IRIS MERCANTILE, MUMBAI V. DCIT CEN CIR 2, MUMBAI

ITA 4926/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1685 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 29-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Keywords: Principle of natural justice
• Section: 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI M ANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 4926 / MUM/2016 ( ASSESSMENT YEAR : 20 10 11 ) IRIS MERCANTILE (EARLIER KNOWN AS M.S. TOUCHSTONE) 12, PRASAD CHAMBER, OPERA HOUSE CHARNI ROAD, MUMBAI 400 004 PAN AAAFT2913K . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2, MUMBAI . RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI RAJEEV GUBGOTRA DATE OF HEARING 09.08.2018 DATE OF ORDER 31.08.2 018 O R D E R PER SAKTIJIT DEY, J.M. A FORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING ORDER DATED 1 1 TH JULY 2014 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 36, MUMBAI, FOR THE ASSESSMENT YEAR 2010 11. 2 . WHEN THE APPEAL WAS CALLED FOR HEARING, NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE. ON A PERUSAL OF THE ORDER SHEET ENTRIES, IT IS NOTICED THAT ON THE EARLIER OCCASIONS WHEN THE APPEAL WAS FIXED FOR 2 IRIS MERCANTILE HEARING, NO ONE APPEARED ON BEHALF OF THE ASSESSEE. THEREFORE, THE BENCH WAS COMPELLED TO ADJOURN THE HEARING TO FUTURE DATES. IT IS ALSO NOTICED THAT NOTICE OF HEARING ISSUED TO THE ASSESSEE PER REGISTERED POST ON 17 TH MAY 20 18, WAS RETURNED BACK UNSERVED BY THE POSTAL AUTHORITIES. IT IS ALSO NOTICED THAT , THOUGH , THE APPEAL WAS FILED IN JULY 2016, TILL DATE THE ASSESSEE HAS NOT INQUIRED ABOUT THE FATE OF THE APPEAL AND HAS REPEATEDLY REMAINED ABSENT ON THE DATE S FIXED FOR HEA RING. THESE FACTS REVEAL THAT THE ASSESSEE IS NEITHER DILIGENT NOR INTERESTED IN PURSUING THE PRESENT APPEAL. IN VIEW OF THE AFORESAID, WE ARE INCLINED TO PROCEED WITH THE HEARING OF THE APPEAL EX PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED DEPARTMENT AL REPRESENTATIVE. 3 . AS COULD BE SEEN, THE ASSESSEE HAS RAISED THREE EFFECTIVE GROUNDS. GROUND NO.1 IS ON VIOLATION OF RULES OF NATURAL JUSTICE BY THE LEARNED COMMISSIONER (APPEALS) AND GROUNDS NO.2 AND 3 ARE ON THE MERITS OF THE DISALLOWANCE MADE BY THE AS SESSING OFFICER AND SUSTAINED BY THE LEARNED COMMISSIONER (APPEALS). 4 . BRIEF FACTS ARE, THE ASSESSEE A PARTNERSHIP FIRM IS STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN DIAMOND. FOR THIS PURPOSE, IT HAS SET UP A UNIT IN SPECIAL ECONOMIC ZONE (SEZ) , SURAT. FOR THE ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF INCOME ON 28 TH SEPTEMBER 2008, DECLARING LOSS OF ` 2,03,556, AFTER 3 IRIS MERCANTILE CLAIMING DEDUCTION UNDER SECTION 10AA OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). DURI NG THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE EXAMINING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10AA OF THE ACT FOUND THAT THE ASSESSEE IS ENGAGED ONLY IN TRADING ACTIVITY AND WAS NOT DOING