M/S SPACEWOOD FURNISHERS PVT. LTD., Nagpur V. D.C.I.T. CENTRALCIRCLE 1(3), Nagpur

ITA 5/NAG/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3545 (ITAT-NAGPUR)
• Duration Of Justice: 5 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 01-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PIYUSH KOLHE
• Keywords: Unexplained expenditure; Period of limitation; Set aside
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM ITA No. 5/NAG/2017 Assessment Year : 2009-10 M/s. Spacewood Furnishers Pvt. Ltd. T-48, MIDC, Hinga, Nagpur Vs. The DCIT Central Circle 1(3) Nagpur PAN No.: AACCS 4955 R Appellant Respondent Assessee by: Shri Rachit Thakar (Adv.) Shri S.C. Thakar (Adv.) Revenue by : Shri Piyush Kolhe (CIT-DR) Date of Hearing: 25/04/2022 Date of Pronouncement: 28/04/2022 ORDER PER: SANDEEP GOSAIN, J.M. This is Assessee‟s Appeal for A.Y.2009-2010 against the consolidated order of learned CIT(A)-3, Nagpur for A.Y.2004-05 to A.Y.2010-11 dt.27.10.2016 in which the Assessee has taken the following grounds:- “1] Learned C.I.T.(A) erred in holding that issue of notice U/s.143(2) within the prescribed time is not mandatory in search assessment U/s.153-A and consequently the impugned assessment was valid. Said finding of learned C.I.T.(A) is contrary to various caselaws. He should have held that notice U/s.143(2) was necessary and mandatory and in absence of such mandatory notice the 2 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur assessment order was invalid and accordingly should have quashed the assessment order. 2] Learned C.I.T(A) erred in confirming the addition of Rs.12,00,000/- as alleged payment to alleged manager of alleged branch at Delhi and Chennai. Learned C.I.T.(A) erred in not properly appreciating the seized paper which referred to noting that if project-outside is undertaken at Delhi or Chennai about Rs.6,00,000/- would be required to be paid to product manager. It did refer to any payment. Paper read as “Project – outside” which A.O. and C.I.T.(A) wrongly read as “Payment – outside”. There was admittedly no branch at Chennai or Delhi nor any manager. Hence addition of Rs.12,00,000/- as unexplained expenditure is unjustified and needs to be deleted. 3] Assessee craves leave to urge additional grounds, if necessary.” The Appellant-Assessee filed detailed written submission with annexures on 20.04.2022 and copy whereof was also served on the D.R. on 20.04.2022. The same is placed on record. The Appellant and Respondent have been heard through their Representatives. 2. Brief facts are that the Assessee is having an Industry for manufacture and sale of wooden furniture at Nagpur. There was a search action u/s.132(1) on 19.06.2009 at the business premises of the Assessee and residential premises of it‟s directors. During the search various papers were seized from the business and residential premises. One of item seized was a diary of manager of the company Shri Makarand and the same was marked and inventoried as B/11. 3 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur Thereafter the Assessee was issued notice u/s.153-A on 16.02.2010 requiring the Assessee to file the returns for six years from A.Y.2004-05 to A.Y.2009-10 and the year of search being A.Y.2010-11. Assessee by it‟s letter dt.18.03.2010 stated that original returns filed for the years may be treated as filed in pursuance of notice u/s.153-A. Thus the returns were treated as filed on 18.03.2010. However the notice u/s.143(2) was issued on 24.08.2011 i.e. beyond the period of limitation prescribed u/s.143(2) i.e. beyond six months from the end of financial year in which the return was filed. 3. The Appellant and its directors filed writ petition before Hon‟ble High Court of Mumbai, Bench at Nagpur on 24.04.2010 challenging the search action u/s.132(1) dt.19.06.2010. Hon‟ble High Court by their order dt.09.12.2011 annulled search action including 153-A proceedings. Respondent-Revenue filed appeal before Hon‟ble Supreme Court against the judgment and order of High Court dt.09.12.2011. Hon‟ble Supreme Court by their order dt.13.05.2015 set aside the order of Hon‟ble High Court and directed that the proceedings against Assessee will continue from the stage at which the same was interdicted by High Court on 09.12.2011. 4 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur 4. In the proceedings started thereafter by A.O., assessee took various objections on legal issues and on merits. One of the objections on legal issue was that the notice u/s.143(2) issued on 24.08.2011 was beyond the period of limitation prescribed u/s.143(2) and hence no assessment can be made u/s.153-A and that the same would be without jurisdiction. According to Assessing Officer notice u/s.143(2) is not mandatory in search proceedings after the year 2003. With regard to the diary seized and marked as B/11 he referred to page 4 of the diary wherein according to him there was a noting stating payment of Rs.6 Lakh each to Product Manager at Delhi and Chennai and which was not recorded in the books of account. Hence he called upon the Assessee to show cause as to why the addition of Rs.12,00,000/- be not made to the total income of the Assessee for the year in question. Assessee replied on 29.06.2015 stating that these are not transactions of payment but it was merely an estimate of salary that would be payable to Manager if such branch were to be opened at Delhi and Chennai. It is an admitted position that there are no branches or establishment of Assessee either at Delhi or Chennai. The A.O. did not accept the explanation of the Assessee as according to him document i.e. the diary mentions payments made to project manager at Delhi and Chennai. Accordingly 5 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur he assumed that there was payment expenditure of Rs.12,00,000/- which was not recorded in books and hence added Rs.12,00,000/- to the total income declared at Rs.1,87,18,610/- and computed total income at Rs.1,99,18,610/- by assessment order u/s.153-A dt.09.07.2015. 5. Against the said order, Assessee filed Appeal before ld. CIT(A). In appeal mainly two grounds were taken – one regarding notice u/s.143(2) being beyond the prescribed time and another on merits against the addition of Rs.12,00,000/-. Before ld. CIT(A) the Assessee had filed a detailed written submission. Relevant portion regarding the issue of Rs.12,00,000/-, the ld CIT(A) has quoted the same in para 15.3 pages 50 and 51 of his consolidated order. Ld CIT(A) did not accept the submission of the Assessee and confirmed the addition of Rs.12,00,000/- for the reasons stated by him in para 15.8 and 15.9 of his order which is quoted below :- “15.8 The Assessee‟s submission is carefully considered. The assessment order of the A.O. and the remand report dated 31.05.2016 are also considered. Copy of the remand report was also given on 11.07.2016 to the Assessee for response, however, the Assessee has opted not to respond to the remand report. The issue is emanating from the seized documents in which payment of Rs.6 Lakh each to two managers is stated. There is no dispute on the fact that the payment is outside the books of accounts. The Assessee has argued that the payment was never made. However, the A.O. has argued in the assessment order as 6 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur well as in the remand report that document clearly states that these are the payments made at Delhi and Chennai. There is nothing in the seized document to suggest that it was only on estimate as claimed by the Assessee in its submission. 15.9 In the facts and the circumstances discussed above, it is held that the addition made by the A.O. was justified. Therefore, the addition of Rs.12,00,000/- for A.Y.2009-10 is upheld and confirmed.” With regard to issue of notice u/s.143(2) being beyond time he held that in search proceeding and consequent 153-A proceedings notice u/s.143(2) is not mandatory and accordingly he rejected the said ground. 6. Against the said order, the Assessee is in Appeal before us and has taken the grounds as stated in para 1 above. Learned A.R. relies on the written submission filed before us and W.S. filed before ld. CIT(A) which is quoted by him in paras 15.3 at pages 50 and 51 of his order, while the learned D.R. relies on the orders of A.O. and ld. CIT(A). 7. We have considered the rival submission and have gone through the orders of authorities below and the written submissions filed before CIT(A) and filed before us. 8. With regard to the issue of notice u/s.143(2) said to be beyond the prescribed time etc. we have dealt with the said issue in appeal of 7 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur department and cross objection of Assessee for A.Y.2008-09 being ITA No. 619 of 2016 and C.O. No.1 of 2021 in the case of Spacewood Furnishers Pvt. Ltd. and relying on the decision of Delhi High Court in the case of Ashok Chhaddha Vs. ITO reported in (2011) 337 ITR P.399 and decision of coordinate Bench at Mumbai in the case of Smt. Sumanlata Bansal Vs. ACIT Central Circle-8, Mumbai we have held that in 153-A proceedings in pursuance of search u/s.132(1) notice u/s.143(2) is not mandatory. Relying on our said decision we reject ground No.1 of the present appeal of the Assessee. 9. With regard to the addition of Rs.12,00,000/- the A.O. relying on the stray jotting made in the diary has assumed payment of Rs.6 Lakh to Delhi - Product Manager and Rs.6 Lakh to Chennai – Product Manager. He has read the words in diary as „Payment-outside‟. However referring to the diary it more looks like “Projects – outside Delhi – Product Manager 6 Lakh Product Manager Chennai – Project/product Manager 6 Lakh” There is no date nor there is any name. There is merely lumpsum figure of 6 Lakh. Admittedly there are no branches nor any establishment of Assessee company either at Delhi or at Chennai. Nor are there any 8 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur expenses on rent, electricity, salary, or any other expenses at Delhi or Chennai. Thus prima facie also there cannot be any question of any actual payment to so called Product Manager at Delhi or at Chennai and that too all at once in one lumpsum of 6 Lakh and without any date. Thus the submission of the Assessee before the authorities below that they are not actual transactions but estimation of salary that would be payable if branches were to be opened at Delhi or Chennai appears to be more plausible especially looking to the nature of diary of Shri Makarand the Manager wherein various stray items are noted at the time of discussion with Directors as also noting of works to be done, items to be manufactured, how MPR to be determined, requirement or replacement of staff, new project or work to be undertaken, stocks of various items, monthly plan. Diary nowhere refers to any payments as such. Thus there is no evidence of any actual payment of six lakh to so called Product Manager at Delhi or Chennai. A.O. did not examine Shri Makrand in whose handwriting the jottings are there in his diary nor did he make any other inquiry or collected any other material to show that there was actual payment as alleged. In absence of any evidence of material conclusively or satisfactorily proving any expenditure addition under section 69-C cannot be made on such shaky uncorroborated 9 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur material or some stray jottings without date, without name and further in the present case when admittedly there is neither any branch or office or establishment at Delhi or at Chennai it is difficult to assume any such payment to some alleged Manager. It is pertinent and relevant to refer to the case of Delhi High Court in the case of CIT Vs. Lubtec India Ltd. (2000) 311 ITR P.175 (Delhi) wherein it has been held as under with regard to addition under section 69-C. “It is quite clear that what is postulated in section 69C of the Income Tax Act, 1961, is that first of all the assessee must have incurred that expenditure and thereafter, if the explanation offered by the assessee about the source of such expenditure is not found satisfactory by the Assessing Officer, the amount may be added to his income. Held, that there was nothing to show that the expenditure was in fact incurred by the assessee. The assessee had denied having incurred the expenditure. The Tribunal noted that the Assessing Officer had not made any enquiry whatsoever to find out whether such expenditure was actually incurred by the assessee. Since a part of the expenditure related to advertisements in newspapers, it could have been easily verified by the Assessing Officer, but he did not do so. No amount could be added to the assessee‟s income under section 69C.” Thus considering the facts and material on record and the explanation of the Assessee which is plausible and corroborated by facts and circumstances of the case, we are of the opinion that the addition of Rs.12 Lakh made by A.O. under section 69-C of the Act and confirmed 10 ITA NO.5/NAG/ 2017 M/s. Spacewood Furnishers Pvt. Ltd. vs DCIT, Central Circle1 (3), Nagpur by ld CIT(A) is untenable and accordingly we deleted the addition of Rs.12 Lakh and allow the appeal. 3. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 28 TH April, 2022 Sd/- Sd/- (ARUN KHODPIA) (SANDEEP GOSAIN) Accountant Member Judicial Member Nagpur Dated:- 28/04/2022 *Mishra Copy of the order forwarded to: 1. The Appellant- M/s. Spacewood Furnishers Pvt. Ltd. Nagpur 2. The Respondent- The DCIT, Central Circle 1(3), Nagpur 3. CIT 4. The CIT(A) 5. DR, ITAT, Nagpur 6. Guard File (ITA No. 5/Nag/2017) By order, Sr. Private Secretary