VERTEX MANUFACTURING CO. P LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 5984/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3490 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 24-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGUNE
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER & SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO.5984/MUM/2014 ASSESSMENT YEAR : 2011-12 VERTEX MANUFACTURING CO.PVT. LTD. 222, VERTEX VIKAS, A SIR M V ROAD, MUMBAI 400 069 PAN AACV2450N VS. DCIT 8(3) MUMBAI (APPELLANT) RESPONDENT) APPELLANT BY : MS. PARVATHY GANESH RESPONDENT BY : SHRI M V RAJGUNE DATE OF HEARING : 10 .0 8 .201 6 DATE OF PRONOUNCEMENT : 19 .0 8 . 201 6 O R D E R PER JASON P BOAZ, ACCOUNTANT MEMBER THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER OF THE CIT(A) -18, MUMBAI DATED 17.07.2014 FOR A.Y. 2011-12. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: 2.1 THE ASSESSEE COMPANY, EARLIER ENGAGED IN THE BU SINESS OF MANUFACTURING OF SENTINEL BRAND SWITCHES AND FUSES, WHICH ADMITTED LY CEASED SINCE AUGUST 2008, FILED ITS RETURN OF INCOME FOR A.Y 2011-12 ON 30.09 .2011 DECLARING LOSS OF RS. 50,93,958/-. THE RETURN WAS PROCESSED U/S. 143 (1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE CASE WAS SUBSEQUE NTLY TAKEN UP FOR SCRUTINY. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED FROM AN APPRAISAL OF THE FINANCIAL STATEMENTS OF THE ASS ESSEE THAT APART FROM OTHER ITA NO.5984/MUM/2014 VERTEX MANUFACTURING CO. PVT. LTD. 2 RECEIPTS AGGREGATING TO RS.17,12,592/- FROM ROYALTY , DIVIDEND, TECHNICAL CONSULTATION CHARGES, ETC., SALES OF ONLY RS.8,628/- WAS CREDITE D TO THE PROFIT & LOSS ACCOUNT WHICH WAS PART OF THE ASSESSEES OPENING STOCK, WHE REAS VARIOUS OPERATIONAL EXPENSES, PERSONNEL EXPENSES AND FINANCIAL EXPENSES OF RS.58,78,226/- WERE DEBITED RESULTING IN BUSINESS LOSS OF RS.34,65,789/ -. ACCORDING TO THE AO, EXPENDITURE BY WAY OF DIRECTORS REMUNERATION CLAIM ED (RS.12,12,972/-) SUFFERED DISALLOWANCE U/S. 40A(2) OF THE ACT IN THE A.Y. 200 6-07 TO 2008-09, WHICH WAS CONFIRMED BY THE LEARNED CIT(A) AND THE MATTER HAD REACHED FINALITY SINCE THE ASSESSEE DID NOT PREFER ANY FURTHER APPEAL. THE AO , OBSERVING THAT SINCE THERE WAS NO BUSINESS ACTIVITY IN THE CASE ON HAND, WAS OF TH E VIEW THAT THE CLAIM OF OPERATING EXPENSES LIKE POWER/FUEL ETC., PERSONNEL EXPENSES L IKE DIRECTORS REMUNERATION ETC., AND ADMINISTRATIVE EXPENSES LIKE MOTOR CAR/CONVEYAN CE, REPAIRS, BANK CHARGES, PROFESSIONAL FEES, ETC., REMAIN UNSUBSTANTIATED. I N THAT VIEW OF THE MATTER, THE AO PROCEEDED TO DISALLOW THE EXPENSES CLAIMED TO THE E XTENT OF THE ASSESSEES BUSINESS LOSS OF RS.34,65,789/-. DISALLOWANCE U/S. 14A READ WITH RULE 8D WAS ALSO COMPUTED AT RS.13,37,567/-. IN THIS MANNER, THE AO COMPLETE D THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE ORDER DATED 28.11.2013 DETERMINING THE ASSESSEES LOSS AT RS.16,28,169/- 2.2 AGGRIEVED BY THE ORDER OF THE ASSESSMENT FOR A. Y. 2011-12 DATED 28.11.2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) 18, MUMBAI, CHALLENGING THE DISALLOWANCE OF EXPENSES CLAIMED AM OUNTING TO RS.34,65,789/- WITHOUT AFFORDING THE ASSESSEE AND OPPORTUNITY OF B EING HEARD BEFORE MAKING THIS DISALLOWANCE. THE ASSESSEE ALSO CHALLENGED THE DIS ALLOWANCE U/S. 14A OF THE ACT. ITA NO.5984/MUM/2014 VERTEX MANUFACTURING CO. PVT. LTD. 3 THE LEARNED CIT(A) DISMISSED THE ASSESSEES APPEAL VIDE THE IMPUGNED ORDER DATED. 17.07.2014. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A) -18, MUMBA I DTED 17.07.2014 FOR A.Y. 2011-12, THE ASSESSEE HAS PREFERRED THIS APPEAL BEF ORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(APPEALS) 18 ERRED IN CONFIRMI NG THE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENSES AGGREGATING TO RS.34,65,789/- ON THE GROUND THAT THE EXPENDITURE WE INCREASED IN THE ABSENCE OF BUSINESS ACTIVITY. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUNDS OF APPEAL AND SUBMIT A DETAILED STATEMENT O F FACTS AND CASE LAWS RELIED UPON AT THE TIME OF HEARING. 3.2 FROM THE GROUNDS RAISED (SUPRA), THE ONLY ISSUE BEFORE US IN THIS APPEAL FOR ADJUDICATION IN THE DISALLOWANCE OF EXPENDITURE AGG REGATING TO RS.34,65,789/- BY THE AUTHORITIES BELOW. AT THE OUTSET OF THE HEARIN G ITSELF, THE LEARNED AR FOR THE ASSESSE SUBMITTED THAT WHILE MAKING THE SAID DISALL OWANCE OF EXPENDITURE AGGREGATING TO RS.34,65,789/- THE AO HAD NOT AFFORD ED THE ASSESSEE ANY OPPORTUNITY OF HEARING OR FILING REPLY/REBUTTAL IN THE MATTER. ACCORDING TO THE LEARNED AR THOUGH GROUND OF APPEAL NO.2 WAS RAISED BEFORE THE CIT(A) THAT NO OPPORTUNITY OF HEARING WAS AFFORDED TO THE ASSESSEE BEFORE MAKING THE AFORESAID DISALLOWANCE, THE LEARNED CIT(A) HAS BRUSHED AWAY T HIS CLAIM BY RENDERING A FACTUALLY INCORRECT FINDING THAT THE AO HAS GIVEN A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY THE EXPENDITURE WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHEN THERE WAS NO BUSINESS ACTIVITY CARRIED OUT DUR ING THE YEAR AND THAT IT WAS ONLY AFTER CONSIDERING THE ASSESSEES REPLY THERETO THAT THE AO MADE THE DISALLOWANCE OF RS.34,65,789/-. IT WAS VEHEMENTLY CONTENDED BY THE LEARNED AR THAT NO SUCH SHOW ITA NO.5984/MUM/2014 VERTEX MANUFACTURING CO. PVT. LTD. 4 CAUSE NOTICE WAS ISSUED BY THE AO OR WAS RECEIVED B Y THE ASSESSEE. IT WAS SUBMITTED THAT A PERUSAL OF THE ORDER OF ASSESSMENT DATED 28.11.2013 FOR A.Y. 2011-12 CLEARLY ESTABLISHES THAT NEITHER WAS ANY SH OW CAUSE NOTICE ISSUED BY THE AO TO THE ASSESSEE NOR WAS ANY REPLY THERETO FILED BY THE ASSESSEE. IT WAS CONTENDED THAT IN THESE CIRCUMSTANCES SINCE THE ASS ESSEE WAS NOT AFFORDED OPPORTUNITY OF HEARING BY THE AO BEFORE MAKING THE AFORESAID DISALLOWANCE OF EXPENDITURE, THERE HAS BEEN VIOLATION OF THE PRINCI PLES OF NATURAL JUSTICE AND ON THIS SHORT POINT ALONE, THE FINDING OF THE AUTHORITIES B ELOW BE SET ASIDE AT THE THRESHOLD. 3.3 THE LEARNED DR, WHILE PLACING SUPPORT ON THE IM PUGNED ORDER OF THE LEARNED CIT(A); THAT THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND ADJUDICATED THE MATTER AFTER CONSIDERING THE ASSESSEES REPLY, SUBM ITTED THAT HE HAD NO OBJECTION IF THE MATTER WAS SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION OF THIS MATTER AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY I N THE MATTER SINCE HE COULD NOT CONTROVERT THE ASSESSEES CONTENTION THAT SHOW CAUS E NOTICE WAS NOT SERVED. 3.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AN D CAREFULLY CONSIDERED THE MATERIAL ON RECORD. AS CONTENDED BY THE LEARNED AR OF THE ASSESSEE, AFTER PERUSAL OF THE ORDER OF ASSESSMENT FOR AY. 2011-12DATED 28. 11.2013, IT DOES NOT APPEAR TO US THAT EITHER ANY SHOW CAUSE NOTICE WAS ISSUED BY THE AO TO THE ASSESSEE PROPOSING THAT THE SAID DISALLOWANCE WAS TO BE MADE OR THAT THE ASSESSEE HAD REPLIED THERETO. EVEN IN THE IMPUGNED ORDER THE LE ARNED CIT(A) HAS NOT GIVEN EITHER THE DATE OR DETAILS OF THE AOS SHOW CAUSE NOTICE, IF ANY, AND NEITHER THE DATE NOR DETAILS OF THE ASSESSEES REPLY THERETO. BEFORE US, THE LEARNED DR TOO WAS NOT ABLE TO CONTROVERT THE AVERMENTS OF THE ASSESSEE THAT NO SHOW CAUSE NOTICE WAS ISSUED ITA NO.5984/MUM/2014 VERTEX MANUFACTURING CO. PVT. LTD. 5 BEFORE MAKING THE SAID DISALLOWANCE AND, THEREFORE, ADEQUATE OPPORTUNITY WAS NOT AFFORDED TO THE ASSESSEE TO REBUT THE CONTENTIONS O F THE AO. IN THESE PECULIAR FACTUAL CIRCUMSTANCES OF THE CASE ON HAND, WE ARE O F THE VIEW THAT THE ASSESSEE WAS NOT AFFORDED ADEQUATE OPPORTUNITY OF BEING HEAR D IN THE MATTER BEFORE THE AO PROCEEDED TO MAKE THE DISALLOWANCE OF EXPENDITURE A GGREGATING TO RS.34,65,789/-. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE AFORES AID DISALLOWANCE MADE BY THE AO AND RESOTRE THE SAID ISSUE TO THE FILE OF THE AO FO R FRESH CONSIDERATION AND ADJUDICATION THEREON AFTER AFFORDING THE ASSESSEE A DEQUATE OPPORTUNITY OF BEING HEARD AND FILE DETAILS/SUBMISSIONS REQUIRED. IT IS ORDERED ACCORDINGLY. 3.4.2 IN VIEW OF OUR FINDING SETTING ASIDE THE ISSU E OF DISALLOWANCE OF EXPENDITURE AGGREGATING TO RS.34,65,789/- TO THE FILE OF THE AO , WE DEEM IT APPROPRIATE TO REFRAIN FROM DECIDING THE GROUNDS RAISED IN THIS RE GARD ON MERITS. 4 IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 201 1-12 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9 TH AUGUST 2016. SD/- SD/- (SANDEEP GOSAIN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 19 TH AUGUST, 2016. SA ITA NO.5984/MUM/2014 VERTEX MANUFACTURING CO. PVT. LTD. 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI