TaxTMI 
TaxTMI 
2024 (8) TMI 184
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.... as Partner of the partnership firm M/s. Nagindas Kasturchand & Bros. and the Director of M/s. Newage Fire Fighting Co. Ltd. are common and the reasons recorded by the Assessing Officer for re-opening of the assessment also pertains to the same issue. 3. The brief facts of the case are as under. Facts of Special Civil Application No.14346/2019 3.1 The petitioner company filed return of income on 24th September, 2012 for A.Y. 2012-13 declaring total income of Rs. 60,35,670/-. The case of the petitioner company was selected for scrutiny and assessment order dated 30th March, 2015 under Section 143 (3) of the Act for A.Y. 2012-13 was passed assessing total income at Rs. 74,42,564/-. 3.2 It appears that a survery was conducted by the Income Tax Authorities in case of the partnership firm (petitioner of Special Civil Application No. 18746 of 2019). During the course of survey, statement of one of the partners of the petitioner firm who is also Director of the petitioner company viz. Shri Jignesh Shah, was recorded under Section 133 (A) of the Act by the survey team. 3.3 The Respondent - Assessing Officer thereafter issued a notice under Section 148 of the Act to the petit....
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....t recorded by the survey team. 5.2 It was submitted that the statement of Shri Jignesh Shah was relied upon to re-open the assessment, more particularly answers to question Nos.12 to 16 which have been reproduced in the reasons recorded, however there is no reference to any material or evidence found during the course of survey or even cited in questions raised and only on the basis of the answers given by Shri Jignesh Shah, re-opening is made with regard to the income shown in the hands of the petitioner firm though fire-fighting systems which have been provided by the petitioner company. It was submitted that during the course of survey, loose papers numbering 433 were impounded by the survey team, however not a single impounded material even remotely connects, belongs or pertains to the petitioner company and it appears that the questions raised are based on data, details, facts available in the return of income already filed by the assessee and which were available with the Department prior to the survey operations. 5.3 Learned advocate Mr. Parikh, in support of his submissions, relied on the decision in case of S. Khader Khan Son reported in 352 ITR 480 (SC) to submit th....
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.... relied upon the following decisions:- (i) Dhirendra Hansraj Singh reported in 2018 TaxPub (DT) 3815 (Guj-HC), (ii) Sandesh reported in 2018 TaxPub (DT) 0996 (Guj-HC), (iii) Dhruv Dipakbhai Panchal reported in 2018 TaxPub (DT) 0971 (Guj-HC), (iv) Hitesh Outsourcing Services reported in 2018 TaxPub (DT) 5110 (Guj-HC) : (208) 408 ITR 2019, (v) Jaydeep Cotton Fibres reported in 2018 TaxPub (DT) 4633 (Guj-HC), (vi) Cadila Healthcare reported in 2017 TaxPub (DT) 4232 (Guj-HC) : (2017) 250 TAXMAN 0374, and (vii) ALPS Technologies (P) Ltd. reported in 2017 TaxPub (DT) 1217 (Guj-HC). 5.7 It was further submitted that the Respondent - Assessing Officer could not have assumed the jurisdiction in absence of any reasonable belief recorded in the reasons with regard to escapement of income. Reliance was placed on the decision of the Apex Court in the case of Commissioner of Income Tax v. M/s. Sun Engineering Works (P.) Ltd. reported in 198 ITR 297 (SC) and M/s.Phool Chand Bajrang Lal v. Income-Tax Officer reported in 203 ITR 456 (SC). 5.8 It was submitted that the very basis of forming the reasonable belief of escapement of in....
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....ment is supported by any corroborative evidence. It was submitted that bad debts claimed in the return of income cannot be said to be bona fide as the petitioner firm has claimed the bad debts under Section 36 (2) of the Act in previous years and subsequent years also. 5.12 It was, therefore, submitted that there is no escapement of income only on the allegation that loan amounting to Rs. 01,78,70,000/- appearing in the tax audit report for F.Y. 2011-12 is not genuine loan of the assessee as no interest has been paid on them. It was submitted that reasons recorded are not supported by any corroborative material found during the course of survey operations and the conclusion arrived at by the Assessing Officer is based on the suspicion, surmises and conjectures and without verifying the correctness of the factual position. It was pointed out from the objections raised before the Assessing Officer that 18 of the 22 depositors appearing in the audit report are old depositors as all of them had opening balance and 21 of them were paid interest, from which TDS was duly deducted. It was further pointed out that assessment for immediately preceding two years i.e. Assessment Years 2010-....
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....to the partnership firm was without any basis. It was pointed out that petitioner partnership firm was earning commission income on supply of fire fighting systems to various companies. It was further submitted that even the assessment order for the A.Y. 2010-11 which is placed on record clearly shows that such income was considered as income of the partnership firm only and the same was taxed in the hands of the partnership firm. 6. On the other hand, learned senior standing counsel Mr. Karan Sanghani appearing for the Respondent - Assessing Officer submitted that the reasons recorded in case of the private limited company as well as partnership firm are based upon the material available on record as well as statement which is in consonance with the statement recorded under Section 133 (A) (3) of the Act. It was submitted that answers to question Nos.12 to 16 given by Shri Jignesh Shah are self-explanatory and clearly shows that income of the company was shifted to partnership firm as there were common partners and directors. It was also pointed out from the answer to question No.16 that the partnership firm and the private limited company are having same rate of tax and theref....
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....nnot be made to conclusively prove that the reopening would lead to additions. I submit that sufficiency of reasons cannot be gone into at this stage. This is a case where the Petitioner failed to disclose the said brokerage income in the profit and loss account which has led to escapement of taxable income. III. With reference to paragraghs 19 (G) and (H), the reliance placed by the Petitioner on the decisions of the Hon'ble Apex court as well as the Hon'ble High Courts are entirely misplaced in as much as the said judgments lay down a proposition that additions cannot be made solely on the basis of statement. The said judgments do not deal with aspect of reopening and nowhere lay down a proposition that statement cannot be made the basis for reopening. IV. With reference to paragraph 19 (1), the contention that the reopening has been resorted to for making a roving and fishing inquiry is baseless and denied. I humbly submit that the Petitioner has grossly failed to disclose the brokerage income as enumerated hereinabove. Moreover, it is not the case of the Petitioner that there was no failure on its part to disclose truly and fully all material facts for....
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....and denied. The concept of tax neutrality is not applicable in view of the following: (i) The petitioner company's income (without the said escaped income) during the year was Rs. 60,35,670/-, on which he paid taxes @30% plus surcharge. (ii) In the case of NKB-partnership firm, the taxable income during the year (after including the said commission income of Rs. 1,78,52,202/-) was of Rs. 56,25,688/- which means that the firm had huge losses which on account of their bad debts of Rs. 2,12,72,899/- and this commission income got adjusted against such bad debts. Therefore, the transaction is not tax neutral. (iii) Further, even otherwise there is no tax neutrality between firm and company. In the case of a firm, the Profit after taxes gets directly credited to the parties account without any further incidence of tax. Whereas in the companies, the Profit after taxes can be distributed to the shareholder only through Dividends, which attracted Dividend Distribution Tax @ 15%. Therefore, even if the basic tax rate may be same or similar, the overall tax liability is very much different between a company and a firm." 6.1.2 Referring to the above averments....
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....e partner of the Petitioner Firm and deficient responses to notices dated 26.02.2019 and 28.02.2019. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of ITO Vs. Selected Dalarband Coal Co. Pvt. Ltd. [2171TR 597] wherein it was held as under: "....whether the facts stated in the letter are true or not is not the concern at this stage. It may well be that the assessee may be able to establish that the fact stated in the said letter are not true but conclusion can be arrived only after making the 78 necessary enquiry. At the stage of issue of notice the only a question is whether there was relevant material as stated above, on which a reasonable person could have formed the requisite belief". I humbly submit that since formation of belief is in the realm of subjective satisfaction, the assessing officer cannot be made to conclusively prove that the reopening would lead to additions. I submit that sufficiency of reasons cannot be gone into at this stage. This is a case where the Petitioner Firm had already admitted that the Expenses of M/s Vishal trading were wrongfully added to the debtors and subsequently the same were claimed....
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.... the survey action on 04/02/2019 in the case of M/s Nagindas Kasturchand & Bros. (herein after referred as 'NKB) the statement of the partner of the firm Shri Jignesh Shah was recorded u/s 133A (3) (iii) of the I.T. Act. The relevant part of question and their reply is reproduced as under: "Ques 12-During F.Y. 2011-12 your partnership firm Nagindas Kasturchand and Brothers (NKB) has shown brokerage income of Rs. 1,77,20,977/-in its Profit and Loss account. Please give complete details of the same. Answer 12- This brokerage income is received by our firm Nagindas Kasturchand & Bros. in lieu of supply of Fire Fighting equipment to the Vema Lift Oy Co. of Finland and Goods to AMC Ahmedabad. Ques 13: Have you done the above referred liaisoning work before and after this? Please give details regarding the same. Answer 13: We have performed this type of work around year 2007-08 and not done after 2011-12. Ques 14: Your business is of cotton and besides this in F.Y. 2011-12 you have done liasoning work and shown brokerage income from it. Hence, please explain how you have performed such work without experience? Answer 14: Here at N....
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....ipments with the above two parties. 4. Shri Jignesh Shah as director of M/s Newage Fire Fighting Co. Ltd. & partner of M/s NKB has confirmed that whole work is performed by Newage Fire Fighting Co. Ltd. and this brokerage income belongs to M/s Newage Fire Fighting Co. Ltd. Hence, it is established that brokerage income received from Vema Lift Oy Co., Finland belongs to M/s Newage Fire Fighting Co. Ltd. The contention of director/partner Shri Jignesh Shah is that there is no difference of tax rate, but it is observed from the I.T. Return of M/s NKB for the A.Y, 2012-13, that M/s NKB has claimed bad debts of Rs. 2,12,72,899/- to ensure that no tax liability on brokerage income of M/s Newage Fire Fighting Co. Ltd. has arrived. The above planning is dubious and coated with colorful devices is not allowable as the intention of the assessce is mala-fide to evade the tax. 5. As per the provisions of Income Tax Act, the Assessing Officer has the right to tax the right person; namely the person who is liable to be taxed according to law with respect to a particular income and merely because a wrong person has been taxed with respect to a particular income the Assessing Off....
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....he assessee has filed his Return of Income for the A.Y. 2012-13 on 28/09/2012 declaring total income of Rs. 56,84,130/-. 2. During the survey action on 04/02/2019 in the case of M/s Nagindas Kasturchand & Bros. (herein after referred as 'NKB) the statement of the partner of the firm Shri Jignesh Shah was recorded u/s 133A (3) (iii) of the I.T. Act., the partner of the assessee firm Shri Jignesh Shah was asked to furnish the details of bad debts claimed on account of M/S Kongrar Textiles Limited amounting to Rs. 2,12,72,344/- during the FY 2011-12 relevant to A.Y.2012-13. In support of this, the assessee has only furnished the copy of ledger account from till 31/03/2011 and copy of invoice/bills. On verification of ledger Account, it is seen that the assessee has shown outstanding balance of Rs. 2,12,72,899 till 31/03/2011 but the assessee has failed to furnish the copy of ledger account M/s Kongrar Textiles Limited in his books as on 31/03/2012, therefore it is crystal clear that the bad debt has not been written off in the books but has been claimed as bad debts in the Income Tax Return for A.Y. 2012-13. 2.1 The assessee was asked to explain the claim of bad ....
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..../- 2016-17 4,75,41,316/- 4,43,62,559/- 2017-18 7,89,88,218/- 7,86,62,118/- 2018-19 4,27,04,802/- 2,93,09,161/- The above chart of bad debts clearly indicate that the all the above debtors are related to F.Y.2000-01& 2001-02, or even earlier, but the assessee has not claimed such debts as bad debts in earlier year, when it had been actually incurred but only in subsequent year separately against the other income earned, with is to avoid the carry forward loss up to next 8 assessment years. To verify the genuineness of bad debts, a notice u/s 133 (6) issued to M/s Kongrar Textiles Limited but same is returned unserved, hence the genuineness of bad debts is not verifiable. 2.7 All this would indicate that when the assessee treats the debt as a bad debt in his books the decision which has to be a business or commercial decision and not whimsical or fanciful. The decision must be based on material that the debt is not recoverable. The decision must be bona fide. The difference between the position, pre-amendment and post amendment would be that the burden is no longer on the assessee and can be claimed in the year it is written off in the boo....
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....he petitioner company. It is also not in dispute that the firm has claimed bad debts of Rs. 02,12,72,899/- in the books of accounts and to ensure that no liability of tax arises in the case of the petitioner company, as the said brokerage income is credited in the books of account of the firm so that the same can be set off against the bad debts claimed by the petitioner firm. The Assessing Officer has, therefore, rightly relied on the decision of the Apex Court in the case of ITO v. Atchaiah reported in 218 ITR 239, as the right person i.e. firm is required to be taxed for the purpose of charging of income tax for doing work for M/s. Vema Lift Oy, Finland, as the entire brokerage income belongs to the petitioner company who has performed the work for the said company. 8.1 Therefore, the contention raised on behalf of the petitioner firm that it was regularly showing such brokerage income in the books of accounts would be a matter of scrutiny during the course of assessment proceedings by the Assessing Officer. As per the facts available on record in case of the petitioner company as well as firm, it is apparent that the company is not rightly taxed and the income to the tune of....