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TMI Blog2011 (1) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... - "(1) On the facts and circumstances of the case, the order passed by the ld. CIT (Appeals) is bad both in the eye of law and on facts; (2) (i) On the facts and circumstances of the case, the ld. CIT (Appeals) has erred both on facts and in law in rejecting the contention of the assessee that no notice issued under section 143(2) by the Assessing Officer in response to return filed under section 142(1) of the Income-tax Act, 1961; (ii) On the facts and circumstances of the case, the ld. CIT (Appeals) has erred both on facts and in law in rejecting the contention of the assessee that no notice under section 148 is served; (3) On the facts and circumstances of the case, the ld. CIT (Appeals) has erred both on facts and in law in not considering the contention of the assessee that the Assessing Officer has failed to follow the procedures laid down by Apex and other Courts in providing reasons for reassessment and opening for reassessment under section 148 of the Income-tax Act, 1961." 3.1 The facts of the case stated in brief are that the assessee, an Individual, in the relevant assessment years was engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purchases of damaged food grains and payments made by cheque/demand draft. 4. A survey under section 133A of the Act was conducted in this case on 12-7-2004 by Directorate of Investigation, New Delhi. During the course of survey proceedings, statement of Shri Sanjay Kumar Garg was recorded. Certain documents in form of loose papers found were impounded. 5. The case of the assessee was centralized by transferring from Income-tax Officer, Ward-29(1), New Delhi to Central Circle-17 vide order in CIT-X/ord./127/2005-06/514, dated 18-7-2005 along with grain merchants group of cases. Subsequently, in October 2006 the case was again transferred to DCIT Central Circle-9. The Assessing Officer also collected information from various banks about the cash deposited and cheques issued. Based on information so collected during the course of survey and post survey operations, the Dy. Commissioner of Income-tax Central Circle-17 New Delhi initiated assessment/reassessment proceedings under section 147 of the Act. The Assessing Officer issued notice under sections 143(2) and 142(1) of the Act. The Assessing Officer on the basis of information gathered during survey and subsequent enquiries com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons that there were no returns of income filed in response to notices issued under section 148 by that time. He relied on the decision of Hon'ble Supreme Court in the case of G.K.N Driveshafts India Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 which has laid down the procedure for seeking such reasons from the Assessing Officer in respect of reassessment proceedings. Therefore, there was no legal infirmity which may involve annulment of the assessments. He also placed reliance on the decision of the Madras High Court in the case of Areva T & D Ltd. v. Asstt. CIT [2007] 294 ITR 233/165 Taxman 123 wherein it has been held that assessment made without considering objections of the assessee does not amount to a nullity but a procedural irregularity. He further observed that even by virtue of section 292B of the Act, there was no irregularity in assessment procedure adopted by the Assessing Officer. Further the assessee had attended the reassessment proceedings. Hence no irregularity was committed by the Assessing Officer in making assessment. He accordingly rejected the legal ground raised by the assessee in respect of reopening of assessment. 8.1 Before us the ld. AR of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essments framed are bad in law on two counts. Firstly the proceedings initiated during the pendency of the earlier assessment proceedings will be bad in law and the order passed will be invalid and liable to be quashed. Secondly since the notices under section 148 of the Act for assessment years 2000-01 to 2004-05 were issued on 23-9-2005, the assessments for these years were to be completed by 31-12-2006. However, the assessments have been framed on 24-12-2007. Hence, the assessments made by the Assessing Officer for assessment years 2000-01 to 2004-05 are barred by limitation. 9. On the other hand, the ld. CIT [DR] submitted that notice under section 148 for assessment year 2000-01 was issued on 25-9-2006 requiring the assessee to file the return before the expiry of 30 days from the date of service. No notice under section 148 for this assessment year was issued on 23-9-2005. Hence it is wrong on the part of ld. AR of the assessee to argue that assessment year 2000-01 notice under section 148 was issued on 23-9-2005. She has further submitted that when notices under section 143(2) dated 31-10-2006 were served on the assessee on 6-11-2006, the assessee on the backside of notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. In assessment year 2000-01 the Assessing Officer had recorded reasons on 22-9-2005 which are also available at page Nos. 41 to 50 in assessment folder for assessment year 2003-04. There is no evidence including order sheet entry available on record to suggest that notice under section 148 was also issued on 23-9-2005. No fresh reasons were recorded before issue of notice under section 148 on 25-9-2006. The Assessing Officer had issued notice under section 148 on 25-9-2006 on the basis of reasons recorded on 22-9-2005. Sub-section (2) of section 148 provides that the Assessing Officer before issuing any notice under section 148 shall record his reasons for doing so. Therefore, the recording of reasons forming the belief that certain income has escaped assessment is pre-requirement for issue of notice under section 148. Hence reasons should be recorded by the officer himself before he issues notice under section 148. There is a time gap of almost one year between formation of belief and issue of notice under section 148 but since the Assessing Officer as on 22-9-2005 and 25-9-2006 was the same, the initiation of proceedings assessment under section 147 cannot be declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove facts observed that the Assessing Officer had followed the due process of initiating the proceedings under section 147 and notice was issued after approval of the Addl. Commissioner, which was dispatched through Speed Post. When the same was not returned un-served, it has to be presumed that the said notice was served on the assessee. Therefore, the ld. CIT (A) upheld the initiation of the proceedings under section 148 of the Act. We have gone through the assessment folder for assessment year 2005-06 (Vol. 2) and find that affidavit dated 10-11-2006 is lying in this folder. Hence it is incorrect on the part of Assessing Officer to say that no such affidavit was available in the assessment records. Moreover the Dy. CIT Central Circle-9 had relied on this very affidavit to re-initiate assessment proceedings for assessment years 2001-02 to 2004-05. However, there is no dispute about the fact that notice under section 148 was issued through speed post vide No. EE-25554607, dated 26-9-2006. Section 282 of the Income-tax Act, 1961 prescribes the modes of service of a notice either by post or in the way in which a summons issued by a court can be served under the Code of Civil Procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. We have also gone through the assessment records for various assessment years. In assessment folder for assessment year 2005-06 (Volume- III) we find the existence of certain correspondence between the Assessing Officer and his authorized representative, Shri P.N. Chawla, Advocate. It is seen that the ld. counsel for the assessee, Shri P.N. Chawla, appeared before the Assessing Officer on 16-3-2006 with Vakalatnama and a letter requesting the Assessing Officer to allow photo-stat copies of the documents impounded at the time of survey. Shri P.N. Chawla was asked to deposit Rs. 500 for copying charges and also to bring photo-stat machine and papers and to give the details of the documents to be copied. The case was adjourned to 20-3-2006. On this date 4-4-2006 was fixed for getting the photocopies made. From the noting on 4-4-2006, as per the order-sheet entry, Shri P.N. Chawla, arranged the photo-copier machine at 3.00 PM for getting the photo-stat copies of the impounded documents. On these dates, the Assessing Officer directed the authorized representative of the assessee to produce Shri Sanjay Kumar Garg. 15. The Assessing Officer vide his letter dated F. No. DCIT/CC-17/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i P.N. Chawla expressed his anguish that neither Shri S.K. Garg had been produced nor replies filed. Both the times adjournments were sought to compile records on the basis of impounded documents. He was given final opportunity to produce Shri S.K. Garg along with the replies/details for different years. This letter is for assessment year is 2001-02 to 2005-06. 16. The Assessing Officer issued notices under section 142(1) addressed at D-16/406, Sector : 7, Rohini, Delhi, along with questionnaires on 21-9-2006 for these assessment years, which were served on Smt. Gita Garg, the wife of the assessee. As per notices issued under section 142(1) the assessee was to comply with the questionnaire dated 20-9-2006 issued to the assessee in respect of all the assessment years. The case was fixed for hearing on 28-9-2006 for all the assessment years. Thereafter the Assessing Officer issued notice under section 143(2) on 31-10-2006 addressed at D-16/406, Sector : 7, Rohini, Delhi fixing the case for hearing on 10-11-2006 at 12 Noon. These notices were served on the assessee by the Inspector on 6-11-2006. On the back-side of the notices the assessee made a note as under:- "Mujhe Aaj se pehle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at he had not been served with notices under section 148 of the Act. Had he not been served with such notice the assessee or his authorized representative would have definitely come out with a plea that he was not aware of reassessment proceedings under section 147 for assessment years under consideration. He had rather sought time to determine the income based on impounded material. Therefore, the conduct of the assessee and his authorized representative and circumstances indicate that they were very much seized of the fact of service of notices under section 148. These notices have not been received back un-served from postal authorities. These notices were addressed to assessee at D-16/406, Sector: 7, Rohini, Delhi, at which notices issued under section 143(2) on 31-10-2006 for theses assessment years were served by Income-tax Inspector and notices under section 142(1) along with questionnaires dated 21-9-2006 on Smt. Gita Garg, the wife of the assessee. Thus the contents of affidavit are contrary to facts and the conduct of the assessee and hence cannot be relied upon. Therefore, as held in assessment year 2000-01 above there is a presumption under section 27 of the General Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act reads as under :- "149. [(1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation.-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.] ..............." 22. Further section 151 requires the sanction of the issue of notice in certain cases. Section 153 of the Act prescribes the time-limit for completion of assessment and re-assessments. Sub-section (2) of section 153 deals with the time-limit in respect of assessments made under section 147. Sub-section (2) of section 153 reads as under:- "(2) No order of assessment, reassessment or recomputation shall be made under section 147 after the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice, a return of his income, in the prescribed form and verified in prescribed manner. However, the provisions of section 149 prescribe the time-limit for issue of notice under section 148 of the Act. The Legislature has used two different expressions "issue" in section 149 and "serve" in section 148. Section 149 prescribes the time-limit for issue of notice whereas provisions of section 148 require the Assessing Officer to serve the notice before making assessment or reassessment under section 147. In R.K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163/33 Taxman 229 (SC) the ITO issued the notice of reassessment under section 147(b) for assessment year 1965-66 by a Regd. Post on 31-3-1970 and the notice was received by the assessee on 3-4-1970. The issue before Hon'ble Supreme Court was whether notice served beyond the period of limitation of issue of notice was valid. Hon'ble Supreme Court observed that the scheme of Income-tax Act, 1961 so far as notice for reassessment is concerned is quite different from that of 1922 Act. A clear distinction has been made out between "issue of notice" and "service of notice" under the 1961 Act. Section 149 of the 1961 Act, which provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary before the notice under section 148 is sent out. If the word "issued" used in both these sub-sections is read as "served", it will lead to the strange phenomenon that even after the Income-tax Officer has recorded his reasons and issued the notice, the sanction may, therefore, be recorded before its service on the assessee. A decision is only an authority for what it actually decides, and the quintessence thereof is its ratio and not every observation found therein nor what logically follows from various observations made in it. The Supreme Court in Banarsi Debi v. ITO [1964] 53 ITR 100 further observed that a strange and wide meaning of the word "issue" in order to save the Income-tax (Amendment) Act, 1959, from being rendered nugatory. They did not even remotely considered section 149 of the 1961 Act. Consequently, Hon'ble Patna High Court has held that Banarsi Debi's case (supra) is no warrant for the abstruse proposition that the word "issued" de hors its context must always mean "issued" and "served" in every statute or in section 149 of the Act. 26. Thus from the decisions of Hon'ble Supreme Court in the case of R.K. Upadhyaya (supra) and Hon'ble Patna High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single date as they are in same ink and without signatures of advocate. 29. In the assessment years 2001-02 to 2004-05 the Assessing Officer had issued notices under section 148 after recording reasons on 23-9-2005. The said notices were issued through Speed Post on 23-9-2005. The Assessing Officer again issued notice for assessment year 2001-02 on 25-9-2006 after getting necessary sanction from the Addl.CIT. After receipt of affidavit on 10-11-2006 the Assessing Officer again issued notices under section 148 on 24-11-2006 for assessment years 2001-02, 2002-03, 2003-04 and 2004-05. This time the approval of the Addl. CIT was not obtained by Assessing Officer for assessment year 2001-02. We may like to mention that sanction issued by the Addl. CIT on 25-9-2006 cannot be used second time. It will require satisfaction on part of Addl. CIT before he issues such sanction. Moreover the jurisdiction over the case was transferred to Central Circle-9 from Central Circle-17. On this ground alone the issue of third notice under section 148 for assessment 2001-02 is bad in law and assessment for this assessment cannot be sustained. Be it as it may the fact remains that for assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court in the case of Ranchhoddas Karsondas v. CIT, Bombay Circle [1954] 26 ITR 105 held that notice under section 34 (section 147 in 1961 Act) issued after the assessee had filed voluntarily return and assessment made thereafter was not valid in law. Hon'ble Supreme Court held that the return having been made it must be disposed off and the income of the assessee must be assessed as laid down in section 23 of 1922 Act. In the case of CIT v. Jaideo Jain & Co. [1997] 227 ITR 301 (Raj.) the reassessment proceedings initiated under section 147 were not concluded to a logical end. The Assessing Officer issued fresh reassessment notice. It was held that the assessment made pursuance to reassessment proceedings was not sustainable. In Commercial Art Press v. CIT [1978] 115 ITR 876/[1979] 1 Taxman 38 (All.) it was held that when reassessment proceedings commence following the issue of a notice under section 148 and the same are pending, a fresh notice cannot be issued under the same provision. In the case of Srinivasa Computers Ltd. v. Asstt. CIT [2007] 107 ITD 357 (Chennai) it has been held that the Assessing Officer can issue any number of notices under section 148 provided condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 3-4-1977, and the letter dated 16-3-1978, of the Income-tax Officer would not cure the defect in the notice as no notice in the name of M, Hindu Undivided family was issued. Under these circumstances section 292B was not held applicable. Therefore, the facts of the case of Sri Nath Suresh Chand Ram Naresh (supra) are entirely different from the facts of the case before us as this decision of Hon'ble Allahabad High Court does not support the case of the revenue. 33. In the case of Mintu Kalita (supra) the Income-tax Officer initiated proceedings under section 147(a) and issued notice under section 148 of the Act, but the assessee did not respond to it. Thereafter, in response to notice under section 142(1), an employee of assessee appeared before the ITO and the assessment was completed. The assessee did not raise the question of non-service of notice under section148 before the Income-tax Officer. He contended before the Appellate Assistant Commissioner that the proceedings under section 147 was bad in law and should be quashed on the ground of non-service of notice under section 148 to him. The AAC did not accept this contention and disposed off the matter on the merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm with a notice of reassessment under section 34 (147 in 1961 Act) and other partners who might not have been served had made no grievance in the matter. It was held by the Hon'ble Supreme Court that it was not open to the appellants to contend that the proceedings taken by the Income-tax Officer under section 34 were invalid on the ground that notices of those proceedings were not served on the other alleged partners of the firm. Therefore, this decision of Hon'ble Supreme Court relied upon by the Revenue is of no help as the facts are entirely different from the facts of the case of the assessee. 36. In the case of C.N. Nataraj (supra) the notices under section 148 of the Act were issued in the name of petitioners, who were minors and not in the name of their guardians and were served on a clerk of a petitioner's father, who was neither an agent of the petitioners nor authorized to accept notices on their behalf. It was held that the notices which form the basis of proceedings under section 147 of the Act were wholly invalid and the petitioners could not be assesseed in pursuance of those notices. The decision of Hon'ble Mysore High Court is not applicable to the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the ld. CIT (Appeals) has erred in rejecting the rate of 1.75 per cent adopted by the Assessing Officer by his own estimate of the rate at 1 per cent on the ground that such rate is prevalent in real estate transactions ignoring the fact that the assessee was not dealing with the real estate transaction but with the transaction relating to sale-purchase of food grains; (b) While deciding this issue the ld. CIT (Appeals) has not taken into consideration the fact that the sales tax records of the assessee shows that assessee has made consignment sales and, therefore, the rate of commission was rightly adopted by the Assessing Officer at 1.75 per cent which is prevalent market rate charged by entry operators for providing fictitious and bogus entries of sales and purchases to the interested parties; (c) That the ld. CIT (Appeals) has erred in not applying the rate of 1.75 per cent on the turnover worked by him at Rs. 37,46,15,121 on the basis of credits appearing in bank accounts of the assessee; 2(a) On the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in deleting the addition of Rs. 5,06,84,000 by ignoring the fact that the said amount was the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mated by the Assessing Officer is as under :- Asst. Year Turnover Rate of commission Commission 2000-01 Rs. 28,28,60,808 1.75 per cent Rs. 49,50,064 2005-06 Rs. 26,81,21,945 -do- Rs. 46,92,134 41. As regards the accommodation entry business, the Assessing Officer observed that the assessee had failed to produce his account books, purchase/sale bills, expenses vouchers, bank statements, consignment records and other supporting documents to substantiate his income shown in the returns of income. The explanation of the assessee that the entries recorded in the bank accounts of Rahul Enterprises represented sale proceeds of food-grains as commission agent was not satisfactory. He further noted that the cash deposits have been made in the bank accounts of various dummy concerns to issue cheques and not for withdrawing the same for recycling in the system. Therefore, the benefit of peak credit could not be given. He further noted that the commission at the rate of 2 per cent of the turnover as an entry provider could not be accepted for the reason that the assessee had not come forward to explain his case and provide the names of actual beneficiaries. Until the source of fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. He was of the opinion that this amount of Rs. 76,47,809 was to be deducted from the total of the deposits appearing in State Bank of Bikaner and Jaipur. Hence, the net amount credited in SBBJ was at Rs. 33,05,81,521. Similarly, the ld. CIT (A) also found that the amount deposited in Union Bank of India, Khari Baoli, Delhi, was at Rs. 4,40,33,600. Thus the total of the amounts deposited in both the bank accounts came to Rs. 37,46,15,121. The ld. CIT (A) therefore, came to the conclusion that the amount of Rs. 37,46,15,121 was to be taken as receipts of the business of providing accommodation entries for the assessment year 2000-01 on which the commission income was earned. The ld. CIT (A) therefore, adopted the total turnover of the assessee at Rs. 37,46,15,121. He estimated commission at the rate of 1 per cent on this turnover amounting to Rs. 37,46,151. From commission income of Rs. 37,46,151, the amount disclosed by the assessee at Rs. 1,44,555 was to be deducted and the balance amount of Rs. 36,01,596 (37,46,151-1,44,555) was to be assessed as income from commission business. 44. As regards the addition of Rs. 5,06,84,000 made by the Assessing Officer on account of cash dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs. 5,06,84,000 in assessment year 2000-01. 45. As regards the additions made in assessment year 2005-06, the ld. CIT (A) observed that in this assessment year also the Assessing Officer had proceeded on the basis of sales tax assessment. But on perusal of bank accounts of State Bank of Bikaner and Jaipur, State Bank of Mysore as well as Syndicate Bank, it was seen that the amount of turnover adopted by the Assessing Officer was not correct. He had noted that in case of M/s. Garg Sales Corporation the credit entries appearing in the SBBJ were at Rs. 5,95,66,752; in bank account of State Bank of Mysore Rs. 5,92,43,883; and in Syndicate Bank of Rs. 15,80,38,599. Thus, the total credits with three bank accounts of M/s. Garg Sales Corporation were at Rs. 27,68,49,234. Out of this Rs. 39,65,811 was on account of cheques returned. Therefore, the net amount credited in these bank accounts was at Rs. 27,28,83,423. Similarly, the assessee was having bank accounts in Standard Chartered Bank and HDFC, Chandni Chowk in the name of Garg Sales Corporation. The amounts appearing in these accounts were at Rs. 50,000 and Rs. 5,63,60,302. Similarly, in the name of Rahul Enterprises also the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding bills on commission basis. Hence it was difficult to accept the submission of the assessee that he had no connection whatsoever with those entities. Moreover, the assessee himself had admitted in the course of survey, the modus operandi of the entire business module, how he had issued accommodation bills and collected the amounts etc. Therefore, there could not be any iota of doubt about the person who had operated the bank accounts. The business carried on by the assessee was undisputedly to earn commission income. There was no activity of any trading carried on by the assessee through these concerns. In that process cash had been accepted and deposited in the bank accounts and in liue of the same, cheques were issued to various parties. The Assessing Officer had simply taken all cash entries in the above bank accounts and the total of same had been assessed as income from other sources. The ld. CIT (A) further noted that the assessee was receiving cash and issuing cheques to beneficiaries. Similarly receipt of cheque was followed by payment in cash. In view of this it was not correct to hold the cash deposits as separate item of income for which there was no source found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of .25 per cent out of which .1 per cent was given to the persons in whose names the bank accounts were maintained and expenditure of .05 per cent was incurred in the business of providing entries. On the other hand, the ld. CIT (D)R submitted that the Assessing Officer has estimated the commission at the rate of 1.75 per cent and, therefore, the ld. CIT (A) was not justified in estimating the commission at the rate of 1 per cent. She further stated that the assessee had to explain the source of deposits in the various bank accounts and in the absence of any such evidence the amounts deposited in the bank accounts have to be treated as his income. Therefore, the ld. CIT (A) was not justified in deleting the addition in respect of amounts deposited in the banks and estimating the commission income on such deposits. 48. We have heard both the parties and gone through the material available on record. During the course of survey operations, statement of the assessee was recorded wherein it has been categorically admitted that no purchase and sale activities are undertaken in the names of firms. The assessee was using the firms for the purpose of providing sale bills for which he w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the commission should be estimated at the rate of .01 per cent or 1.75 per cent or 1 per cent. The ld. CIT (A) for arriving at the rate of commission earned has relied on rate of commission normally charged in case of real estate transactions. In real estate transactions the broker has to identify the suitable buyer/purchaser, inspection of property, visit of interested parties, negotiations of rates, registration of sale deeds etc. whereas in case of bogus entries providers no such activities are involved. Interested party gives cash to entry provider which is deposited in bank account and the entry provider issues cheque. Hence the transactions of bogus entry providers cannot be compared with the transactions of real estate business transactions. He has to ensure the nature of the property and has to satisfy both seller and purchaser. The services rendered by the brokers in real estate transactions are more than the entry providers. Hence both the transactions are not comparable. Therefore, the comparison of commission earned on a real estate transaction, which in fact takes place and commission on transaction which does not at all occur, are not comparable. In accommo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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