ITO, Cochin V. M/s.Worldwide Handling Agencies, Cochin

ITA 785/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73894 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 12-03-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 11-12-2013
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Reason to believe
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 765&766/COCH/2013 ASSESSMENT YEARS : 2005-06 & 2006-07 WORLD WIDE HANDLING AGENCIES, CONFRATE HOUSE, COCHIN-682 003. [PAN: AAAFW 2589G] VS. THE INCOME TAX OFFICER, WARD- 3(5), KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) I.T.A. NOS. 785&786/COCH/2013 ASSESSMENT YEARS: 2005-06 & 2006-07 THE INCOME TAX OFFICER, WARD- 3(5), KOCHI. VS. WORLD WIDE HANDLING AGENCIES, CONFRATE HOUSE, COCHIN-682 003. (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI P.K.SASIDHARAN, CA DATE OF HEARING 12/03/2014 DATE OF PRONOUNCEMENT 14/03/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER S PASSED BY THE LD. CIT(A)-II, KOCHI AND THEY RELATE TO THE ASSESSMENT YEARS 2005-06 AND 2006-07. 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LD . CIT(A) IN HOLDING THAT THE RE-OPENING OF ASSESSMENT IN BOTH THE YEARS IS VALID IN LAW. THE REVENUE IS ASSAILING THE DECISION OF THE LD. CIT(A) IN DELETIN G THE ADDITION RELATING TO I.T.A. NOS.765,766,785&786 /COCH/2013 2 DIFFERENCE BETWEEN THE OPERATING INCOME DISCLOSED B Y THE ASSESSEE AND THE AMOUNT SHOWN IN THE TDS CERTIFICATES MADE BY THE AO IN BOTH THE YEARS. 3. THE FACTS RELATING TO BOTH THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS A LICENSED CUSTOM HOUSE AGENT. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 WERE COMPL ETED U/S. 143(3) RESPECTIVELY ON 17-12-2007 AND 12.11.2008. SUBSEQ UENTLY, THE ASSESSING OFFICER NOTICED THAT THE OPERATING INCOME DECLARED BY THE ASSESSEE IN THE RETURNS OF INCOME WAS LOWER THAN THAT SHOWN IN THE TDS CERT IFICATES RELATING TO THE RESPECTIVE YEARS. THE DETAILS OF THE SAME ARE TABUL ATED BELOW: ASSESSMENT YEAR INCOME AS PER TDS CERTIFICATES INCOME DECLARED IN RETURN OF INCOME DIFFERENCE 2005-06 2,98,60,665 80,93,591 2,17,67,068 2006-07 74,33,931 51,07,805 23,26,126 HENCE THE ASSESSING OFFICER RE-OPENED THE ASSESSMEN T OF BOTH THE YEARS BY ISSUING NOTICES U/S. 148 OF THE ACT ON 29-03-2011. IN RESPONSE TO THE NOTICES, THE ASSESSEE FILED RETURNS OF INCOME FOR BOTH THE Y EARS AND REQUESTED THE ASSESSING OFFICER TO FURNISH THE REASONS RECORDED U /S. 147 OF THE ACT FOR RE- OPENING THE ASSESSMENT FOR BOTH THE YEAS. THE ASSES SING OFFICER, VIDE LETTER DATED 24-06-2011, FURNISHED THE REASONS RECORDED FO R RE-OPENING THE SAME. THEREAFTER, THE ASSESSING OFFICER ISSUED NOTICES U/ S. 143(2) OF THE ACT FOR BOTH THE YEARS AND CALLED FOR THE DETAILS RELATING TO TH E DIFFERENCE NOTICED IN ACCOUNTING OF OPERATING INCOME. THE ASSESSEE SUBMI TTED THAT THE DIFFERENCE REPRESENTS REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE CLIENTS. IT WAS SUBMITTED THAT THE ASSESSEE, AS A CUSTOM HOUSE AGEN T, HAS TO INCUR VARIOUS EXPENSES ON BEHALF OF ITS CUSTOMERS, WHICH SHALL BE REIMBURSED BY THEM LATER. THE ASSESSEE SUBMITTED THAT THE EXPENSES SO INCURRE D BY IT ARE DEBITED TO A SEPARATE ACCOUNT TITLED AS EXPENSES RECOVERABLE ACC OUNT AND WHENEVER THE I.T.A. NOS.765,766,785&786 /COCH/2013 3 AMOUNT IS REIMBURSED BY THE CUSTOMERS, THE SAME IS CREDITED TO THE ABOVE SAID EXPENSES RECOVERABLE ACCOUNT. THE ASSESSEE FURTH ER SUBMITTED THAT THERE IS NO INCOME ELEMENT ON THE EXPENSES INCURRED ON BEHALF O F THE CUSTOMERS, SINCE THE REIMBURSEMENT TAKES PLACE ON ACTUAL BASIS. THE ASS ESSEE SUBMITTED THAT IT HAS DULY OFFERED THE RECEIPTS RELATING TO TRANSPORT CHA RGES AND SERVICES CHARGES AS ITS INCOME BY CREDITING THEM TO THE PROFIT AND LOSS ACC OUNT, AS THEY ONLY CONSTITUTE ITS OPERATING INCOME. 3.1 HOWEVER, THE ASSESSING OFFICER TOOK THE VIE W THAT THE ASSESSEE HAS NOT SUBSTANTIATED THE ABOVE SAID EXPLANATIONS WITH DOCU MENTARY EVIDENCES. ACCORDINGLY, HE REJECTED THE SAME AND ASSESSED THE DIFFERENCE AMOUNT SHOWN IN THE TABULATION AS THE INCOME OF THE ASSESSEE IN THE RESPECTIVE YEARS. 4. BEFORE THE LD. CIT(A), THE ASSESSEE CHALLENGED T HE RE-OPENING OF THE ASSESSMENT FOR BOTH THE YEARS AND ALSO THE ADDITION MADE BY THE ASSESSING OFFICER IN BOTH THE YEARS. THE LD. CIT(A) UPHELD T HE VALIDITY OF RE-OPENING OF THE ASSESSMENT AND DELETED THE ADDITIONS MADE BY ACCEPT ING THE CLAIM OF THE ASSESSEE THAT THE DIFFERENCE REPRESENTS THE REIMBUR SEMENT OF THE EXPENSES AND FURTHER IT HAS BEEN DULY ACCOUNTED UNDER THE HEAD EXPENSES RECOVERABLE ACCOUNT. AGGRIEVED BY THE ORDERS OF THE LD. CIT(A ), BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US. 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS B EEN CONSISTENTLY FOLLOWING THE SYSTEM OF CREDITING THE PROFIT AND LOSS ACCOUNT WIT H ONLY THOSE RECEIPTS WHICH HAVE GOT INCOME ELEMENT IN IT. THE LD A.R SUBMITTE D THAT THE ASSESSEE HAD TO NECESSARILY INCUR EXPENSES ON BEHALF OF THE CUSTOME RS, DURING THE COURSE OF CARRYING ON THE BUSINESS AS CUSTOMS CLEARING AGENT AND THE EXPENSES SO INCURRED ARE REIMBURSABLE BY THE CUSTOMERS ON ACTUAL BASIS. HENCE, THE ASSESSEE HAS TREATED SUCH REIMBURSABLE EXPENSES AS AN ITEM OF RE CEIVABLES AND ACCORDINGLY DEBITED THE SAME TO A SEPARATE ACCOUNT TITLED AS EX PENSES RECOVERABLE I.T.A. NOS.765,766,785&786 /COCH/2013 4 ACCOUNT. HE FURTHER SUBMITTED THAT ASSESSEE HAS C REDITED THE SAID ACCOUNT WITH THE AMOUNT RECEIVED FROM THE CUSTOMERS. THE LD A.R FURTHER SUBMITTED THAT THE EXPENSES ARE REIMBURSED ON ACTUAL BASIS AND HENCE T HERE IS NO INCOME ELEMENT THEREIN. HENCE THE ASSESSEE DID NOT TRANSACT THE S AME THROUGH THE PROFIT AND LOSS ACCOUNT. 