TMI Blog1991 (2) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... Oil and Natural Gas Commission (ONGC) regarding the supply of Saw Line Pipe and Seamless Casing Pipe to the Gas Authority of India Ltd. (GAIL) and the ONGC respectively. The assessee (sic SC) in order to be able to supply certain goods to the ONGC sought the services of the assessee. The schedule of payments of commission under the agreements was as under: Date of Immediately after Immediately after Immediately after the Agreement the receipt of firm the receipt of letter shipment of pipes . contract of credit . 30.08.1984 2.1 % 1.2 % 1.2 % 5.11.1984 1.75 % 0.875 % 0.875 % In terms of cl. 2(b) of the Compensation Cl. II of the agreement dt.30th Aug., 1984, all consultancy fees were remitted in Japanese Yen to the account of Eljay consultants INC Panama in the Bank of Credit and Commerce International at 29, Sloane Street London SWIU.K.Similarly as per cl. 2(b) of the Compensation Cl.II of the agreement dt.5th Nov., 1984all consultancy fees were remitted in U.S. Dollars in the aforesaid account. The fee according to the assessee, was to be h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment order dt. 23.3.1988 on dt. 28.3.88 on dt. 28.3.88 on . income of Rs. income of Rs. Income of Rs.. . 1,59,466 3,88,94,999 2,04,28,400 However, the assessee seems to have again changed its stand in so far as it filed appeals the assessments on20th April, 1988. Thereafter on 4th Oct., 1988 it moved applications before the first appellate authority, namely, the Commissioner (A) for leave to raise additional grounds of appeal on the basis that the entire consultancy fee was assessable only in the asst. yr. 1988-89 since that income accrued only in Aug., 1987 (when all the conditions regarding accrual were fulfilled) and was also received by the assessee only on 11 Sept., 1987 and that the earlier voluntary agreement was against law. It was said that the entire consultancy fee had been accordingly offered for taxation on accrual basis in the asst. yr. 1988-89 for which the return was filed and was pending. 3. The learned CIT was, however, of the prima facie view that the assessment orders dt.23rd March, 1988,28th March, 1988and28th March, 1988were erroneous in so far as they were preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 1990, the assessee refuted grounds (ii) to (iv). It was said that the payment of fee was wholly dependent on the successful completion of the contracts because any fee could not have been retained by the assessee in case of total or partial cancellation of the contract and no income could accrue unless the assessee obtained an unambiguous right to a perfected debt. So far as ground No. (i) is concerned, it conceded that the depreciation allowable on aircraft is 30 per cent and not 40 per cent of the written down value. The contention raised was that the assessee missed to notice the amendment of the Rules w.e.f.2nd April, 1983and had moved the Assessing Officer for the rectification of the assessment order for the three years, which applications were pending. The assessee denied that the assessment orders were erroneous or prejudicial to the interests of the Revenue. According to the assessee the assessment orders were in fact prejudicial to its interests in so far as the consultancy fee which was assessable for the asst. yr. 1988-89 was in fact assessed for the asst. yrs. 1985-86, 1986-87 and 1987-88 and had thereby paid more tax. However, the learned Commissioner in a detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as its agent was not correct and that Eljay was only a trustee and became an agent of the assessee only on release. He submitted that the entitlement of the assessee remained inchoate and imperfect till the release of payment was made after hearing from SC. In this connection reference was made by him to the decision of the Supreme Court in the case of CIT vs. Hindustan Housing and Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC). He further submitted that the assessee's method of accounting in regard to consultancy fee was cash although on31st July, 1987the assessee had tendered the same for taxation in the asst. yr. 1987-88 on accrual basis wrongly. He pointed that the commission was accounted for in the account ending31st Jan., 1988. In any case he pointed out that both on accrual as well as receipt basis the fee became taxable only in the asst. yr. 1988-89. So far as the question of enquiry is concerned he pointed out that enquiry could be needed only if there was a provocation for it. In this connection reference was made by him to the following decisions : (i) Grindlays Bank Ltd. vs. ITO (1978) 115 ITR 799 (Cal) at page 810 (ii) Grindlays B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so stated that the audited accounts of the assessee were maintained on a mercantile basis and it is only in regard to the consultancy fee account that the assessee wanted to employe cash basis although its case all along had been of accrual. In this connection he referred to the query dt.11th March, 1988made by the IAC in reply to which the assessee did not say anything. He pointed out that even under the cash system the entire consultancy fee could not be included in the asst. yr. 1988-89 and that the mere factum of repatriation on11th Sept., 1987was not enough. According to him there were constructive receipts in the three years of which the assessee became the owner. Reference was also made to the case of R.R. Holdings P. Ltd. which was also controlled by the same family as the directors of the assessee company. Reference was also made to the certificate dt.20th Feb., 1985of Eljay whereby two remittances were made under instructions from the assessee to its Bankers. He pointed out that the identity and connection of Shri B.S. Gill with the assessee company and Eljay was also not ascertained. He pointed out that a firm contract was awarded and the amounts were remitted and credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 36,76,470 under r.115. He submitted that r. 115 was very clear and had an application and the order was erroneous in so far as there was failure on the part of the Assessing Officer to apply the correct rate of exchange from Japanese Yens to Indian rupees directly. So far as the amount of Rs. 1,98,68,018.75 is concerned, Shri Gupta pointed out that no enquiry had been made by the assessing Officer regarding the real identity, creditworthiness and source of investment made by Eljay Consultants, who had been registered on 27th Dec., 1983 and whose paid up capital was only 200 $ on 4th Dec., 1984. He pointed out that the amounts were received mutually as advance/deposit/investment, which was subsequently shown as share application money. He also stated that there were many unusual features suggesting close connection, Eljay being the front company of the assessee and, therefore, s. 68 of the IT Act, 1961 was attracted. Reference was made by him to the well-known decision of the Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) where the nature of the jurisdiction under s. 263 was examined and principles laid down as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e location of its administrative office and bank account, the question to be considered relates to the capacity, function or the status of Eljay qua the contracts between SC and the assessee. 7.2 The next point is as to when did the consultancy fee accrue to the assessee. The agreements dt.30th Aug., 1984and5th Nov., 1984provided that the consultancy fee was to be remitted by SC to the designated account of Eljay in the Bank of Credit and Commerce International inLondon(vide cl. 2(b)). The ld. Dep. Representative is indeed right in saying that since cl. III(ii) of these agreements stated that they set forth an entire agreement of parties and that they superseded any prior agreement and understanding, the letters dt.4th June, 1984and23rd July, 1984relied upon by the assessee stood superseded by the agreements which were of a later date. Since the subject matter contained in these letters did not get incorporated in the agreements themselves, these letters would not have the effect of amending or supplementing the agreements. There was an addendum dt.24th June, 1985to these agreements but it did not refer to the subject matter contained in the aforesaid letters. However, the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l it received from the SC a full and final letter of satisfaction. Thus the position of Eljay was that of a confidant of both (SC as well as the assessee) and that the right of the assessee to the amount was inchoate and imperfect till 25th Aug., 1987 or 1st Sept., 1987 when SC informed Eljay that full and final payment had been made under the subject contracts. It is then since there were no claims and non further payments receivable form SC that Eljay asked its bankers to remit the money to the assessee's bank inNew Delhi. Thus these letters show that they operated as supplements or amendments to the subject contracts and that it is only after 1st Sept., 1987 that the assessee's right in respect of the consultancy fee got perfected under the contract and resulted in the accrual of income. Eljay, therefore became an agent of the assessee as well after and w.e.f.1st Sept., 1987. The SC itself confirmed this position in its letter dt.7th Oct., 1988in response to the assessee's letter dt.4th Aug., 1988. The learned Commissioner, therefore erred in so far as without examining the nature, content and effect of the aforesaid letters on the subject contracts as well as on the accrual of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, to have accrued, is a question of law and there can be no estoppel against law. If the ITO assesses an assessee upon an amount which is not the assessee's receipt at any given time, and is, therefore, not taxable in law in that period, the assessee can say so and explain the admission. The assessee did secure an order dt. 24th June, 1988 from the learned Commissioner under s. 273A but no promissory estoppel could be said to have arisen from it, in as much as, the assessee took action which was "in line with the thinking of the Department". If the assessee is able to satisfy that the earlier admission or declaration was the result of a mistake of law or fact or had been made due to ignorance or other factors, it may not come in its way. The assessee's applications for raising additional grounds in the appeals filed on20th April, 1988are in this direction, which are pending before the learned Commissioner (A), to the effect that the consultancy fee was taxable only in the asst. yr. 1988-89. It is not a question of the assessee resiling again and again from the admissions made from time to time since an admission or consent does not confer jurisdiction on the assessing authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the learned Commissioner a declaration of Rs. 33,97,443 was made as against Rs. 36,76,470 under r. 115. Here the complete facts are not there and it does not appear if due enquiries were made by the Assessing Officer to see if r. 115 was applicable. Therefore, no fault can be found with the order of the learned Commissioner so far as this aspect is concerned. 7.8 Sec. 263 enables the Commissioner to call for and examine the record of any proceeding under the IT Act, 1961. Expln. (b) to s. 263(1) as amended by the Finance Act, 1988 w.e.f. 8th June, 1988 provides that "record" shall include and shall be deemed always to have included all records relating to any proceeding under the IT Act., 1961 available at the time of examination by the Commissioner. Thus though the assessments for the assessment years in question had been completed on23rd March, 1988,28th March, 1988and28th March, 1988the learned Commissioner could examine the record as at the time of giving the show cause notice. i.e.,1st Feb., 1990. That is how the communications dt.4th Aug., 1988and7th Oct., 1988referred to by us in para 7.2 of this order have significance even though the latter of these communications w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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