DCIT, New Delhi V. Shri Harish Kochhar, New Delhi

ITA 5883/DEL/2010

• Counselvise Citation: 588320114 RSA 2010
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 23-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Business income; Opportunity of being heard; Additional evidence; Non compliance
• Section: 143(3); 142(1); 80HHC; 234B; 37(1); 68; 145; 144

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI R.P. YADAV JUDICIAL MEMBER AND SHRI T.S. KAPOOR , ACCOUNTANT MEMBER ITA NO S . 5883 & 5884 / DEL / 201 0 ASSESSMENT YEAR S : 200 4 - 20 0 5 & 2006 - 07 DCIT, CIRCLE - 26(1), NEW DELHI VS . SH. HARISH KOCHAR , C - 20A, AJAY ENCLAVE EXT. , NEW DELHI. (APPEL LANT) (RESPONDENT) ITA NOS.275 &276/DEL /2011 ASSESSMENT YEARS : 2004 - 2005 & 2006 - 07 LATE HARISH KOCHHAR VS. ACIT, CIRCLE - 26(1), THROUGH L/H HERRY KOCHHAR, NEW DELHI. F - 5/2 VASANT VIHAR, NEW DELHI. (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI SATPAL SINGH , SR. DR RESPONDENT BY : SHRI RAJ KUMAR GUPTA , C.A. ORDER PER SHRI RAJPAL YADAV , J M : 1. THE ASSESSEE AND REVENUE ARE IN CROSS APPEALS AGAINST THE ORDERS OF LD. CIT(A) DATED 20.10.2010 & 29.10.2010 PASSED IN A.YS. 2004 - 05 & 2006 - 07 RESPECTIVELY. ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 2 2. FIRST WE TAKE THE APPEALS FOR A.Y. 2004 - 05. THE ASSESSEE IN HIS APPEAL HAS TAKEN FIVE GROUNDS OF APPEA , L WHICH A RE NOT IN CON SONANCE WITH RULE 8 OF THE ITAT RULE S , THEY ARE DESPCRIPTIVE IN NATURE . I N BRIEF , HIS GRIEVANCE REVOL VE S AROUND TWO ISSUES NAMELY: (A) LD. CIT(A) HAS ERRED IN UPHOLDING THE REJECTION OF BOOK RESULT U/S 145 OF THE INCOME TAX ACT. (B) LD. CIT( A) HAS ERRED IN CONFIRMING THE ESTIMATED G.P. ADDITION @ 20% OF THE SALES AND ADHOC DISLALOWANCE OUT OF EXPENSES . ONCE BOOK RESULTS ARE ARE REJECTED THERE CANNOT BE ANY SEPARATE ADDITION. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OUT OF SERVICE CHARG ES PAID BY THE ASSESSEE. 3. IN THE REVENUE S APPEAL , TWO GROUNDS ARE BEING TAKEN ; (A) CIT(A) HAS ERRED IN DELETING THE DISLLAOWANCE MADE BY THE ASSESSING OFFICER OUT OF BED DEBT CLAIMED ; (B) ERRED IN DELETING DISALLOWANCE MADE U/S 37(1) OF THE ACT. 4. TH E ASSESSEE IS AN INDIVIDUAL. HE HAS FIVE CONCERNS, NAMELY, ACH KAY CLOTHING INC., BIG H, HERRY S TEXTILES, HERRY S CLOTHING INC. AND KOCHHAR BROS. EXIM INTERNATIONAL. HE FILED HIS RETURN OF INCOME ON 01.11.2004 DECLARING LOSS OF RS.1,48,37,770/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT , AND NOTICE U/S 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. THE LD. ASSESSING OFFICER , ON A ANALYSIS OF THE RECORD ARRIVED AT CONCLUSION THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE. THE TR UE INCOME FROM TH E ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 3 BOOK S OF ACCOUNT CANNOT BE DEDUCED , THEREFORE, HE REJECTED THE BOOK RESULT AND COMPUTED THE PROFIT FROM ALL THESE CONCERNS ON ESTIMATE BASIS. THE FOLLOWING OBSERVATION OF THE ASSESSING OFFICER IS WORTH TO NOTE IN THIS CONNECTION: NO PR ODUCTION RECORD IS KEPT OR PRODUCED. MONTHWISE PRODUCTION AND WASTAGE SHOWN CANNOT BE VERIFIED. THE GROSS LOSS SHOWN IS ARTIFICIAL AS THE ASSESSEE HAS ADOPTED UNDER INVOKING METHOD FOR RECORDING SALES ACCOUNTS OF THE ASSESSEE ARE THEREFORE REJECTED AND PRO VISO TO SECTION 145(2) IS INVOKED. THE ASSESSEE HAS RECEIVED DUTY DRAWBACK AS CREDITED TO TRADING ACCOUNT WHICH IS ABOUT 10% OF SALES. THE G.P. RATE OF 20% IS THEREFORE APPLIED ON DECLARED SALES BY REJECTING THE ACCOUNTS. THE GROSS PROFIT ON DECLARED SALES OF 4,15,63,921/ - @ 20% COMES TO 83,12,784/ - AS AGAINST GROSS LOSS OF RS.1,17,49,641/ - DECLARED BY THE ASSESSEE. ADDITION OF RS.2,00,62,425/ - IS MADE IN THE TRADING ACCOUNT. THE ASSESSEE HAS FILED WRONG PARTICULARS INTENTIONALLY AND HAS CONCEALED HIS INCOM E. PENALTY PROCEEDINGS U/S 271(1)(C) ACCORDINGLY ARE INITIATED. 5. DISSATISFIED WITH THE ADDITION, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELALTE AUTHORITY. THE LD. CIT(A) HAS UPHELD THE REJECTION OF BOOK RESULT AS WELL AS COMPUTAT ION OF PROFIT AT THE RATE OF 20% OF SALES APPLIED BY THE A.O. TO THE DECLARED SALES. 6. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC OF THE ACT THAT DEDUCTION WAS ALLOWED IN EARLIER YEAR S. I N THE PRESENT YEAR , T HE ASSESSEE FAILED TO REALIZE CERTAIN INCENT IVES REPRESENTING THE DUTY DRAWBACK , THEREFORE, HE CLAIMED RIGHT OF THOSE UNREALIZED DUTY DRAWBACK AS BED DEBT. THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INCOME IN THE SHAPE OF DUTY DRAWBACK WAS NOT SUBJECT TO TAX, THEREFORE, IT DID NOT BECOME PART OF TOTAL ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 4 TAXABLE INCOME AS PER SECTION 36(2)(I). THEREFORE, T HE ASSESSEE CANNOT WRITE OFF THIS AMOUNT AS BED DEBT. 7. ON APPEAL, LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE CONDITIONS ENU MERATED IN SECTION 36(2) DO NOT PROVIDE THAT INCOME FORMING PART OF TOTAL INCOME SHOULD ULTIMATELY BE CHARGED TO TAX. IF ON ACCOUNT OF SOME EXEMPTION , IT IS NOT TAXED , THEN ALSO IT WOULD NOT L O SE ITS CHARACTER AS INCOME . 8. APART FROM THE ABOVE, IT REVEAL ED TO THE ASSESSING OFFICER THAT IN HERRY S CLOTHING INC. ASSESSEE HAS DEBITED A SUM OF RS.9,45,920/ - . A CCORDING TO THE ASSESSING OFFICER , IT WAS A PENALTY PAID TO APEC . THIS AMOUNT OF PENALTY IS NOT ALLOWABLE AS DEDUCTION TO THE ASSESSEE, HE MADE AN ADDIT ION OF THIS AMOUNT. 9. ON APPEAL, LD. CIT(A) HAS DELETED THIS DISALLOWANCE. 10. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD. COUNSEL FOR THE ASSESSEE DID NOT SERIOUSLY DISPUTE THE FINDING OF THE LD. REVENUE AUTHORITIES WITH REGARD TO REJECTION OF BOOKS OF ACCOUNT. WE FIND THAT THE ASSESSEE FAIL ED TO MAINTAIN STOCK REGISTER OF RAW MATERIAL, SEMI FINISHED GOODS AS WELL AS CLOSING STOCK . W HEN WE CONFRONTED THE LD. COUNSEL FOR THE ASSESSEE AS TO HOW TRUE INCOME CAN BE DEDUCED FROM THE BOOKS IN THE ABSENCE OF THESE DETAILS , THEN , HE CONSENTED THAT ASSESSEE HAS NO CASE AS FAR AS REJECTION OF THE BOOKS OF ACCOUNT ARE CONCERNED . T HEREFORE , WITH REGARD TO THIS CHALLENGE , WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 5 ASSESSEE. THUS , THE NEXT QUESTION ARISES, WHAT SHOULD BE THE ESTIMATED ADDITION REQUIRED TO BE MADE BY THE ASSESSING OFFICER TO THE INCOME OF THE ASSESSEE. FOR THIS PURPOSE, SUB - SECTION (3) OF SECTION 145 CONTEMPLATES THAT THE ASSESSING OFFIC ER MAKES AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 OF THE INCOME - TAX ACT, 1961. THE SECTION READS AS UNDER: SECTION 144. (1) IF ANY PERSON (A) FAILS TO MAKE THE RETURN REQUIRED [UNDER SUB - SECTION (1) OF SECTION 139] AND HAS NOT MADE A RETURN OR A REV ISED RETURN UNDER SUB - SECTION (4) OR SUB - SECTION (5) OF THAT SECTION, OR (B) FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB - SECTION(1) OF SEC. 142 [OR FAILS TO COMPLY WITH A DIRECTION ISSUED UNDER SUB - SECTION (2A) OF THAT SECTION ] OR (C) HAVING M ADE A RETURN, FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB - SECTION (2) OF SECTION 143, THE [ASSESSING OFFICER], AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE ASSESSING OFFICER HAS GATHERED, [SHALL, AFTER GIVING THE ASSESSEE A N OPPORTUNITY OF BEING HEARD, MAKE THE ASSESSMENT] OF THE TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT AND DETERMINE THE SUM PAYABLE BY THE ASSESSEE ON THE BASIS OF SUCH ASSESSMENT. PROVIDED THAT SUCH OPPORTUNITY SHALL BE GIVEN BY THE ASSESSING OFFIC ER BY SERVING A NOTICE CALLING UPON THE ASSESSEE TO SHOW S \ CAUSE, ON A DATE AND TIME TO BE SPECIFIED IN THE NOTICE, WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE BEST OF HIS JUDGMENT : PROVIDED FURTHER THAT IT SHALL NOT BE NECESSARY TO GIVE SUCH OPPORT UNITY IN A CASE WHERE A NOTICE UNDER SUB - SECTION (1) OF SECTION 142 HAS BEEN ISSUED PRIOR TO THE MAKING OF AN ASSESSMENT UNDER THIS SECTION.] (2) THE PROVISIONS OF THIS SECTION AS THEY STOOD IMMEDIATELY BEFORE THEIR AMENDMENT BY THE DIRECT TAX LAWS (AMEND MENT) ACT, 1987 94 OF 1988), SHALL APPLY TO AND IN RELATION TO ANY ASSESSMENT FOR THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1988, OR ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 6 ANY EARLIER ASSESSMENT YEAR AND REFERENCES IN THIS SECTION TO THE OTHER PROVISIONS OF THIS ACT SHALL BE CONST RUED AS REFERENCES TO THOSE PROVISIONS AS FOR THE TIME BEING IN FORCE AND APPLICABLE TO THE RELEVANT ASSESSMENT YEAR.} 11. A BARE PERUSAL OF THIS SECTION WOULD SUGGEST THAT IN ORDER TO ESTIMATE INCOME, LEARNED ASSESSING OFFICER HAS TO EXERCISE HIS DISCR ETION WHICH SHOULD BE IN CONSONANCE WITH BEST OF HIS JUDGMENT. 12. WE ARE CONSCIOUS OF THE FACT THAT IN VARIOUS AUTHORITATIVE PRONOUNCEMENTS, IT HAS BEEN PROPOUNDED THAT IN MAKING A BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY. HE MUST MAKE WHAT HE HONESTLY BELIEVE TO BE A FAIR ESTIMATE OF THE PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST BE ABLE TO TAKE INTO CONSIDERATION LOCAL KNOWLEDGE, REPUTATION OF THE ASSESSEE ABOUT HIS BUSINESS, THE PREVIOUS HISTORY OF THE ASSESSEE OR THE SIMILARLY SITUATED ASSESSEE. IT IS ALSO PERTINENT TO MENTION THAT JUDGMENT IS A FACULTY TO DECIDE MATTER WITH WISDOM, TRULY AND LEGALLY. JUDGMENT DOES NOT DEPEND UPON THE ARBITRARY, CAPRICE OF AN ADJUDICATOR, BUT ON SETTLED AND INVARIABLY PRINCIPLES OF JUSTICE. THUS, IN A BEST JUDGMENT, EVEN IF, THERE IS AN ELEMENT OF GUESS WORK, IT SHOULD NOT BE A WILD ONE, BUT SHALL HAVE REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF EACH ASSESSEE. APPRAISING OU RSELVES WITH THESE FUNDAMENTALS, LET US CONSIDER THE FACTORS DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT WHILE MAKING THE LUMP SUM ADDITION. ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 7 13. WE HAVE EXTRACTED THE FINDING OF THE ASSESSING OFFICER. THE LD. ASSESSING OFFICER HAS ADOPTED THE RAT E OF 20% OF THE TOTAL SALES FOR ESTIMATING THE PROFIT IN THIS YEAR ON THE GROUND THAT DUTY DRAWBACK CREDITED BY THE ASSESSEE IS ABOUT 10% OF THE SALES. IF ASSESSEE CAN RECEIVE 10% OF THE SALES AS A DUTY DRAWBACK THEN IT MEANS , HE WOULD EARNED PROFIT AROUND 20% OF THE TOTAL SALES. APART FROM THIS REASONING, NO OTHER CIRCUMSTANCES ARE DISCERNABLE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR, ASSESSMENT WAS MADE U/S 143(3) . THE DECLARED GROSS PROFIT HAS BEEN ACCEPTED IN SC RUTINY ASSESSMENT AT 8.76%. THE DUTY DRAWBACK RECEIVED BY THE ASSESSEE IN A.Y. 2003 - 04 WAS 11.63% OF THE SALES. HE EMPHASIZED THAT IF LD. ASSESSING OFFICER WANTS TO ADOPT THIS FORMULA THEN G.P. IN THIS YEAR OUGHT TO BE ADOPTED AT 7.33% OF THE TOTAL SALES. HE ALSO CONTENDED THAT TURNOVER HAS BEEN INCREASED FROM 26.88 LACS TO RS.4.15 CRORES. ON THE OTHER HAND, LD. D.R. JUST RELIED UPON THE ORDER OF THE ASSESSING OFFICER . 14. ON DUE CONSIDERATION OF THE ABOUT FACTS, WE FIND THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE PAST HISTORY OR RESULT OF SIMILARLY SITUATED ASSESSEE BEFORE APPLYING THE RATE OF 20% TO THE DECLARED SALES FOR COMPUTING THE PROFIT OF THE ASSESSEE . THE LD. A.R. HAD ARGUED THAT ON THE BASIS OF RESULTS OF ASSESSEE ACCEPTED IN EARLIER YEAR, THE ASSESING OFFICER SHOULD HAVE CALCULATED PROFITS BY APPLYING G.P. RATIO OF 7.33%. HOWEVER, WE FIND THAT IN EARLIER YEAR BOOKS WERE NOT REJECTED WHEREAS BOOKS HAS BEEN REJECTED DURING THE YEAR UNDER ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 8 CONSIDERATION, THEREFORE, EARLIER G.P. RATE CANNOT BE ACCEPTED AT FACE VALUE. T AKING GUIDANCE FROM THE RESULT ACCEPT ED IN THE IMMEDIATELY PRECEDING YEAR VIS - - VIS THE REASONING A DOPTED BY THE ASSESSING OFFICER & KEEPING IN VIEW THAT BOOKS WERE REJECTED, WE DIRECT THE ASSESSING OFFICER TO APPLY GROSS PROFIT R ATE OF 10 % TO THE TOTAL SALES IN THIS ASSESSMENT YEAR AND COMPUTE THE INCOME OF THE ASSESSEE. 15. AS FAR AS DISALLOWANCE OF RS.25,000/ - IS CONCERNED , ONCE THE ASSESSING OFFICER HAS REJECTED THE BOOK RESULT OF THE ASSESSEE AND ESTIMATED THE INCOME , THEN , T HAT STEP CAN TAKE CARE ALL OTHER PERIPHERAL ISSUES. THE ASSESSING OFFICER IS NOT SUPPOSED TO MAKE DISALLOWANCE OF INDIVIDUAL ITEMS FROM THE BOOKS OF ACCOUNT BECAUSE BOOKS ARE ALREADY HELD AS UNRELIABLE. THEREFORE, THIS DISALLOWANCE IS DELETED. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 17. IN THE REVENUE S APPEAL, FIRST GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.11, 16,180/ - . THE BRIEF FACTS ARE THAT THE ASSESSEE HAD TO RECEIVE DUTY DRAWBACK O N THE EXPORT MADE BY HIM. THE DUTY DRAWBACK OUTSTANDING FROM THE LAST THREE YEARS , WHICH ULTIMATELY NOT RECEIVED BY THE ASSESSEE HAS BEEN WRITTEN OFF IN THE ACCOUNTS AS BED DEBT. LD. ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THESE AMOUNTS HAVE BEEN CREDITED IN THE INCOME AND DEDUCTION U/S 80HHC WAS CLAIMED. THEREFORE, THESE AMOUNTS NEVER SUFFERED TO TAX. HENCE THESE WERE NOT ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 9 TREATED AS INCOME FOR THE PURPOSE OF U/S 36(2) THESE CANNOT BE CLAIMED AS BED DEBT. 18. ON APPEAL , LD. CIT(A) DELETED THE DISALLOWANCE. 19. LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET CONTENDED THAT SECTION 36(2)(I) TALKS OF INCOME NOT TOTAL INCOME OR INCOME WHICH HAS SUFFERED TAX. THE EXPRESSION INCOME HAS BEEN DEFINED IN SECTION 2(24) OF THE I.T. ACT 1961. THE ASSESSEE WHILE CREDITING DUTY DRAWBACK HAS RECOGNIZED THESE AMOUNTS AS HIS INCOME. THEREAFTER , DEDUCTION WAS CLAIMED SECTION 80HHC , BUT ULTIMATELY THE AMOUNTS OF DUTYDRAW BACK CREDIT TO HIM WERE NOT RECEIVED BY THE ASSESSEE THEREFORE, H E WRITTEN OF F THEM. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 20. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. SECTION 36(2)(I) HAS DIRECTED BEARING ON THE CONTROVERSY . T HEREFORE, W E DEEM IT APPROPRIATE TO TAKE NOTE OF THIS CLAUSE WHICH READ AS UNDER: - (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY [( I ) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TA KEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONE Y - LENDING WHIC H IS CARRIED ON BY THE ASSESSEE; ] ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 10 21. THE BARE PERUSAL OF THIS CLAUSE WOULD REVEAL THAT DEDUCTION SHALL BE ALLOWED TO THE ASSESSEE , IF THE DEBTS CLAIMED BY THE ASSESSEE WERE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE PREVIOUS YEAR OR OF AN EARLIER PREVIOUS YEAR. IN OTHER WORDS, THE ASSESSEE OUGHT TO HAVE TAKEN INTO THE AMOUNTS REPRESENTING THE DEBTS AS HIS INCOME I N PREVIOUS YEAR OR ANY EARLIER PREVIOUS YEAR. ACCORDING TO THE ASSESSEE, THESE AMOUNTS WERE RECOGNIZED AS INCOME FROM A.Y. 2001 - 02. THE DEDUCTION U/S 80HHC WAS ADMISSIBLE AT THE RATE OF 80% IN THOSE YEARS AND NOT AT 100%. THE CASE OF THE ASSESSEE IS THAT DEDUCTION IS BEING GRANTED U/S 80HHC AFTER COMPUTING THE INCOME AND IN THE COMPUTATION OF INCOME THE DUTY DRAWBACK CREDITED TO THE BOOKS OF ACCOUNT HAS BEEN TAKEN INTO CONSIDERATION. THE SECTIONS NO W H E RE SUGGEST S THAT ONLY THAT PART OF INCOME WOULD BE CONSIDERED ON WHICH TAXES ARE PAID. THEREFORE, LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY ALLOWED THE CLAIM OF BED DEBT OF THE ASSESSEE , THEREFORE, THIS GROUND OF THE APPEAL IS REJECTED. 22. IN THE NEXT GROUND OF APPEAL GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.8,3 3,508/ - . 23. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FAILED TO FULFIL CERTAIN EXPORT OBLIGATION AS SET BY APPAREL E XPORT PROMOTION (AEPC) COUNCIL. THEREFORE, HE HAS TO PAY A SUM OF RS.8,33,508/ - . HE HAS DEBITED A TOTAL SUM OF RS.9,45,920/ - IN THIS ACCOUNT. THE ASSESSEE HAS CREDITED A SUM OF RS.88,231/ - AND RS.24,181/ - IN THIS ACCOUNT ON 11.08.2003. THE LD. ASSESSING OFFICER AFTER ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 11 GIVING CREDIT OF THE AMOUNTS CREDITED IN THIS ACCOUNT MADE THE DISALLOWANCE OF RS.8,33,508/ - . ON APPEAL, LD. CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT PAYMENT WAS NOT MADE FOR INFRING EMENT OF ANY LAW. IT WAS A COMPENSATORY IN NATURE , IT CANNOT BE DISALLOWED U/S 37(1) OF THE ACT. 24. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IN THE ASSESSMENT ORDER, LD. ASSESSING OFFICER HAS NO WHERE POINT ED OUT THAT WHICH PROVISION OF LAW HAS BEEN VIOLATED BY THE ASSESSEE , WHICH PROVIDE LEVY OF PENALTY UPON THE ASSESSEE FOR SUCH A VIOLATION. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD COPY OF THE DECISION OF THE HON BLE DELHI COURT IN THE CASE OF CIT VS. M/S VIKAS CHEMICALS RENDER IN ITA NO. 11OF 2002 , WHEREBY HON BLE HIGH COURT HAS UPHELD THE ORDER OF THE TRIBUNAL DELETING DISALLOWANCE OF RS.45.00 LAKHS PAID BY THE ASSESSEE TO THE CUSTOMS AUTHORITIES ON ACCOUNT OF REDEMPTION FINE. THE HON BLE HIG H COURT HAS HELD THAT SUCH A PAYMENT IS A COMPENSATORY IN NATURE. AFTER TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES, IN THE LIGHT OF THE HON BLE DELHI HIGH COURT S DECISION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL, THEREFORE, IT IS REJE CTED. 25. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 26. NOW WE TAKE A.Y. 2006 - 07. 27. IN THE REVENUE S APPEAL, THE SOLITARY GRIEVANCE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.30,65,321/ - . ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 12 28. THE BRIEF FACTS OF THE CASE ARE TH AT THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 26.10.2006 DECLARING A LOSS OF RS.1,45,35,080/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) WAS ISSUED. THE LD. ASSESSING OFFICER HAS OBSERVED THAT NOTICE ISSUED TO THE ASSESSEE , RETURNED UNSERVED , BUT IT WAS AGAIN ISSUED ON THE ADDRESS AVAILABLE ON PAN OF THE ASSESSEE. THE LD. ASSESSING OFFICER THEREAFTER SENT NOTICES ON DIFFERENT ADDRESSES. HE OBSERVED THAT IN RESPONSE TO THE NOTICE DATED 31.08.2007 SHRI ARUN AHUJA, C.A. APPEARED ON BEHALF OF THE ASSESSEE AND FURNISHED POWER OF ATTORNEY. THE LD. ASSESSING OFFICER HAS THEREAFTER ISSUED A QUESTIONNAIRE U/S 142(1) ON 12.11.2008 . H E PASSED THE EX - PARTE ASSESSMENT ORDER ON 30.12.2008. THE ASSESSING OFFICER HAS DISALLOWED 40% OF THE EXPENSES CLAIMED BY THE ASSESSEE IN HERRY S CLOTHING AND DISALLOWANCE OF RS.30,65,321,836/ - HAS BEEN MADE. LD. CIT(A) DELETED THIS DISALLOWANCE BY OBSERVING AS UNDER: - A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO HAS MADE A DISALLOWANC E OF RS.3065321/ - OUT OF EXPENSES CLAIMED BY THE APPELLANT IN THE BOOKS OF HIS CONCERN KNOWN AS HERRY S CLOTHING INC. HOWEVER, ACCORDING TO THE P&L A/C OF THE AFORESAID CONCERN, TOTAL EXPENSES DEBITED BY THE APPELLANT ARE ONLY RS.1298824. SIMILARLY, IN THE CASE OF H AND H INDUSTRIES AS AGAINST TOTAL EXPENSES OF RS.5723, A DISALLOWANCE OF RS.130109 HAS BEEN MADE. OBVIOUSLY THE TOTAL DISALLOWANCE IN ANY CASE COULD NOT HAVE BEEN MORE THAN THE ACTUAL EXPENSES CLAIMED BY THE APPELLANT. THIS CLEARLY SHOWS THAT TH E DISALLOWANCE IN QUESTION HAS BEEN MADE BY THE AO IN A CASUAL MANNER WITHOUT TAKING INTO CONSIDERATION THE PAST HISTORY OF THE CASE, TOTAL TURNOVER AND OTHER RELEVANT FACTS. IT IS COMMON KNOWLEDGE THAT AN ASSESSMENT IS A QUASI JUDICIAL FUNCTION PERFORMED BY AN ASSESSING AUTHORITY AND EVEN IN CASES OF NON COMPLIANCE LEADING TO ASSESSMENT U/S 144 OF THE IT ACT, HE/SHE/HAS TO BE FAIR AND JUDICIOUS IN APPROACH AND IN NO SITUATION ADDITIONS/DISALLOWANCES BE MADE ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 13 IN ARBITRARY MANNER. IN VIEW OF THE FACT THAT THE DISALLOWANCE IN QUESTION HAS BEEN MADE PURELY ON ADHOC BASIS WITHOUT BRINGING ANY MATERIAL TO SUPPORT, THE SAME IS NOT SUSTAINABLE AND IS ACCORDINGLY DELETED. 29. WITH THE ASSISTANCE OF LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD. ASSESSING OFFICER HAS NO WHERE DISCUSSED THE NATURE OF EXPENDITURE AND HOW THESE EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE . H E SIMPLY ADOPTED A YARDSTICK THAT 40% OF THE EXPENSES ARE TO BE DISALLOWED. THE FIGURES ARE STATEWAY TAKEN TO THE COMPUTATION OF INCOME , CONTRARY TO THAT CIT(A) HAS OBSERVED THAT APPROACHES OF THE ASSESSING OFFICER IS TOTALLY CASUAL . HE HAS NOT CONSIDERED THE DETAILS OF EXPENDITURE AVAILABLE ON THE RECORD AND HOW DISALLOWANCE OF THOSE EXPENSES IS TO BE MADE. THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A). NO OTHER GROUND HAS BEEN RAISED BY THE REVENUE IN ITS APPEAL, HENCE IT IS REJECTED. 30. THE ASSESSEE IN HIS APPEAL HAS TAKEN SEVEN GROUNDS OF APPEAL . I N GROUND NO. 1&2 , HE HAS CHALLENGED THAT ASSESSMENT ORDE R IS NULL AND VOID BECA USE IT HAS BEEN PASSED WITHOUT AFFECTING THE SERVICES OF NOTICE U/S 143(2). HOWEVER, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THESE GROUNDS OF APPEAL . H ENCE , THEY ARE REJECTED. IN GROUND NO.3 ASSESSEE HAS PLEADED THAT LD. ASSESSING OFFICER FAILED TO PROVIDE REASONABLE OPPORTUNITY OF HEARING BEFORE PASSING THE ASSESSMENT ORDER. WE WILL TAKE THIS GROUND ALONG WITH OTHER GROUNDS ADJUDICATING THE ADDITION S ON MERIT. ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 14 31. IN GROUND NO. 4,5 & 6 ASSESSEE HAS SUBMITTED THAT LD. ASSESSING O FFICER HAS ERRED IN MAKING ADDITION OF RS.20,05,000/ - AND RS.1,59,22,904/ - . 32. THE BRIEF FACTS OF THE CASE ARE THAT LD. ASSESSING OFFICER HAD RECEIVED INFORMATION FROM ANNUAL INFORMATION WING THAT ASSESSEE HAD DEPOSITED RS.20,05,000/ - IN HIS SAVING BANK ACCOUNT AND HE FURTHER FOUND A CREDIT OF RS.1,59,22,904/ - IN THE SCHEDULE OF UNSECURED LOAN OF M/S. HERRY S CLOTHING . T HE ASSESSEE HAD FAILED TO SUBMIT ANY CONFIRMATION OR ANY EVIDENCE EXPLAINING THE SOURCE OF SUNDRY CREDIT OR THE DEPOSITS MADE IN THE BAN K ACCOUNT. THE ASSESSING OFFICER, THEREFORE, MADE AN ADDITION OF BOTH THE AMOUNTS. 33. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ADDITION. THE BRIEF FINDING OF LD. CIT(A) ON THIS ISSUE READ AS UNDER: - 9.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E ON BEHALF OF THE APPELLANT AND HAVE ALSO PERUSED THE RELEVANT RECORDS. ON CONSIDERATION, I FIND THAT MOST OF THE ARGUMENTS TAKEN BY THE APPELLANT ARE WITHOUT ANY MERIT. IT IS A MATTER OF COMMON SENSE THAT THE BOOKS OF A/C ARE WRITTEN AND MAINTAINED AS PE R THE GUIDANCE AND SUPERVISION OF AN ASSESSEE AND THE SAME REMAIN WITHIN THE KNOWLEDGE THE CONCERNED ASSESSEE. THEREFORE, I FIND IT STRANGE THAT INSTEAD OF DISCHARGING HIS LEGAL OBLIGATION TO FILE CONFIRMATIONS ETC FROM THE CREDITORS, THE APPELLANT HAS CHO SEN TO CHALLENGE THE ACTION OF THE AO BY DEMANDING THE BREAKUP OF THE CREDITS AGGREGATING TO RS.15922904/ - . IN MY VIEW, INSTEAD OF ACCUSING THE AO, IF THE APPELLANT HAD TRIED TO LOOK INTO HIS OWN RECORDS, HE WOULD HAVE HAD THE A NSWER. A PERUSAL OF THE REPO RT SUBMITTED BY THEAO ON 06.11.2009, REVEALS THAT AS PER THE AUDITORS REPORT INANNEXURE A OF FROM 3CD IN RESPECT OF M/S HERRY CLOTHING INC, THERE IS NET ADDITION OF UNSECURED LOANS OF RS.15147904 AND FURTHER THERE IS ADDITION OF UNSECURED LOANS OF RS.77500 0 IN THE BOOKS OF M/S ACH KAY CLOTHING INC. THUS, THERE IS NO SUBSTANCE IN THE PRIMARY OBJECTION RAISED BY THE APPELLANT REGARDING THE SOURCE OF THE AMOUNT OF RS.15922904/ - . ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 15 AS REGARDS OTHER ISSUES RAISED BY THE LD. COUNSEL FOR THE APPELLANT, I FIND THAT A PART FROM FINDING FAULTS WITH THE AO, NO ATTEMPT HAS BEEN MADE BY THE APPELLANT TO EXPLAIN THE NATURE OF CASH CREDITS NOR ANY CONFIRMATION/EVIDENCE HAS BEEN FILE TO PROVE THE IDENTITY AND CREDITWORTHINESS OF THE CREDITORS OR THE GENUINENESS OF THE TRANSACT IONS. EVEN NO ATTEMPT HAS BEEN MADE TO FILE SUCH EVIDENCE IN THE COURSE OF APPELLATE PROCEEDINGS. IN VIEW OF THE AFORESAID, THE ADDITION OF RS.15922904 MADE U/S 68 OF THE IT ACT, 1961 IS BEING CONFIRMED. 34. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER FAIL ED TO PROVIDE AN ADEQUATE OPPORTUNITY TO THE ASSESSEE . H E WAS NOT KEEPING GOOD HEALTH AND ULTIMATELY DIED IN JULY, 2010. THE ASSESSING OFFICER HAS PASSED AN EX - PARTE ASSESSMENT. THE TIME PROVIDED BY THE ASSESSEE WAS LESS THAN TWO MONTH S AND ASSESSEE COULD NOT COMPLY WITH THE REQUIREMENTS OF THE ASSESSING OFFICER . A S FAR AS , BEFORE CIT(A) IS CONCERNED , SHRI HARISH KOCHHAR DIED IN JULY, 2010 AND HIS SON, SOMEHOW FAIL ED TO PROSECUTE HIS LITIGATION SINCERELY . H E WAS UNABLE TO COLLECT T O COMPLETE DETAILS , HE MADE A PRAYER THAT IF THE ISSUE IS BEING SET ASIDE TO THE FILE OF THE ASSESSING OFFICER , THE ASSESSEE WILL SUBMIT REQUISITE DETAILS AND EXPLAIN HIS POSITION. WHEN WE CONFRONTED THE LD. D.R. WITH REGARD TO THE PRAYER OF ASSESSEE HE DI D NOT OBJECT, HE ONLY SUBMITTED THAT ASSESSEE BE DIRECTED TO SUBMIT THE REQUISITE DETAILS IN TIME. 35. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. FROM PERUSAL OF THE ASSESSMENT ORDER , IT REVEALS THAT LD. ASSESSING OFFICER HAS ISSUED NOTICE U/S 143(2) ON 31.10.2007. SHRI ARUN AHUJA ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 16 SUBMITTED P OWER OF A TTORNEY ON BEHALF OF THE ASSESSEE. THEREAFTER, ASSESSMENT PROCEEDING REMAINED DORMANT FOR A PERIOD OF MORE THAN ONE YEAR. THE LD. ASSESSING OFFICER STARTED ENQUIRY ON 12.11.2008. HE ISSUED A SHOW CAUSE NOTICE U/S 142(1) REQUIRING THE ASSESSEE TO SUBMIT THE FOLLOWING DETAILS BEFORE 14.11.2008: - 1. DETAILS OF IMMOVABLE PROPERTY HELD BY YOU OR YOUR FAMILY MEMBERS. 2. DETAILS OF BANK ACCOUNTS HELD BY YOU WITH NARRATIONS. 3. DETAILS OF SUNDRY CREDITORS WITH PAN AND CONFIRMATIONS. 4. DETAILS OF UNSECURED LOANS WITH PAN AND CONFIRMATIONS. 5. DETAILS OF INVESTMENTS WITH DOCUMENTARY PROOF. 36. THE TIME PROVIDED BY THE ASSESSING OFFICER WAS ONLY O F TWO DAYS , U LTIMATELY , ASSES SMENT ORDER HAS BEEN PASSED ON 30.12.2008. LD. ASSESSING OFFICER HAD ISSUED VARIOUS QUESTIONNAIRES AND LAST QUESTIONNAIRE WAS ISSUED ON 26.12.2008. NO DOUBT, ASSESSEE APPEARS TO BE A BIT NEGLIGENT WHILE NOT SUBMITTING THE DETAILS BEFORE THE CIT(A) AND FAIL ED TO MAKE A PRAYER FOR PERMISSION TO ADDUCE ADDITIONAL EVIDENCE. BUT FROM PERUSAL OF THE ASSESSMENT ORDER , IT REVEALS THAT THE ASSESSING OFFICER HAD ISSUED VARIOUS NOTICES , BUT THE TOTAL TIME SPAN GIVEN TO THE ASSESSEE IN THOSE NOTICES IS LESS THAN TWO MO NTHS. THEREFORE, IT CANNOT BE TERMED AS REASONABLE OR SUFFICIENT TIME TO RESPOND OR TO SUBMIT DETAILS. T HERE CAN BE SO MANY PROBLEMS TO AN INDIVIDUAL DURING THAT PERIOD. THE PUNISHMENT IN THE SHAPE OF TAX LIABILITY ON ACCOUNT OF THIS EX - PARTE ORDER IS DISP ROPORTIONATE TO NEGLIGENCE OF THE ASSESSEE , MORE SO WHEN THE ITA NO. 5883,5884 /DEL /201 0 ITA NOS.275 &276/DEL/2011 ASSESSMENT YEAR S : 200 4 - 05 & 2006 - 07 17 ASSESSING OFFICER IS ALSO EQUALLY NEGLIGENT. CONSIDERING THIS ASPECT, WE SET ASIDE THESE TWO ISSUES TO THE FILE OF THE ASSESSING OFFICER FOR READJUDCATION . WE DIRECT THE ASSESSEE TO COMPLETE WITH DIRECTIONS OF THE ASSESSING OFFICER AND SUBMIT THE REQUISITES DETAILS WELL IN TIME. THE LD. A.O. SHALL PROVIDE DUE OPPORTUNITY OF HEARING. THE ASSESSEE WILL BE AT LIBERTY TO SUBMIT ANY DETAILS IN SUPPORT OF HIS EXPLANATION. 37. IN THE NEXT GROUND, ASSESS EE HAS CHALLENGED CHARGING OF INTEREST U/S 234B WHICH IS CONSEQUENTI AL IN NATURE. HENCE, THIS GROUND OF APPEAL IS REJECTED. IN THE RESULT , APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 38. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED WHER EAS BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. TH E DECISION IS PRONOUNCED IN THE OPEN COURT ON 20 TH OCTO BER, 201 4 . SD/ - SD/ - ( T.S. KAPOOR ) ( RAJPAL YADAV ) A CCOUNTANT MEM BER J UDICIAL MEMBER DATED: 20 TH OCTOBER , 201 4 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DE LHI