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TMI Blog2024 (8) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... e said brokerage income is credited in the books of account of the firm so that the same can be set off against the bad debts claimed by the petitioner firm. The Assessing Officer has, therefore, rightly relied on the decision of ITO v. Atchaiah [ 1995 (12) TMI 1 - SUPREME COURT] as the right person i.e. firm is required to be taxed for the purpose of charging of income tax for doing work for M/s. Vema Lift Oy, Finland, as the entire brokerage income belongs to the petitioner company who has performed the work for the said company. Therefore, the contention raised on behalf of the petitioner firm that it was regularly showing such brokerage income in the books of accounts would be a matter of scrutiny during the course of assessment proceedings by the AO. As per the facts available on record in case of the petitioner company as well as firm, it is apparent that the company is not rightly taxed and the income prima facie has escaped assessment and therefore, the Assessing Officer was justified in assuming the jurisdiction for re-opening of the assessment. Similarly, in case of the petitioner firm also, there was no scrutiny assessment for the year under consideration and the issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2012-13 was passed assessing total income at Rs. 74,42,564/-. 3.2 It appears that a survery was conducted by the Income Tax Authorities in case of the partnership firm (petitioner of Special Civil Application No. 18746 of 2019). During the course of survey, statement of one of the partners of the petitioner firm who is also Director of the petitioner company viz. Shri Jignesh Shah, was recorded under Section 133 (A) of the Act by the survey team. 3.3 The Respondent Assessing Officer thereafter issued a notice under Section 148 of the Act to the petitioner company as well as partnership firm for re-opening of the assessment for A.Y. 2012-13 on 25th March, 2019. 3.4 The petitioner company filed return of income on 15th April, 2019 pursuant to the aforesaid notice for re-opening and sought reasons recorded by the Assessing Officer for re-opening of the assessment. 3.5 The Respondent Assessing Officer provided the reasons recorded for re-opening of the case on 24th April, 2019, against which objections were filed on 27th May, 2019 by the petitioner company. The Respondent Assessing Officer disposed of the objections by order dated 30th May, 2019 rejecting the same. The petitioner c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impounded by the survey team, however not a single impounded material even remotely connects, belongs or pertains to the petitioner company and it appears that the questions raised are based on data, details, facts available in the return of income already filed by the assessee and which were available with the Department prior to the survey operations. 5.3 Learned advocate Mr. Parikh, in support of his submissions, relied on the decision in case of S . Khader Khan Son reported in 352 ITR 480 (SC) to submit that no addition could be made on the basis of the statement made by the assessee unless there was corroborative material found during the course of survey, which unequivocally support the statement made by the assessee. It was submitted that on perusal of the reasons recorded, it is apparent that the entire re-opening action has been initiated on the basis of the statement. 5.4 Further reliance was placed on the decisions in case of CIT v. M.P. Scrap Traders [372 ITR 507 (Guj)], CIT v IBS Infonet (P) Ltd. [394 ITR 538 (Del)], Gajjam Chinna Yellappa [370 ITR 671 (AP)] and Krishna Developers [2017 TaxPub (DT) 1247 (Ahd-Trib)]. It was, therefore, submitted that in view of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of any reasonable belief recorded in the reasons with regard to escapement of income. Reliance was placed on the decision of the Apex Court in the case of Commissioner of Income Tax v. M/s. Sun Engineering Works (P.) Ltd. reported in 198 ITR 297 (SC) and M/s.Phool Chand Bajrang Lal v. Income-Tax Officer reported in 203 ITR 456 (SC). 5.8 It was submitted that the very basis of forming the reasonable belief of escapement of income did not exist or did not survive and therefore, notice under Section 148 of the Act is required to be considered as an invalid notice. Reliance was placed on the decision in case of CIT v. Shardaben K. Modi reported in 365 ITR 169 (Guj) wherein it is held that in absence of any independent material, statement of the son of the assessee recorded during the survey would not form a valid basis for re-opening the assessment of the assessee in the facts of the said case. 5.9 Reliance was also placed on the decision in case of Synbiotics Ltd. v. ACIT reported in 370 ITR 119 (Guj) wherein it is held that the very basis of the Assessing Officer to uphold a belief that income chargeable to tax had escaped assessment lacked validity and the issuance of notice u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without verifying the correctness of the factual position. It was pointed out from the objections raised before the Assessing Officer that 18 of the 22 depositors appearing in the audit report are old depositors as all of them had opening balance and 21 of them were paid interest, from which TDS was duly deducted. It was further pointed out that assessment for immediately preceding two years i.e. Assessment Years 2010-11 and 2011-12 were finalised under Section 143 (3) of the Act and no addition under Section 68 were made in those years wherein such depositors were reflected in the account of the petitioner firm. It was, therefore, submitted that the same depositors continued to be depositors in A.Y. 2013-14 and 2014-15 and these two assessment years were also finalised under Section 143 (3) of the Act and deposits were scrutinised and accepted as genuine borrowings of the petitioner firm. 5.13 It was, therefore, submitted that the conclusion arrived at by the Assessing Officer that income has escaped the assessment, is without any basis. It was submitted that even in the order rejecting the objections filed by the petitioner firm, the Respondent Assessing Officer has failed to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33 (A) (3) of the Act. It was submitted that answers to question Nos.12 to 16 given by Shri Jignesh Shah are self-explanatory and clearly shows that income of the company was shifted to partnership firm as there were common partners and directors. It was also pointed out from the answer to question No.16 that the partnership firm and the private limited company are having same rate of tax and therefore, it would not make any difference as the work is performed by the company and brokerage commission also belongs to the company but the same was offered as income of the partnership firm, however as there is no tax difference in tax rate, there is no loss to the department also. It was also pointed out that the firm has claimed bad debts under Section 36 (2) and to set off such bad debts, income of the company of brokerage is shown as income of the partnership firm and therefore, there is escapement of the income at the hands of the company and as held by the Apex Court, right person is required to be taxed. 6.1.1 In support of his submission, reliance is placed on the following averments made by the respondent in case of the petitioner company. From the aforesaid, it is clear that NK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening has been resorted to for making a roving and fishing inquiry is baseless and denied. I humbly submit that the Petitioner has grossly failed to disclose the brokerage income as enumerated hereinabove. Moreover, it is not the case of the Petitioner that there was no failure on its part to disclose truly and fully all material facts for assessment. The Petitioner having admitted the factum of its failure to disclose truly and fully all material facts, the impugned notice is legal and valid. V. With reference to paragraphs 19 (1) to 22, the Petitioner has reiterated its contentions which are denied therefore, the same are not dealt with to avoid repetition. The submissions made in the foregoing paragraphs are reiterated. The assessing officer has exhaustively dealt with the objections raised by the Petitioner and therefore, the grievance with regard to disposal of objections is self-serving. VI. With reference to paragraphs no. 23 to 24, the Petitioner has contended that brokerage income once having been taxed in the hands of NKB cannot be taxed in the hands of the Petitioner to avoid double taxation. The said contention is baseless in view of the Hon'ble Supreme Court' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through Dividends, which attracted Dividend Distribution Tax @ 15%. Therefore, even if the basic tax rate may be same or similar, the overall tax liability is very much different between a company and a firm. 6.1.2 Referring to the above averments in the affidavit-in-reply, it was submitted that the notice was issued for re-opening by the Assessing Officer by rightly forming belief that income has escaped the assessment. 6.2 In case of petitioner partnership firm also, the Assessing Officer has come to the conclusion that there is escapement of income as there is a wrong claim of the bad debts which requires further scrutiny as there was no scrutiny assessment of the partnership firm for the year under consideration. 6.3 It was, therefore, submitted that if the petitioner firm has failed to explain the claim of bad debts after ten years, as no transactions have been done in relation to the cotton bales and what action was taken for recovery of debts is not available on record and petitioner firm has failed to explain the same. It was further submitted that on perusal of the reasons, even the unsecured loans reflected in the accounts of the petitioner firm have not been substantiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into at this stage. This is a case where the Petitioner Firm had already admitted that the Expenses of M/s Vishal trading were wrongfully added to the debtors and subsequently the same were claimed as Bad Debts only during Assessment Year 2012-13 which has led to escapement of income. Further the flow of entries of Bad Debts Claim by the Petitioner Firm was never found to be bona fide and was claimed in a timely manner just to evade any huge statutory tax liability. The following table shows such flow of entries: - A.Y. Other Income Bad Debts 2008-09 2,05,65,493/- 1,77,11,074/- 2009-10 2,57,80,578/- 2,53,94,197/- 2010-11 3,65,85,918/- 3,00,15,750/- 2011-12 1,29,05,886/- 1,70,32,892/- 2012-13 3,05,63,318/- 2,12,72,899/- 2013-14 3,04,23,562/- 3,98,74,880/- 2014-15 2,87,77,224/- -- 2015-16 4,24,30,580/- 2,81,27,349/- 2016-17 4,75,41,316/- 4,43,62,559/- 2017-18 7,89,88,218/- 7,86,62,118/- 2018-19 4,27,04,802/- 2,93,09,161/- On Perusal of the above table, it is clearly evident that the Petitioner Firm has claimed Bad Debts every year according to its sweat wish and on receipt of Other Income every Year. The Assessing Officer had formed a prima facie belief after recording and verifying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sturchand Bros. we are having cotton business only. But, I have talked to my staff and on the basis of their experience we have done this work. Along with this firm, I am director in Newage Fire Fighting Company Ltd. and this company is involved in manufacturing of Fire Fighting Equipment. So, the staff of Newage Fire Fighting Company Ltd. have enough experience to carry out this work that is why we have performed this work. Ques 15- In response to question no. 13 you have said that the brokerage income received from Vena Lift Oy Co. Finland, how you came in contact of this company and before doing this work have you ever done any correspondence? Please explain. Answer 15: Any conversation done with Vema Lift Oy Company Finland and AMC Ahmedabad was with our sister concern Newage Fire Fighting Co. Ltd. in which I am a director. Hence, I cannot provide you the copy of the correspondence but I have shown this income in Nagindas Kasturchand Bros. Ques 16. Prima facie it seems that whatever correspondence done regarding the liasioning work was with Newage Fire Fighting Co. Ltd. and the work was also done by it. So, why you have offered this income in NKB? Please explain. Answer 16 -NKB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this respect, it is worthwhile here to mention the judgment in the case of ITO v/s Ch. Atchaiah (1996) 218 ITR 239/84 Taxman 630 (SC), wherein the Hon'ble Supreme Court observed as under:- We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the 'right' person alone. They observed that by right person , means the person who is liable to be taxed accordingly to law with respect to a particular income. The expression wrong person is obviously used as the opposite of the expression right person . Merely because a wrong person is taxed with respect to a particular income. It was held that this is so irrespective of the fact that which course is more beneficial to the revenue. It was observed that where a person is taxed wrongfully, he is entitled to be relieved to it in accordance with law but that is a different matter altogether and the person who is lawfully liable to be taxed cannot claim immunity because the Assessing Officer (Income Tax Officer) has taxed the said income in the hands of another person. The assessing officer is not precluded from ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Textiles Limited in last 10 Years. 2.2 In his statement, the assessee has stated that Shri Hemant S. Shah is my uncle and ex-partner in the firm had tried for the recovery of debts with cotton broker, Sri Hirabhai Mulani but no correspondence, e-mail or legal action has been taken for recovery of debts. Further, working partner Shri Jignesh Shah has stated that legal action has not been taken for the recovery of debts is not known to me. 2.3 Further, it is seen that the assessee has debited M/s Vishal Trading Company as brokerage for bill No. 8,9, 10 on 30/03/2002 amounting to Rs. 3,85,000/- in the account of M/s Kongrar Textiles Limited in the F.Y. 2006-07 i.e. 20/02/2007 which is not in relation to the above debtor and also not related to F.Y 2006-07 as bills raised in F.Y. 2002-03 but assessee has artificially increased the debts to the extent of Rs. 3,85,000/-. 2.4 In his statement, the partner of the assessee firm has stated that after enquiring the three entries recorded in the books of M/s Kongrar Textiles Limited is not bona fide and are wrong and will be submitted later, but the assessee has failed to do so which clearly indicate that the assessee has claimed bad debts t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this year is not bona fide. Even though, the assessee has not provided the ledger account as a part of books of accounts wherein the debt is showing as irrecoverable i.e. bad debts. 3. UNSECURED LOAN 3.1 During the survey action, it is seen from tax audit report for F.Y. 2011-12 that the assessee has taken unsecured loans amounting to Rs. 1,78,70,000/- during the year and no interest paid thereon. 3.2 During the survey action, the partner of the assessee firm Shri Jignesh Shah was asked to furnish the copy of I.T. Return, relevant bank statement of loan creditors to substantiate that the loan is genuine. 3.3 In his statement dated 04/02/2019, Shri Jignesh Shah has stated that the same will be furnished on or before 15/02/2019. As the assessee firm has not furnished the above details, two letters were issued and duly served upon the assessee on 26/02/2019 28/02/2019 to furnish the same but assessee has failed to provide the aforesaid documents. 3.4 In view of the above, it is prima-facie clear that loan taken by the assessee firm amounting to Rs. 1,78,70,000/- during the year is not genuine nor it confirm to the requirement of section 68 of the Act. 4. In view of the above facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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