M/S. Wci (Madras) (P) Ltd., Rep. By Its Managing Director, Ymca Building, Iii Floor v. The Assistant Commissioner Of Income Tax, Company Circle Iii (3), 121 Mahatma Gandhi Road, Chennai 34. Respondent

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 10.08.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE 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 TaxAct, 1961 against the order of the Income Tax Appellate Tribunal 'C'Bench, Chennai dated 27.07.2007 made in ITA No.1066/Mds/2006; ITANo.2560 to 2565/Mds/2005. T.C.A.26 of 2008 is filed against Order dated.27.7.2007 inI.T.A.2560-2565/mds/ITA 1066/order/2006 on the file of Income TaxAppellate Tribunal Bench 'C' Chennai against order dated.02.2.2006 inI.T.A.103/2004-05/A-III on the file of Commissioner of Income TaxAppeals III, Chennai-34 against order dated.29.3.2004 in GIR.No.PAN33063-W on the file of Assistant Commissioner of Income Tax CompanyCircle III(3) Chennai. Tax Case (Appeals) 27 to 32 of 2008 are filed against orderdated.27.7.2007 in I.T.A.Nos.2560-2565/mds/2005 & I.T.A.1066 on thefile of Income Tax Appellate Tribunal Bench 'C' Chennai against orderdated.02.8.2005 in I.T.A.Nos.545,546,547,548,549 & 550/2004-05/A-IIIon the file of Commissioner of Income Tax (Appeals) III, Chennai-34against order dated.28.2.2005 in GIR.No.PAN 33063-W on the file ofAssistant Commissioner of Income Tax Company Circle III(4) Chennai. For appellant: Mr.A.Thiagarajan,Senior Counsel forS.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 theIncome Tax Appellate Tribunal 'C' Bench, Chennai dated 27.07.2007made in ITA No.1066/Mds/2006 and ITA No.2560 to 2565/Mds/2005. Theappeal was admitted by this Court on the following substantialquestions of law: 1. Whether, on the facts and circumstances of the case, the findingof the Tribunal that the assessee had not explained the differencebetween receipts in TDS certificate and the amount credit in profitand loss account is correct in law when the same was accepted bythe assessing officer in the assessment order itself? 2. Whether, on the facts and in the circumstances of the case, theTribunal was right in remanding the case without considering thefact that the appellant was maintaining its accounts in accrualsystem of accounting as per the provisions of the Companies Act andthe method of accounting prescribed by the Institute of CharteredAccountants of India for corporate assessees? 3. Whether, on the facts and in the circumstances of the case, theTribunal was right in holding that the respondent has jurisdictionto issue the notice is correct in law when admittedly, therespondent lacks jurisdiction? 4.Whether on the facts and in the circumstances of the case, theTribunal was right in not considering the issue of limitationraised by the appellant is right in law? 2. The facts are : The assessee is a company carrying on thebusiness as clearing and forwarding agent. In respect of theassessment years 1996-97 to 2002-03 the assessing officer noted thatthere was a difference between the income as per the TDS certificateand that credited in the profit and loss account. The assessee'sexplanation was that in this line of business, tax is deducted on thegross income including reimbursable expenses incurred by theassessee. The explanation was not accepted by the assessing officerand he made an addition of the difference between the income as perthe TDS and that credited in the profit and loss account. 2. The facts are : The assessee is a company carrying on thebusiness as clearing and forwarding agent. In respect of theassessment years 1996-97 to 2002-03 the assessing officer noted thatthere was a difference between the income as per the TDS certificateand that credited in the profit and loss account. The assessee'sexplanation was that in this line of business, tax is deducted on thegross income including reimbursable expenses incurred by theassessee. The explanation was not accepted by the assessing officerand he made an addition of the difference between the income as perthe TDS and that credited in the profit and loss account. 3. On appeal, the Commissioner of Income Tax (Appeals) heldin favour of the assessee by observing that the question of taking areceipt to the credit in profit and loss account under the accrualsystem of accounting arises only when the receipt bears the characterof income. In the case of all the clearing and forwarding agentsincluding the assessee, it is customary to collect monies forexpenses like harbour dues, air cargo handling charges, warehousingcharges, demurrage and other charges required to be paid on behalf oftheir principals in their capacity as licenced customs house agentsunder the Customs Act and Rules and Regulations framed thereunder.https://hcservices.ecourts.gov.in/hcservices/Tax is deducted at source on these payments to customs house agents as per the CBDT circular No.715 dated 08.08.1995 requiring deductionof tax at source on "any sum paid" including monies paid for expenseswhich do not bear the character of income. In order to come to thatconclusion, the Commissioner relied on the decision in the case ofSiddheshwar 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 theassessing officer to delete the addition made in respect of therelevant assessment years under consideration. 4. The department carried that order on further appeal to theTribunal. The assessee filed cross objections against the findingthat the reopening of assessment is correct. The Tribunal allowed theappeal filed by the department by observing that it is incumbent onthe assessee to explain by way of proper reconciliation anddocumentary evidence the reason for the discrepancy and remitted thematter to the file of the assessing officer for proper reconciliationof the difference between income as per TDS certificate and thattaken for profit and loss account. The cross objection filed by theassessee has also been dismissed on the premise that the reopening onthe basis of the factual error pointed out by the audit party isvalid in law. The disclosure by the assessee must not only be truebut should also be fully explained. In respect of the assessmentyears 1999-2000 to 2002-03, the Tribunal held that there was onlyprocessing under section 143(1) of the Act and any intimation underthe provision cannot be treated as assessment order and for thatpurpose, the Tribunal relied on the decision of the apex Court inACIT v. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITR 500.The correctness of the same is put in issue. 5.Mr.A.Thiagarajan,learnedcounselfortheappellant/assessee contended that in respect of assessment years1996-97 to 1998-99 assessment order under section 143(3) was passedon 19.03.1997, 25.02.2000 and 20.02.2001 respectively. However,notice under section 148 of the Act for revision of assessment wasissued on 26.03.2003 for the assessment year 1996-97 and on29.03.2004 for the assessment years 1997-98 and 1998-99, which isbeyond the period of four years and hence barred by limitation, inthe absence of any new material coming to the notice of the assessingofficer. 5.Mr.A.Thiagarajan,learnedcounselfortheappellant/assessee contended that in respect of assessment years1996-97 to 1998-99 assessment order under section 143(3) was passedon 19.03.1997, 25.02.2000 and 20.02.2001 respectively. However,notice under section 148 of the Act for revision of assessment wasissued on 26.03.2003 for the assessment year 1996-97 and on29.03.2004 for the assessment years 1997-98 and 1998-99, which isbeyond the period of four years and hence barred by limitation, inthe absence of any new material coming to the notice of the assessingofficer. 6. It is contended that notice of assessment under section148 of the Act suffers from "reason to believe" escapement of incomefor all the assessment years. The assessing officer, in his orderdated 28.12.2004, admitted that TDS certificates are the basisavailable with him and hence there is no fresh information. The TDSare filed along with return of income and are available with thedepartment since inception and there is no failure on the part of theassessee to disclose truly and fully the material facts. Hence,notice under section 148 of the Act in respect of the assessmentyears 1996-97 and 1997-98 and 1998-99 suffers from limitationprescribed by sections 143 and 147 of the Act. https://hcservices.ecourts.gov.in/hcservices/ 7. In order to buttress this proposition, he relied on thedecision 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 perthe apex Court judgment in the case of GKN Driveshafts (India) Ltd.,v. ITO, (2003) 259 ITR 19, the recorded reason has not been furnishedto the assessee. Only gist of the reason has been communicated. 8. He further contended that notice under section 148 of theAct issued on 26.03.2003 for the assessment year 1996-97 and on29.03.2004 for the assessment years 1997-98 to 2002-03 are not inaccordance with the requirement of statute as there is no reason tobelieve escapement of income, which is a condition precedent forissuance of notice under section 148 of the Act. In the regularassessment in respect of the assessment years 1997-98 and 1998-99,the assessing officer observed that the regular assessment undersection 143(3) of the Act for the assessment year 1997-98 wascompleted on 25.02.2000. Subsequent to the completion of theassessment, it was noticed that the operational income credited tothe profit and loss account is less than the income as per the TDScertificate. 9. It is further contended that the assessing officerobserved that the assessee, after deducting the operational expensesfrom the gross receipt is taking the net figure to profit and lossaccount. By netting the expenses, the assessee has not furnished theactual picture of transaction carried out by the company and therebythe true state of financial affairs of the assessee company have notbeen reflected properly in the return of the income filed. Hence,there is escapement of income to the extent of variation between theincome admitted and the income as per the TDS certificate availableon record. From the above observation, it is evident that thematerials are available before the assessing officer while he wasmaking the assessment under section 143(3) of the Act in respect ofthe assessment years 1999-2000 to 2002-03. In that case therecannot be any discrepancy. When there is no discrepancy, there is noescapement of income. He further concluded that the objection of theassessee that all the assessees doing the business of clearing andforwarding agency are following one and the same method ofaccounting, i.e., monies received for expenses are credited to billsfor collection account and expenses incurred are debited to the saidaccount and unclaimed surplus are transferred to profit and lossaccount. This method has been prescribed by the Institute ofChartered Accountants in its guidance note on tax audit under section44AB of the Act, wherein it is stated that under clause "(vi)Reimbursement of customs duty and other charges collected by aclearing agent' would not form part of the gross receipt in businessfor the purpose of section 44AB. Further, it is contended that theassessee alone cannot be singled out and treated differently.Invocation of section 2(c)(iii) of section 147 of the Act forhttps://hcservices.ecourts.gov.in/hcservices/reopening of the assessment for the assessment years 1999-2000 to 2002-03 is not correct because, there is no excessive relief grantedto the assessee and hence the notice under section 147 of the Actlacks jurisdiction in respect of these assessment years. 10. However, Mrs.Pushya Sitaraman, learned senior standingcounsel for the revenue contended that the Tribunal had only remittedthe matter to the assessing officer for the purpose of reconciliationof the difference between the income as per the TDS certificate andincome credited in the profit and loss account and if the appellantis having materials, it can very well prove by way of reconciliationthat the order cannot be taken as prejudicial for maintaining theappeal. However, the argument was refuted by the learned counsel forthe assessee by contending that it is not as simple as argued by thelearned senior standing counsel. When there is lack of jurisdictionto reopen the assessment and even for issuance of notice undersection 148 of the Act, jurisdiction is lacking, this Court cannot beswayed by saying that the said impugned order is only a remittalorder. 11. Heard the learned counsel on either side and perused thematerials available on record. 12. The following tabular column will show a clear pictureabout the date of return of income, completion of proceedings, etc., 13. From a reading of the above, it is clear that for theassessment years 1996-1997, 1997-1998 and 1998-1999, assessments werecompleted under Section 143(3) of the Income Tax Act and assessmentorders were passed on 19.03.1997, 25.02.2000 and 20.02.2001respectively and later, the assessment was reopened under Section 148of the Act and notice was issued on 26.03.2003 for the assessmentyear 1996-1997 and on 29.03.2004 for the assessment years 1997-98and 1998-99 and re-assessment was also completed on 29.03.2004 and28.02.2005 respectively. In respect of the assessment years 1999-2000https://hcservices.ecourts.gov.in/hcservices/to 2002-2003, the assessment was made under Section 143(1) of the Act 13. From a reading of the above, it is clear that for theassessment years 1996-1997, 1997-1998 and 1998-1999, assessments werecompleted under Section 143(3) of the Income Tax Act and assessmentorders were passed on 19.03.1997, 25.02.2000 and 20.02.2001respectively and later, the assessment was reopened under Section 148of the Act and notice was issued on 26.03.2003 for the assessmentyear 1996-1997 and on 29.03.2004 for the assessment years 1997-98and 1998-99 and re-assessment was also completed on 29.03.2004 and28.02.2005 respectively. In respect of the assessment years 1999-2000https://hcservices.ecourts.gov.in/hcservices/to 2002-2003, the assessment was made under Section 143(1) of the Act on 21.08.200, 22.06.2001, 18.10.2002 and 21.02.2003 respectively. Forthe assessment year 1996-97, notice under Section 148 of the Act wasissued on 26.03.2003 and in respect of all other assessment yearsviz., 1997-98 to 2002-03, notice under Section 148 of the Act wasissued on 29.03.2004. Subsequently, for the assessment year 1996-97, re-assessment was completed on 29.03.2004 and for the assessmentyears 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 nottransferred to the Profit and Loss Account and made additions.Aggrieved by that order, the assessee has filed an appeal to theCommissioner of Income Tax (Appeals). The said Commissioner ofIncome Tax (Appeals) upheld the re-opening of the assessment, but onmerits, deleted the addition. Aggrieved by that order of theCommissioner of Income Tax (Appeals), the Revenue filed appealsbefore the Income Tax Appellate Tribunal. The Tribunal, consideringthe facts, held that there is no proper explanation on behalf of theassessee and only mere theoretical explanation was offered by theassessee and it is for the assessee to make reconciliation of thedifference between the receipt in TDS Certificate and amount creditedin Profit and Loss Account and there is no material available onrecord to consider the matter. Therefore, the Tribunal set asidethe order on merits and remitted back the appeal filed by theRevenue 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 asper TDS certificate did include some expenditure reimbursement. Insuch circumstances, it is incumbent upon the assessee to explainand prove by way of proper reconciliation and documentary evidencethe reason for the discrepancy. The reliance upon Hon'ble Apex Courtdecision referred above will be taken into account only after factualdetails are established. Mere theoretical explanation of the natureof the case will not suffice. Hence, it is the duty of the assesseeto make a proper reconciliation of the amount of difference betweenthe receipt as per TDS certificate and that as per Profit & LossAccount. Hence, in the interest of justice, we remit this issue tothe file of the Assessing Officer to give an opportunity to theassesee to submit a proper reconciliation for the reasons for thedifference between the income as per TDS certificate and that takeninto profit and loss account and explain the veracity thereof by wayof documentary evidence." 14. It is seen from the above that it is only a remittalorder passed by the Income Tax Appellate Tribunal by giving anopportunity to the assessee to submit a proper reconciliation. Thesaid remittal order could not cause any prejudice to the assessee andalso the learned counsel appearing for the assessee was not able tobring to our notice that the remittal order would cause greatprejudice to the assessee. Further, no attempt was made by theassessee to establish before the Court that amount transferred to theprofit and loss account was made after defraying the expensesincurred 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 orillegality in the order passed by the Tribunal for remitting the sameto the Assessing Authority. Therefore, on merits, we answer questionsNos. 1 and 2 in favour of the revenue and against the assessee. 16. In respect of the re-opening of the assessment, there isa factual finding by the assessing officer that there is differencebetween the receipt in TDS Certificate and amount credited in Profitand Loss Account. Further, the Assessing Officer was of the viewthat if the Profit and Loss Account is taken into consideration,there was a distorted picture of the true state of financial affairsor business operation of the assessee company, because the grossreceipts were not transferred, but only net receipts were transferredto the Profit and Loss Account. In view of the above, the AssessingOfficer was of the view that there is a failure on the part of theassessee to disclose fully truly all material facts necessary forthe assessment. The Commissioner of Income Tax (Appeals) also upheldthe validity of reopening. The Tribunal has given a specific findingin respect of re-opening, which reads as follows:"Upon a careful consideration of the issue and after hearing both theparties, we are of the opinion that re-opening on the basis offactual error pointed out by the internal audit party has been heldto 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 theassessee for avoiding re-assessment must not only be true but itshould also be fully explained. Fact that Income Tax officer couldhave investigated the truth of the assertion does not relieve theassessee of his obligation. Considering the present case on theprism of aforesaid, we find that no explanation as toreconciliation of the difference between the receipt in TDScertificate and amount credited in Profit & Loss Account had beenprovided by the assessee, Hence, the contention of the assessee thatall materials were already disclosed is not tenable in the backgroundof this precedent. Again, we find that in assessment years 1999-2000to 2002-2003 there was only processing under Section 143(1) and asheld by the Hon'ble Apex Court in the case of ACIT Vs. RahjeshJhaveri Stock Brokers P. Ltd (2007) 291 ITR 500 (SC), suchintimation cannot be treated as assessment order and re-assessmentwas held to be valid in such cases and hence the argument of changeof opinion would not apply. As regards the issue of lack ofcommunication of information regarding reasons recorded for re-opening, we find that the assessee in the appeal before theCommissioner of Income Tax (Appeals) has accepted in the grounds thatgist of reasons has been communicated." 17. It is clear that there is a specific finding given bythe Tribunal that there is no explanation for reconciliation of thedifference between the receipt in TDS certificate and amount creditedin Profit & Loss Account had been provided by the assessee.Therefore, the contention of the assessee that there were alreadymaterials available on record, is raised only for rejection. There isno disclosure of material before the Assessing Officer. All thehttps://hcservices.ecourts.gov.in/hcservices/authorities have come to the correct conclusion that there is an escapement of income. Further, it is seen that the AssessingOfficer processed the returns in respect of the assessment years1999-2000 to 2002-03 under Section 143(1) of the Act. The Apex Courtin 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 respectof proceedings under Section 143(1) of the Act. In respect of theassessment years 1996-97, 1997-98 and 1998-99, the originalassessment was made under Section 143(3) of the Act and later forthe assessment year 1996-97, the assessment was re-opened on26.03.2003 and for the assessment years 1997-98 and 1998-99, theassessment was re-opened on 29.03.2004. In as much as there wasdifference between the receipt in TDS certificate and the amountcredited in the Profit and Loss Account, the financial result of theassessee shows a distorted picture, which amounts to non-disclosurefully, truly all materials facts, the plea of limitation regardingassessments years 1996-1997 to 1998-99 is also to be rejected.Therefore, the argument that re-opening of the assessment for theassessment years 1997-98 and 1998-99 was made beyond the period offour years, is rejected. Accordingly, question Nos.3 and 4 areanswered against the assessee and in favour of the revenue. 18. For the foregoing reasons, we are of the view that theorder of the Tribunal requires no interference. The appeals aredismissed. No costs. Sd/-Asst.Registrar /True Copy/ mfTo.1. The Assistant Registrar,Income Tax Appellate Tribunal,'C' Bench, III Floor, Rajaji Bhavan,Chennai-90. Sub.Asst.Registrar 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