Shri Ravindra M. Shah, Baroda V. The ACIT., Circle-2(2), Baroda

ITA 3325/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0254 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 03-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KHANDEWAL
• Keywords: Recovery proceedings; Depreciation; Maximum Marginal Rate; Fair market value; Bad and doubtful debts; Difference of opinion; Avoidance of tax; Reason to believe; Change of opinion
• Section: 143(3); 133A; 37(1); 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL SHRAWAT, JUDICIAL MEMBER) ITA.NO.3325, 3326 AND 3327/AHD/2008 ASSTT.YEAR : 2002-2003, 2003-2004 AND 2004-2005 SHRI RAVINDRA M. SHAH PROP. SHAH BULK CARRIERS CHHANI, BARODA. PAN : ALUPS 6135 M VS. ACIT, CIR.2(2) BARODA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHIREN SHAH REVENUE BY : SHRI A.K.KHANDEWAL O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THESE ARE THREE APPEALS BY THE SAME ASSESSEE AGAINST THE ORDERS OF THE COMMISSIONE R OF INCOME TAX (APPEALS)-II, BARODA DATED 21.08.2008 ARISING OUT O F THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S. 147 OF T HE INCOME TAX ACT, 1961. SINCE ARE COMMON AND/OR INTER-RELATED, FOR THE SAKE OF CONVENIENCE, WE DISPOSE OF ALL THESE APPEALS BY THIS CONSOLIDATED ORDER. 2. THE FIRST GROUND WHICH IS COMMON IN ALL THE ABOV E THREE YEARS READS AS UNDER: 1. LD.CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDIN G THE VALIDITY OF NOTICES ISSUED U/S.148 OF THE ACT BY THE AO WHILE M AKING AN OBSERVATION THAT SINCE IN THE CASE OF APPELLANT, AS SURVEY WAS CONDUCTED WHICH REVEALED ACTUAL CONDUCT OF BUSINESS AND THE NON-GEN UINENESS OF COMMISSION EXPENSES, THE APPELLANTS OBJECTION CANN OT BE SUSTAINED. 3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT FACTS IN ALL THE THREE YEARS ARE ALMOST SIMILA R, AND THEREFORE, THE ASSESSEE WOULD REFER THE FACTS RELATING TO THE ASSESSMENT YE AR 2002-203. HE HAS STATED THAT THE ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR O F SHAH BULK CARRIERS. THE ITA.NO.3325, 3326 AND 3327/AHD/2008 -2- ASSESSEE DERIVES INCOME FROM TRANSPORT BUSINESS. F OR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED THE RETURN DE CLARING TOTAL INCOME OF RS.49,72,760/- WHICH WAS ACCEPTED UNDER SECTION 143 (1) OF THE ACT. NOTICE UNDER SECTION 148 WAS ISSUED ON 30-3-2007. COPY OF REASONS RECORDED FOR REOPENING OF THE ASSESSMENT IS PLACED AT PAGE NO.88 AND 89 OF THE ASSESSEES PAPER-BOOK. AS PER THE AO IN THE AUDITED ACCOUNTS , THE ASSESSEE HAS NOT PROPERLY DISCLOSED THE COMMISSION AMOUNTING TO RS.4 9,72,600/- PAID TO THE ASSESSEES BROTHER, SHRI HASMUKH M. SHAH (HMS FOR SHORT). THE AO HAS ALSO MENTIONED THAT DURING THE SURVEY UNDER SECTION 133A CONDUCTED ON 14-2- 2007 AT THE BUSINESS PREMISES OF THE ASSESSEE, IT W AS DISCOVERED THAT THE ASSESSEE PAID THE COMMISSION OF RS.43,72,600/- TO H IS BROTHER, HMS. IT IS SUBMITTED BY THE LEARNED COUNSEL THAT ABOVE ALLEGAT IONS IN THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT UNDER SECTION 147 I S FACTUALLY INCORRECT. IN THE AUDIT REPORT, THE AUDITOR IS REQUIRED TO GIVE THE D ETAILS OF PAYMENT MADE TO PERSONS COVERED UNDER SECTION 40A(2) WHICH INCLUDED PROPRIETORSHIP CONCERN OF THE ASSESSEES BROTHER I.E. SHAH CARRIERS. THE AMOUNT OF COMMISSION OF RS.43,72,600/- WAS DULY DISCLOSED. THUS, THE ALLEG ATION OF THE AO THAT THE AMOUNT OF COMMISSION WAS NOT DISCLOSED BY THE ASSES SEE IN THE AUDIT REPORT IS FACTUALLY INCORRECT. THAT THE ASSESSEES BROTHER, HMS IS ALSO ASSESSED TO INCOME TAX AND HE HAS ALSO DISCLOSED THE COMMISSION RECEIVED BY THE ASSESSEE IN HIS ACCOUNTS AS WELL AS RETURN OF INCOME. THAT DURING THE COURSE OF SURVEY IN 2007, THE STATEMENT OF THE ASSESSEE WAS RECORDED IN WHICH NO QUESTION WAS ASKED WITH REGARD TO THE PAYMENT OF COMMISSION TO T HE ASSESSEES BROTHER. HMS. NO OTHER MATERIAL WAS FOUND DURING THE COUR SE OF SURVEY ON THE BASIS OF WHICH THE DEPARTMENT CAN SAY THAT THE FACT OF TH E PAYMENT OF COMMISSION WAS DISCOVERED BY THE DEPARTMENT IN THE COURSE OF S URVEY. IT IS FURTHER SUBMITTED BY THE LEARNED COUNSEL THAT THOUGH IN ASS ESSMENT YEAR 2002-2003, THE RETURN WAS ACCEPTED UNDER SECTION 143(1), BUT IN AS SESSMENT YEAR 2003-2004 AND 2004-2005 THE ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) OF THE ACT AND IN BOTH THE YEARS, THE QUERIES WERE RAISED BY T HE AO WITH REGARD TO THE ITA.NO.3325, 3326 AND 3327/AHD/2008 -3- DETAIL OF COMMISSIONS PAID TO THE ASSESSEES BROTHE R. THUS, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ASSESSMENT WAS REOPENE D MERELY BY CHANGE OF OPINION. IT WAS ALSO STATED BY THE LEARNED COUNSEL THAT THERE WAS NO ESCAPEMENT OF INCOME AND THE REOPENING OF THE ASSESSMENT WAS N OT VALID. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) CIT VS. KELVINATOR OF INDIA LTD. (SC), 320 ITR 561; II) CIT VS. KELVINATOR OF INDIA, 256 ITR 65 (DEL) III) CIT VS. EICHER LTD., 294 ITR 310 (DEL) IV) INDIA STEAMSHIP CO. LTD. VS. JCIT & OTHERS, 275 ITR 155 (CAL) V) YASHODHA DAIRY P.LTD., 202 CTR 495 (MP) VI) CIT VS. SHREE RAJASTHAN SYNTEX LTD., 313 ITR 231 (R AJ) VII) SWETA ORGANISORS P. LTD. ACIT, 118 TTJ 426 (AHD) VIII) ASTER OIDS TRADING & INVESTMENT P.LTD. DCIT, 223 CT R 144; IX) ASIAN PAINTS LTD. VS. DCIT, 223 CTR 141; X) CARTINI INDIA LTD. VS. ACIT, 224 CTR 82; XI) CIT VS. CHAKIAT AGENCIES P.LTD. 24 DTR 26 (MAD) XII) JAL HOTELS CO. LTD. VS. ADIT, 24 DTR (DEL) 37 4. THE LEARNED DR, ON THE OTHER HAND RELIED UPON TH E ORDERS OF THE CIT(A) AS WELL AS THE AO ON THIS POINT. HE STATED THAT SO FAR AS ASSESSMENT YEAR 2002- 2003 IS CONCERNED, THERE WAS NO REGULAR ASSESSMENT, AND THEREFORE, THE QUESTION OF ANY CHANGE OF OPINION DOES NOT ARISE. IN SUPPOR T OF THIS CONTENTION, HE RELIED UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX V. RAJESH JHAVERI STOCK BROKERS P. LTD., 291 ITR 500. FOR THE ASSESSMENT YEARS 2003-2003 AND 2004-20 05 HE HAS STATED THAT THOUGH THE ASSESSMENT WAS COMPLETED UNDER SECTION 1 43(1), BUT THERE WAS NO SPECIFIC FINDING IN THE ASSESSMENT ORDER WITH REGAR D TO PAYMENT OF COMMISSION TO HMS. MOREOVER, THE ASSESSMENT WAS REOPENED WIT HIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THEREFORE, EVE N IF THE FACTS WERE DISCLOSED BY THE ASSESSEE, THE AO IS ENTITLED TO REOPEN THE A SSESSMENT. IN SUPPORT OF THIS ITA.NO.3325, 3326 AND 3327/AHD/2008 -4- CONTENTION, HE RELIED UPON THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF DR. AMIN'S PATHOLOGY LABORATORY V. P.N. PRASAD, JOINT COMMISSIONER OF INCOME-TAX (NO. 1), 252 ITR 673 AND GUJARAT HIGH COURT JUDGMENT IN THE CASE OF PRAFUL CHUNILAL PATEL V. MA KWANA (M.J.)/ASST. CIT, 236 ITR 832. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE MAIN ARGUMENT O F THE LEARNED COUNSEL WAS THAT THE ASSESSMENT WAS REOPENED ON THE BASIS OF CH ANGE OF OPINION, WHICH IS NOT PERMISSIBLE. HOWEVER, WE FIND THAT IN THE ASSE SSMENT YEAR 2002-2003, THE RETURN WAS ACCEPTED UNDER SECTION 143(1) AND THERE WAS NO REGULAR ASSESSMENT UNDER SECTION 143(3). IN THE CASE OF RAJESH JHAVER I STOCK BROKERS P. LTD. (SUPRA), THE HONBLE APEX COURT EXAMINED THE SCHEME OF SECTION 143(1) IN DETAIL AND HAS COME TO THE CONCLUSION THAT UNDER SE CTION 143(1)(A), THERE IS NO ASSESSMENT AND THEREFORE THE QUESTION OF CHANGE OF OPINION DOES NOT ARISE. THE RELEVANT OBSERVATION OF THEIR LORDSHIPS AT PAGE NO. 509 AND 510 OF THE ITR READS AS UNDER: .......IT MAY BE NOTED ABOVE THAT UNDER THE FIRST PROVISO TO THE NEWLY SUBSTITUTED SECTION 143(1), WITH EFFECT FROM JUNE 1 , 1999, EXCEPT AS PROVIDED IN THE PROVISION ITSELF, THE ACKNOWLEDGMEN T OF THE RETURN SHALL BE DEEMED TO BE AN INTIMATION UNDER SECTION 1 43(1) WHERE (A) EITHER NO SUM IS PAYABLE BY THE ASSESSEE, OR (B) NO REFUND IS DUE TO HIM. IT IS SIGNIFICANT THAT THE ACKNOWLEDGMENT IS N OT DONE BY ANY ASSESSING OFFICER, BUT MOSTLY BY MINISTERIAL STAFF. CAN IT BE SAID THAT ANY ASSESSMENT IS DONE BY THEM ? THE REPLY IS AN EMPHATIC NO. THE INTIMATION UNDER SECTION 143(1)(A) WAS DEEMED T O BE A NOTICE OF DEMAND UNDER SECTION 156, FOR THE APPARENT PURPOSE OF MAKING MACHINERY PROVISIONS RELATING TO RECOVERY OF TAX AP PLICABLE. BY SUCH APPLICATION ONLY RECOVERY INDICATED TO BE PAYABLE I N THE INTIMATION BECAME PERMISSIBLE. AND NOTHING MORE CAN BE INFERRE D FROM THE DEEMING PROVISION. THEREFORE, THERE BEING NO ASSESS MENT UNDER SECTION 143(1)(A), THE QUESTION OF CHANGE OF OPINIO N, AS CONTENDED, DOES NOT ARISE. (EMPHASIS ADDED) THE RATIO OF THE ABOVE DECISION OF THE HONBLE APEX COURT WOULD BE SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE FOR THE ASSE SSMENT YEAR 2002-2003. WE ITA.NO.3325, 3326 AND 3327/AHD/2008 -5- THEREFORE RESPECTFULLY FOLLOWING THE SAME HOLD THAT THE ASSESSMENT WAS VALIDLY REOPENED FOR ASSESSMENT YEAR 2002-2003. 6. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF COMMISSION PAYMENT OF RS.43,72, 600/-ON THE FINDINGS THAT SINCE THE PAYMENT IS FOR PURCHASING T HE BUSINESS OF SHRI HASMUKHBHAI M. SHAH, THE SAME IS CAPITAL IN NATURE AND THEREFORE NOT ALLOWABLE AS AN EXPENSE U/S.37(1) OF THE I.T.AC T. 7 AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT ORIGINALLY, THE ASSESSEE AND HIS BROTHER HMS WERE DOING THE BUSINESS OF TRANSPORTATION JOINTLY IN PARTNERSHIP. THE PARTNER SHIP BUSINESS WAS CONTINUED FROM 1982 TILL 1995. THAT IN THE YEAR 1995, THE PA RTNERSHIP FIRM WAS DISSOLVED AND THE ASSESSEE STARTED THE BUSINESS OF TRANSPORTA TION IN PROPRIETORSHIP CONCERN KNOWN AS SHAH BULK CARRIERS (SBC FOR SHORT). H IS BROTHER HMS ALSO STARTED THE TRANSPORTATION BUSINESS IN PROPRIETORSH IP UNDER THE NAME AND STYLE AS M/S. SHAH CARRIERS (SC FOR SHORT). THAT FROM 1 -4-1995 TO 31-3-2001 BOTH THE BROTHERS CARRIED OUT THE TRANSPORTATION BUSINES S INDEPENDENTLY THROUGH THEIR SEPARATE PROPRIETORSHIP FIRM. THAT FOR THE FINANCI AL YEAR ENDING ON 31-3-2001, THE VOLUME OF BUSINESS OF THE ASSESSEES BROTHER H MS WAS ALMOST DOUBLE THAN THE VOLUME OF ASSESSEES BUSINESS. THAT BOTH THE BROTHERS AGREED THAT FROM 1-4-2001 THE HMS WILL DISCONTINUE THE TRANSPORTAT ION WORK IN HIS PROPRIETORSHIP CONCERN, SC AND INSTEAD HE WILL WO RK FOR THE ASSESSEE. IT WAS ALSO AGREED THAT THE ASSESSEES PROPRIETORSHIP CONC ERN WOULD CARRY OUT THE TRANSPORTATION WORK FOR THE CLIENTS FOR WHOM THE PR OPRIETARY CONCERN OF HMS WAS WORKING EARLIER. THAT INITIALLY, HMS ASKED F OR 10% COMMISSION ON THE BUSINESS OF HIS ERSTWHILE CLIENT WHICH WOULD NOW BE EXECUTED BY THE PROPRIETORSHIP CONCERN OF THE ASSESSEE. HOWEVER, A FTER DISCUSSION BETWEEN THE BROTHERS, IT WAS FINALLY AGREED THAT SINCE HMS WI LL LOOK AFTER THE ENTIRE BUSINESS OF THE ASSESSEE, HE WILL BE GIVEN COMMISSI ON ON THE ENTIRE RECEIPT OF THE ASSESSEE WHICH WOULD BE 4% FOR THE FIRST TWO YE ARS I.E. FINANCIAL YEAR 2001- 2002 AND 2002-2003 AND 5% FOR THE THIRD YEAR I.E. F .Y.2003-2004. IN VIEW OF ITA.NO.3325, 3326 AND 3327/AHD/2008 -6- THE ABOVE, DURING THE YEAR UNDER CONSIDERATION HMS WAS PAID COMMISSION AT THE RATE OF 4% AMOUNTING TO RS.43,72,600/-. THAT T HE TDS WAS DEDUCTED FROM THIS COMMISSION PAID TO HMS. THE HMS IS SEPARA TELY ASSESSED TO TAX AND HE HAS ALSO DISCLOSED THE AMOUNT IN HIS INCOME TAX RETURN AND THE SAME WAS ASSESSED. COPY OF THE ASSESSMENT ORDER IS AT PAGE NO.166 OF THE ASSESSEES PAPER BOOK. THAT THE RETURN OF INCOME OF HMS WAS RS.46,24,000/-. THUS, HE HAS ASSESSED AT THE MAXIMUM MARGINAL RATE OF TAX AND THERE IS NO QUESTION OF ANY AVOIDANCE OF TAX BY GIVING COMMISSION TO HMS. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE NO.146 OF THE PAPER BOOK FOR ASSESSMENT YEAR 2004-2005. THE ASSESSEE H AS GIVEN CHART IN WHICH YEAR-WISE RECEIPT AS WELL AS INCOME OF THE ASSESSEE AS WELL AS HIS BROTHER WAS GIVEN. WITH REFERENCE TO THE SAID CHART, IT WAS PO INTED OUT BY THE LEARNED COUNSEL THAT DURING THE FINANCIAL YEAR 2000-2001 I. E. IMMEDIATELY PRECEDING THE YEAR, THE CARTING RECEIPT OF PROPRIETORSHIP FIRM OF HMS WAS RS.6.76 CRORES WHILE THE RECEIPT OF ASSESSEES PROPRIETORSHIP CONC ERN WAS ONLY RS.3.37 CRORES. THAT DURING THE ACCOUNTING YEAR RELEVANT TO THE ASS ESSMENT YEAR UNDER CONSIDERATION THE CARTING RECEIPT OF THE ASSESSEE H AS INCREASED TO RS.10.43 CRORES. WHILE THE CARTING RECEIPT OF THE PROPRIETO RSHIP OF THE HMS IS NEGLIGIBLE I.E. RS.90,829/-. THAT THE CARTING RECE IPT OF THE ASSESSEE IS ALMOST EQUAL TO CARTING RECEIPT OF THE ASSESSEE AND HIS BR OTHER IN THE IMMEDIATELY PRECEDING YEAR. THIS CLEARLY PROVES THAT THE DURIN G THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , THE ASSESSEES BROTHER STOPPED TRANSPORTATION BUSINESS IN HIS PROPRIETORSH IP CONCERN AND INSTEAD HE REFERRED THOSE CLIENTS TO THE ASSESSEE AND TRANSPOR TATION WORK FOR HIS ERSTWHILE CLIENT WERE ALSO EXECUTED BY THE ASSESSEES PROPRIE TORSHIP CONCERN. THAT IN THE SUBSEQUENT TWO YEARS I.E. IN THE ACCOUNTING YEAR RE LEVANT TO THE ASSESSMENT YEAR 2003-2004 AND 2004-2205, THE CARTING RECEIPT OF THE PROPRIETORSHIP CONCERN OF THE HMS IS ZERO AND THE CARTING RECEIPT OF THE ASSESSEES PROPRIETARY CONCERN IS RS.10.76 CRORES AND RS.11.06 CRORES RESP ECTIVELY. HE ALSO POINTED OUT THAT SUBSEQUENTLY I.E. FROM THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT ITA.NO.3325, 3326 AND 3327/AHD/2008 -7- YEAR 2005-2006, THE ASSESSEES BROTHER STOPPED WORK ING FOR THE ASSESSEE AND THEREFORE IN THE FINANCIAL YEAR 2004-2005 CARTING R ECEIPT OF THE ASSESSEE HAS REDUCED TO RS.7.87 CRORES. HE ALSO REFERRED TO THE AFFIDAVIT OF THE ASSESSEES BROTHER AS WELL AS THE CONFIRMATION OF THE ASSESSEE S BROTHER WHICH WAS ALSO FURNISHED DURING THE ORIGINAL ASSESSMENT PROCEEDING S. HE FURTHER REFERRED TO PAGE NOS.154 TO 235 OF THE ASSESSEES PAPER BOOK WH ICH SHOWS THAT THE SERVICES RENDERED BY THE ASSESSEES BROTHER FOR THE PURPOSE OF THE ASSESSEES BUSINESS. THESE EVIDENCES INCLUDED THE CORRESPONDENCE OF THE ASSESSEES BROTHER WITH VARIOUS CUSTOMERS, BANKS AS WELL AS EVIDENCES OF TR AVELING BY HIM FOR THE PURPOSE OF ASSESSEES BUSINESS. IT IS FURTHER STAT ED BY THE LEARNED COUNSEL THAT THE AO HAS APPLIED SECTION 40A(2) FOR DISALLOWING T HE ENTIRE COMMISSION PAID TO THE ASSESSEES BROTHER. IT IS SUBMITTED BY HIM THAT SECTION 40A(2) CAN BE APPLIED ONLY IF THE PAYMENT TO THE RELATIVES IS EXC ESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS/SERVIC ES OR FACILITY FOR WHICH PAYMENT IS MADE. HE HAS STATED THAT THE PAYMENT OF COMMISSION AT THE RATE OF 4% TO HIS BROTHER, WHO HAS NOT ONLY THE VAST EXPERI ENCE IN THIS LINE OF BUSINESS, BUT WHO ALSO HAS GOOD CONTACTS WITH VARIOUS BIG CUS TOMERS FOR WHOM HE WAS DOING THE TRANSPORT WORK WHEN HE WAS CARRYING ON TH E BUSINESS IN PROPRIETORSHIP IS QUITE FAIR AND REASONABLE. THE A SSESSEE DID RECEIVE THE ADVANTAGE OF HIS CONTACTS AS WELL AS SERVICES OF HI S BROTHER AND DURING THE YEAR UNDER CONSIDERATION, THE TURNOVER OF THE ASSESSEE H AS INCREASED FROM RS.3.37 CRORES OF LAST YEAR TO RS.10.56 CRORES. HE FURTHER POINTED OUT THAT IN THE IMMEDIATELY PRECEDING YEAR, THE NET PROFIT OF THE A SSESSEE WAS RS.25.38 LAKHS WHICH HAS INCREASED TO 52.76 LAKHS IN THE YEAR UNDE R CONSIDERATION. THUS, DESPITE THE PAYMENT OF COMMISSION TO THE BROTHER, N ET PROFIT OF THE ASSESSEE HAS INCREASED MORE THAN THE DOUBLE AS COMPARED TO THE I MMEDIATELY PRECEDING YEAR. THESE FACTS CLEARLY PROVE THAT THE PAYMENT OF COMMI SSION TO THE BROTHER WAS NEITHER EXCESSIVE NOR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICES RENDERED BY HIM. THE AO HAS ALSO NOT POIN TED OUT WHAT WOULD BE THE FAIR MARKET VALUE OF THE GOODS/SERVICES RENDERED BY THE BROTHER AND HOW THE ITA.NO.3325, 3326 AND 3327/AHD/2008 -8- PAYMENT MADE BY THE ASSESSEE WAS EXCESSIVE. IN FAC T THE AO DISALLOWED THE ENTIRE PAYMENT MADE BY THE ASSESSEE WHICH CLEARLY S HOWS THAT THE ACTION OF THE AO WAS WITHOUT ANY LOGIC, RATIONAL OR BASIS. IN SU PPORT OF THIS CONTENTION, THE LEARNED COUNSEL RELIED UPON THE FOLLOWING DECISIONS : 1. VOLTAMP TRANSFORMERS P.LTD., 129 ITR 105 (GUJ) 2. DALMIA CEMENT (BHARAT) LTD., 254 ITR 377 (DEL) 3. SPECIALTY PAPER CO., 316 ITR 415 (MAD) 4. CIT VS. SEPTU INDIA P. LTD., 305 ITR 295 (P&H) 5. S.A. BUILDERS VS. CIT(A) & ANR., 288 ITR 1 (SC) IT IS FURTHER STATED BY THE LEARNED COUNSEL THAT LE ARNED CIT(A) HAS HELD THAT THE PAYMENT IS MADE BY THE ASSESSEE FOR PURCHASING THE BUSINESS OF HMS AND THEREFORE THE SAME IS CAPITAL IN NATURE AND NOT ALL OWABLE AS EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT. THE LEARNED C OUNSEL HAS STATED THAT THE ASSESSEE HAS NOT PURCHASED THE RUNNING BUSINESS OF SC I.E. PROPRIETORSHIP CONCERN OF THE HMS. NO ASSETS OR LIABILITY OR TH E FIRMS NAME WAS PURCHASED BY THE ASSESSEE. AS PER THE UNDERSTANDING BETWEEN THE ASSESSEE AND HIS BROTHER HMS, HIS BROTHER STOPPED TRANSPORTATION WORK IN H IS PROPRIETORSHIP CONCERN AND INSTEAD HE STARTED WORKING FOR THE ASSESSEE. T HEREFORE, THE TRANSPORTATION WORK OF HIS CLIENT WHICH WAS HITHERTO BEING DONE BY THE PROPRIETORSHIP CONCERN OF THE HMS WAS DONE BY THE ASSESSEES PROPRIETORS HIP CONCERN. MOREOVER, THIS UNDERSTANDING WAS ONLY FOR THE LIMITED PERIOD OF THREE YEARS AND AFTER THAT HMS WAS NOT WORKING FOR THE ASSESSEE. WHEN NO BU SINESS WAS PURCHASED BY THE ASSESSEE AS RUNNING CONCERN, THE QUESTION OF MA KING ANY PAYMENT FOR PURCHASE OF BUSINESS DOES NOT ARISE. DURING THE YE AR UNDER CONSIDERATION, HMS WAS WORKING FOR THE ASSESSEE AND THEREFORE PA YMENT OF COMMISSION WAS MADE AS CONSIDERATION FOR THE SERVICES RENDERED BY HIM. HE THEREFORE SUBMITTED THAT THE DISALLOWANCE OF COMMISSION AMOUN TING TO RS.43,72,600/- WAS NOT JUSTIFIED, THE SAME SHOULD BE DELETED. 9. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AO AS WELL AS THE CIT(A). HE HAS STATED THAT AS PER THE AFFIDAVIT HE HAS STARTED WORK ITA.NO.3325, 3326 AND 3327/AHD/2008 -9- FOR THE ASSESSEE W.E.F. 1-4-2002 AND THEREFORE THE PAYMENT OF COMMISSION FOR THE FINANCIAL YEAR 2001-2002 RELEVANT TO THE ASSESS MENT YEAR 2002-2003 CANNOT BE ALLOWED. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS PAID THE COMMISSION ON THE ENTIRE BUSINESS AND NOT ON THE BUSINESS ORDERS OBTAINED BY HMS. IN FACT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE WITH REG ARD TO THE SERVICES RENDERED, IF ANY, BY HMS. MOREOVER, THERE IS NO EVIDENCE ON RECORD TO ESTABLISH THAT THE TURNOVER OF THE ASSESSEE HAS INC REASED DUE TO EFFORT OF THE ASSESSEES BROTHER. THERE IS NO EVIDENCE OF THE SE RVICES BEING RENDERED BY THE ASSESSEES BROTHER. IN FACT THE PAYMENT OF COMMISS ION BY THE ASSESSEE TO HIS BROTHER IS ONLY A DEVICE TO REDUCE THE TAXABLE INCO ME OF THE ASSESSEE. IN VIEW OF THE ABOVE, IT IS SUBMITTED BY THE LEARNED COUNSE L THAT THE ORDER OF THE CIT(A) MAY BE SUSTAINED. 10. IN THE REJOINDER, IT IS SUBMITTED BY THE LEARNE D COUNSEL THAT AS PER THE UNDERSTANDING BETWEEN THE ASSESSEE AND HIS BROTHER, THE LATTER STARTED WORKING FOR THE ASSESSEE W.E.F. 1-4-2001 AND STOPPED TRANSP ORTATION WORK IN HIS PROPRIETORSHIP CONCERN. THAT THE RATE OF COMMISSIO N AND WHETHER THE COMMISSION IS PAYABLE ON THE ENTIRE RECEIPT OR BUSI NESS OBTAINED BY HMS WAS UNDER NEGOTIATION WHICH WAS FINALIZED IN MARCH, 2002. THEREFORE, SOME TYPOGRAPHICAL ERROR HAD OCCURRED WHILE GIVING AFFID AVIT. HOWEVER, DURING THE ORIGINAL ASSESSMENT PROCEEDINGS OF A.Y.2003-2004, T HE ASSESSEES BROTHER HAD ALSO GIVEN THE CONFIRMATION WHICH WAS FILED BEFORE THE AO ON 24-1-2006. IN THIS CONFIRMATION, ASSESSEES BROTHER HAS CLEARLY S TATED THAT HE HAD RECEIVED THE COMMISSION AT THE RATE OF 4%. HE ALSO REFERRED TO VARIOUS DOCUMENTS IN WHICH THE ASSESSEES PAPER BOOK FROM PAGE NO.154 ONWARDS AND POINTED OUT THAT FIRST DOCUMENTS AT PAGE NO.154 IS A TRANSPORT CONTRACT BE TWEEN THE SBC I.E. ASSESSEES PROPRIETOR SHIP AND M/S.CHEMINOVA INDIA LTD. THIS CONTRACT IS DATED 5-4-2001 AND WHICH IS SIGNED BY HMS AS AUTHORISED SIGNATORY FOR SBC I.E. PROPRIETARY CONCERN OF THE ASSESSEE. AT PAGE NO.15 5, THERE IS A LETTER WRITTEN BY SBC TO M/S.NIRMA LTD. WHICH IS AGAIN SIGNED BY H MS. PAGE NO.161, THERE IS A CORRESPONDENCE BETWEEN SBC AND THE BRA NCH MANAGER, THE ITA.NO.3325, 3326 AND 3327/AHD/2008 -10- MADHAVPURA MERCANTILE CO-OP. BANK LTD., THEREIN ALS O HMS SIGNED AS ATUHORISED SIGNATORY OF THE ASSESSEE. AT PAGE NO.2 36 THERE IS A CERTIFICATE FROM BRANCH MANAGER, BANK OF BARODA CERTIFYING THAT FOR THE F.Y.2001-2002, 2002- 2003 AND 2003-2004, HMS WAS THE AUTHORISED SIGNAT ORY OF M/S.SBC. HE SUBMITTED THAT THIS EVIDENCE ON RECORD CLEARLY ESTA BLISH THAT DURING THE FINANCIAL YEAR 2001-2002 HMS WAS WORKING FOR THE ASSESSEE. 11. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE AO HAD DISALLOWED THE COMMISSION PAID TO HMS ON THE GROUND THAT THERE WAS NO LEGITIM ATE BUSINESS NEED FOR THE COMMISSION PAYMENT AND NO BENEFIT WAS DERIVED THERE FROM. THEREFORE, THE WHOLE PAYMENT IS EXCESSIVE AND DISALLOWABLE UNDER S ECTION 40A(2). THE CIT(A) AGREED WITH THE AO THAT THE PAYMENT IS DISAL LOWABLE UNDER SECTION 40A(2), HOWEVER, HE FURTHER HELD THAT THE PAYMENT I S NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT, ON THE GROUND THAT THE PA YMENT WAS FOR PURCHASE OF BUSINESS OF HMS. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE PARTIES WITH REFERENCE TO BOTH THE ABOVE ISSUES AND OUR FINDINGS ARE AS UNDER: I) REGARDING DISALLOWANCE UNDER SECTION 40A(2) OF T HE ACT: THE CLAIM OF THE REVENUE IS THAT THE HMS HAD RENDER ED NO SERVICES TO THE ASSESSEE FOR WHICH HE CAN BE ENTITLED TO THE CO MMISSION. HOWEVER, WE FIND THAT FROM PAGE NO.154 ONWARDS OF THE PAPER BOOK THE ASSESSEE HAS GIVEN THE EVIDENCES FOR THE SERVICES RENDERED B Y HMS. AT PAGE NO.154, THERE IS A TRANSPORTATION AGREEMENT BETWEEN THE ASSESSEE AND CHEMINOVA INDIA LTD WHICH WAS SIGNED BY THE HMS ON BEHALF OF THE ASSESSEE. AT PAGE NO.155, THERE IS A LETTER WRITTE N BY THE SBC TO M/S.NIRMAL LTD., WHICH WAS ALSO SIGNED BY THE HMS O N BEHALF OF THE ASSESSEE. SIMILARLY, VARIOUS OTHER CORRESPONDENCES GIVEN IN THE ASSESSEES PAPER BOOK IN WHICH HMS HAS SIGNED LETTE RS ON BEHALF OF THE PROPRIETARY CONCERN OF THE ASSESSEE. THE PAGE NO.1 61 IS THE LETTER SIGNED BY THE HMS ON BEHALF OF THE SBC TO THE BRANCH MANAG ER, THE ITA.NO.3325, 3326 AND 3327/AHD/2008 -11- MADHAVPURA MERCANTILE CO.OP. BANK LTD. IN THE PAPE R BOOK THE ASSESSEE HAS ALSO GIVEN THE EVIDENCE OF TRAVELLING BY HMS ON BEHALF OF THE ASSESSEE. IT MAY NOT BE OUT OF PLACE TO MENTIO N HERE THAT SUCH TRAVELLING EXPENSES ARE NOT DISALLOWED BY THE REVEN UE. AT PAGE NO.236 THERE IS A CERTIFICATE FROM SENIOR BRANCH MANAGER, BANK OF BARODA CERTIFYING THAT HMS WAS THE AUTHORISED SIGNATORY TO THE BANK ACCOUNT OF SBC FOR THE FINANCIAL YEARS 2001-2002, 2002-2003 A ND 2003-2004. ALL THESE DOCUMENTARY EVIDENCES PRODUCED BY THE ASSESSE E FOR THE SERVICES RENDERED BY THE HMS COULD NOT BE CONTROVERTED BY TH E REVENUE. AT PAGE NO.146 OF THE ASSESSEE, PAPER BOOK FOR A.Y.200 4-2005, THERE IS A CHART OF THE CARTING RECEIPT AS WELL AS THE INCOME OF THE ASSESSEES PROPRIETORSHIP CONCERN AS WELL AS THE PROPRIETARY C ONCERNS OF THE HMS. THE SAME READS AS UNDER: SHAH CARRIER PROP. HASMUKHBHAI M. SHAH SHAH BULK CARRIER PROP. RAVINDRABHAI M. SHAH PARTICULARS A.Y.2000-01 PARTICULARS A.Y.2000-01 CARTING RECEIPTS 52027596 CARTING RECEIPTS 298368 75 CARTING COMMISSION 48733 CARTING COMMISSION 146000 6 TANKERS PROFIT & LOSS A/C. 917544 TANKERS PROFIT & LOSS A/C. 1474035 52993873 32770916 NET PROFIT 3098853 2713571 PARTICULARS A.Y.2001-02 PARTICULARS A.Y.2001-02 CARTING RECEIPTS 67617242 CARTING RECEIPTS 337053 90 CARTING COMMISSION 1172123 CARTING COMMISSION 3276 51 TANKERS PROFIT & LOSS A/C. 11258467 TANKERS PROF IT & LOSS A/C. 507242 69947832 34540283 NET PROFIT 3834393 2538865 PARTICULARS A.Y.2002-03 PARTICULARS A.Y.2002-03 CARTING RECEIPTS 90829 CARTING RECEIPTS GENERAL CARTING RECEIPT 104372095 1260406 105632501 CARTING COMMISSION 4672600 CARTING COMMISSION 0 TANKERS P&L A/C. 861532 TANKERS P&L A/C. 257944 5624961 105890445 NET PROFIT 3356771 5276170 PARTICULARS A.Y.2003-04 PARTICULARS A.Y.2003-04 CARTING RECEIPTS 0 CARTING RECEIPTS 107614875 CARTING COMMISSION 4500000 CARTING COMMISSION 2744 265 TANKERS PROFIT & LOSS A/C. 104944 TANKERS PROFIT & LOSS A/C. 60843 4604944 110419983 NET PROFIT 4255710 6858893 ITA.NO.3325, 3326 AND 3327/AHD/2008 -12- PARTICULARS A.Y.2004-05 PARTICULARS A.Y.2004-05 CARTING RECEIPTS 0 CARTING RECEIPTS 110601826 CARTING COMMISSION 5690000 CARTING COMMISSION 2481 654 TANKERS PROFIT & LOSS A/C. 138031 TANKERS PROFIT & LOSS A/C. 323581 5828031 113407061 NET PROFIT 4925553 8484564 FROM THE ABOVE, IT IS EVIDENT THAT FOR A.Y.2000-200 1 THE CARTING RECEIPT OF THE ASSESSEE WAS RS.2.98 CRORES AND OF M/S.SC IT WAS 5.20 CRORES. IN A.Y.2001-2002, THE CARTING RECEIPT OF THE ASSESSEE WAS RS.3.37 CRORES WHILE OF M/S.SC IT WAS 6.76 CRORES. THUS, THE CART ING RECEIPT OF THE SC I.E. PROPRIETARY CONCERN OF THE ASSESSEES BROTHER WAS ALMOST DOUBLE THAN THE CARTING RECEIPT OF THE ASSESSEES PROPRIETARY C ONCERN. IN A.Y.2002- 2003 I.E. THE YEAR UNDER CONSIDERATION, THE CARTING RECEIPT OF THE ASSESSEE HAS INCREASED ALMOST THREE TIMES TO RS.10.76 CRORES , WHILE CARTING RECEIPT OF SC IS REDUCED TO ONLY RS.90,829/-. IN THE ASSES SMENT YEAR 2003-2004 AND 2004-2005 THE CARTING RECEIPT OF THE ASSESSEE I S RS.10.76 CRORES AND RS.11.06 CRORES RESPECTIVELY WHILE THE CARTING RECE IPT OF THE SC IS ZERO. THE ABOVE FACTS CLEARLY PROVES THAT THE DU RING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEARS 2002-2003, 20 03-2004 AND 2004- 2005, THE CARTING RECEIPT OF THE ASSESSEE HAS INCRE ASED SUBSTANTIALLY WHILE CARTING RECEIPT OF SC IS REDUCED TO NIL. THI S SUPPORTS THE ASSESSEES CONTENTIONS THAT IN THESE THREE YEARS, H MS STOPPED DOING THE CARTING WORK IN HIS PROPRIETARY CONCERN, SC. ON TH E OTHER HAND, HE WORKED FOR THE ASSESSEE. HE USED HIS CONTACTS SO A S TO GET THE TRANSPORT WORK FOR THE ASSESSEE OF HIS ERSTWHILE CLIENTS. WH EN WE COMPARE THE PROFIT, WE FIND THAT IN A.Y.2001-2002, THE NET PROF IT OF THE ASSESSEE WAS RS.25.38 LAKHS WHEN NO COMMISSION WAS PAID BY THE A SSESSEE TO HIS BROTHER. HOWEVER, DURING THE ACCOUNTING YEAR, REL EVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y.2002-2 003, THE NET PROFIT OF THE ASSESSEE IS RS.52.76 LAKHS. THUS, EVEN AFTE R THE PAYMENT OF COMMISSION TO HIS BROTHER, HMS, THE NET PROFIT OF T HE ASSESSEE HAS ITA.NO.3325, 3326 AND 3327/AHD/2008 -13- INCREASED MORE THAN TWICE. THERE IS NO DISPUTE THA T FROM THE PAYMENT OF COMMISSION TDS WAS DULY DEDUCTED. THE ASSESSEES B ROTHER, HMS IS ASSESSED TO TAX AND HIS INCOME FOR THE YEAR UNDER C ONSIDERATION WAS RS.33,56,771/-. THUS, COMMISSION INCOME IS ALREADY ASSESSED IN THE HANDS OF ASSESSEES BROTHER. ACCORDINGLY, THERE WA S NO DISPUTE ABOUT THE GENUINENESS OF COMMISSION PAYMENT. ONLY DISPUT E WAS WHETHER ANY SERVICE WAS RENDERED BY SHRI HMS. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES, FACTS OF THE CASE AND EVIDENCE PLACED ON RECORD BY THE ASSESSEE, WE ARE O F THE OPINION THAT THERE ARE DIRECT AS WELL CIRCUMSTANTIAL EVIDENCE IN RESPECT OF SERVICES RENDERED BY ASSESSEES BROTHER HMS. THE ASSESSEE I S SUBSTANTIALLY BENEFITED BY SUCH SERVICES RENDERED BY HIS BROTHER, WHICH IS EVIDENT FROM THE FACT THAT IN THE YEAR UNDER CONSIDERATION, ASSESSEES CARTING RECEIPT INCREASED THREE TIMES AND NET PROFIT INCREA SED TWO TIMES AS COMPARED TO LAST YEAR. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT FI NDING OF THE AO THAT THERE WAS NO LEGITIMATE BUSINESS NEED FOR THE COMMI SSION PAYMENT IS WITHOUT ANY BASIS AND CONTRARY TO THE EVIDENCE ON R ECORD. WE THEREFORE HOLD THAT THE PAYMENT OF COMMISSION TO HMS WAS FOR THE SERVICES RENDERED BY HIM AND CONSIDERING THE FACTS OF THE CA SE, THE COMMISSION CANNOT BE SAID TO BE EITHER UNREASONABLE OR EXCESSI VE. II) WHETHER THE PAYMENT IS FOR PURCHASE OF BUSINESS OF HMS ? AT THE TIME OF HEARING BEFORE US, IT WAS POINTED OU T BY THE LEARNED COUNSEL THAT THE ASSESSEE HAS NOT PURCHASED THE BUS INESS OF SC EITHER AS RUNNING BUSINESS OR BY WAY OF PURCHASE OF THE ASSET S OF THE BUSINESS. HE REITERATED THAT NOT A SINGLE ASSET OF THE PROPRI ETORSHIP CONCERN OF THE HMS WAS PURCHASED BY THE ASSESSEE. SOME TANKERS OF THE SC WERE USED BY THE ASSESSEE FOR WHICH RENT WAS SEPARATELY PAID. IN THE ASSESSMENT ITA.NO.3325, 3326 AND 3327/AHD/2008 -14- ORDER, THE AO HAS NOT MADE ANY CASE THAT THE PAYMEN T OF COMMISSION TO HMS WAS FOR PURCHASE OF ANY BUSINESS OF HMS. IT IS THE CIT(A) WHO FOR THE FIRST TIME HELD THAT THE PAYMENT IS FOR PUR CHASE OF BUSINESS OF HMS. HOWEVER, AT THE TIME OF HEARING BEFORE US, TH E LEARNED DR WAS UNABLE TO PRODUCE ANY EVIDENCE IN SUPPORT OF SUCH F INDING. THE ASSESSEE HAS NOT PURCHASED THE RUNNING BUSINESS OF SC, ONLY TANKERS OF THE SC WERE TAKEN ON HIRE FOR WHICH HIRE CHARGES WERE PAID BY THE ASSESSEE WHICH IS ALLOWED BY THE REVENUE. HAD THE ASSESSEE PURCHASED THE BUSINESS OF SC, THERE WOULD HAVE BEEN NO QUESTION O F PAYMENT OF RENT TO SC. MERELY BECAUSE IN THESE THREE YEARS, HMS STOPP ED TRANSPORT WORK IN HIS PROPRIETORSHIP CONCERN, SC, DOES NOT LEAD TO A CONCLUSION THAT HMS HAS SOLD HIS BUSINESS OF TRANSPORTATION TO THE ASSESSEE. IN VIEW OF THE ABOVE FACTS, WE HOLD THAT THERE IS NO JUSTIFICA TION FOR HOLDING THAT THE PAYMENT OF COMMISSION TO HMS WAS FOR THE PURCHASE O F BUSINESS. WE REVERSE THIS FINDING OF THE CIT(A). IN VIEW OF THE ABOVE, WE DELETE THE DISALLOWANCE OF COMMISSION AMOUNTING TO RS.43,72,60 0/-. ACCORDINGLY, GROUND NO.II OF THE ASSESSEES APPEAL IS ALLOWED. 12. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF 1% O F THE CARTING EXPENSES. THE FACTS OF THE CASE ARE THAT THE AO DISALLOWED 2. 5% OF THE CARTING EXPENSES WHICH WORKED OUT TO RS.9,17,037/-. ON APPEAL, THE CIT(A) REDUCED THE DISALLOWANCE TO 1%. 13. AT THE TIME OF HEARING BEFORE US, IT WAS POINTE D OUT BY THE LEARNED COUNSEL THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT FOR A.Y.1998-99 AND 1999-2000 IN ITA NO.27 68 AND 2769/AHD/2002 WHEREIN THE DISALLOWANCE OUT OF CARTING EXPENSES WA S DELETED BY THE CIT(A) AND THE REVENUES APPEAL WAS DISMISSED BY THE TRIBU NAL. SIMILARLY IN A.Y.2000-2001 ALSO DISALLOWANCE OF CARTING EXPENSES WAS DELETED BY THE CIT(A) AND THE ITAT DISMISSED THE REVENUES APPEAL. COPIES OF THE ORDERS OF THE ITAT ARE FILED BEFORE US. SINCE FACTS OF THESE CASES ARE IDENTICAL TO THE ITA.NO.3325, 3326 AND 3327/AHD/2008 -15- PRESENT CASE, WE RESPECTFULLY FOLLOWING THE DECISIO N OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y.1998-99, 1999-2000 AND 2000-2001, DELETE THE DISALLOWANCE OUT OF CARTING EXPENSES. 14. NEXT GROUND IS AGAINST THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS.96,916/-. 15. THE AO DISALLOWED BAD DEBT ON THE GROUND THAT T HE ASSESSEE WAS UNABLE TO PRODUCE THE DOCUMENTARY EVIDENCES IN RESPECT OF EFFORTS MADE TO REALIZE THE DEBTS. WE FIND THAT NOW THIS ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF TRF L IMITED VS. CIT, 323 ITR 397 (SC). THE OBSERVATION OF THE HONBLE APEX COURT IS AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL,1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCO UNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE O F COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STAT ED ABOVE, THE AO HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REM ITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENT IONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. SINCE THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNTS, WHICH HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER THE ABOVE DECISION OF THE HONBLE APEX COURT WOULD BE SQUARELY APPLICABLE. W E RESPECTFULLY FOLLOWING ITA.NO.3325, 3326 AND 3327/AHD/2008 -16- THE ABOVE JUDGMENT OF THE HONBLE APEX COURT, ALLOW THIS GROUND OF THE ASSESSEE. ITAT NO.3326/AHD/2008 : A.Y.2003-2004 16. THE GROUND NO.1 OF THE ASSESSEES APPEAL IS AGA INST THE VALIDITY OF ISSUANCE OF NOTICE UNDER SECTION 148. WE HAVE ALRE ADY CONSIDERED THIS ISSUE IN DETAIL WHILE DECIDING THE APPEAL OF THE ASSESSEE FO R A.Y.2002-2003 AND HAVE UPHELD THE VALIDITY OF THE REOPENING OF THE ASSESSM ENT. IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT THE FACTS OF A.Y.2003-2004 ARE DIFFERENT THAN THE ASSESSMENT YEAR 2002-2003 INASMUCH AS IN A.Y.2002-2 003, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) WHILE IN THE YEAR UN DER CONSIDERATION, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3). THO UGH IT IS TRUE THAT THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) FOR A SSESSMENT YEAR UNDER CONSIDERATION, HOWEVER, THE ASSESSMENT WAS REOPENED WITHIN FOUR YEARS FROM THE DATE OF RELEVANT ASSESSMENT YEAR. SECTION 147 AND PROVISIO THEREOF READS AS UNDER: 147. INCOME ESCAPING ASSESSMENT.--IF THE ASSESSING OFFICER, HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ES CAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISI ONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OT HER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDING S UNDER THIS SECTION, OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT Y EAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 1 53 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 ASSE SSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLES S ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH A SSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE T O 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 ASSESSM ENT YEAR. ITA.NO.3325, 3326 AND 3327/AHD/2008 -17- FROM THE ABOVE, IT IS EVIDENT THAT AS PER THE PROVI SIO, ONCE THE ASSESSMENT IS COMPLETED UNDER SECTION 143(3), THE ASSESSMENT CANN OT BE REOPENED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR UNLESS THE INCOME HAS ESCAPED ASSESSMENT BY REASON OF THE FAIL URE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE ASSESSMENT. THUS, WITHIN A PERIOD OF FOUR YEARS, T HE ASSESSMENT CAN BE REOPENED, EVEN IF ALL MATERIAL FACTS WERE DISCLOSED BY THE ASSESSEE. ADMITTEDLY IN THIS CASE, ASSESSMENT WAS REOPENED WITHIN FOUR Y EARS FROM THE END OF RELEVANT ASSESSMENT YEAR. IT WAS VEHEMENTLY CONTEN DED BY THE LEARNED COUNSEL THAT REOPENING OF THE ASSESSMENT WAS MERELY ON CHAN GE OF OPINION. HOWEVER, THE LEARNED COUNSEL FOR THE ASSESSEE WAS UNABLE TO SHOW US THAT IN THE ORIGINAL ASSESSMENT PASSED UNDER SECTION 143(3), THE AO HAS GIVEN ANY FINDING ABOUT THE ALLOWABILITY OF COMMISSION. WHEN THIS SPECIFIC QUESTION WAS ASKED, THE LEARNED COUNSEL FAIRLY ADMITTED THAT IN THE ORIGINA L ASSESSMENT PASSED UNDER SECTION 143(3), THERE IS NO DISCUSSION WITH REGARD TO THE COMMISSION. IN THE ABOVE CIRCUMSTANCES, IT CANNOT BE SAID THAT ANY OPI NION WAS FORMED BY THE AO IN THE ORIGINAL ASSESSMENT ORDER PASSED UNDER SECTI ON 143(3). THEREFORE, THE ARGUMENTS OF THE LEARNED COUNSEL THAT THE ASSESSMEN T WAS REOPENED DUE TO CHANGE OF OPINION CANNOT BE ACCEPTED. 17. THE HONBLE APEX COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD., 291 ITR 500 (SC) HELD AS UNDER: THE EXPRESSION REASON TO BELIEVE IN SECTION 147 W OULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HAS CAUSE O R JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, HE C AN BE SAID TO HAVE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMEN T. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER S HOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSIO N. WHAT IS REQUIRED IS REASON TO BELIEVE BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF ITA.NO.3325, 3326 AND 3327/AHD/2008 -18- INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY Q UESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF. WHETHER MATERIAL WOULD CONCLU SIVELY PROVE ESCAPEMENT OF INCOME IS NOT THE CONCERN AT THAT STA GE. THIS IS SO BECAUSE THE FORMATION OF THE BELIEF IS WITHIN THE REALM OF THE SUBJECTIVE SATISFACTION OF THE ASSESSING OFFICER. THE RATIO OF THE ABOVE DECISION OF THE HONBLE APEX COURT WOULD BE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE BECAUSE TO A DJUDICATE THE VALIDITY OF REOPENING OF THE ASSESSMENT, WHAT IS REQUIRED IS SU BJECTIVE SATISFACTION OF THE AO FOR FORMATION OF BELIEF OF THE ESCAPEMENT OF THE INCOME. THE CONCLUSIVE FINDING OF THE ESCAPEMENT OF INCOME IS NOT REQUIRED AT THE TIME OF ISSUANCE OF NOTICE UNDER SECTION 147. THEREFORE, THOUGH WHILE ADJUDICATING THE ALLOWABILITY OF COMMISSION ON MERIT FOR A.Y.2002-20 03, WE HAVE HELD THAT THE PAYMENT OF COMMISSION IS ALLOWABLE. HOWEVER, FOR T HE PURPOSE OF REOPENING OF THE ASSESSMENT, IT CANNOT BE SAID THAT AT THE TI ME OF ISSUANCE OF NOTICE UNDER SECTION 147, THE AO COULD NOT HAVE FORMED THE BELIE F OF ESCAPEMENT OF INCOME. WE THEREFORE UPHOLD THE REOPENING OF THE A SSESSMENT UNDER SECTION 147 AND REJECT THE GROUND NO.1 OF THE APPEAL. 18. GROUND NO.2 OF THE ASSESSEE IS AGAINST THE DISA LLOWANCE OF COMMISSION AMOUNTING TO RS.45 LAKHS. AT THE TIME OF HEARING B EFORE US, BOTH THE PARTIES AGREED THAT FACTS ARE IDENTICAL TO THE ASSESSMENT Y EAR 2002-2003. WE HAVE ALREADY CONSIDERED THIS ISSUE IN DETAILS WHILE DISP OSING OF THE GROUND NO.2 OF THE ASSESSEES APPEAL FOR A.Y.2002-2003 AND FOR THE DETAILED DISCUSSION THEREIN, WE DELETE THE DISALLOWANCE OF COMMISSION P AYMENT. ACCORDINGLY, GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. ITA NO.3327/AHD/2008 FOR A.Y.2004-2005: 19. THE GROUND NO.1 OF THE ASSESSEES APPEAL IS AGA INST THE VALIDITY OF REOPENING OF THE ASSESSMENT. THE FACTS ARE IDENTIC AL TO A.Y.2003-2004. FOR ITA.NO.3325, 3326 AND 3327/AHD/2008 -19- THE DETAILED DISCUSSION IN PARA-16 & 17 ABOVE, WE H OLD THAT THE ASSESSMENT WAS VALIDLY REOPENED. ACCORDINGLY, GROUND NO.1 OF THE ASSESSEES APPEAL IS REJECTED. 20. GROUND NO.2 OF THE ASSESSEE IS AGAINST DISALLOW ANCE OF COMMISSION PAYMENT AMOUNTING TO RS.56,90,000/-. THIS GROUND I S IDENTICAL TO GROUND NO.2 OF THE ASSESSEES APPEAL FOR A.Y.2002-2003. FOR TH E DETAILED DISCUSSION IN PARA-11 ABOVE, DISALLOWANCE OF COMMISSION IS DELETE D AND GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 21. IN THE RESULT, THE ASSESSEES APPEALS ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13 TH AUGUST, 2010. SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 13-08-2010 VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD