IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 10.08.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN and THE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeals) Nos.26 to 32 of 2008 M/s. WCI (Madras) (P) Ltd., rep. by its Managing Director, YMCA Building, III Floor, 223, NSC Bose Road, Chennai 1. Appellant v. The Assistant Commissioner of Income Tax, Company Circle III (3), 121 Mahatma Gandhi Road, Chennai 34. Respondent Tax Case Appeals filed under section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal 'C' Bench, Chennai dated 27.07.2007 made in ITA No.1066/Mds/2006; ITA No.2560 to 2565/Mds/2005. T.C.A.26 of 2008 is filed against Order dated.27.7.2007 in I.T.A.2560-2565/mds/ITA 1066/order/2006 on the file of Income Tax Appellate Tribunal Bench 'C' Chennai against order dated.02.2.2006 in I.T.A.103/2004-05/A-III on the file of Commissioner of Income Tax Appeals III, Chennai-34 against order dated.29.3.2004 in GIR.No.PAN 33063-W on the file of Assistant Commissioner of Income Tax Company Circle III(3) Chennai. Tax Case (Appeals) 27 to 32 of 2008 are filed against order dated.27.7.2007 in I.T.A.Nos.2560-2565/mds/2005 & I.T.A.1066 on the file of Income Tax Appellate Tribunal Bench 'C' Chennai against order dated.02.8.2005 in I.T.A.Nos.545,546,547,548,549 & 550/2004-05/A-III on the file of Commissioner of Income Tax (Appeals) III, Chennai-34 against order dated.28.2.2005 in GIR.No.PAN 33063-W on the file of Assistant Commissioner of Income Tax Company Circle III(4) Chennai. For appellant : Mr.A.Thiagarajan,Senior Counsel for S.Ramesh Kumar For respondent : Mrs.Pushya Sitaraman, Senior Standing Counsel for the Income Tax Department. https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT K.RAVIRAJA PANDIAN, J. These appeals are filed against the common order of the Income Tax Appellate Tribunal 'C' Bench, Chennai dated 27.07.2007 made in ITA No.1066/Mds/2006 and ITA No.2560 to 2565/Mds/2005. The appeal was admitted by this Court on the following substantial questions of law: 1. Whether, on the facts and circumstances of the case, the finding of the Tribunal that the assessee had not explained the difference between receipts in TDS certificate and the amount credit in profit and loss account is correct in law when the same was accepted by the assessing officer in the assessment order itself? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in remanding the case without considering the fact that the appellant was maintaining its accounts in accrual system of accounting as per the provisions of the Companies Act and the method of accounting prescribed by the Institute of Chartered Accountants of India for corporate assessees? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the respondent has jurisdiction to issue the notice is correct in law when admittedly, the respondent lacks jurisdiction? 4.Whether on the facts and in the circumstances of the case, the Tribunal was right in not considering the issue of limitation raised by the appellant is right in law? 2. The facts are : The assessee is a company carrying on the business as clearing and forwarding agent. In respect of the assessment years 1996-97 to 2002-03 the assessing officer noted that there was a difference between the income as per the TDS certificate and that credited in the profit and loss account. The assessee's explanation was that in this line of business, tax is deducted on the gross income including reimbursable expenses incurred by the assessee. The explanation was not accepted by the assessing officer and he made an addition of the difference between the income as per the TDS and that credited in the profit and loss account. 3. On appeal, the Commissioner of Income Tax (Appeals) held in favour of the assessee by observing that the question of taking a receipt to the credit in profit and loss account under the accrual system of accounting arises only when the receipt bears the character of income. In the case of all the clearing and forwarding agents including the assessee, it is customary to collect monies for expenses like harbour dues, air cargo handling charges, warehousing charges, demurrage and other charges required to be paid on behalf of their principals in their capacity as licenced customs house agents under the Customs Act and Rules and Regulations framed thereunder. Tax is deducted at source on these payments to customs house agents https://hcservices.ecourts.gov.in/hcservices/ as per the CBDT circular No.715 dated 08.08.1995 requiring deduction of tax at source on "any sum paid" including monies paid for expenses which do not bear the character of income. In order to come to that conclusion, the Commissioner relied on the decision in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. Vs. Commissioner of Income- tax, (2004) 270 ITR 1. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee on merits and directed the assessing officer to delete the addition made in respect of the relevant assessment years under consideration. 4. The department carried that order on further appeal to the Tribunal. The assessee filed cross objections against the finding that the reopening of assessment is correct. The Tribunal allowed the appeal filed by the department by observing that it is incumbent on the assessee to explain by way of proper reconciliation and documentary evidence the reason for the discrepancy and remitted the matter to the file of the assessing officer for proper reconciliation of the difference between income as per TDS certificate and that taken for profit and loss account. The cross objection filed by the assessee has also been dismissed on the premise that the reopening on the basis of the factual error pointed out by the audit party is valid in law. The disclosure by the assessee must not only be true but should also be fully explained. In respect of the assessment years 1999-2000 to 2002-03, the Tribunal held that there was only processing under section 143(1) of the Act and any intimation under the provision cannot be treated as assessment order and for that purpose, the Tribunal relied on the decision of the apex Court in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITR 500. The correctness of the same is put in issue. 5. Mr.A.Thiagarajan, learned counsel for the appellant/assessee contended that in respect of assessment years 1996-97 to 1998-99 assessment order under section 143(3) was passed on 19.03.1997, 25.02.2000 and 20.02.2001 respectively. However, notice under section 148 of the Act for revision of assessment was issued on 26.03.2003 for the assessment year 1996-97 and on 29.03.2004 for the assessment years 1997-98 and 1998-99, which is beyond the period of four years and hence barred by limitation, in the absence of any new material coming to the notice of the assessing officer. 6. It is contended that notice of assessment under section 148 of the Act suffers from "reason to believe" escapement of income for all the assessment years. The assessing officer, in his order dated 28.12.2004, admitted that TDS certificates are the basis available with him and hence there is no fresh information. The TDS are filed along with return of income and are available with the department since inception and there is no failure on the part of the assessee to disclose truly and fully the material facts. Hence, notice under section 148 of the Act in respect of the assessment years 1996-97 and 1997-98 and 1998-99 suffers from limitation prescribed by sections 143 and 147 of the Act. https://hcservices.ecourts.gov.in/hcservices/ 7. In order to buttress this proposition, he relied on the decision of the apex Court in the case of CIT v. Foramer France, (2003) 264 ITR 566, CIT v. Premier Mills Ltd., (2008) 296 ITR 157, CIT v. Elgi Ultra Industries Ltd., (2008) 296 ITR 573 and CIT v. A.V. Thomas Exports Ltd., (2008) 296 ITR 603 and CIT v. Chamundeeswari, (2007) 290 ITR 583. He further contended that as per the apex Court judgment in the case of GKN Driveshafts (India) Ltd., v. ITO, (2003) 259 ITR 19, the recorded reason has not been furnished to the assessee. Only gist of the reason has been communicated. 8. He further contended that notice under section 148 of the Act issued on 26.03.2003 for the assessment year 1996-97 and on 29.03.2004 for the assessment years 1997-98 to 2002-03 are not in accordance with the requirement of statute as there is no reason to believe escapement of income, which is a condition precedent for issuance of notice under section 148 of the Act. In the regular assessment in respect of the assessment years 1997-98 and 1998-99, the assessing officer observed that the regular assessment under section 143(3) of the Act for the assessment year 1997-98 was completed on 25.02.2000. Subsequent to the completion of the assessment, it was noticed that the operational income credited to the profit and loss account is less than the income as per the TDS certificate. 9. It is further contended that the assessing officer observed that the assessee, after deducting the operational expenses from the gross receipt is taking the net figure to profit and loss account. By netting the expenses, the assessee has not furnished the actual picture of transaction carried out by the company and thereby the true state of financial affairs of the assessee company have not been reflected properly in the return of the income filed. Hence, there is escapement of income to the extent of variation between the income admitted and the income as per the TDS certificate available on record. From the above observation, it is evident that the materials are available before the assessing officer while he was making the assessment under section 143(3) of the Act in respect of the assessment years 1999-2000 to 2002-03. In that case there cannot be any discrepancy. When there is no discrepancy, there is no escapement of income. He further concluded that the objection of the assessee that all the assessees doing the business of clearing and forwarding agency are following one and the same method of accounting, i.e., monies received for expenses are credited to bills for collection account and expenses incurred are debited to the said account and unclaimed surplus are transferred to profit and loss account. This method has been prescribed by the Institute of Chartered Accountants in its guidance note on tax audit under section 44AB of the Act, wherein it is stated that under clause "(vi) Reimbursement of customs duty and other charges collected by a clearing agent' would not form part of the gross receipt in business for the purpose of section 44AB. Further, it is contended that the assessee alone cannot be singled out and treated differently. Invocation of section 2(c)(iii) of section 147 of the Act for reopening of the assessment for the assessment years 1999-2000 to https://hcservices.ecourts.gov.in/hcservices/ 2002-03 is not correct because, there is no excessive relief granted to the assessee and hence the notice under section 147 of the Act lacks jurisdiction in respect of these assessment years. 10. However, Mrs.Pushya Sitaraman, learned senior standing counsel for the revenue contended that the Tribunal had only remitted the matter to the assessing officer for the purpose of reconciliation of the difference between the income as per the TDS certificate and income credited in the profit and loss account and if the appellant is having materials, it can very well prove by way of reconciliation that the order cannot be taken as prejudicial for maintaining the appeal. However, the argument was refuted by the learned counsel for the assessee by contending that it is not as simple as argued by the learned senior standing counsel. When there is lack of jurisdiction to reopen the assessment and even for issuance of notice under section 148 of the Act, jurisdiction is lacking, this Court cannot be swayed by saying that the said impugned order is only a remittal order. 11. Heard the learned counsel on either side and perused the materials available on record. 12. The following tabular column will show a clear picture about the date of return of income, completion of proceedings, etc., 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Date of filing of return 20/9/96 30/09/97 18.04.98 06.12.99 30.11.00 31.10.01 24.10.02 Income returned (Rs) 192790 282890 61290 58,140 132400 127460 124500 Date of completion of proceedings u/s 143(1) accepting the returned income 28.01.97 27.05.98 22.01.99 21.08.00 22.06.01 18.10.02 21.2.03 Date of notice u/s 143(2) of the Act 18.02.97 03.07.98 22.11.99 17.07.00 ** -- -- -- -- Date of assessment order u/s 143 (3) accepting the returned income 19.03.97 25.02.00 20.02.01 -- -- -- -- Date on which reconciliation was sought between income as per P & L a/c & gross receipt as per TDS certificate 08.09.98 -- -- -- -- -- -- https://hcservices.ecourts.gov.in/hcservices/ 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Reconciliation filed on 11.09.98 -- -- -- -- -- -- Date of notice u/s 148 26.03.03 29.03.04 29.03.04 29/3/04 29/3/04 29.03.04 29.03.04 Date on which copy of reasons for reopening were sought -- 20.04.04 20.04.04 20.04.04 20.04.04 20.04.04 20.04.04 Date on which only gist of reasons were furnished -- 09.12.04 09.12.04 09.12.04 09.12.04 09.12.04 09.12.04 Date on which objections for reasons were filed -- 20.12.04 20.12.04 20.12.04 20.12.04 20.12.04 20.12.04 Date on which order against the reasons for reopening was passed -- 28.12.04 28.12.04 28.12.04 28.12.04 28.12.04 28.12.04 Date on which detailed objections for reassessment were filed together with clarification on variation between gross receipts as per TDS certificate and income as per P & L account. 19.12.03 17.01.05 17.01.05 17.01.05 17.01.05 17.01.05 17.01.05 Date of re- assessment order 29.03.04 28.02.05 28.02.05 28.02.05 28.02.05 28.02.05 28.02.05 Addition made on reopening u/s 147 (Rs.) 2122223 6999136 2185092 1443022 1253970 1107724 2381448 ** raising the issue of reconciliation between gross receipt as per TDS certificates and income as per P & L a/c. 13. From a reading of the above, it is clear that for the assessment years 1996-1997, 1997-1998 and 1998-1999, assessments were completed under Section 143(3) of the Income Tax Act and assessment orders were passed on 19.03.1997, 25.02.2000 and 20.02.2001 respectively and later, the assessment was reopened under Section 148 of the Act and notice was issued on 26.03.2003 for the assessment year 1996-1997 and on 29.03.2004 for the assessment years 1997-98 and 1998-99 and re-assessment was also completed on 29.03.2004 and 28.02.2005 respectively. In respect of the assessment years 1999-2000 to 2002-2003, the assessment was made under Section 143(1) of the Act https://hcservices.ecourts.gov.in/hcservices/ on 21.08.200, 22.06.2001, 18.10.2002 and 21.02.2003 respectively. For the assessment year 1996-97, notice under Section 148 of the Act was issued on 26.03.2003 and in respect of all other assessment years viz., 1997-98 to 2002-03, notice under Section 148 of the Act was issued on 29.03.2004. Subsequently, for the assessment year 1996- 97, re-assessment was completed on 29.03.2004 and for the assessment years 1997-98 to 2002-03, re-assessment was completed on 28.02.2005. In respect of all the assessment years, the Assessing Officer re- opened the assessment on the ground that gross receipts are not transferred to the Profit and Loss Account and made additions. Aggrieved by that order, the assessee has filed an appeal to the Commissioner of Income Tax (Appeals). The said Commissioner of Income Tax (Appeals) upheld the re-opening of the assessment, but on merits, deleted the addition. Aggrieved by that order of the Commissioner of Income Tax (Appeals), the Revenue filed appeals before the Income Tax Appellate Tribunal. The Tribunal, considering the facts, held that there is no proper explanation on behalf of the assessee and only mere theoretical explanation was offered by the assessee and it is for the assessee to make reconciliation of the difference between the receipt in TDS Certificate and amount credited in Profit and Loss Account and there is no material available on record to consider the matter. Therefore, the Tribunal set aside the order on merits and remitted back the appeal filed by the Revenue and held as follows: "We have heard both the counsels and perused the relevant records. We find that it is not disputed in this case that gross receipt as per TDS certificate did include some expenditure reimbursement. In such circumstances, it is incumbent upon the assessee to explain and prove by way of proper reconciliation and documentary evidence the reason for the discrepancy. The reliance upon Hon'ble Apex Court decision referred above will be taken into account only after factual details are established. Mere theoretical explanation of the nature of the case will not suffice. Hence, it is the duty of the assessee to make a proper reconciliation of the amount of difference between the receipt as per TDS certificate and that as per Profit & Loss Account. Hence, in the interest of justice, we remit this issue to the file of the Assessing Officer to give an opportunity to the assesee to submit a proper reconciliation for the reasons for the difference between the income as per TDS certificate and that taken into profit and loss account and explain the veracity thereof by way of documentary evidence." 14. It is seen from the above that it is only a remittal order passed by the Income Tax Appellate Tribunal by giving an opportunity to the assessee to submit a proper reconciliation. The said remittal order could not cause any prejudice to the assessee and also the learned counsel appearing for the assessee was not able to bring to our notice that the remittal order would cause great prejudice to the assessee. Further, no attempt was made by the assessee to establish before the Court that amount transferred to the profit and loss account was made after defraying the expenses incurred by it on behalf of its customers by producing materials. https://hcservices.ecourts.gov.in/hcservices/ 15. In such circumstances, we do not find any error or illegality in the order passed by the Tribunal for remitting the same to the Assessing Authority. Therefore, on merits, we answer questions Nos. 1 and 2 in favour of the revenue and against the assessee. 16. In respect of the re-opening of the assessment, there is a factual finding by the assessing officer that there is difference between the receipt in TDS Certificate and amount credited in Profit and Loss Account. Further, the Assessing Officer was of the view that if the Profit and Loss Account is taken into consideration, there was a distorted picture of the true state of financial affairs or business operation of the assessee company, because the gross receipts were not transferred, but only net receipts were transferred to the Profit and Loss Account. In view of the above, the Assessing Officer was of the view that there is a failure on the part of the assessee to disclose fully truly all material facts necessary for the assessment. The Commissioner of Income Tax (Appeals) also upheld the validity of reopening. The Tribunal has given a specific finding in respect of re-opening, which reads as follows: "Upon a careful consideration of the issue and after hearing both the parties, we are of the opinion that re-opening on the basis of factual error pointed out by the internal audit party has been held to be valid by the Hon'ble Apex Court in CIT Vs. P.V.S.Beedies (P) Ltd., 237 ITR 213. Furthermore, Hon'ble Apex Court in Sri Krishna (P) ltd. Vs. ITO 221 ITR 538 had held that the disclosure by the assessee for avoiding re-assessment must not only be true but it should also be fully explained. Fact that Income Tax officer could have investigated the truth of the assertion does not relieve the assessee of his obligation. Considering the present case on the prism of aforesaid, we find that no explanation as to reconciliation of the difference between the receipt in TDS certificate and amount credited in Profit & Loss Account had been provided by the assessee, Hence, the contention of the assessee that all materials were already disclosed is not tenable in the background of this precedent. Again, we find that in assessment years 1999-2000 to 2002-2003 there was only processing under Section 143(1) and as held by the Hon'ble Apex Court in the case of ACIT Vs. Rahjesh Jhaveri Stock Brokers P. Ltd (2007) 291 ITR 500 (SC), such intimation cannot be treated as assessment order and re-assessment was held to be valid in such cases and hence the argument of change of opinion would not apply. As regards the issue of lack of communication of information regarding reasons recorded for re- opening, we find that the assessee in the appeal before the Commissioner of Income Tax (Appeals) has accepted in the grounds that gist of reasons has been communicated." 17. It is clear that there is a specific finding given by the Tribunal that there is no explanation for reconciliation of the difference between the receipt in TDS certificate and amount credited in Profit & Loss Account had been provided by the assessee. Therefore, the contention of the assessee that there were already materials available on record, is raised only for rejection. There is no disclosure of material before the Assessing Officer. All the authorities have come to the correct conclusion that there is an https://hcservices.ecourts.gov.in/hcservices/ escapement of income. Further, it is seen that the Assessing Officer processed the returns in respect of the assessment years 1999-2000 to 2002-03 under Section 143(1) of the Act. The Apex Court in the case of ACIT Vs. Rahjesh Jhaveri Stock Brokers P. Ltd (2007) 291 ITR 500 (SC) held that the re-assessment can be made in respect of proceedings under Section 143(1) of the Act. In respect of the assessment years 1996-97, 1997-98 and 1998-99, the original assessment was made under Section 143(3) of the Act and later for the assessment year 1996-97, the assessment was re-opened on 26.03.2003 and for the assessment years 1997-98 and 1998-99, the assessment was re-opened on 29.03.2004. In as much as there was difference between the receipt in TDS certificate and the amount credited in the Profit and Loss Account, the financial result of the assessee shows a distorted picture, which amounts to non-disclosure fully, truly all materials facts, the plea of limitation regarding assessments years 1996-1997 to 1998-99 is also to be rejected. Therefore, the argument that re-opening of the assessment for the assessment years 1997-98 and 1998-99 was made beyond the period of four years, is rejected. Accordingly, question Nos.3 and 4 are answered against the assessee and in favour of the revenue. 18. For the foregoing reasons, we are of the view that the order of the Tribunal requires no interference. The appeals are dismissed. No costs. Sd/- Asst.Registrar /True Copy/ Sub.Asst.Registrar mf To. 1. The Assistant Registrar, Income Tax Appellate Tribunal, 'C' Bench, III Floor, Rajaji Bhavan,Chennai-90. 2. Commissioner of Income Tax Appeals III, 121,Mahatma Gandhi Road,Chennai-34. 3.Assistant Commissioner of Income Tax, Company Circle III(4), Chennai-34. 4. The Secretary, Central Board of Revenue, New Delhi. + 1 cc to M/s.Pushya Sitaraman,Advocate,SR.37478 + 7 CCs to Mr.S.Ramesh Kumar,Advocate,SR.37254 T.C(A).Nos.26 to 32 of 2008 KA(CO) EM/27.8.09 https://hcservices.ecourts.gov.in/hcservices/