5.1 THE LD COUNSEL SUBMITTED THAT THE ASSESSEE H AS DULY DISCLOSED ALL THE RECEIPTS IN ITS BOOKS OF ACCOUNT, I.E., RECEIPTS WH ICH CONSTITUTE INCOME IN THE HANDS OF THE ASSESSEE ARE SHOWN IN THE PROFIT AND L OSS ACCOUNT AND RECEIPTS RELATING TO REIMBURSEMENT OF EXPENSES ARE SHOWN IN THE EXPENSES RECEIVABLE ACCOUNT. HE SUBMITTED THAT THE CUSTOMERS HAVE DED UCTED TDS ON THE GROSS AMOUNT PAID TO THE ASSESSEE, I.E., THE SERVICE CHAR GES PLUS EXPENSES IN ACCORDANCE WITH THE CIRCULAR ISSUED BY THE CBDT. H ENCE THERE IS A DIFFERENT BETWEEN THE AMOUNT SHOWN IN THE PROFIT AND LOSS ACC OUNT (OPERATING INCOME) AND THAT SHOWN IN THE TDS CERTIFICATES. HOWEVER, I F THE AMOUNT SHOWN IN THE PROFIT AND LOSS ACCOUNT AND THE AMOUNT DEBITED TO EXPENSES RECOVERABLE ACCOUNT ARE CLUBBED TOGETHER, THERE IS ACTUALLY NO DIFFERENCE. HE SUBMITTED THAT THE ASSESSEE HAS ALSO RECONCILED THE SAME BY FILING A STATEMENT BEFORE THE LD CIT(A) AND THE ASSESSING OFFICER HAS ALSO EXAMINED IT IN THE REMAND PROCEEDINGS. ACCORDINGLY HE SUBMITTED THAT THERE IS NO ESCAPEMEN T OF INCOME AS PRESUMED BY THE ASSESSING OFFICER. ACCORDINGLY HE CONTENDED TH AT THE RE-OPENING OF ASSESSMENT OF BOTH THE YEARS IS BAD IN LAW. HE FURT HER SUBMITTED THAT THE ASSESSMENT RELATING TO THE ASSESSMENT YEAR 2005-06 HAS BEEN RE-OPENED AFTER THE EXPIRY OF FOUR YEARS AND THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIALS FULLY AND TRULY. ACCORDINGL Y HE CONTENDED THAT THE RE- OPENING OF ASSESSMENT IS BAD IN LAW ON THAT GROUND ALSO. 6. ON THE CONTRARY, THE LD D.R STRONGLY SUPPORTE D THE ORDER OF LD CIT(A) AND SUBMITTED THAT THERE WAS DIFFERENCE IN THE QUANTUM OF OPERATIONAL INCOME SHOWN I.T.A. NOS.765,766,785&786 /COCH/2013 5 IN THE PROFIT AND LOSS ACCOUNT AND THAT SHOWN IN TH E TDS CERTIFICATES, WHICH HAS LED THE ASSESSING OFFICER TO BELIEVE ABOUT THE ESCA PEMENT OF INCOME. 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. ADMITTEDLY, THERE IS DIFFERENCE IN THE QUANTUM OF OPERATIONAL INCOME S HOWN IN THE PROFIT AND LOSS ACCOUNT AND THAT WAS SHOWN IN THE TDS CERTIFICATES. WE HAVE ALSO TABULATED THE SAID DIFFERENCE IN AN EARLIER PARAGRAPH. THE LD A. R FAIRLY ADMITTED THAT THE REASONS FOR THE DIFFERENCE WERE NOT EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. AT THIS JUNCTURE, WE MAY REFER TO THE EXPLANATION 1 TO SEC. 147 OF THE ACT, WHICH READS AS UNDER:- EXPLANATION 1 :- PRODUCTION BEFORE THE ASSESSING OF FICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COUL D WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING P ROVISO. IN THE INSTANT CASE, THE ASSESSEE HAS ACCOUNTED FOR THE REIMBURSABLE EXPENSES INCURRED BY IT UNDER THE HEAD EXPENSES RECOVERABLE ACCOUNT, BUT THE SAID ACCOUNTING PRACTICE WAS NOT EXAMINED BY THE AO DURI NG THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THE LD A.R SUBMITTED BEFOR E US THAT THE ASSESSEE HAD FULLY ACCOUNTED ALL THE RECEIPTS SHOWN IN THE TDS C ERTIFICATES IN THE TDS CERTIFICATES AND HENCE THE REASON ENTERTAINED BY TH E ASSESSING OFFICER WAS NOT CORRECT. HE FURTHER SUBMITTED THAT THE LD CIT(A) HA S ALSO ACCEPTED THE ABOVE SAID FACT. 7.1 HOWEVER, IT IS A SETTLED PROPOSITION OF LAW THAT THE VALIDITY OF THE RE- OPENING OF ASSESSMENT HAS TO BE JUDGED ON THE BASIS OF REASONS RECORDED BY THE ASSESSING OFFICER. EVEN IF THE BELIEF ABOUT THE ESC APEMENT OF INCOME DID NOT ULTIMATELY RESULT IN ASSESSMENT OF ANY INCOME, STIL L THE RE-OPENING OF THE ASSESSMENT SHALL BE HELD TO BE VALID, IF THE EXISTE NCE OF REASONS FOR BELIEF ABOUT ESCAPEMENT OF INCOME IS ACCEPTED. IN THE INSTANT C ASES THE AO, ON A COMPARISON OF THE TDS CERTIFICATES AND THE RETURN O F INCOME, HAS FORMED A BELIEF I.T.A. NOS.765,766,785&786 /COCH/2013 6 THAT THERE WAS ESCAPEMENT OF INCOME, SINCE THE AMOU NT OF OPERATIONAL INCOME SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS LOWER THAN THAT AVAILABLE IN THE TDS CERTIFICATES. IN OUR VIEW, THAT SUCH A DIFFERENCE WOULD LEAD A PERSON TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME. ACCORDINGLY, IN OUR VIEW, THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT THE INCOME CHARG EABLE TO TAX HAS ESCAPED THE ASSESSMENT IN BOTH THE YEARS. THOUGH THE ASSESSMEN T OF THE ASSESSMENT YEAR 2005-06 WAS REOPENED BEYOND THE PERIOD OF FOUR YEAR S, YET THE SAME HAS TO BE UPHELD IN VIEW OF THE EXPLANATION 1 TO SEC. 147, WHI CH IS EXTRACTED ABOVE. ACCORDINGLY, WE UPHOLD THE DECISION OF LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS. 8. THE NEXT ISSUE RELATES TO THE ADDITION OF TH E DIFFERENCE NOTICED BY THE ASSESSING OFFICER IN THE OPERATIONAL INCOME DISCLOS ED BY THE ASSESSEE. BEFORE US, THE LD A.R EXPLAINED ABOUT THE METHODOLOGY ADOPTED BY THE ASSESSEE TO ACCOUNT FOR THE AMOUNTS RECEIVED FROM THE CUSTOMERS. HE AL SO SUBMITTED THAT THE LD CIT(A) HAS PROPERLY UNDERSTOOD THE SAME AND ACCORDI NGLY HELD THAT THE ASSESSEE HAS ACCOUNTED FOR ALL THE RECEIPTS. THE LD A.R ALS O SUBMITTED THAT THE LD CIT(A) HAS CALLED FOR A REMAND REPORT FROM THE ASSESSING O FFICER. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS ONLY EXPRESSED HIS RESERV ATIONS LIKE POSSIBILITY OF LEAKAGE, POSSIBILITY OF INFLATING EXPENSES ETC., WI THOUT BRINGING ANY MATERIAL ON RECORD. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS DELETED THE DISALLOWANCES AFTER ANALYZING ALL THE FACTS RELATIN G TO THE ADDITION MADE BY THE AO. 8.1 HOWEVER, THE LD D.R SUBMITTED THAT THE ASSES SEE HAS GIVEN ONLY ORAL EXPLANATIONS WITHOUT PRODUCING THE RELEVANT MATERIA LS TO SUBSTANTIATE ITS CLAIM. THE LD D.R SUBMITTED THAT THE ASSESSEE DID NOT PROD UCE THE RELEVANT DOCUMENTS TO PROVE THAT THE EXPENSES WERE INCURRED ON BEHALF OF THE CUSTOMERS AND IT GOT REIMBURSEMENTS ON ACTUAL BASIS. THE LD D.R FURTHER SUBMITTED THAT THE RELEVANT DOCUMENTS HAVE NOT BEEN VERIFIED BY THE LD CIT(A) A LSO. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE CLAIM MADE BY THE ASSESSEE R EQUIRES PROPER VERIFICATION. I.T.A. NOS.765,766,785&786 /COCH/2013 7 9. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS DELETED THE ADDITI ON IN BOTH THE YEARS ON THE BASIS OF SAMPLE BILLS AND THE RECONCILIATION STATEM ENTS FURNISHED TO HIM BY THE ASSESSEE. THE SUBMISSION MADE BY THE AO IN THE REMA ND REPORT IS THAT THE ASSESSEE DID NOT FURNISH ANY MATERIALS TO SUBSTANTI ATE THE CLAIM THAT IT INCURRED EXPENSES ON BEHALF OF ITS CUSTOMERS AND GOT REIMBUR SEMENT OF THE SAME FROM THEM. IN THE REMAND PROCEEDINGS ALSO, IT APPEARS T HAT THE ASSESSEE DID NOT FURNISH RELEVANT EVIDENCES AND HENCE THE AO HAS APP REHENDED ABOUT THE LEAKAGE OF INCOME AS WELL AS ABOUT POSSIBLE INFLATION OF EX PENSES. 9.1 THERE SHOULD NOT BE ANY DOUBT THAT THE MERE REIMBURSEMENT OF EXPENSES ON ACTUAL BASIS WOULD NOT GIVE RISE TO ANY INCOME A SSESSABLE IN THE HANDS OF THE ASSESSEE. ACCORDING TO THE ASSESSEE, IT HAS BEEN I NCURRING SUCH TYPE OF EXPENSES ON BEHALF OF ITS CUSTOMERS FOR THE PAST SE VERAL YEARS AND THIS IS THE SYSTEM ADOPTED BY ALL THE PERSONS ENGAGED IN CUSTOM CLEARING AGENCY BUSINESS. THE LD CIT(A) HAS ALSO NOTICED THAT THE EXPENSES IN CURRED ON BEHALF OF THE CUSTOMERS ARE DEBITED TO A SEPARATE ACCOUNT AND THE RECEIPTS RELATING THERETO ARE CREDITED TO THAT ACCOUNT. WE NOTICE THAT THE A SSESSING OFFICER DID NOT EXAMINE THE BOOKS OF ACCOUNT TO SATISFY HIMSELF ABO UT THE VERACITY OF THE SAID CLAIM PUT FORTH BY THE ASSESSEE. THE LD A.R FURTHE R SUBMITTED THAT THE DOCUMENTS RELATING TO THE EXPENSE SHALL BE DELIVERE D TO THE RESPECTIVE CUSTOMERS, SINCE THEY ARE INCURRED ON THEIR BEHALF AND FURTHER THEY CLAIM THE SAME AS EXPENSES IN THEIR HAND. IT APPEARS THAT TH IS PRACTICAL POSITION IN CONDUCTING THE BUSINESS HAS NOT BEEN APPRECIATED BY THE AO. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE IMPUGNED ISSUE REQU IRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER, SINCE THE ASSESSEE HA S FAILED TO FURNISH RELEVANT DETAILS TO THE AO AND FURTHER THE AO HAS ALSO NOT P ROPERLY APPRECIATED THE TRADE PRACTICE AND ACCOUNTING SYSTEM FOLLOWED BY THE ASSE SSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND REST ORE THE SAME TO THE FILE OF THE I.T.A. NOS.765,766,785&786 /COCH/2013 8 AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF SUBMISSIONS MADE BY THE AO AND BY DULY APPRECIATING THE TRADE P RACTICE AND ALSO ACCOUNTING METHODOLOGY FOLLOWED BY THE ASSESSEE. 10. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEALS FILED BY THE A SSESSEE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 14-03-2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 14TH MARCH,2014 GJ COPY TO: 1. WORLD WIDE HANDLING AGENCIES, CONFRATE HOUSE, CO CHIN-682 003. 2. THE INCOME TAX OFFICER, WARD-3(5), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN