DCIT, New Delhi V. M/s Lokesh Garment Pvt. Ltd, Delhi

ITA 1781/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3610 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 271(1)(c); 142(1); 143(2); 131; 145; 139

Judgement Text

I.T.A. NO. 1781, 1782/DEL/2010 1/8 IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH D BEFORE SHRI I. P. BANSAL, JUDICIAL MEMBER AND SHRI A K GARODIA, ACCOUTANT MEMBER ITA NO. 1781, 1782 /DEL/2010 (ASSESSMENT YEAR 2003-04) DCIT, CIRCLE 4(1), VS. M/S. LOKESH GARMENTS PVT. LTD., NEW DELHI B-3, VIVEK VIHAR, DELHI (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACL 5906H APPELLANT BY: SMT. KAVITA BHATNAGAR, CIT DR RESPONDENT BY: NONE ORDER PER A. K. GARODIA, AM: 1. BOTH THESE APPEALS ARE FILED BY THE REVENUE, WHICH ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS OF LD. CIT(A)-VII, NEW DELHI DATED 15.02.2010 IN QUANTUM PROCEEDINGS AND DATED 2 4.02.2010 IN THE PROCEEDINGS INITIATED BY THE A.O. FOR IMPOSI NG PENALTY U/S 271(1)(C). BOTH THESE APPEALS RELATE TO THE SAME A SSESSMENT YEAR I.E. ASSESSMENT YEAR 2003-04 AND FOR THE SAKE OF CONVENIENCE, BOTH THESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE IN SPITE OF THE NOTICE AND HENCE WE DECIDE BOTH THESE APPEALS OF THE REVEN UE EX-PARTE QUA THE ASSESSEE. 3. THE GROUNDS RAISED BY THE REVENUE IN BOTH THESE APP EALS ARE AS UNDER: I.T.A. NO. 1781, 1782/DEL/2010 2/8 1781/DEL/2010: 1) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE PENAL TY OF RS.11,05,50,000/- LEVIED BY THE A.O. UNDER SECTION 271(1)(C) OF THE ACT. 2.1) THE LD. CIT(A) IGNORED THE FACT THAT THE ASSESSEE H AS FURNISHED INACCURATE PARTICULARS AND CONCEALING THE INCOME BY CLAIMING BOGUS LOSS. 3) THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF H EARING. 1782/DEL/2010: 1) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ( ALLOWING THE LOSS) OF RS.30,07,45,129/- MADE BY THE A.O. ON ACCOUNT OF CARRY FORWARD OF LOSS CLAIMED BY THE ASSESSEE. 2.1) THE LD. CIT(A) IGNORED THE FACT THAT THE ASSESSEE D ID NOT PRODUCE ANY DETAILS/DOCUMENTS IN SUPPORT OF HIS CLA IM. 3) THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF H EARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THE PRESENT YEAR, THE ASSESSEE COMPANY HAS FILED ITS RETURN OF INCOME ON 2.12.2003 DECLARING LOSS OF RS.30,07,45,129/-. THE RETURN WAS PROCESSED U/S 143 (1) ON 17.03.2004 AND THEREAFTER, THE SAME WAS SELECTED FO R SCRUTINY. VARIOUS NOTICES WERE ISSUED BY THE A.O. TO THE ASSE SSEE U/S 143(2) I.T.A. NO. 1781, 1782/DEL/2010 3/8 AND 142(1) AND EXCEPT ON ONE DATE I.E. 26.09.2005, NONE APPEARED ON BEHALF OF THE ASSESSEE. ON 26.09.2005 ALSO, WHEN M R. J P GOEL, C.A. APPEARED BEFORE THE A.O., THE A.O. ASKED TO SUBMIT THE DETAILS AS PER THE QUESTIONNAIRE DATED 20.01.2005 AND THE CASE WAS ADJOURNED TO 04.10.2005 ON THE REQUEST OF MR. J P GOEL, C.A. AN D THEREAFTER, NEITHER HE APPEARED NOR THERE WAS ANY CORRESPONDENC E FORM HIM. IN THE MEANTIME, IT IS NOTED BY THE A.O. THAT AS PER T HE TAX AUDIT REPORT, THE ASSESSEE HAD MADE CERTAIN TRANSACTIONS WITH THE PERSONS SPECIFIED U/S 40A(2)(B) OF THE I.T. ACT. SUCH TRANSACTIONS A RE NOTED BY THE A.O. ON PAGE 4 OF THE ASSESSMENT ORDER AS PER THIS THE A SSESSEE HAS MADE PURCHASES OF RS.109.81 LACS FROM M/S. PUMMY CREATIO NS AND OF RS.110.04 LACS FROM M/S. KAPIL IMPEX AND HAS GIVEN ADVANCES OF RS.109.53 LACS TO M/S. SUNIL ENTERPRISES. IT WAS A LSO NOTED BY THE A.O. ON THE SAME PAGE OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS RECEIVED VARIOUS ADVANCES FROM THESE PARTIES. IT I S NOTED BY THE A.O. THAT THE AMOUNT OF ADVANCE RECEIVED BY THE ASSESSEE FROM KAPIL IMPEX WAS RS.218.53 LACS, FROM POOJA HIGH FASHION I NTERNATIONAL OF RS.333.53 LACS AND M/S. PUMMY CREATIONS RS.239.83 L ACS. IT IS ALSO NOTED BY THE A.O. THAT SUMMONS U/S 131 WERE SENT TO THESE PARTIES, WHICH WERE RETURNED UNSERVED WITH THE POSTAL REMARK S LEFT/NO SUCH FIRM. THEREAFTER, THE A.O. CAME TO THE CONCLUSION THAT HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF ACCOUNTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND HE RE JECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145 OF THE I T ACT. THEREAFTER, HE ASSESSED THE INCOME OF THE ASSESSEE AT RS. NIL AS AGAINST LOSS OF RS.3007.45 LACS DECLARED BY THE ASS ESSEE IN ITS RETURN OF INCOME. BEING AGGRIEVED, THE ASSESSEE CARRIED T HE MATTER IN APPEAL BEFORE THE LD. CIT(A). IN THE 1 ST ROUND, THE CIT(A) HAS DISMISSED THE I.T.A. NO. 1781, 1782/DEL/2010 4/8 APPEAL OF THE ASSESSEE VIDE HIS ORDER DATED 20.07.2 007. AGAINST THIS ORDER OF LD. CIT(A), THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL IN I.T.A. NO. 1880/DEL/20 09 DATED 16.10.2009 RESTORED THE MATTER BACK TO THE FILE OF THE LD. CIT(A) WITH A DIRECTION TO RE-HEAR THE APPEAL AND DECIDE IT AFT ER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS PER THIS DIRECTION OF THE TRIBUNAL, LD. CIT(A) HAS PASSED THE IMPUGNED OR DER ON 15.02.2010 AND AS PER THIS, HE HAS HELD THAT THE CL AIM OF LOSS AS PER THE RETURN OF INCOME FILED BY THE ASSESSEE IS DIREC TED TO BE ALLOWED ALTHOUGH THE SAME SHALL NOT BE ALLOWED TO BE CARRIE D FORWARD FOR ADJUSTMENT IN THE SUBSEQUENT YEAR. AGAINST THIS OR DER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US IN QUANTUM PROCE EDINGS. 4. IN THE MEANTIME, THE A.O. INITIATED PENALTY PROCEED INGS U/S 271(1(C). IN THE COURSE OF PENALTY PROCEEDINGS, IT WAS SUBMIT TED BY THE ASSESSEE BEFORE THE A.O. THAT ALTHOUGH LD. CIT(A) HAS CONFIR MED THE ASSESSMENT ORDER BUT THE APPEAL OF THE ASSESSEE IS PENDING BEFORE THE TRIBUNAL AND HENCE THE PENALTY PROCEEDINGS SHOULD B E KEPT IN ABEYANCE BUT THE A.O. WAS NOT SATISFIED ON THIS ASP ECT AND HE PASSED THE PENALTY ORDER ON 27.03.2009 AND IMPOSED A PENAL TY OF RS.1105.50 LACS U/S 271(1)(C) ON ACCOUNT OF LOSS OF RS.3007.45 LACS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME WHICH WAS NOT ALLOWED BY THE A.O. IN THE ASSESSMENT ORDER. AGAINST THE PENALTY ORDER ALSO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND AS PER HIS ORDER DATED 24.02.2010, THE LD. CIT(A) HAS DELETED THE PENALTY ON THE BASIS THAT IN QUANTUM APPEAL, HE HAS DECIDED THE MA TTER IN FAVOUR OF THE ASSESSEE BY DIRECTING THE A.O. TO ALLOW THE CLA IM OF LOSS AS PER RETURN OF INCOME FILED BY THE ASSESSEE AND HENCE TH ERE REMAIN NO I.T.A. NO. 1781, 1782/DEL/2010 5/8 BASIS TO UPHOLD THE PENALTY OF RS.1105.50 LACS. AG AINST THIS ORDER OF CIT(A) ALSO, THE REVENUE IS IN APPEAL BEFORE US. 5. IT IS SUBMITTED BY THE LD. D.R. THAT IN VIEW OF THE ADVERSE REMARKS OF THE AUDITORS IN THE AUDIT REPORT AND TAX AUDIT REPO RT AND IN VIEW OF THIS FACT THAT THE PARTIES SPECIFIED U/S 40A(2)(B) WITH WHICH THE ASSESSEE HAD VARIOUS TRANSACTIONS WERE NOT FOUND ON THE ADDR ESSES GIVEN BY THE AUDITORS, THE A.O. WAS JUSTIFIED IN REJECTING THE C LAIM OF THE ASSESSEE REGARDING LOSS OF RS.3007.45 LACS HAVING BEEN DECLA RED BY THE ASSESSEE IN THE RETURN OF INCOME. IT IS ALSO SUBMI TTED BY HIM THAT CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF T HE ASSESSEE REGARDING LOSS DECLARED BY THE ASSESSEE IN THE RETU RN OF INCOME AND HENCE HIS ORDER SHOULD BE REVERSED AND THAT OF THE A.O. SHOULD BE RESTORED. IT IS ALSO SUBMITTED BY HIM THAT IN PARA 5.1 OF HIS ORDER, IT IS OBSERVED BY THE LD. CIT(A) THAT IN HIS OPINION, THE A.O. WAS QUITE JUSTIFIED TO REJECT THE TRADING LOSS DECLARED BY TH E ASSESSEE IN ITS RETURN OF INCOME ON THE GROUND THAT THE BOOKS OF ACCOUNTS AND SUPPORTING DOCUMENTS WERE NOT PRODUCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND IN SPITE OF THIS, IN PARA 5.2, HE D IRECTED THE A.O. TO ALLOW THE CLAIM OF LOSS AS PER THE RETURN OF INCOME FILED BY THE ASSESSEE AND HENCE THE FINDING OF LD. CIT(A) ARE CO NTRADICTORY. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D.R. FOR THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IT WAS REPORTED BY THE AUDITORS THAT PROPER RE CORDS WERE NOT AVAILABLE WITH THE ASSESSEE AND HENCE THEY ARE UNAB LE TO STATE WHETHER THE P & L ACCOUNT AND THE BALANCE SHEET OF THE ASSE SSEE GIVE TRUE AND FAIR VALUE IN CONFORMITY WITH THE ACCOUNTING PRINCI PLES GENERALLY ACCEPTED IN INDIA. THIS IS THE MAIN REASON BEHIND THE ACTION OF THE I.T.A. NO. 1781, 1782/DEL/2010 6/8 A.O. IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSE SSEE AND MOREOVER, IT WAS FOUND BY THE A.O. THAT THE ASSESSEE IS NOT M AKING AVAILABLE CONFIRMATION OF 3 PARTIES WITH WHOM THE ASSESSEE WA S HAVING SUBSTANTIAL TRANSACTION AND THESE PARTIES ARE NOT A VAILABLE ON THE ADDRESSES GIVEN BY THE TAX AUDITORS AND THESE PARTI ES ARE RELATED PARTIES SPECIFIED U/S 40A(2)(B) OF THE I.T. ACT. L D. CIT(A) HAS RECORDED DETAILED FINDING AS PER WHICH, THE BOOKS O F ACCOUNTS OF THE ASSESSEE INCLUDING RECORDS OF PURCHASE, SALE, STOCK AND CASH BOOK ETC. WERE SEIZED BY THE DIRECTORATE OF REVENUE INTELLIGE NCE ON 15.10.2003 AND THIS WAS THE MAIN REASON DUE TO WHICH, BOOKS W ERE NOT PRODUCED TO THE AUDITORS AT THE TIME WHEN THEY PREPARED AND SIGNED THE TAX AUDIT REPORT ON 18.11.2003. IT IS FURTHER NOTED BY THE LD. CIT(A) THAT THE RECORDS WERE PRODUCED BEFORE HIM BY THE ASSESSE E AND WERE EXAMINED BY HIM ON TEST CHECK BASIS AND THEREAFTER, HE HAS GIVEN A CLEAR FINDING THAT THE ASSESSEE HAS PROVED BEYOND D OUBT THAT THE BALANCE SHEET AND P & L ACCOUNTS FORMED PART OF THE TAX AUDIT REPORT ARE CORRECT AND NO ADVERSE INFERENCE CAN BE DRAWN. THIS FINDING IS ALSO GIVEN BY THE CIT(A) THAT MATERIAL PALED BEFORE HIM CLEARLY SHOWS THAT THE ASSESSEE HAD VALID REASON FOR SUFFER ING LOSS DURING THESE YEARS. IT IS ALSO OBSERVED BY HIM THAT THE A SSESSEE SUFFERED LOSSES BECAUSE OF NON-RECEIPT OF PAYMENTS FROM THE FOREIGN BANKERS FROM WHOM EXPORT BILLS WERE DISCOUNTED. THIS FINDI NG OF LD. CIT(A) GOES TO SHOW THAT THE MAIN REASON BEHIND THE LOSS S UFFERED BY THE ASSESSEE IS THAT EXPORT PROCEEDS WERE NOT REALIZED WHICH IS ALLOWABLE AS BAD DEBTS AND IT CANNOT BE DOUBTED ON THE BASIS OF CERTAIN DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE EVEN IF TH OSE DEFECTS ARE FOUND. WE ALSO FIND THAT EVEN AFTER HOLDING THAT T HE CLAIM OF LOSS AS PER RETURN OF INCOME IS TO BE ALLOWED, IT IS FURTHE R OBSERVED BY THE LD. I.T.A. NO. 1781, 1782/DEL/2010 7/8 CIT(A) IN PARA 5.3 OF HIS ORDER THAT SUCH LOSS CANN OT BE ALLOWED TO BE CARRIED FORWARD BECAUSE ALTHOUGH RETURN OF INCOME W AS FILED BY THE ASSESSEE WITHIN THE PRESCRIBED TIME ALLOWED U/S 139 (3) READ WITH SECTION 80 OF THE I. T. ACT. BUT IN VIEW OF THIS F ACT THAT THE ASSESSEE COULD NOT FILE AUDITED P & L ACCOUNT AND BALANCE SH EET ALONG WITH AUDITORS REPORT BACKED BY SUPPORTING BOOKS OF ACCOU NTS AND OTHER RELEVANT DOCUMENTS, SUCH RETURN FILED BY THE ASSESS EE IS A DEFECTIVE RETURN AND HENCE IT CANNOT BE ACCEPTED THAT THE ASS ESSEE FILED THE RETURN IN TIME AS PER THE PROVISIONS OF SECTION 139 (3) AND HENCE CARRY FORWARD OF LOSS CANNOT BE ALLOWED. WE ARE NOT CO NCERNED WITH THE ORDER OF LD. CIT(A) ON THIS ASPECT BECAUSE THIS IS NOT A DISPUTE BEFORE US AS TO WHETHER THIS DECISION OF CIT(A) IS CORRECT OR NOT REGARDING CARRY FORWARD OF LOSS BUT CONSIDERING ALL THE FACTS IN THE PRESENT CASE, WE FEEL THAT NO INTERFERENCE IS CALLED OR IN THE OR DER OF LD. CIT(A) BECAUSE ALL THE BOOKS OF ACCOUNTS AND SUPPORTING DO CUMENTS WERE PRODUCED BY THE ASSESSEE BEFORE HIM AND THE REASON FOR NOT PRODUCING THE SAME BEFORE THE AUDITORS AND BEFORE THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDINGS WERE EXPLAINED AS THE SAME W ERE LYING SEIZED WITH DRI. A CLEAR FINDING IS GIVEN BY THE LD. CIT( A) THAT THE ASSESSEE HAS PROVED BEYOND DOUBT THAT THE BALANCE S HEET AND P & L ACCOUNT ARE CORRECT AND NO ADVERSE INFERENCE CAN BE DRAWN. REGARDING REASON AND BASIS ALSO, A CLEAR FINDING IS GIVEN BY HIM THAT THE ASSESSEE SUFFERED THESE LOSSES BECAUSE OF NON-R ECEIPT OF PAYMENT FROM THE FOREIGN BANKERS FROM WHOM EXPORT BILLS WER E DISCOUNTED. NO ADVERSE MATERIAL HAS BEEN BROUGHT OUT ON RECORD BY THE REVENUE TO POINT OUT ANY DEFECT IN THESE FINDINGS OF LD. CIT(A ) AND HENCE WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) IN QUANTUM PROCEEDINGS. REGARDING THIS SUBMISSION OF LD. D.R. THAT I.T.A. NO. 1781, 1782/DEL/2010 8/8 CONTRADICTORY FINDINGS ARE GIVEN BY LD. CIT(A), WE WOULD LIKE TO OBSERVE THAT THIS IS A GENERAL STATEMENT MADE BY LD . CIT(A) THAT TRADING LOSS CAN BE REJECTED BY THE A.O. ON THE BAS IS THAT BOOKS WERE NOT PRODUCED BEFORE HIM BUT HIS ULTIMATE FINDING IS THAT THE LOSS IS ON ACCOUNT OF NON REALIZATION OF EXPORT PROCEEDS AND H ENCE THERE IS NO CONTRADICTION IN THE ORDER OF LD. CIT(A). 7. REGARDING THE ORDER OF LD. CIT(A) IN PENALTY PROCEE DINGS INITIATED BY THE A.O. U/S 271(1)(C), IT WAS ALSO AGREED BY THE L D. D.R. THAT THIS APPEAL IS CONSEQUENTIAL AND IF THE ORDER OF CIT(A) IN QUANTUM PROCEEDINGS IS UPHELD THEN IN PENALTY PROCEEDINGS A LSO, HIS ORDER IS TO BE UPHELD. WE HAVE CONFIRMED THE ORDER OF LD .CIT( A) IN QUANTUM PROCEEDINGS AND HENCE WE CONFIRM HIS ORDER IN PENAL TY PROCEEDINGS ALSO BECAUSE ONCE THE QUANTUM ADDITION IS DELETED, NO PENALTY CAN BE IMPOSED. 8. IN THE RESULT, BOTH THESE APPEALS OF THE REVENUE AR E DISMISSED. 9. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 5 TH JUNE, 2010. SD./- SD./- (I. P. BANSAL) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:25 TH JUNE, 2010 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI