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TMI Blog2007 (5) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of ld. Assessing Officer in disallowing commission of Rs. 57,61,000 paid to M/s. Hallmark Health Care Ltd. by ignoring the fact that the same was fully supported by adequate and substantial documentation and had been paid for services rendered for the purpose of the Appellant Company's business and had been allowed as an expense in the earlier assessment years. 3. That the order under section 250 of the Income-tax Act, 1961 passed by the ld. Commissioner of Income-tax (Appeals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of ld. Assessing Officer in charging interest under section 234D amounting to Rs. 8,61,038 while passing the assessment order under section 147/148 ignoring the fact that no interest can be charged under section 234D when the assessment made under section 147/148(3) is not the first regular assessment." 2. The present assessment is a reassessment. Return of income was filed on 25-11-1997 at an income of Rs. 42,95,560. It was assessed by way of an order dated 9-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress of M/s. Hall Mark Health Care Ltd. and as a result of the said enquiry it was noticed that no business activities were conducted from the said address for the past so many years. Thus it was mentioned that it is prima facie established that the claim of commission payment for marketing services was not supported by facts and evidences and is bogus. So it relates to contention of assessee that Assessing Officer during the course of original assessment proceedings had required the assessee to explain the claim of expenditure of commission. It was pointed out that according to Explanation 1, proviso to section 147 mere production before the Assessing Officer of account books or other evidences from which material evidence could with due diligence have discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of said proviso. It was pointed out that where the transaction itself on the basis of subsequent information is found to be bogus, mere disclosure of that transaction at the time of assessment cannot be said to be a disclosure of true and full facts and reference was made to the following two decisions:-- 1Phool Chand Bajrang Lal v. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure within the meaning of said proviso is contrary to the provisions of law as Explanation 1 to proviso of section 147 will apply only in a case where Assessing Officer did not raise the issue during the course of original assessment proceedings. He in this regard pointed out to us the two replies given by the assessee one is dated 24-11-1999 filed which the assessee had submitted party-wise details of commission to selling agents exceeding Rs. 1 lakh and second which is not dated but was claimed to be filed on 4-1-2000 with the Assessing Officer vide which following answer was given. "As regards to commission paid during the year under assessment to M/s. Hallmark and Bahri Bros. It is submitted that the same is paid to them for supply of spirit @ Rs. 1 per bulk litre and Rs. 0.508 per bulk litre respectively. Copy of the agreement of M/s. Hallmark Health Care Ltd. is enclosed which self-explanatory as to the services rendered and other terms and conditions." 8. Referring to these replies it was pleaded that not only the details were called for by the Assessing Officer but further query was raised with regard to allowability of commission and relevant documentary evidence were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsequent investigation in the case of Sh. Sanjay Rastogi (210, Vakil Chamber, A-115, Shakar Pur, Delhi), it was found that Sh. Sanjay Rastogi and his associates had a number of companies for giving bogus entries, Sh. Sanjay Rastogi had admitted that all these transactions as appearing in their companies were bogus. It is further noted that the assessee has transacted through Hallmark Health Care Ltd. and Khatri Co-operative Bank Ltd. Date Particulars of Cheque Amount Debited (Rs.) 01-01-1997 Ch. No. 386382 256,000 02-01-1997 Ch. No. 386232 192,000 07-01-1997 Ch. No. 386654 156,000 15-01-1997 Ch. No. 386782 283,858 19-01-1997 Ch. No. 386828 263,868 28-01-1997 Ch. No. 386852 299,850 31-01-1997 Ch. No. 386905 327,836 06-02-1997 Ch. No. 386952 513,743 12-02-1997 Ch. No. 386961 452,773 21-02-1997 Ch. No. 387026 249,875 16-03-1997 Ch. No. 387173 249,875 27-03-1997 Ch. No. 387307 353,823 Total 35,99,501 In view of the above, I have reason to believe that the true income of the assessee has escaped assessment, thus, proceedings under section 147/ 148 are taken up hereby subject to approval." 10. He pleaded that the reasons recorded by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re duly credited in the account of payee. The amounts so paid had never shown to have reached the assessee. 14. Reference was made to the following documents to prove the claim on merit. Sl. No. Particulars Page 1. Copy of account of M/s. Hall Mark Health Care Ltd. from the books of assessee 44 2. Copy of debit note raising the claim of commission 45 to 54-C 3. Letter dated 6-2-05 written by assessee-company to Director Hall Mark Health Care Ltd. 38 to 40 15. Reference was made to letter dated 15-3-2005 filed before Assessing Officer. With regard to the explanation of the assessee for producing the Director of the said company to contend that it was requested by the assessee to Assessing Officer that summons may be issued to the Directors as the assessee-company has stopped dealing with the said company since 1999 and there was no control of the assessee-company on the Director of the said company. Reference was made to a copy of reply filed at pages 59 to 66 of the paper book and our attention was drawn to the following submissions of the assessee in this regard :-- "You have further asked us to produce the Director of the abovesaid company, as we have stopped deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission was claimed to have been paid by the assessee was one of the companies which was stated to be bogus. She contended that all these entries were accommodation entries. Referring to the assessment orders she pleaded that according to the statement of Shri Sanjay Rastogi he was providing bogus accommodation entries. He was one of the various signatories for M/s. Hall Mark Health Care Ltd. and, therefore, the commission paid by the assessee to M/s. Hall Mark Health Care Ltd. was not a genuine business expenditure. She referred to the decision of Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 to contend that sufficiency or correctness of material cannot be considered at the stage of issue of notice under section 147. The court cannot strike down reopening the case as it will be open to the assessee to prove that the assertion of facts made in the notice was erroneous and assessee may also prove that no new facts came to the notice of the ITO after completion of assessment proceedings. The question of facts and law are left upon to the investigator to be investigated and decided by the assessing authority. Further she referred to the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced to a rule of law. She contended that it was necessary for the assessee to prove the rendering of services to claim the expenditure of commission. She referred to the decision of Gauhati High Court in the case of Assam Pesticides & Agro Chemicals v. CIT [1997] 227 ITR 846 to contend that mere payment by itself would not entitle an assessee to deduction unless the same was proved to be paid for commercial considerations and where the Tribunal has found that no services were rendered by the agent the deduction for commission could not be allowed. 25. She contended that the case law relied upon by the ld. AR are distinguishable on facts as the allowability or otherwise of commission is based on facts of each case. 26. Up to this juncture pleading was concluded on 24-4-2007 when the ld. DR was directed to bring the assessment records to ascertain that whether there were any queries raised by the Assessing Officer during the original assessment proceedings and whether the replies given by the assessee annexed in the paper book were part of assessment records and the proceedings were adjourned to 26-4-2007 when again the hearing took place. 27. On 26-4-2007 the ld. DR produced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer during the course of assessment proceedings and Assessing Officer having taken note of such written submissions in his assessment order, he could not assume jurisdiction under section 147 after a period of 4 years on the ground that the claim was wrongly allowed. 30. He also referred to the decision of Hon'ble Delhi High Court in the case of Asoke Kumar Sen v. ITO [1981] 132 ITR 707 to contend that reason to believe must be that of an honest and reasonable person based upon reasonable grounds. ITO may act under section 147(a) on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. Power under this section are not plenary. They are subject to judicial review. Thus he concluded that reassessment was invalid and also the claim of the assessee was allowable on merits. 31. We have carefully considered the rival submissions. Primarily re-assessment has been objected by the assessee on the ground that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. There is no dispute to the extent that reassessment proceedings in the present case are initiated beyond the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eater assessment than the one actually made. At the same time, the rule of full disclosure of material and necessary facts should not be so fastidiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the Assessing Officer would have material use of it to charge the assessee more than what he did. The Assessing Officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment, nor is he at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set machinery of reassessment in motion. 33. Keeping in view the above position of law we have to examine that whether there was any such failure on the part of the assessee. Original assessment record was produced before us. The Assessing Officer has raised the query and ask the assessee to furnish the details. Then assessee was asked to justify the claim of expenditure. Reply was given by the assessee along with evidence in the shape of agreement to pay the commission as well as debit note raised in this regard. The reply of the assessee with regard to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my professional career as under : '(a) Apart from the proper professional work, I was also providing certain services in connection with the companies/concerns/entities those were not doing the real/genuine business exclusively. In this process I sued to operate this line of activities with the help of other professional colleagues and my subordinate staff. For performing this kind of activities the address of my office 210, Vakil Chambers, Vikas Marg Extn., Delhi - 110092 was also used. Few Private Ltd/Ltd. Companies were used as front companies/as conduit for execution of such entries transactions which were not doing business in actual. I was forced by the circumstances of my involvement in such activities due to my survival in Delhi. However, income earned by me out of these activities has already been disclosed in by regular returns filed on the basis of method of accounting adopted by me. Undertake to the department to provide my all possible help/support to further investigation against the real tax evaders if need arise, those shall found guilty of tax evasion out of investigation by the department and to provide the explanation of any entry with the documentary evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was withdrawn immediately but it has not been shown that it has travelled back to the assessee. 37. Thus it is a primary condition that there should be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment and that requirement of law has to be fulfilled before initiation of reassessment proceedings in a case where notice has been issued beyond the period of 4 years from end of the relevant assessment year. From the record it is found that, there was no such failure on the part of the assessee and subsequent statement of Shri Sanjay Rastogi based upon which the revenue has inferred escapement of income in the hands of the assessee is also not specific to convey that any income in the hands of the assessee has escaped. In the satisfaction note recorded by the Assessing Officer also nowhere it has been mentioned directly or implicitly that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary to determine the issue of allowability of commission paid by the assessee to the said M/s. Hall Mark Health Care Ltd. In absence of such findings in the satisfaction note, the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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