M/s Girnar Textiles, Baghpat V. CIT, Meerut

ITA 3376/DEL/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8792 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL JAIN
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard; Speculation loss; Assessment record; Speculative transactions
• Section: 143(3); 263

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL IN (DELHI BENCH C NEW DELHI) BEFORE SHRI R.S.SYAL, ACCOUNTANT MEMBER AND SHRI C.M.GARG, JUDICIAL MEMBER ITA NO. 3376/DEL/2013 (ASSESSMENT YEAR: 2008-09) GIRNAR TEXTILES VS. CIT PATHSHALA ROAD, KHEKRA, BAGHPAT, PIN : 250101 MEERUT PAN : AAGFG6941A , (APPLICANT) (RES PONDENT) ASSESSEE BY : SH. SUNIL JAIN, CA REVENUE BY : SH. R.I.S., DR DATE OF HEARING : 16.03.2015 DATE OF PRONOUNCEMENT : 30.03.2015 ORDER PER C.M.GARG, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), MEERUT DATED 28/03/2013 PASSED U/S 263 OF THE INCOME TAX ACT, 1 961 (FOR SHORT ACT) FOR A.Y. 2008 09. ITA NO. 3376/ DEL/2013 2 2. THE ASSESSEE HAS RAISED FOLLOWING REVISED GR OUNDS OF APPEAL :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE ORDER DT. 28.03.2013 PASSED BY THE LEARNED COMMISSI ONER OF INCOME TAX, MEERUT (CIT) U/S 263 OF THE INCOME T AX ACT, 1961 (THE ACT) IS WRONG AND BAD IN ALW IN AS M UCH AS THE ASSESSMENT ORDER DT. 05.10.2010 PASSED BY THE LEARNED ASSESSING OFFICER U/S 143(3) OF THE ACT WAS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE ORDER DT. 28.03.2013 PASSED BY THE LEARNED COMMISSI ONER OF INCOME TAX, MEERUT U/S 263 OF THE INCOME TAX ACT , 1961 IS WRONG AND BAD IN LAW IN AS MUCH AS THE LEAR NED CIT DID NOT GIVE REASONABLE OPPORTUNITY TO THE ASSE SSEE TO REPRESENT THE CASE AND COMPLETED THE PROCEEDINGS EX - PARTE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX, MEERUT HAS ERRE D IN INVOKING THE PROVISIONS OF SECTION 145(3) AND HOLDI NG THAT THE NET PROFIT BE ASSESSED AT 5% OF GROSS TURNOVER AT RS. 24542252/-. 4. WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL , ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX, MEERUT HAS ERRED IN INV OKING THE PROVISIONS OF SECTION 145(3) AND HOLDING THAT A LL OTHER ADDITIONS AND DISALLOWANCES SHALL BE OVER AND ABOVE THE NET PROFIT ASSESSED AT 5% OF GROSS TURNOVER AT RS. 24542252/- RESULTING IN DOUBLE ADDITION/TAXATION. 3. BRIEFLY STATED THE FACTS GIVING RISE TO TH IS APPEAL ARE THAT THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143( 3) OF THE ACT BY MAKING CERTAIN ADDITIONS ON ACCOUNT OF DEPRECIATION TAKEN SEPARATELY, PERSONAL USE OF CONVENIENCE AND TELEPHO NE, INTEREST TWO PARTNERS AND REMUNERATIONS TWO PARTNERS AND FINALI SE THE ITA NO. 3376/ DEL/2013 3 ASSESSMENT AT RS. 19,35,120/- AS AGAINST RE TURN INCOME OF RS. 18,65,096/-. SUBSEQUENTLY, THE CIT, MEERUT PICKED U P THE CASE AND ISSUED NOTICE U/S 263 OF THE ACT ON 15.02.2013 POIN TING OUT FOUR ISSUES FOR PROPOSED INQUIRY. THE RELEVANT PART OF N OTICE U/S 263 OF THE ACT READS AS UNDER :- I) ASSESSEE HAS TAKEN NEW UNSECURED L OAN FROM M/S KABIR OLDTEX FOR RS. 37,50,000/-. THE AO HAS OBTAINED CONFIRMATION ONLY BANK A/C OF LENDER HAS NOT BEEN O BTAINED TO EXAMINE THE CREDITWORTHINESS. II) ASSESSEE HAS PAID DESIGNING CHARGE S AT RS. 13,05,900/-. IT IS NOT ENQUIRED AS TO WHETHER TDS WAS MADE ON THESE PAYMENTS. III) FROM THE PURCHASES, THE ASSESSEE H AS REDUCED AMOUNT OF RS. 62,58,623/- ON A/C OF FIRE LOSS. A.O. HAS NOT TAKEN ANY DETAILS IN THIS REGARD NOR MADE ANY ENQUIRY. IV) DUTY DRAW BACK RS. 6 CRORES IS SET OFF TOTALLY & NEGLIGIBLE PROFIT IS SHOWN WHICH IS ACCEPTED AS SUCH WITHOUT A NY ENQUIRY. 4. THE CIT(A), MEERUT PASSED IMPUGNED ORDER BY HOLDING THAT THE ASSESSMENT ORDER DATED 5.10.2010 IS ERRONEOUS AS W ELL AS PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REASONS STATED T HEREIN. FINALLY THE CIT(A), MEERUT DIRECTED THE AO TO PROPERLY EXAMINE AFRESH THE ISSUES CONSIDERING ALL THE FOUR POINTS AS STATED THEREIN I N THE NOTICE AND ALSO DIRECTED THE AO TO EXAMINE ENTIRE AMOUNT OF SUNDRY CREDITORS OF RS. 10,81,49,561/- INCLUDING AMOUNT OF RS. 57,80,000/ - M/S KABIR OLDTEX ITA NO. 3376/ DEL/2013 4 AND ALSO DIRECTED THE AO TO ENHANCE THE NET PROFIT BY THE AMOUNT OF 2,45,42,252 BEING 5% OF TOTAL TURNOVER AFTER CONSID ERING ALL EVIDENCE AND AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. BEING AGGRIEVED BY THE ABOVE ORDER PASSED U/S 263 OF THE ACT, THE ASSESSEE IS BEFORE THIS TRIBUNAL WITH THE GROUNDS AS REPRODUCED HEREINABOVE. 5. GROUND NO. 1 & 2 OF THE ASSESSEE :- APROPOS GROUND NO. 1 & 2, THE LD. ASSESSEES REPRE SENTATIVE (AR) SUBMITTED THAT THE IMPUGNED ORDER PASSED BY THE CIT (A), MEERUT U/S 263 OF THE ACT IS WRONG AND BAD IN LAW INASMUCH AS THE ASSESSMENT ORDER DATED 5.10.2010 PASSED BY THE AO U/S 143(3) OF THE ACT WAS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF R EVENUE. THE LD. AR, FURTHER, CONTENDED THAT THE IMPUGNED ORDER IS NOT O NLY WRONG BUT ALSO BAD IN LAW AS THE CIT DID NOT GIVE REASONABLE OPPOR TUNITY TO THE ASSESSEE TO REPRESENT THE CASE AND THE CIT, MEERUT COMPLETED PROCEEDINGS EX-PARTLY VIOLATING PRINCIPLES AND NATU RAL JUSTICE AND ASSUMING INVALID JURISDICTION FOR PASSING IMPUGNED ORDER. THE LD. AR FILED COPY OF THE ASSESSMENT ORDER DATED 17.2.2014 PASSED IN PURSUANCE TO THE IMPUGNED ORDER U/S 263 / 143(3) OF THE ACT AND ITA NO. 3376/ DEL/2013 5 SUBMITTED THAT THE ASSESSING OFFICER HAS NOT MAKE A NY ADDITIONS ON ANY OF FOUR POINTS AS MENTIONED IN PARA 2 OF NOTICE U/S 263 OF THE ACT DATED 15.02.2013. THE LD. AR FURTHER, POINTED OUT T HAT THE ASSESSING OFFICER WHILE PASSING RE-ASSESSMENT ORDER U/S 263 R EAD WITH SECTION 143(3) OF THE ACT HAS MADE TWO ADDITIONS VIZ. FIRST , PERTAINING TO ADDITION MADE BY CIT(A), MEERUT IN VIDE IMPUGNED OR DER DATED 18.3.2013 PASSED U/S 263 OF THE ACT BEING 5% OF TOT AL TURNOVER AND SECOND ADDITION ON ACCOUNT OF SUNDRY CREDITORS AMO UNTING TO RS. 41,12,950/- IN REGARD TO SUNDRY CREDITORS NAMELY M /S NAGIN FABRICS AND M/S RAMESH ENTERPRISES & AND BOTH THESE ISSUES WERE NOT POINTED OUT AND DISPUTED IN THE NOTICE U/S 263 OF T HE ACT. 6. PLACING RELIANCE ON THE RECENT DECISION OF ITAT, DELHI BENCH A IN THE CASE OF B.S.SANGWAN VS. ITO (2015) 53 TAXMAN N. COM 402 (DELHI-TRIBUNAL) TO WHICH ONE OF US ( C.M.GARG, J.M ) WAS CO-AUTHOR, SUBMITTED THAT A REVISIONAL ORDER U/S 263 READ WITH SECTION 143(3) OF THE ACT CAN ONLY BE PASSED ON THE GROUND ON WHICH A SSESSEE HAS BEEN GIVEN REASONABLE OPPORTUNITY OF BEING HEARD AN D IT IS NOT OPEN TO THE COMMISSIONOR TO SET OUT ONE REASON FOR REVIS ING THE ORDER BUT ACTUALLY REVISING ORDER ON THE SOME OTHER GROUND. TO SUPPORT THESE ITA NO. 3376/ DEL/2013 6 CONTENTIONS, THE LD. AR HAS ALSO PLACED RELIANCE O N THE DECISION OF ITAT, DELHI C BENCH IN THE CASE OF GENESIS COLORS (P.) LTD. VS. CIT (2014) 42 TAXMANN.COM 552 (DELH) AND SUBMITTED THAT WHERE SHOW CAUSE NOTICE ISSUED U/S 263 OF THE ACT IS ON ONE GR OUND AND REVISIONAL ORDER IS PASSED ON AN ENTIRELY DIFFERENT GROUND, THEN THE ORDER CANNOT BE SUSTAINED IN LAW. 7. THE LD. DR SUPPORTED THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMITTED THAT WHERE THE ASSESSING OFFICER HAS NOT RAISED ANY QUIRY AND HAS NOT VERIFIED AN EXAMINE CERTAIN IMPORTANT P OINTS WHICH RESULTED INTO REVENUE LOSS TO THE DEPARTMENT THEN I N THE CASE OF NO INQUIRY THE ORDER WOULD CERTAINLY BE NOT ONLY ERRON EOUS BUT PREJUDICIAL TO THE INTEREST OF REVENUE. 8. ON CAREFUL CONSIDERATION ON ABOVE SUBMISSI ONS, WE NOTE THAT CIT(A), MEERUT POINTED OUT FOUR ISSUES IN THE NOTI CE DATED 15.2.2013 ISSUED U/S 263 OF THE ACT (AS REPRODUCED HEREINABO VE IN PARA 3 OF THIS ORDER), WHEREIN THE ISSUE OF UNSECURED LOAN FR OM M/S KABIR OLDTAX FOR RS. 37,50,000/-, PAYMENT OF DESIGNING C HARGES OF RS. 13,05,900/- IN VIEW OF TDS, AMOUNT OF 62,58,623/- O N ACCOUNT OF FIRE LOSS AND SET OFF OF RS. 6 CRORES TOWARDS DUTY DRAW BACK WAS ITA NO. 3376/ DEL/2013 7 SPECIFICALLY QUESTIONED BY CIT(A), MEERUT. FROM PAR T 6 OF THE IMPUGNED ORDER. WE NOTE THAT THE CIT ALSO ISSUED RE MINDER DATED 28.2.2013 AND PASSED EX PARTE ORDER ON 28.03.2013. FROM OPERATIVE PART OF PARA 7 OF THE IMPUGNED ORDER, WE NOTE THAT IN PARA 7 THE CIT HAS DIRECTED THE AO TO EXAMINE ENTIRE AMOUNT OF SUN DRY CREDITORS OF RS. 10, 81,49,561/- INCLUDING AN UNSECURED LOAN FRO M M/S KABIR OLDTAX; FROM PARA 10 OF THE IMPUGNED ORDER WE ALSO NOTE THAT THE CIT(A) HAS DIRECTED THE AO TO BRING THE INCOME IN T ERMS SALES THE NET PROFIT EARNED BY THE ASSESSEE HAS BEEN DETERMINED B Y THE CIT(A) HIMSELF TO THE 5% OF GROSS TURNOVER. THE ISSUE OF V ERIFICATION OF ALL SUNDRY CREDITORS OF RS. 10,81,49,561/- AND THE ISSU E OF ESTIMATION OF GROSS PROFIT @ 5% OF GROSS TURNOVER COULD NOT FOUND PLACED IN THE NOTICE ISSUED ON 15.2.2013 U/S 263 OF THE ACT. 9. WE ALSO NOTE FROM THE RE-ASSESSMENT ORDER PA SSED U/S 263 READ WITH SECTION 143(3) OF THE ACT DATED 17.2.2014 THAT THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION ON ANY OF THE FOU R ISSUES RAISED BY THE CIT(A), MEERUT IN THE NOTICE U/S 263 OF THE ACT . AT THE SAME TIME, WE NOTE THAT THE ASSESSING OFFICER HAS MADE ADDITIO N OF RS. 2,45,48,043/- IN PURSUANCE TO THE DIRECTION TO THE CIT IN THE IMPUGNED ITA NO. 3376/ DEL/2013 8 ORDER AND ANOTHER ADDITION OF RS. 41,12,950/- ON AC COUNT OF SUNDRY CREDITORS NAMELY M/S NAGIN FABRICS AND M/S RAMESH E NTERPRISES WHICH WERE ALSO NOT PART OF THE NOTICE U/S 263 OF T HE ACT. 10. TURNING TO THE RATIO OF THE DECISION OF ITAT , DELHI ABENCH IN THE CASE OF B.S.SANGWAN (SUPRA) WE NOTE THAT ON TH E SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE CONSIDERING THE DECIS ION OF CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SYNER G ENTERPRENEUR SOLUTIONS PVT. LTD. VS. DCIT(2011) 46 SOT 111 IT HA S BEEN HELD THUS :- 9. A CO-ORDINATE BENCH OF THIS TRIBUNAL, IN THE CAS E OF SYNERGYENTREPRENEUR SOLUTIONS PVT LTD VS DCIT [(2011) 13 ITR TRIBUNAL 3 77(MUM)], HAD AN OCCASION TO DEAL WITH A SOMEWHAT SIMILAR SITUATION. THAT CAS E A CASE IN WHICH IN THE SHOW CAUSE NOTICE, LEARNED COMMISSIONER HELD THAT THE LO SS BROUGHT FORWARD COULD NOT BE SET OFF AGAINST PROFITS OF THE CURRENT YEAR, BUT WH EN THE COMMISSIONER WAS TO PASS THE FINAL REVISION ORDER, HE SIMPLY HELD THAT THE MATTE R IS REQUIRED TO BE EXAMINED AFRESH IN ACCORDANCE WITH THE LAW. AS TO WHETHER SUCH A SH IFT IN THE STAND WAS PERMISSIBLE, THE COORDINATE BENCH, SPEAKING THROUGH ONE OF US AN D FOLLOWING THE ESTEEMED VIEWS OF DELHI F BENCH OF THIS TRIBUNAL IN THE CASE OF MAXPAK INVESTMENTS LTD VS ACIT [(2207) 13 SOT 67 (DEL)] ARTICULATED THROUGH LEGENDARY HONBLE VICE PRESIDEN T EASWAR (AS HE THEN WAS; LATER HONBLE JUSTICE EASWA R), HELD AS FOLLOWS: . A PLAIN READING OF THE IMPUGNED REVISION ORDER CLEARLY SHOWS THAT THECONCLUSIONS DRAWN IN THE REVISION PROCEEDINGS AR E DIFFERENT FROM THE REASONS FOR REVISION PROCEEDINGS SET OUT IN THE SHOW-CAUSE NOTICEEXTRACTS FROM WHICH ARE SET OUT IN THE REVISION ORDER ITSELF. IT IS IMPORTA NT TO NOTE THE SHIFTING STAND OF THE CIT SO FAR AS REASONS FOR SUBJECTING THE ASSESSMENT ORDER TO REVISION PROCEEDINGS. AT P. 1, IN FIFTH SENTENCE OF THE IMPUGNED REVISION ORDER, LEARNED CIT NOTES THAT THAT 'ON PERUSAL OF ASSESSMENT RECORD, IT WAS NOTICED TH AT ASSESSMENT ORDER WAS ERRONEOUS IN AS MUCH AS IT WAS PREJUDICIAL TO THE I NTEREST OF THE REVENUE AS THE DETAILS OF PURCHASE AND SALE OF SHARE TRANSACTIONS IN FUTURES WERE NOT VERIFIED AS TO WHETHER THE PROFIT OR LOSS FROM THE FUTURES TRADING AMOUNTS TO SPECULATIO N GAIN OR LOSS'. THE EXTRACTS FROM SHOW-CAUSE NOTICE, WHICH HAVE BEEN REPRODUCED IN THE IMPUGNED REVISION ORDER AT PP. 1 AND 2, DO NOT, HOWEVER, EVEN REMOTEL Y SUPPORT THAT STAND. THE STAND ITA NO. 3376/ DEL/2013 9 TAKEN IN THE SHOW-CAUSE NOTICE IS THAT, ON MERITS, SET OFF IS NOT PERMISSIBLE IN AS MUCH AS SHOW-CAUSE NOTICE STATES THAT 'AS PER THE P ROVISIONS OF S. 73 OF THE IT ACT, ANY LOSS COMPUTED IN RESPECT OF SPECULATION BUSINES S CARRIED ON BY THE ASSESSEE SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAI NS OF ANOTHER SPECULATION BUSINESS', AND, 'THEREFOREYOU (THE ASSESSEE) ARE NO T ALLOWED TO ADJUST THE SPECULATION LOSS'. THE SHOWCAUSE NOTICE, THEREFORE, CLEARLY REFERS TO DECLINING WHAT THE CIT PERCEIVES AS A SET OFF OF SPECULATION LOSS AGAINST BUSINESS PROFITS. THAT IS A CATEGORICAL ENTITLEMENT OF SET OFF. IN THE FINAL CO NCLUSIONS IN THE IMPUGNED REVISION ORDER, HOWEVER, THE CIT ONCE AGAIN DEVIATES FROM TH E STAND SO TAKEN AND CONCLUDES AS FOLLOWS: I.T.A. NO.: 2680/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 7 OF 11 'IN VIEW OF THE FOREGOING, THE ASSESSMENT ORDER DT. 27TH DEC., 2007PASSED BY THE AO IS CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THEINTERESTS OF THE REVENUE. SINCE THE AO HAS NOT TAKEN THE NECESSARY DETAILS TO VERIFY WHETHER THE PROFITS AND LOSS FROM FUTURES TRADING AMOUNTS TO SPECULATION PR OFITS OR LOSS, THE ASSESSMENT ORDER IS SET ASIDE WITH A DIRECTION TO OBTAIN COMPL ETE DETAILS AND CONDUCT NECESSARY ENQUIRIES AND EXAMINE THE SAME FOR THE AS SESSMENT YEAR UNDER CONSIDERATION. THE AO SHALL PROVIDE ADEQUATE OPPORT UNITY TO THE ASSESSEE BEFORE PASSING THE ASSESSMENT ORDER.' 5. IT IS THUS CLEAR THAT THERE HAS BEEN SHIFT IN TH E STAND OF THE CIT ON WHETHER IT WAS A FIT CASE FOR REVISION ON THE GROUND THAT THE ASSE SSEE WAS NOT ELIGIBLE FOR SET OFF OF LOSSES ON SPECULATIVE TRANSACTIONS OR WHETHER IT WA S A CASE FOR REVISION ON THE GROUND THAT THE AO DID NOT MAKE NECESSARY VERIFICAT IONS ABOUT THE TRANSACTIONS. THE REASON GIVEN IN THE SHOW-CAUSE NOTICE IS FORMER , WHILE THE REASON FOR WHICH REVISION POWERS ARE FINALLY EXERCISED IN THE IMPUGN ED ORDER ARE LATTER. AS TO WHETHER SUCH AN EXERCISE OF REVISIONAL POWERS, ON T HE GROUNDS OTHER THAN THE GROUNDS OF REVISION AS SET OUT IN THE SHOW-CAUSE NO TICE, COULD BE HELD TO BE SUSTAINABLE IN LAW, WE FIND GUIDANCE FROM THE DECIS IONS OF A CO-ORDINATE BENCH IN THE CASE OF MAXPAK INVESTMENT LTD. VS. ASSTT. CIT ( 2006) 104 TTJ (DEL) 881 : (2007) 13 SOT 67 (DEL) WHICH, INTER ALIA, OBSERVES AS FOLL OWS: '.IN CIT VS. G.K. KABRA (1995) 125 CTR (AP) 55 : (1995) 211 ITR 336 (AP) THE ANDHRA PRADESH HIGH COURT WAS DEALING WITH AN APPLI CATION SEEKING REFERENCE UNDER S. 256(2), INTER ALIA OF THE FOLLOWING QUESTI ON : WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE CIT LACKS INITIAL JURIS DICTION, PARTICULARLY WHEN THE CONCLUSION MADE BY THE CIT IN THE ORDER UNDER S. 26 3 WAS ON THE BASIS OF THE INFORMATION FURNISHED IN RESPONSE TO THE INITIAL NO TICE ? WHILE DECLINING TO REFER THE ABOVE QUESTION, THE HI GH COURT HELD AS UNDER (PP. 339- 340) : THE NECESSARY IMPLICATION IN THE EXPRESSION AFTER GIVING OPPORTUNITY OF BEING HEARD RELATES TO THE POINT ON WHICH THE CIT CONSID ERS THE ORDER TO BE ERRONEOUS AND JUDICIAL TO THE INTERESTS OF THE REVENUE. IN OT HER WORDS, IT IS NECESSARY FOR THE COMMISSIONER TO POINT OUT THE EXACT ERROR IN THE OR DER WHICH HE PROPOSES TO REVISE SO THAT THE ASSESSEE WOULD HAVE AN I.T.A. NO.: 2680/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 8 OF 11 ADEQUATE OPPORTUNITY OF MEETING THE ERROR BEFORE TH E FINAL ORDER IS MADE. (EMPHASIS, ITALICSED IN PRINT, SUPPLIED) IN THE CAS E BEFORE THE HIGH COURT, THE SHOW- CAUSE NOTICE REFERRED TO TWO ISSUES TO WHICH THE AS SESSEE HAD GIVEN SATISFACTORY ITA NO. 3376/ DEL/2013 10 REPLIES. NO ACTION WAS TAKEN UNDER S. 263 IN RESPEC T OF THESE TWO ISSUES. HOWEVER, IN THE SAID ORDER THE CIT MENTIONED THE HIRE CHARGE S AS THE GROUND FOR REVISING THE ASSESSMENT. THIS POINT HAD NOT BEEN MENTIONED AS A GROUND IN THE SHOW-CAUSE NOTICE. THE HIGH COURT HELD THAT IN AS MUCH AS THE CIT HAD NOT CHOSEN TO SHOW THESE TWO POINTS AS THE ERRORS IN MAKING THE FINAL ORDER AND THE FINAL ORDER UNDER S. 263 REFERS ONLY TO THE INFERENCE OF HIRE CHARGES BE ING EXIGIBLE TO TAX WHICH WAS NOT MENTIONED AT ALL IN THE SHOW-CAUSE, OBVIOUSLY THE A SSESSEE HAD NO OPPORTUNITY TO MEET THAT POINT.' (EMPHASIS, ITALICSED IN PRINT, SU PPLIED)10. THE RATIO OF THE DECISION, CLEAR FROM THE ABOVE OBSERVATION, IS THAT IF A GROUND OF REVISION IS NOT MENTIONED IN THE SHOW-CAUSE NOTICE ISSUED UNDER S. 263, THAT GROUND CANNOT BE MADE THE BASIS OF THE ORDER PASSED UNDER THE SECTIO N, FOR THE SIMPLE REASON THAT THE ASSESSEE WOULD HAVE HAD NO OPPORTUNITY TO MEET THE POINT. 11. IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE VIEWS SO EXPRESS BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF B.S. SANGWAN (SUPRA) ARE SQUARELY APPLICABL E TO THE PRESENT CASE. WE FURTHER PROCEED TO EXAMINE THE FACTS OF THE INSTANT CASE IN THE LIGHT OF LEGAL POSITION SET OUT BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN THE CASE B.S.SANGWAN (SUPRA) AND FIND T HAT IN THE IMPUGNED REVISION PROCEEDINGS U/S 263 OF THE ACT TH E CIT POINTED OUT 4 MISTAKES IN THE ASSESSMENT ORDER WHICH WAS SUBJEC TED TO THE REVISION PROCEEDINGS AND THE CIT CONCLUDED THAT THE SAID ASSESSMENT ORDER WAS PASSED WITHOUT MAKING PROPER, REQUISITE A ND DESIRED INQUIRIES AND HELD THAT THE SAME IS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. 12. IN OUR HUMBLE UNDERSTANDING OF STATUTORY PRO VISION OF SECTION 263 OF THE ACT, LACK OF PROPER INQUIRIES W HICH THE ASSESSING OFFICER OUGHT TO HAVE CONDUCTED ON THE FACTS OF THE CASE ALTOGETHER ITA NO. 3376/ DEL/2013 11 DIFFERENT REASON FROM INADMISSIBILITY OF THE CLAIM OF DEDUCTION OR AN INCOME WHICH TO HAVE BEEN BROUGHT TO TAX. WE ARE OF THE CONSIDERED VIEW OF THAT THE IMPUGNED REVISION ORDER IS CONTRA RY TO THE SCHEME OF LAW AS STIPULATED U/S 263 OF THE ACT BECAUSE THE CI T PROCEEDED TO ISSUE NOTICE BY POINTING OUT ANY FOUR ISSUES AS RE PRODUCES HEREINABOVE. AT THE SAME TIME WE NOTICE IN THE IM PUGNED ORDER PASSED U/S 263 OF THE ACT, THE CIT(A) DIRECTED TO T HE AO TO MAKE INQUIRY NOT ONLY ON FOUR POINTS BUT ALSO ENHANCED THE SCOPE OF INQUIRY TO ENTIRE SUNDRY CREDITORS AND ALSO FOR ESTIMATION OF NET PROFIT AT THE RATE OF 5 % OF GROSS TURNOVER OF THE ASSESSEE WHICH WERE NOT MENTIONED IN THE NOTICE U/S 263 OF THE ACT. 13. IT IS ALSO PERTINENT TO NOTE THAT WHILE PAS SING ORDER U/S 263 READ WITH SECTION 143(3) OF THE ACT ON 17.2.2004, T HE ASSESSING OFFICER HAS NOT MADE ANY ADDITION IN REGARD TO ANY OF FOUR POINTS RAISED BY THE CIT IN THE NOTICE U/S 263 OF THE ACT. PER CONTRA THE ASSESSING OFFICER MADE TWO ADDITIONS VIZ. FIRST AD DITION ON ACCOUNT OF ESTIMATION OF PROFIT AT THE RATE OF 5% OF GROSS TUR NOVER AND SECOND ON ACCOUNT OF SUNDRY CREDITORS IN REGARD TO THE M/S NA GIN FABRICS AND M/S. RAMESH ENTERPRISES WHICH WERE NOT ALSO PART OF NOTICE U/S 263 ITA NO. 3376/ DEL/2013 12 OF THE ACT AS WE HAVE ALREADY NOTED ABOVE. 14. THE LD. AR STRENUOUSLY CONTENDED THAT TH E CIT REJECTED THE BOOKS OF ACCOUNTS AT THE ASSESSEE U/S 145(3) OF THE ACT WITHOUT AFFORDING DUE OPPORTUNITY OF HEARING FOR THE ASSESS EE AND DIRECTED THE AO TO ESTIMATE NET PROFIT @ 5% OF THE TOTAL TURNOVE R WITHOUT COMPARING RESULTS OF THE ASSESSEE FOR EARLIER AND S UCCEEDING ASSESSMENT YEARS AND ALSO WITHOUT CONSIDERING ANY O THER SUITABLE AND PROPER COMPARABLE SIMILAR TO THE ASSESSEES BUS INESS TO ABOVE CONTENTIONS OF THE ASSESSEE. THE LD. DR REPLIED TH AT THE AO DID NOT VERIFY BOOKS OF ACCOUNTS OF THE ASSESSEE WHEN IT WA S CONSIDERED BY THE CIT THEN IT WAS FOUND NOT PROPERTY MAINTAINED, THEREFORE THE CIT WAS JUSTIFIED IN REJECTING BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LD. AR, ON THIS POINT, PLACED A REJOINDER AND SUBMITTED THAT THE CIT WAS WORKING WITH A PREDETERMINED AND IN A UNJUSTIFIED MANNER AS THE CIT ESTIMATED THE NET PROFIT @ 5% AT TOTAL TURNOVER AN D AT THE SAME TIME HE DIRECTED THE AO MAKE OTHER ADDITIONS ON FOUR POI NTS STATED IN THE NOTICE U/S 263 OF THE ACT WHICH IS NOT PERMISSIBLE. ITA NO. 3376/ DEL/2013 13 ON CAREFUL CONSIDERATION AT ABOVE RIVAL SUBMISSION , WE NOTE THAT THE CIT INVOKED SECTION 145(3) WITH FOLLOWING OBSERVATION AND CONCLUSION : THE REGULAR BOOKS OF ACCOUNT, AS SUCH ARE NOT PROPERLY MAINTAINED, PROVISIONS OF SECTION 145(3) OF THE I.T .ACT, 1961 ARE THUS INVOKED REJECTING THE SAME SINCE ACCOUNTS ARE NOT P ROPERLY MAINTAINED AND ARE NOT VERIFIABLE AS BRIEFLY ENUMER ATED IN FOLLOWING PARA :- FORM 3CD OF THE TAX AUDIT REPORT SHOWS ONLY CASH B OOK, LEDGER AND STOCK REGISTER MAINTAINED AND EXAMINED FROM WHICH BUSINESS RESULTS COULD NOT BE ASCERTAINE D OR VERIFIED IN THE ABSENCE OF BILLS, VOUCHERS AND O THER RELEVANT RECORDS AND DOCUMENTS TO SUPPORT THE SAME. THE STOCK DETAILS AS PER PARA 28 OF FORM 3CD ARE AL SO NOT VERIFIABLE AS RAW MATERIALS ARE GIVEN IN WEIGHT WHILE FINISHED GOODS IN NOS. AND EVEN THE SIZE OF FINISHED GOODS IS NOT GIVEN THOUGH STATED THAT THE SAME ARE OF DIFFERENT SIZES. INVENTORIES OF STOCKS HAVE ALSO NOT BEEN FURNISHED BY THE ASSESSEE. IN ORDER T O PERVIEW THE TAX AS REASONABLE AND TO BRING THE INCO ME IN TERMS OF SALES THE NET PROFIT EARNED BY THE ASSE SSEE IS HELD @ 5% OF GROSS TURN OVER COMPARING TO THE TY PE OF BUSINESS AS CARRYING OUT BY THE OTHER ASSESSES O F SAME TRADE AND DECLARING THE NP ON OR ABOVE IN THE SAME REASONABLE RATIO OF 5% TO THE GROSS TURN OVER AFTER INVOKING SECTION145(3) OF THE I.T.ACT, 1961. THE INCOME ON OTHER ISSUES ARISING OUT OF THIS ORDER SH ALL BE ADDED SEPARATELY IN ADDITION TO THE INCOME CALCULATED @ OF 5% OF GROSS TURN OVER OF THE BUSINE SS AS FOLLOWS :- TOTAL TURN OVER = RS. 49,08,45,042 /- NET PROFIT @ 5% = RS. 2,45,42,252/- ITA NO. 3376/ DEL/2013 14 ADD (OTHER INCOME, INTEREST RECEIVED_ = RS. 5791/- 15. IN VIEW OF ABOVE CONCLUSION OF THE CIT WE ARE UNABLE TO SEE WHEATHE THE CIT PROVIDED OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE WHICH IS PARAMOUNT AND MENDATORY REQUIREME NT OF THE ACT PRIOR TO INVOKE PROVISION OF SEC. 145(3). THE CIT R EJECTED BOOKS OF ACCOUNTS BY POINTING OUT THAT THE BUSINESS RESULTS COULD NOT BE ASCERTAINED OR VERIFIED IN THE ABSENCE OF BILLS, VO UCHERS AND OTHER RELEVANT RECORDS TO SUPPORT THE SAME. THE CIT ALSO NOTED THAT THE STOCK DETAILS ARE NOT VERIFIABLE AS RAW MATERIAL A RE GIVEN IN WEIGHT WHILE FINISHED GOODS IN NOS. AND SIZE OF FINISHED G OODS IS ALSO NOT GIVEN. THE DEFICIENCIES AS NOTED BY THE CIT CANNOT HELD INCLUSIVE UNTIL AND UNLESS THE ASSESSEE IS PROVIDED DUE OPPORTUNITY OF BEING HEARD TO EXPLAIN HIS STAND WHICH HAS NOT BEEN GRANTED BY THE CIT. HENCE, ON THE BASIS OF FOREGOING DISCUSSIONS WE ARE INCLIN ED TO HOLD TRUE THE CIT REJECTED BOOKS OF ACCOUNTS OF THE ASSESSEE IN A UNJUSTIFIED MANNER AND REJECTION OF BOOKS AND ESTIMATION OF NET PROFIT IN PURSUANT TO IT AND ENHANCING THE ASSESSMENT WITHOUT AFFORDIN G DUE OPPORTUNITY OF HEARING TO THE ASSESSEE IS NOT ONLY AGAINST THE SCHEME OF THE ACT BUT ALSO VIOLATIVE TO THE PRINCIPLES OF NATURAL JUS TICE AND HENCE, ITA NO. 3376/ DEL/2013 15 CONCLUSION OF CIT IS NOT SUSTAINABLE CANNOT BE HELD AS VALID IN THIS REGARD. 16. UNDER THESE CLEAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WE HOLD THAT THE ISSUE IS COVERED ON ALL FOUR CORNE RS IN FAVOUR OF ASSESSEE BY DECISION OF THE COORDINATE BENCH OF IN THE CASE OF B.S.SANGWAN (SUPRA) AND WE ARE INCLINED TO HOLD THA T THE REVISION U/S 263 OF THE ACT CAN ONLY BE PASSED ON THE GROUND ON WHICH ASSESSEE HAS BEEN GIVEN REASONABLE OPPORTUNITY OF BEING HEAR D IN THE NOTICE U/S 263 OF THE ACT AND IT IS NOT ALLOWABLE AND OPE N TO THE CIT TO SET OUT ONE REASON FOR REVISING THE ASSESSMENT ORDER BU T ACTUALLY REVISING THE ASSESSMENT ORDER ON SOME OTHER GROUND IN ADDITI ON TO GROUNDS WHICH FOUND PLACE IN THE NOTICE U/S 263 OF THE ACT, BY PASSING FINAL ORDER U/S 263 OF THE ACT. WE MAY FURTHER POINT OUT THAT THE AO DID NOT MAKE ANY ADDITION ON ANY ONE OUT OF FOUR ISSUES, WH ICH WERE RAISED AND POINTED OUT INT HE NOTICE U/S 263 OF THE ACT, I N THE ORDER FRAMED U/S 263 R.W.SECTION 143(3) OF THE ACT IN PURSUANT TO THE IMPUGNED ORDER. HENCE, IMPUGNED ORDER U/S 263 OF THE ACT IS NOT VAL ID AND SUSTAINABLE AND THEREFORE, WE QUASH THE SAME AND AL L SUBSEQUENT ITA NO. 3376/ DEL/2013 16 PROCEEDINGS AND ORDER PASSED IN PURSUANT THERETO. ACCORDINGLY, GROUND NO. 1 AND 2 OF THE ASSESSEE ARE ALLOWED. 17. SINCE BY THE EARLIER PART OF THIS ORDER WE HAVE QUASHED THE IMPUGNED ORDER PASSED U/S 263 OF THE ACT, AND A LL SUBSEQUENT PROCEEDINGS AND ORDER PASSED IN PURSUANCE THERETO, THEREFORE, GROUND NO. 3 AND 4 OF THE ASSESSEE BECOMES INFRUCTU OUS AND WE DISMISS THE SAME AS BEING INFRUCTUOUS. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED O N LEGAL GROUNDS NO. 1 & 2 AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 30 TH MARCH , 2015. SD/- SD/- (R.S.SYAL) (C.M.GARG) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED 30 TH MARCH, 2015 B.RUKHAIYAR COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI. BY ORDER ITA NO. 3376/ DEL/2013 17 AR, ITAT N. DELHI SL. NO. DESCRIPTION DATE 1. DATE OF DICTATION BY THE AUTHOR 16.03.2015 2. DRAFT PLACED BEFORE THE DICTATING MEMBER 24.03.2015 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT APPROVED BY THE SECOND MEMBER 5. DATE OF APPROVED ORDER COMES TO THE SR. PS 6. DATE OF PRONOUNCEMENT OF ORDER 7. DATE OF FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO. 3376/ DEL/2013 18