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In Reckitt & Colman of India Ltd. & Anr. v. Asstt. CIT (TDS) & Ors. (2001) 251 ITR 306 (Cal)it was held that the procedure as laid down in sections 131 and 133A is not meant for and/or can be resorted to only in the case of proceedings under Chapter XIV of the Act. This power can be exercised to conduct TDS Survey.
HIGH COURT OF CALCUTTA
Reckitt & Colman of India Ltd.
v.
Assistant Commissioner of Income-tax
KALYAN JYOTI SENGUPTA, J.
WRIT PETITION NO. 1172 OF 2000
MAY 16, 2001
Section 131, read with sections 120, 133A and 206, of the Income-tax Act, 1961 and rule 36A of the Income-tax Rules, 1962 - Income-tax authorities - Power regarding discovery, production of evidence, etc. - Petitioner was required to deduct tax at source from various payments made by it to various parties - It filed relevant forms before prescribed income-tax authority (respondent No. 1) within meaning of section 206 - Respondent No. 1 issued summons under section 131 to petitioner to produce books and documents for failure to deduct tax at source from payments made to various persons under sections 194C and 194-I which had come to his notice following survey authorised by Joint Commissioner of Income-tax and carried out by income-tax inspectors under section 133A - Petitioner contended that prescribed income-tax authority under section 206 has no competence, authority, jurisdiction to make any enquiry, investigation, or authorise any person to cause any survey to be made under section 133A and/or issue any summons under section 131 in respect of prescribed returns under section 206 - Whether powers vested by statute under sections 131 and 133A are general and not restricted to any proceedings under Chapter XIV and same can be exercised by authorities mentioned therein whenever appropriate situation arises - Held, yes - Whether circular dated 12-2-1991 issued by Board in exercise of power vested under section 120 instructing Chief Commissioner and Director General to vest power of Assessing Officer upon prescribed income-tax authority under section 206 for levying penalty and for taking other suitable measure is valid - Held, yes - Whether notification dated 15-9-1999 issued by Chief Commissioner in pursuance of said instruction conferring power and jurisdiction on respondent No. 1 and other officials to take steps for failure to deduct tax at source and also to pay collected tax was valid and perfectly lawful - Held, yes - Whether, therefore, respondent No. 1 and other respondents had exercised powers under sections 131 and 133A correctly and there was no merit in writ petition which had to be dismissed - Held, yes - Whether since, in instant case, authority and/or jurisdiction of respondent No. 1, who was designated as prescribed income-tax authority within meaning of section 206, had been challenged, writ petition was maintainable - Held, yes
Circulars & notifications - CBDT Circular dated 12-2-1991
FACTS
The petitioner engaged in business of manufacture and sale of various food, household and medicinal products, had to deduct income-tax at source from the payments made to various persons under section 194C, 194-I, etc., and file TDS returns prescribed under rule 37. The petitioner was a regular assessee and was filing its returns of income and TDS returns as required under the law. Respondent No. 1 was only the prescribed income-tax authority within the meaning of section 206 who had been designated by the Chief Commissioner under section 120, read with rule 36A for receiving annual TDS returns in respect of the petitioner. It appeared that the Joint Commissioner authorised inspectors of income-tax to conduct survey under section 133A regarding TDS matters in the premises of the writ petitioner on 22-2-2000. It was alleged that during the course of said survey, non-deduction of tax from payments of Rs. 4.5 crores on account of specific printing, of Rs. 137.64 for production of different items on contract basis and of Rs. 2.07 lakhs on account of rent was detected. This information was passed on to the respondent No. 1 who issued a show-cause notice dated 5-4-2000, calling upon the writ petitioner to explain its failure to deduct tax at source. Earlier the respondent No. 1 had issued summon dated 28-3-2000 for production of documents and books under section 131. The petitioner challenged the authorisation issued by the Joint Commissioner for survey under section 133A and also summons and notice issued by first respondent under section 131, contending that the prescribed income-tax authority under section 206 has no competence, authority, jurisdiction to make any enquiry, investigation or authorise any survey or to issue any summons in respect of the prescribed returns under section 206 in view of the object and scheme of the Act.
HELD
Regarding the maintainability of the writ petition, it is the settled position of law that ordinarily issuance of the summons and notice as aforesaid is never interfered with by the writ court as it does not affect anyone's right, particularly when the statutory authority has undertaken to make enquiry and investigation as has been decided by the High Court in the case of Indo Asahi Glass Co. v. ITO [1996] 222 ITR 534/[1998] 96 Taxman 122 . But in the instant case, the authority and/or jurisdiction of the respondent No. 1 who was designated as a prescribed income-tax authority within the meaning of section 206 had been questioned, as such the writ was maintainable. Even the theory of alternative remedy by citing the decision in Karam Chand Thapar & Bros. (Coal Sales) Ltd. v. Dy. CIT [1997] 227 ITR 793 (Cal.) was also not applicable, as no final order had been passed herein.
In order to ensure collection of revenue and further to prevent the payment of tax being evaded and/or dodged, the Legislature has provided with one of the methods evolved in Chapter XVII of the Act. Usually a taxpayer is obliged to file returns for his or its own income with the concerned Assessing Officer. Under the scheme of the aforesaid Act, it is the primary responsibility of the person who earns it to pay income-tax but under Chapter XVII the person who makes payment has been saddled with statutory responsibility to collect tax at the time of payment from the classified person or persons as mentioned in the said Chapter. Sections 191 to 196D mention the manner under which and the persons from whom such collection shall be made by the payer. Under section 206, the payer is duty-bound to furnish the prescribed returns in the prescribed form for collection of the aforesaid taxes at the time of payment from the payee. This method of collection of taxes is in addition and/or supplement to the usual method of collection of taxes. Under section 203 within Chapter XVII, it is provided that in the case of such collection of taxes at source, necessary certificates are issued to the payee enabling it or him to get exemption from payment of tax to the extent collected. Under section 201 consequence of failure to deduct or pay the collected tax has been provided. It is clear from the aforesaid section in the event of there being any failure, the payer is deemed to be an assessee-in-default in respect of the tax. Consequently, all the mischiefs of penal provisions for failure to collect or pay tax will be applicable.
Here was a question on the allegation of default in deducting taxes by the writ petitioner, whether for the purpose of recovery thereof treating the petitioner to be an assessee-in-default, survey enquiry as provided under sections 131 and 133A could be resorted to by the prescribed income-tax authority under section 206 or not. The power has been vested by the statute under sections 131 and 133A in general. The authorities mentioned in the aforesaid two sections can exercise this power whenever appropriate situation arises and the same is not restricted to any proceedings under Chapter XIV.
In the instant case as it appeared from the affidavit-in-opposition and notice itself in order to find out the correct position as to default in deducting taxes, necessary summons had been issued for survey under section 133A and also for production of the documents under section 131. The default was alleged to have been committed by the writ petitioner not as an income-taxpayer-assessee but as a collecting agent under Chapter XVII. As a remedial measure for such default under the aforesaid Chapter, the respondent-department had taken this step. Unlike other statutes power and jurisdiction of the income-tax authorities excepting for the Board has not been specified. Any of the income-tax officials is competent to exercise power and jurisdiction as may be conferred upon him by the Board not otherwise. So power of allocation of business under the scheme of the Act has been exclusively vested upon the Board and this will be clear from sections 119 and 120.
It appears from section 120 that the Board cannot confer jurisdiction whimsically or arbitrarily, and it is to be done within the guidelines mentioned in sub-section (3). It also appears from sub-section (6) that the Board can give directions for the purpose of, amongst others doing any other act or thing under this Act or any rule made thereunder by any person or class of persons, the income-tax authority exercising and performing the powers and functions in relation to the said person or class of persons shall be such authority as may be specified in the notification. The import of these words 'doing any other act or thing' is of wide amplitude, however, not the extent beyond the scope and purport of the Act itself. So it is clear that 'any act or thing' means to achieve fulfilment of the object of the Act.
Under Chapter XVII it has not been expressly provided whether the prescribed income-tax authority while accepting the returns under section 206, can take any subsequent step in the case of failure in deducting tax or depositing tax so collected. Complete machinery has not been provided for therein. In order to obviate this difficulty the Board by a circular dated 12-2-1991, has instructed the Chief Commissioner and Director-General to vest the power of the Assessing Officer upon the prescribed income-tax authority under section 206 for levying penalties and for taking other suitable measures. Incidentally, the prescribed income-tax authority is a designated official and it is not different from the Assessing Officer as will be apparent from rule 36A.
Accordingly, the Chief Commissioner by a notification dated 15-9-1999 had conferred power and/or jurisdiction amongst others upon respondent No. 1 herein and also other officials to take steps for failure to deduct tax at source and also to pay the collected tax. The investment of power and conferment of jurisdiction are perfectly lawful and emanates from section 120, not from section 206 and the Board has exercised its power under the aforesaid section. Thus, the notifications issued by the Board were valid in law. The provision of section 206 provides for furnishing returns but the person who is to receive them is not stipulated or mentioned therein but it is specified by the rules. By and under rule 36A the Chief Commissioner will designate any Assessing Officer for this purpose. This power and jurisdiction either of the Chief Commissioner or of the Assessing Officer qua the prescribed income-tax authority does not conflict with the power and jurisdiction under section 120, nor does this provision visualise exclusion of applicability thereof if the situation so arises.
Therefore, both the aforesaid two circulars as well as notifications were lawful and valid. Consequently, it had to be held that the respondent No. 1 as well as the other officials had acted lawfully within their power as lawfully conferred upon them.
The power under section 131 can, however, be exercised by the authorities mentioned in that section itself and this power cannot be exercised by any official subordinate to the rank of the Assessing Officer. However, the power of survey under section 133A can be exercised by any income-tax authority including the Income-tax Inspector.
The aforesaid powers, as it appears from the scheme of the Act, are of general nature, do not confine to Chapter XIV only and are to be exercised by the respective authorities mentioned therein whenever necessary for any purpose of the Act. Such power can even be required to be exercised by the Board and the Chief Commissioner by issuing valid notification under section 120. Therefore, the respondent No. 1 had correctly exercised her power; so also the other respondents. Therefore, there was no merit in the writ petition.
CASES REFERRED TO
Indo Asahi Glass Co. v. ITO [1996] 222 ITR 534/[1998] 96 Taxman 122 (Cal.), B.K. Saha & Bros. (P.) Ltd. v. ITO [1989] 180 ITR 293/[1990] 48 Taxman 193 (Cal.), Karam Chand Thapar & Bros. (Coal Sales) Ltd. v. Dy. CIT [1997] 227 ITR 793 (Cal.), ITO v. Ashoke Glass Works [1980] 125 ITR 491 (Cal.), Asstt. CCE v. National Tobacco Co. of India Ltd. AIR 1972 SC 2563, Jubilee Investments & Industries Ltd. v. Asstt. CIT [1999] 238 ITR 648/ 106 Taxman 210 (Cal.), Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1/ 49 Taxman 87 (SC), Kerala Financial Corpn. v. CIT [1994] 210 ITR 129/ 75 Taxman 573 (SC), State Bank of Travancore v. CIT [1986] 158 ITR 102/ 24 Taxman 337 (SC), Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. v. Union of India [1992] 195 ITR 485/ 64 Taxman 96 (All.), CIT v. Blackwood Hodge (India) (P.) Ltd. [1971] 81 ITR 807 (Cal.), CIT v. Dunlop Rubber Co. (India) Ltd. [1980] 121 ITR 476 (Cal.), State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 (SC), Dwijendra Lal Brahmachari v. New Central Jute Mills Co. Ltd. [1978] 112 ITR 568 (Cal.), ITO v. James Joseph O'Gorman [1993] 204 ITR 454 (Cal.), Jamnadas Madhavji & Co. v. J.B. Panchal, ITO [1986] 162 ITR 331/ 27 Taxman 157 (Bom.) and Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver [1967] 66 ITR 664 (SC).
P.K. Pal for the Petitioner. Agarwal for the Respondent.
JUDGMENT
1. By this writ petition, the petitioner has challenged the authorization issued by the Joint Commissioner (TDS), Range-21, Calcutta, empowering the inspectors of income-tax to make a survey under section 133A of the Income-tax Act, 1961 ('the Act') in the office premises of the petitioners on 22-2-2000, and the survey was conducted by the inspector of income-tax on the said date and also summons issued by the respondent No. 1 under section 131 of the Act dated 28-3-2000.
2. The short facts of the case are as follows :
The petitioner has been carrying on business of manufacture and sale of various food, household and medicinal products like purity barley, pearl barley, dettol, dettolin, steradent, brasso, silvo, etc. There are products, which are sold by the petitioners but not manufactured by it. In the usual course of its business, the petitioner from time to time issued debentures. The petitioner has to deduct income-tax at source from the payment made to the various persons and creditors including shareholders and debenture-holders under sections 194, 194A, 194C, 194-I, 194J and 200 of the Act. The petitioner has to file returns. To pay interest against the aforesaid debentures, the petitioner has to deduct tax on interest which is paid on debentures where the amount of such payment exceeds Rs. 2,500. After deduction, the petitioner filed Form No. 25 with respondent No. 1. Similarly, the petitioner is required to deduct tax under section 194 where payment of dividend exceeds Rs. 2,500.
3. The aforesaid deduction of tax is made under section 194 wherever it is applicable and the same is paid under section 200 and Form No. 26 duly filed with respondent No. 1. Section 115-O was introduced by the Finance Act, 1997, with effect from 1-6-1997. In view of the aforesaid section, the petitioner was no longer required to deduct any tax from and out of the dividend or to file any Form No. 26 with effect from 1-6-1997. Similar deduction was made in the case of payment to the various contractors and sub-contractors where the payment exceeds Rs. 20,000 per contract and in this case the petitioner has to file Form No. 26C. The petitioner as such is a regular assessee and assessed by the Dy. Commissioner, Special Range-4. Therefore, the respondent No. 1 is only the prescribed income-tax authority within the meaning of section 206 of the Act who has been designated by the Chief Commissioner under rule 36A of the Income-tax Rules, 1962. The petitioner duly filed returns of income under section 139 up to the assessment year 1999-2000. The petitioner has also been filing TDS returns as required under law.
4. Mr. P.K. Pal, the learned senior advocate, in support of the writ petition contends that the prescribed income-tax authority under section 206 has no competence, authority, jurisdiction to make any enquiry, investigation, or authorise any person to cause any survey to be made under section 133A and/or issue any summons under section 131, in respect of the prescribed returns under section 206 in view of the object and scheme of the Act.
5. Under section 4(1) of the Act being the charging provision, income-tax is payable by an assessee on its assessable total income of the previous year at the rate or rates prescribed by the Central Act which is the Finance Act passed in every year. Therefore, the total income of any particular assessee has to be computed as per the provisions of the Act. In computing the total income certain incomes are not at all includible in the total income. Certain deductions are also allowed in computing the total income. Certain incomes of other persons are also included in the total income. Aggregation of income and setting-off or carry-forward of loss is also taken into account. There are certain special deductions for computing the total income. The rate of tax is fixed by the Finance Act each year. Chapter VIII of the Act which starts with section 87 and ends with section 89 of the Act deals with rebates and reliefs of the income-tax, Chapter IX of the Act which consists of sections 90 and 91 of the Act deals with double taxation relief, Chapter X of the Act which consists of sections 92, 93 and 94 of the Act deals with special provisions relating to avoidance of tax.
6. Unlike Chapter XIII, read with Chapter XIV, Chapter XVII of the Act, headings "A", "B", "BB", and "C" do not contemplate any proceeding in respect of the prescribed returns filed under section 206 before the prescribed income-tax authority. Section 4(2), read with sections 190 and 191 thereof makes it abundantly clear that the liability is of the assessee, namely, the payee, to pay the tax and not the payer. The payer is only assisting to realise tax by one of the modes of realisation, namely, TDS.
7. Chapter XVII heading "B" merely requires the payer to deduct tax, deposit the same under section 200, issue certificates to the payee under section 203 of the Act and file prescribed returns before the prescribed income-tax authorities under section 206. Neither Chapter XVII-B nor the rules authorise the prescribed income-tax authority to make any investigation and/or enquiry in respect of the prescribed returns under section 206 for the very obvious reasons that the tax which they have paid for which they filed the prescribed returns to their prescribed income-tax authority is not their tax but of the payee whose particulars and/or information are being furnished by the payer in the prescribed form under section 206 and also in the certificate issued to the payee under section 203 which the payee is required to enclose with their return and it is the Assessing Officer of the payee who is to make all these enquiries.
8. Section 120(1) of the Act gives power only to the Board to confer jurisdiction under Chapter XIII in respect of the returns filed under section 139. Section 120(2) gives power to the Board to delegate the power which the Board has under section 120(1) in respect of the assessees within the jurisdiction specified in section 120(3). The Board is not the prescribed income-tax authority under section 206. The Board, therefore, cannot delegate any power which the Board itself does not have under section 120(2) to any other income-tax authority and the purported delegation to the Chief Commissioner, therefore, is ultra vires. Section 206 speaks of prescribed returns to be filed before the prescribed income-tax authorities. Section 2(33) of the Act defines 'prescribed' which means prescribed by the rules. Rule 37 prescribes the returns and rule 36A prescribes the income-tax authorities which does not confer any jurisdiction on the Board. Therefore, under section 120(2) the Board has no power to delegate to the Chief Commissioner or Commissioner the jurisdiction in respect of the prescribed returns filed before the prescribed income-tax authorities under section 206, read with the relevant rules. The notifications relied upon by the respondents are, therefore, contrary to section 206, read with section 120 and as such they are ultra vires in view of the principles of law laid down by the Supreme Court.
9. Even sections 194C(4), 194G(2), 194J(2) and 195(2) speak of the Assessing Officer from whom certificate should be obtained for short deduction of tax. Similarly, section 197 also speaks of certificate from the Assessing Officer for short deduction of tax in respect of other sections of Chapter XVII-B where there is no specific provision like the above sections. All these Assessing Officers referred to in the above sections can only be the Assessing Officer of the payee and not the payer. These provisions clearly go to show that the Legislature is not only aware of but maintains the difference between the Assessing Officers and the prescribed income-tax authorities by using dual expressions. Section 203A requires tax deduction account number to be obtained by the payer from the Assessing Officer unless the function of allotment of tax deduction account number under section 203A has been assigned by the Chief Commissioner or Commissioner to any particular Assessing Officer as will be evident from rule 114A. Here again a clear distinction has been maintained between the prescribed income-tax authority under section 206 and the Assessing Officer of the payer having jurisdiction under section 120.
10. Therefore, Chapter XVII-B requires the prescribed returns to be filed before the prescribed income-tax authorities under section 206 and not to the Assessing Officer. Chapter XVII-B, therefore, speaks of three different categories of officers, namely, the Assessing Officers of the payee, the Assessing Officers of the payer and the prescribed income-tax authorities. The above intention of the Legislature has been made clear even by section 206(2) and (3) where also the expression 'Assessing Officer' has been used and the said Assessing Officer means the prescribed income-tax authority under rule 36A as will be evident from rule 37B thereof. The evidences referred to in sub-section (2) are required only for making assessments either of the payer or of the payee inasmuch as there is no scope for any proceedings under Chapter XVII-B. Section 206(2) and (3) speaks of the Assessing Officer. Rules 37B clarifies it by confining it to the prescribed income-tax authorities under rule 36A. Even the said provision does not give any power to make any enquiry by the prescribed income-tax authority but only to check its authenticity and to preserve them.
11. He contends that the circular being Annexure "A" to the affidavit-in-opposition merely clarifies certain provisions relating to TDS and not on merits. In the present writ application the petitioner is only concerned with the question of competence, authority or jurisdiction of the prescribed income-tax authority under section 206 to make any enquiry and/or investigation in respect of prescribed returns under section 206 and not on the merits.
12. Mr. Agarwal, the learned counsel appearing for the respondents, while opposing this application contends that the Joint Commissioner, Range 21 (Tax Deduction at Source Circle), Calcutta, authorised to conduct survey under section 133A, regarding the TDS matters in the premises of the writ petitioner on 22-2-2000. In the course of the survey, it was detected that no tax was deducted as required under section 194C from payment of Rs. 4.5 crores approximately on account of specific printing. TDS was not deducted from payment of Rs. 137.64 crores approximately for produc- tion of different items on contract basis. No tax was deducted from payment of rent amounting to Rs. 2.07 lakhs approximately under section 194-I. The Joint Commissioner, Range 21, Calcutta, passed on the information to the Asstt. Commissioner, TDS Circle 21(2), Calcutta, who is the prescribed income-tax authority for receiving annual returns under section 206 by virtue of the orders passed by the Chief Commissioner under section 120, read with rule 36A, in respect of the writ petitioner. The writ petition was directed against show-cause notice dated 5-4-2000, calling upon the writ petitioner to explain the failure of the writ petitioner to deduct tax at source as noticed in the course of the survey.
13. He contends that the writ petition is liable to be dismissed at the threshold, as a writ does not lie against a show-cause notice as held in the case of Indo Asahi Glass Co. v. ITO [1996] 222 ITR 534 1 (Cal.). In the case of B.K. Saha & Bros. (P.) Ltd. v. ITO [1989] 180 ITR 293 2 (Cal.), a writ against a notice under section 131 was rejected on similar ground.
14. He further contends that the authority concerned in this case may charge interest under section 201(1A) or impose penalty under section 221 of the Act, if the company is found to be in default. The assessee is entitled to prefer appeal under section 246A(1)(ha) and (j)(A ) of the Act. Since an effective and alternative remedy is available to the assessee, the writ is liable to be dismissed. In support of this submission, he has relied on a decision of this Court in Karam Chand Thapar & Bros. (Coal Sales) Ltd. v. Dy. CIT [1997] 227 ITR 793 (Cal.).
15. He contends that the Asstt. Commissioner, TDS Circle 21(2), has jurisdiction over the writ petitioner in respect of TDS matters. The writ petitioner has been submitting annual returns in terms of section 206 with the Asstt. Commissioner, TDS Circle 21(2), over a number of years without any demur. Rule 36A(i) provides that the annual returns regarding tax deducted at source under section 206, as provided in rule 37, shall be submitted to the Assessing Officer designated by the Chief Commissioner or Commissioner. In cases where no Assessing Officer has been designated, the annual returns prescribed in rule 37 shall be furnished to the territorial Assessing Officer under rule 36A(ii). Rule 37 also provides that the annual returns in question shall be delivered to the Assessing Officer referred to in rule 36A, that is, to the prescribed income-tax authority, and if no authority is prescribed, then to the territorial Assessing Officer. There is no challenge against validity of rules 36A and 37. In other words, the jurisdiction of the Asstt. Commissioner, TDS, Circle 21(2), remains unassailed. Therefore, he contends that the Asstt. Commissioner, TDS Circle 21(2), has jurisdiction over the assessee by virtue of the notification issued by the Chief Commissioner under rule 36A(i). The expression used in the rule is the 'Assessing Officer' and not the prescribed income-tax authority. He submits that the prescribed income-tax authority is the Assessing Officer for purposes of section 206. Where the prescribed income-tax authority, referred to in section 206, is designated, the income-tax authority concerned with the assessment of the income of the assessee is divested of the jurisdiction in respect of TDS matters. He has jurisdiction for that purpose in cases covered by rule 36A(ii) and not 36A(i).
16. He contends that the phrase 'Assessing Officer' does not mean only an officer concerned with the assessment of the income. Under section 2(7A) an 'Assessing Officer' means the Asstt. Commissioner or Dy. Commissioner or Asstt. Director or Dy. Director or the ITO who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act.
17. He contends that the Chief Commissioner, who has passed the order under rule 36A, had the jurisdiction to pass this order by virtue of the jurisdiction assigned to him under section 120. In the circumstances, it cannot be said that the Asstt. Commissioner, TDS, Circle 21(2), is not the 'Assessing Officer' or that the Central Board of Direct Taxes and the Chief Commissioners do not have the power to pass orders to confer relevant jurisdiction on the income-tax authorities other than those concerned with the assessment of the income for discharging functions other than assessment of income. So also regarding conferring power on them therefor under section 221 for levying penalty and charging interest under section 201(1A) as well as regarding conferring power on them, inter alia, under sections 131 and 133A. There is no constraint on them that these powers should be conferred only on those officers who have jurisdiction for assessment of the income of the assessees. Different persons can be conferred jurisdiction for different functions for various purposes of the Act within the jurisdiction of the income-tax authority provided the person concerned is an income-tax authority subordinate to him.
18. He contends that powers are mentioned in Part "C" of Chapter XIII. They are conferred on authorities mentioned in Part "A" of the same Chapter. They are to be exercised by them for all other Chapters starting with Chapter XIV including Chapter XVII. Under sub-section (2) of section 120 the Board can delegate power to issue directions for exercise of the powers and performance of the functions. Under section 120(6) the Board may issue directions for the purpose of furnishing of the return or the doing of any other act or thing under this Act or any rule made thereunder. In support of his contentions, he has referred to a decision in ITO v. Ashoke Glass Works [1980] 125 ITR 491 (Cal.).
19. He submits that in this case, the Joint Commissioner, Special Range 4, receives return of income of the writ petitioner and has the authority and duty to determine its total income. The Asstt. Commissioner, TDS Circle 21(2), under the Addl. (then Joint) Commissioner, Range 21, Calcutta, receives the returns of TDS matters of the writ petitioner. She is the authority to scrutinize the TDS returns and levy interest under section 201(1A) and impose penalty under section 221 with the reference to the TDS matters.
20. He refers to a decision of the Supreme Court in Asstt. CCE v. National Tobacco Co. of India Ltd. AIR 1972 SC 2563 on the proposition that a power to do something essential for the proper and effectual performance of the work, which the statute has in contemplation, may be implied and further that courts must endeavour to ascertain the legislative intent and purpose and then adopt a rule of construction which effectuates rather than the one that may defeat these.
21. Having heard the respective contentions of the learned lawyers, the points involved in this case, which require consideration of this Court are: (i) whether respondent No. 1 being 'the prescribed income-tax authority' who is empowered to receive returns of collection of tax deducted at source has any authority and/or jurisdiction either under the Act itself or by delegated power to make survey under section 133A or to issue summons for production of documents and books under section 131, and (ii) whether conferment of jurisdiction by the Board as well as the Chief Commissioner is lawful and valid or not.
22. In this case, on the allegation of failure to deduct tax at source under sections 194C and 194-I, the aforesaid enquiry and/or survey has been undertaken treating the writ petitioner to be a defaulter-assessee within the meaning of section 201. It is the settled position of law as has been rightly argued by Mr. Agarwal that ordinarily issuance of the summons and notice as aforesaid is never interfered with by the writ court as it does not affect anyone's right, particularly when the statutory authority has undertaken to make enquiry and investigation as it has been decided by this Court in the case of Indo Asahi Glass Co. ( supra). But in this case the authority and/or jurisdiction of the respondent No. 1 who is designated as a prescribed income-tax authority within the meaning of section 206 has been questioned, as such the writ is maintainable. Even the theory of alternative remedy as argued by Mr. Agarwal citing the decision in Karam Chand Thapar & Bros. (Coal Sales) Ltd.'s case ( supra) is also not applicable, as no final order has been passed herein.
23. In order to ensure collection of revenue and further to prevent the payment of tax being evaded and/or dodged, the Legislature has provided with one of the methods evolved in Chapter XVII. Usually a taxpayer is obliged to file returns for his or its own income with the concerned Assessing Officer. Under the scheme of the Act, it is the primary responsibility of the person who earns it to pay income-tax but under Chapter XVII the person who makes payment has been saddled with statutory responsibility to collect tax at the time of payment from the classified person or persons as mentioned in the said Chapter. Sections 191 to 196D mention the manner under which and the persons from whom such collection shall be made by the payer. Under section 206, the payer is duty-bound to furnish the prescribed returns in the prescribed form for collection of the aforesaid taxes at the time of payment from the payee. This method of collection of taxes is in addition and/or supplement to the usual method of collection of taxes.
24. Under section 203 within Chapter XVII, it is provided that in the case of such collection of taxes at source, necessary certificates are issued to the payee enabling it or him to get exemption from payment of tax to the extent collected.
25. Under section 201 consequence of failure to deduct or pay the collected tax has been provided. It is clear from the aforesaid section in the event of there being any failure the payer is deemed to be an assessee-in-default in respect of the tax. Consequently, all the mischiefs of penal provisions for failure to collect or pay tax will be applicable.
26. Here is a question on the allegation of default in deducting taxes by the writ petitioner, whether for the purpose of recovery thereof treating the petitioners to be an assessee-in-default, survey enquiry as provided under sections 131 and 133A can be resorted to by the prescribed income-tax authority under section 206 or not.
27. Mr. Pal wants me to be persuaded that survey and issuance of summons as provided under sections 131 and 133A can be resorted to only in case where income-tax authority proceeds under Chapter XIV for regular assessment. His further contention is that the petitioner is not an assessee under and/or is subjected to jurisdiction of the respondent No. 1 who is only empowered to collect returns under section 206. Mr. Pal also wants to draw a distinction between the definition of the prescribed income-tax authorities as mentioned in section 206 and in the income-tax authorities as mentioned in section 139. I am unable to accept the contention of Mr. Pal that the procedure as laid down in sections 131 and 133A is meant for and/or can only be resorted to only in the case of proceedings under Chapter XIV. In my view, the power has been vested by the statute under sections 131 and 133A in general. The authorities mentioned in the aforesaid two sections can exercise this power whenever appropriate situation arises and the same is not restricted to any proceedings under Chapter XIV. In section 116 various officials have been described to be income-tax authorities. Therefore, it would be convenient to quote the aforesaid section.
"116. Income-tax authorities.—There shall be the following classes of income-tax authorities for the purposes of this Act, namely :—
(a)The Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963),
(b)Directors-General of Income-tax or Chief Commissioners of Income-tax,
(c )Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals),
(cc)Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals),
(d)Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals),
(e )Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,
(f )Income-tax Officers,
(g )Tax Recovery Officers,
(h)Inspectors of Income-tax."
28. The Inspector of Income-tax is the lowest rank of the income-tax authorities who is also empowered to conduct survey. However, to carry out such survey the purpose therefor must be in furtherance of fulfilment of the provisions of the Act.
29. In this case as it appears from the affidavit-in-opposition and notice itself in order to find out the correct position as to default in deducting taxes, necessary summons have been issued for survey under section 133A and also for production of the documents under section 131. The default is alleged to have been committed by the writ petitioner not as an income-taxpayer-assessee but as a collecting agent under Chapter XVII. As a remedial measure for such default under the aforesaid Chapter, the respondent-department has taken this step. Unlike other statutes power and jurisdiction of the income-tax authorities excepting the Board has not been specified. Any of the income-tax officials is competent to exercise power and jurisdiction as may be conferred upon him by the Board not otherwise. So power of allocation of business under the scheme of the Act has been exclusively vested upon the Board and this will be clear from sections 119 and 120. So it is necessary for this case to reproduce section 120.
"120. Jurisdiction of income-tax authorities.—(1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities.
(2) The directions of the Board under sub-section (1) may authorise any other income-tax authorities to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other income-tax authorities who are subordinate to it.
(3) In issuing the directions or orders referred to in sub-sections (1) and (2), the Board or other income-tax authority authorised by it may have regard to any one or more of the following criteria, namely :—
(a )territorial area;
(b)persons or classes of persons;
(c )incomes or classes of incomes; and
(d)cases or classes of cases.
(4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by general or special order, and subject to such conditions, restrictions or limitations, as may be specified therein,—
(a )authorise any Director-General or Director to perform such functions of any other income-tax authority as may be assigned to him by the Board;
(b)empower the Director-General or Chief Commissioner or Commissioner to issue orders in writing that the powers and functions conferred on, or as the case may be, assigned to, the Assessing Officer by or under this Act in respect of any specified area or persons or classes of persons or incomes or classes of income or cases or classes of cases, shall be exercised or performed by a Deputy Commissioner or Deputy Director, and, where any order is made under this clause, references in any other provisions of this Act, or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such Deputy Commissioner or Deputy Director by whom the powers and functions are to be exercised or performed under such order, and any provision of this Act requiring approval or sanction of the Deputy Commissioner shall not apply.
(5) The directions and orders referred to in sub-sections (1) and (2) may, wherever considered necessary or appropriate for the proper management of the work, require two or more Assessing Officers (whether or not of the same class) to exercise and perform concurrently, the powers and functions in respect of any area or persons or classes of persons or incomes or classes of incomes or cases or classes of cases; and, where such powers and functions are exercised and performed concurrently by the Assessing Officer of different classes, any authority lower in rank amongst them shall exercise the powers and perform the functions as any higher authority amongst them may direct, and, further, references in any other provision of this Act or in any rule made thereunder to the Assessing Officer, shall be deemed to be references to such higher authority and any provision of this Act requiring approval or sanction of any such authority shall not apply.
(6) Notwithstanding anything contained in any direction or order issued under this section, or in section 124, the Board may, by notification in the Official Gazette, direct that for the purpose of furnishing of the return of income or the doing of any other act or thing under this Act or any rule made thereunder by any person or class of persons, the income-tax authority exercising and performing the powers and functions in relation to the said person or class of persons shall be such authority as may be specified in the notification."
30. It appears from the aforesaid section 120 that the Board cannot confer jurisdiction whimsically or arbitrarily and it is to be done within the guidelines mentioned in sub-section (3). It also appears from sub-section (6) that the Board can give directions for the purpose of, amongst others doing any other act or thing under this Act or any rule made thereunder by any person or class of persons, the income-tax authority exercising and performing the powers and functions in relation to the said person or class of persons shall be such authority as may be specified in the notification. The import of these words 'doing any other act or thing' is, to my mind, of wide amplitude, however, not the extent beyond scope and purport of the Act itself. So it is clear that 'any act or thing' means to achieve fulfilment of the object of the Act.
31. Under Chapter XVII it has not been expressly provided whether the prescribed income-tax authority while accepting the returns under section 206 can take any subsequent step in the case of failure in deducting tax or depositing tax so collected. Complete machinery has not been provided for therein. In my view, the writ petitioner has taken advantage of the absence of this express provision. In order to obviate this difficulty the Board by a circular dated 12-2-1991, being Annexure B to the affidavit-in-opposition has instructed the Chief Commissioner and Director-General to vest the power of the Assessing Officer upon the prescribed income-tax authority under section 206 for levying penalties and for taking other suitable measures. Incidentally, it is observed as rightly argued by Mr. Agarwal that the prescribed income-tax authority is a designated official and it is not different from the Assessing Officer as will be apparent from rule 36A.
32. Accordingly, the Chief Commissioner by a notification dated 15-9-1999, being Annexure C to the affidavit-in-opposition has conferred power and/or jurisdiction amongst others upon respondent No. 1 herein and also other officials to take steps for failure to deduct tax at source and also to pay the collected tax. The investment of power and conferment of jurisdiction are perfectly lawful as has been rightly argued by Mr. Agarwal citing two decisions of this Court in support of this proposition, viz., Ashoke Glass Works case (supra) and Jubilee Investments & Industries Ltd. v. Asstt. CIT [1999] 238 ITR 648.1
33. I am unable to accept the submission of Mr. Pal that the circulars being Annexures B and C to the affidavit-in-opposition have no relevancy in deciding the present case. The authority cited by Mr. Pal, viz., Keshavji Ravji & Co. v. CIT [1990] 183 ITR 11, 17 (SC), has no manner of application in this case. I cannot accept the logic that the aforesaid circulars are contrary to the provisions of the statute. As I have already held that the Board has power to issue circulars, therefore, the said decision is not applicable here. By the circulars no attempt has been made to interpret any particular provision of the Act rather the same have been issued under section 120. The circulars have been issued in terms of the provisions of the aforesaid Act and it is not contrary to any of the provisions of the Act. So the authorities cited by Mr. Pal, viz., Kerala Financial Corpn. v. CIT [1994] 210 ITR 1292 (SC); State Bank of Travancore v. CIT [1986] 158 ITR 1023 (SC) and Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. v. Union of India [1992] 195 ITR 4854 (All.), have no manner of application.
34. As far as the decisions of this Court cited by Mr. Pal in CIT v. Blackwood Hodge (India) (P.) Ltd. [1971] 81 ITR 807 and CIT v. Dunlop Rubber Co. (India) Ltd. [1980] 121 ITR 476 , are concerned, the same were rendered on a different issue and there is no dispute about the law laid down by this Court. In this case, the question is whether any ITO including the prescribed income-tax authority under section 201 can be conferred with any power or jurisdiction or not. Therefore, the aforesaid two decisions of this Court have no manner of application.
35. Conferment of jurisdiction emanates from section 120 not from section 206 and the Board has exercised its power under the aforesaid section. Section 206 is not the source of conferment of jurisdiction. Therefore, the decision in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 (SC), has no manner of application.
36. I am unable to accept the contention of Mr. Pal that there is no scope for any proceedings under Chapter XVII under headings "B", "BB" and "C" of the Act. As I have already observed that in the case of default, the writ petitioner would be termed and/or treated to be an assessee-in-default, enquiry is must. One cannot be held to be an assessee-in-default within the meaning of section 201 without enquiry, survey or giving an opportunity of being heard. All these exercises can be undertaken by the Assessing Officer mentioned in the proviso to sub-section (1) of section 201. In the case of failure to pay after assessment, the proceedings for recovery of the tax shall be resorted to. Therefore, the decisions cited by Mr. Pal in Dwijendra Lal Brahmachari v. New Central Jute Mills Co. Ltd. [1978] 112 ITR 568 (Cal.); ITO v. James Joseph O'Gorman [1993] 204 ITR 454 (Cal.) and Jamnadas Madhavji & Co. v. Panchal (J.B.), ITO [1986] 162 ITR 3315 (Bom.) have no manner of application.
37. As I have held that in this case the steps taken by the respondent No. 1 are lawful and valid, the question of application of the principle of law laid down by the Supreme Court in Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver [1967] 66 ITR 664 does not arise.
38. In view of the above discussion it is difficult to accept the contention of Mr. Pal that the aforesaid two notifications issued by the Board as well as the Chief Commissioner, Calcutta, are illegal and ultra vires the provisions of section 206. The provision of section 206 provides for furnishing returns but the person who is to receive them is not stipulated or mentioned therein but it is specified by the rules. By and under rule 36A the Chief Commissioner will designate any Assessing Officer for this purpose. This power and jurisdiction either of the Chief Commissioner or of the Assessing Officer qua the prescribed income-tax authority does not conflict with the power and jurisdiction under section 120 nor does this provision visualise exclusion of applicability thereof if the situation so arises.
39. Therefore, I hold that both the aforesaid two circulars are lawful and valid. Consequently, I hold that the respondent No. 1 as well as the other officials have acted lawfully within their power as lawfully conferred upon them.
40. The power under section 131 can, however, be exercised by the authorities mentioned in that section itself and this power cannot be exercised by any official subordinate to the rank of the Assessing Officer. However, the power of survey under section 133A can be exercised by any income-tax authority including the income-tax inspector. Sections 131 and 133A are, accordingly, quoted hereunder.
"131. Power regarding discovery, production of evidence, etc.—(1) The Assessing Officer, Deputy Commissioner (Appeals), Deputy Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely :—
(a )discovery and inspection;
(b)enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(c )compelling the production of books of account and other documents; and
(d)issuing commissions.
(1A) if the Director-General or Director or Deputy Director or Assistant Director, or the authorised officer referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any inquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority.
(2) [Omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989.]
(3) Subject to any rules made in this behalf, any authority referred to in sub-section (1) or sub-section (1A) may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act :
Provided that an Assessing Officer or an Assistant Director shall not—
(a )impound any books of account or other documents without recording his reasons for so doing, or
(b)retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Chief Commissioner or Director-General or Commissioner or Director therefor, as the case may be.
133A Power of survey.—(1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter—
(a )any place within the limits of the area assigned to him, or
(b)any place occupied by any person in respect of whom he exercises jurisdiction, or
(c )any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,
at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession,—
(i )to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place,
(ii)to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and
(iii)to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act.
Explanation.—For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept.
(2) An income-tax authority may enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset.
(3) An income-tax authority acting under this section may,—
(i)if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,
(ii)make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(iii)record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.
(4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.
(5) Where, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the income-tax authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the income-tax authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceedings under this Act.
(6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded, either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made.
Explanation.—In this section,—
(a)'income-tax authority' means a Commissioner, a Deputy Commis-sioner, a Director, a Deputy Director, an Assistant Director or an Assessing Officer, and for the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax, if so authorised by any such authority;
(b)'proceeding' means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year."
41. The aforesaid powers, as it appears from the scheme of the Act, are of general nature, do not confine to Chapter IV only and to be exercised by the respective authorities mentioned therein whenever necessary for any purpose of the Act. Such power can even be required to be exercised by the Board and the Chief Commissioner by issuing valid notification under section 120. Therefore, I hold that the respondent No. 1 has correctly exercised her power; so also the other respondents. Therefore, I do not find any merit in this writ petition and the writ petition is, accordingly, dismissed. Interim order stands vacated.
42. There will be no order as to costs.
43. Though the writ petition is dismissed, the interim order already passed shall continue till the following day after the summer vacation.
IT : For estimating assessee's income, GP rate should be fixed by taking into account GP rates of earlier years and subsequent years
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[2011] 13 taxmann.com 152 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Chadha Automobiles (India)*
A.K. SIKRI AND M.L. MEHTA, JJ.
IT APPEAL NOS. 660 OF 2004 AND 730 OF 2008
JANUARY 24, 2011
Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of income - Assessment year 2000-01 - A survey was conducted at assessee's business premises on 7-1-2000 during which certain discrepancies were found - Assessee filed its return of income for relevant assessment year - Assessing Officer rejected books of account of assessee on account of various discrepancies and estimated income by adopting GP rate at 13 per cent - Commissioner (Appeals) upheld order of Assessing Officer - On second appeal, Tribunal upheld rejection of books of account but applied GP rate of 3.25 per cent for pre-survey period on basis of gross profit rate declared by assessee in last five years - Whether Tribunal could not have made returns of last five years as sole basis for arriving at GP rate of 3.25 per cent in year in question by ignoring GP rate of 8 to 9 per cent shown by assessee itself for post-survey period and GP rate of 4.59 per cent to 5.39 per cent declared for subsequent two years which was duly accepted by department - Held, yes - Whether on facts, keeping in mind those GP rates, GP rate of 5 per cent would meet ends of justice - Held, yes [In favour of revenue]
FACTS
A survey was conducted at the business premises of the assessee on 7-1-2000 during which certain discrepancies were found in the stock which was physically verified and the stock which was shown in the books of account. The assessee surrendered an amount of Rs. 20 lakhs on account of unexplained cash and stock. For the relevant assessment year, the assessee filed its Income-tax return declaring certain income. The Assessing Officer rejected books of account of the assessee on account of various discrepancies and ascertained the income by adopting GP rate of 13 per cent. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer but telescoped the amount already surrendered by the assessee during the survey. On second appeal, the Tribunal upheld the order of the Commissioner (Appeals) regarding the rejection of books of account but concluded that adoption of GP rate at 13 per cent was inappropriate. It looked into the GP rate declared by the assessee in the last five years and on that basis applied a GP rate of 3.25 per cent to estimate GP of the assessee during the pre-survey period. The Tribunal held that no interference in the GP rate of 8 to 9 per cent shown by the assessee in the post-survey period was necessary.
On the revenue's appeal :
HELD
The Tribunal could not have made the returns of last five years as the sole basis for arriving at GP rate in the year in question because of the following circumstances :
(a) In the year in question, the books of account of the assessee were specifically rejected finding discrepancies therein. During the survey, discrepancy was also found in the stock as entered into books of the account and actual stock found at the premises on physical verification. Discrepancy was found even in respect of cash. The assessee had accepted said discrepancy and offered a sum of Rs. 15 lakhs on account of unexplained stock and also unexplained cash to the tune of Rs. 5 lakhs.
(b) On the one hand, the Tribunal took into consideration the GP declaration in last five assessment years, but conveniently ignored the GP shown by the assessee himself in the relevant year pertaining to post-survey period. Since post-survey period was of the same assessment year, that would provide better guide for fixing the GP rate of pre-survey period. [Para 11]
For a moment, it could not be suggested that the GP rate declared in the earlier five years should not be taken into consideration at all, as the assessment for those years had been completed and the GP rate was accepted by the department. At the same time, there was some question mark on the said GP rate in those years which became more apparent and visible when that was compared with the post survey period of the assessment year in question. Therefore, the proper methodology should have been to take into consideration the GP rate of the pervious period, but at the same time GP rate of post-survey period was also relevant to determine the GP rate for pre-survey period more so, when both those period pertained to the same assessment year. It was to be kept in mind that in the subsequent two assessment years, GP rate of 4.59 per cent to 5.39 per cent was duly accepted by the department. [Para 12]
The average GP rate for the last five years was 3.25 per cent and for the subsequent year, it was 4.59 per cent to 5.39 per cent. The GP rate of post-survey period was 8-9 per cent but that period was less than three months. Keeping in mind those GP rates, the GP rate of 5 per cent would meet the justice. [Para 13]
The Assessing Officer was to be directed to work out the income of the assessee in the relevant assessment year on that basis. [Para 14]
CASES REFERRED TO
Anil Bagla v. CIT [IT Appeal No. 882 of 2004, dated 5-9-2007] (para 9).
Ms. Prem Lata Bansal for the Appellant. M.S. Syali, Mayank Nagi, Ms. Madhavi Swaroop and Ms. Husnal Syali for the Respondent.
JUDGMENT
A.K. Sikri, J. - Both these appeals pertain to same assessment year in respect of same assessee. Even the question of law raised is identical. It so happened that two appeals, one preferred by the Revenue and the other by the assessee, were decided by the Tribunal on different occasions by passing two orders and that is the reason that two appeals are before us. ITA 660/2004 was admitted on 8-11-2004. Since decision in the second appeal was rendered subsequently by the Tribunal, the appellant filed ITA 730/2008 which was admitted on 26-10-2010. Identical question of law was framed while admitting the two appeals. This question of law is as under :
"Whether the Tribunal is justified in not making any addition on account of trading result in spite of rejecting books of account and recording specific findings that in the pre-survey period trading results were in the negative and assessee had no explanation for the same."
2. The aforesaid question has cropped up for consideration in the following factual backdrop.
In the premises of the respondent assessee, which is in the business of sale of automobile accessories, a survey was conducted by the Income-tax department on 7-1-2000. Certain discrepancies were found in the stock which was physically verified and the stock which was shown in the books of account. There was a difference of Rs. 15 lakhs on this account. The assessee accepted this discrepancy and surrendered a sum of Rs. 15 lakhs on account of unexplained stock. Likewise there was an unexplained cash to the tune of Rs. 5 lakhs during of survey. The assessee made a surrender of this amount also during the survey. In this manner the total amount surrendered during the survey was to the tune of Rs. 20 lakhs.
3. By due date the assessee filed Income-tax return for the assessment year 2000-01 declaring an income of Rs. 20,30,048. During the assessment proceedings the assessee produced the account books. The Assessing Officer found various discrepancies therein and thus rejected those account books. In such a scenario, for the purpose of ascertaining the income of the assessee, the Assessing Officer undertook the exercise of finding the GP rate. The Assessing Officer took up case of one M/s Kohli & Co. which was trading in the same commodities. As per the Assessing Officer, it was found that GP rate disclosed by the said M/s. Kohli & Co. was 13.04 per cent. As per the Assessing Officer since M/s. Kohli & Co. was a comparable example, the GP rate declared by M/s. Kohli & Co., was adopted as the basis of computation of the income of the assessee as well. Taking this GP rate of 13 per cent on the trading results shown, trading addition of Rs. 33,06,687 by the Assessing Officer was made and on this basis the assessment order was framed.
4. The assessee herein challenged the aforesaid order of the Assessing Officer by preferring appeal before the CIT(A). The assessee challenged the adoption of GP rate at 13 per cent. The assessee also challenged the order of the Assessing Officer rejecting the books of account. It was also the case of the assessee that in any case the assessee had surrendered income of Rs. 20 lakhs during the survey and that had to be telescoped in the trading addition made by the Assessing Officer which the Assessing Officer omitted to do. The CIT(A) after hearing the appeal upheld the finding of the Assessing Officer whereby the books of account of the assessee were rejected. The CIT(A) also accepted the GP rate of 13 per cent arrived at by the Assessing Officer on the basis of comparison made with M/s. Kohli & Co. However, the CIT(A) was of the view that the assessee was entitled to telescope the amount already surrendered during survey.
5. The matter was carried out further by the assessee before the Income-tax Appellate Tribunal. As mentioned above the assessee filed appeal against that part of the order of CIT(A) whereby CIT(A) had rejected books of account and affirmed the GP rate of 13 per cent. On the other hand, the department also filed the appeal whereby deletion of Rs. 20 lakhs was made by the CIT(A) in the manner indicated above. Appeal of the assessee came up for consideration first and has been decided by the Tribunal vide orders dated 16-4-2004. Since in the second appeal which was preferred by the Tribunal this order is followed, it would be safe to refer to the decision rendered by the Tribunal vide order dated 16-4-2004.
6. The Tribunal after detailed discussion upheld the order of CIT(A) insofar as it pertains to the rejection of the books of account of the assessee. Since account books of the assessee were rejected, it became necessary to examine the orders of the authorities before fixing the GP rate. The Tribunal dealt with the issue as to whether the GP rate of 13 per cent adopted by the Assessing Officer and affirmed by the CIT(A) was proper or not. After detailed discussion, it came to the conclusion that comparison with M/s Kohli & Co., was inappropriate inasmuch as the line of business of said M/s. Kohli & Co. was different from the assessee. This finding necessitated the Tribunal to fix the GP rate. In such a scenario, proceeding further, the Tribunal observed that the past history of the results shown by the assessee, and accepted by the department in earlier assessment years was relevant basis for arriving at GP rate. The Tribunal looked into the GP rate declared by the assessee in last five years and on that basis came to the conclusion that it was fair and reasonable to apply a GP rate of 3.25 per cent to estimated GP of the assessee for pre-survey period. Challenging this approach and conclusion, present appeals are filed.
7. Before we take note of the nature of challenge laid by the Revenue, we may state some more details. As pointed out above the survey was carried out on 7-1-2000. During this period the assessee had shown a trading loss of Rs. 7,66,333 by adopting GP rate of 3.25 per cent. The Tribunal calculated that the GP of the assessee for this pre-survey period would come to Rs. 7,40,503. On this basis the Tribunal opined that a trading addition of Rs. 15,06,836 would be required. Since the assessee had already surrendered a sum of Rs. 20 lakhs on account of excess stock and excess cash, telescoping the same the Tribunal held that no further addition was required to be made as the trading addition sustained by the Tribunal were to the tune of Rs. 15,06,836. We may also note at this stage that for the post-survey period of the assessment year the assessee had shown a sale of Rs. 1,66,46,688 on which Gross Profits of Rs. 10,85,728 was declared by the assessee in the Income-tax return which would show G.P. rate of 8 to 9 per cent. This was accepted by the ITAT as reasonable holding that no interference in the GP shown by the assessee in the post survey period was necessary.
8. Mrs. Bansal, learned counsel appearing for the Revenue has contended that the Tribunal has grossly erred in arriving at the GP rate of 3.25 per cent on the basis of past history namely GP rate declared by the assessee in the last five years' returns prior to the date of survey. Her submission is that during the survey it was found that there was discrepancy in the stocks inasmuch as on actual physical verification stock was in excess of Rs. 15 lakhs of what was reflected in the books of account. There was even a discrepancy regarding the cash. Because of this reason the GP declared by the assessee in the previous years was not the safe basis for arriving at the GP rate of year in question as it cannot be presumed that in last five years, proper books were maintained. She further tried to demonstrate, on the basis of post survey period GP declared by the assessee himself, that the GP rate should have been much more and this aspect was totally glossed over by the Tribunal. Dilating on this aspect she pointed out that as far as post survey period is concerned the assessee had himself shown sales of Rs. 1.66 crores and GP of Rs. 10.85 lakhs thereupon. She further pointed out that the assessee was in the business of sale of truck accessories earlier and during this year, as per the assessee himself, the business was switched over to the sale of car accessories. Referring to the order passed by the Assessing Officer she pointed out that when the sale of car accessories during this period and the profitability thereupon is reduced from the total sales, the GP rate for this post survey period relating to the sale of truck accessories and freight containers would come to around 10 per cent. In the alternative her submission was that sale and GP ratio was to be taken as it is without any adjustment of the aforesaid nature still it would be in the neighbourhood of 8 to 9 per cent. According to Mrs. Bansal this post survey period GP rate declared by the assessee himself was the safest indicator to arrive at GP rate for the pre-survey period as well and on this basis also the fixation of the GP rate of 3.25 per cent was grossly under rated.
9. Mr. Syali, Sr. Advocate appearing for the assessee submitted at the outset that the question of fixing GP rate was entirely factual and no substantial question of law would arise on this aspect. In this behalf, Mr. Syali referred to the judgment of this court in the case of Anil Bagla v. CIT [IT Appeal No. 882 of 2004, dated 5-9-2007]. Predicated on this, his submission was that no substantial question of law has arisen in this case and the appeal required to be dismissed on this ground itself. In the alternative, Mr. Syali's submission on merits was that the exercise undertaken by the ITAT in the given case was perfectly justified and legally in order. He countered the submission of Mrs. Bansal qua the adoption of past history of the assessee, by contending that the assessment in those years were complete and accepted by the department. Therefore, it was not open to the department now to contend that the GP which was declared by the assessee in those years could not be the basis of fixing GP rate in the year in question. He also submitted that if the department was of the opinion that no such argument was ever raised even before the Tribunal or the CIT(A) and in any case if Department was of the opinion that the assessee had suppressed the income in the earlier years, no steps for reopening those assessments were ever taken by the department. He further submitted that the GP rate for post survey period was higher because of the change in the line of business from truck accessories to the lack accessories and the shift had been occasioned because of the policy of Government of Delhi prohibiting the entry of heavy vehicles like trucks. He also pointed out that for the assessment years 2001-02, 2002-03 and 2003-04, the assessee had filed the return declaring the GP rate of 4.59 per cent to 5.39 per cent which was duly accepted by the department. On this basis, his submission was that the GP rate of 13 per cent arrived at by the Assessing Officer or the CIT(A) was totally out of tune whether it be compared with the past history of the returns filed by the assessee or the subsequent.
10. The aforesaid factual information would clearly demonstrate that insofar as books of account of the assessee are concerned these have been rejected by all the authorities below and this issue has attained finality. Furthermore, the CIT(A) as well as the Tribunal has allowed telescoping of Rs. 20 lakhs surrendered by the assessee at the time of survey and this cannot be questioned by the Department as this aspect was rejected at the time of appeal and no question of law has been framed. The entire dispute, in these circumstances, revolves around the GP rate that has been arrived at by the learned Tribunal.
11. After analyzing the peculiar facts of this case as well as the material on record, we intend to take the view that neither the Department nor the assessee is wholly correct. It would also follow that the approach of the Tribunal is not without blemish. We are inclined to agree with the submission of the learned counsel for the Revenue to the extent that the Tribunal could not have made the returns of last five years as the sole basis for arriving at GP rate in the year in question. We say so because of the following circumstances :
"(a) In the year in question, the books of account of the assessee are specifically rejected finding discrepancies therein. During the survey, discrepancy was also found in the stock as entered into books of the account and actual stocks found at the premises on physical verification. Discrepancy was found even in respect of cash. The assessee had accepted this discrepancy and offered a sum of Rs. 15 lakhs on account of unexplained stock and also unexplained cash to the tune of Rs. 5 lakhs.
(b) On the one hand, the Tribunal takes into consideration the GP declaration in last five assessment years, but conveniently ignores the GP shown by the assessee himself in this very year pertaining to post survey period. Since post survey period is of the same assessment year, that would provide better guide for fixing the GP rate for pre-assessment period."
12. For a moment, we are not suggesting that the GP rate declared in the earlier five years should not be taken into consideration at all, as the assessment for those years have been completed and the GP rate is accepted by the Department. At the same time, there is some question mark on the said GP rate in those years which becomes more apparent and visible when that is compared with the post survey period of the assessment year in question. Therefore, the proper methodology should have been to take into consideration the GP rate of the previous period, but at the same time GP rate of post survey period was also relevant to determine the GP rate for pre-survey period more so, when both these periods pertain to the same assessment year. We have also to keep in mind that in the subsequent two assessment years, GP rate of 4.59 per cent to 5.39 per cent is duly accepted by the Department.
13. Normally, when we find that no proper exercise is done by any of the Authorities below, the matter should have been remitted back to the Assessing Officer to take into consideration of those aspects and fix the GP rate. However, having regard to the fact that it is an old matter and all the relevant data are available with us which is taken note of above and this may provide a suitable yardstick for fixing the GP rate, we are doing this exercise ourselves. The average GP rate for the last five years is 3.25 per cent and for the subsequent year it is 4.59 per cent to 5.39 per cent. The GP rate of post survey period is 8-9 per cent but that period is less than three months. Keeping in mind these GP rates, we are of the opinion that the GP rate of 5 per cent would meet the justice.
14. The question of law is answered in the aforesaid manner with a direction to the Assessing Officer to work out the income of the assessee in this assessment year on that basis.
15. These appeals are disposed of in the aforesaid terms.
----- Forwarded Message -----
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Tuesday, 23 October 2012 1:22 AM
Subject: CPC RELATED ISSUES-REPLIES
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
To: Kanigalla <kanigalla@hotmail.com>
Sent: Tuesday, 23 October 2012 1:22 AM
Subject: CPC RELATED ISSUES-REPLIES
CPC RELATED ISSUES
SUBJECT : Replies to the queries raised at the Lecture Meeting held on 20th July, 2012.
Best Wishes
CA. V.M.V.SUBBA RAO
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