M/s. Krishna Plast, V. The Income tax Officer,Ward-2, Vapi

ITA 1475/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5692 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Keywords: Opportunity of being heard; Capital expenditure
• Section: 69C; 142(1); 37; 144; 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AT SURAT CAMP BEFORE S/SHRI T.K.SHARMA, JM AND D.C.AGRAWAL, AM M/S KRISHNA PLAST, 4217, CLASSIC ZONE, GIDC, SARIGAM, TAL. UMBERGAM. VS. INCOME-TAX OFFICER, WARD 2, VAPI. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI RAJESH UPADHYAY, AR REVENUE BY:- SHRI H. P. MEENA, SR. DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (1) LD. A.O. HAS ERRED IN LAW AND ON FACTS TO ADD AN AM OUNT OF RS.12,54,942/- UNDER SECTION 69C OF I.T. ACT, 1961. LD. CIT(A) IS NOT JUSTIFIED TO UPHOLD THE ADDITION IN AD HOC A ND PRESUMPTIVE BASIS AT 10% OF SUCH EXPENSES I.E. RS.1,25,474/- (C ORRECT FIGURE WILL BE RS.1,25,494/-). (2) LD. AO HAS ERRED IN LAW AND ON FACTS TO AN AMOUNT O F RS.21,63,997/- U/S 68 AND 41(1) OF I.T. ACT, 1961. LD. CIT(A) HAS ALSO ERRED IN CONFIRMING ADDITION IGNORING THE FACTS THAT OPENING BALANCE OF RS.23,19,262/- WAS REDUCED TO RS.21,24,940/- (INCORRECTLY STATED AT RS.21,63,997/ -) BY AO. LD. CIT(A) WITHOUT ANY EVIDENCE ON RECORD AND SOLELY ON GRACE SUSPICIOUS UPHELD THE ADDITION OF RS.21,63,997/- MA DE BY ITO. ITA NO.1475/AHD/2008 ASST. YEAR :2005-06 2 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURE OF PLASTIC PRODUCTS. THE AO WHILE CARRYING OUT SCRUTINY ASSESSMENT, ISSUED SEVERAL NOTICES TO THE ASSESSEE WHICH ARE DESCRIBED BY HIM IN THE ASSESSMENT ORDER AS UNDER : - NOTICE U/S 143(2) WAS ISSUED ON 18/7/2006, WHICH W AS SERVED ON THE ASSESSEE ON 27/8/2006 FIXING THE DATE OF HEARING ON 31/8/2006. IN RESPONSE TO SAID NOTICE NOBODY ATTENDED. THEREAFTER NOTICE U/S 142(1) WAS ISSUED THROUGH RPAD ON 21/6./2005 TOGETHER WITH QUE STIONNAIRE DTD.21/11/2006, FIXING THE DATE OF HEARING ON 19/12 /2006. IN RESPONSE TO SAID NOTICE, THE ASSESSEE NEITHER ATTENDED NOR FURN ISHED THE DETAILS CALLED FOR. ON 16/7/2007, A NOTICE U/S 142(1) WAS ISSUED T HROUGH RPAD FIXING THE DATE OF HEARING ON 31/7/2007, WHICH WAS SERVED ON 23/7/2007. AGAIN THE ASSESSEE DID NOT CARE TO ATTEND ON THE DATE OF HEARING. THEREAFTER FOLLOWING NOTICES U/S 142(1) WERE ISSUED BUT THE AS SESSEE DOES NOT CARE TO COMPLY WITH THESE NOTICES ALSO EVEN THOUGH IT WAS S ERVED ON THE ASSESSEE:- AS THERE WAS NO COMPLIANCE FROM THE ASSESSEE IN RES PONSE TO THESE NOTICES ISSUED BY HIM, THE AO PROCEEDED TO MAKE AN EX PARTE ASSESSMENT AND MADE FOLLOWING ADDITIONS TO THE NIL RETURN INCO ME:- 3. DURING THE YEAR UNDER ACCOUNT, THE TOTAL EXPENS ES CLAIMED IN THE P & L ACCOUNT IS OF RS.36,15,400/-. TO THE BEST OF MY JUDGMENT, I ACCEPT THE SALES SHOWN BY THE ASSESSEE OF RS.37,5 9,037/- AND CLOSING STOCK SHOWN OF RS.22,38,287/-. THUS ON THE CREDIT SIDE OF THE P & L ACCOUNT I ACCEPT THE FIGURE OF SALES OF R S.37,59,037/- AND CLOSING STOCK OF RS.22,38,287/- TOTALING TO RS. 5997324/-. THEREFORE, THE EXPENSES SHOWN TOWARDS OPENING STOCK OF RS.33,13,273/- AND PURCHASES SHOWN OF RS.12,85,471/ - TOTALING TO RS.4598744/- OUGHT TO HAVE BEEN ACCEPTED. SINCE THE ASSESSEE HAS BEEN DEPRIVED ME OF VERIFYING THE MANUFACTURING ACT IVITIES, WHILE SL.NO. DATE OF NOTICE DATE OF HEARING 1 20/8/2007 14/9/2007 2 14//9/2007 4/10/2007 3 ACCEPTING THE PURCHASES OF RS.1285471/- IT CANNOT B E PRESUMED THAT THESE PURCHASES AND THE OPENING STOCK WERE UTI LIZED FOR THE MANUFACTURING ACTIVITIES AT ASSESSEES PLANT OR THE ASSESSEE HAS SHOWN THE PURCHASES OF RAW MATERIALS. THESE PURCHAS ES MAY BE OF FINISHED GOODS AS WELL, WHICH THE ASSESSEE MIGHT HA VE BEEN SOLD AND SHOWN AS RAW MATERIALS OR IT MAY BE OF RAW MATE RIALS, WHICH MIGHT HAVE BEEN PROCESSED SOME WHERE ELSE OTHER THA N SILVASSA UNIT OF THE ASSESSEE. THUS TO THE BEST OF MY JUDGME NT, FROM THE DATA MADE AVAILABLE TO ME BY THE ASSESSEE, I CAN AT THE MOST ACCEPT THE EXPENSES TOWARDS OPENING STOCK AND PURCHASES ONLY A ND THE OTHER EXPENSES SHOWN IN THE P & L A/C, TOTALLING TO 12,54 ,942/- CANNOT ALLOWED AS EXPENSES RELATED TO THE MANUFACTURING AC TIVITIES OF THE ASSESSEE, AS THE ASSESSEE HAS DEPRIVED ME OFF FROM VERIFYING THE CORRECTNESS OF THESE EXPENSES. IN COMPUTING THE PRO FITS AND GAINS OF BUSINESS, WHEN AN ASSESSEE IS CARRYING ON BUSINESS THE QUESTION OF ALLOWABILITY OF THE EXPENDITURE UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961 WILL DEPEND ON FULFILLMENT OF REQUIREMENT S OF THAT PROVISION, NAMELY THAT (I) THE EXPENDITURE SHOULD N OT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE (II) IT SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AND (III) IT SHOUL D HAVE BEEN EXPENDED IN THE PREVIOUS YEAR. SECONDLY THE ENTIRE EXPENDITURES SHOULD BE PERMISSIBLE UNDER THE ACT AND THERE SHOUL D BE NEXUS BETWEEN THE EXPENDITURE ATTRIBUTABLE TO THE BUSINES S OF THE ASSESSEE. IN THIS CONNECTION RELIABLE IS PLACE IN T HE DECISION OF RAJASTHAN STATE WAREHOUSING CORPN. VS. CIT (2000) 2 42 ITR 450 (SC). IN VIEW OF ABOVE DISCUSSIONS EXPENSES TO THE EXTENT OF RS.12,54,942/- IS DISALLOWED U/S 37 OF THE ACT R.W. S. 69C OF THE ACT, AND ADDED TO THE TOTAL INCOME. 4. ON VERIFICATION OF THE BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME IT IS SEEN THAT THE ASSESSEE HAS O BTAINED UNSECURED LOAN FROM VARIOUS PERSONS AMOUNTING TO RS.1205085/- . AS PER SECTION 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDI TED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AN D THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE T HEREOF OR THE EXPLANATION OFFERED BY HIS IS NOT, IN THE OPINION O F THE AO SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. W HILE DELIVERING THE DECISION IN THE CASE OF SUMATI DAYAL VS. CIT 21 4 ITR 801, THE HON. SUPREME COURT HAS GIVEN ITS DECISION THAT THE ONUS IS ON THE ASSESSEE TO PROVE THAT AMOUNTS CREDITED IN THE ACCO UNTS DID NOT REPRESENT INCOME. IT IS VERY SETTLED LAW THAT IN OR DER TO PROVE THE 4 GENUINENESS OF A CASH CREDIT APPEARING IN THE BOOKS OF THE ASSESSEE, THE FOLLOWING CRITERIA SHOULD BE SATISFIE D. FURTHER WHETHER THE LIABILITY IS IN FACT EXISTING OR NOT IS ALSO CANNOT BE VERIFIED IN VIEW OF ASSESSEES NON-CO-OPERATION. SI MILARLY THE ASSESSEE HAS ALSO CLAIMED SECURED LOANS OF RS.64545 1/-. WHETHER THIS IN FACT SECURED LOANS OR NOT CAN BE VERIFIED I F AND ONLY IF THE ASSESSEE FILES PROOF FOR THE SAME. HERE ALSO IT IS NOT KNOW WHETHER THE LIABILITY IS IN EXISTENCE OR NOT. IN VIEW OF TH ESE FACTS, BY APPLYING SECTION 68 R.W.S. 41(1) OF THE I.T. ACT, 1 961 THE ENTIRE AMOUNT OF LOANS AMOUNTING TO RS.18,50,536/- IS ADDE D BACK TO THE TOTAL INCOME. 5. DURING THE YEAR UNDER ACCOUNT, THE ASSESSEE HAS SHOWN SUNDRY CREDITORS OF RS.2163997/- AS CURRENT LIABILI TIES. DURING THE YEAR UNDER ACCOUNT THE ASSESSEE HAS MADE PURCHASES OF RS.1285471/- AND OTHER EXPENSES OF RS.1254942/- TOT ALING TO RS.2540413/- WHEREAS THE ASSESSEE HAS CLAIMED RS.21 63997/- AS CURRENT LIABILITY. THIS FACT CLEARLY UPHELD THE DEC ISION TAKEN IN PARA 3 OF DISALLOWING THE EXPENSES CLAIMED AS THE ENTIRE AMOUNT OF SUCH EXPENSES ARE SHOWN AS CURRENT LIABILITY OF THE ASSE SSEE. MOREOVER, WHETHER THE LIABILITY SHOWN IS CORRECT OR NOT IS AL SO NOT KNOWN. IN ABSENCE OF VERIFICATION THESE AMOUNTS ARE ALSO ADDE D TO THE TOTAL INCOME TREATING IT AS IF NO LIABILITY CLAIMED BY TH E ASSESSEE IS IN EXISTENCE AS PROVIDED IN SECTION 41(1) OF THE ACT. 6. SUBJECT TO ABOVE REMARKS TOTAL INCOME OF THE ASS ESSEE IS COMPUTED AS UNDER :- EXPENSES DISALLOWED (PARA 3) OF A.O. RS.12 54942/- U/S 68 R.W.S. 41(1) (PARA 4) OF A.O. RS. 1 850536/- SUNDRY CREDITORS (PARA 5) OF A.O. RS.21639 97/- RS.5269475/- 3. LD. CIT(A) CONSIDERED THE FIRST ADDITION AND RET AINED DISALLOWANCE AT 10% OUT OF RS.12,54,942/-. HE DELETED THE SECOND ADDITION BUT CONFIRMED THE THIRD ADDITION OF RS.21,63,997/-. THE ASSESSEE HAD IN FACT CHALLENGED THE PASSING OF EX PARTE ORDER BEFORE LD. CIT(A) BUT NO DISCUSSION HAS BEEN MADE BY HIM ON THIS POINT. THE ASSESSEE HAD CHALLENGED THE EX PARTE ASSESSEE BY SAYING THAT VAR IOUS NOTICES ALLEGEDLY 5 ISSUED TO HIM WERE NOT SERVED ON HIM. HE MADE FOLLO WING SUBMISSIONS BEFORE LD. CIT(A) IN THIS REGARD :- APPELLANT FILED RETURN OF INCOME DECLARING NIL INC OME ON DT.11.8.2005 AND ORDER U/S 143(1) WAS PASSED ON DT.12.9.2005. AC CORDING TO ITO NOTICE U/S 143(2) DATED 18.7.2007 WAS SERVED ON THE ASSESSEE ON DTD.17.8.2006 FIXING HEARING ON DT.31.8.2006. NOTIC E DID NOT ALLOW SUFFICIENT TIME TO COMPLY WITH THE SAME IS DIFFICUL T FOR ANY PERSON. NOTICE ALLOWING PERIOD OF 10 DAYS TIME FOR COMPLIANCE IS H ELD TO BE NOTICE WORTH ITS NAME IS VALIDLY ISSUED. LD. AO ALSO REMARKS THA T NOTICE U/S 14291) RPAD DT.21.6.2005 ALONG WITH QUESTIONNAIRE DT.21.6. 2006 FIXING THE DATE OF HEARING ON 19.12.2006. SIR, NOTICE U/S 142(1) DT .21.6.2005, ALONG WITH QUESTIONNAIRE DT.21.11.2006 APPEARS TO BE STRANGE A ND INCORRECT. LD. AO STATES THAT ON DT.16.7.2007 NOTICE U/S 142(1) RPAD WAS SERVED ON THE ASSESSEE ON DT.23.7.2007 FIXING HEARING ON 31.7.200 7 WAS SERVED ON THE ASSESSEE BUT IT WAS NOT COMPLIED. NOTICE U/S 142(1) DT.20.8.2007 FIXING HEARING ON 14.9.2007 AND SECOND NOTICE U/S 142(1) D T.24.9.2007 FIXING HEARING ON 4.10.2007 ARE SAID TO HAVE BEEN ISSUED B UT WHETHER THEY HAVE SERVED IS NOT STATED. IF NOTICE U/S 142(1) DR. 20.8 .2007 AND ANOTHER ONE ON 14.9.2007 IF NOT SERVED ON THE ASSESSEE EX PARTE ORDER U/S 144 OF I.T. ACT, 1961 CANNOT BE HELD VALIDLY PASSED. 4. THE LD. CIT(A), HOWEVER, CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER :- 5.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPEL LANT AS WELL AS THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER. I HA VE ALSO PURSUED THE RATIO IN THE DECISION CITED BY THE APPELLANT. I AG REE WITH THE VIEW THAT THE AO SHOULD HAVE BECOME RATIONAL AND HE SHOULD HAVE F RAMED THE BEST JUDGEMENT ASSESSMENT BASED ON HONEST GUESS WORK FOR WHICH, SOME VALID BASIS IS AVAILABLE. IN THE BEST JUDGMENT ASSESSMENT , THE AO DOES NOT GET ABSOLUTE AND UNBRIDLED POWERS TO ESTIMATE PROFITS H E WANTS AND THE ASSESSMENT CANNOT BE FRAMED AS PER HIS SWEET WILL. I FIND FORCE IN THE CONTENTIONS OF THE APPELLANT THAT MANUFACTURING AND ADMINISTRATIVE OVERHEADS ARE IMPERATIVE IN ANY BUSINESS SITUATION. SINCE THE AO HAS ACCEPTED THE SALES, PURCHASES, OPENING AND CLOSING STOCK, HE HAD NOT DOUBTED THE BOOK RESULTS OF THE APPELLANT AND THERE FORE, THE DISALLOWANCE 100% OF MANUFACTURING AND ADMINISTRATIVE OVERHEADS IS NOT JUSTIFIED. SINCE THE CLAIM OF THE APPELLANT WAS NOT VERIFIED B Y THE AO DUE TO NON- COMPLIANCE ON THE PART OF THE APPELLANT, THE FULL C LAIM OF THE APPELLANT 6 SEEMS NOT BE ACCEPTABLE. I THEREFORE, RETAIN THE DI SALLOWANCE OF RS.1,25,474/- I.E. 10% OF THE AGGREGATE CLAIM OF EX PENDITURE UNDER THE HEAD MANUFACTURING AND ADMINISTRATIVE EXPENDITURE. THE APPELLANT GROUND NO.1 IS, THEREFORE, PARTLY ALLOWED. 5. BEFORE US, LD. AR SUBMITTED THAT PROPER OPPORTUN ITY OF HEARING WAS NOT GIVEN AS NOTICES WERE NOT SERVED ON THE ASSESSE E AND LD. CIT(A) HAS NOT APPRECIATED THIS ISSUE. HE FURTHER SUBMITTED TH AT IN CASE THE MATTER IS RESTORED TO THE FILE OF AO THEN THE ADDITIONS WOULD NOT SURVIVE. FURTHER THE DEPARTMENT HAS NOT CHALLENGED THE RELIEF GIVEN BY LD. CIT(A). 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESSE E HAS NOT COMPLIED WITH THE NOTICES ISSUED BY THE AO. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ASSESSMENT IS REQUIRED TO BE FRAMED AGAIN AS PROPER OPPORTUNITY OF BEING HEARD HAS NOT BEEN GIVEN TO THE ASSESSEE. EVEN OTHERWISE, THE AO WAS EXPECTED TO CO LLECT EVIDENCE BEFORE MAKING ADDITIONS. MERE REJECTING THE CLAIM OR MAKIN G DISALLOWANCES WITHOUT SUPPORTING WITH VALID REASONS AND EVIDENCE ON RECORD CANNOT BE SUSTAINED. FOR NON-COMPLIANCE TO NOTICES SEPARATE P ENAL PROVISIONS HAVE BEEN PROVIDED. IT MEANS THAT PASSING EX PARTE ORDER AND MAKING DISALLOWANCES OR REJECTING THE CLAIM IN SWEEPING MA NNER WILL GIVE THE IMPRESSION THAT AO IS INTENDING TO PENALIZE THE ASS EEE FOR NON- COMPLIANCE OF THE NOTICES WITHOUT INVOLVING THE PEN AL PROVISIONS PROVIDED IN I.T. ACT OR INDIAN PENAL CODE. THIS APP ROACH IS NOT ACCEPTABLE. EVEN WHILE MAKING EX PARTE ASSESSMENT, JUSTICE MUST BE APPEARED TO HAVE BEEN DONE AND REASONABILITY SHOULD NOT APPEAR AS A CASUALTY. HENCE HIGH PITCHED HOLLOW EX PARTE ASSESS MENT CANNOT BE UPHELD. THE DEPARTMENT IS NOT IN APPEAL IN RESPECT OF ADDITION DELETED BY 7 THE LD. CIT(A). THUS, IN REASSESSMENT THE ADDITIONS TO BE MADE , IF ANY, WILL NOT EXCEED WHAT LD. CIT(A) HAS SUSTAINED. THE LD. AO WILL CONSIDER THE FACTUAL LEGAL POSITION ON THE ISSUE AND TAKE DE CISION AFRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THEREFO RE, WE RESTORE THE MATTER TO THE FILE OF AO FOR FRESH DECISION AFTER G IVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 02/07/2010 SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 02/07/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD