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TMI Blog2016 (2) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no dispute to the fact that while tendering the statement, the assessee admitted to have carried out purchase and sale, which were not entered in regular books of accounts. The Assessing Officer has added 50% of the gross profit on ad-hoc basis. In the modern era of cut throat competition, 50% of the gross profit is not expected. Even, while coming to a particular conclusion, neither the Assessing Officer has cited any comparable case in a identical business nor has compared the same with any other assessment years, therefore, to meet the ends of justice, to cut short the litigation, feel the 20% of the gross profit will be sufficient to safeguard the interest of the Revenue in place of 50% sustained by the ld. Commissioner of Income Tax (Appeals), because, on the basis of evidence for a particular period, extrapolation of the income to the whole period of reassessment is not justified So far as, the contention of the ld. counsel for the assessee, that net profit rate should be adopted and not the gross profit is concerned, not agreeing with this proposition, because, in the present set off cases, the assessee has not declared anything and the whole profit was earned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely done on the basis of statement but certain related documents such as bills, receipts and papers were also recovered, during survey, connecting the assessee that unaccounted purchases/sales were made by the assessee and further duly admitted by the assessee in his statement, thus, the income escaped assessment, therefore, it was rightly reopened u/s 147 of the Act. It was also explained that in his statement that the assessee admitted even for the earlier assessment years, identical unaccounted purchases/sales were made by the assessee. 2.3. I have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee an individual was carrying out in the business of trading in potato, onion and garlic under the name and style of M/s Fatandas Mandaldas. A survey was carried out on 07/01/2011 at the business premises/shop of the assessee. During survey, various bills, receipts, loose papers, etc, relating to unaccounted purchases and sales were found and impounded. Statement of the assessee was recorded on 07/01/2011 and 10/01/2011. In his statement, the assessee duly admitted that he carried out purchases and sales of onion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently in the course of the proceedings under this section, or recompute 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 facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012. 2.5. If the aforesaid provision of the Act is analyzed, I find that after insertion of Explanation -3 to section 147 of the Act by the Finance (No.2) Act of 2009 with effect from 01/04/1989 section 147 has an effect that Assessing officer has to assess or reassess income (such income) which has escaped assessment and which was basis of formation of belief and, if he does so, he can also assess or reassess any other income which has escaped assessment and which came to the notice during the course of proceedings. Identical ratio was laid down by Hon ble jurisdictional High Court in CIT vs Jet Airways India Pvt. Ltd. (2010) 195 taxman 117 (Mum.) and the full Bench decision from Hon ble Kerala High Court in CIT vs Best Wood Industries and Saw Mills (2011) 11 taxman.com 278 (Kerala)(FB). A plain reading of explanation-3 to section 147 clearly depicts that the Assessing Officer has power to make addition, where he arrived to a conclusion that income has escaped assessment which came to his notice during the course of proceedings of reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and duly confirmed by the assessee, while recording his statement on 07/01/2011 and 10/01/2011, therefore, the ld. Assessing Officer was within his jurisdiction to reopen the assessment. The Hon ble Apex Court in Ess Ess Kay Engineering Co. Pvt. Ltd. (2001) 247 ITR 818 (SC) held that merely because the case of the assessee was correct in original assessment for the relevant assessment year, it does not preclude the ITO to reopen the assessment of an earlier year on the basis of finding of his fact that fresh material came to his knowledge. 2.7. Under section 147, as substituted with effect from 01/04/1989, the scope of reassessment has been widened. After such substitution, the only restriction, put in that section is that reason to believe . That reason has to be a reason of a prudent person which should be fair and not necessarily due to failure of the assessee to disclose fully and partially some material facts relevant for assessment (Dr. Amin s Pathology Laboratory vs JCIT (2001) 252 ITR 673, 682 (Bom.) Identical ratio was laid down by Hon ble Delhi High court in United Electrical Company Pvt. Ltd. vs CIT (2002) 258 ITR 317, 322 (Del.) and Prafull Chunnilal Pate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 249 ITR 7, 8 (MP) 2.9. In Dilip S. Dahanukar vs Asst. CIT (2001) 248 ITR 147, 150-51 (Bom.). The Hon ble jurisdictional High Court held as under:- Held, that there was material on record on the basis of survey and statement of person to show that the assessee had wrongfully claim deduction u/s 80IA. Therefore, the Assessing Officer had reason to believe that income had escaped assessment for assessment year 1994- 95. Identically in the case of Srichand Lalchand Talreja v. Asst. CIT, (1998) 98 Taxman 14, 19 (Bom), where the information regarding acquisition of the asset was not available with the Assessing Officer during the relevant assessment year 1992-93 and such information was disclosed in the return for the assessment year 1995-96, the Hon ble jurisdictional High Court held that the Assessing Officer can form a bona fide belief that there was escapement of income in relation to assessment year 1992-93. 2.10. The Hon ble jurisdictional High Court in Export Credit Guarantee Corporation of India Ltd. v. Addl. CIT, (2013) 350 ITR 651 (Bom), where there had been no application of mind to the relevant facts during the course of the assessment proceedings by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed depreciation in the return at the rate of 50 per cent and he had nowhere disputed the fact that the admissible rate of depreciation to him was 40 per cent., such fact alone was sufficient to initiate reassessment proceedings under section 147 and, therefore, such initiation was sustained. The Hon ble Punjab Haryana High Court in Mrs. Rama Sinha v. CIT, (2002) 256 ITR 481, 483, 486, where the reassessment notice has been issued on the basis of definite information from CBI regarding investments by the assessee which had not been disclosed during the original assessment proceedings, such initiation has been upheld. 2.16. In the case of Pal Jain v. ITO, (2004) 267 ITR 540, 544-45, 548, 549 (P H), applying Phool Chand Bajrang Lal v. ITO, (1993) 203 ITR 456 (SC), although the transaction of sale of shares was disclosed and accepted in the original assessment, but the subsequent discovery by the DDI (Investigation) revealed that the transaction was not genuine, a reassessment notice after four years has been held to be valid because there was no true disclosure of the material facts. In this regard, the petitioner-assessee cannot draw any support from the statement for chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Hukam Singh, (2005) 276 ITR 347 (P H), held that the respondents did not have the locus standi to question the orders of reassessment on the ground of lack of notice. Non-issuance of notice to some of the legal heirs of the late P was merely an irregularity and the same did not affect the validity of the reassessment orders. Likewise, in Tilak Raj Bedi v. Joint CIT, (2009) 319 ITR 385 (P H), wherein, facts coming to light in a subsequent assessment year could validly form the basis for initiating reassessment proceedings, in view of Explanation 2 to section 147. The action of the income tax authorities in reopening the assessment of the assessee and restricting the deduction under section 80-IB was held to be valid. 2.21. In the case of Smt. Usha Rani v. CIT, (2008) 301 ITR 121 (P H), there was nothing on record to show the relationship between the donor and the donee, capacity of the donor to make gifts and the occasion therefore. The assessee had failed to discharge the onus to prove the gifts. The reassessment proceedings were held to be valid. In the case of Usha Beltron Ltd. v. Joint CIT, (1999) 240 ITR 728, 736-37, 739 (Pat), where the investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the presumptive rate prescribed under section 44AD has been sustained. In the case of Dr. Sahib Ram Giri v. ITO, (2008) 301 ITR 294 (Raj), the reassessment proceedings were initiated after recording reasons in writing by the AO. The nonavailability of a few documents demanded by the assessee would not make the reassessment proceedings initiated for the reasons recorded in detail illegal. 2.25. In the case of Desh Raj Udyog : Chaman Udyog v. ITO, (2009) 318 ITR 6 (All), in the assessment years in question, the matter was still to be decided finally by the assessing authority whether the income should be treated under the head 'Business income' or 'property income'. The assessee would get opportunity to show sufficient cause to the assessing authority during the course of assessment. Thus, it could not be said that there was no relevant material to initiate proceedings under section 147. In the case of Kartikeya International v. CIT, (2010) 329 ITR 539 (All), in view of the matter, the petitioner was not entitled for the deduction on the duty drawback amount under section 80-IB and since it had been allowed in the assessment order passed under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings were held to be validly initiated. 2.29. In the case of Inductotherm (India) P. Ltd. v. lames Kurian, Asst. CIT, (2007) 294 ITR 341 (Guj), the Assessing Officer had found that there were errors in the computation of allowances. The reassessment proceedings were held to be valid. In the case of Papaya Farms Pvt. Ltd. v. Deputy CIT, (2010) 323 ITR 60 (Mad), where the assessee had furnished incorrect particulars and therefore, the reopening of the assessment was held to be justified. 2.30. In the case of CIT v. Kerala State Cashew Development Corporation Ltd., (2006) 286 ITR 553 (Ker), wherein, the assessee was following the mercantile system of accounting should not have claimed deduction of penal interest which had accrued not in the previous year relevant to the assessment year but in earlier years. This the assessee had not disclosed. The reassessment was held to be valid. Likewise, in Kusum Industries P. Ltd. v. CIT, (2008) 296 ITR 242 (All), as the award had become final it would be taken that the directors of the assessee had accepted the factum of earning of secret profit not reflected in the books of account, which was also binding on the company. The non-app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the noting in the diary constituted sufficient information for the escapement of income by either non-declaration of correct sale consideration or furnishing of inaccurate particulars as regards sale consideration. Thus, the Tribunal was justified in holding that the assessee had failed to disclose fully and truly all material facts necessary for the assessment of the relevant assessment year. The reassessment proceedings had been validly initiated. Likewise, in CIT v. Abdul Khader Ahamed, (2006) 285 ITR 57 (Ker), it was clear from the reasons recorded by the Deputy CIT that he prima facie had reason to believe that the assessee had omitted to disclose fully and truly the material facts and that as a consequence income had escaped assessment. The reassessment was held to be valid. 2.34. In the case of U.P. State Brassware Corporation Ltd. v. CIT, (2005) 277 ITR 40 (All), the principles laid down by the Calcutta High Court in CIT v. New Central Jute Mills Co. Ltd. : (1979) 118 ITR 1005 (Cal) did constitute information on a point of law which should be taken into consideration by the ITO in forming his belief that the income to that extent had escaped assessment to tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment years 1992-93 and 1993-94. 2.38. In the case of Aquagel Chemicals P. Ltd. v. Asst. CIT, (2013) 353 ITR 131 (Guj), since there being sufficient material on record for the Assessing Officer to form a belief as regards the escapement of income in relation to the claim of depreciation in respect of the building of coal fire boiler, the reassessment was held to be valid. In the case of Convergys Customer Management v. Asst. DIT, (2013) 357 ITR 177 (Del), where there being prima facie material in the possession of the Assessing Officer to form a tentative belief that section 9(1)(i) held attracted, said reason by itself constituted a relevant ground to reopen the assessment of the assessee. Reference may also be made to i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)]; ii. Ashok Arora v. CIT [(2010) 321 ITR 171 (Del)]; iii. CIT v. Chandrasekhar BaLagopaL [(2010) 328 ITR 619 (Ker)]; iv. Jayaram Paper Mills Ltd. v. CIT [(2010) 321 ITR 56 (Mad)]; v. Kerala Financial Corporation v. Joint CIT [(2009) 308 ITR 434 (Ker)]; vi. Mavis Satcom Ltd. v. Deputy CIT [(2010) 325 ITR 428 (Mad)]; vii. CIT v. Madhya Bharat Energy Corporation Ltd. [(2011) 337 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee without duress or threat, connecting the assessee of nonrecording of purchase and sale in the regular books of accounts. 4. If the material available on record and the judicial pronouncements discussed hereinabove, I find that there was linkage of the documents with the statement tendered by the assessee evidencing that income had escaped assessment. It is not the case in the present appeals that addition has been made merely on the basis of statement recorded by the Revenue, rather, there was enough material on record which could be unearthed on the basis of survey followed by the statement of the assessee to show that the assessee made purchases/sale which were not entered in the regular books of accounts, resulting into escapement of income, therefore, I am of the opinion that, so far as, initiation of proceedings u/s 147 r.w.s. 148 of the Act are concerned, the ld. Assessing Officer was justifiably within his jurisdiction under the parameter of the law to reopen the assessment, therefore, I affirm the stand of the ld. First Appellate Authority. 5. So far as, the next ground with respect to adding the respective amounts being 50% of the gross profit is concerned, I find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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