TaxTMI 
TaxTMI 
2022 (5) TMI 672
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....as making an average net loss of 4% on turnover grounds of appeal of the assessee. 3. The First Appellate Authority is not justified in directing the Assessing Officer to examine the claim of the assessee with regard to interest payment when the accounts are rejected and profits are estimated. 4. The First Appellate Authority has grossly erred in sustaining the disallowance of Rs. 5,53,92,352/- u/s. 40(a)(ia) of the Income Tax Act when the books of accounts are rejected and income is estimated. Further when the department has not brought evidence with respect to details of these payments and payees, the disallowance ought to be deleted. 5. The First Appellate Authority is not justified in sustaining the addition of Rs.7,23,82,604 /- for the simple reason that it is not appearing as a loan in the Balance Sheet as at 31-03-2008. As the Profit and Loss Account and Balance Sheet has been rejected by the department and profits are estimated, no addition should have been made on the basis of unaudited book figures whether given to the bank or not. 6. When Books of Accounts are rejected and profits are estimated, the First Appellate Authority should not have upheld any addition wi....
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....ed accounts for the year under consideration". 3. The additional grounds filed by the assessee are admitted in view of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 (SC), as these are purely legal ground and no investigation of fresh facts is required. 4. Briefly stated facts of the case are that the Assessing Officer received information that the assessee is a beneficiary of accommodation entries during the financial year 2008-09 through the concerns managed by 'Shri Praveen Kumar Jain'. The assessing officer after recording reasons to believe that income escaped assessment, issued notice under section 148 of the Act, on 10/03/2015. The assessee filed return of income and assessment under section 147 read with section 143(3) of the Act has been completed on 30/03/2016. The Assessing Officer rejected books of accounts of the assessee and estimated profit at the rate of 5% on the turnover of Rs.173,69,18,226/-which was worked out to Rs.8,68,45,911/-. The income of Rs.5,10,37,137/- shown under the head non-operating income was further added and in this manner total income was estimated at Rs.13,78,83,048/-. The Assessing Officer also disa....
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....les. The above parties are non-genuine and the accommodation entries provided for amount aggregating to Rs. 80,45,300/- has resulted suppression of the income of the assessee for the A. Y. 2009-10. The assessee has not filed the return of income for the year under consideration. In view of the above, I have reason to believe that the income chargeable to tax, in the garb of bogus purchase by way of accommodation entries to the tune of Rs. 80,45,300/- from the aforesaid entities have escaped assessment for A. Y. 2009-10 for the reasons of omission on part of the assessee in the return within the meaning of Section 147 of the I. T. Act, 1961. Therefore, I am satisfied that this is a fit case to issue notice u/s. 148 r.w.s. 147 of the I. T. Act, 1961. 9. Before us, the Ld. counsel of the assessee assailed the reasons recorded on 26/02/2015 by the Assessing Officer on many grounds. Firstly, on the ground of non-application of mind by the Assessing Officer. He submitted that in second paragraph, the assessee has been stated to be beneficiary of unsecured loan of Rs.80,45,300/- through the concern namely M/s R S Enterprises, which was managed by Sh Praveen Jain, whereas in third paragra....
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.... Accordingly, we reject the contention of the Ld. Counsel of the assessee that AO has not applied mind, while recording reasons. Further the Ld. counsel submitted that in the case, no return of income was filed and therefore satisfaction was to be recorded under Explanation 2(a) below section 147 of the Act. The Ld. counsel relied on the decision of the Hon'ble Bombay High Court in the case of General Electoral trust Vs Income-tax Officer, Mumbai reported in 289 CTR 284 (Bom). The relevant funding of the Hon'ble High Court is reproduced as under: "7. Mere non filing of return of income does not give jurisdiction to the Assessing Officer to re-open the assessment unless the person concerned has total income which is assessable under the Act exceeding maximum amount which is not chargeable to Income Tax. This is provided in Explanation 2 to Section 147 of the Act. This is for the reason that in terms of Section 139(1) of the Act the obligation to file a return of income is only when the total income of a person exceeds the maximum amount not chargeable to tax. So also the obligation to obtain PAN only arises on the income being in excess of the maximum amount not chargeable to tax.....
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..... counsel has not produced any evidence to support that source of the information was asked from the Assessing Officer. It was the onus of the assessee to file necessary evidence in support of its claim that such information was asked from the Assessing Officer and he had not supplied. In absence of any such evidence before us, no adverse inference can be drawn against the Revenue. 13. Fourthly, The Ld. counsel submitted that information of the bogus purchase cannot be prima-facie be true as it was against normal human behaviour. The Ld. counsel submitted that assessee was having huge limits from the bank and there was no requirement of such entries. He submitted that assessee was eligible for 100% tax-exemption under section 10AA of the Act and therefore there was neither a necessity of loan nor of any need for bogus purchase to reduce the profit. He further submitted that anyway the assessee was already running into heavy losses and therefore there was no need for bogus purchases. The Ld. counsel submitted that Assessing Officer should have examined the possibility of truthfulness of such transactions. 14. In our opinion, these arguments of the Ld. counsel are devoid of any mer....
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....ordingly rejected. 17. Sixthly, the Ld. counsel submitted that approval by the Joint Commissioner of Income-Tax was without application of the mind, as he did not see the reasons recorded as well as supporting material. He also submitted that Ld. JCIT had not asked for a copy of the return of income by the assessee. 18. We find that before us, the assessee has submitted a copy of proforma (PB-7), wherein the approval has been granted by the Ld. Add. CIT/JCIT. No other documentary evidence to support that reasons recorded as well as supporting material was not available with the authority approving the reasons recorded. No adverse inference can be drawn on the basis of the arguments without supporting any material. The onus is on the assessee to substantiate its claim. It is for the assessee to obtain complete copy of correspondence between the Assessing Officer and the authority who has approved the reasons recorded, including record from the office of the Add CIT or JCIT, who has approved the reasons. In absence of any such documentary evidence, the contention of the Ld. counsel are rejected. 19. Seventhly, the Ld. counsel submitted that no such information was available with t....
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....Officer is either way null and void. In support of the contention, the Ld. counsel relied on the decision of the Cuttak Bench of Tribunal in the case of Dilip Kumar Chatterjee Vs ACIT (OSD), Bhubneshwar reported in (2018) 97 taxmann.com 283 (Cuttak-Trib). 25. The Ld. DR on the other hand submitted that as per the territorial jurisdiction order dated 15/11/2014 issued by the Additional Commissioner of Income Tax-8(3), Mumbai the ITO 8(3)(3) was having jurisdiction of the alphabet 'Va' to 'Vn' having returned income or loss of upto Rs.30 lakh under jurisdiction of Principal Commissioner of Income-Tax-1 to 5 and 16 and in case of return income exceeding Rs.30 lakh, the jurisdiction lied with ACIT/DCIT 8(3)(2). The Ld. DR submitted that in view of the no regular return of income filed by the assessee, the ITO 8(3)(3) was justified in issuing notice for reopening of the case. Subsequently, in view of the income/loss exceeding Rs.30.00 lakhs, he has validly transferred the case to the DCIT 8(3)(2). He further submitted that in terms of section 124(3)(b) of the Act the assessee could not call in question jurisdiction of the Assessing Officer after expiry of one month from the date of the....
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....144] to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier: (c) where an action has been taken under section 132 or section 132A. after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.] 28. Further as per section 124(4), if the assessee calls and question the jurisdiction of the Assessing Officer, then the Assessing Officer shall, if not satisfied with the correctness of claim, refer the matter to the Income-tax Authorities mentioned in section 124(2) for determination of correct jurisdiction before the assessment made. 29. In the instant case before us, being case of no return filed, jurisdiction lied with ITO ward 8(3)(3) under territorial jurisdiction/class of persons in terms of section 120 of the Act and jurisdiction was not assigned to him under section 127 of the Act. Merely proposed escapment being more than Rs. 30.00 lakh, it cannot be presumed that taxable income of the assessee will be more than Rs. 30.00 lakhs. There might be lo....
