Shri Durjansingh Mansingh Rathod, V. The Income tax Officer, Vapi Ward-3, Vapi

ITA 4161/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8816 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 30-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Keywords: Depreciation; Set aside
• Section: 142(1); 143(1); 143(2); 68; 12; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A, AHMEDABAD BEFORE SHRI T.K. SHARMA,JM & SHRI A.N. PAHUJA, AM ITA NO.4161/AHD/2008 ASSESSMENT YEAR 2005-06 SHRI DURJANSINGH MANSINGH RATHOD VS ITO, WARD-3 PROP KOYAL CONSTRUCTIONS VAPI KOYAL HOUSE, KARBHARIPAD KHADOLI, SILVASSA [PAN : ABVPR4748Q] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH M UPADHYAY, AR REVENUE BY : SHRI RAJEEV AGARWAL, DR O R D E R A.N. PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 22-10-2008 OF THE LD. CIT(A), VALSAD, RAISES GROUNDS RELATING TO AN ASSESSMENT COMPLETED U/S 144 OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] FOR THE AY 2005-06. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.7,79,132/- FILED ON 31-10-2005 BY THE ASSESSEE CONTRACTOR,AFTER BEING PROCESSED ON 28-02-2006 U/S 143(1) OF THE ACT , WA S SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 3.5.20 06. NONE RESPONDED TO THE SAID NOTICE NOR EVEN TO SUBSEQUENT TWO NOTICES DATED 31. 10.2007 & 10.12.2007 ISSUED U/S 142(1) OF THE ACT. SINCE THE ASSESSEE D ID NOT COMPLY WITH THE AFORESAID STATUTORY NOTICES , THE ASSESSING OFFICER [AO IN SHORT] COMPLETED THE BEST JUDGEMENT ASSESSMENT U/S 144 OF THE ACT, DETER MINING TOTAL INCOME OF RS. 1,23,30,909/- AS AGAINST RETURNED INCOME OF RS.7,7 9,132/-. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH E ASSESSEE WAS RUNNING TWO CONCERNS, VIZ. M/S. DURJANSINGH MANSINGH RATHOD AND M/S KOYAL CONSTRUCTIONS. SINCE THE ASSESSEE DID NOT COMPLY WITH THE RELEVAN T NOTICES ISSUED U/S 142(1) OF THE ACT, THE AO TREATED THE GROSS PROFIT AS NET P ROFIT AND DID NOT ALLOW ANY EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT, RELYING, INTER ALIA, ON THE ITA NO.4161/AHD/2008 2 DECISION IN THE CASE OF OF RAJASTHAN STATE WAREHOU SING CORPN. V CIT (2000) 242 ITR 450 (SC). BESIDES ADDING AN AMOUNT OF RS .26,60,239/- ON ACCOUNT OF SECURED LOANS U/S 68 OF THE ACT AND AN AMOUNT OF RS . 7,08,218 ON ACCOUNT OF OUTSTANDING LIABILITIES OF RS.197158/- AND RS.5110 60/- IN THE CASE OF M/S KOYAL CONSTRUCTIONS. 3. ON APPEAL, THE LD.CIT(A) AFTER PERUSING DETAILS FILED BY THE ASSESSEE ALLOWED DEDUCTION IN RESPECT OF FOLLOWING EXPENSES IN TERMS OF HIS FINDINGS IN PARA 8.3 OF THE ORDER: (IN RS.) I) AUDIT FEES (DMR) 3,500/- II) AUDIT FEES (KC) 5,000/- III) DEPRECIATION (DMR) 13,75,609/- IV) VEHICLE EXPENSES (DMR) 1,31,407/- V) SALARY, WAGES AND LABOUR CHARGES 18,88,522/- 22,40,938/- HOWEVER, THE LD. CIT(A) DID NOT ADJUD ICATE THE GROUND RELATING TO COMPLETION OF ASSESSMENT U/S 144 OF THE ACT AND ADO PTION OF GROSS PROFIT AS NET PROFIT. BESIDES, OUT OF ADDITION OF RS.26,60,239/- U/S 68 OF THE ACT, THE LD. CIT(A) SUSTAINED THE ADDITION OF RS.14,05,651/- AND AN AM OUNT OF RS. 7,08,218/- ON ACCOUNT OF OUTSTANDING LIABILITIES, WITHOUT EVEN A NALYZING THE NATURE OF THESE AMOUNTS IN THE LIGHT OF RELEVANT PROVISIONS INVOKED BY THE AO. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A) ON THE FOLLOWING GROUNDS: 1. LR.A.O. HAS ERRED IN LAW AND ON FACTS TO PASS OR DER U/S 144 OF I.T. ACT 1961. LR.CIT(APPLS) HAS NOT CONSIDERED AND DECIDED THIS ISSUE. 2. LR.A.O. HAS ERRED IN LAW AND ON FACTS TO ADOPT G .P. OF RS.89,62,452/- OF TWO SETS OF BUSINESS AS NET PROFI T OF THE BUSINESS. LR.CIT(APPLS) HAS NOT DECIDED THIS GROUN D OF APPEAL. ITA NO.4161/AHD/2008 3 3. LRA.O. HAS ERRED IN LAW AND ON FACTS TO ADD AN A MOUNT OF RS.26,60,239/- U/S 68 OF I.T. ACT, 1961. LR.CIT(AP PLS) HAS SUSTAINED ADDITION OF RS.11,11,385/- (26,60,239 15,48,854/-) IGNORING EVIDENCES PRODUCED BEFORE HIM . 4 LR.A.O. HAS ERRED IN LAW AND ON FACTS TO AN AMOUN T OF RS.7,08,218/- U/S 41(1). LR.CIT(APPLS) HAS ALSO ER RED IN CONFIRMING ADDITION WITHOUT GIVING DUE WEIGHTAGE TO THE EVIDENCES PRODUCED BEFORE HIM. 5. LR. CIT(APPLS) WHEN CALLED FORTH REMAND REPORT FROM I.T.O. AND WHEN I.T.O. HAS SUBMITTED HIS REPORT, LR.CIT(AP PLS) IS PRESUMED TO HAVE ALLOWED APPELLANT TO PRODUCE EVIDE NCES AND WRITTEN SUBMISSION. LR.CIT(APPLS) IS THEREFORE NOT JUSTIFIED TO CONFIRM ADDITIONS MADE SUBSTANTIALLY BY I.T.O. 5. THE LD. AR APPEARING BEFORE US WHILE RELYING UPON THE DECISION DATED 10.4.2003 IN THE CASE OF CIT VS. AGRO ENGINEERS (R AJ)IN ITA NO.5 OF 1999 SUBMITTED THAT THE AO DID NOT ISSUE ANY SHOWCAUSE NOTICE BEFORE MAKING THE AFORESAID ADDITIONS IN TERMS OF FIRST PROVISO TO SE CTION 144 OF THE ACT. HE ADDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN IGNORING T HE EVIDENCE PLACED BEFORE HIM AND WITHOUT EVEN ANALYZING THE NATURE OF AMOUNTS AN D LIABILITIES, HE UPHELD THE ADDITIONS MADE BY THE AO U/S 68 AND 41(1) OF THE AC T. ON THE OTHER HAND, THE LD. DR PLEADED THAT 1ST PROVISO TO SEC. 144 OF THE ACT WAS NOT APPLICABLE TO THE FACTS OF THE CASE, NOTICE U/S 142(1) OF THE ACT HAVING BE EN ISSUED IN THIS CASE.THERFORE, RELIANCE ON THE SAID DECISION WAS MISPLACED, HE ADD ED. HOWEVER, THE LD. DR DID NOT MAKE ANY SUBMISSIONS ON THE GROUNDS NOT ADJUDI CATED BY THE LD. CIT(A) NOR EXPLAINED THE NATURE OF AMOUNTS ADDED U/S 68 AND 4 1(1) OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE ASSESSEE DID NOT COMPLY WITH VARI OUS NOTICES ISSUED BY THE AO WHILE THE LD. CIT(A) DID NOT ADJUDICATE THE GROUNDS RELATING TO COMPLETION OF ASSESSMENT U/S 144 OF THE ACT WITHOUT GIVING FAIR AND REASONABLE OPPORTUNITY ON THE PREMISE THAT APPEAL WAS BEING DECIDED ON MERITS . THERE IS NO FINDING IN THE IMPUGNED ORDER IN RESPECT OF GROUND RELATING TO ADO PTION OF THE GROSS PROFIT AS NET ITA NO.4161/AHD/2008 4 PROFIT. WE FIND THAT THE LD. CIT(A) UPHELD THE A DDITIONS MADE U/S 68 OF THE ACT IN RESPECT OF SECURED LOANS AND OUTSTANDING LIABILITIE S FOR EXPENSES, WITHOUT EVEN ANALYZING THE NATURE OF LIABILITIES AND APPLICABILI TY OF THE RELEVANT PROVISIONS. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER . THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION 250(6) OF THE ACT MANDATES THAT THE ORDER OF THE C IT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POIN TS FOR DETERMINATION, THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APP ARENT FROM THE IMPUGNED ORDER, IN OUR OPINION, THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATU RAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS RE ASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHOR ITY TO THE ISSUES/POINTS RAISED BEFORE IT. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JU DICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RUL E OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MA Y REITERATE THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS . STATE OF PUNJAB,(1995)1SCC 760(SC)]. EVEN OTHERWISE THE LD. CIT(A) DID NOT REC ORD ANY FINDINGS ON THE GROUND RAISED BY THE ASSESSEE THAT HE WAS NO PROVID ED FAIR AND REASONABLE OPPORTUNITY. MOREOVER, THERE IS NO MATERIAL ON RECO RD NOR THE LD. DR EXPLAINED THE BASIS FOR ADOPTION OF GROSS PROFIT AS NET PROFI T NOR EVEN THE APPLICABILITY OF PROVISIONS OF SEC. 68 AND 41(1) OF THE ACT HAS BEEN EXAMINED BY THE LD. CIT(A). ON A PLAIN READING OF THE PROVISIONS OF SEC. 144 OF THE ACT, IT CANNOT BE DISPUTED THAT ON FAILURE TO COMPLY WITH NOTICES UNDER SECTI ON 143(2) AND 142(1) OF THE ACT, THE ASSESSING OFFICER WAS BOUND TO MAKE AN ASSESSME NT OF THE TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT .THE ASSESSING OFF ICER DOES NOT HAVE ANY OPTION NOT TO MAKE A BEST JUDGMENT ASSESSMENT. THE LANGUAG E EMPLOYED BY THE ITA NO.4161/AHD/2008 5 PROVISION IS MANDATORY IN TERMS AND, THEREFORE, THE ASSESSING OFFICER HAS TO FRAME A BEST JUDGMENT ASSESSMENT AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH HE MAY HAVE GATHERED. THE LIMITS OF THE POWER VESTED U/S 144 OF THE ACT ARE IMPLICIT IN THE EXPRESSION 'BEST OF HIS JUDGMEN T'. JUDGMENT IS A FACULTY TO DECIDE MATTERS WITH WISDOM TRULY AND LEGALLY. JUDGM ENT DOES NOT DEPEND UPON THE ARBITRARY CAPRICE OF A JUDGE, BUT ON SETTLED AN D INVARIABLE PRINCIPLES OF JUSTICE. THOUGH THERE IS AN ELEMENT OF GUESS-WORK IN A 'BEST JUDGMENT ASSESSMENT', IT SHALL NOT BE A WILD ONE, BUT SHALL HAVE A REASONABL E NEXUS TO THE AVAILABLE MATERIAL AND THE CIRCUMSTANCES OF EACH CASE. THOUGH SUBSECTION (2) OF SECTION 12 OF THE 1922 ACT[NOW SEC. 144 OF THE ACT] PROVIDE S FOR A SUMMARY METHOD BECAUSE OF THE DEFAULT OF THE ASSESSEE, IT DOES NOT ENABLE THE ASSESSING AUTHORITY TO FUNCTION CAPRICIOUSLY WITHOUT REGARD F OR THE AVAILABLE MATERIAL.[STATE OF KERALA VS. C VELUKUTTY,60 ITR 239(SC)]. IN THIS CONTEXT, THE PRIVY COUNCIL IN COMMISSIONER OF INCOME-TAX V. LAXMINARAYAN BADRIDAS , 5 ITR 170(PC) OBSERVED ' HE (THE ASSESSING AUTHORITY) MUST NOT ACT DISHONESTLY, OR VINDICTIVELY OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE JUDGMENT IN T HE MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVES TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT, AND FOR THIS PURPOSE HE MUST, THEIR LOR DSHIPS THINK, BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE AND REPUTE IN RE GARD TO THE ASSESSEE'S CIRCUMSTANCES, AND HIS OWN KNOWLEDGE OF PREVIOUS RE TURNS BY AND ASSESSMENTS OF THE ASSESSEE, AND ALL OTHER MATTERS WHICH HE THI NKS WILL ASSIST HIM IN ARRIVING AT A FAIR AND PROPER ESTIMATE; AND THOUGH THERE MUST N ECESSARILY BE GUESS-WORK IN THE MATTER, IT MUST BE HONEST GUESS-WORK. IN THAT S ENSE, TOO, THE ASSESSMENT MUST BE TO SOME EXTENT ARBITRARY. ' 7. IN VIEW OF THE FOREGOING, IT IS WELL-SETTL ED THAT IN A BEST JUDGMENT ASSESSMENT THERE IS ALWAYS A CERTAIN DEGREE OF GUES S WORK. BUT STILL , THE AO SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF T HE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT, AND SHOULD NOT ACT TOTALLY ARB ITRARILY. NOW ADVERTING TO THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT THERE APPEARS TO BE NO SUCH MATERIAL FORMING THE BASIS FOR ADOPTING GROSS PROFI T AS NET PROFIT AND UPHOLDING THE ADDITIONS OF SECURED LOANS AND OUTSTANDING LIA BILITIES U/S 68 OR 41(1) OF THE ACT BY THE LD. CIT(A). IN THESE CIRCUMSTANCES AND I N THE INTEREST OF JUSTICE, ESPECIALLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPE AKING ORDER ,WE CONSIDER IT ITA NO.4161/AHD/2008 6 FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUES RAISED IN VARI OUS GROUNDS OF APPEAL AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID O BSERVATIONS, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLES S TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PASS A SPEAKIN G ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF T HE ACT AND RECORD HAS SPECIFIC FINDINGS ON THE APPLICABILITY OF PROVISIONS OF SEC. 68 AND 41(1) OF THE ACT AFTER ANALYZING THE FACTS IN DETAIL AS ALSO THE BASIS FO R ADOPTING GROSS PROFIT AS NET PROFIT WITH THESE DIRECTIONS, GROUND NOS. 1 TO 5 I N THIS APPEAL ARE DISPOSED OF. 6. IN THE RESULT, APPEAL IS ALLOWED, BUT FOR STA TISTICAL PURPOSES ORDER PRONOUNCED IN OPEN COURT ON 2ND MARCH, 2010. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (A.N.PAHUJA) ACCOUNTANT MEMBER PLACE : AHMEDABAD DATED : 2 -03-2010 PK/- COPY TO: 1. THE ASSESSEE 2. ITO WARD-3, VAPI 3. CIT(A), VALSAD 4. CIT, VALSAD BY ORDER 5. DR, A BENCH DEPUTY REGISTRAR, ITAT, AHMEDABAD