ACIT, New Delhi V. S.M. International, New Delhi

ITA 3889/DEL/2012

• Counselvise Citation: 388920114 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 26-08-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 27-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Additional evidence
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G , NEW DELHI) BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER I.T.A. NO.3889 /DEL/2012 ASSESSMENT YEAR : 2004-05 ACIT, CIRCLE 25(1), VS. S. M. INTERNATIONAL, NEW DELHI 84, FAST AVENUE ROAD, PUNJABI BAGH, NEW DELHI 110 026 GIR / PAN:AABFS0371F (APPELLANT) (RESPONDENT) APPELLANT BY : 27.08.2015 RESPONDENT BY : 18.09.2015 DATE OF HEARING : SHRI SUJIT KUMAR, SR. DR DATE OF PRONOUNCEMENT : SHRI S. D. KAPILA AND SHRI R. R. MARITA, ADV. ORDER PER KULDIP SINGH, JM: THE APPELLANT, ACIT, CIRCLE 25(1), NEW DELHI BY FI LING THE PRESENT APPEAL SOUGHT TO SET ASIDE ORDER DATED 29.05.2012 P ASSED BY CIT(A) XDIV, NEW DELHI FOR THE ASSESSMENT YEAR 2004-05 THEREBY D ELETING THE ADDITION OF RS.50,50,000/- MADE BY THE A.O. VIDE ORDER DATED 18 .12.2006 ON THE GROUNDS INTER ALIA THAT: (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE CIT(A) ERRED IN LAW, AS WELL AS IN FACTS, IN DELETING THE AD HOC DI SALLOWANCE/ADDITION OF RS 50,50,000/- MADE OUT OF VARIOUS EXPENSES. ITA NO.3889/DEL/2012 2 (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN ADMITTING THE ADDITIONAL EVIDENCES IN CONTRAVENTION OF RULE 46A OF THE I.T.RULES, 1962 BY DISREGARDING THE REMAND REPORT FURNISHED BY THE AO . (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ACCEPTING SELF SERVING DOCUMENTS NOT CORROBORATED B Y CROSS EXAMINATION OR PRODUCED BEFORE THE AO, IN CONTRAVEN TION OF RULE 46A. (IV) SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE AO TO RE EXAMINE FRESH EVIDENCES IN A HOLISTIC MANNER AND AS PER LAW. 2. BRIEFLY STATED, THE FACTS OF THIS CASE ARE THAT DURING THE PROCESSING OF INCOME TAX RETURN U/S 143(1) OF THE ACT, FILED BY T HE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05, ASSESSEE SHOWN LOSS OF RS. 1,78,85,960/-. THE CASE WAS PUT UNDER SCRUTINY AND FIRST NOTICE U/S 14 3(2) DATED 08.07.2005 WAS ISSUED AND SERVED ON THE ASSESSEE AND FURTHER NOTIC ES U/S 143(2) AND 142(1) DATED 14.08.2006 ALONG WITH DETAILED QUESTIONNAIRE WERE ALSO ISSUED TO THE ASSESSEE AND IN RESPONSE THERETO, SHRI V.K. GUPTA, CA ATTENDED AND FILED NECESSARY DETAILS AND DISCUSSED THE CASE. THE ASSE SSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING, PROCESSING, TRADING AND EXPORT OF FABRICS, READYMADE GARMENTS ETC. AND PRODUCED BOOKS OF ACCOU NT FOR VERIFICATION. EVEN ON THE LAST DATE OF HEARING I.E. ON 15.12.2006 , THE ASSESSEE HAS FAILED TO PRODUCE ENTIRE BILLS / VOUCHERS, SPECIFICALLY ASKED FOR. WHILE DISCUSSING THE EXPENSES ON ACCOUNT OF MACHINERY MAINTENANCE EXPENS ES, OTHER MAINTENANCE EXPENSES, VEHICLE MAINTENANCE EXPENSES, BUSINESS PR OMOTION EXPENSES, POSTAGE, TELEX AND TELEPHONE EXPENSES , PRINTED & S TATIONERY EXPENSES, STAFF WELFARE EXPENSES AND TRAVELLING AND TOUR EXPENSES H AVE NOT BEEN FULLY SUPPORTED BY BILLS AND VOUCHERS. THE SAME WAS NOT FULLY SUPPORTED BY BILLS ITA NO.3889/DEL/2012 3 AND VOUCHERS. CONSEQUENTLY, DISALLOWANCES ON ACCOU NT OF AFORESAID EXPENSES TO THE TUNE OF RS.50,50,000/- HAVE BEEN CO MPUTED AND MADE THE ADDITION. SEPARATE PENALTY PROCEEDINGS U/S 271(1)( C) HAVE ALSO BEEN SOUGHT TO BE INITIATED. 3. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. LD. CIT(A) HAS PRIMARILY DELETED THE A DDITION MADE BY THE A.O. TO THE TUNE OF RS.50.50 LACS BY MAKING FOLLOWING OB SERVATIONS: I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER, THE REMAND REPORT. THE SECOND REMAND REPORT, AS WELL AS THE SU BMISSIONS MADE BY THE APPELLANT, BOTH ALONG WITH SUBMISSION OF ADD ITIONAL EVIDENCES, AND ALSO VIDE THE REJOINDER TO THE REMAND REPORT. T HE ADDITIONAL EVIDENCES SUBMITTED BY THE APPELLANT ARE ALLOWED SI NCE THERE WAS SUFFICIENT CAUSE FOR NON-PRODUCTION OF THESE BILLS AND VOUCHERS BEFORE THE AO DURING ASSESSMENT PROCEEDINGS DUE TO SEALING OF THE OFFICE PREMISES OF THE APPELLANT Y THE MCD AND DUE TO SUBS EQUENT SHIFTING OF OFFICE. CERTAIN FACTS ARE APPARENT AFTER A 'DETAILE D PERUSAL OF THE RECORDS AND SUBMISSIONS OF BOTH SIDES: (A) THE ACCOUNTS OF THE APPELLANT ARE DULY AUDITE D BY A CHARTERED ACCOUNTANT AND THE AUDIT REPORT IS PLACED ON RECORD. (B) THE BOOKS OF ACCOUNTS BILLS AND VOUCHERS WERE P RODUCED BY THE APPELLANT BEFORE THE AO ON 15.12.2006, AS CLAIM ED BY THE PARTNER OF THE APPELLANT FIRM IN HIS AFFIDAVIT, WHICH HAS N OT BEEN DENIED OR REBUTTED BY THE AO. (C) NO DISCREPANCIES OR DEFECTS HAVE BEEN POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNTS, BILLS OR VOUCHERS OF T HE APPELLANT FIRM. (D) THE AO HAS NOT INVOKED THE PROVISIONS OF SECT ION 145(3) OF THE I.T. ACT TO REJECT THE BOOKS OF ACCOUNTS OF THE APPELLANT FIRM, APPARENTLY, SINCE, HE COULD NOT FIND SUFFICIENT REA SONS TO DO SO. (E) THE ADDITIONS MADE TO THE INCOME OF THE APPEL LANT BY DISALLOWANCE OF CERTAIN AMOUNTS, HAS BEEN DONE ON A D-HOC BASIS AS THE DISALLOWANCES ARE IN ROUND FIGURES. (F) THERE IS MERIT IN THE ARGUMENT OF THE APPELLANT THAT HAD THE AO DESIRED TO VERIFY THE BILLS AND VOUCHERS IN DETA IL, HE HAD SUFFICIENT TIME TO DO SO, BUT HE PASSED THE ORDER ON 18.L2.200 6, I.E. MUCH BEFORE THE TIME-BARRING DATE OF 31.12.2006. ITA NO.3889/DEL/2012 4 (EMPHASIS SUPPLIED) 4. THE FIRST QUESTION ARISES FOR DETERMINATION IS, AS TO WHETHER, LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN ADMI TTING ADDITIONAL EVIDENCE IN CONTRAVENTION OF RULE 46A OF IT RULES, 1962 BY D ISREGARDING REMAND REPORT FURNISHED BY THE A.O., THEREBY DELETING THE AD-HOC DISALLOWANCE / ADDITION OF RS.50,50,000/- ON ACCOUNT OF VARIOUS EX PENSES. 5. LD. CIT(A) HAS LAID THE ENTIRE EMPHASIS TO SUPPO RT THE IMPUGNED ORDER THAT WHEN A.O. WAS ISSUED DIRECTIONS U/S 250(4) OF THE ACT TO VERIFY THE VOUCHERS AND BOOKS OF ACCOUNT SUBMITTED BY THE APPE LLANT AND TO GIVE A SPECIFIC REMAND REPORT IN THE LIGHT OF EVIDENCES, AS TO WHETHER THE EXPENSES CLAIMED WERE JUSTIFIED, HE HAD NO CHOICE BUT TO CO MPLY WITH THE DIRECTIONS GIVEN AS THE DECISION TO ADMIT ADDITIONAL EVIDENCES HAD ALREADY BEEN MADE. HOWEVER, THIS APPROACH IS NOT SUSTAINABLE IN THE EY ES OF LAW FOR THE SOLE REASON THAT THE POWERS OF LD. CIT(A) AND A.O. TO EX AMINE THE DOCUMENTS GIVEN IN ADDITIONAL EVIDENCE ARE CO-TERMINUS. LD. CIT(A) WITHOUT EXPRESSING HIS OPINION ON THE DOCUMENTS TAKEN IN TH E ADDITIONAL EVIDENCE, DELETED THE ADDITIONS MADE BY THE A.O. 6. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES, IN ORDER TO DECIDE THE ISSUE IN CONTROVERSY, THE OPERATIVE PART OF ASSESSMENT ORDER IS REPRODUCED AS UNDER: THE ASSESSEE WAS REQUIRED TO PRODUCE THE BOOKS OF ACCOUNTS FOR VERIFICATION VIDE ORDER SHEET ENTRIES DATED 21.9.20 06, 7.10.2006,17.11.2006, 29.11.2006 & 13.12.2006. EVEN AFTER AFFORDING SO MA NY OPPORTUNITIES AS MENTIONED ABOVE, THE ASSESSEE HAS PRODUCED THE BOOK S OF ACCOUNTS ONLY ON THE LAST DATE OF HEARING I.E. ON 15.12.2006 BUT ON THIS DAY ALSO, THE ENTIRE BILLS / VOUCHERS WERE NOT PRODUCED FOR VERIFICATION . AS SPECIFICALLY POINTED OUT WHILE DISCUSSING THE CASE THAT THE E3XPENSE ON ACCOUNT OF MACHINERY MAINTENANCE EXPENSES, OTHER MAINTENANCE EXPENSES, V EHICLE MAINTENANCE ITA NO.3889/DEL/2012 5 EXPENSES, BUSINESS PROMOTION EXPENSES, POSTAGE, TEL EX AND TELEPHONE EXPENSES, PRINTING & STATIONERY EXPENSES, STAFF WEL FARE EXPENSES AND TRAVELLING AND TOUR EXPENSES HAVE NOT BEEN FULLY SU PPORTED BY BILLS AND VOUCHERS. IN RESPECT OF POSTAGE, TELEX & TELEPHONE EXPENSES OF RS.11,32,594/-/- THE ASSESSEE FURNISHED MONTH-WISE DETAILS OF TELEPHONE EXPENSES AND WAS REQUIRED TO FURNISH DETAILS OF TEL EPHONE EXPENSES TELEPHONE-WISE AND ALSO TO STATE WHERE THE TELEPHON ES HAVE BEEN INSTALLED. THE ASSESSEE FURNISHED DETAILS OF INSTALLATION OF A NUMBER OF TELEPHONES BUT DID NOT ALLOCATE THE EXPENSES INCURRED TELEPHONE- W ISE AND HAS NOT MENTIONED AS TO WHO HAD BEEN USING VARIOUS MOBILE T ELEPHONES MENTIONED IN THE DETAILS. SIMILARLY, THE FOREIGN TOURS & TRAVELL ING EXPENSES WERE REQUIRED TO BE FURNISHED PERSON-WISE, DATE WISE AND VISIT-WI SE WITH FURTHER BREAK-UP OF THE EXPENSES INTO VARIOUS SUB HEADS OF THE EXPEN SES AND TO SUPPORT THE SAME WITH SUPPORTING VOUCHERS AND TO STATE THEIR BU SINESS INCIDENCE. THE ASSESSEE, HOWEVER, DID NOT FURNISH THE REQUISITE DE TAILS. ON SALES OF RS. 81767876/- THE ASSESSEE DECLARED GROSS PROFIT OF RS .9449150/- AND AFTER CLAIMING VARIOUS EXPENSES IN THE P&L ACCOUNT, THE A SSESSEE DECLARED NET LOSS OF RS.24008506/- AS THE ASSESSEE HAS NOT PRODU CED SUPPORTING VOUCHERS IN SUPPORT OF THE EXPENSES CLAIMED, THE LOSS DECLAR ED BY THE ASSESSEE HAS REMAINED UNVERIFIED. THE FOLLOWING AMOUNTS, OUT OF THE ABOVE MENTIONED EXPENSES, WHICH WERE NOT FULLY SUPPORTED BY SUPPORT ING VOUCHERS / BILLS ARE DISALLOWED AND ARE ADDED TO THE INCOME OF THE ASSES SEE. AS THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME, IT IS LIABLE FOR PENALTY U/S 271(1)(C) OF I. T. ACT, 1961 AND THE SAME ARE SEPAR ATELY INITIATED: I) DISALLOWED OUT OF MACHINERY MAINTENANCE EXPENSE S. 300,000/- III) DISALLOWED OUT OF VEHICLE MAINTENANCE EXPENSE S. 100,000/- IV: DISALLOWED OUT OF BUSINESS PROMOTION EXPENSES. 100,000/- V) DISALLOWED OUT OF POSTAGE, TELEX & TELEPHONE EX PO 300,000/- VI) DISALLOWED OUT OF PRINTING & STATIONERY EXPENS ES. 100/000/- VII) DISALLOWED OUT OF STAFF WELFARE EXPENSES. 500, 000/- VIII) DISALLOWED OUT OF TRAVELLING & TOUR EXPO 35,00,000/- TOTAL.. 50,50,000/- WITH THE ABOVE REMARKS, TOTAL INCOME OF THE ASSESSE E IS COMPUTED AS UNDER:- ITA NO.3889/DEL/2012 6 BUSINESS LOSS AS SHOWN IN THE COMPUTATION. 178, 85,960/- LESS: ADDITION AS DISCUSSED ABOVE. 50,50,000/- NET LOSS.. 128,35,960/- 7. NO DOUBT, LD. CIT(A) WAS HAVING POWERS UNDER RUL E 46A TO ENTERTAIN ADDITIONAL EVIDENCE, IF ANY, ADDUCED BY THE ASSESSE E AND TO CALL REMAND REPORT FROM THE A.O. U/S 250(4) OF THE ACT. BUT, A T THE SAME TIME, IT IS SETTLED PRINCIPLE OF LAW THAT THE POWERS OF A.O. AS WELL AS CIT(A) TO EXAMINE THE DOCUMENTS ENTERTAINED IN THE ADDITIONAL EVIDENCE, ARE CO- TERMINUS. UNDISPUTEDLY, LD. CIT(A) AFTER RECEIVING REMAND REPORT HAS NOT SCRUTINIZED AND GIVEN HIS FINDINGS ON THE ADMISSIBI LITY OF THE DOCUMENTS ENTERTAINED IN ADDITIONAL EVIDENCE RATHER PROCEEDED FORTHWITH IN DELETING THE ADDITION IN CRYPTIC MANNER MADE BY THE A.O. 8. HOWEVER, KEEPING IN VIEW THE FACTS AND CIRCUMSTA NCES OF THE CASE WHEREIN THE ASSESSEE HAS CLAIMED EXPENSES UNDER DIF FERENT SPECIFIC HEADS, RULE OF NATURAL JUSTICE AND THE FACT THAT ITAT, NEW DELHI BENCH G IN I.T.A. NO. 1575/DEL/2007 FOR THE ASSESSMENT YEAR 2003-04 H AS RESTRICTED THE DISALLOWANCES MADE BY THE A.O. IN CASE OF PRESENT A SSESSEE, TO THE TUNE OF RS.50,000/- ON ACCOUNT OF STAFF WELFARE EXPENSES, R S.25,000/- ON ACCOUNT OF BUSINESS PROMOTION. IN OUR OPINION THE DISALLOWANC ES MADE BY THE A.O. TO THE TUNE OF RS.50,50,000/- HAS BEEN DELETED BY LD. CIT(A) VIDE IMPUGNED ORDER WITHOUT CONSIDERING THE PAST HISTORY AND NO R EASON HAS BEEN ASSIGNED FOR THE SAME. THEREFORE, THE IMPUGNED ORDER IS SET ASIDE ON THIS ISSUE AND THE DISALLOWANCES ARE REDUCED TO RS.10,00,000/- I.E . RS.5,00,000/- ON ACCOUNT OF TRAVELLING AND TOUR EXPENSES, RS.3,00,00 0/- ON MACHINERY EXPENSES, RS.50,000/- ON ACCOUNT OF STAFF WELFARE E XPENSES AND ITA NO.3889/DEL/2012 7 RS.1,50,000/- ON BUSINESS PROMOTION EXPENSES AND CO NSEQUENTLY, THE APPEAL IS PARTLY ALLOWED. 9. IN THE RESULT, APPEAL FILED BY REVENUE IS PARTLY ALLOWED AS MENTIONED ABOVE. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEP., 2015. SD./- SD./- ( N. K. SAINI) (KULDIP SIN GH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 18.09. 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 28/8 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 31/8, 2,7,15/9 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 17/9/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 17/9 SR. PS/PS 7 FILE SENT TO BENCH CLERK 17/9 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER