Milan Traders v. ITO - Taxpublishers.in

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The Tax PublishersITA No. 1751/Mum/2006 2012 TaxPub(DT) 1493 (Mum-Trib) INCOME TAX ACT, 1961 --Reassessment--Validity Reason to believe based on voluntary income declared during course of survey--A survey was conducted at the premises of assessee. During the course of survey, a statement of 'S' was recorded wherein he had voluntarily declared additional income of Rs. 12 lakhs. Subsequently, AO initiated reassessment proceedings on the ground that assessee had voluntarily declared an additional income during survey which was not offered in return of income filed for the year under consideration, AO, thereafter completed the assessment under section 143(3) read with section 147 by assessing the income at the amount profit of pre-survey period thereby disallowing the claim of assessee for expenses claimed in post survey period to the extent of loss of that period. Assessee contended that a specific question was asked by the survey team as to why advance tax was not paid by assessee and in reply thereto, it was submitted that the income due to commission earned for current year was Rs. 12 lakhs on which advance tax would be paid within 10 days. There was no declaration of any additional income in the said statement recorded during the course of survey and the figures of commission actually earned were already given by assessee. It further submitted that the figure of commission so stated was duly declared by assessee in its return of income for the year under consideration and there being no additional income on account of commission declared by the assessee during the course of survey, the very basis on which assessment was reopened was factually incorrect. *Held:* During the course of survey, there was no question whatsoever asked to him about the additional income earned by the firms from commission and the reply was given by it to a specific question about non-payment of advance tax in the context of which he apparently indicated the net amount of commission earned by the assessee-firm and undertook to pay advance tax thereon within 10 days. It is thus clear that AO was patently wrong in assuming the said amount of Rs. 12 lakhs indicated by Sanjay Chheda as a regular commission income earned by the assessee-firm to be additional income declared by it and hastily formed the belief about the escapement without applying his mind to the facts of the case as well as material available on record. Further, no addition on account of additional income of Rs. 12 lakhs was finally made by AO in the reassessment and what was added therein was entirely a different amount on altogether new issue by way of disallowance of expenses claimed by assessee in the post survey period. Therefore, it becomes amply clear that the necessary condition for assuming jurisdiction under section 147 was not satisfied and the initiation of reassessment proceedings without satisfying the jurisdictional condition was bad in law. Income Tax Act, 1961 Section 147 Milan Traders v. ITO IN THE ITAT MUMBAI 'E' BENCH P. M. JAGTAP, A.M. & VIJAY PAL RAO, J.M. ITA No. 1751/Mum/2006 27 May, 2011 Assessee by : Dharmesh Shah Revenue by : D. Songate ORDER P.M. Jagtap, A.M. This appeal by the assessee is directed against the order of the learned Commissioner (Appeals)-XIII, Mumbai dt. 6-1-2006. 2. The relevant facts of the case giving rise to this appeal are that the assessee is a partnership firm which is engaged in the business of trading in agricultural products such as Onion, Potatoes etc. The return of income for the year under consideration was filed by the assessee on 31-12-2001 declaring a total income of Rs. 4,72,092. A survey, under section 133A was carried out at the premises of the assessee on 17-8-1998. During the course of survey, statement of Sanjay Chheda was recorded. According to the assessing officer, Shri Chheda in his statement voluntarily declared additional income of Rs. 12 lakhs of the assessee. Since in the return of income filed for the year under consideration, thse said amount of Rs. 12 lakhs was not offered by the assessee for taxation purpose, the assessing officer initiated the reassessment proceedings by issuing notice under section 148 on 26-7-2002. In response to the said notice, a return was filed by the assessee on 27-8-2002 declaring the same income as was shown in the return originally filed on 31-12-2001. During the course of reassessment proceedings, it was noticed by the assessing officer from the consolidated trading and Profit & Loss account filed by the assessee that the gross commission earned during the post survey period was shown by the assessee only to the extent of Rs. 8,70,985 against which expenses of Rs. 23,01,621 were claimed showing a net loss of Rs. 13,84,850. According to the assessing officer, the assessee's claim for post survey expenses resulting in a loss of Rs. 13,84,815 was not acceptable. He, therefore, assessed the income of the assessee at Rs. 18,13,128 being the profit of the pre-survey period thereby disallowing the claim of the assessee for expenses claimed in the post survey period to the extent of loss of that period amounting to Rs. 13,40,226 in the assessment completed under section 143(3) read with section 147. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 1751/Mum/2006
2012 TaxPub(DT) 1493 (Mum-Trib)

INCOME TAX ACT, 1961

--Reassessment--Validity Reason to believe based on voluntary income declared during course of survey--A survey was conducted at the premises of assessee. During the course of survey, a statement of 'S' was recorded wherein he had voluntarily declared additional income of Rs. 12 lakhs. Subsequently, AO initiated reassessment proceedings on the ground that assessee had voluntarily declared an additional income during survey which was not offered in return of income filed for the year under consideration, AO, thereafter completed the assessment under section 143(3) read with section 147 by assessing the income at the amount profit of pre-survey period thereby disallowing the claim of assessee for expenses claimed in post survey period to the extent of loss of that period. Assessee contended that a specific question was asked by the survey team as to why advance tax was not paid by assessee and in reply thereto, it was submitted that the income due to commission earned for current year was Rs. 12 lakhs on which advance tax would be paid within 10 days. There was no declaration of any additional income in the said statement recorded during the course of survey and the figures of commission actually earned were already given by assessee. It further submitted that the figure of commission so stated was duly declared by assessee in its return of income for the year under consideration and there being no additional income on account of commission declared by the assessee during the course of survey, the very basis on which assessment was reopened was factually incorrect. Held: During the course of survey, there was no question whatsoever asked to him about the additional income earned by the firms from commission and the reply was given by it to a specific question about non-payment of advance tax in the context of which he apparently indicated the net amount of commission earned by the assessee-firm and undertook to pay advance tax thereon within 10 days. It is thus clear that AO was patently wrong in assuming the said amount of Rs. 12 lakhs indicated by Sanjay Chheda as a regular commission income earned by the assessee-firm to be additional income declared by it and hastily formed the belief about the escapement without applying his mind to the facts of the case as well as material available on record. Further, no addition on account of additional income of Rs. 12 lakhs was finally made by AO in the reassessment and what was added therein was entirely a different amount on altogether new issue by way of disallowance of expenses claimed by assessee in the post survey period. Therefore, it becomes amply clear that the necessary condition for assuming jurisdiction under section 147 was not satisfied and the initiation of reassessment proceedings without satisfying the jurisdictional condition was bad in law.

Income Tax Act, 1961 Section 147

Milan Traders v. ITO

IN THE ITAT MUMBAI 'E' BENCH

P. M. JAGTAP, A.M. & VIJAY PAL RAO, J.M.

ITA No. 1751/Mum/2006

27 May, 2011

Assessee by : Dharmesh Shah

Revenue by : D. Songate

ORDER

P.M. Jagtap, A.M.

This appeal by the assessee is directed against the order of the learned Commissioner (Appeals)-XIII, Mumbai dt. 6-1-2006.

2. The relevant facts of the case giving rise to this appeal are that the assessee is a partnership firm which is engaged in the business of trading in agricultural products such as Onion, Potatoes etc. The return of income for the year under consideration was filed by the assessee on 31-12-2001 declaring a total income of Rs. 4,72,092. A survey, under section 133A was carried out at the premises of the assessee on 17-8-1998. During the course of survey, statement of Sanjay Chheda was recorded. According to the assessing officer, Shri Chheda in his statement voluntarily declared additional income of Rs. 12 lakhs of the assessee. Since in the return of income filed for the year under consideration, thse said amount of Rs. 12 lakhs was not offered by the assessee for taxation purpose, the assessing officer initiated the reassessment proceedings by issuing notice under section 148 on 26-7-2002. In response to the said notice, a return was filed by the assessee on 27-8-2002 declaring the same income as was shown in the return originally filed on 31-12-2001. During the course of reassessment proceedings, it was noticed by the assessing officer from the consolidated trading and Profit & Loss account filed by the assessee that the gross commission earned during the post survey period was shown by the assessee only to the extent of Rs. 8,70,985 against which expenses of Rs. 23,01,621 were claimed showing a net loss of Rs. 13,84,850. According to the assessing officer, the assessee's claim for post survey expenses resulting in a loss of Rs. 13,84,815 was not acceptable. He, therefore, assessed the income of the assessee at Rs. 18,13,128 being the profit of the pre-survey period thereby disallowing the claim of the assessee for expenses claimed in the post survey period to the extent of loss of that period amounting to Rs. 13,40,226 in the assessment completed under section 143(3) read with section 147.