M/s. Sheena Exports, New Delhi V. CIT(Central), Gurgaon

ITA 6001/DEL/2013

• Counselvise Citation: 600120114 RSA 2013
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 07-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M B REDDY
• Assessee Lawyers: ASHWANI TANEJA; RAKESH GUPTA
• Keywords: Depreciation; Search and seizure; Principle of natural justice; Bonafide belief; Period of limitation; Condonation of delay; Ignorance of law
• Section: 143(3); 54; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G NEW DELHI BEFORE SHRI A.D. JAIN , JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO: 6001 /DEL/201 3 ASSESSMENT YEAR : - 200 8 - 09 SHEENA EXPORTS VS. CIT (CENTRAL) C/O M/S RRA TAXINDIA GURGAON D 28, SOUTH EX PART I NEW DELHI 110 049 PAN: AAEFS 4153 N A N D ITA NO: 6002 /DEL/201 3 ASSESSMENT YEAR : - 200 8 - 09 M/S SHEENA EXPORTS VS. DCIT, CENTRAL CIRCLE NEW DELHI KARNAL (APPELLANT) (RESPONDENT) APPELLANT BY : SH.RAKESH GUPTA, ADV. AND SHRI ASHWANI TANEJA, ADV. RESPONDENT BY : SH. M.B.REDDY, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA 6001/DEL/2013 IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD.CIT (CENTRAL), GURGAON PASSED U/S 263 OF THE ACT ON 15.02.2012. THERE IS A DELAY OF 542 DAYS IN FILING OF THE APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LD. C IT (CENTRAL) HAD IN HIS ORDER U / S. 263 DATED 15.02.2012 DIRECTED THE LD.AO TO RE - FRAME THE ASSESS MENT ORDER AND MAKE AN ADDITION OF RS.53,04,111/ - . THE AO PASSED AN ORDER U / S. 143(3) READ WITH SEC.263 ON 23.03.2012 MAKING AN ADDITION AS PER THE DIRECTION OF THE LD.CIT (CENTRAL) , GURGAON. THE ASSESSEE FILED AN APPEAL ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 2 OF 15 AGAINST THE ORDER OF THE AO BEFORE T HE LD. CIT(A) WITHOUT SUCCESS. IT WAS SUBMITTED THAT THE ASSESSEE APPROACHED DR. R AKESH GUPTA, ADVOCATE TO FILE AN APPEAL AGAINST THE ORDER OF THE LD.CIT(A) AND IT WAS AT THIS TIME THAT IT WAS POINTED OUT THAT THE PRIMARY GRIEVANCE OF THE ASSESSEE EMANATES FROM THE ORDER PASSED U / S.263 AND THE LEGAL REMEDY LIES IN FILING AN APPEAL AGAINST THE ORDER U / S. 263 OF THE ACT. 2. FACTS IN BRIEF : T HE ASEESEE IS A PARTNERSHIP FIRM AND IS IN THE BUSINESS OF MANUFACTURE, EXPORT OF HOME FURNISHING PRODUCTS. A SEARCH A ND SEIZURE OPERATION WAS CONDUCTED ON THE ASSESSEE ON 24.04.2007. T HE ASSESSEE FILED ITS RETURN OF INCOME ON 13.09.2009 RETURNING A TOTAL INCOME OF RS.9,36,82,650/ - . THEY ARGUED THAT THE ASSESEE WAS UNDER A BONAFIDE BELIEF THAT REMEDY LIES IN APPEALING AG AINST THE ORDER OF THE AO PASSED U / S.1 54 READ WITH SEC . 263 AND THIS WAS DUE TO HIS LACK OF KNOWLEDGE AND PROPER GUIDANCE. IT WAS PLEADED THAT UNDER THE AFORESAID FACTS AND CIRCUMSTANCES, AS THE MATTER WAS BEYOND THE CONTROL OR KNOWLEDGE OF THE ASSESSEE, THE DELAY IN FILING OF THE APPEAL HAS TO BE CONDONED. AN AFFIDAVIT HAS BEEN FILED TO THIS EXTENT. RELIANCE WAS PLACED ON : (A) COLLECTOR, LAND ACQUISITION VS. MST KATIJI & OTHERS (SC) 167 ITR 471 (SC) ; (B) ITA 3335/DEL/2012 IN GHAZIABAD DEVELOPMENT AUTHORITY VS. ACIT, THE DELHI F BENCH OF THE TRIBUNAL. 3. T HE LD. DR OPPOSED THE CONTENTIONS OF THE ASSESSEE AND CONTENDED THAT THE DELAY CANNOT BE CONDONED. HE FURTHER ARGUED THAT THE ASSESEE IS ASSISTED BY A PROFESSIONAL CHARTED ACCOUNTANT AND THE CLAIM OF IGNORANCE OF LAW IS NOT FACTUALLY CORRECT . F OR THE PROP OSITION THAT WHEN THE ASSESEE IS ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 3 OF 15 GUIDED BY A CA HE CANNOT CLAIM IGNORANCE OF LAW. HE RELIED ON THE FOLLOWING CASE LAWS . (A) J&K SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION LTD. VS. ACIT REPORTED IN 317 ITR 458 (MADRAS) (B) MADHU DADHA VS. ACIT (MADRAS) REPORTED IN 31 6 ITR 58. (C ) RAMLAL MOTHILAL AND CHOTILAL VS. REWA COLA FIELDS LTD. (1962) AIR 361 4. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REPLY SUBMITTED THAT THE CASE LAWS CITED BY THE REVENUE ARE BASED ON THEIR PECULIAR SET OF FACTS AND THE TEST TO BE APPLIED FOR CONDONATION OF DELAY IS WHETHER THE ASSESEE HAS SUFFICIENT CAUSE. HE DREW THE ATTENTION OF THE BENCH TO THE JUDGMENT OF HON`BLE S UPREME COURT IN THE CASE OF COLLECTOR , LAND A CQUISITION VS. MST KATIJ I AND OTHERS (SUPRA) W HEREIN IT WAS HELD A S FOLLOWS: 5. MAKING A JUSTICE ORIENTED APPROACH FROM THIS PERSPECTIVE, THERE WAS SUFFICIENT CAUSE FOR CONDONING THE DELAY IN THE INSTITUTION OF THE APPEAL. THE FACT THAT IT WAS THE STATE WHICH WAS SEEKING CONDONATION AND NOT A PRIVATE PARTY WAS ALTOGETHER IRRELEVANT . THE DOCTRINE OF EQUALITY BEFORE LAW DEMANDS THAT ALL LITIGANTS INCLUDING THE STATE AS A LITIGANT, ARE ACCORDED THE SAME TREATMENT AND THE LAW IS ADMINISTERED IN AN EVEN HANDED MANNER. THERE IS NO WARRANT FOR ACCORDING A STEP - MOTHERLY TREATMENT WHEN THE STATE IS THE APPLICANT PRAYING FOR CONDONATION OF DELAY. IN FACT, EXPERIENCE SHOWS THAT ON ACCOUNT OF AN IMPERSONAL MACHINERY (NO ONE IN CHARGE OF THE MATTER IS DIRECTLY HIT OR HURT BY THE JUDGEMENT SOUGHT TO BE SUBJECTED TO APPEAL) AND THE INHERITED B UREAUCRATIC METHODOLOGY IMBUED WITH THE NOTE MAKING, FILE PUSHING, AND PASSING ON THE BUCK ETHOS, DELAY ON ITS PART IS LESS DIFFICULT TO UNDERSTAND THOUGH MORE DIFFICULT TO APPROVE. IN ANY EVENT, THE STATE WHICH REPRESENTS THE COLLECTIVE CAUSE OF THE COM MUNITY, DOES NOT DESERVE A LITIGANT NON GRATA STATUS. THE COURT, THEREFORE, HAVE TO BE INFORMED OF THE SPIRIT AND PHILOSOPHY OF THE PROVISION IN THE COURSE OF THE INTERPRETATION OF THE EXPRESSION SUFFICIENT CAUSE . SO ALSO THE SAME APPROACH HAS TO BE EV IDENCED IN ITS APPLICATION TO MATTERS AT HAND WITH THE END IN VIEW TO DO EVEN HANDED JUSTICE ON MERITSIN PREFERENCE TO THE APPROACH WHICH SCUTTLES A DECISION ON MERITS. TURNING TO THE FACTS OF THE MATTER, GIVING RISE TO THE PRESENT APPEAL, WE ARE SATISFIE D THAT SUFFICIENT CAUSE EXISTS FOR THE DELAY. THE ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 4 OF 15 ORDER OF THE HIGH COURT DISMISSING THE APPEAL BEFORE IT AS TIME BARRED, THEREFORE, SET ASIDE. DELAY IS CONDONED. AND THE MATTER IS REMITTED TO THE HIGH COURT. THE HIGH COURT WILL NOW DISPOSE OF THE APPE AL ON MERITS AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE SIDES. APPEAL IS ALLOWED ACCORDINGLY. NO COSTS. SUFFICIENT CAUSE FOR THE PURPOSE OF CONDONATION OF DELAY, SHOULD BE INTERPRETED WITH A VIEW TO DO JUSTICE ON MERITS IN PREFERENCE TO APPROACH WITH CORRECT DISCUSSION ON MERITS. 5. RIVAL CONTENTIONS HE A RD. THIS IS A CASE, WHERE THE ASSESSEE HAS BEEN DILI GENTLY PURSUING REMEDIES AGAINST THE ORDER OF THE REVENUE AUTHORITIES. IT IS NOT A CASE WHETHER THE ASSESEE HAS GIVEN UP ITS CASE AT ANY STAGE. NO DOUBT THE ASSESEE IS GUIDED BY PROFESSIONALS IN ITS LITIGATION. THIS DOES NOT MEAN THAT THERE COULD NOT BE A MISTAKE ON THE PART OF ASSESSEE OR ITS COUNSELS IN INTERPRETING THE ORDER OF THE LD.CIT(A) U/S 263 AND COMING TO A CONCLUSION THAT THEY COULD AGITATE THE ADDITION IN QUESTION BEFORE THE AO IN FRESH ASSESSMENT PROCEEDINGS , CONSEQUENT TO THE SAID ORIG INAL ASSESSMENT ORDER. IT WAS ONLY WHEN THEY DID NOT FIND ANY SUCCESS BEFORE THE LD.CIT(A), THE INSTRUCTING COUNSEL CONTACTED DR. R AKESH GUPTA WHO SPECIALIZED IN ARGUING THE MATTERS BEFORE THE HIGH COURT AND THE SUPREME COURT AND WHEN THE CASE WAS DISCUSSED IN THE CONFERENCE, DR. R AKESH GUPTA BROUGHT TO THE NOTICE THAT A MISTAKE OCCURRED IN NOT FILING ANY APPEAL AGAINST OUT THE ORDER OF LD.CIT U / S.263. IT WAS ADVISED THAT IN ADDITION TO THE APPEAL FILED AGAINST THE ORDER PA SSED BY THE LD.CIT(A) C ENTRAL GURGAON IN THE ORDER DATED 11.09.2013, THIS APPEAL WAS TO BE FILED ALONG WITH THE PETITION FOR CONDONATION OF DELAY. IT CAN BE NOTICED THAT THE CIT(A) CENTRAL GURGAON PASSED HIS ORDER ON 11 TH SEPTEMBER , 2013 AND IT IS ON 7 TH NOV. 2013 THAT THE ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 5 OF 15 ASSESEE FILED AN APPEAL CHALLENGING NOT ONLY THE ORDER PASSED BY CIT(A) GURGAON ON 11.09.2013 BUT ALSO THE ORDER PASSED BY CIT, CENTRAL GURGAON U / S. 263 ON 19.02.2012. I N OUR CONSIDERED VIEW THE A SSSESE HAS EXPLAINED THE DELAY AS IT WAS UNDER A BONAFIDE BELIEF THAT THE REMEDY LIES IN FILING AN APPEAL AGAINST THE ORDER OF THE AO PASSED U/S 143 R.W.S.263. IT IS A CASE OF PURSUING THE REMEDY IN A WRONG FORUM. IT WAS A CASE OF THE ASSESSEE UNDER A MISTAKEN ADVISE DID NOT FILE THE APPEAL AGAINST ORDER PASSED U/S 263 BY THE LD.CIT. 5.1. THE HON`BLE S UPREME C OURT IN THE CASE OF IMPROVEMENT TRUST LUDHIANA VS. UJAKAR SINGH AND ANOTHER IN CIVIL APPEAL NO.2395/2008 VIDE JUDGEMENT DT. 9.2.2010 HAS HELD AS FOLLOWS: UNLESS MALA FIDES ARE WRIT LARGE, DELAY SHOULD BE CONDONED. (54.6 KIB, 1,251 DLS) MATTERS SHOULD BE DISPOSED OF ON MERITS AND NOT TECHNICALITIES. THE APPELLANT, A LOCAL AUTHORITY, ACQUIRED LAND BELONGING TO ONE OF THE RESPONDENTS FOR A DEVELOPMENT SCHEME IN 1988. AS THE APPELLANT D ID NOT PAY THE COMPENSATION AMOUNT DESPITE NOTICE, THE PROPERTY WAS AUCTIONED AND SALE CONFIRMED IN FAVOUR OF THE HIGHEST BIDDER IN 1992. THE BIDDER DEPOSITED THE SALE PROCEEDS. THE APPELLANT THEN WOKE UP FROM ITS SLUMBER AND FILED OBJECTIONS BEFORE THE SINGLE JUDGE FOR SETTING ASIDE THE AUCTION SALE. EVEN IN THESE PR OCEEDINGS, THE APPELLANT DID NOT APPEAR AND THE SAME WERE DISMISSED FOR NON - APPEARANCE. THE SALE DEED WAS EXECUTED IN FAVOUR OF THE HIGHEST BIDDER. THE APPELLANT THEN FILED AN APPEAL BEFORE THE DISTRICT JUDGE WHICH WAS BARRED BY LIMITATION BY A COUPLE O F MONTHS. THIS APPEAL WAS DISMISSED ON THE GROUND THAT THERE WAS NOT SUFFICIENT GROUND FOR CONDONATION OF DELAY. ON MISTAKEN ADVICE, THE APPELLANT FILED A SECOND APPEAL TO THE HIGH COURT WHICH WAS THEREAFTER TREATED BY THE COURT AS A REVISION APPLICATIO N. THIS WAS ALSO DISMISSED. THE APPELLANT THEN FILED A REVIEW PETITION WHICH WAS ALSO DISMISSED. AGAINST THAT THE APPELLANT FILED A SLP WHICH WAS ALSO DELAYED. THE DELAY IN FILING THE SLP WAS CONDONED AND THE QUESTION BEFORE THE ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 6 OF 15 SUPREME COURT WAS WHETH ER THE DISTRICT JUDGE WAS JUSTIFIED IN DISMISSING THE FIRST APPEAL ON THE GROUND OF DELAY. HELD ALLOWING THE APPEAL: (I) WHILE CONSIDERING AN APPLICATION FOR CONDONATION OF DELAY NO STRAIT JACKET FORMULA IS PRESCRIBED TO COME TO THE CONCLUSION IS SUFFICIENT A ND GOOD GROUNDS HAVE BEEN MADE OUT OR NOT. EACH CASE HAS TO BE WEIGHED FROM ITS FACTS AND THE CIRCUMSTANCES IN WHICH THE PARTY ACTS AND BEHAVES. FROM THE CONDUCT, BEHAVIOR AND ATTITUDE OF THE APPELLANT IT CANNOT BE SAID THAT IT HAD BEEN ABSOLUTELY CALLO US AND NEGLIGENT IN PROSECUTING THE MATTER; (II) JUSTICE CAN BE DONE ONLY WHEN THE MATTER IS FOUGHT ON MERITS AND IN ACCORDANCE WITH LAW RATHER THAN TO DISPOSE IT OF ON SUCH TECHNICALITIES AND THAT TOO AT THE THRESHOLD; (III) UNLESS MALAFIDES ARE WRIT LARGE ON THE CO NDUCT OF THE PARTY, GENERALLY AS A NORMAL RULE, DELAY SHOULD BE CONDONED. IN THE LEGAL ARENA, AN ATTEMPT SHOULD ALWAYS BE MADE TO ALLOW THE MATTER TO BE CONTESTED ON MERITS RATHER THAN TO THROW IT ON SUCH TECHNICALITIES. APART FROM THE ABOVE, THE APPELLA NT WOULD NOT HAVE GAINED IN ANY MANNER WHATSOEVER, BY NOT FILING THE APPEAL WITHIN THE PERIOD OF LIMITATION, IT IS ALSO WORTH NOTICING THAT DELAY WAS ALSO NOT THAT HUGE, WHICH COULD NOT HAVE BEEN CONDONED, WITHOUT PUTTING THE RESPONDENTS TO HARM OR PREJUD ICE. IT IS THE DUTY OF THE COURTS TO SEE TO IT THAT JUSTICE SHOULD BE DONE BETWEEN THE PARTIES; (IV) ALSO OBSERVED THAT AS THE AUCTION PURCHASER HAD BEEN PUT TO INCONVENIENCE AND HARASSMENT AND HAD NOT GOT ANY FRUITS FOR THE SALE PROCEEDS PAID IN 1992, IT SHO ULD BE PAID COSTS OF RS.50,000/ - . 5.1.1. IN OUR VIEW THE PROPOSITIONS LAID DOWN IN THIS CASE LAW APPLIES TO THE FACTS OF THIS CASE. 5.2. COMING TO THE NUMEROUS DECISIONS RELIED UPON BY THE REVENUE, WE FIND THAT EACH ONE OF THEM ARE BASED ON THE PECULIAR SET OF FACTS OF THAT CASE AND THESE ARE DISTINGUISHABLE . I. IN THE CASE OF MADHU DADHA VS. ACIT (MAD.) THE TRIBUNAL WAS NOT SATISFIED THAT THERE WAS SUFFICIENT CAUSE FOR NOT BRINGING THE APPEAL WITHIN STIPULATED TIME FOR THE REASONS GIVEN THEREIN. II. IN THE CASE OF BANWARILAL AND SONS PVT.LTD. VS. UOI AND OTHERS (DEL) AIR 1973 DELHI 24, THE HON BLE SUPREME COURT HAS LAID DOWN THAT THE ASSESSEE HAS TO EXPLAIN THE DELAY MADE DAY BY DAY. IT IS ALSO STATED THAT HE HAS TO ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 7 OF 15 SHOW THAT HE WAS NOT GUILTY OF WANT OF BONAFIDES IN ACTION FOR NEGLIGENCE . THIS WAS A CASE WHERE THE APPELLANT FAILED TO EXPLAIN THE DELAY ON EITHER OF THE TWO GROUNDS URGED BY HIM. IN THE CASE ON HAND THE BONAFIDES WERE PROVED. III. THE HON BLE SUPREME COURT IN THE CASE OF RA MLAL, MOTILAL AND CHHOTELAL(SUPRA) HELD AS UNDER. IN AN APPLICATION U/S 5 OF THE INDIAN LIMITATION ACT FOR CONDONATION OF ONE DAY S DELAY IN FILING AN APPEAL, THE QUESTION AROSE WHETHER THE APPELLANT HAD TO EXPLAIN HIS CONDUCT DURING THE WHOLE PERIOD PRES CRIBED FOR FILING THE APPEAL OR HE HAS TO EXPLAIN THE DELAY BETWEEN THE LAST DAY FOR FILING THE APPEAL AND THE DATE ON WHICH THE APPEAL WAS ACTUALLY FIELD. SECTION 5 OF THE LIMITATION ACT LAYS DOWN THAT AN APPEAL MAY BE ADMITTED AFTER THE PERIOD OF LIMIT ATION IF THE APPELLANT SHOWS SUFFICIENT CAUSE FOR NOT PREFERRING THE APPEAL WITHIN SUCH PERIOD. HELD, THAT IT WOULD BE IRRELEVANT TO INVOKE GENERAL CONSIDERATIONS SUCH AS DILIGENCE OF THE APPELLANT IN CONSTRUING THE WORDS OF SEC.5. THE EXPRESSION WITH IN SUCH PERIOD DOES NOT MEAN DURING SUCH PERIOD AND THE FAILURE OF THE APPELLANT TO ACCOUNT FOR HIS NON DILIGENCE DURING THE WHOLE PERIOD OF LIMITATION DOES NOT DISQUALIFY HIM FROM PRAYING FOR CONDONATION OF DELAY. IN SHOWING SUFFICIENT CAUSE FOR CONDONI NG THE DELAY THE APPELLANT HAS TO EXPLAIN THE WHOLE OF THE DELAY COVERED BY THE PERIOD BETWEEN THE LAST DAY OF LIMITATION AND THE DATE ON WHICH THE APPEAL WAS ACTUALLY FILED . IN THE CASE ON HAND, IN OUR VIEW, THE ASSESSEE HAS EXPLAINED THE DELAY IN QUEST ION. IV. IN THE CASE OF J&K SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION LTD. VS. ACIT (SUPRA) THE TRIBUNAL CAME TO A CONCLUSION THAT THE ASSESSEE HAS SUPPRESSED MATERIAL FACTS AND THAT IT DID NOT APPROACH THE COURTS WITH CLEAN HANDS. 5.3. AS ALREADY STATED IN THE CASE ON HAND THE ASSESEE HAS SHOWN A SUFFICIENT CAUSE AND REASON TO EXPLAIN THE WHOLE OF THE DELAY COVERED BY THE PERIOD BETWEEN THE LAST DAY OF LIMITATION AND THE DATE ON WHICH THE APPEAL WAS ACTUALLY FILED. IN FACT THE ASSESSEE WAS PURSU ING THE LEGAL REMEDY THROUGHOUT THE PERIOD AND IT WAS A CASE OF PURSUING THE WRONG REMEDY ON MISTAKEN ADVISE . IN THE RESULT WE CONDONE THE DELAY IN QUESTION AND ADMIT THE APPEAL. ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 8 OF 15 5.4. WE NOW TAKE UP THE APPEAL ON MERITS. 6. THE ORDER OF THE LD.CIT, CENTRA L GURGAON DT. 15.12.2012 PASSED U/S 263 OF THE ACT IS CHALLENGED BY THE ASSESSEE ON THE FOLLOWING GROUNDS. 1. THAT HAVING REGARD TO FACTS & CIRCUMSTANCES OF THE CASE, THE LD.CIT HAS ERRED IN LAW AND ON FACTS IN PASSING THE IMPUGNED ORDER U/S 263 WHICH IS BARRED BY LIMITATION, ILLEGAL, WITHOUT JURISDICTION AND CONTRARY TO LAW AND FACTS AND DESERVES TO BE QUASHED. 2. THAT HAVING REGARD TO FACTS & CIRCUMSTANCES OF THE CASE, THE LD.CIT HAS ERRED IN LAW AND ON FACTS IN ASSUMING JURISDICTION U/S 263 AND HAS FUR THER ERRED IN DIRECTING THE ASSESSING OFFICER TO REFRAME THE ASSESSMENT ORDER AFTER ADDING A SUM OF RS.53,04,111/ - TO THE INCOME OF THE ASSESSEE AND MORE SO WHEN ASSESSEE WAS FORCED TO SURRENDER OF RS.10 CRORES DURING THE COURSE OF ASSESSMENT. 3. THAT HAVI NG REGARD TO FACTS & CIRCUMSTANCES OF THE CASE, THE LD.CIT HAS ERRED IN LAW AND ON FACTS IN PASSING THE IMPUGNED ORDER U/S 263 WHICH IS BAD IN LAW IN AS MUCH AS NO ADEQUATE OPPORTUNITY OF HEARING WAS GRANTED AND FRAMING THE IMPUGNED ORDER WITHOUT CONSIDERI NG THE PRINCIPLES OF NATURAL JUSTICE AND WITHOUT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. 4. THAT HAVING REGARD TO FACTS & CIRCUMSTANCES OF THE CASE, THE LD.CIT HAS ERRED IN LAW AND ON FACTS IN PASSING THE IMPUGNED ORDER U/S 263 WHICH IS NOT SUSTAINAB LE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY, DELETE ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 6.1. FACTS IN BRIEF: - THE ASSESSEE IS A PARTNERSHIP FIRM AND IS A MANUFACTURER, EXPORTER OF DHARIS, RUGS, THROWS, WOOLEN CURTAINS AND OTHER MADE UPS (HOME FURNISHING PRODUCTS). IT FILED ITS RETURN OF INCOME FOR THE AY 2007 - 08 ON 30.09.2008 DECLARING TOTAL INCOME OF RS .9,36,82,650/ - 6.2. A SEARCH AND SEIZURE OPERATION WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE AT UJHA ROAD, PANIPAT ON 24.04.2007. T HE ASSESSMENT WAS COMPLETED ON 29.12.2009 U / S.143(3) READ WITH SEC.153 B OF THE A CT DETERMINING THE TOTAL INCOME AT RS. 1 1,11,87,190/ - INTER ALIA MAKING ADDITION OF : (A) RS.24,537/ - ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION. ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 9 OF 15 (B) AN AMOUNT OF RS. 25 LAKS ON ACCOUNT OF UNEXPLAINED MONEY ON THE BASIS OF SEIZED MATERIAL. (C ) ADDITION ON ACCOUNT OF STOCK DIFFERENCE TO THE TU NE OF RS.1,49,80,000/ - . 6.2.1. AGGRIEVED THE ASESSEE CARRIED THE MAT TER IN APPEAL BEFORE THE LD.CIT(APPEALS). 6.3. THE LD.CIT(A) - I, LUDHIANA VIDE ORDER DATED 18.02.2011 CONSIDERED APPEAL OF THE ASSESSEE AGAINST THE ORDER PASSED U / S.143(3) READ WITH SEC .153 B BY THE AO AND DISMISSED THE SAME ON MERITS. HE UPHELD THE FINDING OF THE ASSESSING OFFICER. 6.4. LATER THE LD.CIT(CENTRAL), GURGAON PASSED THE IMPUGNED ORDER U / S.263 OF THE A CT ON 15.02.2012 REVISING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 153B DT. 29.12.2009. I N THIS ORDER THE LD.CIT(CENTRAL), GURGAON WAS OF THE VIEW THAT THE ACTUAL STOCK DIFFERENCE WAS RS.13,54,07,957/ - AND THIS REMAINED UNEXPLAINED BY THE ASSESEE. HE OBSERVED THAT THE ASSESEE OFFERED TO SURRENDER , DURING THE COURSE OF ASSESSMENT PROCEEDINGS , RS. 10 CRORES ONLY , ON ACCOUNT OF SHORTAGE OF STOCK AND THE GROSS PROFIT RATE OF 14.98% WAS APPLIED ON THE SHORTAGE OF STOCK AND ADDITION WAS MADE . THE UNDISCLOSED INCOME TO THE TUNE OF RS.1,49,80,000/ - WAS A DDED BACK. HE WAS OF THE VIEW THAT THE ADDITION SHOULD HAVE BEEN RS.2,02,84,111/ - INSTEAD OF RS.1,49,80,000/ - AND HENCE THERE IS AN UNDER ASSESSMENT OF RS.53,04,111/ - . A NOTICE WAS ISSUED TO THE ASSESEE ON 1.02.2012 PROPOSING TO INVOKE THE REVISIONARY POWE RS U / S.263. THE ASSESSEE REPLIED THAT IT WAS FORCED TO SURRENDER RS.10 CRORES AS STOCK SHORTAGE THROUGH COERCION AND THREAT AND THAT ACTUALLY THERE WAS NO STOCK SHORTAGE. ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 10 OF 15 THE ASSESSEE PLEADED WITH THE LD. CIT THAT THE AO SHOULD BE DIRECTED TO ASSESS THE CORRECT INCOME VIS - - VIS STOCK DIFFERENCE ONLY ON THE BASIS OF PROVEN FACTS AND NOT OTHERWISE. 6.5. AFTER CONSIDERING HIS REPLY THE LD.CIT RECALLED THAT THE ASSESSEE HAS NOT DISPUTED THE FACTS ON EARLIER OCCASIONS AND THAT THE ARGUMENT THAT THE SURRENDE R WAS DONE UNDER COERCION WAS MADE FOR THE FIRST TIME AFTER ISSUE OF NOTICE U/S 263. HE DIRECTED THE AO TO REFRAME THE ASSESSMENT ORDER BY ADDING AN AMOUNT OF RS.53,04,111/ - 6.6. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE A SSESSEE DR. R AKESH GUPTA ARGUED THAT : A ) . THAT THE AO HAS DEALT WITH THE ISSUE OF STOCK AND SUPPRESSED SALES IN AN EXTENSIVE MANNER IN HIS ORDER PASSED U/S 143(3) READ WITH SEC.153D, AFTER CONSIDERING THE EXPLANATIONS FILED BY THE ASSESSEE AND UNDER SU CH CIRCUMSTANCES THE ORDER CANNOT BE CONSIDERED AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. B ) . THE SECOND PROPOSITION CANVASSED BY DR.R AKESH GUPTA IS THAT THE SUBJECT MATTER WAS AN ISSUE IN APPEAL BEFORE THE LD.CIT(A) AGAINST THE FIRST ROUND OF ASSESSMENT PROCEEDINGS AND HENCE IT IS A CASE OF MERGER WITH RESPECT TO THE ISSUE OF DETERMINATION OF STOCK AND T HEREFORE INITIATION OF PROCEEDINGS U/S 263 ON THE VERY SAME ISSUE IS ILLEGAL. HE RELIED ON A NUMBER OF CASE LAWS. 8. THE LD.DR ON THE OTHER HAND SUBMITTED THAT THE AO HAS NOT APPLIED HIS MIND PROPERLY AND THIS RESULTED IN THE AO UNDER ASSESSING THE INCOME. ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 11 OF 15 HE POINTED OUT THAT THE ACTUAL DIFFERENCE BETWEEN THE STOCK FOUND AT THE TIME OF SEARCH WAS RS.13,54,07,937 / - AND WHERE AS THE AO COMPUTED PROFITS ON STOCK SHORTAGE OF RS. 10 CRORES ONLY. THIS SHOWS NON APPLICATION OF MIND. ON THE ISSUE OF MERGER HE SUBMITTED THAT THIS ASPECT OF VARIATIONS OF STOCK WAS NOT BEFORE THE FIRST APPELLATE AUTHORITY AND HENCE THERE IS NO MERGER. 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF ORDERS OF LOWER AUTHORITIES, MATERIAL ON RECORD AND VARIOUS CASE LAWS CITED, WE HOLD AS FOLLOWS. 10. THE AO IN HIS ORDER U/S143(3) CONSIDERED THE ISSUE OF STOCK DIFFERENCE AT PARA 11 TO 11.15, (WHICH WE ARE NOT REPRODUCING FOR THE SAKE OF BREVITY) AND REJECTED THE CONTENTIONS OF THE ASSESSEE. THUS IN OUR VIEW IT CANNOT BE SAID THAT THERE IS NON APPLICATI ON OF MIND BY THE AO NOR THAT THE AO WAS NEGLIGENT. THE DECISION TAKEN BY THE AO ON THIS ISSUE IN OUR VIEW IS A CONSIDERED DECISION AND A POSSIBLE VIEW. 10.1. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 10.2. THE L D.CIT(A) I, LUDHIANA IN HIS ORDER DT. 18 - 2 - 2011 ON THE ISSUE OF THESE STOCKS AT PAGE 8 OF HIS ORDER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AT LENGTH AND AT PAGE 1 5 HELD AS UNDER. REGARDING ADDITION OF RS.1,49,80,000/ - ON ACCOUNT OF STOCK DIFFERENCE, THE ISSUE HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN PARA 11 OF ASSESSMENT ORDER. AS PER FACTS NOTED IN ASSESSMENT ORDER, SOTCK OF RS.23,17,23,865/ - WAS FOUND AT THE PREMISES OF ASSESSEE (WITHOUT TAKING INTO ACCOUNT THE STOCK LYING WITH OTHER CONCERNS AS FOUND DURING THE SEARCH/SURVEY AND STATED TO BE ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 12 OF 15 BELONGING TO SHEENA EXPORTS AT THE TIME OF SEARCH/SURVEY ITSELF WHICH COMES TO RS.5,79,19,195/ - . ON THE BASIS OF ABOVE TOTAL PHYSICAL STOCK FOUND WHICH RELATED TO ASSESSEE COMES TO RS.28,96,43,006/ - . HO WEVER, DETAILS OF CLOSING STOCK FURNISHED BY THE ASSESSEE AT THE YEAR END AS PER ACCOUNTS WERE AS UNDER. RAW MATERIAL RS. 9,99, 62,02,020.00 WIP AND FINISHED GOODS RS. 28,33,46,700.00 DYES AND CHEMICALS RS. 85,22,650.00 PACKING MATERIAL AND OTHERS RS. 26,12,200.00 LABEL AND MISC. CONSUMABLES RS. 27,84,615.00 GOODS IN TRANSIT RS. 9,55,72,600.00 STOCK OF WASTE, SCRAP ETC. RS. 6,08,200.00 STOCK AT BIKANER BRANCH RS. 584,62,500.00 ASSESSING OFFICER ALSO COLLECTED STOCK STATEMENTS GIVEN BY THE ASSESSEE TO ITS BANKERS FOR AVAILING CREDIT LIMITS AGAINST HYPOTHECATED STOCK. IN THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW HOW AND THROUGH WHICH BOOKS WAS THE ASSESSEE ABLE TO DERIVE THE STOCK ON ANY PARTICULAR DAT E UNDER VARIOUS HEADS AS REFLECTED IN ITS BALANCE SHEET AND THE STOCK STATEMENTS GIVEN TO BANKS. ASSESSEE SIMPLY STATED THAT IT WAS NOT HAVING ANY STOCK REGISTER OR BOOKS BY WHICH THE STOCK COULD BE QUANTIFIED OR LAID DOWN UNDER THE HEADS AS AVAILABLE IN THE AUDIT REPORTS. THE TRADING ACCOUNT AS ON THE DATE OF SEARCH ON 24.4.2007 WAS PREPARED WITH THE HELP OF SEIZED ;DOCUMENTS AND BOOKS OF ACCOUNTS OF THE ASSESSEE. ASSESSING OFFICER HAS OBSERVED THAT FOR THIS PURPOSE THE TRIAL BALANCE AS OBTAINED DURING THE SEARCH COULD NOT BE RELIED UPON FULLY AS THE OPENING BALANCES FOR THE YEAR WERE NOT REFLECTED NOR ANY SALE OR PURCHASE WAS FOUND (THOUGH INVOICES AND BILLS OF LADING ETC. EVIDENCED THE SALE). FURTHER, NO EVIDENCE OF PURCHASE WAS AVAILABLE IN THE SEIZE D DOCUMENTS AND NO PURCHASES WERE FOUND IN THE BOOKS. THE SALE WAS TAKEN FROM ACTUAL BOOKS OF ACCOUNTS AS SUPPORTED BY INVOICES, SHIPPING BILLS AND BLS. THE GP RATE OF 14.98% WAS ADOPTED FROM THE IMMEDIATE PY AND THUS CLOSING STOCK AS PER BOOKS AND DOCUM ENT AS WAS EVIDENT FROM TRIAL BALANCE WAS DRAWN AT RS.42,50,50,963/ - AS AGAINST PHYSICAL STOCK OF RS.28,96,43,006/ - FOUND AT THE TIME OF SEARCH. WHEN ASKED TO EXPLAIN THE ABOVE SHORTAGE OF STOCK, ASSESSEE FURNISHED THE EXPLANATION WHICH HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN PARA 11.8 OF THE ASSESSMENT ORDER. HOWEVER, AFTER VERIFICATION, ASSESSING OFFICER FOUND SOME DISCREPANCIES AS NOTED IN ASSESSMENT ORDER. IN VIEW OF THE ABOVE AND ALSO FOR THE REASONS DISCUSSED IN ASSESSMENT ORDER, ASSESSEE OF FERED THE AMOUNT OF RS.1,49,80,000/ - AS UNDISCLOSED INCOME ON UNDISCLOSED SALE OF RS.10 CRORES AS NOTED IN PARA 11.15 OF THE ASSESSMENT ORDER. 10.3. A PERUSAL OF THE ABOVE CLEARLY DEMONSTRATES: ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 13 OF 15 (I) THAT THE AO HAS APPLIED HIS MIND AND AFTER CAREFULLY CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE TOOK A POS SIBLE VIEW. UNDER SUCH CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINION THAT THE ORDER PASSED BY THE CIT (CENTRAL) U/S 263 IS BAD IN LAW . F OR THE PROPOSITION THAT THE REVISION U/S 263 IS BAD IN LAW, WHEN THE AO DULY APPLIED HIS MIND AS REGARDS THE ISSUE ON HAND, WE RELY ON THE FOLLOWING DECISIONS. A) CIT VS. BHARAT ALUMINIUM CO.LTD. (2008) 303 ITR 256 (DEL) B) CIT VS. DESIGN AND AUTOMATION ENGINEERS (BOMBAY) PVT.LTD. 13 DTR 145 (BOM) C) RAJ SHYAMA CON STRUCTION (P) LTD. VS. ACIT, 135 TTJ 33 (DEL) D) CIT VS. HERO AUTO LTD. 343 ITR 342 (DEL.) (2012) (II) EVEN OTHERWISE, THE ISSUE OF STOCK DIFFERENCE AND THE TAXABILITY OF INCOME THEREON, WAS SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A), LUDHIANA. THE LD. CIT (A) LUDHIANA UP HELD THE ORDER OF THE AO. HENCE THERE IS MERGER OF THE ORDER OF THE AO WITH THAT OF THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. UNDER SUCH CIRCUMSTANCES THE LD. CIT ( CENTRAL ) , GURGAON DOES NOT HAVE JURISDICTION TO INVOKE REVISIONARY POWERS U/S 263. FOR THIS PROPOSITION W E REL Y O N THE FOLLOWING CASE LAW S . A) RANKA JEWELLERS VS. ACIT, 328 ITR 148 (BOM) B) CIT VS. NIRMA CHEMICAL WORKS P.LTD., 309 ITR 67 (GUJ.) (2009) 10.4. IN VIEW OF THE ABOVE DISCUSSION AND BY FOLLOWING THE PROPOSITIONS IN THE CASE LAWS CITED ABOVE, WE QUASH THE ORDER OF THE LD. CIT ( CENTRAL ), GURGAON PASSED U/S 263 ON 05 - 02 - 2012 AS BAD IN LAW. 10.5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 14 OF 15 11. ITA NO.6 002/DEL/2013 IS FILED AGAINST THE ORDER OF THE LD.CIT(A) CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. I N VIEW OF OUR DECISION IN ITA 6001/DEL/13, THE ASSESSMENT ORDER PASSED U/S 154 ON DATED NIL BY THE AO, IN CONFORMITY WITH THE ORDER PASSED U/ S 263, IS CONSEQUENTLY CANCELLED. HENCE THE ORDER OF PENALTY DOES NOT HAVE ANY LEGS TO STAND. HENCE THE ORDER PASSED U/S 271(1)(C) IS ALSO TO BE QUASHED. 11.1. IN THE RESULT THIS APPEAL OF THE ASSESSEE IS ALSO ALLOWED. 12. IN THE RESULT BOTH THE APPEAL S OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 5 T H O C T O B E R , 2014 . S D / - S D / - ( A.D. JAIN ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 1 5 T H O C T O B E R , 2014 *MANGA ITA 6001 AND 6002/DEL/2013 ASSESSMENT YEAR 2008 - 09 SHEENA EXPORTS PAGE 15 OF 15 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR