TaxTMI 
TaxTMI 
2014 (11) TMI 175
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....eight settled and the balance amount is paid to the assessee through cheques, on behalf of the truck operators, though tax is deducted on the full amount of payment made to the truck, in the name of the assessee. The assessee pays the amount to the truck operator after retaining its commission at 5% as per the trade practice. In other words the assessee is a see through entity, as it collects and pays, freight charges from the principal parties to the truck owners and in the process earns 5% commission. 3.1. In the system of accounting maintained by the assessee, only the commission earned is credited to the Profit & Loss a/c. The amount collected from the principals and amounts paid to truck owners are not routed through the Profit and Loss a/c. This system of accounting has been followed by the assessee since the inception of its business and the Revenue has accepted the same in scrutiny assessments. For the AY 2005-06 an order u/s 143(3) was passed on 5.12.2007 and the return of income filed by the assessee was accepted after certain disallowances. 3.2. Later a notice u/s 148 was issued reopening the assessment u/s 147 of the Act. The reasons of reopening for the AY 2005-06 ar....
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....ipts from freight claimed as per TDS certificates are Rs. 1,10,92,329/-. Thus it is clear that the assessee has not accounted for the balance of Rs. 1,00,14,927/- while computing its net profit which have escaped assessment. I have, therefore, reason to believe that the assessee's income to the extent of Rs. 1,00,14,927/- has escaped assessment within the meaning of provisions to S.147 of the Act. In order to assess the income, proceedings u/s 147 of the Act are initiated. Issue notice u/s 148 of the Act. Sd/- ITO, Ward 1(2), Ghaziabad." 3.5. The AO records that no return of income was filed by the assessee in response to notice u/s 148 for both the AYs. It is also recorded that the assessee has not responded to notices issued u/s 142(1) of the Act on 10.12.2009 and earlier dates. It is only in response to notice u/s 142(1) issued on 25.1.2010 that the assessee responded through its Counsel. The AO completed the assessment on 24.12.2010 assessing the total income at Rs. 1,25,06,504/- for the AY 2005-06 and at Rs. 1,14,20,940/- for the AY 2006-07. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority granted part relief. 4. On the issues which were d....
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....en there is admittedly no single payment exceeding Rs. 20,0001- and there is no continuing oral/written agreement for any quantity/amount. 8. That, without prejudice to above and in alternative , the learned Commissioner of Income Tax (Appeals) in erred in sustaining the addition of Rs. 1,52,4831- being amount payable at year end without appreciating the fact that there was no payment exceeding Rs. 20,000/-. As per the above grounds, notice u/s 148 is beyond jurisdiction and proceedings u/s 147 are void ab initio/illegal hence it is hereby prayed that the order dated 24.12.2010 framed u/s 147 of I.T. Act,1961 may kindly be quashed. Without prejudice to above but only as an alternative, the additions of Rs. 1,52,483/- are arbitrary and bad in the law hence it is hereby alternatively prayed that the additions sustained may kindly be quashed in TOTO." 5. On the issues where the First Appellate Authority adjudicated against the Revenue it filed appeals on the following grounds. "1. The Ld. CIT( A) has erred in law & on facts by deleting addition on account of freight expenses disallowed as per provisions of section 40a(ia) of the I T Act, 1961 when he himself he accepted that not d....
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.... a letter filed by the assessee on 15.11.2007 during the course of original proceedings on the same issue. Hence the reopening is on a change of opinion which is bad in law. (c) The AO did not proceed with passing of an order u/s 154, as he believed that the issue is debatable and under such circumstances there cannot be satisfaction that income has escaped assessment warranting reopening. (d) As there is no expenditure incurred or claimed by the assessee the question of disallowing the same u/s 40(a) (ia) does not arise. And hence the question of escapement of income warranting reopening does not arise. (e) No new material or information came to the possession of the AO warranting the reopening. 6.1. On merits he submitted that: (i) S.194C is not applicable and hence disallowance u/s 40(a)(ia) is bad in law for the reason that (a) the assessee has not claimed any expenditure of the said amount and hence there can never be a disallowance; (b) The assessee has neither received nor paid amounts which were directly paid by the principals to the lorry operators. Hence the question of deduction of tax at source does not arise on these amounts. (ii) The assessee is only a Commissi....
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....ming the AO that it is engaged in transport business as a transport commission agent. On other details assessee replied on 5.11.2007 giving a comparison of gross receipts, other income and expenditure under various heads for FY 2002-03, 2003-04 and 2004- 05. On 15.11.2007 the assessee gave detailed reply. 9.1. Later the AO issued a notice u/s 154 on 12.1.2009 proposing rectification of a mistake apparent on record. The mistake proposed to be rectified, as recorded in the notice is extracted for ready reference. "Since no TDS has been made on the freight paid amounting to Rs. 1,21,77,664/-, the entire expenditure of Rs. 1,21,77,664/- is proposed to be disallowed and added to the income in accordance with provisions of S.40(a)(ia) of the Act. As such the assessment is proposed to be rectified u/s 154 of the Act." 10. On these facts the question is whether the reopening is bad in law. It is well settled that the requirements prescribed under the Act for involving the provision of S.147 have to be fulfilled. Hon'ble Supreme Court in the case of CIT vs. Rajesh Jhaveri Stock Brokers P.Ltd. (2007) 291 ITR 500 (SC) has held as follows. "Section 147 authorises and permits the Assessing ....
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....n account of freight payment. 10.2. In the reasons recorded, based on TDS Certificates, the AO came to a conclusion that the assessee has not accounted for certain receipts in the form of freight charges. In other words the allegation is under statement of the receipts. In our view the reopening of assessment is valid for the reason that the AO had material to come to a conclusion that the assessee has under stated its receipts. During the proceedings u/s 143(3), no direct question was asked on the issue of understatement of turnover or on the issue of non reconciliation of turnover disclosed with the T.D.S. certificates. The assessee has also not furnished any explanation to the AO during the original assessment proceedings on these matters as there is no occasion for doing the same. Under the circumstances the Full Bench decision of Hon'ble Delhi High Court in CIT vs. Usha International Ltd. Reported in 348 ITR 485 applies and it cannot be held that there is a presumption of application of mind on this issue when the original assessment order was passed u/s 143(3) of the Act. 10.3. Coming to the argument that the information of the audit party cannot constitute tangible materia....