TMI Blog2007 (5) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... peals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of ld. Assessing Officer in disallowing commission of Rs. 57,61,000 paid to M/s. Hallmark Health Care Ltd. by ignoring the fact that the same was fully supported by adequate and substantial documentation and had been paid for services rendered for the purpose of the Appellant Company s business and had been allowed as an expense in the earlier assessment years. 3. That the order under section 250 of the Income-tax Act, 1961 passed by the ld. Commissioner of Income-tax (Appeals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of ld. Assessing Officer in charging interest under section 234D amounting to Rs. 8,61,038 while passing the assessment order under section 147/148 ignoring the fact that no interest can be charged under section 234D when the assessment made under section 147/148(3) is not the first regular assessment." 2. The present assessment is a reassessment. Return of income was filed on 25-11-1997 at an income of Rs. 42,95,560. It was assessed by way of an order dated 9-2-2000 passed under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all Mark Health Care Ltd. and as a result of the said enquiry it was noticed that no business activities were conducted from the said address for the past so many years. Thus it was mentioned that it is prima facie established that the claim of commission payment for marketing services was not supported by facts and evidences and is bogus. So it relates to contention of assessee that Assessing Officer during the course of original assessment proceedings had required the assessee to explain the claim of expenditure of commission. It was pointed out that according to Explanation 1 , proviso to section 147 mere production before the Assessing Officer of account books or other evidences from which material evidence could with due diligence have discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of said proviso. It was pointed out that where the transaction itself on the basis of subsequent information is found to be bogus, mere disclosure of that transaction at the time of assessment cannot be said to be a disclosure of true and full facts and reference was made to the following two decisions: 1 Phool Chand Bajrang Lal v. ITO [1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disclosure within the meaning of said proviso is contrary to the provisions of law as Explanation 1 to proviso of section 147 will apply only in a case where Assessing Officer did not raise the issue during the course of original assessment proceedings. He in this regard pointed out to us the two replies given by the assessee one is dated 24-11-1999 filed which the assessee had submitted party-wise details of commission to selling agents exceeding Rs. 1 lakh and second which is not dated but was claimed to be filed on 4-1-2000 with the Assessing Officer vide which following answer was given. "As regards to commission paid during the year under assessment to M/s. Hallmark and Bahri Bros. It is submitted that the same is paid to them for supply of spirit @ Rs. 1 per bulk litre and Rs. 0.508 per bulk litre respectively. Copy of the agreement of M/s. Hallmark Health Care Ltd. is enclosed which self-explanatory as to the services rendered and other terms and conditions." 8. Referring to these replies it was pleaded that not only the details were called for by the Assessing Officer but further query was raised with regard to allowability of commission and relevant documentar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing survey proceedings and subsequent investigation in the case of Sh. Sanjay Rastogi (210, Vakil Chamber, A-115, Shakar Pur, Delhi), it was found that Sh. Sanjay Rastogi and his associates had a number of companies for giving bogus entries, Sh. Sanjay Rastogi had admitted that all these transactions as appearing in their companies were bogus. It is further noted that the assessee has transacted through Hallmark Health Care Ltd. and Khatri Co-operative Bank Ltd. Date Particulars of Cheque Amount Debited (Rs.) 01-01-1997 Ch. No. 386382 256,000 02-01-1997 Ch. No. 386232 192,000 07-01-1997 Ch. No. 386654 156,000 15-01-1997 Ch. No. 386782 283,858 19-01-1997 Ch. No. 386828 263,868 28-01-1997 Ch. No. 386852 299,850 31-01-1997 Ch. No. 386905 327,836 06-02-1997 Ch. No. 386952 513,743 12-02-1997 Ch. No. 386961 452,773 21-02-1997 Ch. No. 387026 249,875 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se where there is mere change of opinion. 13. So as it relates to merits of the claim of the assessee it was pointed out that the commission payment was on the basis of agreement. In the earlier years also the assessee was making such payments to such very concern and it was allowed also. It was contended that payment was made on the basis of debit note raised by the said party and the payments were through account payee cheques which were duly credited in the account of payee. The amounts so paid had never shown to have reached the assessee. 14. Reference was made to the following documents to prove the claim on merit. Sl. No. Particulars Page 1. Copy of account of M/s. Hall Mark Health Care Ltd. from the books of assessee 44 2. Copy of debit note raising the claim of commission 45 to 54-C 3. Letter dated 6-2-05 written by assessee-company to Director Hall Mark Health Care Ltd. 38 to 40 15. Reference was made to letter dated 15-3-2005 filed before Assessing Officer. With regard to the explanation of the assessee for producing the Director of the said company to contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire addition as bad. Thus it was concluded that at first note reassessments were invalidly carried out and on merits also addition was not sustainable. 20. On the other hand, the ld. DR contended that scope of reassessment after 1-4-1989 is wider and the only criteria is that income should have escaped assessment. It was contended that though details were filed but genuineness of the said details was not inquired into by the Assessing Officer. She contended that on the basis of investigation made by the department it was found that the company to whom the commission was claimed to have been paid by the assessee was one of the companies which was stated to be bogus. She contended that all these entries were accommodation entries. Referring to the assessment orders she pleaded that according to the statement of Shri Sanjay Rastogi he was providing bogus accommodation entries. He was one of the various signatories for M/s. Hall Mark Health Care Ltd. and, therefore, the commission paid by the assessee to M/s. Hall Mark Health Care Ltd. was not a genuine business expenditure. She referred to the decision of Hon ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its the addition deserves to be deleted. Referring to page 8 of the order of Commissioner (Appeals), she submitted that no proof of services were submitted. She referred to the decision in the case of Nizam Wool Agency v. CIT [1992] 193 ITR 318 (All.) to contend that where the payment is made by crossed cheques, it is not by itself a proof positive of genuineness and identity of the recipient. One cannot accept or refuse any such rule of law. Whether a particular entity or concern is a genuine and existing entity/concern was merely a bogus one, it is a question of fact and it cannot be reduced to a rule of law. She contended that it was necessary for the assessee to prove the rendering of services to claim the expenditure of commission. She referred to the decision of Gauhati High Court in the case of Assam Pesticides Agro Chemicals v. CIT [1997] 227 ITR 846 to contend that mere payment by itself would not entitle an assessee to deduction unless the same was proved to be paid for commercial considerations and where the Tribunal has found that no services were rendered by the agent the deduction for commission could not be allowed. 25. She contended that the case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He contended that the assessee had been paying the commission prior to the present assessment year also. It has not been established that commission has travelled back to the assessee. Referring to the decision of Hon ble Gujarat High Court in the case of Sheth Brothers v. Jt. CIT [2001] 251 ITR 270 to contend that duty of assessee is limited to disclosure of primary facts on record. In the said case it was held that assessee having put forth its claim for deduction under section 80HH in entirety supporting the same on the basis of Circular No. 484, dated 1-5-1987 which formed part of written submissions made before Assessing Officer during the course of assessment proceedings and Assessing Officer having taken note of such written submissions in his assessment order, he could not assume jurisdiction under section 147 after a period of 4 years on the ground that the claim was wrongly allowed. 30. He also referred to the decision of Hon ble Delhi High Court in the case of Asoke Kumar Sen v. ITO [1981] 132 ITR 707 to contend that reason to believe must be that of an honest and reasonable person based upon reasonable grounds. ITO may act under section 147( a ) on direct o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot necessarily amount to disclosure within the meaning of the foregoing proviso." 32. The words used in proviso "the failure on the part of the assessee.... to disclose fully and truly all material facts necessary for his assessment for that assessment year" postulate a duty on every assessee to disclose fully and truly all material facts for his assessment. At the same time, an assessee cannot delve into the mind of Assessing Officer and try to fathom it and predicate what are material facts in the view of the officer. The facts must be such that if taken into account, that would have an adverse effect on the assessee by passing of a greater assessment than the one actually made. At the same time, the rule of full disclosure of material and necessary facts should not be so fastidiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the Assessing Officer would have material use of it to charge the assessee more than what he did. The Assessing Officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment, nor is he at liberty to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. The said question and answer thereto is also being reproduced for the sake of convenience : "Q. 14. In the last statement on 17-04-2003, you had stated that you will provide information on transactions of M/s. Frenzy Products Pvt. Ltd. and M/s. Reliance Forging (P) Ltd. with the companies in which you or your family members are Directors. Have you brought the details and what do you have to say on the transactions? Ans. I, Sanjay Rastogi, finally do hereby would like to admit certain fact before the department in order to buy peace and with request that no action shall be taken against me/my family members/my family concerns, which can hamper my professional career as under : ( a ) Apart from the proper professional work, I was also providing certain services in connection with the companies/concerns/entities those were not doing the real/genuine business exclusively. In this process I sued to operate this line of activities with the help of other professional colleagues and my subordinate staff. For performing this kind of activities the address of my office 210, Vakil Chambers, Vikas Marg Extn., Delhi - 110092 was also used. Few Private Ltd/Ltd. Companies were used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rimary facts and further facts inferred from them, the authority has to draw proper legal inference as certain on a correct interpretation of a taxing enactment. The required details as asked for were furnished by the assessee during the course of original assessment proceedings from which authority has to draw the proper legal inference and assessee is under no obligation to instruct an ITO about the inference which ITO may raise from those facts. It was for the ITO to raise such an inference. The commission has been paid through account payee cheques. It has also gone to the bank account of the recipient of the commission. Though it has been mentioned that it was withdrawn immediately but it has not been shown that it has travelled back to the assessee. 37. Thus it is a primary condition that there should be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment and that requirement of law has to be fulfilled before initiation of reassessment proceedings in a case where notice has been issued beyond the period of 4 years from end of the relevant assessment year. From the record it is found that, there was no such fail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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