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TMI Blog2015 (7) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee has invited our attention that the original returns accompanied with copies of audited balance sheet, profit and loss account with tax report filed for the impugned assessment years were processed under section 143(1) of the Act. Later on the Assessing Officer received information/report from the DDIT (Investigation)-II, Kanpur and on the basis of the report, the assessment was reopened under section 147 of the Act after recording the following reasons:- "From the perusal of records and information received from Dy. Director of Income-tax, Range-2, Kanpur vide his letter F. No. DDIT(Inv.)2/KNP/gift/RCFSI/07-08/1860 dated 21.3.2008, it is transpired that the ase has made cash deposits amounting to Rs. 2,03,72,500/- on different dates in Bank a/c No.62205046398,Bank A/c No.2633 and Bank A/c No.31126 maintained with Standard Chartered Bank, Kanpur, Punjab National Bank, Shastri Nagar, Kanpur and State Bank of India, Naveen Market, Kanpur respectively during assessment year 2002-03 relevant to assessment year 2003-04 as per following details:- Bank A/C No.622-0-5046398 (Standard Chartered Bank) Date Of Deposit Amount Mode Of Deposit 02-04-2002 600000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002 80000 cash Total 10483500 The dy. Director of Income Tax (Inv.)-2, Kanpur in his report had stated that the assessee had failed to prove the source of cash deposits in the above mentioned bank accounts. However, in view of the above facts, the assessee-company was given one more opportunity by the undersigned to explain the source of acquisition of the above cash deposits amounting to Rs. 2,03,72,500/- in above Bank Accounts for which a shown cause letter was issued on 2.3.2009, fixing date for compliance on 9.3.2009. It was specifically mentioned in the shown cause letter that failure on part of the assessee company would entail the under signed to initiate proceedings under section 147 of the Income-tax Act, 1961 for concealing the income to the extent of Rs. 2,03,72,500/-. On the date fixed for compliance, neither anybody attended nor any written submission was made on behalf of the assessee-company. In view of the above facts and the information in possession of the undersigned, I am of the opinion that the source of acquisition of the above cash deposits amounting to Rs. 2,03,72,500/- made in the above bank accounts of the assessee-company, stands unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (V.C. Mishra) &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Kanpur" 5. The return was filed in response thereto and the Assessing Officer has made an addition of Rs. 2,03,72,500/-, under section 68 of the Act having observed that cash deposit in the banks were not duly explained by the assessee. Our attention was also invited by the ld. counsel for the assessee, Shy Ajay Wadhwa, Advocate that for the similar reasons the assessment was also reopened for assessment years 2000-01, 2001-02 and 2002-03 and the validity of the reopening of assessment was questioned and the matter was reached upto the Tribunal and the Tribunal in assessment year 2000-01 has categorically held that the reopening of assessment solely on the direction of the ADIT (Investigation) is not valid in the eyes of law and the Tribunal has accordingly knocked down the assessment framed consequent to the said reopening. The order of the Tribunal is available at pages 38 to 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs u/s 147 of the Act, so far as allegation of escapement of income on account of unexplained deposits in bank is concerned, was illegal and bad in law and cannot be sustained. 19.1 From the above noting it is clear that there was no application of mind by Assessing Officer." 6. This order of the Tribunal was later on followed in assessment years 2001-02 and 2002-03 where the reopening was done for the same reasons and the Tribunal again held the reopening to be invalid and quashed the assessment framed consequent to the bad reopening. These orders of the Tribunal are available at pages 104 to 128 of the compilation of the assessee. The relevant observations of the Tribunal for assessment year 2002-03 are extracted hereunder for the sake of reference:- "6. We have heard the rival submissions. Shri Praveen Kumar, ld.CIT(DR) submitted that the ld.CIT(A) was not justified in following the order of the I.T.A.T., Lucknow-B, Lucknow dated 18.11.2009 passed in assessee's case for the assessment year 2000-01. Shri Praveen Kumar, Id. D.R. pointed out that while deciding the appeal for assessment year 2000-01, the Tribunal has ignored the decisions of the Hon'ble jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to Rs. 3,16,07,800/- on different dates in Bank A/c No.622-05046398, Bank a/c No.2633 and Bank a/c No.31126 maintained with Standard Chartered Bank, Kanpur, Punjab National Bank, Shastri Nagar, Kanpur and State Bank of India, Naveen Market, Kanpur respectively during the F.Y: 2001-02 "relevant to A.Y. 2002-03 as per following details:- Date of Deposit Amount Mode of deposit The Dy. Director of Income Tax (Inv)-2 Kanpur in his report had stated that the assessee had failed to prove the source of cash deposits in the above mentioned Bank Accounts. However in view of the above facts, the assessee company was given one more opportunity by the undersigned to explain the source of acquisition of the above cash deposits amounting to Rs. 3,16,07,800/- in above Bank accounts for which a show cause letter was issued on 02-03-2009 fixing date for compliance on 9-3- 2009. It was specifically mentioned in the show cause letter that failure on part of the assessee company would entail the undersigned to initiate proceedings u/s 147 of the I.T. Act, 1961 for concealing the income to the extent of Rs. 3,16,07,800/-. On the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the year relevant to A.Y. 2000- 2001 and Rs. 6628S442/- in A.Y. 1999-00. This shows that the assessee has shown short receipt of interest of approximately Rs. 1100000/- in the A.Y. 2000-2001". 21. After having considered the rival submissions, facts and circumstances of the case here again, we are of the opinion that the AO having not referred to any material which could justify his conclusion that assessee should have earned more interest than interest in the previous year, the initiation can not be said to be valid, there being any detail as to the period for which the advances/loans were given or how much interest was received or could have received as per agreements, simply to doubt that interest received by the assessee in this year, being less than the interest received in the previous year as resulted in escapement of interest income of approximately 11 lakhs and that too only, because, total amount of allowance and advances at the end of this year was a little more than the amount outstanding at the end of previous year. Here again, we are of the opinion that the proceedings have been initiated on suspicion and for making roving enquiries and since it is trite law that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under Section 147 cannot be initiated either on the basis of mere suspicion or making fishing or roving enquiries, the initiation of proceedings under Section 147 of the Act on this ground was also illegal and bad in law. Thus, the above decision supports the view taken by the Tribunal in assessment year 2000-01. 6.4(ii) Shri Praveen Kumar, Id.D.R. also relied on the decision of the Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO the Hon'ble Supreme Court held that - "The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of assessment proceedings. We are not expressing any opinion on the merits of the case. The questions of facts and law are open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority." In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) has taken all together a different view having noted that the principle of res-judicata would not be applicable in Income-tax proceedings. The ld. CIT(A) even did not agree to the proposition of law that in Income-tax proceedings the rule of consistency is to be followed. Whereas in the preceding assessment year where the reopening made on same facts and reasons was held to be invalid and the assessment framed consequent thereto was quashed by the Tribunal, the same order should have been followed in the impugned assessment year, as the reopening was done on the basis of same facts. The ld. counsel for the assessee has further contended that in the light of these facts, the reopening made in the impugned assessment year is invalid and the assessment framed consequent thereto deserves to be quashed. 8. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. CIT(A). 9. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the assessment was reopened for assessment years 2001-02 to 2004-05 on the basis of the ADIT and DDIT report in which it has been stated that there are cash deposits in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention that wherever books of account are lost or not available for any reason, the net profit of the assessee should be estimated. 1. P.K. Noorjahan, 155 CTR (SC) 509 ( 237 ITR 570). 2. Naim Ali Khan vs. ACIT, 86 TTJ 721 (Agra). 3. Jindal Udyog vs. Income Tax Officer, 78 TTJ 820 (Chd). 4. Pragati Engineering Corporation vs. Income Tax Officer, 225 Taxman 231. 5. CIT vs. Jay Engg. Works, 113 ITR 389. 13. It was further contended that the computer in which the accounts are maintained was not working properly and in 2007 it was discovered that the employee of the assessee-company, Shri. Ramsevak had perhaps stolen some jewellery and in order to cover up the trail, he destroyed/washed out the records in the computer. An FIR was lodged with the Police Station on 22.11.2007. Shri. Ramsevak was found missing from the office since 22.11.2005 and a report was also lodged with the Police Station on 22.11.2005. Copies of the reports are available at pages 310 and 311 of the compilation of the assessee. 14. The ld. counsel for the assessee has further invited our attention that the Assessing Officer has made addition on the basis of the statement of Shri. Mukesh Rajani, Auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has deposited cash on its receipt from the earlier borrowers, it could have furnished the details of the borrowers from whom cash was received. The Assessing Officer has afforded number of opportunities to the assessee, but he did not produce the same. In the absence of any details of the borrowers and the books of account, the contentions of the assessee cannot be accepted and the Assessing Officer has rightly made the addition of the cash deposits. 17. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the cash books were never produced before the Assessing Officer either in the impugned assessment year or in earlier assessment years when the reopening was done. But in earlier assessment year the reopening was held to be bad, therefore, there was no question of addition on account of cash deposit in the bank account, but in the impugned assessment year by framing regular assessment, the Assessing Officer has pointed out cash deposits in different bank accounts. In this regard, queries were raised by the Assessing Officer, to which the assessee has filed replies. But no details of the borrowers, from whom money was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the impugned assessment year. But from the details it is not clear whether the deposits made by the assessee were actual receipts from the earlier borrowers. Our attention was invited to various judicial pronouncements in which it has been held that once the books of account are rejected, the net profit of the assessee can be estimated on the gross turnover of the assessee. But in the instant case, it is not clear as to how much loan was advanced and how much was received by the assessee. Copy of the balance sheet is placed on record. Though it was contended on behalf of the assessee that it was on the verge of closing of its business and whatever amount was recovered from the debtors, it was deposited in the bank. But from a carful perusal of balance sheet, the facts are otherwise. 20. Having carefully examined the orders of the lower authorities on the impugned issue, we find that the Assessing Officer has made addition of the cash deposits in the bank accounts of the assessee having placed strong reliance upon the statement of Shri. Mukesh Rajani, Auditor of the assessee-company who deposed that the books of account of the company were produced before him in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock Exchange forfeited the earnest money and communicated the same to the assessee-company in July, 2006. The assessee-company accordingly written off the said amount in its books of account as revenue expenditure which was disallowed by the Assessing Officer after treating it to be capital expenditure. 23. The assessee preferred an appeal before the ld. CIT(A) with the submission that the assessee had applied for the membership of Bombay Stock Exchange for limited rights of trading in shares which was in pursuit of its objects enshrined in its memorandum of association. It was further contended that such payment was in normal course of business of the assessee. When the assessee could not pay the balance amount, the said amount was forfeited and the said action was taken in the interest of the business of the company. Therefore, the forfeiture was an act of business expediency and the same should be allowed as revenue expenditure. 24. Being convinced with the explanations of the assessee, the ld. CIT(A) has deleted the addition having observed that forfeiture of earnest money was business expenditure incurred on account of business expediency. The relevant observations of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer noticed that in Schedule-3 of the balance sheet, an amount of Rs. 7.70 lakhs has been shown as advance to be recovered in cash or in kind or for value to be received as on 31.3.2006. Likewise, another amount of Rs. 7.70 lakhs has been shown as rent paid under protest as on 31.3.2006. However, under these two heads, the amount has been shown as Nil on 31.3.2007. The Assessing Officer observed that it appears that these two amounts of Rs. 7.70 lakhs each (Rs.15.40 lakhs) appearing in the balance sheet as on 31.3.2006 under the head "loans and advances" have been debited in the profit and loss account under the head "rent". The assessee was required to furnish the details of expenses debited under the head rent and expenses thereof. In response it was stated that Rs. 15.40 lakhs being the amount of advance payment on rent paid to Shri. L.C. Agarwal and rent paid under protest deposited with the Court as a result of its order as appearing under the head "loans and advances" of balance sheet for the year ended on 31.3.2009 and thereafter the amount was transferred under the head rent account as shown in the profit and loss account for the financial year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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