TMI Blog2019 (12) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding of the Ld. CIT (A). Whether there exist any AOP as alleged by the authorities below? - It is clear that it is not necessary that there should be anything in writing for referring any group of persons as the AOP. What is required is that there should be common object and profit motive of the persons involved. Whether all the members as alleged by the authorities below constitute the AOP? - CESTAT in its order dated 25/08/2009 acquitted certain persons. The copy of the order is placed on 21 to 24 of the paper book. Therefore, in our considered view, the persons acquitted by the CESTAT cannot be treated as member of the impugned AOP. We are also conscious that the whole basis for initiating the proceedings u/s 147 of the Act against the AOP was the notice issued by the DRI wherein the 8 persons and 2 trust were alleged to be involved. Accordingly, in case of any change subsequently by 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER For the Appellant : Shri Vimal Desai, A.R For the Respondent : Shri Anil Kumar, Sr. D.R ORDER PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)- II, Rajkot [Ld. CIT(A) in short] dated 02/09/2009, arising in the matter of assessment order passed under s. 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 29/12/2006 relevant to Assessment Years (A.Y.) 2002-03. The assessee has raised the following grounds of appeal: 1. The assessment order u/s.143(3) r.w.s 147 is bad in law. 2. The reopening of assessment is bad in law. 3. The Ld. AO has erred on facts and in law in making the assessment in the status of AOP. The ''Ld.CIT (A) has erred in confirming the action of the AO. 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a person of the group paid the sum of ₹ 10 lacs to compensate the loss of import duty on the goods diverted in the open market. Now coming to the facts of the case: 4. The assessee has raised as many as 4 grounds of appeal which are interconnected. Therefore, we have clubbed all of them together for the sake of convenience and adjudication. 4.1 The interconnected issue raised by the assessee relates to the reopening of the assessment u/s 147 of the Act, assessment on the AOP and consideration of the members of the AOP 4.2 The facts in brief are that the assessee in the present case is an AOP and found to be engaged in the activity of importing the goods and distributing the same among the earthquake victims in Gujarat. 5. The AO received the information from the DRI about the activity carried on by the group of 8 persons as discussed above. Accordingly, the AO treated the impugned group of 8 persons as the Association of persons (for short AOP) and initiated the proceedings u/s 147 of the Act on account of escapement of income. Accordingly the AO issued a show cause notice u/s 148 of the Act vide dated 12-04-2005 indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. However, the Ld. CIT (A) disagreed with the contention of the assessee and upheld the order of the AO by observing that the activity was carried on for the purpose of the profit by the 2 or more persons, having common objects. Therefore, the Ld. CIT (A) concluded that the assessee has rightly been treated as the AOP. 8.1 The value of such goods which were diverted in the open market has been computed by the custom department and the assessee has paid the duty on such value of the goods. Accordingly, the Ld. CIT (A) has held that the AO has rightly determined the value of such goods as undisclosed income of the assessee. 8.2 The matter before the CESTAT is pending in relation to the penalty levied on the import of the goods which were diverted in the open market in violation of the notification issued under the Act. This fact can also be verified from the order of the penalty issued by the CESTAT dated 25th August, 2009. As such, there was no dispute pending before the CESTAT for the quantum addition made by the AO based on the DRI/customs department. In view of the above, the Ld. CIT (A) confirmed the order of the AO. Being aggrieved by the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when two or more individuals voluntarily combine together for a certain purpose. 5. It may further be appreciated that an AOP does not mean any and every combination of persons. Unless combined in a joint enterprise voluntarily to produce income, there could be no AOP. 6. The learned A.O. has failed to appreciate that for constituting AOP, the persons against whom investigations were carried out by the DRI ought to have entered into an agreement to earn the income and then share that income. 7. In this case nothing has been brought on record to establish all the 8 persons assessed in the status of AOP had mutually agreed to import the material under the guise of relief to earthquake affected people in Kutch and then divert it in the open market to earn and share the income amongst them. 8. In the instant case, out of the 8 persons against whom investigations were carried out, 2 have done the act in the course of employment as per the directions given by their employer, 1 is the transporter who has transported the goods in regular course of his business of transportation, yet another being trustee of the trust investigated only provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Therefore, the appellant cannot be treated as a member of alleged AOP. I Re: Assessing total income of AOP at ₹ 15,26,052/-: 1. The learned AO has assessed total income of AOP at ₹ 15,26,052/- (for 22 bales which could not be located and seized by the DRI) on the basis of valuation done by the DRI. In para 2.3 (pg. no. 16 17) of the assessment order which pertains to determination of income, the AO contended that 22 bales out of 93 bales imported by Shivam Development Trust and Nopaji Lakhmaji Charitable Trust which could not be found by DRI were sold in the open market. It is not clear from the assessment order as to how many bales belonged to which trust. The DRI has estimated market value of 71 bales confiscated at ₹ 49.25 lacs and accordingly estimated market value of 22 bales that could not be located and confiscated at ₹ 15.26 lacs. The same is considered as income of the alleged AOP. It may kindly be noted that the goods imported were old and used clothing which were to be given as donation to earthquake victims. This factor does not seem to have been considered while estimation of mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the satisfaction that there is the escapement of income by such group of persons and treated all of them as the AOP. Accordingly notice was issued by the AO u/s 148 of the Act. Admittedly, the goods were imported which were cleared without the payment of the import duty in contravention to the notification bearing number 7/2001. Accordingly one of the parties out of such group has paid the import duty amounting to ₹10 lakhs only. Thus in our considered view the information received from the DRI was sufficient enough for the AO to acquire the satisfaction that the income has escaped assessment. 11.3 The AO in the income tax assessment proceedings has to form a prima-facie opinion that the income has escaped assessment based on the tangible documentary evidence. As such the AO is not under the obligation to reach to the conclusion that there is actually escapement of income. Thus we are of the view that the AO has derived his satisfaction based on the tangible materials received from the DRI. 11.4 We also note that, the reopening u/s 147 of the Act was initiated within the period of 4 years from the end of the assessment year in which notice u/s 148 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, it is difficult to draw an inference that two or more shareholders function as an 'association of persons' from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an 'association of persons'. 12.2 From the above, it is clear that it is not necessary that there should be anything in writing for referring any group of persons as the AOP. What is required is that there should be common object and profit motive of the persons involved. 13. The next question arises whether all the members as alleged by the authorities below constitute the AOP. Indeed, the proceedings by the DRI were initiated against all the persons as discussed above, but the payment was made by one person to compensate the custom duty. However, we note that the CESTAT in its order dated 25/08/2009 acquitted certain persons. The copy of the order is placed on 21 to 24 of the paper book. Therefore, in our considered view, the persons acquitted by the CESTAT cannot be treated as member of the impugned AOP. We are also conscious that the whole basis for initiatin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
