TMI Blog2014 (11) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... on income besides interest on securities - There is no expenditure claimed on account of freight charges paid - the reopening of assessment is valid for the reason that the AO had material to come to a conclusion that the assessee has under stated its receipts - The assessee has also not furnished any explanation to the AO during the original assessment proceedings on these matters as there is no occasion for doing the same – the decision in CIT vs. Usha International Ltd. [2012 (9) TMI 767 - DELHI HIGH COURT] is applicable as it cannot be held that there is a presumption of application of mind on this issue when the original assessment order was passed u/s 143(3) of the Act - Pending or disposal of proceedings u/s 154 does not result in the reopening proceedings becoming illegal. Applicability of section 40(a)(ia) – Held that:- The assessee is a transport commission agent who arranges goods carriers for various parties through truck operators/drivers is not disputed by the Revenue - The parties to whom the assessee arranges trucks, make part payment to the operators/drivers as advance and the balance amount is routed through the assessee - What the assessee gets is only commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing maintained by the assessee, only the commission earned is credited to the Profit Loss a/c. The amount collected from the principals and amounts paid to truck owners are not routed through the Profit and Loss a/c. This system of accounting has been followed by the assessee since the inception of its business and the Revenue has accepted the same in scrutiny assessments. For the AY 2005-06 an order u/s 143(3) was passed on 5.12.2007 and the return of income filed by the assessee was accepted after certain disallowances. 3.2. Later a notice u/s 148 was issued reopening the assessment u/s 147 of the Act. The reasons of reopening for the AY 2005-06 are as follows. Reasons for issue of notice u/s 143 in the case of M/s Delhi UP Golden Transport Service, UP Border, Chikamberpur, Ghaziabad AY 2005-06 27.4.2009 The assessee firm enjoys income from transport business. Return for the AY 2005-06 declaring total income of ₹ 3,01,728/- was filed on 29.10.2006. Assessment was completed u/s 143(3) of the Act on 5.12.2007 on a total income of ₹ 3,28,340/-. It is found that the assessee has credited net receipts from freight in the Profit and Loss account at ₹ 7,44, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act are initiated. Issue notice u/s 148 of the Act. Sd/- ITO, Ward 1(2), Ghaziabad. 3.5. The AO records that no return of income was filed by the assessee in response to notice u/s 148 for both the AYs. It is also recorded that the assessee has not responded to notices issued u/s 142(1) of the Act on 10.12.2009 and earlier dates. It is only in response to notice u/s 142(1) issued on 25.1.2010 that the assessee responded through its Counsel. The AO completed the assessment on 24.12.2010 assessing the total income at ₹ 1,25,06,504/- for the AY 2005-06 and at ₹ 1,14,20,940/- for the AY 2006-07. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority granted part relief. 4. On the issues which were decided by the First Appellate Authority against the assessee, the assessee filed appeals on the following grounds. 1. That, the order passed by the learned Commissioner of Income Tax (Appeals) is bad In law as well as is against the facts and circumstances of the case so far the same is related to the sustaining the addition of ₹ 1,52,483/- and dismissing the several grounds of appeal. 3. That, the learned Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. As per the above grounds, notice u/s 148 is beyond jurisdiction and proceedings u/s 147 are void ab initio/illegal hence it is hereby prayed that the order dated 24.12.2010 framed u/s 147 of I.T. Act,1961 may kindly be quashed. Without prejudice to above but only as an alternative, the additions of ₹ 1,52,483/- are arbitrary and bad in the law hence it is hereby alternatively prayed that the additions sustained may kindly be quashed in TOTO. 5. On the issues where the First Appellate Authority adjudicated against the Revenue it filed appeals on the following grounds. 1. The Ld. CIT( A) has erred in law on facts by deleting addition on account of freight expenses disallowed as per provisions of section 40a(ia) of the I T Act, 1961 when he himself he accepted that not deducting TDS on these payments would result into disallowance of ₹ 33,99,260/- u/s 40a(ia). 2. The Ld. CIT(A) has erred in law and on facts by deleting addition on account of freight expenses disallowed without appreciating that the provisions of section 194C(5) proviso clearly says that if the aggregate of amounts of sums credited or paid or likely to be credited or paid during financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranting reopening. (d) As there is no expenditure incurred or claimed by the assessee the question of disallowing the same u/s 40(a) (ia) does not arise. And hence the question of escapement of income warranting reopening does not arise. (e) No new material or information came to the possession of the AO warranting the reopening. 6.1. On merits he submitted that: (i) S.194C is not applicable and hence disallowance u/s 40(a)(ia) is bad in law for the reason that (a) the assessee has not claimed any expenditure of the said amount and hence there can never be a disallowance; (b) The assessee has neither received nor paid amounts which were directly paid by the principals to the lorry operators. Hence the question of deduction of tax at source does not arise on these amounts. (ii) The assessee is only a Commission agent and not a contractor and he has only acted as a channel for payments made by the principals to lorry owners. (iii) TDS has been deducted in the name of the assessee by the principals in a routine manner. 6.2. The Ld.D.R. Smt.Parwinder Kaur on the other hand opposed the contentions of the assessee s counsel and submitted that the reopening is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s 154 on 12.1.2009 proposing rectification of a mistake apparent on record. The mistake proposed to be rectified, as recorded in the notice is extracted for ready reference. Since no TDS has been made on the freight paid amounting to ₹ 1,21,77,664/-, the entire expenditure of ₹ 1,21,77,664/- is proposed to be disallowed and added to the income in accordance with provisions of S.40(a)(ia) of the Act. As such the assessment is proposed to be rectified u/s 154 of the Act. 10. On these facts the question is whether the reopening is bad in law. It is well settled that the requirements prescribed under the Act for involving the provision of S.147 have to be fulfilled. Hon ble Supreme Court in the case of CIT vs. Rajesh Jhaveri Stock Brokers P.Ltd. (2007) 291 ITR 500 (SC) has held as follows. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of assessment is valid for the reason that the AO had material to come to a conclusion that the assessee has under stated its receipts. During the proceedings u/s 143(3), no direct question was asked on the issue of understatement of turnover or on the issue of non reconciliation of turnover disclosed with the T.D.S. certificates. The assessee has also not furnished any explanation to the AO during the original assessment proceedings on these matters as there is no occasion for doing the same. Under the circumstances the Full Bench decision of Hon ble Delhi High Court in CIT vs. Usha International Ltd. Reported in 348 ITR 485 applies and it cannot be held that there is a presumption of application of mind on this issue when the original assessment order was passed u/s 143(3) of the Act. 10.3. Coming to the argument that the information of the audit party cannot constitute tangible material, we find from the reasons that the AO has independently come to such a conclusion after application of his mind. The fact that the material is gathered from an audit party, does not lead to a conclusion that the reopening is bad in law. It is only when the AO does not apply his mind and e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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