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TMI Blog2013 (12) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 0.1%. ITA Nos.09, 10 11/Agr/2012 - Appeals by the Assessee 3. The learned Representatives submitted that common grounds of appeals raised in all these appeals are based on identical facts. In the light of their submissions we proceed to decide these appeals by this common order considering facts of the case for AY 98-99.The grounds raised by the assessee in ITA No.09/Agr/2012 in AY 98-99 is reproduced as under :- 1. BECAUSE, the facts and in the circumstances of the case, ld. 'AO' erred in issuing notice under section 148 of the I.T. Act, on the basis of 'reasons recorded' which are no reasons in the eyes of law. 2. BECAUSE, in the overall view of the matter ld. CIT(A) erred in holding in para 5.4 notice under section 148 to be valid in law having been issued on account of alleged 'low rate of commission' and non mention of detail of turnover in the return, both of which per-se do not lead to have reasons leading to formation of belief regarding escapement of income. 3. BECAUSE, the ld. CIT(A) has failed to consider the spirit of the judgement of the Hon'ble Apex Court in the cases of ACIT vs. Rajesh Javery Stock Brokers (P) Limited (2007) 161 Taxman 316 (S.C.) and Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be numbered consecutively. If grounds of appeal are not found in accordance with Rule, such appeals are liable to be dismissed. However, these appeals have been heard and keeping in view the principle of natural justice, we consider the following effective grounds raised :- i) The first effective ground is in respect of challenging notice issued under section 148 of the Income Tax Act, 1961 ('the Act' hereinafter), except in A.Y. 2000-2001. In this A.Y. 2000-2001 the matter was sent back to the file of the A.O. by I.T.A.T. ii) The second effective ground of appeal is in respect of rejection of books of account under section 145(3) of the Act. iii) The third effective ground of appeal is in respect of excessive estimation of income. iv) The fourth effective ground of appeal is in respect of charging of interest under section 234B of the Act. 6. The brief facts of the case are that the A.O. issued notice under section 148 (for A.Y. 1998-99 to 1999-2000) of the Act after recording the reasons In this case, assessment were reopened u/s. 147 after recording of reasons to believe by the A.O. that the assessee did not declare its turnover in the return of income which was foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered the above arguments taken by the Ld. AR in the written submission and also gone through the assessment order in which details of reasons recorded are given. The assessment record was not made available by the present ITO-1(2), Aligarh despite asking him several times. However, the case was discussed with the AO, Shri M.M. Lal who passed the assessment order and is presently posted in Agra as DCIT (HQ). After going through the assessment order and discussing with AO who passed the assessment order, I find that the AO has specifically recorded in the note prepared by him for recording the reason to believe that no basis for computation of Commission earned by the appellant was declared in the return of income because she did not declare the total amount of draft discounted by her. When the AO discovered the amount deposited in the bank account of the appellant from 01.04.1997 to 31.03.1998 was totaling to Rs.16,22,44,276/- and he found after applying the net rate of 0.4% that the draft commission was coming to about Rs. 6,48,977/- which was much more than what was declared by the appellant in the return of income, he recorded the note for reason to believe and issued notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of commission. There may be dispute on the rate of draft discounting commission to be applied to compute the correct amount of commission being earned by the appellant, however, the fact is that the appellant herself has not declared the basis for declaring the amount of draft discounting commission in her return of income, by not disclosing the total amount of drafts discounted by her and the rate of drafts discounting commission charged by her. In absence of these details in the return of income of the appellant, which was only processed under section 143(1)(a) and hence, on information with regard to earning of drafts discounting commission was available on the record, which could have been collected, if a scrutiny assessment had been completed in the case of the appellant. Under these circumstances, when the AO came to know the total amount of drafts deposited in the bank account of the appellant and after applying a reasonable estimated rate of commission as upheld by the first appellate authority, it was quite legitimate for an AO to conclude that the appellant has declared low amount of draft discounting commission as compared to what is prevalent in the market as it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In case of Ramond Wollen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC), it has been held that in determining whether commencing of reassessment proceeding was valid, it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material was not a thing to be considered at this stage. Based on this decision, it can be seen that AO was justified in reopening the assessment of the appellant under section 147 because prima-facie after collecting the amount of turnover of total amount of draft discounted by the appellant, he found that commission disclosed by the appellant was at lower side. However, the correct amount of suppression of commission by the appellant was not a thing to be considered at the time of reopening of the assessment by arguing that rate of commission of 0.4% was not a conclusive rate. Even, the Ld. AR in the case of appellant herself for the A.Y. 2000-01 has relied on the decision of Hon'ble ITAT, Agra in the case of Smt. Pushpa Devi Vs. ACIT in ITA No.355/Agr/2004 dated 16.12.2005 in which the rate of commission confirmed by the Hon'ble ITAT Agra is 0.1% (Rs.1/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words 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 case at hand is covered by the main provision and not the proviso." 5.8 In view of the above decision, it is clear that the Supreme Court has held clearly that under the substituted section 147 applicable w.e.f. 01.04.1989, existence of only the first condition suffices to reopen the assessment, which is further explained by the Hon'ble Supreme Court that in other word, if the AO for whatever reason has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment, if the assessment is being reopened under the main provisions of section 147 and not in proviso for which bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers." 5.10 In view of the above decision of the Hon'ble Supreme Court, I find that in the present case, the AO has both "cause" as well as "justification" for reopening the case. In the present case, 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. When he applied the rate of commission which was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph nos. 6.1 to 6.8) 6.1 The next two grounds i.e. Ground 2 3 taken by the appellant are with regard to challenging the rejection of books of account by applying the section 145(3) of the AO. In support of these grounds, a written submission was filed by the Ld. AR vide her letter dated 13.04.2009, putting forth his arguments against rejection of books of account u/s 145(3) and disputing the rate of commission adopted by the AO as 0.5% contending that no comparative case has been given by the AO on the estimation of commission of the appellant at a higher rate than the rate shown by the appellant. Against the rejection of books of account u/s 145(3), the Ld. AR has taken following arguments in the written submission:- "In this connection it is respectfully submitted that the Assessing Officer was highly unjustified in rejecting the books of accounts only on the ground that parties with whom appellant had dealing eight years back did not responded to the summons issued by the Assessing Officer. While rejecting the books of account the Assessing Officer has not spelled out as to which condition mentioned in provisions of section 145 (3) is attracted. It is settled position in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble ITAT, Agra in the case of appellant in herself for AY 2001-02 and hence the same rate may be adopted in this year also. 6.3 The above written submission was forwarded to the present AO calling for his report on the arguments taken by the Ld. AR against the assessment order. At present, this case is with Income Tax Officer, 1(2), Aligarh. The report of the present AO has been received vide his letter dated 08.07.2009. In his report the AO has only submitted that it is humbly submitted that undersigned is fully relying on the observations and conclusions drawn by my predecessor in his order dated 15.12.2006. The AO has further submitted that the issue of draft discounting has been well discussed in the assessment order and he has nothing more to add to the finding and hence the case may be decided on merit. On this remand report, a rejoinder of the appellant has been filed by the Ld. AR vide his letter dated 13.10.2010 and the same is reproduced as under:- "In the remand report dated 08.07.2009, the AO has preferred not to contradict submission or any part thereof furnished by the appellant. The AO has chosen not to summon the witness based locally at Aligarh ignoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable to me by the present AO ITO 1 (2), Aligarh despite asking him several times. The case was also discussed with the AO Shri M.M. Lal presently posted in Agra as DCIT (Hq), who passed this order. After taking into account all the facts of the case, I find that the appellant was doing business of discounting of drafts and receiving commission for providing this facility. In this type of business, generally it has been found that many businessmen come to the places in Agra and nearby places such as Firozabad, Hathras etc. with bearer bank draft in their names for purchasing of goods. When they come, they do not know as to from which seller they will purchase the goods. When any sale is finalized, these businessmen approach such persons who are in draft discounting business and these persons deposit these bank drafts in their bank account after these drafts are endorsed in their names. The assessee (appellant) is also engaged in similar type of business. After depositing these drafts, the assessee (appellant) encashes these drafts either on the same day or immediately thereafter. The assessee (appellant) withdraws the money from banks and disburses it to persons who have brought th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AD has not been able to pinpoint any specific mistake/omission or suppression in the books of account as were maintained by the appellant and the appellant cannot be penalized for the non appearance of the witness who were asked by the appellant to be called for verification of commission paid by them. I have considered the argument taken by the Ld. AR and for this purpose, I may first reproduce the provision of section 145(3) as under:- 145(3) "Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." 6.8 As per the above provision, the AO can reject the books of account, if he is not satisfied about the correctness or completeness of the account. The correctness of the books of account can be established only by showing supporting documentary evidence such as bills, vouchers etc. issued by the assessee or received by him from outside parties during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission shown by the appellant is quite low. In Aligarh generally, rate of commission charged by draft discounting agents ranges from Rs.1 to Rs.1.5 per thousand which is infact the net commission after providing for all expenses to be incurred in these type of business. After considering all these facts of the nature of this business and the rate of commission being prevalent in such type of business in Aligarh, the Hon'ble ITAT, Agra in case of Smt. Pushpa Devi Vs. ACIT has held that the application of Rs.1/- per thousand on the total draft amount discounting is reasonable subject to the condition that no deduction will be allowed for expenditure which means in such cases, the Hon'ble ITAT, Agra is also of the opinion that net commission of Rs.1/- per thousand (0.1%) is a reasonable amount for charging of commission. Considering these facts, it is clear that rate of net commission being shown by the appellant at 40 paisa per thousand was quite low and such low rate could not be substantiated by her by producing necessary documentary evidence or by producing the witnesses as discussed in this para above. The two case laws cited by the Ld. AR i.e. Munnalal Murlidhar Vs CIT (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Smt. Pushpa Devi Vs ACIT (supra) as brought before me by the Ld. AR. This decision is enclosed in Annexure A-1of this order. In this order, the Hon'ble ITAT, Agra as discussed that the