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....ion the jurisdiction of the Income Tax Officer would not apply to the cases where return has been filed consequent to notice u/s.158 BC of the Act. 18. It was next submitted that even absent statutory provision, the respondent/assessee is barred from raising the issue of jurisdiction after having participated in the proceedings before the Deputy Commissioner of Income Tax, Nagpur on 18 itl127.06.odt principle of waiver of its right to question his jurisdiction. A waiver would mean a case where a party decides not to exercise its right to a particular privilege, available under the law. In this case, the Respondent/assessee has a right not to be assessed to tax by an Income Tax Officer, who is not the Assessing Officer. However, the waiver can only be of one's right/privilege but non- exercise of the same will not bestow jurisdiction on a person who inherently lacks jurisdiction. Therefore, the principle of waiver cannot be invoked so as to confer jurisdiction on an Officer who is acting under the Act when he does not have jurisdiction. The Act itself prohibits an Officer of Income Tax from exercising jurisdiction u/s.158 BC of the Act, unless he is an Assessing Officer. This ....
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....missioner of Income Tax, Nagpur become regular and he will retrospectively enjoy the status of the Assessing Officer even on 22.9.1999, when he issued the notice u/s.158 BC of the Act. 21. Transfer of proceedings u/s.127 of the Act cannot be retrospective so as to confer jurisdiction on a person who does not have it. Section 127 of the Act does not empower the Authorities under the Act to confer jurisdiction on a person who does not have jurisdiction with retrospective effect. In fact, the explanation under Section 127 of the Act clearly provides that all the proceedings under the Act which are pending on the date of such order of transfer and all the proceedings which may be commenced after date of such order of transfer would stand transferred to the Assessing Officer to whom the case is transferred by Section 127(1) of the Act. This provision makes it clear that though transfer would come into effect from the date the order of Commissioner passed under Section 127(1) of the Act, the proceedings already commenced would not abate and continue with new Assessing Officer, who assumes charge consequent to transfer subject ofcourse to the pending notices 21 itl127.06.odt being withi....
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.... Hon'ble High Court is reproduced as under: "21. Contention of the petitioner that the transfer by Income-Tax Officer, Ward- 1(1), Noida to Income-Tax Officer, Ward-58 (2), Delhi required an order under Section 127 of the Act is fallacious and without merit. Section 127 relates to transfer of case from one Assessing Officer having jurisdiction to another Assessing Officer, who is otherwise not having jurisdiction as per directions of the Board under Section 120 and Section 124 of the Act. Under sub-section (1), transfer order under Section 127 can be passed by the Director General, Chief Commissioner or Commissioners from one Assessing Officer to another Assessing Officer subordinated to them. Sub-section (2) applies where the Assessing Officer to whom the case is to be transferred is not subordinated to the same Director General, Chief Commissioner or Commissioners of the Assessing Officer from whom the case is to be transferred. This is not a case of a transfer under Section 127 of the Act. This is a case in which the assessee had raised an objection stating that the Income-Tax Officer, Ward-1 (1), Noida should not continue with the assessment as the petitioner-assessee was reg....
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....ent case the contention raised about the lack of jurisdiction would not justify quashing the notice under Section 147 /148 of the Act". 33. In the case of Subhash Chander (supra) also the Hon'ble Punjab and High Court has held as under: "6. A perusal of sub-section (3)(b) of section 124 of the Act shows that the jurisdiction of an Assessing Officer cannot be called in question by an assessee after the expiry of one month from the date of which he was served with a notice under sub-section (1) of section 142 of the Act or after completion of assessment, which was to be earlier. It is further evident that sub-section (4) of section 124 has been made subject to the provisions of sub-section (3) in case an assessee has questioned the jurisdiction of an Assessing Officer. It is only in those jurisdictions that the Assessing Officer is to refer the matter for determination to the Director General or the Chief Commissioner or the Commissioner as per the provisions of section 124(2) of the Act. It is, thus, evident that before the expiry of the period of one month from the date of ,service of notice under sub-section (1) of section 142 of the Act, no right to question the jurisdiction o....
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....nd then before the Appellate Tribunal. In our opinion it could not be. The scheme of the Act shows that no appeal in regard to the objection to the place of assessment is contemplated under the Act. Under s. 64(3) of the Act a question as to the place of assessment, when it arises, is determined by the Commissioner. Any such order cannot be made a ground of appeal to the Appellate Assistant Commissioner under s. 30 of the Act which provides for appeals against orders of assessment and other orders enumerated in s. 30 but no appeals is there provided against orders made under s. 64(3). Similarly appeals to the Appellate Tribunal which lie under s. 33 of the Act also do not provide for any appeal on the question of the place of assessment. In Wallace Brothers' case (3) at p. 79 Spens, C. J., after referring to s. 64(3) and the proviso thereto said: " These provisions clearly indicate that the matter is more one of administrative convenience than of (1) (1927) I.L.R. 49 All. 616. (2) Seth Kanhaiyal Lal v. CIT [1937] 5 ITR 736 (All.) (3) Wallance Bros. & Co. Ltd. v. CIT [1945] 13 ITR 39 (FC). Jurisdiction and in any event it is not one for adjudication by the Court........ This con....
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....s and concealing the taxable income." 38. The Ld. CIT(A) treated the said addition as subsumed in the addition for net profit sustained by him. The relevant finding of the Ld. CIT(A) is reproduced as under: "4.6 So far as sixth ground of appeal challenging the addition of Rs.80,45,300/- towards accommodation entry taken from R. S. Enterprises is concerned, it is seen from the reasons recorded by the AO that the allegation is that the same represents bogus purchase by the appellant. Since the net profit of the appellant from the business has already been estimated, there is no case for making separate addition in respect of this entry. Accordingly, the AO is directed to delete the addition of Rs.80,45,300 because the same is subsumed in the net profit estimation. This ground of appeal is treated as allowed." 38.1 In view of the above, in our opinion the contention of the Ld. counsel of the assessee that no addition has been made in respect of the basis on the which assessment was reopened, is not correct and therefore his request for considering the decision on the issue that no other addition could be made if the Assessing Officer has not made addition on the issue for which th....
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....ous. 44. In ground No. 2 (two), the assessee has challenged applying of net profit rate of 3% on the turnover by the Ld. CIT(A) as against the net profit rate of 5% applied by the Assessing Officer. The plea of the assessee is that as per the data of the textile industry there was an average net loss of 4% on turnover across the textile industry. 45. The Revenue in the solitary ground raised in its appeal has challenged reducing by the Ld. CIT(A) of the net profit rate from 5% to 3%. 46. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. 47. Brief facts qua the issue in dispute are that no regular return of income was filed by the assessee. In response to notice under section 148 of the Act, the assessee filed return of income along with unaudited accounts in support of income declared in the return of income. In the said unaudited account total turnover of the assessee was shown at Rs.92,35,35,456/- on which loss of Rs.2,13,96,780/- was shown. The Assessing Officer asked audited accounts of the assessee for the year under consideration from the banker of the assessee, i.e. the state Bank of India, invoking section....
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....was available in audited accounts for AY 2010-11 and computed net profit of Rs.8,68,45,911/-. The Assessing Officer also observed income under the head non-operative income of Rs.5,10,37,137/-for the year under consideration in the audited accounts for AY 2010-11, therefore, he added the said income to the estimated income from operation of Rs.8,68,45,911/- and thus added total income of Rs.13,78,83,048/- (8,68,45,911 + 5,10,37,137) . 48. On further appeal, the Ld. CIT(A) observed that the assessee has not produced any material to show correctness of the book results, which were rejected by the Assessing Officer invoking section 145(3) in view of the discrepancies in unaudited accounts enclosed with the return of income vis-a-vis, audited accounts provided by the state Bank of India, however, the Ld. CIT(A) accepted the argument of the assessee that whole of the textile industry was not doing well. The assessee submitted a report of ICRA management consulting services Ltd and the impact of economic slowdown on Indian textile and clothing industry. In view of the said report, the Ld. CIT(A) directed the Assessing Officer to accept the book results of the assessee. The Ld. CIT(A) ob....
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....res were based on analysis of sample of 81 Indian companies. In view of the fact that the AO has not based his estimation on any comparable cases and also in view of the data furnished by the appellant, I am of the opinion that net loss shown by the appellant in the book results may be accepted. The AO is directed to rework the net profit accordingly, So far as addition of non operating income amounting to Rs.5,10,37,137/- by the AO to the net profit is concerned, the appellant has clarified before the AO during the course of remand report proceedings that the same consists of FD interest and export incentives received by the appellant. So far as export incentives are concerned, no separate addition in respect of the same is required to the net loss shown by the appellant because the receipts are part of the business of the appellant. However, I'm of the opinion that the interest income is required to be added separately. The AO shall obtain the details of interest received by the appellant and add the same to the net loss of Rs.2,13,96,780 shown by the appellant in its Profit and Loss account for the purpose of estimating net profit of the appellant for the assessment year und....
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....ied the net profit rate of assessment year 2010-11 worked out on the basis of audited accounts. If the said incentive has been separately considered as part of the non-operative income in assessment year 2010-11, same cannot be considered as part of book result for the year under consideration. Accordingly, we direct the Assessing Officer to examine the addition of export incentive as non-operative income on comparative book results for assessment year 2010-11. Accordingly, the ground No. two of the appeal of the assessee is dismissed, whereas solitary ground No. one of the appeal of the revenue is allowed. 52. In ground No. 3, the assessee is aggrieved with the direction of the Ld. CIT(A) with regard to the interest payment received. In ground No. 11 (additional ground), the assessee has challenged addition of Rs.26, 35, 198/-as interest income. 53. We find that the Ld. CIT(A) directed the Assessing Officer for considering the interest income from fixed deposits being nonoperative income, for addition separately from the estimation of profit from business operations. We are of the opinion that when the Assessing Officer has applied the book results for AY 2007-08 and 2010-11 for....
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....vant year, it entered into a contract with the army for carriage of goods and personnel etc. In this regard, an amount of Rs. 74,81,106/- is said to have been received from the army including interest element of Rs. 1043/-. An amount of Rs. 57,98,885/- was debited by the assessee as hiring charges. Upon verification, the Assessing Officer found that the details of the vehicles provided by the assessee through which the contract was supposed to be executed and hiring charges paid were cars, scooters, tractors etc. Confronted with the situation, the assessee withdrew the details of the vehicles furnished earlier, which were stated to have been hired by it, and furnished another list of vehicles with some details of trips undertaken by each vehicle. Return of income was filed by the appellant for the Assessment Year 2008-09. The Assessing Officer vide its order dated 27.12.2010 by invoking the provisions of Section 40(a) (ia) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'), disallowed the amount of Rs.55,59,585/- and added it back to the income of the assessee. The Assessing Officer computed the income of the assessee as per the provisions of Section 144 of ....
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....r in relation to unsecured loan and fixed assets is reproduced as under: "12.1 As enumerated above, in the audited balance sheet for the year ending 31- 03-2009 submitted by the assessee with SBI, there is an unsecured loan of Rs. 1,46,24,270/-. However for the year ending 31-03-2009 the assessee has submitted unaudited accounts wherein it has no unsecured loan creditor. Therefore in the course of assessment proceedings the assssee has been asked to file the name, address, PAN and the source of payment in respect of repayment of loan credit outstanding as on 31-03-2009 Rs.1,46,24,270/-In response, the assessee has not stated anything. In absence of any explanation and also considering the facts of the case and time barring mattering involved in this case, the payment made by the assessee to clear the unsecured loan amounting to Rs. 1,46,24,270/- is considered as unexplained. Accordingly, the payment inade by the assessee to the loan creditor of Rs. 1,46,24,270/- is considered as deemed income of the assessee. Thus, an addition of Rs. 1,46,24,270/- is made to the total income of the assessee. 12.2 Similarly, for the year ended 31-03-2009 the assessee has shown net block of asset....
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.... balance sheet obtained from the bank has not been provided to it. I have considered the submission of the appellant. So far as providing copy of balance sheet obtained from the bank to the appellant is concerned, the same has been filed with the bank by the appellant only, therefore, it is not understood as to why the AO should have provided the same to the appellant once again. Moreover, no evidence has been furnished by the appellant in respect of the submission made before the undersigned, therefore, in view of the ratio of the decision quoted above, the additions made by the AO towards unexplained repayment of loan is hereby confirmed. So far as addition towards difference in block of assets is concerned, the same is not justified because the appellant has not taken any benefit for the same in the accounts submitted before the AO. The appellant has not written off the difference in the unaudited accounts submitted before the A and depreciation has also been claimed only on the opening WDV of the block of assets as appearing in the accounts filed before the AO, therefore, there is no case for making any further addition. Accordingly, the AO is directed to delete the addition of....
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....8 of the Act. In the present case, the Assessing Officer made addition with regard to credit shown in the name of Ms. Devi Indukuri at Rs. 30,07,392 and in the name of Mr. Nandyala Bhaskar Reddy at Rs. 80,00,000 totalling to Rs. 1,10,07,392. When the credit entry is shown in the books of account it is incumbent upon the assessee to explain the nature and source of credit, creditworthiness of the party and genuineness of the transaction. The fact that the entries are shown in the books of account of the assessee whose income had already been computed on the basis of the estimate but not on the return filed by the assessee, that does not prevent the ITO from treating, but entitles him to treat, the unexplained cash credit as income from undisclosed sources which falls under the head of income "income from other sources". Unless the assessee, by independent and satisfactory evidence, establishes that those amounts relate or referable to the undisclosed income from known or disclosed sources viz., the business, whose income had already been estimated. In the present case, the assessee did not able to establish the cash credits mentioned above as genuine credits. The assessee's stan....
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....a vs. CIT (1958) 34 ITR 576 (AP) on this point]. In this case, the Supreme Court held that the ITO having assessed the income of the assessee on a percentage basis, was also justified in treating the unexplained cash credit as profits from an undisclosed source. Repelling the contention that the entries found in the books of account of the business must be referable to the income of the business which had been computed on the basis of an estimate without accepting the return filed by the assessee, which amounts to double taxation of the same income, the Court ruled thus: "The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by a credit entry in the books of account of that source Smt. Shobha Gupta ==================== cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held ..... if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, the....
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....to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed." 15. The Andhra Pradesh High Court in CIT vs. Janab Mohd. Suleman [Referred Case No. 13 of 1968 dt. 11th Nov., 1970] has expressed the same view on similar facts and circumstances. In Karnal Motors vs. CIT (2003) 180 CTR (Raj) 166 it was held that additions under s. 68 could not be telescoped with the trading addition where the assessee had not admitted that unexplained cash credits came out of black money earned in the current year or in an earlier year. In our opinion, a separate addition under s. 68 towards unexplained credit is sustainable in spite of addition made to the declared trading results is a question of fact which is to be decided based on circumstances in each case. 16. The benefit of telescoping was also considered by the Supreme Court in Anantharam Veerasingaiah & Co. vs. CIT (1980) 16 CTR (SC) 187 : (1980) 123 ITR 457 (SC) approving Lagadapati Sunna Ramaiah vs. CIT (1956) 30 ITR 593 (AP) obser....
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....rcumstances of the case. However, where in the earlier years, there was disallowance of expenditure on the ground that there was no evidence though the requisite amount was in fact paid, it cannot be said that the corresponding amount is available to the assessee for use later. Smt. Shobha Gupta ==================== 18. Under section 68, the burden is on the assessee to prima facie prove the nature and source of the cash credit found in his books and the explanation in regard thereto must necessarily be factual but not argumentative. A view that the cash credits to the extent of the past intangible additions stand automatically explained would practically dispense with the necessity of the assessee giving any explanation of fact under section 68 where intangible additions were made in the earlier years and hence such a view is untenable. In the case of CIT vs. Manik Sons (1969) 74 ITR 1 (SC) it was held that only if the unexplained cash credit can reasonably be related to the amount covered by the intangible addition made in the past, or in the very year, necessary set off can be allowed. The principle that it is the assessee who should give a satisfactory explanation regarding....