Q : Can disclosure of lesser profits than presumptive income without any tax audit would be deemed as escapement of income ?
Where assessee had not declared income from his business at 8 per cent of gross receipt in accordance with provisions of section 44AD and return of income which was also not accompanied by audited accounts was processed under section 143(1)(a), Assessing Officer had rightly formed a belief that income chargeable to tax had escaped assessment.
Undisputedly, in the instant case, the assessee has not furnished the audited account along with the return of income and his income was declared at less than 8 per cent of the gross turnover which was processed by the Assessing Officer under section 143(1)(a). Having noted that the income was declared at less than 8 per cent of the gross turnover and the return was not accompanied by the audited accounts, the Assessing Officer has rightly formed a belief that the income chargeable to tax has escaped assessment. Therefore, there is no infirmity in the formation of belief by the Assessing Officer that the income chargeable to tax has escaped assessment. Moreover, the income has escaped assessment on account of non-furnishing of audited account along with the return of income. In these circumstances, the Assessing Officer has rightly invoked the provisions of section 147 by forming a belief that the income chargeable to tax has escaped assessment on account of the fault of the assessee. However, this type of objection that non-furnishing of reasons recorded for reopening the assessment can invalidate the assessment could be raised in original assessment proceedings and not at this belated stage after a period of 10 years. No doubt, the assessee has a right to ask for supply of reasons recorded by the Assessing Officer for reopening of assessment, but that right can be exercised during the original assessment proceedings when the assessment was reopened and the Assessing Officer has started the proceedings for completing the assessment. In that situation, if the Assessing Officer does not supply the copy of the reasons recorded and proceeded with framing of assessment, such assessment can be held to be invalid or illegal, but this argument cannot be raised in second round of appeal that too at the stage of the Tribunal after a period of 10 years. Accordingly, there is no merit in this argument of the assessee and the same is rejected. [Para 6]
IN THE ITAT LUCKNOW BENCH ‘SMC’
Vijay Pal Singh
v.
Income-tax Officer, 3 (3), Kanpur
IT APPEAL NO. 556 (LKW.) OF 2011
[ASSESSMENT YEAR 1997-98]
AUGUST 26, 2013
Abhinav Mehrotra, Adv. for the Appellant. Alok Mitra, D.R. for the Respondent.
ORDER
1. This appeals is preferred by the assessee against the order of the ld. CIT(A) on various grounds, which are as under:—
| (1) | The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law by not considering and allowing the addition made on account of 8% receipts from Civil construction works under the provisions of Section 44AD without considering the directions as were given by the Hon’ble Central Board of Direct Taxes, New Delhi’s Instruction No. 1956 dated 19-11-1998 and Circular No.3/2001 dated 09-02-2001 which were issued to remove the difficulties and hardship to adopt the below rate of 8% of Civil Construction receipts for estimation of Income for assessment year 1997-98 subject to compulsory scrutiny of case as in this case books of accounts are maintained and an Audit Report alongwith written application dated 30-10-2002 were filed during the course of assessment proceedings before the A.O. i.e. the I.T.O.3(2) Kanpur who did not consider the aforesaid particulars of Accounts and in earlier decisions dated 19-09-2005 the Hon’ble Income Tax Appellate Tribunal, Lucknow Bench, Lucknow also held in favour of the I.T. Department but it still appears that entire matters are sub-judice and further required to be scrutinized by the Assessing Officer properly on directions. | |
| (2) | The Ld. C.I.T.(A)-II, Kanpur also has erred in law by not considering and allowing the additions which were also upheld in favour of the deptt. found not properly been scrutinized and investigated by the A.O. on account of a loan given by Smt. Fauzia Sultan for Rs. 18,000/- and also a gift received from Shri Ashok Kumar for Rs.18,000/- whereas confirmations and executed gift deeds copies were filed with the A.O. i.e. I.T.0.3(2), Kanpur for his satisfaction and making necessary scrutiny and also for consideration but no any proper investigation etc. were made by him through the departmental procedures and unnecessarily these amounts have been added by him, which further required to be scrutinized properly on directions. | |
| (3) | The Ld. C.I.T.(A)-II, Kanpur further did consider the penalty proceedings which had since been initiated in the case under the provisions of Section 271(1) (c) read with section 274 of the ,I.T. Act 1961 and had also levied interest U/s 234 A, B & C and had also levied interest U/s 220(2) which required to be quashed accordingly as no any concealment of particulars of accounts were made by the assessee and these also required to be quashed accordingly. | |
| (4) | The Assessing Officer as well as the Ld. C.I.T.(A)-II, Kanpur have not properly viewed the aforesaid instruction No.1956 dated 19-11-1998 and Circular No.3/2001 dated 09-02-2001 of the Hon’ble C.B.D.T. New Delhi which are applicable in the case of appellant for scrutiny and proper investigation of all particulars of accounts have never properly been made by them. So that further prayed to review all such matters at the stage of A.O. for making the proper scrutiny of accounts of the appellant. | |
| (5) | That any other point be adduced at the time of hearing of the appeal in the case. |
2. During the course of hearing of the appeal, the assessee moved an application for admission of additional grounds with the submission that these grounds go to the root of the case, therefore, the same may be admitted for adjudication. Through the additional grounds, the assessee has challenged the reopening of the assessment for the reason that the Assessing Officer has reopened the assessment without forming a belief that the income chargeable to tax has escaped assessment. For the sake of reference, the additional grounds raised by the assessee are extracted hereunder:—
| (A) | Because on the Facts and in the Circumstances of the case, the Ld. Assessing Officer has not provided a copy of the reasons recorded to the assessee, so as to enable him to dispute the validity of reassessment proceedings. | |
| (B) | Because on the Facts and in the Circumstances of the case, the assessment proceedings have been initiated beyond 4 years from the end of the relevant assessment year and hence it is incumbent for the Assessing Officer to “QUANTIFY” the quantum of escaped income exceeding Rs. 1 Lac, which in the instant case has not been done. Hence the reassessment proceedings are bad in law as per the verdict of the Hon’ble Jurisdictional High Court. | |
| (C) | Because on the Facts and in the Circumstances of the case, the apparent reasons, as recorded by the Ld. Assessing Officer do not lead to the formation of belief that income chargeable to tax has escaped assessment, as the assessment has merely been reopened for the solitary reason that the return of income was not accompanied with tax audit report, whereas, as per the instructions of the CBDT, there was no such requirement, upto to the A.Y. 1997-98, which is the year under consideration. |
3. The ld. D.R., on the other hand, has contended that the additional grounds are raised in second round of appeal. He submitted that in the first round of appeal the matter went upto the Tribunal and the Tribunal restored the matter back to the file of the Assessing Officer for re-adjudication of the issues afresh after affording opportunity of being heard to the assessee. During the course of proceedings in the first round of appeal the assessee has not raised any objection with regard to the validity of reopening of assessment. Even in the second round of appeal till the conclusion of hearing by the first appellate authority validity of reopening has not been challenged by the assessee. Now for the first time the additional grounds challenging the validity of reopening have been raised by the assessee before the Tribunal that too with regard to the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment. The ld. D.R. further invited my attention to the first assessment order dated 13.3.2003 with the submission that the Assessing Officer has mentioned in his order that the assessee has not declared the income from his business at 8% of the gross receipt in accordance with the provisions of section 44AD of the Income-tax Act, 1961 (hereinafter called in short “the Act”). Moreover, the return of income was also not accompanied by the audited account. Therefore, in the absence of the audited account, the income has to be assessed at 8% of the gross receipts in accordance with the provisions of section 44AD of the Act. Since the assessee himself has not furnished the relevant documents on the basis of which income can be assessed at less than 8% of the gross receipt, the Assessing Officer has rightly formed a belief that the income chargeable to tax has escaped assessment inasmuch as, as per provisions of section 44AD of the Act the income is to be assessed at 8% on the gross receipt or total turnover. The ld. D.R. further contended that since the assessee himself is responsible for non-furnishing of relevant documents resulting into assessment of income at less than 8% of the gross receipts, the Assessing Officer has rightly reopened the assessment after four years.
4. Having heard the rival submissions and from a careful perusal of the orders of the lower authorities and the additional grounds raised before the Tribunal, I find that though the issue raised in the additional grounds is of legal in nature, but it has been raised at a belated stage. In the first round of appeal, no objection was raised in this regard. Even in the second round of appeal till conclusion of appeal by the ld. CIT(A), reopening of assessment had not been challenged. First assessment order was passed by the Assessing Officer vide order dated 13.3.2003 and the application for admission of additional ground is filed before the Tribunal almost after 10 years from the date of the assessment order having pleaded that the assessment is bad as the Assessing Officer has not supplied the copy of reasons recorded for reopening to the assessee. In support of this contention, he has placed reliance upon the judgment of the Hon’ble jurisdictional High Court in the case of Prabha Rani Agarwal v. ITO [IT Appeal No. 67 of 2005]. During the course of hearing of the appeal, it was contended on behalf of the assessee that the reasons were not recorded before reopening of assessment and the ld. D.R. was directed to obtain the assessment record and to furnish the copy of reasons recorded for reopening of assessment before the Tribunal, but the ld. D.R. has expressed his inability on the ground that it is very old matter and the original file is not traceable. He, however, prepared a skeleton file but the original reasons recorded by the Assessing Officer before reopening of assessment are not available.
5. The ld. D.R., however, invited my attention to the first assessment order dated 13.3.2003 with the submission that the assessee has not declared his income from his business at 8% of the gross receipt/total turnover in accordance with the provisions of section 44AD of the Act as the return filed was not accompanied with the audited account. For these reasons, the Assessing Officer issued a notice to the assessee under section 148 of the Act. These facts were not disputed by the ld. counsel for the assessee also. Now the issue is that whether the reasons recorded in the assessment order is sufficient to hold that the Assessing Officer has formed a belief that the income chargeable to tax has escaped assessment on account of failure on the part of the assessee. Undisputedly the return of income was not accompanied by audited account and the income was declared less than 8% of the gross receipt and the same was accepted by the Department processing the return under section 143(1)(a) of the Act. Since the return was processed under section 143(1)(a) of the Act, there was no application of the mind by the Assessing Officer in this regard. As per provisions of section 44AD of the Act if the assessee is engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. As per sub-clause (6) of section 44AD of the Act, the income can be accepted lower than 8% if the assessee keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB. The relevant provisions of section 44AD of the Act are extracted hereunder for the sake of reference:—
’44AD. Special provision for computing profits and gains of business of civil construction, etc. — (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent. of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”:
Provided that nothing contained in this sub-section shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits spcified in clause (b) of section 40.
(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
(5) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997, or any earlier assessment year, are lower than the profits and gains specified in sub-section (1), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.
Explanation. — For the purposes of this section, the expression “civil construction” includes-
(a) the construction or repair of any building, bridge, dam or other structure or of any canal or road;
(b) the execution of any works contract.
(6) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.’
6. Undisputedly in the instant case the assessee has not furnished the audited account along with the return of income and his income was declared at less than 8% of the gross turnover which was processed by the Assessing Officer under section 143(1)(a) of the Act. Having noted that the income was declared less than 8% of the gross turnover and the return was not accompanied by the audited account, the Assessing Officer has rightly formed a belief that the income chargeable to tax has escaped assessment. I, therefore, find no infirmity in the formation of belief by the Assessing Officer that the income chargeable to tax has escaped assessment. Moreover, the income was escaped assessment on account of non-furnishing of audited account along with the return of income. In these circumstances, I am of the considered view that the Assessing Officer has rightly invoked the provisions of section 147 of the Act by forming a belief that the income chargeable to tax has escaped assessment on account of the fault of the assessee. However, this type of objection that non-furnishing of reasons recorded for reopening the assessment can invalidate the assessment can be raised in original assessment proceedings and not at this belated stage after a period of 10 years. No doubt the assessee has a right to ask for supply of reasons recorded by the Assessing Officer for reopening of assessment, but that right can be exercised during the original assessment proceedings when the assessment was reopened and the Assessing Officer has started the proceedings for completing the assessment. In that situation, if the Assessing Officer does not supply the copy of the reasons recorded and proceeded with framing of assessment, such assessment can be held to be invalid or illegal, but this argument cannot be raised in second round of appeal that too at the stage of Tribunal after a period of 10 years. Accordingly I find no merit in this argument of the assessee and the same is hereby rejected.
7. Since the reopening of assessment is upheld, the additional grounds raised by the assessee are dismissed after having admitted the same.
8. So far as the grounds raised on merit, the ld. counsel for the assessee has not raised any argument. I, however, examined the order of the ld. CIT(A) and find that the ld. CIT(A) has adjudicated all the grounds properly and I find no infirmity therein. Accordingly I confirm the order of the ld. CIT(A).
9. In the result, appeal of the assessee is dismissed.