the original assessment was closed as "NA" and, therefore, reassessment proceedings were validly taken. 3. In the first appeal, the assessee raised its preliminary objection against the reassessment and also challenged the validity of the reassessment. These objections were rejected by the Commissioner of Income-tax (Appeals) for the reasons mentioned in his order. Before us also, the assessee raised similar objections against reassessment. 4. Sri D. Ranga Rao, learned Chartered Accountant for the assessee, submitted that the Income-tax Officer did not act on the original return filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. In fact, the assessee itself was unable to give the relevant particulars of its income in the original return. It is immaterial whether it was in a position or not in a position to do so. As far as the return of income is concerned, it did not contain the necessary statements and clarifications with the help of which the income would be determined. As a matter of fact, the assessee had submitted only a nil return, though explaining the circumstances in which it had to file the nil return. The circumstances are that the books were seized by the CBI and were still in their custody and, therefore, it had no means of finding and declaring the taxable income. Such is the stand taken before the Income-tax Officer at the time of filing the original return of income. The Income-tax Officer had to complete the assessment in view of the impending time limit for completion of the assessment and, therefore, he closed the assessment as "NA" since a return disclosing nil income was filed. The Income-tax Officer did not stop here. He reserved to himself the right of scrutinising the return for taking appropriate action at a future occasion. Thus, the assessment was closed as "NA" purely on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras High Court in V. S. Sivalingam Chettiar v. CIT [1966] 62 ITR 678, M.CT. Muthuraman v. CIT [1963] 50 ITR 656 and Aruppukottai Chandra Bus Lines v. CIT [1973] 87 ITR 154. It was further held in Esthuri Aswathiah v. ITO [1961] 41 ITR 539 (SC), that when an assessee files a nil return for a particular year and the Income-tax Officer orders "No Proceeding" or just "files" the case, such order is tantamount to an order disposing of the assessment proceeding on the finding that the income of the assessee was nil and, therefore, reassessment proceedings would be valid in respect of the income of such year. In fact, the Supreme Court in CIT v. Bidhu Bhusan Sarkar [1967] 63 ITR 278 had gone to the length of stating that even an invalid order terminating proceedings had the effect of terminating them unless the order terminating them was vacated by a proper authority. Therefore, we reject the arguments of the learned representative of the assessee and uphold the reassessment proceedings. 7. The assessee's further contention is that it had given all the necessary details for the proper computation of the income and that it had made full and true disclosure of all facts by 17-2-1978. We d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. (2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice." On a reading of both these sections and upon a consideration of the fact that the notice for reopening was issued on 17-11-1979 in respect of the assessment year 1975-76, we hold that the reassessment proceedings were validly initiated within the time limit. 8. Sri Ranga Rao vehemently argued that the reassessment notice did not specify whether the action was proposed under s. 147(a) or s. 147(b) and, therefore, any action flowing therefrom would be invalid. Sri Santhanam for the revenue submitted that the non-specification of the clause under which action was initiated is not such a serious defect as to invalidate the proceeding itself. In Kantamani Venkata Narayana Sons v. First Addl. ITO [1967] 63 ITR 638, their Lordship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of securing licences in the names of 7 licensees for passing them on to M/s Khandelwal Engineering and Metal Industries (referred to hereinafter as KEMI) (proprietor : Sri K.N. Khandelwal). The licences were obtained and forwarded to the latter. But, before these licences could be utilised by KEMI for the import of goods, they were seized and impounded by the CBI authorities at Bombay on 14-10-1974. The assessee had received Rs. 5,28,000 from KEMI as follows :-- Date Mode Amount Rs. 18-5-74 Cash 2,00,000 20-5-74 DD 3,00,000 15-7-74 Chq 27,707 31-8-74 Cash 293 --------------- 5,28,000 --------------- The assessee in turn had made certain advances to the Pondichery parties on the following dates :-- Date Mode Name Amount Rs. 22-5-74 DD M.Z. Maraicar 65,000 " " A.M. Reddiar 50,000 " " A.M. Abu Baker 50,000 " " G.S. Ganapathi Rao 60,000 23-5-74 Chq Kumaran Stores 25,000 22-5-74 DD " 5,000 " " S. Chidambaram 30,000 --------------- Total 2,85,000 --------------- The Income-tax Officer took the view that the money received by the assessee from KEMI was towards consideration for arranging the licences and the monies paid to the Pondichery parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The CIT (Appeals), for the reasons mentioned in paras 10 and 11 of his order, rejected these contentions of the assessee, but reduced the addition made by the Income-tax Officer from Rs. 3,15,000 to Rs. 2,18,000. In this process, he allowed a deduction of Rs. 25,000 towards probable expenditure for negotiating the deal between the licensees on the one hand and KEMI on the other and towards other incidental expenses in arranging the transaction. The department is not in appeal over the relief granted by the CIT (Appeals). The assessee is on appeal against the addition sustained by the CIT (Appeals). 12. Sri Ranga Rao vehemently argued that the Income-tax Officer and the CIT (Appeals) did not appreciate the true character of the transaction in the proper perspective. They either overlooked or did not appreciate the unimpeachable evidence standing in favour of the assessee in the form of entries in the books of the assessee and corresponding entries in the books of KEMI. Even till date, KEMI is demanding repayment of the amount advanced to the assessee. KEMI is a private limited company whose accounts are subjected to audit and as per their published accounts, there is a debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirety, whether paid in cash or not, and the authorities below did not appreciate this aspect of the matter when the provisions of s. 43A in respect of cash payments made to the Pondichery parties were mentioned. If these cash payments had been taken into account, it would have been evident that the assessee had not got any profit at all out of this transaction or, at any rate, the profit is not as much as has been computed by the authorities below. In any view of the matter, he submitted that the assessment is fit to be set aside and justice rendered. 13. Sri N. Santhanam, learned departmental representative, took us through the orders of the Income-tax Officer and the CIT (Appeals). He submitted that the assessee-company was recently floated and did not have any dealings previously with KEMI. The latter was not its customer. As a matter of fact, the assessee-company did not commence its business of exporting garments to Bangladesh. In such circumstance, naturally, the question arises as to why KEMI, which is based at Bombay, should volunteer to part with a huge sum of Rs. 5,28,000 to the assessee-company. It has not been established that it was an advance against materials to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terthought in view of the swift developments that had taken place with the intervention of CBI in the Pondichery Licences Scandal. It was in the interest of the Bombay party and to its advantage to plead innocence by showing the amount given to the assessee as advance because none could deal with licences obtained by some other person in such a clandestine manner as had taken place in this case. It was also equally in the interests of the company and to its advantage to record in its books the amount received from KEMI as a loan or a liability as, otherwise, it would be also caught in the criminal proceeding. He vehemently contended that here is a case where one person is in Bombay and some persons are in Pondichery, Yanam and Mahe and what interest had the assessee-company in both these parties for obtaining a loan from one of these parties and making advance to the other and that too sans pronote and security ? It may be relevant to point out that none of the parties are related to the Managing Director or to the other shareholder or in any way known to the company by way of previous dealings. Secondly, the assessee is not a good samaritan to go to the rescue of an unknown person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the deposition of Sri Khandelwal. We are unable to agree with the stand taken by the assessee. As the learned departmental representative rightly submitted, KEMI and the assessee are strangers. They did not have any previous business dealings with each other. The assessee-company was formed for the purpose of exporting garments to Bangladesh and KEMI, as the name would suggest, is an engineering concern. We are unable to understand how there could be a business connection between these two companies which operate in different fields. KEMI is not a financing company and, therefore, it is hard to believe the statement of the assessee that KEMI had advanced money in the course of its money-lending or financing activities. In his affidavit, Sri Khandelwal of KEMI stated that Ali Siddiqui represented to him that he would be getting import licences in exchange for exports and that he would be handing over to his company letters of authority issued by Joint Controller of Imports and Exports, provided the company advanced necessary funds to the tune of Rs. 5,28,000. In para 3 of the said affidavit, he confirmed that the assessee had handed over to his company import licences togethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of licences from the Pondichery parties in favour of the party at Bombay ? If the transaction is only a case of money-lending for temporary accommodation, why should the assessee remain idle over all these years without initiating any proceedings to recover the amount from the Pondichery parties ? It is also equally interesting to note that KEMI, which had advanced an omnibus sum of Rs. 5.28 lakhs had not taken any coercive action against the assessee for the recovery of the amount which it had initially provided. All these are pointers to the fact that the assessee was dealing in licences by bringing together parties at Pondichery and Bombay and in the process it had earned profits. The learned Commissioner has fixed the profit element as the amount representing the difference between the amount received from the Bombay party and the amount paid to the Pondichery parties, and after making some allowance for expenses incurred in the course of such transaction. 17. The assessee's alternative argument is that the cash payments made to the Pondichery parties had not been taken into account in view of the provisions of s. 40A(3) and in a clandestine business, such as this one, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer. The letter addressed by the Income-tax Officer by registered post to M/s Ratan Trading Co. as per the address furnished by the assessee was returned to the Income-tax Officer with an endorsement by the post office to the effect that the "party not found at the address". Enquiries made by the Director of Inspection (Investigation), Bombay, about M/s Ratan Trading Co. revealed that there was no such party at the address given by the assessees. The Income-tax Officer, therefore, held that the assessee had not discharged the onus placed on it and added the peak credit of Rs. 2,00,000 and the interest thereon amounting to Rs. 19,306. 20. Before the CIT (Appeals) it was contended that the copy of the account of Ratan Trading Co. duly confirmed by the said concern was filed by the assessee in the course of the proceedings before the Income-tax Officer and because of lapse of time--more than 10 years--it was not possible for the assessee to produce the creditor. It was also suggested that by the time income-tax authorities tried to contact Ratan Trading Co., it might have wound up its affairs, but that does not mean that the credit was bogus. It was also contended that the working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. The Creditors and Debtors Movement Statement contains the receipts and payments of the company for the year under appeal and also for the subsequent years. A sum of Rs. 3,15,000 is shown as having been received by the assessee from Ratan Trading Co. on various dates. Similarly, payments are shown to have been made to Ratan Trading Co. by the assessee on several dates. It is the case of the department that the assessee had not discharged its onus of proving the credit. The Income-tax Officer was unable to trace Ratan Trading Co. at the address furnished by the assessee. The Director of Inspection also was unable to locate the creditor at the address furnished. The assessee had just produced a statement of account of Ratan Trading Co. as it stood in its books and this statement of account does not bear any date though, of course, signed by some person said to be the proprietor of the creditor. The assessee did not produce the creditor before the Income-tax Officer in support of its stand. The only explanation offered by the assessee for its inability is the time interval between the date of the transactions and the date of enquiry. In the circumstances, the addition made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of Rs. 60,000 against Sl. No. 4. In the subsequent years, the assessee did not credit the account of Sri Abu Baker and, therefore, no addition was made by the Income-tax Officer in the subsequent years in respect of the amount in the name of Abu Baker. This leads us to the inference that the amount of Rs. 60,000 shown to have been paid to Sri Abu Baker was not paid at all and, therefore, the said sum should be deemed to be available with the assessee in the assessment year 1975-76 itself, it having been considered in the computation of business profits by disallowing the same as bogus payment. Hence, telescoping of this sum of Rs. 60,000 into the peak credit of Rs. 1,99,850 is just and proper in the facts and circumstances of the case and, to this extent, the assessee is entitled to grant of relief. Accordingly, we reduce the peak credit amount of Rs. 2,00,000 to Rs. 1,39,850 (Rs. 2,00,000 -- Rs. 150 -- Rs. 60,000). When the credit itself is held bogus, there is no justification for adding interest on such credit. Therefore, the addition of Rs. 19,306 on account of interest on such peak credit is deleted. 23. Sri Ranga Rao submitted that in case the Tribunal decided the main i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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