TaxTMI 
TaxTMI 
2019 (12) TMI 967
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.... 4. The Ld. AO has erred on facts and in law in considering the appellant as member of AOP. The ''Ld.CIT(A) has erred in confirming the action of the AO. 5. The Ld. AO has erred on facts and in law in assessing total income of the AOP at Rs. 15,26,050/- The ld.CIT(A) has erred in confirming the action of the AO. The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal. 2. Before discussing the issues raised by the assessee in the grounds of appeal, we find pertinent to take a note of the facts of the case in brief. There was a show cause notice issued by the Directorate of Revenue Intelligence dated 26th of March, 2002 wherein it was alleged that the group of 8 persons was engaged in importing the duty-free goods/woollen rags/used clothes for the distribution among the earthquake victims at Kutch, Gujarat. Such goods were imported vide bill of entry No. 8836 and 8835 dated 25th September, 2001. As such the goods/woollen rags/used clothes for the distribution among the earthquake victims was exempted from the import duty vide notification no. 7/2001 issued under the Custom Act. The details of the persons includ....
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....apement of income. Accordingly the AO issued a show cause notice u/s 148 of the Act vide dated 12-04-2005 individually believing that the income has been escaped assessment by all the persons as discussed above. It was required in the notice to file the income tax return u/s 148 of the Act on behalf of the AOP. 6. However, there was the response from the 4 parties stating that they were not aware of the fact that such goods imported from the country outside India, meant for the earthquake victims, will be diverted in the open market. The list of such persons stands as under: i- Shivam Development Trust ii- Prakash Poonia iii- Vipul Gusai (President of Shivam Development Trust) iv- Dev Kumar Kapta 6.1 As such, there was no reply from the remaining parties in response to the notice issued u/s 148 of the Act. Consequently, none of the party filed any income tax return in response to the notice issued u/s 148 of the Act. Accordingly, the AO treated the value of the goods of Rs. 15,26,050.00 determined by the customs authority which were diverted in the open market as income of the AOP. Aggrieved assessee preferred an appeal to the Ld. CIT (A....
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.... Being aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us. 9. The Ld. AR before us filed a paper book running from pages 1 to 24 and submitted as under: Background: 1. The appellant is an individual. 2. One trust namely Shivam Development Trust, Bhuj imported duty free goods as earthquake relief material for the victims of earthquake in Kutch. 3. The DRI, Delhi conducted inquiries and investigation on various persons who were involved in importing, clearing and transportation of goods from Kandla to other destinations. The inquiries and investigations were carried out by the DRI on the ground that duty free imported relief material was diverted in to the open market. 4. The inquiries were made against 2 trusts & 8 individual (incl. trustee of the 2 trusts). The appellant was one of the persons on whom the inquiries were made by the DRI. The AO considered 8 persons including the appellant as AOP and alleged that the AOP is involved in such scandal. 5. On the basis of the inquiries and investigations carried out by DRI, the AO issued notice u/s. 148 was inter alia issued to the appellant requiring h....
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.... for the purpose of obtaining the donation and so on. These persons cannot be said to have joined together as an association for the purpose of carrying out common activity. The fact that all these 8 persons have not combined together for carrying out any activity for the purpose of earning income jointly is also borne out from the excerpts of their statements recorded by the DRI as reproduced in the show cause notice issued by the DRI (Ref. Para 9 to 16 on page 3 to 5 of the said show cause notice). 9. When mutual agreement to carry out an activity for earning & sharing income amongst 8 persons named in the assessment order is not present, assessment in the status of AOP is bad in law. 10. It is most respectfully submitted that what is to be seen is the conduct at the time of carrying out an activity. In the cause under consideration, there was no coming together of the 8 persons to engage in any activity jointly. Merely because all these 8 persons were investigated by DRI that by itself would not be sufficient to hold that there was an AOP. 11. The learned AO has summarily made assessment in the status of AOP comprising all the 8 persons against whom in....
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....he DRI, no basis whatever for estimation market value of goods confiscated as well as that could not be confiscated has been given. The learned AO has blindly adopted the valuation done by the DRI without application of mind. The matter is not yet finalized and at present pending with CESTAT. Further, it is also gathered from the reply of Shivam Development trust (reproduced on page 2 to 4 of the assessment order) that the income was first taxed in the hands of the trust. That assessment was set aside by the Rajkot ITAT. It is necessary to examine what stand was taken in the de novo assessment of the trust and why the A.O. changed his mind to tax the income in the hands of alleged AOP. The same are not clear from the assessment order. 10. On the contrary, the Ld. DR vehemently supported the order of the authorities below. 11. We have heard the contentions of both the parties and perused the materials available on record. The issue in the case on hand relates to the goods diverted in the open market in violation of the provisions of the notification bearing number 7/2001. Accordingly, the AO treated the value determined by the custom department for levying th....
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....147 of the Act. In view of the above, we uphold the initiation of the proceedings u/s 147 of the Act. Accordingly, we do not find any reason to interfere in the finding of the Ld. CIT (A). 12. The next question arises whether there exist any AOP as alleged by the authorities below. In this regard, we note that the group of persons carrying out any activity for the common objects and for the profit, then such group shall be regarded as Association of persons. We further note that to decide the existence of AOP the following legal characteristics are required to be adhered: a) The word 'associate' indicates to join in for common purpose or to join in for common action, (b) The term 'association of persons' must be construed in its plain and ordinary meaning. They are not ejusdem generis with the word immediately preceding, namely, firm. (c) Since the words occur in an Act imposing tax on income, profits or gains, the association must be one which produces income, profits or gains, (d) It is not necessary that there should be any mutual right or obligation among the members of an association enforceable in a Court of law, (e) The members....
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.... the custom department, the same should also be incorporated in the proceedings initiated u/s 147 of the Act. Accordingly, we hold that all the 8 persons don't constitute as member of the AOP. Accordingly, we delete the name of these persons from the list of members of such AOP. 14. The last question arises to determine whether the value computed by the custom department of the goods diverted in the open market i.e. 15,26,050.00 represents the income of the assessee. Admittedly, the assessee has paid the import duty on the value of the goods determined by the custom department. Thus it is presumed that the market value of such goods was the value determined by the custom department. Accordingly, it is inferred that the assessee must have sold the impugned goods in the open market as the same was not seized by the custom department. The AO also noted that that the income from sale of goods was not disclosed in the income tax return. 14.1 Moreover, the onus lies on the assessee to justify based on the documentary evidence that it has sold the goods at a value less than the value determined by the custom department. But the assessee failed to discharge its onus. Furthermore, the....