M/s. Trisuns Chemicals Indus.Ltd., Ahmedabad V. The ACIT.(OSD), Ward-8(4), Ahmedabad

ITA 1972/AHD/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5964 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 12-09-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Assessee Lawyers: NIMISH VAYAWALA
• Keywords: Opportunity of being heard; Principle of natural justice; Additional evidence; Question of law; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER DATE OF HEARING : 15/6/2011 DRAFTED ON: 18/07/2011 APPEAL(S) APPELLANTS VS. RESPONDENTS SL. NO(S). ITA NO(S) ASSESSMENT YEAR(S) APPELLANT RESPONDENT 1. 1972/AHD/2006 2002-03 M/S.TRISUNS CHEMICALS INDUSTRIES LTD. 601, ANURAG APARTMENT USHMANPURA, AHMEDABAD PAN: AAACT7086N ACIT (OSD) WARD-8(4) AHMEDABAD 2. 3804/AHD/2007 2003-04 -DO- -DO- 3. 3805/AHD/2007 2004-05 -DO- -DO- ASSESSEE BY : SHRI NIMISH VAYAWALA A.R. REVENUE BY : SHRI KARTAR SINGH CIT-D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : ALL THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE WHICH HAVE EMANATED FROM THE ORDERS OF LD.CIT(A)-XIV, AHMEDABA D RESPECTIVELY DATED 26/07/2006, 8/08/2007 AND 22/08 /2007 FOR AYS 2002-03, 2003-04 & 2004-05. 2. AT THE OUTSET, LD.AR HAS PLEADED THAT AN ADDITIONAL GROUND DESERVES TO BE ADMITTED FOR ADJUDICATION. THE SAID LEGAL ADDITIONAL GROUND IS REPRODUCED BELOW: ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 2 - THE ASSESSMENT MAY BE SET ASIDE TO FILE OF THE A.O. AS THE APPOINTMENT OF SPECIAL AUDITOR HAS BEEN ORDERED WIT HOUT GIVING THE OPPORTUNITY OF THE HEARING TO THE ASSESS EE. 2.1. ON ADMISSION OF LEGAL GROUND, CASE LAWS CITED ARE NTPC VS. CIT [1998]229 ITR 383(SC), AVERY CYCLE INDUSTRIES LTD. VS. CIT [2007]292 ITR 493 (P&H) AND MOHAN DAIRY VS. UNION OF INDIA [2007]163 TAXMAN 274(ALL.). 3. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT THE LEGAL ISSUE AS RAISED BEING EMERGED F ROM THE FACTS ALREADY ON RECORD AND ROOT OF THE MATTER IN RESPECT OF THE QUANTUM ADDITIONS MADE IN THE ASSESSMENT ORDER, THEREFORE, DESERVE TO BE ADMITTED FOR REQUISITE ADJUDICATION. THE HONBLE SUPREME COURT IN THE CASE OF NTPC(SUPRA) HAS HELD THAT THE TRIBUNAL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARISES FROM THE FACTS AS FOUND BY THE AUTHORITIES BELOW. WITH THESE OBSERVATION, AF TER ADMITTING THE AFORE-REPRODUCED ADDITIONAL GROUND, WE PROCEED TO D ECIDE THE ISSUE HEREIN-BELOW. 4. AT FIRST, OUR ATTENTION WAS DRAWN ON AN OBSERVAT ION OF THE AO AS MADE VIDE IMPUGNED ASSESSMENT ORDER U/S.143(3) O F THE I.T.ACT DATED 31.10.2005, WHEREIN THERE WAS A REFERENCE OF SPECIAL AUDIT IN THE FOLLOWING MANNER:- ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 3 - CONSIDERING THE SERIOUSNESS OF VARIOUS ALLEGATIONS MADE BY DRI AND HAVING REGARD TO THE NON-COMPLIANCE IN FURNISHI NG OF DETAILS IN RESPECT OF ALLEGATIONS MADE BY DRI AND AFTER EXA MINING SOME OF THE BOOKS OF THE ASSESSEE PRODUCED DURING THE COURS E OF ASSESSMENT PROCEEDINGS AND AFTER SCRUTINY OF THE VA RIOUS DETAILS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS I T WAS FELT THAT THE ASSESSEE COMPANYS BOOKS OF ACCOUNTS CONTAINED CERTAIN COMPLEXITIES SINCE THE VARIOUS DETAILS CALLED FOR T O EXAMINE AND ASCERTAIN THE INCOME OF THE ASSESSEE WERE NOT BEING PRODUCED, THE PROPOSAL WAS MADE TO CIT-IV, AHMEDABAD TO APPROVE T HE SPECIAL AUDIT OF THE BOOKS OF A/CS OF THE ASSESSEE COMPANY U/S.142(2A) OF THE ACT. THE ASSESSEE WAS DIRECTED TO GET THE BOOKS OF ACCO UNTS AUDITED U/S.142(2A) OF THE ACT VIDE THIS OFFICE LET TER NO ITO WD.8(4)/SPECIAL AUDIT/142(2A)/04-05 DT. 21.03.2005 AFTER GETTING THE APPROVAL OF CIT-IV, AHMEDABAD. THE PERIOD OF 120 DAYS WAS GRANTED FOR THIS PURPOSE WHICH WAS FURTHER EXTENDED BY 35 DAYS BY LETTER DT. 18/07/2005 AND THEM BY 25 MORE DAYS VIDE LETTER DT. 22.08.2005 ON SPECIFIC REQUESTS MADE BY THE ASSESSE E COMPANY BOTH THE TIMES. THE NOMINATED C.A. FOR THIS PURPOS E, SHRI PRAMOD KUMAR DAD & CO., HAVE FILED THEIR REPORT IN FORM 6B ON 16.09.2005. 4.1. ON THE BASIS OF THE ABOVE OBSERVATION, LD.AR M R.NIMISH VAYAWALA HAS ARGUED THAT THE AO HAD DIRECTED THE A SSESSEE TO GET THE BOOKS OF ACCOUNT AUDITED U/S.142(2A) BY THE SPE CIAL AUDITOR BUT THE AO HAD NOT GRANTED ANY OPPORTUNITY TO DEMONSTRA TE THAT THERE WAS NO NECESSITY AT ALL FOR THE APPOINTMENT OF ANY SPECIAL AUDITOR. HE HAS ARGUED THAT SINCE THE AO HAS NOT HEARD THE A SSESSEE ON THIS POINT, THEREFORE, ALL SUBSEQUENT PROCEEDINGS W ERE BAD IN LAW. FOR THIS LEGAL PROPOSITION, HE HAS PLACED RELI ANCE ON THE FOLLOWING DECISIONS: ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 4 - SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. ACIT VS. CLARITGES 18 SOT 390 (BOM.) 2. FIRST GLOBAL STOCKBROKING (P) LTD. VS. ACIT 115 TTJ 173 (MUM.) 3. ACIT VS. SUSHILA MILK SPECIALITIES (P) LTD. 126 TTJ 289 (DEL)[SB] :122 ITD 48 5. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE , LD.DR MR.KARTARSINGH VEHEMENTLY CONTESTED THAT THE ASSES SEE HAD BEEN GIVEN DUE OPPORTUNITY AS IS EVIDENT FROM THE DIRECT IONS GIVEN TO GET THE ACCOUNTS AUDITED U/S.142(2A) OF THE ACT TO THE PRINCIPAL OFFICER VIDE LETTERS DATED 21/3/2005, 16/1/2006 AND 21/9/20 06. HE HAS ALSO PLACED ON RECORD THE DECISION OF SUSHILA MILK SPECIALITIES (P) LTD.122 ITD48 FOR THE PROPOSITION THAT THERE WAS NO ILLEGALITY I N NOT AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. LD.DR HAS ALSO ARGUED THAT THE PROVISO TO SECTION 1 42(2A) OF THE ACT WAS INSERTED BY THE FINANCE ACT, 2007 WITH EFFE CT FROM 1 ST JUNE, 2007. ACCORDING TO WHICH THE AO SHOULD NOT DIRECT THE ASSESSEE TO GET THE ACCOUNTS SO AUDITED UNLESS THE ASSESSEE HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. SINCE THE R EFERENCE TO ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 5 - SPECIAL AUDIT WAS PRIOR TO 1 ST JUNE, 2007, THEREFORE, THERE WAS NO IRREGULARITY AS PER THE PROVISIONS OF THE ACT ON TH E PART OF THE AO. 6. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES. WE HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW I N THE LIGHT OF THE CASE LAWS CITED. AS IS EVIDENT FROM THE PARAGRAPH REPRODUCED FROM THE IMPUGNED ASSESSMENT ORDER, THE ADMITTED FACTUAL POSITION IS THAT THE ASSESSEE WAS NOT HEARD BEFORE GIVING HIM T HE DIRECTION TO GET ITS ACCOUNTS AUDITED BY A SPECIAL AUDITOR. EVEN FROM THE SIDE OF THE REVENUE, IT HAS NOT BEEN CHALLENGED THA T WHETHER AN OPPORTUNITY OF HEARING WAS AFFORDED TO THIS ASSESSE E. ONCE BOTH THE SIDES HAVE AGREED THAT INDEED NO OPPORTUNITY OF HEA RING WAS GRANTED TO THIS ASSESSEE, THEREFORE, NOW WE HAVE TO PROCEED ON THE BASIS OF THIS ADMITTED FACTUAL POSITION. 6.1. BEFORE WE ADJUDICATE ON THE MAIN LEGAL ISSUE, NOW ADDRESSED TO US, WE MAY LIKE TO PLACE ON RECORD THAT WE ARE A WARE THAT IN THE PAST THIS TRIBUNAL VIDE AN ORDER DATED 22/05/2009 F OR AY 2003-04 BEARING ITA NOS.1973 & 2203/AHD/2006 HAS HELD THAT SINCE THE ASSESSMENT WAS MADE U/S.144 OF IT ACT AND THE APPEL LANT HAD PLEADED TO FILE ADDITIONAL EVIDENCE UNDER RULE 29; THEREFORE IN THE INTEREST OF NATURAL JUSTICE AND CONSIDERING THE NAT URE OF EVIDENCES FILED; DECIDED TO RESTORE THE MATTER TO THE FILE OF THE AO FOR AFRESH ASSESSMENT. LIKEWISE, FOR AY 2002-03, IN ITA NO.325/AHD/2007 ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 6 - VIDE AN ORDER 28/08/2009, FOLLOWING THE EARLIER DEC ISION, THE MATTER WAS RESTORED BACK TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT. IN VIEW OF THE PAST HISTORY OF THE THESE CASES WE HERE BY MAKE A MENTION THAT EVEN NOW AT PRESENT, AT THIS SECOND ROUND, THE ASSESSEE APPEARS TO BE NOT INTERESTED TO GET THE QU ANTUM ADDITIONS DECIDED INSTEAD OF RAISING ONE AFTER ANOTHER SOME L EGAL IRREGULARITY. 7. THIS LEGAL QUESTION PERTAINING TO THE GRANT OF OPPORTUNITY OF HEARING, BEFORE GIVING DIRECTION TO GET THE ACCOUNT S AUDITED BY A SPECIAL AUDITOR, STOOD SETTLED BY THE HONBLE SUPR EME COURT IN THE CASE OF SAHARA INDIA(FIRM) VS. CIT & ANR. [2008] 300 ITR 403(SC), ORDER DATED 11-04-2008, WHEREIN IT WAS OBSERVED A S FOLLOWS:- BEFORE DUBBING THE ACCOUNTS AS COMPLEX AND DIFFICU LT TO UNDERSTAND, THERE HAS TO BE A GENUINE AND HONEST ATTEMPT ON THE PART OF THE ASSESSING OFFICER TO UNDERSTAND THE ACCOUNTS MAINTA INED BY THE ASSESSEE, APPRECIATE THE ENTRIES MADE THEREIN AND, IN THE EVENT OF DOUBT, SEEK EXPLANATION FROM THE ASSESSEE. THE OPI NION REQUIRED TO BE FORMED BY THE ASSESSING OFFICER FOR EXERCISE OF POWER UNDER SECTION 142(2A) MUST BE BASED ON OBJECTIVE CRITERIA AND NOT ON THE BASIS OF SUBJECTIVE SATISFACTION. RECOURSE TO THAT PROVISION CANNOT BE HAD BY THE ASSESSING OFFICER MERELY TO SHIFT HIS RESPONSIB ILITY OF SCRUTINISING THE ACCOUNTS OF AN ASSESSEE AND PASS THE BUCK TO TH E SPECIAL AUDITOR. SIMILARLY, THE REQUIREMENT OF PREVIOUS APPROVAL OF THE CHIEF COMMISSIONER OR THE COMMISSIONER, BEING AN INBUILT PROTECTION AGAINST ANY ARBITRARY OR UNJUST EXERCISE OF POWER BY THE AS SESSING OFFICER CASTS A VERY HEAVY DUTY ON THE SAID HIGH RANKING AU THORITY TO SEE THAT THE REQUIREMENT OF PREVIOUS APPROVAL IS NOT TURNED INTO AN EMPTY RITUAL. BEFORE GRANTING APPROVAL, THE CHIEF COMMISSIONER OR THE COMMISSIONER, AS THE CASE MAY BE, MUST HAVE BEFORE HIM MATERIAL ON THE BASIS WHEREOF AN OPINION IN THIS BEHALF HAS BEE N FORMED BY THE ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 7 - ASSESSING OFFICER. THE APPROVAL MUST REFLECT THE AP PLICATION OF MIND TO THE FACTS OF THE CASE. RULES OF NATURAL JUSTICE ARE NOT EMBODIED RULES. TH E EXPRESSION NATURAL JUSTICE IS ALSO NOT CAPABLE OF A PRECISE DEFINITION. THE UNDERLYING PRINCIPLE OF NATURAL JUSTICE, EVOLVED UN DER THE COMMON LAW, IS TO CHECK ARBITRARY EXERCISE OF POWER BY THE STAT E OR ITS FUNCTIONARIES. THEREFORE, THE PRINCIPLE IMPLIES A DUTY TO ACT FAIR LY, I.E., FAIR PLAY IN ACTION. THE AIM OF RULES OF NATURAL JUSTICE IS TO S ECURE JUSTICE OR, TO PUT IT NEGATIVELY, TO PREVENT MISCARRIAGE OF JUSTICE. T HESE RULES CAN OPERATE ONLY IN AREAS NOT COVERED BY ANY LAW VALIDLY MADE ; THEY DO NOT SUPPLANT THE LAW BUT SUPPLEMENT IT. 7.1. IT IS WORTH TO MENTION THAT AN EARLIER DECISIO N, NAMELY, RAJESH KUMAR 287 ITR 91 (SC) W AS REAFFIRMED. IN ADDITION TO THE ORDER OF THE HONBLE SUPREME COURT NOW BEFORE US IS A DEC ISION OF RESPECTED SPECIAL BENCH DELHI IN THE CASE OF ACIT V S. SUSHILA MILK SPECIALITIES (P) LTD. 122 ITD 48 (DEL)[SB] , WHEREIN THE DECISION OF RAJESH KUMAR(SUPRA) AND THE DECISION O F SAHARA INDIA (FIRM)[SUPRA] BOTH WERE TAKEN INTO ACCOUNT AND HELD THAT THE CIT(A) HAD ERRED IN ANNULLING THE ASSESSMENT ORDER ON THE SAID TECHNICAL GROUND. A CONCLUSION WAS DRAWN THAT THE ASSESSMENT COULD NO T BE ANNULLED BUT REQUIRED TO BE RESTORED BACK TO THE FILE OF THE AO FOR FRAMING AN ASSESSMENT AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE RESPECTED SPECIAL BENCH HAS THEREFORE ALLOWED THE APPEAL OF T HE REVENUE. WE HAVE ALSO NOTED THAT THE DECISION OF RAJESH KUMA R(SUPRA) OF THE HONBLE SUPREME COURT WAS A DECISION OF A DIVISION BENCH, HOWEVER, THE DECISION OF SAHARA INDIA(SUPRA) IS A DECISION OF LARGER ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 8 - BENCH CONSTITUTED BY THREE HONBLE JUDGES OF S.C.. ON CAREFUL PERUSAL OF THESE DECISIONS, THE SETTLED LEGAL POSIT ION VIS--VIS THE PROVISIONS OF SECTION 142(2A) IS THAT DENIAL OF OPP ORTUNITY OF HEARING WAS MERELY AN IRREGULARITY BUT THERE WAS NO ILLEGALITY. THAT IRREGULARITY CAN BE REMOVED BY GRANTING AN OPP ORTUNITY TO THE ASSESSEE SO THAT THE QUESTION ABOUT THE NATURE AND THE COMPLEXITY OF THE ACCOUNTS CAN BE DISCUSSED. IF AFTER THE DISCU SSION ABOUT THE NATURE AND THE COMPLEXITY OF THE ACCOUNTS, STILL TH E AO IS OF THE OPINION THAT IT IS NECESSARY TO DO SO, THEN THE RIG HT RECOURSE IS THAT, OF COURSE WITH THE PREVIOUS APPROVAL OF THE LD.COMMISS IONER, TO DIRECT THE ASSESSEE TO GET THE ACCOUNTS AUDITED U/S.142(2A ) OF THE IT ACT. BY FOLLOWING THIS PROCEDURE THE GRIEVANCE OF INFRIN GEMENT OF NATURAL JUSTICE SHALL GET REDRESSED. WE DIRECT THE A.O. TO FOLLOW THE PROCEDURE ACCORDINGLY. THE ADDITIONAL GROUND STAND S ALLOWED. 8. REST OF THE GROUNDS IN ALL THE THREE YEARS PERTA INED TO THE QUANTUM ADDITIONS WHICH HAVE BASICALLY REVOLVED ARO UND THE AUDITORS REPORT. ON THE BASIS OF THE SAID REPORT TH E IMPUGNED INFERENCE WAS DRAWN BY THE AO. SINCE WE HAVE RESTO RED THE MATTER FOR AFRESH AUDITORS REPORT, THEREFORE, THE AO HAS TO RE-COMPUTE THE INCOME DE NOVO. THEREAFTER THE ADDITIONS NOW UNDER DISPUTE MAY OR MAY NOT SURVIVE BUT AT PRESENT IT SHALL BE PREMATUR E TO ADJUDICATE THOSE ISSUES. THE VERY BASIS OF THESE ADDITIONS NO W CHALLENGED IN REST OF THE GROUNDS OF THE APPEAL, I.E., THE AUDITO R REPORT, DO NOT ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 9 - CONTINUE TO EXIST, BECAUSE OF OUR RESTORING IT BACK TO AO, THEREFORE PRESENTLY THESE GROUNDS CANNOT BE ADDRESSED ON MERI TS, HOWEVER, SENT BACK TO AO TO RE-DECIDE IN THE LIGHT OF THAT REPORT OF THE AUDITOR AND OTHER MATERIAL ON RECORD AS PER LAW. WE MAY LIKE TO CLARIFY THAT THE AO IS AT LIBERTY TO TAKE DUE RECOU RSE AS PRESCRIBED UNDER LAW SO AS TO GET THE ASSESSMENT DENOVO FINALI ZED. 9. IN THE RESULT, ALL THE THREE APPEALS OF ASSESSEE ARE RESTORED TO THE FILE OF THE AO AS PER THE DIRECTION AND THER EFORE TO BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 29 TH JULY, 2011. SD/- SD/- ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 29 / 07 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XIV, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NOS.1972/A/ 06, 3804 & 3805/A/07 M/S.TRISUNS CHEMICALS INDS.LTD.VS.ACIT ASST.YEARS 2002-03, 03-04 & 04-05 - 10 - 1. DATE OF DICTATION..18/07/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19/07/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S29/07/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29/07/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER