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Judgment
K. Raviraja Pandian, J.—These appeals are filed against the common order of the Income Tax Appellate Tribunal ''C'' Bench, Chennai
dated 27.07.2007 made in ITA No. 1066/Mds/2006 and ITA No. 2560 to 2565/Mds/2005. The appeal was admitted by this Court on the
following substantial questions of law:
Whether, on the facts and circumstances of the case, the finding of the Tribunal that the assessee had not explained the difference between
receipts in TDS certificate and the amount credit in profit and loss account is correct in law when the same was accepted by the assessing officer in
the assessment order itself?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in remanding the case without considering the fact that the
appellant was maintaining its accounts in accrual system of accounting as per the provisions of the Companies Act and the method of accounting
prescribed by the Institute of Chartered Accountants of India for corporate assessees?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the respondent has jurisdiction to issue the
notice is correct in law when admittedly, the respondent lacks jurisdiction?
Whether on the facts and in the circumstances of the case, the Tribunal was right in not considering the issue of limitation raised by the appellant
is right in law?
The facts are : The assessee is a company carrying on the business as clearing and forwarding agent. In respect of the assessment years 1996-
97 to 2002-03 the assessing officer noted that there was a difference between the income as per the TDS certificate and that credited in the profit
and loss account. The assessee''s explanation was that in this line of business, tax is deducted on the gross income including reimbursable expenses
incurred by the assessee. The explanation was not accepted by the assessing officer and he made an addition of the difference between the income
as per the TDS and that credited in the profit and loss account.
On appeal, the Commissioner of Income Tax (Appeals) held in favour of the assessee by observing that the question of taking a receipt to the
credit in profit and loss account under the accrual system of accounting arises only when the receipt bears the character of income. In the case of
all the clearing and forwarding agents including the assessee, it is customary to collect monies for expenses like harbour dues, air cargo handling
charges, warehousing charges, demurrage and other charges required to be paid on behalf of their principals in their capacity as licenced customs
house agents under the Customs Act and Rules and Regulations framed thereunder. Tax is deducted at source on these payments to customs
house agents as per the CBDT circular No. 715 dated 08.08.1995 requiring deduction of tax at source on ""any sum paid"" including monies paid
for expenses which do not bear the character of income. In order to come to that conclusion, the Commissioner relied on the decision in the case
of (2004) 270 ITR 1 . The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee on merits and directed the assessing officer
to delete the addition made in respect of the relevant assessment years under consideration.
The department carried that order on further appeal to the Tribunal. The assessee filed cross objections against the finding that the reopening of
assessment is correct. The Tribunal allowed the appeal filed by the department by observing that it is incumbent on the assessee to explain by way
of proper reconciliation and documentary evidence the reason for the discrepancy and remitted the matter to the file of the assessing officer for
proper reconciliation of the difference between income as per TDS certificate and that taken for profit and loss account. The cross objection filed
by the assessee has also been dismissed on the premise that the reopening on the basis of the factual error pointed out by the audit party is valid in
law. The disclosure by the assessee must not only be true but should also be fully explained. In respect of the assessment years 1999-2000 to
2002-03, the Tribunal held that there was only processing u/s 143(1) of the Act and any intimation under the provision cannot be treated as
assessment order and for that purpose, the Tribunal relied on the decision of the apex Court in Assistant Commissioner of Income Tax Vs. Rajesh
Jhaveri Stock Brokers Pvt. Ltd., . The correctness of the same is put in issue.
Mr. A. Thiagarajan, learned Counsel for the appellant/assessee contended that in respect of assessment years 1996-97 to 1998-99 assessment
order u/s 143(3) was passed on 19.03.1997, 25.02.2000 and 20.02.2001 respectively. However, notice u/s 148 of the Act for revision of
assessment was issued on 26.03.2003 for the assessment year 1996-97 and on 29.03.2004 for the assessment years 1997-98 and 1998-99,
which is beyond the period of four years and hence barred by limitation, in the absence of any new material coming to the notice of the assessing
officer.
It is contended that notice of assessment u/s 148 of the Act suffers from ""reason to believe"" escapement of income for all the assessment years.
The assessing officer, in his order dated 28.12.2004, admitted that TDS certificates are the basis available with him and hence there is no fresh
information. The TDS are filed along with return of income and are available with the department since inception and there is no failure on the part
of the assessee to disclose truly and fully the material facts. Hence, notice u/s 148 of the Act in respect of the assessment years 1996-97 and
1997-98 and 1998-99 suffers from limitation prescribed by Sections 143 and 147 of the Act.
In order to buttress this proposition, he relied on the decision of the apex Court in the case of Commissioner of Income Tax and Another Vs.
Foramer France (through constituted attorneys), , Commissioner of Income Tax Vs. Premier Mills Ltd., , Commissioner of Income Tax Vs. Elgi
Ultra Industries Ltd., and Commissioner of Income Tax Vs. A.V. Thomas Exports Ltd., and The Commissioner of Income Tax Vs. Sri
Chamundeswari, . He further contended that as per the apex Court judgment in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR
19, the recorded reason has not been furnished to the assessee. Only gist of the reason has been communicated.
He further contended that notice u/s 148 of the Act issued on 26.03.2003 for the assessment year 1996-97 and on 29.03.2004 for the
assessment years 1997-98 to 2002-03 are not in accordance with the requirement of statute as there is no reason to believe escapement of
income, which is a condition precedent for issuance of notice u/s 148 of the Act. In the regular assessment in respect of the assessment years
1997-98 and 1998-99, the assessing officer observed that the regular assessment u/s 143(3) of the Act for the assessment year 1997-98 was
completed on 25.02.2000. Subsequent to the completion of the assessment, it was noticed that the operational income credited to the profit and
loss account is less than the income as per the TDS certificate.
It is further contended that the assessing officer observed that the assessee, after deducting the operational expenses from the gross receipt is
taking the net figure to profit and loss account. By netting the expenses, the assessee has not furnished the actual picture of transaction carried out
by the company and thereby the true state of financial affairs of the assessee company have not been reflected properly in the return of the income
filed. Hence, there is escapement of income to the extent of variation between the income admitted and the income as per the TDS certificate
available on record. From the above observation, it is evident that the materials are available before the assessing officer while he was making the
assessment u/s 143(3) of the Act in respect of the assessment years 1999-2000 to 2002-03. In that case there cannot be any discrepancy. When
there is no discrepancy, there is no escapement of income. He further concluded that the objection of the assessee that all the assessees doing the
business of clearing and forwarding agency are following one and the same method of accounting, i.e., monies received for expenses are credited
to bills for collection account and expenses incurred are debited to the said account and unclaimed surplus are transferred to profit and loss
account. This method has been prescribed by the Institute of Chartered Accountants in its guidance note on tax audit u/s 44AB of the Act, wherein
it is stated that under Clause ""(vi) Reimbursement of customs duty and other charges collected by a clearing agent'' would not form part of the
gross receipt in business for the purpose of Section 44AB. Further, it is contended that the assessee alone cannot be singled out and treated
differently. Invocation of Section 2(c)(iii) of Section 147 of the Act for reopening of the assessment for the assessment years 1999-2000 to 2002-
03 is not correct because, there is no excessive relief granted to the assessee and hence the notice u/s 147 of the Act lacks jurisdiction in respect
of these assessment years.
However, Mrs. Pushya Sitaraman, learned senior standing counsel for the revenue contended that the Tribunal had only remitted the matter to
the assessing officer for the purpose of reconciliation of the difference between the income as per the TDS certificate and income credited in the
profit and loss account and if the appellant is having materials, it can very well prove by way of reconciliation that the order cannot be taken as
prejudicial for maintaining the appeal. However, the argument was refuted by the learned Counsel for the assessee by contending that it is not as
simple as argued by the learned senior standing counsel. When there is lack of jurisdiction to reopen the assessment and even for issuance of notice
u/s 148 of the Act, jurisdiction is lacking, this Court cannot be swayed by saying that the said impugned order is only a remittal order.
Heard the learned Counsel on either side and perused the materials available on record.
The following tabular column will show a clear picture about the date of return of income, completion of proceedings, etc.,
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1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
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Date of filing of 20/9/96 30/09/97 18.04.98 06.12.99 30.11.00 31.10.01 24.10.02
return
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Income returned (Rs) 192790 282890 61290 58,140 132400 127460 124500
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Date of completion of 28.01.97 27.05.98 22.01.99 21.08.00 22.06.01 18.10.02 21.2.03
proceedings Under
Section 143(1)
accepting the
returned income
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Date of notice 18.02.97 03.07.98 22.11.99 -- -- -- --
Under Section 143(2) 17.07.00
of the Act **
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Date of assessment 19.03.97 25.02.00 20.02.01 -- -- -- --
order Under
Section 143(3)
accepting the
returned income
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Date on which 08.09.98 -- -- -- -- -- --
reconciliation was
sought between
income as per P & L
a/c & gross receipt
as per TDS certificate
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Reconciliation filed on 11.09.98 -- -- -- -- -- --
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Date of notice Under 26.03.03 29.03.04 29.03.04 29/3/04 29/3/04 29.03.04 29.03.04
Section 148
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Date on which copy of -- 20.04.04 20.04.04 20.04.04 20.04.04 20.04.04 20.04.04
reasons for reopening
were sought
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Date on which only -- 09.12.04 09.12.04 09.12.04 09.12.04 09.12.04 09.12.04
gist of reasons
were furnished
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Date on which -- 20.12.04 20.12.04 20.12.04 20.12.04 20.12.04 20.12.04
objections for
reasons were filed
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Date on which order -- 28.12.04 28.12.04 28.12.04 28.12.04 28.12.04 28.12.04
against the reasons
for reopening was
passed
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Date on which detailed 19.12.03 17.01.05 17.01.05 17.01.05 17.01.05 17.01.05 17.01.05
objections for
reassessment were
filed together with
clarification on variation
between gross receipts
as per TDS certificate
and income as per
P & L account.
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Date of re-assessment 29.03.04 28.02.05 28.02.05 28.02.05 28.02.05 28.02.05 28.02.05
order
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Addition made on 2122223 6999136 2185092 1443022 1253970 1107724 2381448
reopening Under
Section 147 (Rs.)
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** raising the issue of reconciliation between gross receipt as per TDS certificates and income as per P & L a/c.
From a reading of the above, it is clear that for the assessment years 1996-1997, 1997-1998 and 1998-1999, assessments were completed
u/s 143(3) of the Income Tax Act and assessment orders were passed on 19.03.1997, 25.02.2000 and 20.02.2001 respectively and later, the
assessment was reopened u/s 148 of the Act and notice was issued on 26.03.2003 for the assessment year 1996-1997 and on 29.03.2004 for
the assessment years 1997-98 and 1998-99 and re-assessment was also completed on 29.03.2004 and 28.02.2005 respectively. In respect of
the assessment years 1999-2000 to 2002-2003, the assessment was made u/s 143(1) of the Act on 21.08.200, 22.06.2001, 18.10.2002 and
21.02.2003 respectively. For the assessment year 1996-97, notice u/s 148 of the Act was issued on 26.03.2003 and in respect of all other
assessment years viz., 1997-98 to 2002-03, notice u/s 148 of the Act was issued on 29.03.2004. Subsequently, for the assessment year 1996-
97, re-assessment was completed on 29.03.2004 and for the assessment years 1997-98 to 2002-03, re-assessment was completed on
28.02.2005. In respect of all the assessment years, the Assessing Officer re-opened the assessment on the ground that gross receipts are not
transferred to the Profit and Loss Account and made additions. Aggrieved by that order, the assessee has filed an appeal to the Commissioner of
Income Tax (Appeals). The said Commissioner of Income Tax (Appeals) upheld the re-opening of the assessment, but on merits, deleted the
addition. Aggrieved by that order of the Commissioner of Income Tax (Appeals), the Revenue filed appeals before the Income Tax Appellate
Tribunal. The Tribunal, considering the facts, held that there is no proper explanation on behalf of the assessee and only mere theoretical
explanation was offered by the assessee and it is for the assessee to make reconciliation of the difference between the receipt in TDS Certificate
and amount credited in Profit and Loss Account and there is no material available on record to consider the matter. Therefore, the Tribunal set
aside the order on merits and remitted back the appeal filed by the Revenue and held as follows:
We have heard both the counsels and perused the relevant records. We find that it is not disputed in this case that gross receipt as per TDS
certificate did include some expenditure reimbursement. In such circumstances, it is incumbent upon the assessee to explain and prove by way of
proper reconciliation and documentary evidence the reason for the discrepancy. The reliance upon Hon''ble Apex Court decision referred above
will be taken into account only after factual details are established. Mere theoretical explanation of the nature of the case will not suffice. Hence, it
is the duty of the assessee to make a proper reconciliation of the amount of difference between the receipt as per TDS certificate and that as per
Profit & Loss Account. Hence, in the interest of justice, we remit this issue to the file of the Assessing Officer to give an opportunity to the assesee
to submit a proper reconciliation for the reasons for the difference between the income as per TDS certificate and that taken into profit and loss
account and explain the veracity thereof by way of documentary evidence.
It is seen from the above that it is only a remittal order passed by the Income Tax Appellate Tribunal by giving an opportunity to the assessee
to submit a proper reconciliation. The said remittal order could not cause any prejudice to the assessee and also the learned Counsel appearing for
the assessee was not able to bring to our notice that the remittal order would cause great prejudice to the assessee. Further, no attempt was made
by the assessee to establish before the Court that amount transferred to the profit and loss account was made after defraying the expenses incurred
by it on behalf of its customers by producing materials.
In such circumstances, we do not find any error or illegality in the order passed by the Tribunal for remitting the same to the Assessing
Authority. Therefore, on merits, we answer questions Nos. 1 and 2 in favour of the revenue and against the assessee.
In respect of the re-opening of the assessment, there is a factual finding by the assessing officer that there is difference between the receipt in
TDS Certificate and amount credited in Profit and Loss Account. Further, the Assessing Officer was of the view that if the Profit and Loss
Account is taken into consideration, there was a distorted picture of the true state of financial affairs or business operation of the assessee
company, because the gross receipts were not transferred, but only net receipts were transferred to the Profit and Loss Account. In view of the
above, the Assessing Officer was of the view that there is a failure on the part of the assessee to disclose fully truly all material facts necessary for
the assessment. The Commissioner of Income Tax (Appeals) also upheld the validity of reopening. The Tribunal has given a specific finding in
respect of re-opening, which reads as follows:
Upon a careful consideration of the issue and after hearing both the parties, we are of the opinion that re-opening on the basis of factual error
pointed out by the internal audit party has been held to be valid by the Hon''ble Apex Court in CIT v. P.V.S. Beedies (P) Ltd. 237 ITR 213.
Furthermore, Hon''ble Apex Court in Sri Krishna Private Ltd. Etc. Vs. I.T.O., Calcutta and Others, had held that the disclosure by the assessee
for avoiding re-assessment must not only be true but it should also be fully explained. Fact that Income Tax officer could have investigated the truth
of the assertion does not relieve the assessee of his obligation. Considering the present case on the prism of aforesaid, we find that no explanation
as to reconciliation of the difference between the receipt in TDS certificate and amount credited in Profit & Loss Account had been provided by
the assessee, Hence, the contention of the assessee that all materials were already disclosed is not tenable in the background of this precedent.
Again, we find that in assessment years 1999-2000 to 2002-2003 there was only processing u/s 143(1) and as held by the Hon''ble Apex Court
in the case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., , such intimation cannot be treated as
assessment order and re-assessment was held to be valid in such cases and hence the argument of change of opinion would not apply. As regards
the issue of lack of communication of information regarding reasons recorded for re-opening, we find that the assessee in the appeal before the
Commissioner of Income Tax (Appeals) has accepted in the grounds that gist of reasons has been communicated.
It is clear that there is a specific finding given by the Tribunal that there is no explanation for reconciliation of the difference between the receipt
in TDS certificate and amount credited in Profit & Loss Account had been provided by the assessee. Therefore, the contention of the assessee that
there were already materials available on record, is raised only for rejection. There is no disclosure of material before the Assessing Officer. All the
authorities have come to the correct conclusion that there is an escapement of income. Further, it is seen that the Assessing Officer processed the
returns in respect of the assessment years 1999-2000 to 2002-03 u/s 143(1) of the Act. The Apex Court in the case of Assistant Commissioner
of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., held that the re-assessment can be made in respect of proceedings u/s 143(1) of the
Act. In respect of the assessment years 1996-97, 1997-98 and 1998-99, the original assessment was made u/s 143(3) of the Act and later for the
assessment year 1996-97, the assessment was re-opened on 26.03.2003 and for the assessment years 1997-98 and 1998-99, the assessment
was re-opened on 29.03.2004. In as much as there was difference between the receipt in TDS certificate and the amount credited in the Profit and
Loss Account, the financial result of the assessee shows a distorted picture, which amounts to non-disclosure fully, truly all materials facts, the plea
of limitation regarding assessments years 1996-1997 to 1998-99 is also to be rejected. Therefore, the argument that re-opening of the assessment
for the assessment years 1997-98 and 1998-99 was made beyond the period of four years, is rejected. Accordingly, question Nos. 3 and 4 are
answered against the assessee and in favour of the revenue.
For the foregoing reasons, we are of the view that the order of the Tribunal requires no interference. The appeals are dismissed. No costs.