TaxTMI 
TaxTMI 
2011 (9) TMI 1000
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....circumstances of the case and in law, the learned CIT(A) was not correct in restricting disallowance from Rs. 1,53,53,036/- to Rs. 93,82,411/- on account of clearing and forwarding expense. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in accepting the contention of the assessee with regard to bifurcation of clearing and forwarding expenses without giving opportunity to the Assessing Officer under Rule 46A(3). 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not correct in deleting addition of Rs. 60,00,000 on account of sales promotion expenses. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not correct in not appreciating that the undisclosed income on account of sales promotion expenses was estimated on the basis of the statement of the Director and employees and the books of accounts. It is therefore within the cope of Chapter XIV-B. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not correct in deleting addition of Rs. 5,12,99,210 on account of commission payable on exports. ....
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.... to the said return it was stated that the return for the block period was being filed under protest since the provisions of section 132 did not apply as the jurisdictional conditions to be fulfilled for a valid action under section 132 were not present. The assessee also requested for furnishing to them the reasons on the basis of which action under section 132 was initiated. In the notes to the computation of income of block period it was further submitted though undisclosed income was declared in the preliminary statement recorded under section 132(4), on verification of the books of account, it was noticed that the entries are correctly reflected in the books of account and the aforesaid disclosure of Rs. 2 crore has been made out of abundant caution. It was further stated that the undisclosed income of Rs. 2 crore had been offered for the block period as a whole and therefore, year-wise breakup was not given. Out of the said amount of Rs. 2 crore, an amount of Rs. 1,04,91,934/- was in respect of export commission no longer payable and the balance amount is in respect of clearing and forwarding expenses and others. The A.O. assessed the undisclosed income of the assessee as und....
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....ome of the block period. The A.O., on the basis of the seized papers, Page 32 of Annexure A-3 at Khar office of interim audit report, questioned assessee with reference to the audit observations. Assessee was asked to furnish the year-wise brake up of expenses under the head 'Clearing and Forwarding Expenses' and out of the total expenses of Rs. 1771 crore an amount of Rs. 1.70 crore was identified as expenses incurred in cash. As there is no supporting third party evidence with reference to the cash expenses the A.O. was of the view that 10% of the cash expenses must have been incurred for the purpose of business and the remaining amount of Rs. 1.53 crore was treated as undisclosed income on account of unverifiable cash expenses. 6. The CIT(A), after considering assessee's contentions both on facts as well as on law, came to the conclusion that out of the total expenses in cash at Rs. 1,70,58,929/- considered that 40% of the total cash expenses was towards clearing and forwarding incurred in customs clearance which is fully disallowable on the reason that these are spent for custom clearance and not fully vouched. With reference to the remaining expenses, while holding that est....
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.... block period. The entire expenditure claim was arising out of the books of account, which was duly maintained by the company and even the IOUs, which were advances taken by the Manager towards various cash expenses itself was fully vouched and was accounted for. Therefore, we are of the view the disallowance of expenses towards customs clearance due to reason of unverifiable nature cannot be made in the block assessment. The company has proper internal control and the internal auditor also seems to verify majority of the expenses and report to the management in the case of any adverse finding. In fact the seized paper was one such internal audit report which itself states that depot of Sarkhej Project office of the company for Western Region indicate that 'as explained to us depot follows the practice of maintaining a Register giving full details of expenses reimbursed to C&F Agents but same was not updated...'. This observation was only with reference to not updating the Register but not with reference to bogus expenditure or false expenses. The factum of expenditure cannot be disputed as assessee has incurred the expenditure, which was not doubted. The only reason for disallowan....
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....ing within the definition of clause (b) of section 158B. For these reasons ground No. 2 is also upheld. Accordingly ground No. 2 & 3 raised by assessee are allowed and ground No. 1 & 2 raised by Revenue are dismissed. 9. Addition of Rs. 60,00,000/- on account of sales promotion expenses and commission payable on exports at Rs. 5,12,99,210/- : Ground No. 3 to 6 in revenue appeal pertains to deletion of addition of Rs. 60,00,000/- on account of sales promotion expenses and commission payable on exports at Rs. 5,12,99,210/-. In this ground No. 4 & 6 are similar in the sense that revenue contends that the learned CIT(A) was not correct in not appreciating that the undisclosed income on account of sale promotion expenses and export commission payable was estimated on the basis of the statement of the Director and employees and books of account and they are within the scope of Chapter XIV-B. As stated in the earlier grounds, the disallowances were made on an estimation basis and on the so called seized documents, which were nothing but extracts of the accounts or reports derived thereon. There are statements recorded from various Managers and ultimately from the Director but there is ....
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....n provided was false. He also noted that the commission disallowed was only with reference to the top 10 parties, even though the commission payable to other parties were also equally outstanding but not disallowed. He was of the opinion that there appears to be substance in the contention of the assessee that the disallowance as made merely to pin down the assessee to the declaration of undisclosed income made under section 132(4) which was subsequently retracted. Vide para 9.11 it was also further confirmed that out of the commission of Rs. 5.3 crore payable to top 10 parties as on 31.12.2001, every amount has been paid except an amount of Rs. 39.02 lakh and even this amount was also paid in due course. Therefore, there was no question of disallowance of Rs. 5 crore payable to top 10 parties. Not only that it was also on record that out of the commission payable as on 31.12.2001 an amount of Rs. 1.04 crore, which subsequently became not payable was written back in the books and included in the profits. Thus the commission payable have been properly provided in the books and having been largely paid subsequently and when it became not payable having been written back, it cannot be....
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....e false. The said expense merely remains unproved. On facts of the case it is clear that no evidence was found as a result of the search to show that sales promotion expenses were false. 8.8. The law has come to be well settled that additions not founded on evidence uncovered by search cannot be the subject of block assessment under the provisions of Chapter XIV-B. There is virtual unanimity of judicial opinion in this regard. i) The Gujarat High in the case of CIT vs N R Papers and Boards Ltd. (2001) 248 ITR 526 has quoted with approval their earlier Division Bench decision in the case of N R Paper and Board Ltd. vs Dy. CIT (1998) 234 ITR 733 where it was held that the block assessment of undisclosed income to be charged at a higher rate of tax prescribed was independent of the pending regular assessments and it operated in a different field from the assessment of undisclosed income which was not and would not have been disclosed for the purpose of the Act. Undisclosed income by Chapter XIV-B is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process d....
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.... regular assessment already done or to be done. The assessment for the block period can only be done on the basis of the evidence found as a result or requisition of books of account or documents and such other materials or information as are available with the AO. Evidence found as a result of search is clearly relatable to section 132 and 132A. The Court held that income based on report of special auditors appointed u/s 142(2A) cannot be equiat5ed with undisclosed income determined on the basis of search material v) The various benches of ITAT have, in a catena of cases, reiterated the above views: In Essem Intra-Port Services Pvt Ltd. (2000) 72 ITD 228 (Hyd) it was held that even though 'undisclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes to Chapter XIV is contingent upon the fact that the undisclosed income should be borne out of materials representing income or property which has not been or would not have been disclosed by the assessee for the purposes of this Act. When certain information and details are already furnished in the return of income or statements accompanying thereto, f....
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....al principles, the CIT(A) was of the opinion that application of the above principles to the facts of the instant case will lead to irresistible conclusion that the A.O. had travelled beyond the scope of Chapter XIV-B in making disallowance out of sales promotion expenses and export commission expenses in the block assessment. By doing so the A.O., so to say, converted the block assessment proceedings into regular assessment proceedings. We agree with the above proposition made out by the CIT(A). Since there is no incriminating material found in the course of search, there is no basis for making the above disallowance in the block assessment. 13. The learned D.R. has referred to the material found in the search and statement made in the course of search to submit that the statements can be relied upon for making the disallowances and relied on the decision of the Hon'ble Kerala High Court in the case of CIT vs. Hotel Meriya 332 ITR 537. In the above said case in the course of search statement was recorded from the partner and employees that assessee was concealing income amounting to 20% of disclosed turnover both on liquor sales. The AO made addition on both liquor and food....