ANY MANUFACTURING. FURTHER, ON PERUSING THE BALAN CE SHEET OF THE ASSESSEE HE FOUND THAT EXCEPT A FAN / FURNITURE AND A SAFE, THE UNIT WAS HAVING NO OTHER ASSET. THUS, THE ASSESSING OFFICER BEING OF THE OPINION THAT THE ASSESSEE IS NOT INVOLVED IN MANUFACTURING ACTIVITY CALLED UPON THE ASSESSEE TO EXPLAIN WHY DEDUCTION CLAIMED UNDER SECTION 10AA OF THE ACT SHOULD NOT BE DISALLOWED. A FTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEES CONTENTION THAT ITS ACTIVITIES WILL COME WITHIN THE DEFINITION O F SERVICES IN SECTION 2(Z) OF THE SPECIAL ECONOMIC ZONES ACT, 2005 IS N OT ACCEPTABLE , SINCE , WHILE INSERTING SECTION 10AA OF THE ACT IN THE SPECIAL ECONOMIC ZONES ACT, 2005 , DEFINITION OF CERTAIN TERMS AS PER THE S PECIAL ECONOMIC ZONES ACT, 2005 , INCLUDING THE TERM MANUFACTURE WAS INCORPORATED IN SECTION 10AA OF THE ACT. HOWEVER, THE DEFINITION OF THE TERM SERVICE AS PER SECTION 2(Z) WAS NOT INCLUDED IN SECTION 10AA OF THE ACT. THE ASSESSING OFFICER OBSERVED , SINCE THE TERM SERVICES HAS NOT BEEN DEFINED IN THE ACT , THE DEFINITION OF SERVICE AS PROVIDED IN SECTIO N 2(Z) OF THE SPECIAL ECONOMIC ZONES ACT, 2005 , CANNOT BE IMPORTED. AFTER 4 IRIS MERCANTILE FURTHER DELIBERATION ON THE ISSUE, THE ASSESSING OFFICER ULTIMATELY CONCLUDED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10AA OF THE ACT AS IT IS NOT INVOLVED IN ANY MANUFACTURING ACTIVITY. THUS, HE DISALLOWED ASSESSEES CLAIM OF D EDUCTION UNDER SECTION 10AA OF THE ACT. FURTHER, THE ASSESSING OFFICER ON VERIFICATION OF THE PROFIT & LOSS ACCOUNT FOUND THAT THE ASSESSEE HAS DEBITED ` 28,77,415, TOWARDS PAYMENT OF BANK INTEREST. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO VARIOUS PARTIES . A LLEGING THAT THE ASSESSEE FAILED TO FURNISH DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM THAT INTEREST BEAR ING FUND WAS UTILISED FOR BUSINESS PURPOSE AND INTEREST FREE ADVANCES WERE MADE OUT OF SURPLUS FUND, THE ASSESSING OFFICER DISALLOWED THE INTEREST EXPENDITURE OF ` 28,77,415. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5 . SINCE , THE ASSESSEE DID NOT APPEAR BEFORE THE LEARNED COMMISSIONER (APPEALS) TO REPRESENT ITS CASE, SHE DISMISSED THE APPEAL OF THE ASSESSEE FOR NON PROSECUTION WITHOUT DECIDING THE ISSUES ON MERIT. 6 . THE LEARNED DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NEITHER APPEARED BEFORE THE LEARNED COMMISSIONER (APPEALS) NOR BEFORE THE TRIBUNAL TO CONTROVERT THE FINDINGS OF THE 5 IRIS MERCANTILE ASSESSING OFFICER. THUS, HE SUBMITTED , THE ASSESSMENT ORDER PASSED BEING A WELL REAS ONED ORDER, THE DISALLOWANCE S MADE SHOULD BE UPHELD. 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIAL ON RECORD. THE FIRST GROUND RAISED BY THE ASSESSEE IS ON THE ISSUE OF VIOLATION OF RULES OF NATURAL JUSTICE BY THE LEARNED COMMISSIONER (APPEALS) IN DECIDING THE APPEAL EX PARTE. ON A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER (APPEALS), IT IS NOTICED THAT IN SPITE OF ISSUANCE OF NOTICE OF HEARING, THE ASSESSEE NEITHER APPEARED N OR FILED ANY WRITTEN SUBMISSION , THEREFORE, THE LEARNED COMMISSIONER (APPEALS) DISPOSED OFF THE APPEAL EX PARTE. EVEN BEFORE US ALSO, THE ASSESSEE HAS N EVER BOTHERED TO APPEAR ON SEVERAL OCCASIONS WHEN THIS APPEAL WAS FIXED FOR HEARING. THIS IS EVIDENT FROM THE ORD ER SHEET ENTRIES. EVEN HEARING NOTICES ISSUED BY THE REGISTRY BY REGISTERED POST IN THE ADDRESS GIVEN BY THE ASSESSEE ITSELF HAS RETURNED BACK UN SERVED . T HESE FACTS CLEARLY EMPHASIZE THE CALL OUS AND NEGLIGENT ATTITUDE OF THE ASSESSEE WITH REGARD TO THE AP PEAL FILED IT EITHER BEFORE THE LEARNED COMMISSIONER (APPEALS) OR BEFORE US. THAT BEING THE CASE, WE DO NOT FIND ANY ILLEGALITY IN THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN DISPOSING OFF THE APPEAL EX PARTE. THIS GROUND IS DISMISSED. 6 IRIS MERCANTILE 8 . AS REGARD S THE ISSUES RELATING TO DISALLOWANCE MADE BY THE ASSESSING OFFICER, WE MUST OBSERVE AT THE OUTSET THAT THE COMMISSIONER (APPEALS) HAS NOT DECIDED THE ISSUES ON MERIT. THEREFORE, ORDINARILY WE SHOULD HAVE RESTORED THE MATTER BACK TO HER FOR DECIDING ON MER ITS. HOWEVER, CONSIDERING THE NON COOPERATIVE ATTITUDE OF THE ASSESSEE, WE ARE OF THE VIEW THAT NO FRUITFUL PURPOSE WOULD BE SERVED IN REMITTING THE MATTER BACK TO COMMISSIONER (APPEALS). THEREFORE WE PROCEED TO DECIDE THE ISSUES ON MERIT. THE FIRST ISSUE RELATES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 10AA OF THE ACT. IT IS EVIDENT, THE ASSESSING OFFICER IN COURSE OF ASSESSMENT PROCEEDINGS ON VERIFICATION OF MATERIAL ON RECORD HAS FOUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY; T HEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY DEDUCTION CLAIMED UNDER SECTION 10AA OF THE ACT SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE HAS JUSTIFIED THE CLAIM OF DEDUCTION UNDER SECTION 10AA OF THE ACT BY STATING THAT THE ACTIVITIES CARRI ED ON BY IT IS IN THE NATURE OF SERVICES AS DEFINED UNDER SECTION 2(Z) OF THE SPECIAL ECONOMIC ZONES ACT, 2005 . HOWEVER , THE ASSESSING OFFICER HAS REJECTED THE AFORESAID CLAIM OF THE ASSESSEE WITH ELABORATE REASONING. SIMILARLY, WITH REGARD TO DISALLOWANCE OF INTEREST EXPENDITURE , I T IS EVIDENT, AS PER THE ASSESSMENT ORDER THE ASSESSEE HAS NOT SUBSTANTIATED ITS CLAIM THAT INTEREST BEARING FUND WAS UTILISED FOR BU SINESS PURPOSE AND INTEREST 7 IRIS MERCANTILE FREE ADVANCES WERE MADE OUT OF SURPLUS FUND AVAILABLE. THE FACTUAL POSITION REMAINS THE SAME BEFORE US AS WELL . SINCE , THE ASSESSEE HAS FAILED TO CONTROVERT THE FINDING S OF THE ASSESSING OFFICER WITH REGARD TO THE DISALLOWANCES MADE EITHER THROUGH PROPER DOCUMENTARY EVIDENCES OR SUBSTANTIVE ARGUMENT, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER DESERVES TO BE UPHELD. ACCORDINGLY, GROUNDS RAISED ARE DISMISSED. 9 . IN THE RESULT, ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2018 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 31.08.2018 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI