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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 22nd August, 2014
+ INCOME TAX APPEAL 1/2014
JRD STOCK BROKERS (P) LTD. ..... Appellant
Through Mr. R.P. Garg and Mr. K.N. Ahuja,
Advocates.
versus
COMMISSIONER OF INCOME TAX-II ..... Respondent
Through Mr. Kamal Sawhney, Sr. Standing
Counsel with Mr. Sanjay Kumar, Jr. Standing
Counsel.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
SANJIV KHANNA, J. (ORAL)
The assessee, a Chartered Accountant, was subjected to search
on 24th November, 2000 under Section 132 of the Income Tax Act,
1961 (,,Act, for short), for providing accommodation entries in the
form of share loss or share gain by issuing bills for shares without
actual sale and purchase by the party mentioned in the bills. The
difference, i.e. gain or loss in sale and purchase was settled by issuing
or taking cheques from the party. In case of gain, the party first used to
give dummy drafts/cheques or cash against which cheque for the
predetermined profit stated in the bills used to be given. In case of
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loss, however, cheque was taken from the party to claim
loss/expenditure and money re-paid in cash. In other words, the
appellant-assessee was indulging in money laundering as majority of
the sale and purchase transactions recorded in the books were mere
accommodation entries.
2. The Assessing Officer vide assessment order dated 27th
November, 2002, held that the assessee had earned commission @
1.5% from the said transactions on the turnover of Rs.1,04,76,94,004/-.
Undisclosed income of Rs.1.57 crores as commission earned was
assessed. In the first appeal, Commissioner of Income Tax (Appeals)
upheld the factual finding that the appellant had entered into and
settled bogus transactions to provide accommodation entries, through
several bank accounts including dummy and feeder bank accounts in
the name of third parties. He observed that the total quantum of credit
in various bank accounts was Rs.1,04,76,94,004/-, which was the total
turnover/transactions relating to accommodation entries. Before the
Commissioner of Income Tax (Appeals), the primary contention of the
appellant-assessee was that the computation of commission @ 1.5%
was highly excessive and in similar cases, income by way of brokerage
had been computed @ 0.5%. The said argument was, however,
rejected by the Commissioner of Income Tax (Appeals).
3. Income Tax Appellate Tribunal (,,Tribunal, for short) by their
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order dated 30th November, 2004, held that in the light of the material
available on record, the provisions of Chapter XIV-B were rightly
applied, as it was a case where the appellant-assessee had undisclosed
income. Most of the transactions recorded in the books were fictitious,
and were meant to provide accommodation entries to the clients, who
were interested in showing fictitious profit or loss in the share
transactions. The books of accounts did not reflect the true nature of
business or activities and in fact the appellant-assessee was carrying on
business outside the books of accounts. On the question of rate of
commission, they referred to the seized documents indicating
commission charged was between 1% to 1.25%, whereas the same was
shown to be between 0.05% to 0.1%. There was direct evidence of the
assessees indulgence in earning undisclosed income through
accommodation/fictitious entries and it was not possible to ignore the
seized material. In paragraph 16, the Tribunal specifically recorded
that there was substantial credit of Rs.104 crores in the large number of
accounts maintained by the assessee, including benami accounts,
described as dummy/feeder/main accounts. Through the said accounts,
the assessee had carried on fictitious and under cover business. The
relevant sub-paragraph read as under:-
"16. ...................Similar are the entries in other
pages. The contention of the assessee that the
assessee did not carry on transaction with Sh. Jitesh
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(named on page 28) or that some, rough estimates
and not actual transactions have to force. Further
argument that entries in the sized record should
have further been corroborated with other material,
is also required to be rejected. It is clear from above
that the assessee was charging various rates of
commission between .35%. to 1% depending
upon the type of ' entry i.e. whether it related.
to long term or short term capital gains.
However, in the regular bills the rate was
shown at 0.35% or 0.5%. There is direct evidence
of assessee indulging in earning undisclosed income
through accommodating/fictitious entries and it is
not possible to, ignore the seized material. The
huge credit in large number of accounts
maintained by the assessee dealing more than
Rs.104 crores as also maintenance 1 of several
benami. Accounts describing as
dummy/feeder/main accounts used to carry on
fictitious and ostensible business of share dealing,
leave no amount of doubt that the assessee was
involved in earning undisclosed income on a very
large scale. It is therefore, not possible accept that
the assessee did not earn any undisclosed income
and that income in it's (sic) case was to be
computed on the basis of books produced by the
assessee. We reject the arguments of the assessee. "
(emphasis supplied)
4. Thereafter, in paragraph 18, the Tribunal observed as under:-
"18. We now face the question as to what should
be reasonable rate of commission in this case
having regard to material available on record. The
assessee did not dispute that quantum of turnover
for providing the accommodationn entries to
various clients during the year as computed by the
AO at Rs.1,04,76,94,004/- is not correct. The
commission stated to have been charged and
admitted by the assessee ranged from .25% to .5%.
The rate as evident from the seized material
which has been referred to by the lower
authorities, does reflect that the assessee had
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charged a rare (sic) as high as 1%. As against this,
the revenue authorities have applied @ .1.5% to the
entry turnover irrespective of the nature of entries
whether long term, short term gain etc. It is also
note worthy that the gross rate of commission
.charged by the assessee can also not be said to be
profit eligibly, to tax. The credit for the expense
incurred in running the business is also required to
be considered while estimating the income from
business of providing accommodation entries. The
total turnover also includes some genuine
transactions carried' on by the assessee on which
rate of commission was admittedly much lower
ranging between 0.25% to 0.50%, Therefore,
having regard to the entire gamut of facts,
circumstances and material which is available on
record, there does riot appear to be justifiable
reasons to estimate the commission brokerage of
the assessee by applying rate of 1.5% A of the total
turnover. In our view it would be in the fitness of
the things that the income earned. by the assessee
by was of commission/brokerage on the turnover
including accommodation entries provided to its
clients is computed @.6% on the total turnover of
Rs.1,04,96,94,004/- on which' there is no dispute.
We accordingly direct the AO to compute income
on count of commission/brokerage ."
(emphasis supplied)
5. Accordingly, the Tribunal directed that the
commission/brokerage of the assessee should be computed by applying
the rate of .6% on the total turnover of Rs.1,04,76,94,004/-, which was
not disputed and accepted as the sum total of all transactions. The
Tribunal deleted addition of Rs.7.13 crores representing peak cash
credit, observing that Section 68 should not be applied in the facts of
the present case as the commission income was taxed in the hands of
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the appellant-assessee. Similarly, addition of Rs.11,16,380/- on
account of negative balance shown in certain accounts was deleted on
the ground that the assessee had earned commission income, which
was directed to be computed. It was observed that there was a negative
balance or loss in the bank accounts because the transactions in
question were both fake and fictitious, and it had to be ascertained
whether or not payment was made to square up the losses.
6. Order dated 30th November, 2004 passed by the Tribunal has
attained finality.
7. As per the appellant-assessee, he had filed an application under
Section 154 of the Act before the Assessing Officer on 13th June, 2005,
stating (i) that the gross rate of commission had been computed
without allowing expenditure incurred to earn such commission; (ii)
though in the appraisal report by the Investigation Wing, the turnover
was shown as Rs.91,48,97,000/-, but as per the assessment order the
turnover was Rs.104,76,94,004/-; (iii) the figure of turnover should be
reduced or exclude; (a) the funds transferred from one bank account to
another resulting in calculation of turnover twice; (b) credit entries in
bank statements regarding margin imposed by SEBI, which were in
regular course of business and were not connected with the business of
earning brokerage; and (c) the amounts representing dishonoured
cheques on account of insufficient funds. Thereafter, another
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application dated 11th May, 2006 for rectification under Section 154
was filed on 30th August, 2006. On request for supply of copy of bank
statements, these were furnished on 1st October, 2008. On 2nd
December, 2008, the appellant-assessee wrote a letter that there were
debit/credit entries of bounced cheques aggregating Rs.8.06 crores in
the bank statements. Cheques transferred from one bank, to another,
for Rs.4.40 crores, and, Rs.2.12 crores was received from the Delhi
Stock Exchange. These amounts should not have been added to the
turnover. The aforesaid entries of Rs.14.59 crores should be reduced
from the total turnover of Rs.104.76 crores.
8. These applications were rejected by the Assessing Officer vide
order dated 2nd February, 2009, observing that there was no dispute
with regard to the turnover of Rs.104.76 crores and this was confirmed
in the order of the Tribunal dated 30th November, 2004. Further, there
was no mistake apparent from the record and the issue being
debateable was outside the ambit and scope of Section 154 of the Act.
9. Commissioner of Income Tax (Appeals) dismissed the appeal of
the assessee observing that the Assessing Officer did not have
jurisdiction to go into the issues raised as doctrine of merger would
apply, for the turnover was computed and made subject matter of
appeal.
10. The appellant-assessee preferred further appeal, but the same has
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been dismissed by the Tribunal vide order dated 17 th May, 2013,
observing:-
"7. We have heard both the sides and gone through
the application of the assessee and relevant provisions of
law. Before adverting to the facts of the present case, it
would be relevant first to discuss the provisions relating
to section 154. A bare look at section 154 of the Act
makes it amply clear that a ,,mistake apparent from the
records is rectifiable. In order to attract the application of
sec. 154, a mistake must exist and the same must be
apparent from the record. The power to rectify the
mistake, however, does not cover cases where a revision
or review of the order is intended. ,,Mistake means to take
or understand wrongly or inaccurately; to make an error in
interpreting, it is an error; a fault, a misunderstanding, a
misconception. ,,Apparent means visible; capable of
being seen; easily seen; obvious; plain. A mistake which
can be rectified u/s 154 is one which is patent, which is
obvious and whose discovery is not dependent on
argument or elaboration. The language used in section 154
is permissible where it is brought to the notice of the
Tribunal that there is any mistake apparent from the
record. Accordingly, the amendment of an order does not
mean obliteration of the order originally passed and its
substitution by a new order which is not permissible under
the provisions of sec. 154. Further, where an error is far
from self-evident, it ceases to be an apparent error. It is no
doubt true that a mistake capable of being rectified u/s 154
is not confined to clerical or arithmetical mistakes. On the
other hand, it does not cover any mistake which may be
discovered by a complicated process of investigation,
argument or proof. As observed by the Supreme Court in
Master Construction Co. (P) Ltd. vs. State of Orissa
[1996] 17 STC 360, an error which is apparent on the face
of the record should be one which is not an error which
depends for its discovery on elaborate arguments on
questions of fact or law. A similar view was also
expressed in Satyanarayan Laxinarayan Hege vs.
Mallikarjun Bhavanappa Tirumale AIR 1960 SC137. It is
to be noted that the language used in Order 47, Rule 1 of
the Code of Civil Procedure, 1908 is different from the
language used in sec. 154 of the Act. Power is given to
various authorities to rectify any ,,mistake apparent from
the record is undoubtedly not more than that of the High
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Court to entertain a writ petition on the basis of ,,an error
apparent on the face of the record. Mistake is an ordinary
word, but in taxation laws, it has a special significance. It
is not an arithmetical or clerical error alone that comes
within its purview. It comprehends errors which, after a
judicious probe into the record from which it is supposed
to emanate, are discerned. The word ,,mistake is inherently
indefinite in scope, as what may be a mistake for one may
not be one for another. It is mostly subjective and the
dividing line in border areas is thin and indiscernible. It is
something which a duly and judiciously instructed mind
can find out from the record. In order to attract the power
to rectify u/s 154 it is not sufficient if there is merely a
mistake in the orders sought to be rectified. The mistake to
be rectified must be one apparent from the record. A
decision on the debatable point of law or undisputed
question of fact is not a mistake apparent from then record.
The plain meaning of the word ,,apparent is that it must be
something which appears to be so ex facie and it is in
capable of argument or debate. It is, therefore, follows that
a decision on a debatable point of law or fact or failure to
apply the law to a set of facts which remains to be
investigated cannot be corrected by way of rectification.
8. Now reverting to the facts of the case in the light of
rival submissions and case law cited, we find that the
assessee, through this application u/s 154 before the AO
sought reconsidering and re-determining the turnover,
which was confirmed by the Tribunal vide order dated
30.11.2004 at 104,76,94,004/- on which there being no
dispute (as observed by ITAT) which has already
attained finality as income has been computed and
further reduction has been ordered by ITAT by
computing commission/brokerage @ 0.6% on the
turnover determined and question of change in turnover
has not been raised before CIT(A) or before ITAT in
earlier proceedings by way of any permissible mode and,
in our considered opinion the action of the assessee to
seek interference in already settled issue upto ITAT level
is not permissible u/s 154. Since no case has been made
out by the assessee for rectification, in view of facts and
circumstances of the case, therefore, the action of
authorities on all the issues as raised is upheld being just,
proper and correct and as such appeal of the assessee is
dismissed being devoid of any merits."
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11. Learned counsel for the appellant-assessee has drawn our
attention to the observation made by the Tribunal to the effect that the
turnover was not a subject matter of challenge in the appeal preferred
against the original assessment order under Section 143(3), which had
resulted in order dated 30th November, 2004. He submits that in view
of the aforesaid position, Section 154(1A) would be applicable, as
turnover was not an issue which was considered and decided by way of
appeal or revision. We have already referred to the order dated 30 th
November, 2004 and quoted the relevant paragraphs wherein the figure
of Rs.104 crores has been specifically mentioned and accepted as
correct. We have noted that the Tribunal has observed that the
aforesaid figure represents genuine as well as fictitious turnover. It is
apparent that at that time, the appellant-assessee had not challenged the
said turnover and had accepted the same as true and correct. This was
the basis on which the entire appellate proceedings were heard and
decided. Therefore, there is merit in the submission of the Revenue,
which was accepted by the Tribunal that the subject matter of appeal at
that time included in its ambit the question of turnover involved and
the observations of the Tribunal cannot be read in isolation, but
meaningfully without indulging in semantics. Moreover and
importantly, Section 154 can be only invoked to rectify a mistake
apparent from the record. It is on this aspect the Tribunal in paragraph
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7 of the impugned order have quoted the factual position and observed
why rectification in the present case was beyond the scope of Section
154 of the Act. What the appellant-assessee wants and seeks, by way
of rectification, is re-examination of entire bank accounts and re-
computation of the turnover. Further, the assessee wants enquiry on
whether or not the assessee had received commission even when
cheques had bounced or whether commission was paid on the
transactions which had been made through the stock exchange. In the
order dated 30th November, 2004, the Tribunal made it clear that 0.6%
rate of commission would apply to the entire transaction of Rs.104.76
crores including the transactions which were genuine, i.e. the
transactions which were recorded in the stock exchange. Similarly, the
case of the appellant-assessee, that there were cross transactions
amongst bank accounts, will require detailed scrutiny, examination and
verification of entries and details. This cannot be undertaken in
exercise of power under Section 154. There may be or may not be any
error but the said determination would not be confined to arithmetical
or adding figures, but explanation and answers would be required. In
the facts of the present case, therefore, we do not think that the
impugned order passed by the Tribunal, rejecting the application under
Section 154, can be interfered with. It is interesting to note that the
Tribunal had an occasion to deal with the similar issue on quantum of
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turnover when question of levy of penalty under Section 158 BFA(2)
was examined and the Tribunal in paragraph 5.1 of their order dated
18th July, 2008, observed that the appellant had raised the question of
turnover, but when questioned on the evidence, learned counsel
appearing for the appellant-assessee had stated that no evidence was
available with the assessee in this behalf.
12. The appeal is accordingly dismissed. No costs.
SANJIV KHANNA, J.
V. KAMESWAR RAO, J.
AUGUST 22, 2014
NA
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