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.... considering the same in the block assessment. In this case there is not admission at all. Even the Directors statement do indicate that the expenditure was incurred as far as ground No. 1 on the issue of clearing and forwarding expenses and as far as the export commission and sales promotion are concerned these disallowances are made on adhoc basis without any incriminating material. The sales promotion expenses, as seen earlier, was based on earlier disallowances invoking section 37(3) read with Rule 6B and export commission, even though it was paid subsequently, was disallowed on adhoc basis in the case of 10 top parties just because it was outstanding from one year to three years, in spite of explaining the reasons for outstanding amounts. We are of the opinion that as there is neither any incriminating material nor admission of any bogus or false expenses, the statement recorded under section 132(4) does not support the disallowance of expenses and treating it as undisclosed income under the provisions of section 158B. Even the above principles also upheld by the Hon'ble High Court of Kerala relied upon by the learned D.R. 15. In the case of TCV Engineering Ltd. vs. ACI....
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....tained by the assessee and which were not seized or requisitioned either under section 132 or section 132A." 16. There is neither incriminating material nor there is any admission of modus operandi of concealment or a finding by AO that the expenditure claimed was bogus or false in this case. Therefore, we are of the opinion that there is no basis for making the addition in the block assessment of these amounts, which in fact are not even based on the statement of the Director or employees. Therefore, grounds No. 4 & 6 are rejected. 17. Addition of Un-moved balances as income: The issue of unmoved balances treated as income arises out grounds No. 7 & 8 raised by Revenue. Briefly stated, the A.O. noticed that page No. 185 to 190 of the loose paper folder named Annexure A5 to Panchanama dated 14.02.2002 was annexure to the Internal Audit Report on debtors for F.Y. 2001-02. In this report, the auditors have listed unmoved balances for depots at Delhi, Kundli and Zirakpur. The auditors observed that payments received but not accounted in Delhi depot amounted to Rs. 12,27,167/- similar, for Kundili and Zirakpur depot these amounts were Rs. 12,10,127/- and Rs. 3,48,109/- respective....
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....ssee company. In the mercantile system of accounting, income accrues and is accounted at the point of time the sale is made irrespective of realisation of the sale proceeds. Sales made on credit, though accounted for as income contemporaneously with the sale taking place, give rise to trade debtors which is an asset of the business. Since income is already accounted at the time of sale, subsequent collection of the sale proceeds is merely realization of the trade debtors and does not impact income. Thus, whether or not the debt is recovered, it can have no impact upon income, unless of course the debt is written off as a bad debt, in which case income gets reduced. In this view of the matter the AO apparently erred in treating unmoved debit balances as income. The AO erred in not appreciating that a debt balance, unlike credit balance written off, cannot result in income. Likewise, the AO also erred in treating payments received from trade debtors as income. Receipt of payments from debtors can only yield income because it is nothing but substitution of one asset (trade debtors) with another (cash) - income already having been accounted for at the time of sales made to the debtor p....
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....of the view, need not be considered in detail. Suffice to say that all the arguments were considered and the matter was decided accordingly. We place on record our appreciation of the efforts made by the counsels in explaining the issue in detail including referring to various documents in the paper book filed in this regard. 21. With these observations, assessee's appeal is allowed and Revenue's appeal is dismissed. ITA No. 265/Mum/2006 22. This appeal by the assessee is directed against the order giving effect to the appellate order of CIT(A)., consequent to the appellate order No. CIT(A) Cent. VI/IT-216/2003-04 dated 28.03.2005, which was subject matter of appeal by both assessee and Revenue in the two appeals considered earlier. The A.O. has given effect to the order as under: "In view of appellate order No. CIT(A) Cent. VI/IT-216/2003-04, dated 28.03.2005 of the CIT(A), Central VI, Mumbai, undisclosed income of the assessee is recomputed as under: Undisclosed income as per order u/s 158BC dt. 27.-02-2004 8,10,77,220 Less: Relief as per the CIT(A)'s order (a) Clearing & forwarding Expn (15353063-9382411) 5970625 ....
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....ate time to consult his C.A's/Advocates and offer a true and full disclosure of concealed income, which in turn saves him from penalty/prosecution. As such after offering the undisclosed income he cannot turn around and say what the department has calculated now as per appeal order is his concealed income and the returned income may be reduced. Needless to mention that appellant has not filed any rectification petition during the pendency of the assessment or has not revised its income. As such I find no reason to interfere in the order passed by the A.O. as he has taken the minimum amount returned as the income of the appellant. 25. Contesting the above order assessee has raised the following ground:- "On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in determining the undisclosed income at Rs. 2,00,00,000/- as returned income instead of Rs. 93,82,415/- as computed after granting effect to the order of the Commissioner of Income-tax (Appeals)." 26. The learned counsel submitted that there was a search as considered earlier in the appeal and in the course of s....
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.... 2,50 crores Rs.10.00 crores On verification of the books of account it is noticed that the entries are correctly reflected in the books of account and the aforesaid disclosure of Rs. 2,00,00,000/- has been made out of abundant caution." 27. Further he also referred to page No. 107 wherein in a separate note was given to the A.O. in the course of assessment proceedings, which was as under: - "Note in respect of basis of undisclosed income: We invite your attention to the separate note on validity of search submitted earlier and to the notes forming part of the block return for the period 1-4-1995 to 14-2-2002. As stated in the said notes, the disclosure of Rs. 2 crores had been made out of abundant caution and it is submitted that the same is not linked to the seized material. In fact, on verification of the books of account and the seized material, it is submitted that there is no element of undisclosed income which can be linked to the seized materials. Accordingly, the question of furnishing details of working for this income does not arise." 28. Then the learned counsel referred to the assessment order passed by the A.O. wherein he dete....
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....challenging the assessment order her case was that she should have been given credit for tax deducted at source of Rs. 62,088/-. At the time of hearing assessee's raised additional grounds, inter alia that no tax was payable by assessee on the prize money of the Sikkim lottery under the Income Tax Act. The Commissioner modified the order of the A.O. only to the extent holding that the prize money of the lottery needed to be reduced by Rs. 62,088/- as assessee did not receive the money. The Commissioner held that the additional ground regarding taxability under the Indian Income Tax Act could not be permitted to be raised at the stage of hearing of the revision. 31. On a writ petition against the order Hon'ble Bombay High Court held: "(i) that merely because the assessee offered the prize money won in the lottery of the Sikkim Government, to tax under the Income-tax Act, 1961, that would not take away her right to contend that the prize money was not chargeable and assessable to tax under the Incometax Act in the revisional jurisdiction", and "(ii) That the prize money won by the assessee from the lottery of the Government of Sikkim could have been charged to tax only in....
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....lted in carry forward of higher brought forward losses including the depreciation at Rs. 12,13,63,431/-, which was set off by the Assessing Officer while arriving at the total income as against Rs. 9,58,64,595/- claimed by the assessee. It was the assessee's contention that the Department itself has suo motu allowed depreciation in earlier years and allowed higher carry forward losses which resulted in total income being less than the returned income and assessee should not be made to suffer because of set off of higher carry forward losses. The assessee relied on the decision of the A P High Court in the case of CIT vs Bakelite Hylam Ltd 237 ITR 392 and the decision of Gujarat High Court in the case of Gujarat Gas Co Ltd vs JCIT 245 ITR 84. The Learned CIT (A) has rejected the assessee's claim stating as under:- "I have gone through the submissions made by the AR but do not find merit in them. The facts of the case laws quoted by the appellant are distinguishable. Infact the matter is covered by the decision of the Jurisdictional High Court in the case of LML Ltd vs M K Venkataraman, ACIT (1994) 205 ITR 585 (Bom). In this case, the Hon'ble Bombay High Court had the occasi....
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....l error or inaccuracy, it is open to the assessee to claim refund of the excess tax paid in the course of the assessment proceedings. He can certainly make such a claim before the concerned authority calculating the refund. Similarly, if the assessee has, by mistake inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which, if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case where a refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief. In cases governed by section 240 of the Act, an obligation is cast upon the Revenue to refund the amount to the assessee without having to make any claim in that behalf. In appropriate cases, therefore, it is open to the assessee to bring the facts to the notice of the concerned authority on the basis of the return furnished, which may have a bearing on the quantum of refund. And the concerned authority, for t....
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....fter amendment, with effect from April 1, 1989, the language employed by the Legislature under section 143(3) of the Act does not implicitly say that the Assessing Officer is entitled to grant refund also. However, this does not mean that the Legislature has withdrawn the powers of the assessing authority to grant refund to the assessee in appropriate cases. The provisions under sub-section (3) of section 143 of the Act cannot be read in isolation. Had it been the intention of the Legislature to prevent the assessing authority from granting refund to the assessee, then the insertion of sub-section (4) to section 143 of the Act would lose its significance. (ii) That on a reading of clause (b) of sub-section (4) of section 143 of the Act, it is clear that on an assessment made under section 143(1)(a) of the Act, and such assessment results in a refund, if such refund exceeds the amount refundable on regular assessment made under section 143(3) of the Act, the whole or the excess amount so refunded shall be deemed to be the tax payable by the assessee. In other words, in the regular assessment, the tax liability is determined on the basis of giving credit to all the deduction....
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....s and allowances. In this case, as already stated, it is the revenue which has thrusted the depreciation on the assessee in earlier years and consequent to that the assessee's claim of depreciation and carry forward of losses has varied substantially. The issue of thrusting the depreciation in earlier years is pending in various higher forums, but on record, the assessee was entitled for set off of higher amount, which the Assessing Officer has allowed correctly and determined the total income, which incidentally became less than the returned income. Even in this order, we have restored some of the claims back to the Assessing Officer for fresh consideration, which may result in varying the total income than what was earlier determined. Just because the total income determined consequent to various orders of higher authorities / claims legally allowable results in being less than returned income, it does not mean that the Assessing Officer has to accept the returned income ignoring the provisions of the IT Act. Even if the returned income was accepted under the provisions of section 143(1) without there being any scrutiny, there are various other provisions of sections 154....
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....(1) of section 142 or section 148] but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired, but no return of income has been filed,- (A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; (ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under clause (c);] (d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries rel....
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....the case may be, shall be on the assessee. (4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments." As per the above provision, the undisclosed income of the block period shall be the aggregate of the total income falling within the block period computed in accordance with the provisions of this Act. Further the amounts are to be reduced by the total income which are either assessed or declared in the returns in the regular assessments as per clause (a) to (f). This method of computation does not consider returned income as a basis for determination of undisclosed income. As per the provisions, the AO has to determine the undisclosed income in accordance with Sec 158BB. The only reference to the returned income under Chapter XIV-B in the procedure for assessment of search cases is under the provisions of section 158BFA while considering the penalty. Section 158BFA(1) refe....
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....sis of seized material. 35. As seen from the assessment order, the A.O. arrived at the undisclosed income as per provisions of section 158BB, which was subject matter of appeal. Once the amounts are examined and the CIT(A) gives relief to that part of undisclosed income determined by the A.O., the A.O. is bound to re-determine the undisclosed income on the basis of such CIT(A)'s order. Therefore, we are of the opinion that the Assessing Officer's reference to returned income as undisclosed income is not according to the provisions of law. Not only that as stated earlier, even though assessee admitted an amount of Rs. 10,00,00,000/- in the course of search under section 132(4), on examination of the books of account and other statements assessee submitted that there was no undisclosed income. However, as an abundant caution it returned an amount of Rs. 2,00,00,000/-, the basis of which was stated in a note to the return. As per that an amount of Rs. 1,04,91,934/- was in respect of export commission no longer payable. This amount also was an amount recorded in the books of account and assessee has taken the amount to the P & L Account in subsequent year, the fact of which was note....