Income Tax Appellate Tribunal - Chandigarh
Saqi Brothers vs Income Tax Officer. on 28 July, 1995
Equivalent citations: (1996)54TTJ(CHD)306
ORDER
J. KATHURIA, A. M. :
This appeal by the assessee pertains to asst. yr. 1982-83. Though as many as 11 grounds have been taken by the assessee, the issues are not many.
2. The first issue is regarding the reopening of assessment. Brief facts of the case are these. The assessee is a firm deriving income from non-ferrous metal, electroplating and polish materials. The assessee-firm filed its original return of income for asst. yr. 1982-83 on 31st Aug., 1982, declaring total income of Rs. 42,760. The Assessing Officer (AO) vide order dt. 25th March, 1995, completed the assessment on total income of Rs. 75,540. This, inter alia, included a trading addition of Rs. 18,380 and a non-genuine unexplained credit of Rs. 10,000. The assessee preferred appeal before the learned AAC. It appears that at the time of original assessment though the assessment was made under s 143(3), books of account were not produced. It was, however, stated before the learned AAC that the books of account were with the assessee and could be produced. The books of account were impounded by the learned AAC for further scrutiny. The learned AAC, however, felt that since the books of account had not been produced before the Assessing Officer (AO), it would be in the fitness of things that these were examined by the AO. The assessee also submitted before the learned AAC that it wanted to make a disclosure under the Amnesty Scheme. The learned AAC, therefore, thought it proper to set aside the assessment vide his order dt. 25th Feb., 1986, with the directions to the AO to frame a de novo assessment after a thorough scrutiny of the books of account. He also advised the AO to consider the proposal under the Amnesty Scheme put forth by the assessee.
3. The assessee filed a revised return on 21st March, 1986, declaring a total income of Rs. 85, 897. The AO issued a notice under s. 148 of the IT Act on 15th July, 1986, to assess the escaped income. The assessee on the face of the revised return filed on 21st March, 1986 had written that the return filed be treated as filed in response to notice under s. 148 of the Act. A letter dt. 28th July, 1986, was also written by the assessee that the revised return was filed to avoid the prolonged litigation by surrendering an amount of Rs. 50,000 against the additions made by the AO over the returned income. It is this reopening of assessment which is under challenge before us.
4. Shri R. N. Sehgal, the learned counsel for the assessee, made valiant efforts to submit that since the matter had been set aside by the learned AAC on 25th Feb., 1986, there was no warrant for issuing a notice under s. 148 on 15th July, 1986. The submission was that when the assessment proceedings were pending, reopening of assessment under s. 147 was invalid. It was submitted that the assessment order passed by the AO on 30th March, 1989, was pursuant to the notice issued under s. 148 and since the notice issued was illegal and invalid, the assessment framed on 30th March, 1989, itself was illegal and invalid and may be quashed. The learned counsel for the assessee relied on the decision of the Jaipur Bench of the Tribunal in the case of R. Y. Durlabhji vs. ITO (1989) 76 CTR (Trib)(Jp) 98. In that case, it was held that assessment proceedings were invalid in view of the earlier reassessment being pending at the time of issue of the notice to the assessee.
5. The learned Departmental Representative, on the other hand, contended that though the learned AAC passed the order on 25th Feb., 1986, the same was despatched by the said authority on 9th Sept. 1986. In this regard, the learned Departmental Representative relied on the letter No. 111, dt. 2nd June, 1995, written by the ITO, Ward II(6), Ludhiana, to say that the appellate order was despatched to the CIT, Patiala, and the Range IAC only on 9th Sept., 1986. It was, therefore, vehemently argued that since proceedings under s. 148 were initiated on 15th July, 1986, when the order of the learned AAC was not available, the AO was justified in reopening the proceedings by issue of notice under s. 148.
6. In reply, Shri Sehgal submitted that all the facts had not been projected by the Revenue in this regard. It was submitted that the AO who reopened the assessment proceeding was aware of the fact that the learned AAC had set aside the order and hence the proceedings for asst. yr. 1982-83 were already pending. He requested that the record of the assessee in the office of the learned AAC be summoned or produced so that the facts could be properly projected and appreciated. It was also submitted that the demand and collection (D&C) register of the AO may also be directed to be produced so that it could be verified whether before 31st March, 1986, the AO himself had deleted the demand because the case was set aside by the first appellate authority.
7. The learned Departmental Representative was accordingly requested by the Bench to produce the AACs folder as also the demand and collection register maintained by the AO. Despite repeated opportunities, the demand and collection register was not produced on the ground that the same was not available. The AACs folder was, however, produced, a perusal of which showed that the learned AAC has written a D. O. letter dt. 19th March, 1986, to Shri S. S. Goyal, ITO, Distt. II(2), Ludhiana, asking the AO to get, the impounded books of account collected from the AACs office and if these were released to the party, the same were advised to be impounded by the ITO for further scrutiny. This letter clearly stated that the assessment in the case of the assessee had been set aside by the learned AAC.
8. We have carefully considered the rival submissions as also the facts on record. What we have to decide in the present appeal is as to whether the AO was aware of the fact or not that the assessment had been set aside by the AAC when he issued a notice under s. 148. The DO letter written by the learned AAC to the AO on 19th March, 1986, clearly brings to the notice of the AO that the assessment in the case of the assessee for asst. yr. 1982-83 had been set aside. The letter was found on the file of the AO also. The very fact that the Revenue has not produced the demand and collection register also shows that perhaps the demand had been taken to plus-minus account by 31st March, 1986, and that fact was being withheld on the plea that the demand and collection register which is a very important register, was not available. It is immaterial as to when the learned AAC despatched the appellate order to the learned CIT concerned or the Range IAC concerned. A copy of the appellate order invariably goes to the AO also. From the above discussion, it is quite clear that the copy of the appellate order meant for the AO would have gone to the AO in time. The DO letter dt. 19th March, 1986 also clearly shows that the AO was aware of the fact that the proceedings for asst. yr. 1982-83 had been set aside by the learned AAC. The non-production of demand and collection register also shows that perhaps the demand had also been taken to plus-minus account on 31st March, 1986. We, therefore, hold that the AO was aware of the fact that the assessment proceedings in the present case had been set aside by the AAC and that the assessment proceedings were thus pending. In that view of the matter, the AO was not justified in issuing a notice under 148 on 15th July, 1986. The notice issued was thus invalid.
9. The next issue that arises for consideration is that after having held the notice under s. 148 as invalid, whether the present proceedings should be quashed. We, however, find that the matter had already been set aside by the learned AAC with the direction to the AO to make a de novo assessment. Books of account of the assessee had been produced for the first time before the first appellate authority and these books had to be gone into by the AO. The assessees disclosure under the Amnesty Scheme was also to be taken into consideration. The assessee had in the meantime filed a revised return which also had to be taken into consideration by the AO while completing the fresh assessment. The mere fact that a reference has been made in the assessment order from which the present appeal has emerged, does not mean that that order is passed only in the reassessment proceedings. In our opinion, the assessment order passed by the AO on 30th March, 1989, is a composite order which not only takes into consideration the fact of proceedings having been reopened under s. 148 but also the fact that the proceedings have been set aside by the first appellate authority. We, therefore, do not consider the order passed by the AO on 30th March, 1989, as invalid. The order was very much valid and the proceedings cannot be quashed. This issue is decided against the assessee.
10. The next issue raised by Shri Sehgal was that in this case the learned Dy. CIT has issued three directions under s. 144A which vitiated the proceedings. It was pointed out that the assessee firm had filed an application before the learned Dy. CIT for his consideration. The learned Dy. CIT issued instructions vide letter dt. 22nd/25th, 11th Nov., 1988, to the AO asking him to make an addition of Rs. 1,37,948. It was pointed out by the learned counsel for the assessee that the learned Dy. CIT reviewed his earlier directions vide letter dt. 10th Feb., 1989, asking the AO to make an addition of Rs. 3,45,032. It was further submitted that the learned Dy. CIT issued yet another letter dt. 21st March, 1989 to the AO revising his earlier directions under s. 144A and asked the AO to make an addition of Rs. 3,17,219. It was submitted that under the law, the learned Dy. CIT was not given the power to review his own directions and that he should not have issued directions from time to time. It was submitted that the issue of different directions at different times had vitiated the proceedings and rendered the order illegal. In this regard, the learned counsel for the assessee relied on the Andhra Pradesh High Court decision in the case of CIT vs. ITAT (1994) 206 ITR 126 (AP) for the proposition that the Tribunal had no inherent power and could not review its order. Reliance was also placed on the Madras High Court decision in the case of CIT vs. R. Chelladurai (1979) 118 ITR 108 (Mad) for the proposition that the Tribunal had no power to review its earlier order and that the only power the Tribunal had was to amend the order passed under s. 254(1) with a view to rectify any error apparent from the record.
11. The learned counsel for the assessee also relied on the Orissa High Court decision in the case of CIT vs. ITAT (1992) 196 ITR 590 (Ori) for the proposition that the Tribunal had no authority to review its order and that it can only rectify a patent mistake in the earlier order passed by it.
12. On the anology of the above decisions, the learned counsel for the assessee submitted that the learned Dy. CIT also had no authority to review his earlier directions and that the issuance of different directions had vitiated the assessment order which was liable to be quashed.
13. The learned Departmental Representative submitted that there was no bar to the learned Dy. CIT reviewing his earlier directions and, in any case, the third direction was issued only because the assessee asked for an opportunity of hearing which had not been granted to it when the second direction was issued.
14. We have carefully considered the submissions of both the sides. We agree with the learned counsel for the assessee that the learned Dy. CIT could not review his directions from time to time. In the first letter containing the direction the learned Dy. CIT had asked the AO to make an addition of Rs. 1,37,948. Then he reviewed his directions and asked the AO to make on addition of Rs. 3,45,032 and finally he revised the directions after hearing the assessee firm and asked the AO to make an addition of Rs. 3,17,219. Since the assessee itself had offered a sum of Rs. 50,000 under the Amnesty Scheme, a further addition of Rs. 2,67,219 was made by the AO.
15. In our opinion, the issue of different directions which was certainly not in order, would not, however, render the proceedings as invalid or illegal. The first direction for instance asking for an addition of Rs. 1,37,948 was not vitiated because the learned Dy. CIT had issued the instructions after hearing the assessee and at the instance of the assessee. To that extent, the order of the AO cannot be said to be invalid or illegal. This, in our opinion, may affect the quantum of addition but will not render the entire assessment order as illegal liable to be quashed. We accordingly hold that this issue also cannot be decided wholly in favour of the assessee and we cannot quash the proceedings simply because the learned Dy. CIT had issued three sets of different directions.
16. The next issue is regarding the quantum of addition. We find that the AO has considered the position of accounts for two different periods, i.e., from 1st April, 1981 to 31st July, 1981 and from 1st Aug., 1981 to March, 1982. For the first period, it was found that the assessee had shown sales of Rs. 10,17,771 against the opening stock and purchases amounting to Rs. 6,71,371 thereby resulting in a difference of Rs. 3,46,400. In the second period it was found that the purchases were of the order of Rs. 5,47,448, sales were of the order of Rs. 1,53,650 and after considering the closing stock of Rs. 94,926, the difference came to Rs. 3,05,018.
17. As pointed out above, the AO made an addition of Rs. 3,17,219 which was confirmed by the learned CIT(A) and the assessee has come up in further appeal against the addition of Rs. 2,67,219 representing the difference between the addition made by the AO at Rs. 3,17,219 and the amount offered under the Amnesty Scheme of Rs. 50,000.
18. Shri Sehgal submitted that no addition could be made in respect of the discrepancies found as a result of preparation of monthwise trading results. It was submitted that the whole exercise of the Revenue in this regard was based on certain assumptions and projections which was not permissible in law. The learned counsel for the assessee in this regard relied on the Punjab & Haryana High Court in the case of Bhalla Brothers (1981) 10 TLR 215. It was submitted that in the said case, the addition made by the Revenue was deleted by the Tribunal and the High Court held that the addition had been properly deleted and that no question of law arose. Relying on the decision of the Jaipur Bench of the Tribunal in the case of Tarachand Shantilal vs. ITO (1987) 28 TTJ (Jp) 128, it was submitted that in a case like this where unaccounted for purchases were suspected, the only addition which could be made was for estimating a suitable profit on the sales made outside the books of account. It was submitted that the assessee had declared gross profit rate of 4% and on that basis only an addition of Rs. 12,000 or so could be made which was much less than had been offered by the assessee under the Amnesty Scheme at Rs. 50,000. It was, therefore, submitted that no further addition was called for and if at all any addition had to be made, the same should have been covered by the amount of Rs. 50,000 offered by the assessee itself.
19. The learned Departmental Representative strongly supported the orders of the authorities below and submitted that there was negative stock as on 31st July, 1981, and that there was discrepancy of Rs. 3,05,080 in the second period from 1st Aug., 1981 to 31st March, 1982. It was submitted that the vouchers had not been produced before the AO and hence the addition was proper and be upheld.
20. We have carefully considered the submissions of both the sides as also the facts on record. In our opinion, the whole exercise of working out monthwise trading results was meaningless because certain things had to be assumed by the AO in this regard. It had, for instance, to be assumed that the gross profit rate of the assessee would be uniform throughout the year. In the case of Bhalla Bros. (supra), such an exercise was made and it was found that on a particular date there was negative stock. The AO made an addition in this regard. The Tribunal, however, deleted the addition and the High Court held that the addition has been properly deleted and no question of law arose. So far as the first period is concerned, we find that the AO had arrived at a situation where there was a negative stock. In such a situation, no addition can be made as held by the Punjab & Haryana High Court in the case of Bhalla Bros. (supra). Even otherwise, if the assessee had shown more sales in the books of account then the AO should have no grievance because the unaccounted purchases and the profit thereon had already been declared by the assessee in the excess sales shown. In the second period also even if there was any discrepancy, the AO cannot make an addition in respect of the discrepancy as a whole. He has to take into consideration the quantum of sales which may have been effected outside the books of account and then apply a suitable gross profit rate. That was precisely what was done in the case of Tarachand Shantilal (supra). At the most, the AO could have estimated the sales made outside the books of account and applied a suitable gross profit rate. If that basis is adopted for making the addition, the addition would hardly work out to Rs. 12,000 against which the assessee itself had offered a sum of Rs. 50,000 which is quite adequate and reasonable. We accordingly hold that nothing over and above Rs. 50,000 offered by the assessee itself could be sustained as addition in the assessees hands. The addition of Rs. 2,67,219 is accordingly deleted.
21. The last issue is regarding the charging of interest under ss. 139(8) and 217. The learned CIT(A) did not adjudicate this issue on the ground that charging of interest under the aforesaid sections was not appealable. We do not agree with the finding of the learned CIT(A). Charging of interest is a part of the process of assessment and since the assessee is challenging certain other additions, the assessee was within its power to challenge the charging of interest as well.
22. The learned counsel for the assessee, however, submitted that because of the Punjab & Haryana High Court decision in the case of Smt. Kamla Vati vs. CIT (1978) 111 ITR 248 (P&H), since the assessment order was under s. 147, it was not a regular assessment and hence interest under the aforesaid sections could not be charged.
23. We have already discussed this issue above and come to the conclusion that the order passed by the AO was a composite order. We have already held above that the notice issued under s. 148 was not valid in law. After having recorded that finding, we cannot allow the assessee to have its cake and eat it too. The order in the present proceedings was an order passed pursuant to the directions of the first appellate authority who had set aside the assessment and hence it was not an order passed in the reassessment proceedings. We, therefore, hold that the ratio of the decision in the case of Smt. Kamla Vati (supra) could not apply in the present case.
24. As regards the charging of interest, the learned Departmental Representative submitted that in Circular No. 451 dt. 17th Feb., 1986 reported at (1986) 158 ITR (St) 135, the answer to question No. 26 clarified that where an order had been set aside on appeal and the assessee surrendered the amount which was the subject matter of dispute, the surrender could not be taken as suo motu declaration but a lenient view will be taken if the assessee decides to turn honest even at this stage. Relying on the Allahabad High Court decision in the case of Jyoti Steels vs. CIT (1987) 166 ITR 558 (All), it was submitted that a lenient view would vary from case to case and several factors may have to be borne in mind such as severity of default, the loss occasioned to the Revenue and a host of other attending circumstances before deciding on the lenient view to be taken. Relying on the decision in the case of Radio Instruments Associates (P) Ltd. vs. CIT (1987) 166 ITR 718 (AP) it was submitted that there was no connection between the cash credits and amounts disclosed voluntarily, cash credit could be assessed as the income from undisclosed sources. The learned Departmental Representative, therefore, submitted that since the assessees surrender was not found to be honest or complete or voluntary, no lenient view could be taken in the present case.
25. We have carefully considered the submissions of both the sides. In our opinion, according to circular No. 451, dt. 17th Feb., 1986, the Board has clearly laid down that in a case like this where a surrender is made after the matter has been set aside by the appellate authority, a lenient view should be taken. We find that originally, the AO in his assessment order dt. 25th March, 1985 had made a total addition of Rs. 28,380. The learned CIT(A) set aside the assessment. The assessee offered a sum of Rs. 50,000 under the Amnesty Scheme. The AO finally made an addition of Rs. 3,17,219 and the net addition after considering the amount surrendered at Rs. 50,000, came to Rs. 2,67,219. We have deleted the above addition in its entirety. The position, therefore, is that Rs. 50,000 offered by the assessee is more than what had been added originally by the AO. In our opinion under these circumstances, a lenient view would suggest that no interest under ss. 139(8) and 217 would be chargeable. we may have given a finding for charging of interest on the basis of the income finally assessed but looking to the facts of the case and taking into consideration the Amnesty Scheme and the circular issued by the Board in this regard, we hold that no interest under the aforesaid sections was chargeable at all because of the lenient view to be taken. This ground is accordingly accepted.
26. In the result, the appeal is allowed in the above terms.