M/s. MILAN TRADERS, MUMBAI V. ITO Rg. - 13(3)(1), MUMBAI

ITA 1751/MUM/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49005 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 02-05-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 14-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Keywords: Reopening of assessment; Reason to believe; Reassessment proceedings
• Section: 143(3); 133A; 251; 147; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. I.T.A. NO. 1751/MUM/2006 ASSESSMENT YEAR : 1999-2000. M/S MILAN TRADERS, THE INCOME-TAX OFFICER,, SHOP NO. G-20, VS. RANGE-13(3)(1), NEW ANANT BHUVAN, MUMBAI. BHAT BAZAR, MUMBAI 400009. PAN AAEEM8379G. APPELLANT. RESPONDENT. APPELLANT BY : SHRI DHARMESH SHAH. RESPONDENT BY: SHRI D. SONGATE. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS)-XIII, MUMBAI DATED 06-01-2006. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSIN ESS OF TRADING IN AGRICULTURAL PRODUCTS SUCH AS ONION, POTATOES ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 31-12-20 01 DECLARING A TOTAL INCOME OF RS.4,72,092/-. A SURVEY U/S 133A WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 17-8-1998. DURING THE COURSE OF SURVEY, STATEMEN T OF SHRI SANJAY CHHEDA WAS RECORDED. ACCORDING TO THE AO, SHRI CHHEDA IN HIS S TATEMENT VOLUNTARILY DECLARED 2 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. ADDITIONAL INCOME OF RS.12 LAKHS OF THE ASSESSEE. S INCE IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION, THE SAID AM OUNT OF RS.12 LAKHS WAS NOT OFFERED BY THE ASSESSEE FOR TAXATION PURPOSE, THE A O INITIATED THE REASSESSMENT PROCEEDINGS BY ISSUING NOTICE U/S 148 ON 26-07-2002 . IN RESPONSE TO THE SAID NOTICE, A RETURN WAS FILED BY THE ASSESSEE ON 27-8- 2002 DECLARING THE SAME INCOME AS WAS SHOWN IN THE RETURN ORIGINALLY FILED ON 31-1 2-2001. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO FROM THE CONSOLIDATED TRADING AND PROFIT & LOSS ACCOUNT FILED BY THE ASSESSEE THA T THE GROSS COMMISSION EARNED DURING THE POST SURVEY PERIOD WAS SHOWN BY THE ASSE SSEE ONLY TO THE EXTENT OF RS.8,70,985/- AGAINST WHICH EXPENSES OF RS.23,01,62 1/- WERE CLAIMED SHOWING A NET LOSS OF RS.13,84,850/-. ACCORDING TO THE AO, TH E ASSESSEES CLAIM FOR POST SURVEY EXPENSES RESULTING IN A LOSS OF RS.13,84,815 /- WAS NOT ACCEPTABLE. HE, THEREFORE, ASSESSED THE INCOME OF THE ASSESSEE AT R S.18,13,128/- BEING THE PROFIT OF THE PRE-SURVEY PERIOD THEREBY DISALLOWING THE CLAIM OF THE ASSESSEE FOR EXPENSES CLAIMED IN THE POST SURVEY PERIOD TO THE EXTENT OF LOSS OF THAT PERIOD AMOUNTING TO RS.13,40,226/- IN THE ASSESSMENT COMPLETED U/S 143( 3) READ WITH SECTION 147. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) RE AD WITH SECTION 147, AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLENGING THEREIN THE VALIDITY OF THE SAID ASSESSMENT MADE BY THE AO AS WELL AS DISPUTING THE ADDITION MADE THEREIN ON ACCOUNT OF DISALLOWANCE OF EXPENSES. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THE CONTENTION O F THE ASSESSEE CHALLENGING THE VALIDITY OF REASSESSMENT MADE BY THE AO AND UPHELD THE VALIDITY OF THE SAID ASSESSMENT OBSERVING THAT CERTAIN FACTS HAD COME TO LIGHT IN THE COURSE OF SURVEY WHICH FORMED BASIS FOR THE AO TO HAVE REASON TO BEL IEVE THAT THE INCOME ADMITTED DURING THE SURVEY HAD ESCAPED ASSESSMENT. AS REGARD S THE DISALLOWANCE OF VARIOUS EXPENSES MADE BY THE AO, THE LEARNED CIT(APPEALS) P ROCEEDED TO EXAMINE THE 3 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. CLAIM OF THE ASSESSEE FOR EXPENSES INCURRED UNDER E ACH AND EVERY HEAD SEPARATELY AND FOUND THAT THE TOTAL DISALLOWANCE OF RS.13,40,2 26/- MADE BY THE AO ON ACCOUNT OF VARIOUS EXPENSES WAS SUSTAINABLE TO THE EXTENT OF RS.4,55,254/-. HE, THEREFORE, DELETED THE BALANCE DISALLOWANCE MADE BY THE AO AND ALLOWED THE APPEAL OF THE ASSESSEE PARTLY. AGGRIEVED BY THE OR DER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE T RIBUNAL. 4. IN GROUND NO.1, THE ASSESSEE HAS RAISED A PRELIM INARY ISSUE RELATING TO THE VALIDITY OF REASSESSMENT MADE BY THE AO ON THE GROU ND THAT THE REOPENING OF ASSESSMENT ITSELF WAS BAD IN LAW. 5. THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE COPY OF REASONS RECORDED BY THE AO PLACED ON RECORD AND SUB MITTED THAT THE ASSESSMENT WAS REOPENED BY THE AO ON THE GROUND THAT THE ASSES SEE HAD VOLUNTARILY DECLARED AN ADDITIONAL INCOME OF RS.12 LAKHS DURING THE COUR SE OF SURVEY WHICH WAS NOT OFFERED IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION. HE THEN INVITED OUR ATTENTION TO THE RELEVANT PORTION OF TH E STATEMENT RECORDED DURING THE COURSE OF SURVEY AND SUBMITTED THAT A SPECIFIC QUES TION WAS ASKED BY THE SURVEY TEAM AS TO WHY ADVANCE TAX WAS NOT PAID BY THE ASSE SSEE AND IN REPLY THERETO, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE IN COME DUE TO COMMISSION EARNED FOR CURRENT YEAR WAS RS.12 LAKHS ON WHICH ADVANCE T AX WOULD BE PAID WITHIN 10 DAYS. HE SUBMITTED THAT THERE WAS NO DECLARATION OF ANY ADDITIONAL INCOME IN THE SAID STATEMENT RECORDED DURING THE COURSE OF SURVEY AND THE FIGURES OF COMMISSION ACTUALLY EARNED WERE ALREADY GIVEN BY THE ASSESSEE WHILE REPLYING TO QUESTION NO.2. HE SUBMITTED THAT THE FIGURE OF COMMISSION SO STATED WAS DULY DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME FOR THE YEAR U NDER CONSIDERATION AND THERE BEING NO ADDITIONAL INCOME ON ACCOUNT OF COMMISSION DECLA RED BY THE ASSESSEE DURING THE COURSE OF SURVEY, THE VERY BASIS ON WHICH ASSES SMENT WAS REOPENED IS FACTUALLY 4 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. INCORRECT. RELYING ON THE DECISION OF HONBLE GUJAR AT HIGH COURT IN THE CASE OF SAGAR ENTERPRISES VS. ACIT 257 ITR 335, HE CONTENDE D THAT THE REOPENING ITSELF WAS BAD IN LAW AND THE ASSESSMENT COMPLETED IN PURS UANCE OF THE SAME IS INVALID. HE FURTHER SUBMITTED THAT NO ADDITION ON ACCOUNT OF ADDITIONAL INCOME STATED TO BE DECLARED BY THE ASSESSEE DURING THE COURSE OF SURVE Y HAS BEEN FINALLY MADE BY THE AO IN THE REASSESSMENT AND WHAT HAS BEEN ADDED TO T HE TOTAL INCOME OF THE ASSESSEE IN THE SAID ASSESSMENT IS ENTIRELY A DIFFE RENT AMOUNT ON ACCOUNT OF DISALLOWANCE OF EXPENSES CLAIMED IN THE POST SURVEY PERIOD. RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F JET AIRWAYS 331 ITR 236, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ADDITION SO MADE BY THE AO ON A NEW ISSUE WHICH WAS NOT THERE IN THE REASONS R ECORDED IS BEYOND THE SCOPE OF REASSESSMENT. 6. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELI ED ON THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) UPHOLDING THE VALIDITY OF REASSESSMENT MADE BY THE AO U/S 143(3) READ WITH SECTION 147. HE SUBMITTED THAT THERE WAS A CLEAR CUT ADMISSION ON THE PART OF THE ASSESSEE REGARDING ADDITIONAL IN COME IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY WHICH FORMED A VALID BA SIS FOR THE AO TO REOPEN THE ASSESSMENT AS ADDITIONAL INCOME SO DECLARED WAS NO T OFFERED TO TAX IN THE RETURN OF INCOME FILED BY THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSM ENT IN THIS CASE WAS REOPENED BY THE AO FOR THE FOLLOWING REASONS RECORDED BY HIM : A SURVEY U/S 133A WAS CARRIED OUT IN THIS CASE ON 17.8.98 AND DURING THE COURSE OF SURVEY THE ASSESSEE HAD VOLUNTARILY D ECLARED AN ADDITIONAL INCOME OF RS.12 LAKHS. HOWEVER, THE ASSESSEE HAS NO T OFFERED THE AMOUNT FOR TAXATION PURPOSES IN HIS RETURN OF INCOME FOR A.Y.1 999-2000. 5 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. SINCE THE INCOME OF RS.12 LAKHS HAS NOT BEEN OFFERE D FOR TAXATION, I STRONGLY BELIEVE THAT THE INCOME TO THE EXTENT OF R S.12 LAKHS HAS ESCAPED ASSESSMENT. 8. AS IS EVIDENT FROM THE ABOVE REASONS RECORDED BY THE AO, THE BELIEF ABOUT THE ESCAPEMENT OF INCOME WAS ENTERTAINED BY HIM ON THE BASIS OF SURVEY DURING THE COURSE OF WHICH THE ASSESSEE, ACCORDING TO THE AO, HAD DECLARED AN ADDITIONAL INCOME OF RS.12 LAKHS. DURING THE COURSE OF SURVEY, STATEMENT OF ONE SHRI SANJAY CHHEDA WAS RECORDED AND THE RELEVANT QUESTIONS ASKE D TO HIM IN THIS REGARD ALONG WITH THE ANSWERS GIVEN ARE EXTRACTED BELOW : QUESTION : WHAT IS GROSS COMMISSION INCOME OF ALL T HE CONCERNS AND HAVE YOU PAID ADVANCE TAX ON THEIR INCOME? REPLY : THE GROSS COMMISSION EARNED FOR THE CONCE RNS ARE MILAN TRADERS RS.28,25,434/-, S.K. TRADERS RS.19,84,927/- , BHAKTI TRADERS RS.1,93,743/- AND SUPER CENTRE RS.13,79,68 6/-. WE HAVE NOT PAID ANY ADVANCE TAX ON THIS COMMISSION RE CEIVED. QUESTION : WHY ADVANCE TAX IS NOT PAID? REPLY : I ADMIT THAT THE INCOME DUE TO COMMISSION E ARNED FOR CURRENT YEAR IS RS.12 LAKHS FOR MILLAN TRADERS, RS.7 LAKHS FOR S.K. TRADERS, RS.1 LAKH FOR BHAKTI TRADERS AND RS.5 LAKH S FOR SUPER CENTRE. I WILL PAY ADVANCE TAX WITHIN 10 DAYS ON TH IS INCOME. 9. A PERUSAL OF THE RELEVANT PORTION OF STATEMENT O F SHRI SANJAY CHHEDA RECORDED DURING THE COURSE OF SURVEY EXTRACTED ABOV E SHOWS THAT A SPECIFIC QUESTION WAS ASKED AS TO WHY ADVANCE TAX WAS NOT PA ID ON THE COMMISSION INCOME EARNED BY THE VARIOUS CONCERNS AND IN REPLY TO THER ETO THE AMOUNTS OF NET COMMISSION EARNED BY THE SAID CONCERNS WERE ROUGHLY INDICATED BY SHRI SANJAY 6 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. CHHEDA WITH THE UNDERTAKING THAT THE ADVANCE TAX T HEREON WILL BE PAID WITHIN 10 DAYS. THERE WAS NO QUESTION WHATSOEVER ASKED TO HIM ABOUT THE ADDITIONAL INCOME EARNED BY THE FIRMS FROM COMMISSION AND THE REPLY W AS GIVEN BY HIM TO A SPECIFIC QUESTION ABOUT NON-PAYMENT OF ADVANCE TAX IN THE CO NTEXT OF WHICH HE APPARENTLY INDICATED THE NET AMOUNT OF COMMISSION EARNED BY TH E ASSESSEE FIRM AND UNDERTOOK TO PAY ADVANCE TAX THEREON WITHIN 10 DAYS. IT IS TH US CLEAR THAT THE AO WAS PATENTLY WRONG IN ASSUMING THE SAID AMOUNT OF RS.12 LAKHS IN DICATED BY SHRI SANJAY CHHEDA AS A REGULAR COMMISSION INCOME EARNED BY THE ASSESSEE FIRM TO BE ADDITIONAL INCOME DECLARED BY HIM AND HASTILY FORME D THE BELIEF ABOUT THE ESCAPEMENT WITHOUT APPLYING HIS MIND TO THE FACTS OF THE CASE AS WELL AS MATERIAL AVAILABLE ON RECORD. 10. IN THE CASE OF GANGASARAN & SONS VS. ITO 130 IT R 1, THE HONBLE SUPREME COURT HAS HELD THAT THE IMPORTANT WORDS USED IN SEC TION 147 ARE HAS REASON TO BELIEVE AND THESE WORDS ARE STRONGER THAN THE WORD S IS SATISFIED. EXPLAINING FURTHER, THE HONBLE APEX COURT OBSERVED THAT THE B ELIEF ENTERTAINED BY THE AO MUST NOT BE ARBITRARY OR IRRATIONAL BUT IT MUST BE BASED ON REASONS WHICH ARE RELEVANT AND MATERIAL. IF THERE IS NO RATIONAL OR I NTELLIGIBLE NEXUS BETWEEN THE REASONS AND BELIEF, SO THAT, ON SUCH REASONS, NO ON E PROPERLY INSTRUCTED ON FACTS AND LAW COULD REASONABLY ENTERTAIN BELIEF, THE CONCLUSI ON WOULD BE INESCAPABLE THAT THE AO COULD NOT HAVE REASON TO BELIEVE THAT ANY PART O F THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. IN THE CASE OF SETH BROTHER S VS. JCIT REPORTED IN 251 ITR 270, THE HONBLE GUJARAT HIGH COURT HAS HELD THAT T HE CIRCUMSTANCES MUST EXIST AND CANNOT BE DEEMED TO EXIST FOR ARRIVING AT AN OP INION. 11. IT IS ALSO PERTINENT TO NOTE HERE THAT NO ADDIT ION ON ACCOUNT OF ADDITIONAL INCOME OF RS.12 LAKHS WAS FINALLY MADE BY THE AO IN THE REASSESSMENT AND WHAT WAS ADDED THEREIN WAS ENTIRELY A DIFFERENT AMOUNT O F RS.13,40,226/- ON ALTOGETHER 7 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. NEW ISSUE BY WAY OF DISALLOWANCE OF EXPENSES CLAIME D BY THE ASSESSEE IN THE POST SURVEY PERIOD. IN THE CASE OF CIT VS. JET AIRWAYS ( I) LTD. 331 ITR 236, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT UPON THE ISSUANCE O F NOTICE U/S 148 READ WITH SECTION 147, THE AO HAS TO ASSESS OR REASSESS THE I NCOME WHICH ESCAPED ASSESSMENT AND IF AFTER ISSUING A NOTICE U/S 148, HE ACCEPTS T HE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASS ESSMENT, DOES NOT OPEN TO HIM TO INDEPENDENTLY ASSESS SOME OTHER INCOME. AS SUCH, CO NSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IF THE PRINCIPLES LAID DOWN IN THE VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE ARE APPLIED TO THE FACTS OF THE PRESENT CASE, IT BECOMES AMPLY CLEAR THAT THE NECES SARY CONDITION FOR ASSUMING JURISDICTION U/S 147 WAS NOT SATISFIED AND THE INIT IATION OF REASSESSMENT PROCEEDINGS WITHOUT SATISFYING THE JURISDICTIONAL CONDITION WAS BAD LAW. IN THAT VIEW OF THE MATTER, WE CANCEL THE REASSESSMENT MADE BY THE AO H OLDING THE SAME TO BE INVALID AND ALLOW THIS APPEAL OF THE ASSESSEE ON THIS PRELI MINARY ISSUE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011. SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTAP ) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI, DATED: 27 TH MAY, 2011. 8 ITA NO.1751/MUM/2006 ASSESSMENT YEAR: 1999-200. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH (TRUE COPY) BY ORDE R ASSTT. REGIST RAR, ITAT, MUMBAI BEN CHES, MUMBAI.