Income Tax Appellate Tribunal - Panji
Sh. Ganpati Syntheticts Pvt .Ltd, ... vs The Asstt. Commissioner Of Income-Tax, ... on 30 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
BEFORE SH. T.S. KAPOOR, ACCOUNTANT MEMBER AND
SH. N.K.CHOUDHRY, JUDICIAL MEMBER
I.T.A No.04(Asr)/2015
Assessment Year:2004-05
Sh. Ganpati Synthetics (Pvt.) Vs. ACIT, Circle-V,
Ltd., Amritsar. Amritsar.
PAN:AACCS-0633G
(Appellant) (Respondent)
Appellant by: Sh. Salil Kapoor (Adv.)
Respondent by: Sh. Rahul Dhawan (D.R)
Date of hearing:18.09.2017
Date of pronouncement:30.11.2017
ORDER
PER N.K.CHOUDHRY (JM):
The instant appeal has been preferred by the assessee, on feeling aggrieved against the order dated 31.10.2014 passed in Appeal No.643/2006-07, relevant to the Asst. Year: 2004-05 by CIT(A)- Amritsar.
"1. That the Ld. Commissioner of Income Tax (Appeals) has, in view of the facts and circumstances of the case, grossly erred in law and on fact in:-
i.) upholding the rejection of the trading results,
ii) upholding the Addition made by the Ld. A.O. by applying G. P. Rate of 8% and
iii) making further enhancement of Rs.10,90,350/- by applying G. P. Rate of 9%.
2. That the accounts made by the Appellant were correct and complete and the method of accounting was regularly followed and the accounts were wrongly rejected without any specific finding for applying the provisions of Sec.145.
3. That no specific notice of enhancement was given by the Ld. CIT(A) and the requirement noted on the order sheet was duly replied by letter dated 21.05.2014. The Ld. CIT(A) has wrongly held that no objection to enhancement was filed by the Appellant.2 ITA No.04 (Asr)/2015
Asst. Year: 2004-05
4. That the assessment order U/s.143(3) was made on 18.12.2006 and the search was conducted on 16.03.2007 and the order by the Hon'ble Settlement Commission was passed on 26.09.2013 supplementing by order dated 07.03.2014 which covered the assessment year under appeal also i.e. A.Y.2004-05. The order of the Settlement Commission was final and no further addition can lawfully be made.
5. That in any case, all the additions made by the Ld. A.O. and the Ld. CIT(A) are unjust, unlawful and the same are not supported or justified by any material on record.
6. That all the replies filed and the details furnished on record were not properly considered and judicially interpreted and the additions have been wrongly made and the same are also highly excessive."
2. The assessee is engaged in business of processing of clothes (it includes purchase of grey clothes meant for ladies suites, followed by washing, dyeing and printing). These processes are undertaken by the assessee at Vallah Road, Verka Bye Pass, Amritsar. During the year under consideration, assessee made sales at Rs.10,90,35,000/- and earned gross profit at G.P rate of 6.73%, during the Financial Year:2003 to 2004 relevant to the assessment year 2004-05 as against G.P rates of 6.43% in A.Y.2003-04, 7.01% in A.Y. 2002-03 and 8.35% in A.Y. 2001-02.
The assessee filed its return of income on 31.10.2004 declaring total income of Rs.11,31,540/- and the return was accompanied by Audit Report u/s 44AB, Balance Sheet, Trading and Profit & Loss Account etc. The case was processed u/s 143(1) of the I.T. Act.
During the course of hearing on 08.12.2006, the assessee was asked to explain as to why the trading results declared in the return of income should not be rejected in view of the fact that the books of accounts are being maintained in the same manner as last year and that the CIT(A) has taken G.P. rate much higher then shown by the assessee by not satisfying with the reply of the assessee that the books are being maintained on the same basis as last year and day to 3 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 day records are also maintained as per the system followed last year , all sales and purchases are duly vouched and stock tallies are maintained and no defects is found. Further the assessee has also drawn the attention of the AO to the appellate order passed by the CIT(A) CIT(A), for A.Y. 2003-04 in which the rejection of books of account was held as improper. After considering the submissions of the assessee, trading result was rejected and finally the Assessing Officer estimated the G.P rate @ 8% (on the basis of earlier G.P. rate) which worked out the gross profit at Rs.87,22,800/- and was subjected to the taxation purposes.
3. Feeling aggrieved against the assessment order passed by the Assessing Officer, the assessee preferred the first appeal before the Ld. CIT(A) and during the course of appellate proceedings, the assessee filed the following submissions which are reproduced below.
"1. That assessment order u/s 143(3) was made on 18.12.2006 assessing the total income at Rs.24,62,896/- against the declared income of Rs.11,31,540/- and, therefore, an appeal was filed against the said addition on 12.01.2007.
2. Subsequently, there was search u/s 132 at all the premises of the assessed group i.e. business premises of the above company and the business premises of the sister concerns and the residential premises of its directors/partners and family members wherein some loose documents, unaccounted purchase bills, unaccounted stocks and jewellery etc. were found.
3. The assessee group has gone into settlement before the Settlement Commissioner and ultimately, the undeclared income was settled for all the cases of the group including above appellant company, sister concerns and individual members of the group for various assessment years as per the order passed by the Settlement Commission. The original order was passed on 26.09.2013 which was amended by second order dated 07.03 20T4. Copies of both orders are enclosed for ready reference.
4. That in respect of the appellant company namely Shree Ganpati Synthetics (P) Ltd. the order passed by the Settlement Commission covered the period for A.Y.2001-2002 to 2007-08.
5. In view of the facts and circumstances of the case and the order passed by the settlement commission, it is respectfully submitted that the addition called for A.Y.2004-05, if any, is already made and covered by the orders passed by the Hon'ble Settlement Commission and, therefore, no separate addition is called for.4 ITA No.04 (Asr)/2015
Asst. Year: 2004-05 It is, therefore, humble requested that the total addition made by the Asst. CIT by assessment order dated 18.12.2006 for A.Y. 2004-05, may kindly be deleted."
The Ld. CIT(A) while going through with the submission of the assessee, not only confirmed the Assessment Order but also enhanced the G.P rate from 8% to 9% and worked out the gross profit from 87,22,840/- as taken by the AO to Rs.98,13,150/- and dismissed the appeal of the assessee.
4. Feeling dissatisfied, the assessee challenged the impugned order passed by the Ld. CIT(A) before this forum and in support of its case submitted as under:
That the assessment order u/s 143(3) was made on 18.12.2006 assessing the total income at Rs.24,62,898/- against the declared income of Rs.11,31,540/- and thereafter search u/s 132 was taken place at all the premises of Aassessee's group i.e., business premises of Assessee and its sister concerns and the residential premises of its directors/partners and family members, wherein some loose documents, unaccounted purchase bills, unaccounted stocks and jewellery etc. were found. Thereafter, the assessee group had gone into settlement before the Settlement Commission and the undeclared income was settled for all the cases of group including the assessee, its sister concerns and individual members of the group for the various assessment years vide order dated 26.09.2013 which was subsequently, amended vide order 07.03.2014 and the order of the Settlement Commission squarely covers the period of the assessee from Asst. Year 2001-02 to 2007-08 and thereafter, the reassessment u/s 153A w.e.f., 245D of the Income Tax Act, 1961 has been made by the DCIT, Central Circle, Amritsar vide his order dated 28th Jan. 2014 and the Asst. Order u/s 153A supersedes the original assessment order for which the appeal was pending before the ld. CIT(A) . During the search, some unaccounted purchase bills were seized and the Hon'ble Settlement Commission had worked out the addition @ 9% on 5 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 the value of such bills for the Asst. Year only to which the bills were related and for other assessment years, the Hon'ble Settlement Commissioner had accepted the trading result but made the addition by considering the totality of all the facts and circumstances of the case. Further, the order u/s 245 (I) of the Income Tax Act passed by the Settlement Commission is conclusive in nature and no further addition can be made for any assessment year which is covered by the order passed by the settlement commission. Further the Ld. AR submitted that without prejudice to the above submissions, even on facts the addition was wrongly made by the Ld. AO by estimating the G.P. rate at 8%. The assessee company was engaged in the business and printing in which grey cloths were purchased and sold after dying and printing process. All sales and purchases are duly vouched and stock tallies are maintained and same were furnished before the Assessing Officer. No defect was found either in purchases or sales or in the stock tallies and the addition was made on the basis of guess work that the declared G.P. Rate of 6.73 was low. The books were wrongly rejected and the addition as well uncalled for. Although, the above facts have been brought to the knowledge of the Ld. CIT(A), however, he has not paid any head to the same and dismissed the appeal of the assessee and if enhanced the G.P. rate from 8% to 9%, therefore, the order passed by the Ld. CIT(A) is not only contrary to the law but also improper in the facts and circumstances of the case and liable to be set aside.
5. Per contra, the ld. DR submitted that the Assessing Officer, the Assessing Officer rightly rejected the books of account while giving reasoning to the effect that
(a) There is variety of clothes (rate-wise) and there is huge variation in their rates buy there is no record.
6 ITA No.04 (Asr)/2015Asst. Year: 2004-05
(b) There is no day-to-day record about the quality/quantity of cloth and the chemicals used for their purpose.
(c) There is no record co-relating the purchase with the sales And finally the Assessing Officer determined that it is impossible to co-relate sales with stock register regarding valuation and correct income cannot be computed in the absence of proper books of accounts and day to day stock particulars.
Further the Ld. DR relied upon the judgment passed in the case of Harish Ahuja vs. CIT (2015) 93, CCH 0239 (PHHC) in which the Jurisdictional High Court was pleased to held that valuation of closing stock declared by the assessee in the Profit and Loss account was not verifiable in the absence of stock register and so the G.P rate was not verifiable and accordingly restricted the G.P. rate to 9% and upheld the rejection of books of accounts.
It was further argued by the ld. D.R. that while coming to the instant case, the Assessing Officer rightly held that correct income cannot be computed in the absence of proper books of account and day to day stock particulars as the assessee has not maintained quality/quantity wise records of manufacturing, purchases, sales and all the production. In view of the aforesaid judgment the Ld. AO was right in rejection of books of account.
Further the Ld. DR argued that the settlement commission has no power to reopen the completed proceedings at the instance of the assessee and application before Settlement Commission cannot be filed in respect of those assessment years where no case was pending and assessment has already been completed in view of judgement passed in the case of IDCO DYES and CHEMICALS Pvt. Ltd. & Anr. vs. Settlement Commission and Ors. (2003) 259 ITR 0600 , by 7 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 the Hon'ble High Court of Delhi . The ld. D R further submitted that according to the said judgment, the settlement commission has no power to reopen the completed proceedings at the instance of the assessee, and settlement commission can reopen the assessment only in those cases where it is found that it is necessary and expedient for the purpose of disposal of the case pending before it, however, this too can be done only if it is in the interest of Revenue and in such case concurrence of the assessee is required.
It was further submitted by the ld. D.R. that in the instant case , the assessment relevant for the A.Y. 2004-05 was already completed by passing an assessment order dated 18.12.2006 and the same was challenged by instituting appeal before the Ld. CIT(A) on 12th Jan. 2007 and thereafter, the search was conducted on 16.03.2007 and application for settlement before settlement commission was made only on 29.05.2007 which goes to show that as on the date of filing of the application for settlement, the assessment proceeding has already been completed and even the same was challenged before the Ld. CIT(A), therefore, it cannot be construed that the assessment proceeding was not completed.
The Ld. DR further drawn our attention to the clause 65.3, 65.4 & 65.5 of Circular No.7/2003 dated 05.09.2003 which are reproduced herein below and submitted that appeal, revision or rectification proceedings pending on the date of initiation of search u/s 132 or requisition shall not abate and it is also clarified that the assessment or reassessment made u/s 153 A shall be subject to interest, penalty and prosecution, if applicable.
65.3.A Further three new sections 153A, 153B and 153C have been inserted in the Income-tax Act to provide for assessment in case of search or making requisition.
8 ITA No.04 (Asr)/2015Asst. Year: 2004-05 65.3.B The new section 153 A provides the procedure for completion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under section 132A after 31st May, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132A.
65.3.C The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate.. Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under section 153A. It is also clarified that assessment or reassessment made under section 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
65.3.D The new section 153B provides for the time limit for completion of search assessments. It provides that the Assessing Officer shall make an order of assessment or reassessment in respect of each assessment year, falling within six assessment years under section 153A within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed.
6. We having heard the parties at length and perused the documents available on record and gone through with the facts and circumstances of the case as it is not in controversy that the assessment relevant to the Asst. Year: 2004-05 was made on 18.12.2006 by the Assessing Officer and thereafter, the same was challenged before the Ld. CIT(A) on dated 12th Jan, 2007 and thereafter during the pendency of appeal itself, the search was conducted at the business and residential premises of the assessee and its sister concerns on 16.03.2007 and an application for settlement was filed before Settlement Commission only on 27.05.2007.
9 ITA No.04 (Asr)/2015Asst. Year: 2004-05 Before going further let us to peruse the relevant provisions of law which are necessary for proper disposal of the instant appeal.
Chapter No.(xix) was introduced by Finance Act w.e.f 1st June 2007 which specifically headed as APPLICATION FOR SETTLEMENT OF CASES .
Section 245(C) prescribed the filing of application for settlement:-
245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided Section 245(D) prescribed the procedure to be followed on receipt of an application under section 245C:-
245D. (1) On receipt of an application under section 245C, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with, and on hearing the applicant, the Settlement Commission shall, within a period of fourteen days from the date of the application, by an order in writing, reject the application or allow the application to be proceeded with:
Further, Sec.245E prescribes the powers of Settlement Commission to reopen the completed proceedings:-
245E. If the Settlement Commission is of the opinion (the reasons for such opinion to be recorded by it in writing) that, for the proper disposal of the case pending before it, it is necessary or expedient to reopen any proceeding connected with the case but which has been completed under this Act by any income-tax authority before the application under section 245C was made, it may, with the concurrence of the applicant, reopen such proceeding and pass such order thereon as it thinks fit, as if the case in relation to which the application for settlement had been made by the applicant under that section covered such proceeding also :
Provided that no proceeding shall be reopened by the Settlement Commission under this section if the period between the end of the assessment year to which such a proceeding relates and 10 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 the date of application for settlement under section 245C exceeds nine years:
Provided further that no proceeding shall be reopened by the Settlement Commission under this section in a case where an application under section 245C is made on or after the 1st day of June, 2007.
Further, Section 245-I enumerated the order of settlement to be conclusive.
245-I. Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.
Further three new sections 153A, 153B and 153C have been inserted in the Income-tax Act to provide for assessment in case of search or making requisition. The new section 153A provides the procedure for completion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under section 132A after 31st May, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132A.
The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, 11 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under section 153A. It is also clarified that assessment or reassessment made under section 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
The new section 153B provides for the time limit for completion of search assessments. It provides that the Assessing Officer shall make an order of assessment or reassessment in respect of each assessment year, falling within six assessment years under section 153A within a period of two years from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed.
While coming to the instant case, the assessee vide its application dated 29.05.2007 filed before the Settlement Commission subjected the assessment orders for A.Y. 2001-02 to 2007-08 without mentioning the fact that the assessment of the A.Y. 2004-05 has already been completed. The Settlement Commissioner while computing the income u/s 245D(4) of the Act of the assessee for the Asst. Year 2004-05, determined at Rs.12,57,540/- instead of Rs.11,31,540/- which was shown by the Assessee in its return of income and the DCIT, Central Circle, Amritsar while giving effect to the order of the Hon'ble Settlement Commission, New Delhi assessed the income at Rs.12,57,540/- as finally settled by the Hon'ble Settlement 12 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 Commission and passed an consequential order u/s 153A r.w. Sec. 245D(iv) of the Act 1961.
We have analyzed the relevant provisions of law as well as the facts and circumstances of the case, from simple reading of Sec. 245C of the Act it can easily be construed that the assessee may at any stage of case relating to him make an application in such form as prescribed under the Act, meaning thereby the Settlement Commission can be approached at any stage of case by an assessee and further Sec. 245A prescribes that every order of Settlement Commission passed by the Settlement Commission under sub-section 4 of Sec.245D shall be conclusive as to the matter stated therein and no matter covered by such order shall save as otherwise provided in this chapter be reopened in any proceeding under this Act or under any law for the time being in force, which goes to show that order of settlement to be considered as conclusive and in ordinary circumstances cannot be reopened in any proceeding under the Act and under any other law for the time being in force.
Further Sec.245E prescribes powers of Settlement Commission to reopen the completed proceedings which clarifies that in the opinion of the settlement commission (the reasons for such opinion to be recorded by it in writing), that, for the proper disposal of the case pending before it is necessary or expedient to reopen any completed proceeding connected with the case, it may, with the concurrence of the applicant, reopen such proceeding and pass such order thereon as it thinks fit. Further provided certain limitation of nine years in reopening of proceeding and no proceeding shall be reopened by the Settlement Commission under this Section in a case wherein application u/s 245C is made on or after 1st Day of June, 2007. While coming to the instant case, no doubt that the assessment proceeding 13 ITA No.04 (Asr)/2015 Asst. Year: 2004-05 relevant to the Ass. Year 2004 related to the assessee was completed and not specifically reopened by the Settlement Commission by giving any reason, however, according to Sec.245E, before 1st Day of June, 2007, the Settlement Commission was fully empowered to reopen the completed proceedings, as in the instant case the assessment proceeding was completed only on 18.12.2006 which is clearly before the 1st day of June, 2007 and therefore could by subjected to the power of the settlement commission.
We are of the considered view, although no specific reasons have been given and the proceeding relevant to assessment year 2004-05 was not reopened, however, the same was taken into consideration by the settlement commission and order dated 26.09.2013 was passed , which was supplemented by the order dated 07.03.2014 covering the assessment order under appeal qua A.Y. 2004-05 and while giving effect to the said order passed by the Settlement Commission, the Ld. DCIT has already passed an order u/s 153A r.w.Sec.245D (iv) of the I.T. Act 1961, therefore, we are of the considered opinion, keeping in view of the mandates of the Sec.245-C, 245E and 245-I and in order to end the litigation, impugned order under challenge passed by the Ld. CIT(A) is liable to be set aside .
The judgment relied upon the by Ld. DR in the case of IDCO, DYES & CHEMICALS (Pvt.) Ltd. & Anor. Vs. Settlement Commission & Ors, does not help the Revenue Department as it is a fundamental doctrine of all courts that there must be an end of litigation.
In overall consideration the other issues and grounds raised by the assessee does not requires any specific adjudication.
14 ITA No.04 (Asr)/2015Asst. Year: 2004-05 In view of the above, we set aside the impugned order passed by the ld. CIT(A). In cumulative effect, all the grounds raised by the assessee stands disposed off.
7. In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open Court on 30.11.2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:30.11.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By order