Modern Farm Services, Bhatinda V. Commissioner of Income Tax, Bhatinda & another

ITA/24/2000

AI Insights

The case involves M/s Modern Farm Services, Bhatinda, the appellant, contesting the orders of the Commissioner of Income Tax, Bhatinda, and another respondent, regarding the reassessment of income for the assessment years 1975-76, 1976-77, and 1977-78. The Income Tax Appellate Tribunal, Amritsar Bench, had previously upheld the additions made by the Assessing Officer, which included undisclosed income from octroi charges and reserves in the Sundry World Bank Account. The High Court of Punjab and Haryana examined the legal and factual basis of these additions and the procedures followed in reopening the assessments under Sections 147 and 148 of the Income Tax Act, 1961.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 804944 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 21-12-2013
• Assessment Year: misc
• Other Referred Cases: Union of India V. Kamlakshi Finance Corporation Limited-AIR-1992 (Supreme Court)-711
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: GAURAV HOODA
• Assessee Lawyers: AALOK MITTAL
• Keywords: Income Tax; Octroi Charges; Reassessment; Undisclosed income; Sundry World Bank Account
• Section: 147; 148; 143(3); 142(1); 143(2); 282; 144 A

Judgement Text

"I.T.A. No.24 of 2000 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH (1) I.T.A. No.24 of 2000 (O&M). Decided on:-December 21, 2013. M/s Modern Farm Services, Bhatinda. .........Appellant. Versus Commissioner of Income Tax, Bhatinda & another .........Respondents. (2) I.T.A. No.25 of 2000 (O&M). M/s Modern Farm Services, Bhatinda. .........Appellant. Versus Commissioner of Income Tax, Bhatinda & another .........Respondents. (3) I.T.A. No.26 of 2000 (O&M). M/s Modern Farm Services, Bhatinda. .........Appellant. Versus Commissioner of Income Tax, Bhatinda & another .........Respondents. CORAM: Hon'ble Mr. Justice Rajive Bhalla Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon. ***** Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -2- Argued by:- Mr. Aalok Mittal, Advocate for the appellant. Mr. Gaurav Hooda, Advocate for the respondents. Dr. Bharat Bhushan Parsoon, J These three appeals arise out of a common order (Annexure P- 3) passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as, the Tribunal) in ITA Nos.328 to 330/ASR/1993 pertaining to the assessment years 1975-76, 1976-77 and 1977-78. 2. Point of law and factual matrix in these three appeals being similar, these have been taken up together for adjudication. For convenience and clarity, facts have been taken from ITA No.24 of 2000. 3. The appeal has been preferred by the assessee on the following substantial questions of law: i) Whether in the facts and circumstances of the case, orders Annexures P-1, P-2 and P-3 are legally sustainable? ii) Whether in the facts and circumstances of the case, the confirmation of the re-opening of assessment is legally sustainable despite non- confirmity with the mandatory requirement of valid issuance and service of a statutory notice under Section 148 of the Income Tax Act, 1961? iii) Whether in the facts and circumstances of the case, the confirmation of the addition on account of reserves in the Sundry World Bank Account is legally sustainable when the same have been duly accounted for under the head 'liabilities' in the regular books of account of the assessee firm in view of 197 ITR 688? Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -3- iv) Whether in the facts and circumstances of the case, the respondents were legally justified in making an addition of Rs.5,000/- on account of undisclosed income on octroi estamates on mere presumption and surmises without there being any independent evidence on record to corroborate the same? v) Whether in the facts and circumstances of the case, the confirmation of reassessment made is legally sustainable in the absence of a show cause notice as mandated under law? 4. Substantial questions of law as framed by the assessee are not happily worded. In this backdrop, without going to the language of questions of law framed, attention has been focussed on spirit behind these questions. Sum and substance of the questions has been taken for consideration without giving importance to language and text of the questions of law framed. 5. The assessee firm is a dealer carrying on the business of sale of tractors at Bhatinda. Having filed its return for the assessment year 1975-76 on 1.7.1975 declaring an income of Rs.59,200/-, the assessment was finalised under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as, the Act) on 31.8.1977 at an income of Rs.62,120/-. 6. After recording reasons in terms of Section 147 of the Act, notice under Section 148 of the Act was issued in response to which the assessee had filed its return on 15.4.1982 declaring an income of Rs.63,470/-. Exparte assessment was framed on 27.3.1986 on estimate basis taking income of the assessee at Rs.4 lacs. This order was subsequently set aside in appeal on 26.9.1986 by the Commissioner of Income Tax (Appeals) [hereinafter referred to as, the CIT(A)]. After issuance of notices under Sections 142(1) and 143(2) of the Act, yet another exparte assessment order was made on 27.2.1989 taking income as Rs.2,96,260/-. This exparte Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -4- assessment order also met the same fate when it was set aside vide order of 7.2.1990 of the CIT(A). 7. On receipt of notices, the assessee had sought certain directions under Section 144-A of the Act. The matter was disposed of on 5.2.1992. Making various additions i.e. of Rs.5,000/- on account of undisclosed income qua octroi, of Rs.94,368/- on account of undisclosed income from Post Warranty Services Scheme and of Rs.1,33,417/- on account of undisclosed income from Sundry World Bank Account, total taxable income was computed at Rs.2,96,260/- (Annexure P1). 8. As per order dated 18.1.1993 (Annexure P2) of CIT(A) in appeal though addition on account of Post Warranty Service Account was deleted, yet other additions made by the Assessing Officer (hereinafter referred to as, the AO) were upheld. Vide impugned order (Annexure P3), the Tribunal, upholding validity of reopening of the case and consequent assessment under Section 148 of the Act, had affirmed the order of the CIT(A) but had issued directions to the AO to verify the details of refund and for making necessary adjustments against income assessed under the head ‘Sundry World Bank Account’. It was specified that adjustment on account of refunds was to be made in the year in which the deposits were actually received. 9. At the outset, it has been claimed by the assessee that neither the proceedings started under Sections 147 and 148 of the Act were valid nor any notice had actually been received in terms of Section 148 of the Act. Addition on account of octroi expenses of Rs.5,000/- and of Rs.1,33,417/- on account of Sundry World Bank Account has also been challenged as erroneous. 10. The appellant making challenge to the impugned orders Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -5- (Annexures P1, P2 and P3) has claimed that additions affirmed by the appellate authorities were neither factually correct nor were tenable. Qua Sundry World Bank Account, it is claimed that excess amount was to be refunded and hence was not shown in the profit and loss account but was shown on the liability side of the balance sheet. 11. We have heard counsel for the parties while going through the paper books. 12. Appellant-assessee was dealing in the business of sale of imported tractors which then were in great demand. Sequelly, there was a long waiting list. Farmers desirous of purchasing such tractors were required to make advance booking and used to be delivered desired imported tractors only on their turn. Queue used to be long. In conduct of its business, the assessee while taking imported tractors to its premises was subject to payment of octroi charges to municipal authorities. For maintaining proper accounts, the assessee had two peculiar accounts, one was named as 'Sundry World Bank Account' and the second was named as 'Post Warranty Service Account'. Receipts of advance booking used to be credited by the assessee in 'Sundry World Bank Account'. Quantum of transaction of sale of an imported tractor in rupees used to be concretised only on the day of actual sale and delivery of the tractor as prices used to suffer from fluctuations owing to variation in rates of foreign currency. Those rates were taken on day to day basis. So far as 'Post Warranty Service Account' is concerned, certain amount out of advance booking amount of sale price used to be taken to Post Warranty Service Account to defray expenses of service and repair of the tractors, even after warranty period. 13. Plea of the appellant-assessee is that addition of Rs.1,33,417/- made by the AO and subsequently reaffirmed by the CIT(A) and the Tribunal with the minor relief of refunds (already paid) is perverse and Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -6- erroneous and thus is unsustainable in law. It is urged that even when viewed in terms of Section 147 and 148 of the Act, the Tribunal erred in law and it did not appreciate the fact that it was a case of non-issuance of notice under Section 148 of the Act. It is thus urged that there being no show cause notice issued to the assessee prior to the reopening of the case for reassessment, entire edifice of the revenue culminating in the impugned order (Annexure P-3) of the Tribunal crumbles. 14. Per contra, stand of the revenue is that additions were correctly made by the AO and were rightly affirmed by the CIT(A) and were thus reaffirmed by the Tribunal and that there was nothing bad in law qua these additions. It is also urged that reopening of the assessment was preceded by disclosure of reasons which were recorded in terms of Section 148(2) of the Act, whereupon notice in terms of Section 148(1) of the Act was duly given to the assessee and thus, there was nothing remiss or wanting on legal and functional pedestal. 15. Disclosing reasons, interalia, that the assessee had claimed expenses on account of octroi charges shown as paid whereas, in fact, had not paid such charges and thus had not incurred any expenditure on that account, and after getting approval from the competent authorities, the assessment proceedings were reopened after giving notice in terms of Section 148(1) of the Act. On furnishing of its returns of income for the assessment years 1975-76, 1976-77 and 1977-78, the reassessment proceedings were completed. Merely because the notice under Section 148(1) of the Act issued to the assessee had been taken by the authorised representative of the assessee i.e. its accountant, service of notice cannot be said to be legally wanting. By no means it can be construed to be a case of absence of service of notice under Section 148(1) of the Act. The AO has dealt with this issue at a sufficient length. Relevant discussion made on this Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -7- count in the order of the AO, is reproduced as below: “It may be mentioned that this objection was also raised in its application u/s 144-A before the ld. DCIT, Bathinda and the service of notices have been discussed in the directions issued by ld. DCIT, Bathinda. The ld. DCIT has made it clear that the assessee did file the returns in response to notices u/s 148. Even, the proceedings were attended by it subsequently. Thus, it cannot be believed that no notice u/s 148 were validly issued and served. It is also made clear that the person who receive notices is Tarsem Pal Accountant and not Tarsem Chand, Munishi of Shri K.C.Goel, Advocate He attended the office on 12.5.1983, 20.5.1983 and 25.5.83. He also produced medical certificate of illness of Shri H.R.Gupta, partner for adjournment of the case. Now, the ld. counsel has taken the ground that Shri Tarsem Pal, Accountant was not authorised to receive the notices. I fail to understand that in what capacity he was deputed by the firm to attend office and seek adjournment when he was not authorised to receive the notices. A perusal of assessment records goes to reveal that Shri Tarsem Pal, Accountant was duly authorised to receive the notices and the services were rightly effected u/s 282 of the I.T. Act, 1961.” 16. This ground was not even pressed by the assessee before the CIT(A). However, when this ground was put forth before the Tribunal, endorsing the view of the AO, the Tribunal had held, action of the AO in reopening the case under Section 147 of the Act as also of service of notice under Section 148(1) of the Act on the assessee through its representative, to be valid and legal. 17. So far as matter of making of additions on the stated counts is concerned, neither before the AO nor before the CIT(A) nor even before the Tribunal, the assessee had been able to show that expenditure on account of payment of octroi had, in fact, been made by it. In absence of supporting entries showing payment of the octroi, the AO was right in making addition of Rs.5,000/-, Rs.8,000/- and Rs.15,760/- on account of octroi charges for the assessment years 1975-76, 1976-77 and 1977-78 respectively. The Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -8- Tribunal was right in affirming such addition made by the AO. 18. So far as addition made on account of Sundry World Bank Account is concerned, plea of the assessee is that amount paid in advance for the purchase of imported tractors under the World Bank Scheme used to be adjusted against the cost of the tractor on the date of the delivery and thus there was no good ground for making addition towards income of the assessee. This contention is not well-founded. 19. Perusal of the paper book, rather reveals that advance payment for booking an imported tractor used to be made by the prospective vendees, was not only a token amount but, in fact, entire sale consideration used to be paid and even balance due to the vendees on adjustment of the fluctuation of the rates of foreign exchange at the time of booking and at the time of actual delivery of the tractor many a times was not even returned to the vendees. 20. It remains a fact that delivery of tractors used to be made to the vendees after importing tractors from overseas. The amount of sale consideration received in advance used to be adjusted on the date of delivery against the sale price of the tractor. Rest of the amount, if any, remaining with the assessee firm used to be refunded on production of the original receipts issued to the customer at the time of booking of the tractor. In absence of receipts, such payment used to be withheld. 21. When this procedure is evaluated on its functional pedestal, there does not remain any dispute that the AO had fallen in error in treating the amount of such advance deposit as merely trading receipt. Findings of the CIT(A) on this count rather are more apt and realistic and thus are reproduced as below: “In fact, it was entire sale price charged in advance and it is not understood why the assessee did not refund the balance Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -9- amount immediately at the time of delivery of tractor. The amount received as sale price in advance was clearly in the nature of trading receipt and the entire amount is clearly assessable as income of the assessee. In this regard, the ld. Counsel has now taken the plea that in the subsequent years i.e. Assessment years 78-79 to 84-85, the assessee had refunded the total sum of Rs.65,349/- to the customers for which necessary relief may be given and only the net amount be treated as income for the assessment years 75-76 to 77-78. After due consideration of the matter, the AO is directed to verify the details of refunds given and necessary adjustment may be made against the income assessed under the head 'S.W.B.'. The adjustment on account of refunds is to be made in the year in which the deposits was actually received between the assessment year 75-76 to 77-78. The AO is directed to give effect to this order.” 22. Adjudication made by the CIT(A) was affirmed by the Tribunal as it did not find any infirmity in such findings given by the CIT(A). These findings rather were found to be in accordance with law by the Tribunal and, thus, were upheld. 23. So far as additions made on account of Post Warranty Service Account are concerned, the CIT(A) had deleted those additions by making the following observations: “As regards the addition made on account of P.W.S. (Post-Warranty Service account), the same cannot be sustained in view of the fact that addition made on this basis in assessee's own case for the assessment years 1978-79 to 1983-84 has been deleted by the Hon'ble ITAT Chandigarh Bench. The order of the I.T.A.T. in assessee's own case is required to be followed even if a reference is pending- (Union of India V. Kamlakshi Finance Corporation Limited-AIR-1992 (Supreme Court)-711. Respectfully following the decision of the Hon'ble ITAT, the addition made on account of P.W.S. for all the three years is deleted.” 24. No appeal was preferred against this particular adjudication by Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document I.T.A. No.24 of 2000 -10- the revenue. 25. From totality of facts and circumstances, it is, thus, clear that reopening of the assessment being in conformity with the provisions of Sections 147 and 148 read with Section 282 of the Act, is valid. Confirmation of addition on account of reserves in the Sundry World Bank Account as also on account of undisclosed income on octroi estimates has neither any factual nor any legal error. 26. Sequelly, all the substantial questions of law are answered in favour of the revenue and against the assessee. Consequently, the appeals being without any merit are dismissed. (Dr. Bharat Bhushan Parsoon) Judge (Rajive Bhalla) Judge December 21, 2013 'Yag Dutt' 1. Whether Reporters of local papers may be allowed to see the judgment? 2. Whether to be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Yag Dutt 2013.12.24 13:51 I attest to the accuracy and integrity of this document "