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TMI Blog2015 (2) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were recorded in the books of account without any basis. There is variation between actual receipts and declared receipts in the books of accounts. Being so, the Assessing officer has reason to believe that the income has escaped from assessment so that the Assessing officer issued notice u/s. 148 of the Act to assess the escaped income of the assessee. Quantification of the unaccounted income - Held that:- There is clear case of suppression of collections on daily basis for the assessment year 2009-10 and 2010-11 having been found during the course of survey carried out by the Department and the same was admitted by the assessee’s Manager, Shri Philip Varghese in his sworn statement. The ratio laid down by the Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh vs. H.M. Esufali H.M. Abdulali (1973 (4) TMI 49 - SUPREME Court 1) is squarely applicable to the facts of the present case wherein it was held that if the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no proof in support of that estimate is immaterial and it is his best judgment assessment. The actual collection of Kottra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground in C.O. No. 31/Coch/2014 with regard to non service of notice u/s. 142(1) and 143(2) as required by the Act to call for records for verification. According to the assessee, the notice u/s. 148 of the Act did not contain the reasons for re-opening of the assessment and therefore, the proceedings initiated u/s. 147 of the Act was improper and the assessment was not valid and to be cancelled on that count. 5. First we shall take up the legal ground raised by the assessee in C.O. No. 31/Coch/2014. 6. The Ld. AR submitted that the re-assessment proceedings were initiated invoking the provisions of sec. 147 vide notice u/s. 148 of the Act dated 11/01/2012. The assessment was completed u/s. 143(3) r.w.s. 147 of the Act. Therefore, notice u/s. 143(2) of the Act has to be issued within the limitation period and before completion of assessment. In the present case of the assessee, according to the Ld. AR, no notice has been issued or served on the assessee before proceeding to complete the assessment. The Ld. AR submitted that it is obligatory on the part of the Assessing officer to apply his mind to the contents of the return filed by the assessee in response to the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larity, as alleged by the Ld. AR, it could be said to been waived by the conduct of the assessee and it does not make the assessment order invalid. 7.1 The Ld. DR submitted that in this case, the assessee has not filed the revised return of income in response to the notice issued under section 148 of the Act vide letter dated 11/01/2012 and the assessee replied vide letter dated 08/02/2012 that the original return filed on 30-09-2009 is to be treated as return filed in response to notice under section 148 of the Act. In the meantime, the Assessing officer conveyed to the assessee on 16/04/2012 that since the original return of income was filed electronically which is mandatory, the assessee was required to file return in response to notice u/s. 148 also electronically. Inspite of this, the assessee opted not to file the revised return electronically. Further, the Assessing Officer vide his letters dated 19-09-2012 and 09-10-2012 asked the assessee to comply with the letter dated 16-04-2012. However, there was still no response from the assessee. Finally, on 10-12-2012, the AO sent a letter to the assessee as follows: Government of India Income Tax Department Office of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... response to the notice u/s. 148 of the I.T. Act. 8.1 Later it was informed by the AO vide letters dated 16/04/2012 and 19/09/2012 requiring the assessee to file the return of income in response to notice under section 148 of the Act for the assessment year 2009-10 electronically. However, the assessee failed to respond to the same and one more reminder was sent to him by the AO vide letter dated 09/10/2012 wherein the assessee was asked to comply with letter dated 16/04/2012 and furnish proof immediately. Further vide letter dated 10/12/2012, the case was posted for hearing, seeking appearance of the assessee s authorized representative on 19/12/2012. The assessee s authorized representative Shri Alex Kuriakose, CA appeared and participated in the assessment proceedings. Further on 11/03/2013 and 27/03/2013, the assessee s authorized representative appeared and finally the assessment order was passed on 30/03/2013. 8.2 In our opinion, the alleged irregularity in the service of the notice under section 143(2), as pointed out by the Ld. AR is virtually insignificant, in as much as the assessee was represented by its own auditor, Shri Alex Kuriakose who represented the case on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to the notice under section 143(2) of the I.T. Act. That, in our opinion, is an argument that is far-fetched to merit acceptance. It is difficult to visualize how else could the assessee have come to know that his case is posted before the Assessing Officer on 19/12/2012 at 3.30 p.m. except from the notice. Admittedly, Shri Alex Kuriakose, the assessee s Counsel appeared before the AO on 19/12/2012, 11/03/2013 and 27/03/2013. Thus the above conduct on the part of the assessee shows that the assessee is aware of the various proceedings before the AO and posting of his case on 19/12/2012 and subsequent dates. As already pointed out by us in earlier para, the issue of notice under section 143(2) of the Act is to enable the assessee to adduce evidence in support of the return submitted by him. The provision is essentially conceived in the interest of the assessee and once he comes to know of the opportunity that has been accorded to him and also takes a step towards availing of the same, it does not lie in his mouth to turn round and contend that there was no valid service of the notice upon him. 9.1 Several authorities were cited on behalf of the assessee to the effect tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t issue at all. This decision has been erroneously relied upon by the assessee. In this decision, the assessee questioned the validity of the service of notice issued u/s. 148 of the Act on the ground that it was served on a person who was not authorized to receive such a notice. The Court accepted the assessee s contention and held that there was no proper service of the notice u/s. 148 of the Act and therefore the entire reassessment proceedings were without jurisdiction and invalid. A perusal of the judgment shows several distinguishing features. Firstly, it was dealing with a notice issued u/s. 148 of the Act to reopen the assessment proceedings which is a jurisdictional notice affecting the very validity of the reassessment proceedings. In the case of Y.Narayana Chetty and Anr. vs. ITO, Nellore (1959) 35 ITR 388, it was held by the Supreme Court as follows: The argument is that the service of the requisite notice on the assessee is a condition precedent to the validity of re-assessment made under section 34; and if a valid notice is not issued as required, proceedings taken by the Income-tax Officer in pursuance of an invalid notice and consequent orders of reassessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer. This has made the impugned order erroneous and perverse as relevant and material aspects have been ignored and not given credence. A provision intended for the benefit of the assessee and conceived in accordance with the rules of natural justice should not be permitted to be abused by the very person for whose benefit it is intended and should not be permitted to become a tool to ward off the liability to pay the tax. We are not to be understood as saying that in no case can the service of notice u/s. 143(2) of the Act can be held to be invalid. In making the aforesaid observations, what we intend is merely to caution the departmental authorities to keeping mind the following observations made by the Federal Court in Chatturam vs. CIT (1947) 15 ITR 302: The Income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessment or of the liability assessee to pay the tax. It may be urged that the issue and service of a notice u/s. 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The Assessing officer has recorded the reason for issue of notice u/s. 148 as follows: (a) A survey was conducted. (b) Return of income was filed electronically. (c) During the course of survey, it is seen that the assessee has not maintained copies of the bills issued to the patients for the earlier years to substantiate the receipts admitted in the books of A/c. 12.1 The above reasons recorded by the Assessing officer are in conformity with law while issuing the notice u/s. 148 of the Act. On going through the above reasons, we observe that the reasons recorded by the Assessing officer are specific, definite and relevant to the matter under dispute. The return of income was filed by the assessee was accepted without any scrutiny and hence it cannot be said that the Assessing officer had expressed his opinion while processing the return of income u/s. 143(1) of the Act. In our view, the assumption of jurisdiction by the Assessing officer under the main provision of section 147 meets all the requirements of law. 12.2 Further, the survey material recovered during the course of survey u/s. 133 of the Act on 24-09-2009 at the Kollam lab of the assessee , accompanied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing officer is within the realm of subjective satisfaction. 17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction u/s. 147(a) two conditions were required to be satisfied firstly the Assessing officer must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are separate establishment having separate accounting and separate staff. According to the Ld. AR, the manager of the assessee was also supervising the matters of Metro Scans as he was also one of the directors of Travancore Health Care Pvt. Ltd. (Metro Scans). 16.1 The Ld. AR submitted that there was a survey under section 133A at Kollam and Kottarakkara centres on 24/09/2009. But mistakenly enough the Kollam survey was spread over to Metro Scans too and collections from their MRI scans belonging to Metro Scans was also taken as the assessee s collection. According to the Ld. AR, treating the collection found from MRI Scan in their premises was without basis. Cash collection from MRI Scan for that day found was treated as the collection belonging the assessee. According to the Ld. AR, the books of accounts and collection from MRI Scans of separate assessee were considered wrongly as belonging to the assessee. According to the Ld. AR, every collection attributable to the assessee was deposited in the UCO Bank, Kollam of the assessee. The Ld. AR submitted that the survey was conducted at two premises at Kollam, one, the assessee s premises and the other Metro Scans(Travancor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oring the answers to the questions which is relevant to the assessee by giving his own interpretation for estimation of suppressed collection. 16.4 The Ld. AR submitted that the proper accounts are maintained at Kottarakkara for both the units and the collection from Anchal and Adoor Units of Metro Scans, another assessee who had entrusted the work on account of failure of their machine which was the practice followed in the assessee s business. The AO treated the difference of ₹ 27,14,505/- as suppression for Kottarakkara lab alone for four months. According to the Ld. AR, the AO arrived at the total collection at Kottarakkara and the turnover of Kollam and treated as gross collection adding 259.76% of the returned collection and from that reduced the expenditure s P L A/c as per return. According to the Ld. AR, the difference was due to wrong inclusion of Metro Scans income from MRI, which is not attributable to the assessee. According to the Ld. AR, the CIT(A) sustained the addition of ₹ 3,37,755/- but did not allow the portion of the fees collected for work referred by the sister concerns at Anchal and Adoor on account of break down or repair of their machines. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view of this, the CIT(A) held that the Assessing officer has estimated the income based on presumptive basis. Accordingly, the CIT(A) restricted the addition made by the Assessing officer to ₹ 3,37,755/- as difference of receipts of four months found as per actual gross collection shown in the incrimination document and the collection shown for this period in the books of accounts. Thus the CIT(A) observed that there is no material to suggest the suppression of collections for more than ₹ 3,37,755/-and deleted the balance addition. 17.3 As seen from the above, there is clear case of suppression of collections on daily basis for the assessment year 2009-10 and 2010-11 having been found during the course of survey carried out by the Department and the same was admitted by the assessee s Manager, Shri Philip Varghese in his sworn statement. The ratio laid down by the Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh vs. H.M. Esufali H.M. Abdulali (1973) (90 ITR 271) is squarely applicable to the facts of the present case wherein it was held that if the estimate made by the assessing authority is a bona fide estimate and is based on a rational b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of actual suppressed collection found during the course of survey and and increase it for the whole year by multiplying by three (i.e.,12 months divided by 4 months). 18.7 Now coming to the Kollam lab, there is no dispute that the collection of Kollam lab is estimated t 130.5% more than the collection at Kottarakkara lab. Accordingly, the suppression of collection in Kollam lab is worked out at ₹ 13,22,311/- (Rs.10,13,265 x 130.5%). Thus, the total suppressed collection for the assessment year 2009-10 is worked out at ₹ 23,35,576/- as against ₹ 3,37,755/- worked out by the CIT(A). 18.8 Similarly, on the same basis, the suppressed receipts for assessment year 2010-11, is to be estimated. As seen from the records, the declared turnover for the assessment year 2009-10 is ₹ 72,26,143. As against this, the actual receipts for the assessment year 2010-11 is ₹ 89,59,491/-. Thus, there is increase of 24% per annum in declared receipts as compared to the assessment year 2009-10 with the assessment year 2010-11. Accordingly, the suppressed receipts is to be estimated at the increased rate of 24% of ₹ 24,35,576/- for the assessment year 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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