commission on draft discounting prevalent in the market of Aligarh is Rs.1/- to 1.5/- per thousand. After noting this fact, the Hon'ble ITAT, Agra also perused its two previous orders one in the case of Neeraj Kumar Vs ACIT in which the net rate of Rs.2/- per thousand subject to deduction of expenses at the rate of 30% was upheld and second case of Smt. Meenakshi Vs ACIT (the own case of the appellant for AY 01-02) in which NP rate of 20 paisa per thousand was upheld without allowing any deduction. After considering these two previous decisions, the Hon'ble ITAT, Agra has also considered the prevalent rate of commission in Aligarh at Rs.1/- to 1.5/- per thousand and then in the case of Smt. Pushpa Devi Vs. ACIT (supra), it was held by the Hon'ble Members that application of Rs.1/- per thousand on the amount of total daft amount is reasonable subject to the condition that no deduction will be allowed for expenses. In its submission filed by the Ld. AR on 21.5.2009, as I have discussed in para 4.1, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year: [Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject- matter of any appeal, reference or revision, which is chargeable to tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The present is thus not a case where the ITO sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different foam drawing a fresh inference from the same facts and material which were available with the ITO at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief in the return. (underlined by us) (iii) Where an assessment has been made (i.e. in a scrutiny case)-if income chargeable to tax has been under-assessed or assessed at too low a rate or if any excessive relief or loss or depreciation allowance or any other allowance under this Act has been allowed." 13. From the above discussions and the material we noticed that prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b ) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 01.04.1989 those conditions are given a go-by and only one conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to verify the deposits in the Bank issued summons under section 131 of the Act to some of the parties, but the assessee as well as those parties failed to comply those summons. The submissions of the assessee that the assessee is charging only commission of draft discounting, but failed to substantiate the basis of commission charges. As stated above that after the amendment in section 147 of the Act w.e.f. 01.04.1989, power to reopen is much wider. The only condition for action is that the A.O. should have reasons to believe that income has escaped assessment. Such belief can be reached in any manner and is not qualified by a precondition of faith and true disclosure of material fact by an assessee to contemplate in the pre-amended section. In the case under consideration, apparently the assessee did not disclose the details of Rs.16,22,44,276/- deposited in Bank account in the return of income filed. In the case under consideration, the A.O. has reopened the case of the assessee after collecting information from her Bank account with Syndicate Bank about the deposits of total amount of draft which was not declared by her in the return of income. The A.O. found that the commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed discussion in this regard in his order. Further, in the case under consideration, the reasons recorded shows that apart from deposits in Bank account which were not shown in return of income filed by the assessee. Simultaneously, it is also noticed that 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. The ld. Authorised Representative misunderstood the reasons recorded by the A.O. It is the case of the A.O. that even applying various rates of commission the income declared by the assessee was under assessed. Further, 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 of Rs.16,22,44,276/- (Rs.25,31,96,401/) deposited in Bank. We notice that the reasons recorded are required to be read as whole and not in piecemeal. In the light of above discussion, first effective ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so in appeal. The A.O. noticed that the assessee shown profit rate of 0.5%. The A.O. after rejecting books of account applied 0.5% profit rate which was restricted by the CIT(A) at 0.1%. The A.O. applied 0.5% rate of profit after considering facts of the relevant year and on the basis of material on record. The CIT(A) in principle agreed with the A.O. in respect of estimation of income but on account of reasonableness and considering some cases, restricted it to 0.1%. Now the question to be examined by us is whether under the facts and circumstances the income estimated by the Revenue authorities is reasonable or not. Before coming to the issue, we would like to state at the cost of repetition that Rs.25,31,96,401/-, Rs.27,28,93,893/- Rs.34,71,02,418/- for Assessment Years 1998-99, 1999-2000 2000-01 respectively were deposited in Bank by the assessee. The assessee has failed to explain the same. The A.O. considered the turnover of Rs.25,31,96,401/- A.Y. 1998-99. As stated above that amount deposited in Bank account remained unexplained, section 68 of the Act is clearly applicable. At this juncture, we are aware of our power that we cannot enhance the additions. As regards accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny convincing reasons. It is relevant to note that presently the country is burning by circulation of black money. The huge unexplained deposit apparently is a part of that circulation. Under the facts and circumstances, the contentions made and the decisions relied in respect of applying rate of profit do not help to the assessee. The addition of entire gross amount is warranted for want of evidence but the A.O. himself has applied 0.5% rate of profit. Therefore, considering our power, we have no alternative but to confirm the orders of A.O. Thus, the orders of CIT(A) on the issue are set aside and the orders of the A.O. for the Assessment Years 1998-99 to 2000-01 are confirmed on the issue. 23. The fourth issue pertains to charging of interest under section 234B of the Act which is consequential. The A.O. is directed accordingly. 24. Before parting from the matter, we would like to exercise our power laid down by the Apex Court in the case of Kapur Chand Shrimal vs. CIT, 131 ITR 451 (SC). The Court held as under:- "It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceeding under appeal and to issue, if neces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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