TaxTMI 
TaxTMI 
TaxTMI 
2011 (9) TMI 1000
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....rrect 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. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not correct in not....
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....he 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 under: - (i) Disallowance out of clearing and forwarding expenses Rs. 1,53,543,036 (ii) Disallowance out of sales promotion expenses Rs. 60,00,000 (iii) ....
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....bservations. 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 estimation of unallowable and unadmissible expenses of 90% is unreasonably high, he restricted the same to 25% of the balance expenditure. Thus he confirmed an amount of Rs. 93,82,411/- wh....
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....ards 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 disallowance was on the nature of unverifiable nature of the expenditure. Clearing and Forwarding expenses in cash itself is 0.001% of the total expenditure under the head and these expenses incurred....
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....ed 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 no incriminating material at all with reference to disallowance of sales promotion expenses as well as commission on exports. As far as sales promotion expenses are concerned, in the earlier ....
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....ng 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 stated that the commission provided in the books was false. We confirm the findings of the CIT(A) that there is no legal or factual basis for disallowance of sales promotion commission expense....
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....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 did not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and not disclosed by the assessee. There would, therefore, be no overlapping in the natu....
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....s 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, filed before the Department, or when certain information and details are already recorded in the books of account maintained in the regular course of business, based on which returns of income would be filed in normal course, that very same information....
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....enses 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 sales. In appeal the ITAT deleted the additions on the reason that there was no evidence available. On the set of facts the Hon'ble Kerala High Court head as under: - "(i) that it was not disputed that the Assessing Officer recorded the statement of the partner ....
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....n 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. ACIT 284 ITR 470 (Mad) the Hon'ble Madras High Court has considered that disallowance cannot be considered as undisclosed income unless there is a finding that the expenditure was false or bogus. It was held as under: - "The words 'or any expense, deduction or allowance claimed under this A....
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.... 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/- respectively. The A.O. required the assessee to explain the 'unmoved balances' and to specify the treatment given to those debit balances where according to the Audit Report payments 'received' were not accounted for in the books of accounts of the assessee. It was explained by the assessee that the pages in question wer....
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....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 parties. For these reasons, I agree with the appellant that the AO erred in treating unmoved trade balances and payments received from trade debtors as undisclosed income of the assessee. Accordingly, the addition of Rs. 84.25 lakh is liable to be deleted for this reason alone. 10.16 Be that as it may, even on facts th....
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.... 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 (b) Sales Promotion Expenses 6000000 (c) Export Commission payable 51299210 (d) Unmoved balances 8424970 71694805 9382415 Undisclosed income is taken at Rs. 2,00,00,000/- as returned by the assessee. 23. Assessee contested before the CIT(A) that the return of income for the block period from 01.04.1995 to 14.02.2002 was submitted a....
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....cation 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 search the Director had disclosed an amount of Rs. 10,00,00,000/- as undisclosed income under section 132(4) but on examination of the books of account they find that all the entries were accounted for in the books of account, therefore, there was no need for admitting any undisclosed income. However, as an abundant caution an amount of Rs. 2,00,00,000/- was offered as undisclosed income, the fact of which was state....
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....arate 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 determined the undisclosed income only with reference to the four items of disallowance determining the total undisclosed income at Rs. 8,10,77,216/- out of which an amount of Rs. 6,44,35,876/- pertaining upto 14.02.2002, i.e. on the date of search for which books of account are duly maintained and as per the provisions the amounts cannot be considered as part of block assessment. It was his submission that the A.O. did not consider the amount of Rs. 2,00,00,000/- disclosed as it was disclosed under protest and no adju....
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....ditional 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 accordance with the then existing income-tax laws in the State of Sikkim and could not be charged to tax under the Income-tax Act, 1961." 32. The Hon'ble High Court further held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. Therefore, it....
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....essee 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 occasion to examine the scope of sec 143(3) of the Act in the light of circular issued on the subject by the CBDT (Circular No.549 quoted in 182 ITR(St.) 1) and held that no refund could be granted to the assessee while computing the assessment under sec. 143(3). In view of the decision of the Jurisdictional High Court, the action of the A.O in this regard is confirmed." 10. The Learned Counsel submitted the facts and it was his contention that the revenue's action in earlier years only has resulted in increase in brought forward losses, which have been set off....
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....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 the limited purpose of calculating the amount of refund under section 240, may take all such facts into consideration and calculate the amount to be refunded." As can be seen, in fact the decision supports the claim of assessee. Where the total income was re-determined according to the provisions of the Act, consequent to the orders passed in earlier years the assessee can certainly claim benefit. The issue before Hon'ble Bombay High Court relied upon by the CIT (A) in the case of LML Ltd vs Venkataraman 205 ITR 585 (Bom) was with reference to not giving credit to th....
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....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 deductions the assessee is entitled to notwithstanding the fact that the assessment is made under section 143(1)(a) of the Act. Under clause (b) of section (4) of section 143, it cannot be said that the Legislature did not visualise a situation permitting the assessing authority to grant refund also under regular assessment in favour of an assessee. (iii) That, therefore, the assessing authority is entitled to determine the quantum of refund also in a regular assessment made under section 143(3) of the Act with effect from April 1, 1989. No question of law arose for reference." 13. Further, Hon'ble ....
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....k 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, 155 etc, wherein consequent to the orders in earlier years, the total income can be varied as per the provisions of the Act. Therefore, we are of the opinion that the finding given by the Assessing Officer in determining the total income on the basis of the returned income, rather than assessed income is not correct and, therefore, is liable to be set aside. The Assessing Officer is directed to determine the total income according to the provisions of the Act, after giving effect to various orders of higher authorities of earlier years and also to this order. The Assessing Officer is directed accordingly. The ground....
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....mal 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 relating to such income or transactions 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 relating to such previous years; (e) where any order of settlement has been made under subsection (4) of section 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. Explanation.-For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordan....
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..... 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) refers to the levy of interest whereas provisions of section 158BFA(2) determines the penalty. The provisions 158BFA(2) are as under: - "158FBA. (1) ..... (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid ....