Income Tax Appellate Tribunal - Ahmedabad
Associated Engineering Corporation vs Assistant Commissioner Of Income Tax on 27 September, 1996
Equivalent citations: [1997]61ITD128(AHD)
ORDER
B. L. Chhibber, A. M.
1. These three appeals by the assessee are directed against the consolidated order of the CIT(A) II, Surat relating to asst. yrs. 1982-83, 1983-84 and 1984-85.
2. The first common grievance projected in these appeals by the assessee is that the authorities below are not justified in not treating the returns filed by the assessee for the three years under appeal as returns filed under the Amnesty Scheme, 1985.
3. The assessee is a partnership firm and derives income from business of supplying ERW pipes to the Irrigation Department of State Government of Gujarat. It was stated before the AO that one Shri A. A. Pathan of Baroda, approached Shri Pravinbhai Khatiwala, who was partner of the assessee firm, with a proposal to supply pipes to the Irrigation Department of the State Govt. The understanding was that Shri A. A. Pathan would get everything done, like filing the tenders, getting them accepted, arranging for purchase of the pipes, supplying them etc. Shri Pravinbhai had to provide for finance only and for this purpose, he opened a bank account at Baroda, which, it was stated, was introduced by Shri A. A. Pathan himself. The affairs were so arranged in collusion with the engineering staff of the Department that the quotations and tenders furnished by Shri Khatiwala and his allied concerns were accepted at the rates more than even double of the market price. The pipes were supplied at the rate of Rs. 448 per metre as against the market price of Rs. 195.50 per metre. The excessive payment received in this transaction amounted to Rs. 48,17,917. In another transaction the pipes valued at Rs. 359.30 per metre were supplied but the payment was made at the rate of Rs. 575 per metre. The two concerns namely M/s Seema Enterprises and M/s Associated Engineering Corporation had received Rs. 1.20 crores approximately as extra payment. It was published in the news item in "Gujarat Samachar" dt. 8th May, 1986. As a result of this, 24 officers of the Irrigation Department were suspended for these irregularities in the purchase of ERW pipes. On the basis of the above news item the Investigation Wing of the IT Department started inquiries against the assessee firm and Shri A. A. Pathan.
4. When the inquiries were at fairly advance stage, the assessee came forward with the three returns of income filed on 30th Sept., 1986 under the Amnesty Scheme. Later on, the IT Department carried on search and seizure operations at the business and residential premises of Khatiwala group and Shri A. A. Pathan in order to unearth the extra income generated by these persons. During the course of assessment proceedings the AO rejected the plea of the assessee for various benefits under the Amnesty Scheme - on the ground that certain inquiries had been carried out against the assessee and that it was in the Department's prior knowledge that the assessee had got some concealed bank accounts - and that the income disclosed by the assessee in the returns had already been detected by the Department.
5. On appeal, the learned CIT(A) confirmed the action of the AO observing as under :
"In my opinion, various amnesty circulars conferring benefits to the assessees on account of interest and penalty etc. were purely administrative in nature and these conferred no right to the assessee under the law, which could be taken into appeal. The right forum for the appellant to agitate against the AO's refusal to grant the benefits given under the Amnesty Scheme would be to approach the CIT concerned. Therefore, this ground of appeal is rejected".
6. Shri R. M. Shah, the learned counsel for the assessee submitted that the returns of income for the asst. yrs. 1982-83, 1983-84 and 1984-85 were filed by the assessee on 30th Sept., 1986 under the Amnesty Scheme. The search and seizure operations under s. 132 was carried out only on 16th Dec., 1986 long after two and a half months from the filing of the returns under the Voluntary Disclosure Scheme. According to the learned counsel for the assessee the Department made search under s. 132 to verify the true and correct disclosure of income on a background of some news items that the assessee firm and other two firms of Surat had received highly excessive payments from the Irrigation Department of the State Govt.
The learned counsel for the assessee submitted that when the returns of income were filed for all the three years, only primary inquiries had been conducted by the Revenue and that too on the basis of the news items appearing in "Gujarat Samachar". No specific concealment of income was detected by the IT Department. He prayed that when only primary inquiries were going on and no concealment had been detected prior to filing of returns filed under the Amnesty Scheme, the same cannot be rejected with reference to various Circulars issued by the CBDT and on the basis of the following two decisions :
1. Asstt. CIT vs. Prakash Oil Industries & Ginning Factory (1995) 52 TTJ (Ahd) 514.
2. Anand Kumar Saraf & Ors. vs. CIT & Ors. (1995) 211 ITR 562 (Cal).
7. Shri V. K. Mathur the learned Departmental Representative drew our attention to CBDT Circular Nos. 423 dt. 26th June, 1985 and 432 dt. 15th Nov., 1985 and submitted that the Amnesty Scheme was a package scheme under which the assessee was required to disclose income voluntarily prior to detection by the Department. In the instant case, according to the learned Departmental Representative on the basis of the news items which appeared in "Gujarat Samachar", the Investigation Wing of the IT Department had made extensive inquiries and when the assessee was cornered, the assessee came forward with the returns under the Amnesty Scheme after protracted correspondence with the Department. In this connection, the learned Departmental Representative drew our attention to letter dt. 17th Sept., 1986 addressed by the Assistant Director of Inspection Investigation, Surat to Shri P. C. Khatiwala and Smt. Nirmala P. Khatiwala placed at p. 44 of the paper book, and the assessee's reply dt. 29th Sept., 1986 placed at pp 46 to 51 of the paper book. He submitted that this correspondence showed that the Investigation Wing of the IT Department had made conclusive inquiries to the effect that the assessee had concealed particulars of income and it was after these inquiries were complete that the assessee came forward with the returns filed under the Amnesty Scheme. According to the learned Departmental Representative, the action of the assessee cannot be said to be voluntary and prior to detection by the Department. The learned Departmental Representative further submitted that under the Amnesty Scheme the assessee was required to make full and true disclosure but as it was evident from the facts and backgrounds of the case the assessee did not make full and true disclosure of the income and the income was assessed by the AO at a much higher figure than that returned by the assessee and part of the additions made by the AO have been confirmed by the CIT(A). The learned Departmental Representative therefore concluded that the authorities below were justified in denying to the assessee the benefits of the Amnesty Scheme, 1985.
8. We have considered the rival submissions and perused the facts on record. The issue before us is whether the three returns for the three assessment years under appeal were filed by the assessee voluntarily "before detection by the Department". As pointed out in para 3 (supra) the assessee firm which derived income from the business of supplying ERW pipes to the Irrigation Department of the State Govt. of Gujarat in collusion with one Shri A. A. Pathan, so arranged its affairs in collusion with the Engineering staff of the Department that the quotations and tenders furnished by Shri Khatiwala and allied concerns were accepted at the rates more than even double of the market price. The news of this collusion was published in the Gujarati paper "Gujarat Samachar" on 8th May, 1986. As a result of this, 24 officers of the Irrigation Department were suspended for these irregularities in the purchase of ERW pipes. On the basis of the above news item the Investigation Wing of the IT Department started extensive inquiries against the assessee firm and Shri A. A. Pathan. When the inquiries were at a fairly advanced stage the assessee firm came forward with the three returns of income filed on 30th Sept., 1986 under the Amnesty Scheme. The fact that the inquiries were carried out at an extensive magnitude is evident from the letter dt 17th Sept., 1986 addressed by the Asstt. Director of IT (Inspection) Surat to Shri P. C. Khatiwala and Smt. Nirmala P. Khatiwala placed at p. 44 of the paper book. It will be relevant to quote the following paragraph from the said letter :
"As you know, inquiries were going on the basis of some news papers reports about the non-disclosure of income earned by the two contractor concerns mentioned above and they were at fairly advanced stage when indication from you about the option of disclosure at your end. Letters have been sent to various authorities of Gujarat State Govt. to supply the details of total payments made to your group of contractors for the supply of ERW pipes, etc. for the various divisions, of the Irrigation Department of the Gujarat State. We are in the process of gathering all the relevant details so that we are able to analyse the over all effect of the non-disclosure at various ends. Vide your letter dt. 12th May, 1986, you have expressed your willingness to avail the benefit of the disclosure scheme currently in vague. In the letter correspondence in this regard, you have emphasised from time to time that you do not have enough record to quantify the amount of disclosure and therefore you demanded time. Since 12th May, 1986. I think, the required time has already been given to you so as to enable you to work out the details of disclosure."
In the said letter, the Asstt. Director of IT (Inspection), Surat further informed the assessee as under :
"As per the information available with us in your case, the payments made to you for the supply of material was in excess to the extent of Rs. 48,71,917. According to the Govt., the market price of 8" ERW pipes should be Rs. 195.50 Ps. per mtr. as against which, the payment made was @ Rs. 448 per mtr. In case of other pipes the market sale price should be Rs. 359.30 Ps. per mtr. but the payment was made to you @ Rs. 575.00 per mtr. In such a situation, you are requested to provide the information regarding the purchase cost of the pipes which should be supported by proper vouchers from the persons/concerns from whom purchase have been made which in your case are : (1) Ajanta Pipes Ltd. and (2) Gujarat Steel Pipes Ltd. It is sorry to state that even the photostat copies of these vouchers have not yet been provided. I believe that the purchases have been made at the prevalent market price only and this belief is leading me to conclude that the excess payment received by you to the tune of Rs. 48,71,917 should entirely come as profit earned by you on the supply of these pipes."
From the above extracts it is evident that the Revenue had already found material to show that there had been concealment and these inquiries ultimately culminated into a search at the business premises as well as residential premises of the partners and that of Shri A. A. Pathan. The CBDT has clarified in their circular reported in (1986) 158 ITR 138 (St.) under query No. 19 as under :
"Question No. 19 : Kindly clarify the expression "before detention by the Department"?
Answer : If the ITO has already found material to show that there has been concealment, that would mean the Department has detected the concealment. If the ITO only had prima facie belief, that would not mean concealment has been detected."
Since extensive inquires had been conducted on the basis of the news item which appeared in the paper "Gujarat Samachar", as a result of which the Revenue had already found material to show that there had been concealment by the assessee firm, the case of the assessee will not be covered by the Amnesty Scheme. We do not find any merit in the contention of the learned counsel for the assessee that only prima facie inquiries were conducted on the basis of news item in the Gujarati paper "Gujarat Samachar" because as is evident from our observations above, thorough inquiries were conducted as a result of which the Revenue had material to show that there had been concealment.
9. Coming to the cases relied upon by the learned counsel for the assessee in support of the assessee's claim that it was entitled to the benefits of Amnesty Scheme, we find that the facts of the assessee's case are clearly distinguishable from the facts of the cases relied upon by the learned counsel for the assessee. In Asstt. CIT vs. Prakash Oil Industries & Ginning Factory (supra) to which both of us were parties, the assessee had filed revised return under the Amnesty Scheme disclosing additional income of Rs. 2,50,000 and till filing of revised return, the Revenue authorities had made no inquiries to show that the sum of Rs. 2,50,000 was concealed income. In that case no doubt search had been carried out on 6th Jan., 1984, almost two years prior to the filing of the return by the assessee but no action whatsoever had been taken by the Revenue to go into the facts of the case and unearth the concealed income which they thought to have been concealed by the assessee firm. It was further noted that merely for the reasons that the Accountant of the firm had made statement with reference to a particular paper that it reflected the unaccounted income of the firm, and which had, there and then, simultaneously at a different premises been denied/rejected by the partner, it could in noway be said that the offer by the firm under the Amnesty Scheme of a sum of Rs. 2,50,000 was made after the detection. In the case before us as is evident from the facts narrated above, after the publication of the news item in the Gujarat paper "Gujarat Samachar" the Revenue authorities carried out extensive inquiries and found material to show that there had been concealment.
In Anand Kumar Saraf vs. CIT (supra), the Hon'ble High Court has held as under :
"The mere stigma of search and seizure cannot shut out the assessee from the amnesty. The scheme is an inducement to evaders to make a clean breast of past evasion and square up accounts with the Revenue. The persons who are left out from this opportunity are those whose concealments have come to light before hand by investigations and search and seizure operations carried out by the Revenue. The clarification of the Board in its answer to question No. 19 as to the meaning of the expression "before detection by the Department" show that if the assessing authority has a prima facie belief that would not mean detection. The dictionary meaning of the word "detect" is "to discover the true especially hidden or disguised character or "to discover or determine the existence, presence or fact" (see Webster's Third New International Dictionary, 1976 Edn.). In the instant case, certain documents and papers were seized. They might or might not reveal concealment. Even the seizure could not lead to a prima facie belief as to concealment as the contents, purport and the implications of the documents were yet to be gone into. Therefore, at the point of time the return under the Amnesty Scheme was filed, the AO admittedly had no idea as to whether the seized papers would reveal any concealment. The mere fact that the petitioner-appellant's case was awaiting a probe with reference to his past records as well as extrinsic sources could not lead to his ouster from the scope of the scheme."
From the above paragraph, it is evident that in the case of Anand Kumar Saraf (supra), the petitioner-appellant's case was awaiting a probe with reference to his past records as well as extrinsic sources whereas in the case before us a thorough inquiries had been carried out as a result of which the factum of concealment had been established.
9.1. The Amnesty Scheme, 1985 was a package scheme offered by the Govt. to the taxpayers to come forward with full and true disclosure of their hitherto concealed incomes. From the facts of the case before us it is evident that the assessee did not come forward with clean hand inasmuch as the disclosure made by the assessee was not full and true. The assessee firm had earned substantial income in collusion with Shri Pathan and the officers of the Irrigation Department but declared only a part of it and further it claimed unsubstantiated expenses like secret commission and brokerage paid to Shri Pathan. On this account too the assessee will not be entitled to the benefits of Amnesty Scheme.
10. In the light of above discussion, we hold that the assessee is not entitled to the benefits of the Amnesty Scheme. The orders of the authorities below on this issue are accordingly confirmed.
11. The next grievance of the assessee is that the CIT(A) is not justified in estimating the net profit of assessee's business at the high rate of 30 per cent when in the line of the business carried on, it is not possible to earn such huge profit. During the course of assessment proceedings the AO noted that the assessee did not maintain regular books of account. The assessee declared sales at Rs. 13,88,411 for the asst. yr. 1982-83 and claimed secret commission at 30 per cent of the sale price and further brokerage paid to Shri A. A. Pathan at Rs. 6,09,975. It was argued before the AO that the assessee firm had to pay secret commission, "in this kind of business" to get the tenders passed and to complete all the formalities. It was further contended that the commission to Shri A. A. Pathan was also necessarily to be paid, as per the understanding between the assessee firm and Shri A. A. Pathan. Since the assessee failed to produce any evidence by way of vouchers or supporting evidence, the AO dismissed the assessee's claim of secret commission and brokerage paid to Shri Pathan and only allowed 5 per cent for over-head expenses. The same method was adopted by the AO for computing the income for the asst. yrs. 1983-84 and 1984-85. As per the formula adopted by the AO net profit worked out to 51.36 per cent of sales.
12. The assessee appealed before the CIT(A) who held that net profit applied at 51.36 per cent was certainly high and he directed the AO to work out the net profit by applying the rate of 30 per cent on sales. The remarks of the CIT(A) in this regard are as under :
"From the formula that has been applied by the AO net profits comes to as much as 51.36 per cent of sales which is certainly high. In my opinion, keeping in view the extent and volume of the business carried out by the appellant in all the three years, it would be fair to estimate the net profits at the rate of 30 per cent of the sales. The AO is accordingly, directed to work out the net profit in all the three years at the rate of 30 per cent of the sales. The appellant's request for giving specific direction to AO to allow its claim for over-head expenses or secret commission or payment made to Mr. A. A. Pathan are accordingly rejected".
13. Shri R. M. Shah, the learned counsel for the assessee submitted that the assessee is a contractor and generally in the case of a contractor profit is worked out by applying the net profit rate of 12.5 per cent on the sales. He submitted that the CIT(A) erred in estimating the net profit of the assessee's business at the high rate of 30 per cent when in the line of business carried on, it is not possible to earn such huge profit. He further submitted that the assessee had to pay 30 per cent secret commission and had also to pay brokerage to Shri A. A. Pathan for the services rendered by him in procuring tenders, etc.
14. The learned Departmental Representative submitted that the assessee had not maintained any regular books of accounts; the AO had estimated the net profit by applying the rate of 51.36 per cent and the CIT(A) had already given a substantial relief to the assessee by directing the AO to work out the profit by applying the net profit rate of 30 per cent. He submitted that there was no evidence with the assessee that secret commission of 30 per cent was paid and further that the assessee had to pay brokerage to Shri A. A. Pathan for the services rendered by him. He drew our attention to the case of A. A. Pathan vs. Asstt. CIT (1996) 54 TTJ (Ahd) (TM) 107 : (1995) 55 ITD 33 (Ahd) (TM) and particularly to paras. 54 and 55 of the decision which read as under :
"54. Facts are contrary to these observations. Surat parties nowhere admitted payment of brokerage to "different persons". Cheques drawn on State Bank of India (SBI), Baroda did not contain the signatures of the assessee Mr. A. A. Pathan or Mr. B. B. Pandya, Mr. A. R. Kothari or Mr. L. D. Shaikh. All of them contain the signatures of Mr. B. A. Patel on the reverse side of the cheques. This is admitted by AO himself in question No. 36 in p. 16 of the assessment order for the asst. yr. 1982-83. Further the bank accounts are not in the name of the assessee, his son or his employees."
"55. On the facts and circumstances of the case and on the perusal of the papers filed before me both by the Revenue and the assessee, I agree with the learned J. M. that the assessee did not receive the alleged brokerage/commission. Hence, the assessee cannot be assessed in respect of it in asst. yrs. 1982-83 and 1983-84. My answer to question No. 1 referred to me is in the negative."
15. We have considered the rival submissions and perused the facts on record. In our opinion, it is not a routine case of a contractor where the profit deserves to be worked out by applying the net profit rate of 12.5 per cent. As pointed out in para 3 (supra) the affairs were so arranged in collusion with the engineering staff of the Irrigation Department that the quotations and tenders furnished by the assessee were accepted at the rates more than even double of the market price. The pipes were supplied at the rate of Rs. 448 per mtr. as against market price of Rs. 195.50 per mtr. The excess payments received in this transaction amounted to Rs. 48,71,917. In another transaction the pipes valued at Rs. 359.30 per mtr. were supplied but the payment was made at the rate of Rs. 575 per mtr. The two concerns namely M/s Seema Enterprises and M/s. Associated Engineering Corporation (the present assessee) had received Rs. 1.20 crores approximately as extra payment. As a result of these collusive transactions, as many as 24 officers of the Irrigation Department were suspended for these irregularities in the purchase of ERW pipes. In view of these special features; in the absence of regular books of accounts and in the absence of any evidence that secret commission was paid and brokerage was also paid to Shri Pathan, the rate of 30 per cent upheld by the CIT(A) is fair and reasonable and no interference is called for. This ground accordingly fails and is dismissed.
16. The last grievance of the assessee relates to charge of interest under s. 139(8)/217. It has been submitted that the assessments have been framed by the AO under s. 148 and as such these assessments were not regular assessments and hence there was no justification for charging interest under s. 139(8)/217.
17. We find merit in this contention of the learned counsel, in view of the judgment of the Supreme Court in the case of Modi Industries vs. CIT (1995) 216 ITR 759 (SC) where the view taken by the Bombay High Court in the case reported in CIT vs. Carona Sahu Co. Ltd. (1984) 146 ITR 452 (Bom) (FB), has been affirmed. We accordingly direct the AO to remit the interest charged under s. 139(8)/217.
18. In the result, the appeals are allowed in part.