MULTICOT TEXTILES P. LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 5138/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3991 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 08-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2010
• Court: TRIBUNAL
• Department Lawyers: MOHIT JAINDR
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Rejection of books of accounts; Business expenditure; Opportunity of being heard; Principle of natural justice; Set aside
• Section: 144

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL B BENC H, MUMBAI !' , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI KARUNAKARA RAO , AM ./I.T.A. NO.5138/M/2010 ( & ' (' / ASSESSMENT YEAR :2006-2007) M/S. MULTICOT TEXTILES P LTD., 5 TH FLOOR, SHALIMAR HOUSE, 335 GRANT ROAD, MUMBAI-400007. & / VS. DCIT - 5(2), MUMBAI. ) $ ./PAN : AAACH 2034 G ( )* /APPELLANT) .. ( +,)* / RESPONDENT) )* - . / APPELLANT BY : DR. K. SHIVARAM +,)* - . / RESPONDENT BY : SHRI MOHIT JAIN, DR & - /$ /DATE OF HEARING : 27.6.2013 01( - /$ /DATE OF PRONOUNCEMENT : 24.7.2013 2 2 2 2 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 22.6.2010 IS A GAINST THE ORDER OF CIT (A)- 9, MUMBAI DATED 5.4.2010 FOR THE ASSESSMENT YEAR 20 06-2007. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: A. NATURAL JUSTICE 1. THE LD CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO REJECTING THE BOOK RESULT OF THE APPELLANT AND ASSESSING THE INCOME OF APPELLANT AT RS. 35,28,600/- WITHOUT APPRECIATING THAT THE ORDER WAS PASSED WITHOUT GIVI NG A REASONABLE OPPORTUNITY TO THE APPELLANT, HENCE THE ORDER UNDER SECTION 144 IS BAD IN LAW AND LIABLE TO BE SET ASIDE. 2. THE LD CIT (A) AS WELL AS THE AO HAS FAILED TO APPR ECIATE THAT THE DETAILS WITHIN CONTROL OF THE APPELLANT WAS FILED, AND THE AO HAS NOT FOUND ANY DEFECTS IN THE BOOKS OF ACCOUNTS HOWEVER AS THE BOOKS WERE DESTROYED IN THE FLOOD AL THE DETAILS COULD NOT BE PRODUCED, HENCE THE AFFIDAVIT OF DIRECTOR WAS FI LED THEREFORE, THE REJECTION OF BOOKS OF ACCOUNTS AND PASSING THE ORDER ON ARBITRARY BASI S MAY NOT BE JUSTIFIED. B. MERIT 3. WITHOUT PREJUDICE TO ABOVE, REJECTION OF BOOKS O F ACCOUNTS AND ESTIMATING THE PROFIT AT 2% OF TURNOVER IS WITHOUT ANY BASIS AND LIABLE T O BE DELETED. 4. THE LD CIT (A) ERRED IN CONFIRMING THE ORDER OF AO WITHOUT APPRECIATING THAT THE LOSS WAS INCURRED IN THE ORDINARY COURSE OF BUSINESS, HE NCE THE DISALLOWANCE OF LOSS AND ESTIMATE OF INCOME MAY NOT BE JUSTIFIED. 2 5. WITHOUT PREJUDICE TO ABOVE, THE AO OUGHT TO HAVE ALLOWED THE NORMAL BUSINESS EXPENSES AND INTEREST PAYMENT INCURRED IN THE ORDIN ARY COURSE OF BUSINESS. 3. BEFORE US, SHRI K. SHIVARAM, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PO LYSTER YARN / COTTON YARN AND WASTE. ASSESSEE FILED THE RETURN DECLARING THE TOT AL LOSS OF RS. 1.38 CR (ROUNDED OF). THE LOSS ATTRIBUTABLE TO THE ACTIVITY OF SALE OF CO TTON WAS RS. 55 LACS. THE RETURN OF INCOME WAS FILED ALONG WITH TAX AUDIT REPORT MADE I N ACCORDANCE WITH THE BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNTS WERE EXISTING AT TH E RELEVANT POINT OF TIME. HOWEVER, THEY WERE LOST IN AUGUST 2006 IN THE MAJOR FLOODS REPORTED AT SURAT. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE COULD N OT PRODUCE THE BOOKS OF ACCOUNTS. ASSESSEES EXPLANATION WAS REJECTED BY TH E ASSESSING OFFICER. ACCORDINGLY, BOOK RESULTS WERE REJECTED AND THE ASSESSMENT WAS M ADE NOT ONLY DENYING THE SAID LOSS REPORTED BUT ALSO THE AO ESTIMATED THE PROFITS APPLYING FLAT RATE @ 2% ON THE TURNOVER. ACCORDINGLY, THE AO MADE EX PARTE ASSESSMENT U/S 144 OF THE ACT. IN THIS CONNECTION, DR SHIVRAM, LD COUNSEL INFORMED THE BEN CH THAT THE SIMILAR ISSUES/PROBLEMS CAME UP DURING THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2004- 2005 AND 2005-2006 AND THE ISSUES WERE ADJUDICATED DIFFERENTLY . LD COUNSEL FOR THE ASSESSEE INFORMED THAT THE TRIBUNAL EXAMINED TH ESE ISSUES AND THE EXPLANATIONS RELATING TO THE CLAIM OF LOSS OF BOOKS OF ACCOUNTS IN THE FLOODS AND SET ASIDE THE ADDITIONS BY RESTORING THE MATTER TO THE FILES OF T HE AO FOR FRESH CONSIDERATION. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 133 OF THE PAPER BOOK AND PARA 17 OF THE ORDER OF THE ITAT IN ASSESSEES OWN CASE VIDE ITA NOS.5136 & 5137/MUM/2007 DATED 25.5.2009. FURTHER, REFERRING T O THE ASSESSMENT PROCEEDINGS FOR THE AY 2005-2006, LD COUNSEL MENTIONED THAT THE ITAT CONFIRMED THE ORDER OF THE AO, WHO MERELY DISALLOWED THE LOSS. IN THIS REG ARD, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 144 OF THE PAPER BOOK, WHICH IS A COPY OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE VIDE ORDER DATED 25.5.20 09. 4. FINALLY, LD COUNSEL MADE A PRAYER BEFORE US STAT ING THAT THE ISSUES MAY BE RESTORED TO THE FILES OF THE AO AS DONE IN THE ASSESSEES OWN CASE FOR THE AY 2004-05 AND IN THE SET ASIDE ASSESSMENT, THE ASSESS EE SHALL DEMONSTRATE THE GENUINENESS OF THE PURCHASE AND SALES AS WELL AS TH E CLAIMS OF FINANCIAL CHARGES AND OTHERS. HOWEVER, DR SHIVARAM VEHEMENTLY OPPOSED TO THE AOS DECISION OF REJECTING 3 THE BOOKS AND RESORTING TO THE ESTIMATION OF PROFIT S APPLYING THE FLAT RATE @ 2% OF THE TURNOVER. 5. ON THE OTHER HAND, LD DR RELIED HEAVILY ON THE O RDER OF THE AO / CIT (A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS CONSIDERED THE BACKGROUND FA CTS OF THE ASSESSEE FOR THE AY 2003-04, 2004-05 AND 2005-06. WE FIND THAT IN THE AY 2003-2004, AO MERELY DISALLOWED THE LOSSES AND THE SAID LOSSES WERE DELE TED BY THE ITAT BASED ON THE EVIDENCES PLACED BEFORE THE TRIBUNAL. THERE IS NO ISSUE OF NON-FURNISHING OF THE BOOKS OF ACCOUNTS IN THAT ASSESSMENT YEAR. ON THE O THER HAND, IN THE AY 2004-2005, THE ISSUE OF FURNISHING OF BOOKS OF ACCOUNTS BEFORE THE AO WAS A BONE OF CONTENTION. AO DENIED THE LOSS OF CLAIM BY THE ASSESSEE. FOR A SSESSEES FAILURE TO FURNISH THE CONFIRMATIONS, THE MATTER WAS RESTORED BY THE ITAT TO THE FILES OF THE AO. THE MATTER IS STILL PENDING ASSESSMENT. IN THE AY 2005 -2006, AO DISALLOWED THE LOSSES AFTER REJECTING THE BOOKS OF ACCOUNT, WHICH WERE NO T MADE AVAILABLE TO THE ASSESSING OFFICER AS THEY WERE LOST IN THE FLOODS. IN THE CU RRENT ASSESSMENT YEAR, UNDER THE COMPARABLE CIRCUMSTANCES RELATING TO FURNISHING OF BOOKS, AO NOT ONLY DISALLOWED THE LOSS BUT CONVERTED THE LOSS INTO PROFITS IN THE ASSESSMENT BY ESTIMATING 2% OF THE TURNOVER. THUS, THE PRESENT ASSESSMENT IS BIT S EVERE COMPARATIVELY. IN THESE CIRCUMSTANCES, WE HAVE CONSIDERED THE ASSESSEES RE QUEST FOR RESTORING THE GROUNDS TO THE FILES OF THE AO FOR FRESH ADJUDICATION AND A LSO CONSIDERED HIS STATEMENT MADE AT BAR ABOUT THE EFFORTS TO DEMONSTRATE THE GENUINE NESS OF THE CLAIMS. WE FIND NO REASON TO DENY THE SAID PRAYER CONSIDERING THE PRI NCIPLES OF NATURAL JUSTICE AND THE ADMINISTRATION OF JUSTICE. ACCORDINGLY, WE RESTORE THE GROUNDS TO THE FILES OF THE AO WITH A DIRECTION TO RE-DO THE ASSESSMENT. IT IS ADMI TTED BEFORE US CATEGORICALLY, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE GENU INENESS OF THE CLAIMS REGARDING PURCHASE & SALES, FINANCIAL EXPENDITURE CLAIMS AND OTHERS ETC. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE SET ASIDE . 4 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 24.7.2013. SD/- SD/- ( I.P. BANSAL) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 3& 24.7.2013 . & . ./ OKK , SR. PS 2 2 2 2 - -- - +/45 +/45 +/45 +/45 65(/ 65(/ 65(/ 65(/ / COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. +,)* / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 5 89 +/& , , / DR, ITAT, MUMBAI 6. 9!' : / GUARD FILE. ,5/ +/ //TRUE COPY// 2& 2& 2& 2& / BY ORDER, ; ;; ; / < < < < = = = = (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI