Sudesh Kukreja v. Commissioner Of Income Tax – I, Chandigarh

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.572 of 2006Date of decision :17.10.2011...Appellant Sudesh Kukreja Prop. M/s HI-Tech Instruments & Diagonistics,S/o Sh.Wadhu Ram, H.No.142, NAC, Mani Majra, Chandigarh Versus Commissioner of Income Tax – I, Chandigarh ...Respondent ITA No.575 of 2006Date of decision :17.10.2011Sudesh Kukreja Prop. M/s HI-Tech Instruments & Diagonistics,S/o Sh.Wadhu Ram, H.No.142, NAC, Mani Majra, Chandigarh...Appellant Versus Commissioner of Income Tax – I, Chandigarh ...Respondent ITA No.576 of 2006Date of decision :17.10.2011 Sudesh Kukreja Prop. M/s HI-Tech Instruments & Diagonistics,S/o Sh.Wadhu Ram, H.No.142, NAC, Mani Majra, Chandigarh...Appellant Versus Commissioner of Income Tax – I, Chandigarh ...Respondent ITA No.577 of 2006Date of decision :17.10.2011 Sudesh Kukreja Prop. M/s HI-Tech Instruments & Diagonistics,S/o Sh.Wadhu Ram, H.No.142, NAC, Mani Majra, Chandigarh...Appellant Versus Commissioner of Income Tax – I, Chandigarh ...Respondent ITA No.578 of 2006Date of decision :17.10.2011...Appellant Sudesh Kukreja Prop. M/s HI-Tech Instruments & Diagonistics,S/o Sh.Wadhu Ram, H.No.142, NAC, Mani Majra, Chandigarh Versus Commissioner of Income Tax – I, Chandigarh ...Respondent ITA No.579 of 2006Date of decision :17.10.2011 Sudesh Kukreja Prop. M/s HI-Tech Instruments & Diagonistics,S/o Sh.Wadhu Ram, H.No.142, NAC, Mani Majra, Chandigarh ...Appellant Versus Commissioner of Income Tax – I, Chandigarh ...Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE G.S.SANDHAWALIA Present:Mr.S.K.Mukhi, Mr.Rajiv Sharma, Ms.Jyoti, Advocates, for appellant, Ms.Urvashi Dhugga, Advocate, for the respondent. ***** G.S.SANDHAWALIA J. By a common order, ITA Nos.572, 575, 576, 577, 578 &579 of 2006 for assessment years 1997-98, 1996-97, 1998-99,1995-96, 1999-2000 & 2000-01 respectively will be disposed of.While admitting the appeals, the questions of law framed wereas under: “ A) Whether on the facts and in the circumstances ofthe case the Income Tax Appellate Tribunal wasjustified on facts & in law in confirming the action of theauthorities below by erroneously invoking the provisionsof Section 148 of the Income Tax Act, 1961 which isagainst the established principles of law? B) Whether on the facts and in the circumstances of thecase the Income Tax Appellate Tribunal was justified onfacts & in law in confirming the action of the authoritiesbelow by erroneously allowing only partial relief andthereby estimating the income at a net rate of 5%without pointing out any defect qua the sales,purchases, expenditure or any undisclosed income orinvestment which fact in itself would have led to thedropping of proceeding u/s 147/148 of Income Tax Act,1961 and acceptance of the book version of theappellant?” The facts are being taken from ITA No.577 of 2006 forthe assessment year 1995-1996 as the issue is common in allthese cases and pertain to the same assessee. The assessee wasdealing in medical equipment relating to heart surgery and hisbusiness premises was raided by the Central Bureau ofInvestigation, Chandigarh on 10.08.2001. The said agencyforwarded the copies of these documents to the AdditionalCommissioner of Income Tax, Range- II, Chandigarh and on thebasis of information collected from the Excise and Sales TaxDepartment, Chandigarh, a notice under Section 148 of theIncome Tax Act, 1961 (for brevity, 'The Act') was issued on22.11.2001. In response to this notice, the assessee filed thereturn declaring income at Rs.20,920/-. The case was processedunder Section 143 (1) of the Act and selected for scrutiny. ITA No.577 of 2006 ITA No.577 of 2006 Thereafter, notices were issued under Section 142 (1) and143 (2) of the Act. The assessing authority, after examining thereturn of income for the year under consideration, noticed thatgross sale of Rs.12,90,078/- had been shown and afterexamining various expenditures, the net profit of Rs.20,920/-was shown. Accordingly, the assessee was asked to show booksof accounts and vouchers on the basis of which he has worked-out his income and in the written submission, the assessee-appellant failed to produce the same on the ground that therewas a dispute between his landlord and the records of thetenants were destroyed. The assessing authority accordingly,while examining the purchase/sale documents supplied by theCentral Bureau of Investigation, Chandigarh, worked-out thegross profit at the rate of 42.62% and issued show cause noticedated 08.03.2003 requiring the assessee to explain as to why thetrading results shown by him may not be rejected under Section143 (3) of the Act and a net profit of 20% of the gross sales maybe applied in his case. Accordingly, by applying a rate of 20%,the income from the business was worked-out at Rs.2,58,015/-and penalty proceedings under Section 271 (1)(C) of the Actwere initiated separately. Apart from this, the assessing authority also noticed thatappellant had raised loans from the relatives and friends to thetune of Rs.1,39,778/- and accordingly was asked for the detailsof the persons who had given the said loan and on failing toestablish the identity of the creditors, the said amount was added ITA No.577 of 2006 to the income of the assessee. Thirdly, the assessing authorityalso noticed that only a sum of Rs.15,612/- was withdrawn forhousehold expenses whereas the assessee's family consists of hiswife and two daughters and the assessee, in his writtensubmission, stated that household expenses of Rs.4000/- permonth were being spent by him, and therefore, a further amountof Rs.32,338/- was added to his income and resultantly, the totaltaxable income of the above-said three figures of Rs.2,58,015/-,Rs.1,39,778/- and Rs.32,338/- was assessed under the threeheads and total taxable income was rounded-off as Rs.4,30,130.In the appeal filed by the assessee before the Commissioner ofIncome Tax (Appeal), Chandigarh, the assessee claimed thatnotice under Section 148 of the Act was not on account ofindependent application of mind by the assessing authority andthat net income at the rate of 20% of the total sale turn-overwas not justified on the ground that he was appointed as agent ofM/s Johnson & Johnson for the heart surgery equipment fromFebruary, 2000 for the first time in the assessment year2000-2001; and before that, he was only dealing in trading ofbranded medicines. Regarding taking of loan of Rs.1,39,778/-from eight persons, affidavit of Wadhu Ram, father of theappellant and his three brothers was filed. The addition ofRs.32,338/- on account of household expenses was contested onthe ground that the appellant's wife was Post-Graduate withqualification of M.A. B.Ed and was conducting tuition, andtherefore, no addition towards household expenses was called for. The CIT accepted the submission that the net profit of 10%was reasonable against the gross sale of Rs.2,58,015/- on theground that the appellant was trading in branded medicinesduring the assessment year under consideration and had beenappointed as agent of M/s Johnson & Johnson for the heartsurgery related equipment viz. Tropease IVC filter, V Stent, WorldPass Baloon and Mini Cord Stent for the assessment year 2000-01 for the first time and since there was nothing to show that theappellant was dealing in surgery equipment for the assessmentyear 2000-01 and accordingly directed the assessing authority tocalculate the net profit at the rate of 10%. On the issue of loanstaken to the tune of Rs.1,39,778/-, the addition was up-heldwhereas the addition of Rs.32,338/- towards household expenseswas deleted. In the appeal filed before the Income Tax AppellateTribunal by the assessee, the rate of gross profit was reduced to5% of the turn-over under Section 44 AF and on the issue of theloans taken, the case was sent back to the assessing authority forfresh adjudication to produce evidence/creditors to substantiatethe claim of loans. The assessee has challenged the above-saidorder of the Tribunal by way of the present appeal and hadcontended that the questions of law framed were liable to bedecided in his favour. The counsel for the appellant has stressed that theaction of the authorities invoking the provisions of Section 148 ofthe Act is against the established principles on the ground that ITA No.577 of 2006 the assessing authority had no reason to believe that any incomechargeable to tax had escaped assessment for any assessmentyear, and therefore, the proceedings were liable to be droppedand the book-version of the appellant was liable to be accepted. In the facts and circumstances of the present case, itwould be clear that the assessee had not filed his return with theDepartment and it was only on account of the search and seizureoperation which was carried out by the Central Bureau ofInvestigation, certain documents came to the notice of theagency which had forwarded the copies of the same to IncomeTax Commissioner, Range- II, Chandigarh. It was only on thereceipt of the above-said information from the Additional CIT,Range- II, Chandigarh and on the basis of the informationcollected from the Excise and Sales Tax Department, Chandigarh,a notice under Section 148 of the Act was issued on 22.11.2001to the assessee and it was thereafter only, the assessee filed hisreturn of income declaring income at Rs.20,920/-. The assessingauthority, while issuing notice under Section 148 of the Act, gavethe following reasons as to why the assessee-firm should havefiled return of the said assessment years, i.e., from 1995-96 to2000-01:- “During the course of surprise checking by theCBI Anti Corruption Branch & I.Tax Department as alsofurther verification made from Sales Tax Authorities aswell as from the banks, it has been noticed that theassessee has shown figures of sales/deposits to thesales tax department/bank as under: Asstt. YearAmount1995-961290078-05 Accordingly the assessee was asked to explainas to why notice u/s 148 of the I.T. Tax Act should notbe issued. In compliance the assessee has stated thatit has carried out the business from rented commercialplace, arranged on sub-let basis till 1998-99 and haseffected the above mentioned sales by selling medicalproducts since 1994-95. The assessee firm could notearn enough profit so as to enable to file their IncomeTax Returns for the above years and finally he has toclose down the said business. As is evident from the above statistics the Asstt. YearAmount1995-961290078-05 Accordingly the assessee was asked to explainas to why notice u/s 148 of the I.T. Tax Act should notbe issued. In compliance the assessee has stated thatit has carried out the business from rented commercialplace, arranged on sub-let basis till 1998-99 and haseffected the above mentioned sales by selling medicalproducts since 1994-95. The assessee firm could notearn enough profit so as to enable to file their IncomeTax Returns for the above years and finally he has toclose down the said business. As is evident from the above statistics the assessee has must have invested substantial money tocarry out the above said business and earned profitthereon also, therefore it was required to furnish thereturns of the above assessment years by declaringsources of investment as well as element of profitearned, which the assessee fails to do so in view ofexplanation 2(a) to section 147 of the Act, accordinglythe income of the assessee is worked out by applyingnet profit rate of 10% on total sales as under:- Asstt. YearAmount1995-96129007/-1996-97141225/-1997-98162780/-1999-99169495/-1999-200093847/-2000-20016,1600/- In view of the above facts, I have reason tobelieve that the income chargeable to tax have escapedassessment for the A.Y. 1996-97 amounting to`Rs. 1441225/-.” A perusal of the said reasons would go to show that the ITA No.577 of 2006 assessing authority had verified from Sales Tax authorities aswell as from the banks that the assessee had shown figures ofthe sales to the Excise and Sales Tax Department and on thebasis of the sales/deposits figures, came to the conclusion thatthe assessee-firm could earn substantial amount by carrying onbusiness and had earned profit also, and therefore, the assesseewas under obligation to furnish details of the income tax bydeclaring the source of income for the assessment years underconsideration. A perusal of Section 148 of the Act would go toshow that the assessing authority would serve on the assessee anotice requiring him to furnish his return within such period asmay be specified in which he has disclosed his assessable incomeunder the Act and under Sub-section 148 (2), reasons have to berecorded before issuance of such notice. From the facts notedabove, it would be clear that the assessee was carrying onbusiness but had failed to file his return and it is only due to thesearch operation conducted by the CBI that the documents wereforwarded to the Department, who further verified it from theSales Tax authorities regarding the business being conducted bythe assessee and accordingly, notice under Section 148 of the Actwas served upon the assessee and the reasons for the issuanceof the said notice have already been reproduced above whichwould go to show that the assessee had invested substantialmoney and he was required to furnish the return by declaring thesource of investment and there was reasonable material beforethe assessing authority which applied its mind independently by issuing the notice under Section 148 of the Act and recorded hisreasons while issuing notice. Thus, in the facts andcircumstances, the Income Tax Appellate Tribunal was justified inconfirming the action of the authorities regarding the invoking ofthe provisions of Section 148 of the Act, and accordingly, the firstquestion is answered in favour of the Revenue and against theassessee. issuing the notice under Section 148 of the Act and recorded hisreasons while issuing notice. Thus, in the facts andcircumstances, the Income Tax Appellate Tribunal was justified inconfirming the action of the authorities regarding the invoking ofthe provisions of Section 148 of the Act, and accordingly, the firstquestion is answered in favour of the Revenue and against theassessee. Regarding the second question of law on the point of thefact that there was no defect qua sales/purchase and anyun-disclosed income and the fact would have led to dropping ofthe proceedings of Section 148 of the Act and the acceptance ofthe book-version of the appellant, the same also merits noacceptance in view of the background of the facts given above,the assessing authority had initially worked-out the gross incomeat the rate of 42.62% on the basis of the purchase/sales for theassessment year 2001-02 and applied 20% net profit rate andhad enhanced the income to the tune of Rs.2,58,015/-. This wasset aside in appeal by the Commissioner of IT who came to theconclusion that the assessee was not dealing with heart surgeryequipment for the relevant period and started doing it only in theyear 2000-01, and therefore, assessed the net profit at 10% asper the notice under Section 148 of the Act. The assesseefurther got relief before the Tribunal who further reduced the rateof profit to 5% of the turn-over and also gave the assesseeopportunity to produce the persons who had given loan to him.Once the assessee himself had not filed returns and it was only ITA No.577 of 2006 on account of search operations conducted by the CBI, it came tolight that the assessee was running a business and not filing hisreturns. It, therefore, cannot be contended by the assessee thatthere was no defect in his sales/purchase expenditure or any un-disclosed income and his book-version should be accepted.Accordingly, the second question of law is also answered againstthe assessee in view of the peculiar facts and circumstances ofthe case. Accordingly, the appeals are dismissed. (G.S.SANDHAWALIA) JUDGE (HEMANT GUPTA) JUDGE 17.10.2011sailesh