ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by the assessee. It is directed against order of Commissioner (Appeals) dated 11-8-2006 for assessment year 1997-98. Grounds of appeal read as under :
1. That the order under Section 250 of the Income Tax Act, 1961 passed by the Learned Commissioner (Appeals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of Learned Assessing Officer in resorting to the provisions of Section 147/ 148 inasmuch as the same had been passed without jurisdiction, was bad in law and had been passed without satisfying the conditions laid down in the said section.
2. That the order under Section 250 of the Income Tax Act, 1961 passed bythe Learned Commissioner (Appeals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of Learned Assessing Officer in disallowing commission of Rs. 57,61,000 paid to M/s. Hallmark Health Care Ltd. by ignoring the fact that the same was fully supported by adequate and substantial documentation and had been paid for services rendered for the purpose of the Appellant Company’s business and had been allowed as an expense in the earlier assessment years.
3. That the order under Section 250 of the Income Tax Act, 1961 passed by A the Learned Commissioner (Appeals)-V, New Delhi, is against law and facts on the file inasmuch as he was not justified in upholding the action of Learned Assessing Officer in charging interest under Section 234D amounting to Rs. 8,61,038 while passing the assessment order under Section 147/148 ignoring the fact that no interest can be charged under Section 234D when the assessment made under Section 147/148(3) is not the first regular assessment.
2. The present assessment is a reassessment. Return of income was filed on 25-11-1997 at an income of Rs. 42,95,560. It was assessed by way of an order dated 9-2-2000 passed under Section 143(3) of the Act wherein the income of the assessee was assessed at Rs. 45,06,690.
3. The assessment originally framed was reopened vide notice issued under Section 148 dated 31-3-2004. The reasons were recorded and were made available to the assessee during the course of reassessment proceedings. survey was conducted in the case of one Shri Sanjay Rastogi and on going through subsequent investigation it was found that Shri Sanjay Rastogi and his associates were running a number of concerns for giving bogus entries. According to assessing officer Sanjay Rastogi had admitted that all such transactions were bogus and M/s. Hall Mark Health Care Ltd. was one of such concerns to whom the assessee claimed to have paid substantial commission which was allowed during the course of original assessment proceedings. The commission paid was Rs. 57,61,000. It is in this manner the assessment was reopened. The reopening of assessment was first objected on the ground that reassessment proceedings are not valid as no action under Section 147 could be taken after expiry of 4 years from the end of relevant assessment year unless there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. It was pleaded that there was no such failure on the part of the assessee and thus reopening beyond the E period of 4 years from the end of relevant assessment year and, therefore, were illegal, void and bad in law. This contention of the assessee was rejected on the ground that said M/s. Hall Mark Health Care Ltd. was found on an independent investigation carried out by the Deptt. of Income Tax that it was a bogus and fictitious concern existed only on papers and was not capable of providing any services as claimed in the return of income furnished for the year under consideration. Payments of commission were deposited in the bank account No. 833 with Khatri Co-operative bank Ltd. Account opening form of the said account revealed that Shri Sanjay Rastogi was the authorized signatory in the capacity of adviser. Said Shri Sanjay Rastogi in his statement before I.T. department had admitted that he was providing certain services in connection with the companies or concerns those who are not doing the real/genuine business. Further independent enquiries were conducted at the address of M/s. Hall Mark Health Care Ltd. and as a result of the said enquiry it was noticed that no business activities were conducted from the said address for the past so many years. Thus it was mentioned that it is prima facie established that the claim of commission payment for marketing services was not supported by facts and evidences and is bogus. So it relates to contention of assessee that assessing officer during the course of original assessment proceedings had required the assessee to explain the claim of expenditure of commission. It was pointed out that according to Explanation 1, proviso to Section 147 mere production before the assessing officer of account books or other evidences from which material evidence could with due diligence have discovered by the assessing officer will not necessarily amount to disclosure within the meaning of said proviso. It was pointed out that where the transaction itself on the basis of subsequent information is found to be bogus, mere disclosure of that transaction at the time of assessment cannot be said to be a disclosure of true and full facts and reference was made to the following two decisions:
1 Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 4561 (SC);
2. Inspecting Asstt. CIT v. V.I.P. Industries Ltd. .
4. It was pointed out that revenue has sufficient reasons to believe that commission claimed was not genuine. Thus the stand of the assessee that it had disclosed all material facts fully and truly is without any merit and the action taken under Section 147/148 was thus in accordance with law.
5. On merits it was the case of the assessee that the commission was paid in accordance with the agreement entered with the said concern and debit notes were also filed in support of transaction undertaken. The assessee was required to produce the Directors of M/s. Hall Mark Health Care Ltd. The assessee could not produce the Directors. In this view of the situation referring to the statement of said Shri Sanjay Rastogi as well as one Shri Om Prakash and statement of bank account No. 833 obtained from Khatri Co-operative Bank Ltd. and M/s. Hall Mark Health Care Ltd. the assessing officer observed that the commission paid by the assessee to that concern, amounting to Rs. 57,61,000 was not genuine and the same was added back to the income to the assessee. The addition of above-mentioned amount was challenged before the Commissioner (Appeals) on the basis of valid or otherwise of reassessment proceedings as well as on merits. Commissioner (Appeals) has confirmed the addition on both the grounds. The assessee is aggrieved hence in appeal.
6. Arguing on the issue of valid or otherwise of reassessment it was vehemently pleaded by the Learned AR that during the original assessment proceedings the assessing officer raised a query regarding genuineness of commission payment and replies were given by the assessee to prove that the claim was genuine and after satisfying from the said replies the assessing officer did not add any commission expenditure to the income of the assessee. It was pleaded that thus there was no failure on the part A of the assessee during the course of original assessment proceedings to disclose fully and truly all material facts necessary for its assessment and thus the reopening of assessment beyond the period of 4 years from the end of relevant assessment year was illegal and learned He contended that the stand of the assessee that production before the assessing officer of books or other evidence from which material evidence could with due diligence have been recovered will not necessarily amount to disclosure within the meaning of said proviso is contrary to the provisions of law as Explanation 1 to proviso of Section 147 will apply only in a case where assessing officer did not raise the issue during the course of original assessment proceedings. He in this regard pointed out to us the two replies given by the assessee one is dated 24-11 -1999 filed which the assessee had submitted party-wise details of commission to selling agents exceeding Rs. 1 lakh and second which is not dated but was claimed to be filed on 4-1-2000 with the assessing officer vide which following answer was q given.
As regards to commission paid during the year under assessment to M Is. Hallmark and Bahri Bros. It is submitted that the same is paid to them for supply of spirit @ Rs. 1 per bulk litre and Rs. 0.508 per bulk litre respectively. Copy of the agreement of M/ section Hallmark Health Care Ltd. is enclosed which self-explanatory as to the services rendered and other terms and conditions.
7. Referring to these replies it was pleaded that not only the details were called for by the assessing officer but further query was raised with regard to allowability of commission and relevant documentary evidence were also furnished and thus upon satisfaction of assessing officer did not make any addition with regard to commission payment. In view of above mentioned replies it was pleaded that there was no failure on the part of assessee to disclose fully and truly all material facts necessary for its assessment and this reassessment was invalid in the eyes of law. E Reliance was placed in the case of Duli Chand Singhania v. Asstt. CIT to contend that where there are no findings or allegation that escapement of income had accrued by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and reassessment proceedings were not valid and are liable to be quashed.
8. It was pointed out that the relevant portions of statement of said Shri Sanjay Rastogi and Om Prakash are reproduced in the reassessment order and nowhere in these statements name of assessee is appearing. It was contended that even according to the statement of said Shri Sanjay Rastogi he was not Director of that concern. He has simply said that he is authorized signatory in M/s. Hall Mark Health Care Ltd. in answer to question No. 2 and except from that nowhere the name of Hall Mark Health Care Ltd. is appearing. He contended that said Shri Sanjay Rastogi was not the Director of said company. He pointed out to the company the profile of M/s. Hall Mark Health Care Ltd. to show that it is a public limited company which brought out public issue in the month of March, 1992. Its total income for the year ending 31-3-1994, 31-3-1995 and 31-3-1996 was Rs. 806.95 lakhs, 1252.62 lakhs and 1550.44 lakhs respectively. He pointed out to us that the commission was paid in accordance with the agreement for the various services rendered by said M/s. Hall Mark Health Care Ltd. who was also existing manufacturer of bulk drugs and were engaged in the manufacturing and marketing of pharmaceutical formulations. Adverting our attention to satisfaction note of assessing officer while reopening the assessment which read as follows :
Assessee had filed return of income for the assessment year 1997-98 on 25-11-1997. Return was assessed on 09-02-2000 at Rs. 45,06,690 under Section 143(3) vide letter F. No./Addl.DIT-(Inv)/Unit-VII(3)/Survey/14/ 03-04/349, dated 06-10-2003, information is received that bring survey proceedings and subsequent investigation in the case of Sh. Sanjay Rastogi (210, Vakil Chamber, A-115, Shakar Pur, Delhi), it was found that Sh. Sanjay Rastogi and his associates had a number of companies for giving bogus entries, Sh. Sanjay Rastogi had admitted that all these transactions as appearing in their companies were bogus.
It is further noted that the assessee has transacted through Hallmark Health Care Ltd. and Khatri Co-operative bank Ltd.
Date
Particulars of Cheque
Amount Debited (Rs.)
01-01-1997
Ch. No. 386382
256,000
02-01-1997
Ch. No. 386232
192,000
07-01-1997
Ch. No. 386654
156,000
15-01-1997
Ch. No. 386782
283,858
19-01-1997
Ch. No. 386828
263,868
28-01-1997
Ch. No. 386852
299,850
31-01-1997
Ch. No. 386905
327,836
06-02-1997
Ch. No. 386952
513,743
12-02-1997
Ch. No. 386961
452,773
21-02-1997
Ch. No. 387026
249,875
16-03-1997
Ch. No. 387173
249,875
27-03-1997
Ch. No. 387307
353,823
Â
Total
35,99,501
In view of the above, I have reason to believe that the true income of the assessee has escaped assessment, thus, proceedings under Section 147/ 148 are taken up hereby subject to approval.
9. He pleaded that the reasons recorded by the assessing officer nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year and thus assessing officer had no jurisdiction to reopen the assessment proceedings. For this purpose he placed reliance on the decision of Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. v. Wadkar R.B., Asstt. CIT .
10. To contend that where reassessment notice issued after 4 years from the end of relevant assessment year the reasons for belief necessarily to have live link between the material and belief and unless such link is established the reopening is in learned To contend this reliance was placed on the decision of Hon’ble Supreme Court in the case of ITO v. Lakhmani Mewal Das . Reliance was placed on the decision of Delhi High Court in the case of United Electrical Co. (P.) Ltd. v. CIT (2002) 258 ITR 317 to contend that when a challenge is made to the action under Section 147 what the court is required to examine is whether some material exists on record for the assessing officer to form the requisite belief and the reasons for the belief have a rational nexus or a relevant bearing to the formation of such belief and are not extraneous or irrelevant for the purpose of that section.
11. Reference was also made to the decision of Hon’ble Delhi High Court in the case of Raunaq & Co. (P.) Ltd. v. ITO to contend that where there is no indication that the name-lending was in connection with the loan involved in the assessment exercise of jurisdiction did not exist for reassessment. Reference was made to the decision of Hon’ble Supreme Court in the case of Phool ChandBajrang Lai (supra) to contend that subsequent information based upon which the assessing officer can exercise jurisdiction to reopen should be definite, specific and reliable and notice for reassessment was not valid in case where there is mere change g of opinion.
So as it relates to merits of the claim of the assessee it was pointed out that the commission payment was on the basis of agreement. In the earlier years also the assessee was making such payments to such very concern and it was allowed also. It was contended that payment was made on the basis of debit note raised by the said party and the payments were through account payee cheques which were duly credited in the account of payee. p The amounts so paid had never shown to have reached the assessee.
Reference was made to the following documents to prove the claim on merit.
SL No.
Particulars
Page
1.
Copy of account of M/s. Hall Mark Health Care Ltd.
from the books of assessee
44
2.
Copy of debit note raising the claim of commission
45 to 54-C
12. Reference was made to letter dated 15-3-2005 filed before assessing officer. With regard to the explanation of the assessee for producing the Director of the said company to contend that it was requested by the assessee to assessing officer that summons may be issued to the Directors as the assessee-company has stopped dealing with the said company since 1999 and there was no control of the assessee-company on the Director of the said company. Reference was made to a copy of reply filed at pages 59 to 66 of the paper book and our attention was drawn to the following submissions of the assessee in this regard :
You have further asked us to produce the Director of the abovesaidcompany, as we have stopped dealing with that company since 1999 andwe have got no control on the Director or the company so we are not ina position to produce any one of them. You are requested to please issuesummons to them, it is a known fact that the department has themachinery to enforce an attendance of any person, whereas the assessee-.does not have any machinery power to enforce the attendance of the third party whereas the department has the same.
13. It was pleaded that it was incumbent on the assessing officer to issue summons whenever such request is made. Reliance was placed on the decision in the case of CIT v. Kamdhenu Vyapar Co. Ltd. .
14. To support the contention that where there is no iota of evidence to prove that commission paid by the assessee had travelled back to the assessee, addition could not be made. Reliance was placed in the case of VIP. Industries Ltd. v. MC (1991) 36 ITD 70 (Bom.)(TM).
15. It was pointed out that for assessment year 1998-99 similar proceedings were carried out. However, no addition was made for that year. Reference in this regard was made to page 77 which is the satisfaction note of assessing officer for assessment year 1998-99 at page 78 which is assessment order dated 25-2-2005 in respect of assessment year 1998-99 and order passed under Section 143(3)/147 of the Act.
16. It was pointed out that in another case i.e. Multitex Filtration Engineers (P.) Ltd. v. Dy. CIT (2007) 13 SOT 208 (Delhi) (under quoted decisions copy placed on record) wherein addition made on the basis of statement of Sanjay Rastogi was deleted by the Tribunal on the ground that it was imperative on the revenue to afford an opportunity to the assessee to cross examine said Shri Sanjay Rastogi which was not done and such A failure on the part of the Assessing Office^ renders the entire addition as bad. Thus it was concluded that at first note reassessments were invalidly carried out and on merits also addition was not sustainable.
17. On the other hand, the Learned DR contended that scope of reassessment after 1-4-1989 is wider and the only criteria is that income should have escaped assessment. It was contended that though details were filed but genuineness of the said details was not inquired into by the Assessing Officer. She contended that on the basis of investigation made by the department it was found that the company to whom the commission was claimed to have been paid by the assessee was one of the companies which was stated to be bogus. She contended that all these entries were accommodation entries. Referring to the assessment orders she pleaded that according to the statement of Shri Sanjay Rastogi he was providing bogus accommodation entries. He was one of the various signatories for M/s. Hall Mark Health Care Ltd. and, therefore, the commission paid by the assessee to M/s. Hall Mark Health Care Ltd. was not a genuine business expenditure. She referred to the decision of Hon’ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO to contend that sufficiency or correctness of material cannot be considered at the stage of issue of notice under Section 147. The court cannot strike down reopening the case as it will be open to the assessee to prove that the assertion of facts made in the notice was erroneous and assessee n may also prove that no new facts came to the notice of the Income Tax Officer after completion of assessment proceedings. The question of facts and law are left upon to the investigator to be investigated and decided by the assessing authority. Further she referred to the decision of Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. to contend that reassessment proceedings are for the benefit of the revenue.
18. She referred to page 6 of assessing officer to contend that the reasons E stated by the assessing officer were enough to reopen the assessment.
19. She also referred to page 3 of the order of Commissioner (Appeals), paras 2.2 and 2.3 to contend that on survey conducted at the premises of said Shri Sanjay Rastogi provided the information to the department and that formation was sufficient to reopen the assessment and also that according to Explanation 1 mere furnishing of account books or other evidence at the time of original assessment is not necessarily amount to disclosure within F the meaning of proviso to Section 147.
20. She referred to the decision of Hon’ble Delhi High Court in the case of Rahesh Aggarwal v. Asstt. CIT to amend that for assessment year 1989-90 onwards assessment could be reopened under Section 47 if the assessing officer had reason to believe that income had escaped assessment even though there was no failure on the part of the assessee to disclose fully and truly all material facts.
21. Coming to the merits she contended that claim of commission was based on bogus accommodation entries. Whenever expenditure is claimed it is the obligation of the assessee to prove the genuineness of the expenditure. It was obligatory on the part of the assessee to provide the details of the nature of services rendered. The confirmations were not produced and bill raised are invoices. She contended that the request of issuing summon was at the fag end of the assessment. Therefore, there is no substance in the arguments of the assessee that as summons were not issued. Therefore, on merits the addition deserves to be deleted. Referring to page 8 of the order of Commissioner (Appeals), she submitted that no proof of services were submitted. She referred to the decision in the case of Nizam Wool Agency v. CIT to contend that where the payment is made by crossed cheques, it is not by itself a proof positive of genuineness and identity of the recipient. One cannot accept or refuse any such rule of law. Whether a particular entity or concern is a genuine and existing entity/concern was merely a bogus one, it is a question of fact and it cannot be reduced to a rule of law. She contended that it was necessary for the assessee to prove the rendering of services to claim the expenditure of commission. She referred to the decision of Gauhati High Court in the case of Assam Pesticides & Agro Chemicals v. CIT to contend that mere payment by itself would not entitle an assessee to deduction unless the same was proved to be paid for commercial considerations and where the Tribunal has found that no services were rendered by the agent the deduction for commission could not be allowed.
22. She contended that the case law relied upon by the Learned AR are distinguishable on facts as the allowability or otherwise of commission is based on facts of each case.
23. Up to this juncture pleading was concluded on 24-4-2007 when the Learned DR was directed to bring the assessment records to ascertain that whether there were any queries raised by the assessing officer during the original assessment proceedings and whether the replies given by the assessee annexed in the paper book were part of assessment records and the proceedings were adjourned to 26-4-2007 when again the hearing took place.
24. On 26-4-2007 the Learned DR produced the assessment record from where extract of order sheet and copies of replies filed by the assessee on 25-11 -1999 and 4-1-2000 were obtained and are placed on record.
25. The Learned DR reiterating her stand that no enquiries were made during the original assessment proceedings despite details were filed and she detailed that according to the facts of the case the assessee has not proved the genuineness of expenditure claimed by it.
Replying to the arguments of Learned DR the Learned AR submitted that both the replies referred to by the assessee are part of original assessment record. Detailed enquiries were made by the assessing officer and assessee had produced evidences to show that the claim of expenses was genuine and is allowable as business expenditure. He contended that agreement between the assessee and the said Hall Mark Health Care Ltd. was acted upon. The payments were made on the debit note raised by the-said concern. The payments are through account payee cheques which were duly credited in the account of the said concern. All these documents were furnished to prove the genuineness of the claim of the assessee. Assessing Officer did not make any addition in this regard in the original assessment order “which referred to reassessment order. He contended that the assessing officer is referring to field enquiries made during the course of reassessment proceedings but assessee was never confronted with the results of those field enquiries. He took us through the entire statement of Sanjay Rastogi to contend that nowhere he has admitted that the payments given by the assessee as commission were accommodation entries. He contended that Sanjay Rastogi was not the Director of the said concern and he has stated that he was only the authorized signatory. He contended that the assessee had been paying the commission prior to the present assessment year also. It has not been established that commission has travelled back to the assessee. Referring to the decision of Hon’ble Gujarat High Court in the case of Sheth Brothers v. Jt. CIT to contend that duty of assessee is limited to disclosure of primary facts on record. In the said case it was held that assessee having put forth its claim for deduction under Section 80HH in entirety supporting the same on the basis of Circular No. 484, dated 1-5-1987 which formed part of written submissions made before assessing officer during the course of assessment proceedings and assessing officer having taken note of such written submissions in his assessment order, he could not assume jurisdiction under Section 147 after a period of 4 years on the ground that the claim was wrongly allowed.
He also referred to the decision of Hon’ble Delhi High Court in the case of Asoke Kumar Sen v. ITO to contend that reason to believe must be that of an honest and reasonable person based upon, reasonable grounds. Income Tax Officer may act under Section 147(a) on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. Power under this section are not plenary. They are subject to judicial review. Thus he concluded that reassessment was invalid and also the claim of the assessee was allowable on merits.
26. We have carefully considered the rival submissions. Primarily reassessment has been objected by the assessee on the ground that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. There is no dispute to the extent that reassessment proceedings in the present case are initiated beyond the period of 4 years from the end of the relevant assessment year as the date of notice issued under Section 148 is 31 -3-2004. The end of the relevant assessment year is 31-3-1998. Four years thereafter ends with 31 -3-2002. Reference is made to Section 147 and proviso thereof with Explanation 1 which read as under :
147. If the assessing officer has reason to believe that any incomechargeable to tax has escaped assessment for any assessment year, hemay, subject to the provisions of Sections 148 to 153, assess or reassesssuch income and also any other income chargeable to tax which hasescaped assessment and which comes to his notice subsequently in thecourse of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under Sub-section (3) of Section 143or the section has been made for the relevant assessment year, no actionshall be taken under this section after the expiry of four years from theend of the relevant assessment year, unless any income chargeable to taxhas escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
Explanation 1Provided before the assessing officer of account of books or other evidence from which material evidence could with due diligence have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
27. The words used in proviso “the failure on the part of the assessee…to disclose fully and truly all material facts necessary for his assessment for that assessment year” postulate a duty on every assessee to disclose fully and truly all material facts for his assessment. At the same time, an assessee cannot delve into the mind of assessing officer and try to fathom it and predicate what are material facts in the view of the officer. The facts must be such that if taken into account, that would have an adverse effect on the assessee by passing of a greater assessment than the one actually made. At the same time, the rule of full disclosure of material and necessary facts should not be so fastidiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the assessing officer would have material use of it to charge the assessee more than what he dlearned The assessing officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment, nor is he at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set machinery of reassessment in motion.
28. Keeping in view the above position of law we have to examine that whether there was any such failure on the part of the assessee. Original assessment record was produced before us. The assessing officer has raised the query and ask the assessee to furnish the details. Then assessee was asked to justify the claim of expenditure. Reply was given by the 3assessee along with evidence in the shape of agreement to pay the commission as well as debit note raised in this regard. The reply of the assessee with regard to allowability of commission as submitted by the assessee before the assessing officer in the original assessment proceedings on 4-1 -2000 has already been reproduced in para 7 of this order. Thus the claim of commission expenditure was examined by the assessing officer.
29. Subsequent to framing of original assessment a survey was made in the case of Shri Sanjay Rastogi. The statement made by said Shri Sanjay Rastogi during the course of survey has been relied upon to reopen the original assessment proceedings in the case of the assessee. The satisfaction note of assessing officer has been reproduced, in para 9 of this order.In the satisfaction it has been noted that Shri Sanjay Rastogi had admitted that all the transactions as appearing in their companies were bogus. The relevant questions and answers, as pointed out earlier are reproduced in j)the reassessment order. The name of the recipients of commission is mentioned in question No. 2 and answer thereto which is reproduced below for the sake of convenience :
Q. 2 : Are you authorize signatory of bank account of any company business concern? If so give the name of such concerns and the bank account and business carried on in such concern.
Ans. : I am authorize signatory in all the above concerns including g M/s. M.S. Leasing Pvt. Ltd. apart from the above I was also authorize signatory in M/s. Hallmark Healthcare Ltd. and M/s. Nimantran Leasing Ltd. to the best ot my knowledge and memory. I will let you know the bank account from the records of these companies.
30. Based upon question No. 14 and answer thereto the department has drawn an inference that said Shri Sanjay Rastogi had admitted that all these transactions as appearing in their companies were bogus. The said question and answer thereto is also being reproduced for the sake of convenience :
Q. 14. In the last statement on 17-04-2003, you had siaieu that you will provide information on transactions of M/s. Frenzy Products Pvt. Ltd. and M/s. Reliance Forging (P) Ltd. with the companies in which you cr your family members are Directors. Have you brpught the details and what do you have to say on the transactions?
Ans. I, Sanjay Rastogi, finally do hereby would like to admit certain fact before the department in order to buy peace and with request that no action shall be taken against me/my family members/my family concerns, which can hamper my professional career as under :
(a) Apart from the proper professional work, I was also providing certainservices in connection with the companies/concerns/entities those werenot doing the real/genuine business exclusively. In this process I sued tooperate this line of activities with the help of other professional colleagues”and my subordinate staff.
For performing this kind of activities the address of my office 210, Vakil Chambers, Vikas Marg Extn., Delhi – 110092 was also used. Few Private Ltd/Ltd. Companies were used as front companies/as conduit for execution of such entries transactions which were not doing business in actual. I was forced by the circumstances of my involvement in such activitiesdue to my survival in Delhi. However, income earned by me out of these activities has already been disclosed in by regular returns filed on the basis of method qf accounting adopted by me.
Undertake to the department to provide my all possible help/support to further investigation against the real tax evaders if need arise, those shall found guilty of tax evasion out of investigation by the department and to provide the explanation of any entry with the documentary evidence available in my custody’.
31. A close reading of these questions and answers does not reveal that the said M/s. Hall Mark Health Care Ltd. was the bogus concern created by said Shri Sanjay Rastogi. Reference was made by learned AR to the profile of M/s. Hall Mark Health Care Ltd. which has shown a substantial income for assessment years 1994-95, 1995-96 and 1996-97 as described in para 9 of this order. The said Shri Sanjay Rastogi is also not the Director or the related person to the said company. In the statement itself Shri Sanjay Rastogi has mentioned himself to be only an authorized signatory. Thus even from the survey conducted on Sanjay Rastogi and the statement made by during coarse of survey does not convey that said M/s. Hall Mark Health Care Ltd. was a “bogus coneefn-CEeated by said Shri Sanjay Rastogi. M/s. Hall Mark Health Care Ltd., according^TxTtrTe profile, was a concern carrying on similar activities. The commission was paid by the assessee to that concern in the earlier years also which has been allowed as an expenditure. Thus only on the basis of statement of Sanjay Rastogi it cannot be said that there was an escapement of income by the assessee by claiming excessive expenditure. The law on this issue is clear that assessee is bound to disclose only such material facts which are material for his assessment for the relevant assessment year and not those facts which are irrelevant and extraneous for the purpose of assessment. From the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of facts disclosed, or otherwise, the assessing authority has to draw an inference as regards certain other facts; and ultimately, from the primary facts and further A facts inferred from them, the authority has to draw proper legal inference as certain on a correct interpretation of a taxing enactment. The required details as asked for were furnished by the assessee during the course of original assessment proceedings from which authority has to draw the proper legal inference and assessee is under no obligation to instruct an Income Tax Officer about the inference which Income Tax Officer may raise from those facts. It was for the Income Tax Officer to raise such an inference. The commission has been paid through account payee cheques. It has also gone to the bank account of the recipient of the commission. Though it has been mentioned that it was withdrawn immediately but it has not been shown that it has travelled back to the assessee.
32. Thus it is a primary condition that there should be a failure on the partof the assessee to disclose fully and truly all material facts necessary forthe assessment and that requirement of law has to be fulfilled beforeinitiation of reassessment proceedings in a case where notice has been issued beyond the period of 4 years from end of the relevant assessmentyear. From the record it is found that, there was no such failure on the part of the assessee and subsequent statement of Shri Sanjay Rastogi based upon which the revenue has inferred escapement of income in the hands of the assessee is also not specific to convey that any income in the hands of the assessee has escaped. In the satisfaction note recorded by the assessing officer also nowhere it has been mentioned directly or implicitly that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary to determine the issue of allowability of commission paid by the assessee to the said M/s. Hall Mark Health Care Ltd. In absence of such findings in the satisfaction note, the claim of department cannot be accepted that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the assessee.
33. Reliance on Explanation 1 to Section 147 is also misplaced as Explanation 1 envisages a situation where the issue with regard to which income is found to have been escaped “was not discussed-during thecourse of original assessment proceedings and later on during the course of reassessment proceedings the assessee claims that it had produced account books and other evidences before the assessing officer from which material evidence could with due diligence have been discovered by the assessing officer, therefore, reassessment proceedings are invallearned But in the present case the issue regarding allowability of commission was examined by the assessing officer and relevant evidences were also produced by the assessee to justify the claim. Thus according to the facts of the case, Explanation 1 to Section 147 is not applicable and, therefore, this argument of revenue is liable to be rejected and is accordingly rejected.
34. For the reasons and factual aspect discussed as above we hold thatreassessment proceedings were not validly initiated and are liable to be quashed. The assessee is saved by the proviso to Section 147 as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year under consideration. Accordingly the reassessment proceedings are quashed.
35. As we have quashed the reassessment proceedings, we do not consider it necessary to go into the merits of the claim of the assessee which will be of academic interest only.
36. Before parting we may mention that while concluding that reassessment proceedings are invalid we have taken into consideration all the case laws relied upon by both the parties and which have been discussed in the earlier part of this order in the arguments of both the parties.
37. The appeal filed by the assessee is allowed.