M.D. GEMS, MUMBAI V. ITO WD 16(3)(2), MUMBAI

ITA 6768/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8558 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Additional evidence
• Section: 143(3)

Judgement Text

PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI D.MANMOHAN, VICE PRESIDENT & SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A.NO.6768/MUM/2011 A.Y 2007-2008 M/S M.D.GEMS, G-16, CABIN NO. 8, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI 400 004. PAN: AABFM 0279 J VS. INCOME TAX OFFICER, WARD 16(2)(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANANT N. PAI. RESPONDENT BY : SHRI N. K. MEHTA. DATE OF HEARING: 06-09-2012. DATE OF PRONOUNCEMENT:10.10.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-27, MUMBAI DATED 28-7-2011. THE GROUNDS OF A PPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED COMMISSIONER {APPEALS} ERRED IN CONFIRMING THE ADDITION OF RS. 1,50,09,608 MADE U\S 41 [1] OF THE I T ACT, 1961 IN RESPECT OF ITS OUTSTANDING SUNDRY CREDITORS, M/S ASHISH DIAMONDS BVBA & M/S. J AYVIDIAM NV. RESPECTIVELY; 2. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMM ISSIONER {APPEALS} ALSO FAILED TO NOTE THAT THE PROVISIONS O F SECTION 41 [1J REQUIRE THAT THE ADDITION UNDER THIS SECTION CAN ONLY BE MADE IN THE YEAR IN WHICH THE LIABILITIES HAVE BEEN SPECIFI CALLY SHOWN TO HAVE CEASED OR BEEN REMITTED AND NOT IN ANY; IN THE INSTANT CASE OF THE APPELLANT, THE LEARNED C OMMISSIONER FAILED TO APPRECIATE THAT THERE WAS NO EVIDENCE CITED BY T HE LEARNED ASSESSING OFFICER THAT THE ALLEGED CESSATION OR REMISSION OF THE LIABILITIES HAD TAKEN PLACE IN THE YEAR UNDER APPEAL. 3. BOTH THE LEARNED COMMISSIONER {APPEALS} AND THE LEARNED ASSESSING OFFICER ERRED IN PASSING THEIR IMPUGNED O RDERS WITHOUT GRANTING THE APPELLANT AN ADEQUATE OPPORTUNITY OF B EING HEARD. THE ORDERS PASSED BY THEM ARE IN CONTRAVENTION OF T HE PRINCIPLES OF NATURAL JUSTICE AND HENCE BAD IN LAW. PAGE 2 OF 7 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S ENGAGED IN IMPORT, EXPORT AND MANUFACTURING OF DIAMONDS AND FI LED THE RETURN OF INCOME DECLARING NIL. ASSESSMENT WAS COMPLETED U/ S 143(3) OF THE ACT DETERMINING THE ASSESSED INCOME AT RS 147,71,430/-. THE ASSESSEE PURCHASED DIAMONDS PRIOR TO THE YEAR 2004 FROM A CO UPLE OF PARTIES, VIZ., ASHISH DIAMONDS BVBA AND JAYVIDIAM NV, SUPPLI ERS FROM BELGIUM. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAS AN OUTSTANDING LIABILITY AS ON 31-3-2007 TO THE SAI D PARTIES AMOUNTING TO RS.1,50,09,608/-. DURING THE SCRUTINY PROCEEDING S, ASSESSEE FAILED TO FILE CONFIRMATIONS FROM THE SAID PARTIES OR FAIL ED TO PRODUCE PURCHASE BILLS TOO. NO ADJUSTMENT ENTRIES WITH REGARD TO THE FOREIGN EXCHANGE FLUCTUATION OVER THE YEARS IN RESPECT OF THIS LIABI LITY WERE FOUND PASSED IN THE BOOKS OF ACCOUNTS. CONSIDERING THE FACT THAT THE AMOUNTS ARE LYING AS OUTSTANDING SINCE 2004, AO PROCEEDED TO IN VOKE THE PROVISIONS OF SEC. 41(1) OF THE ACT AND ADDED THE SAME TO THE BUSINESS INCOME OF THE ASSESSEE. OF COURSE, THE ASSESSEE DID NOT PASS ANY ENTRIES IN BOOKS SHOWING THE LIABILITIES AS CEASED IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE AO MADE ADDITION OF RS.1,50,09,608 /-. 3. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE SUBMITTED THE REASONS FOR ITS FAILURE TO CLEAR THE AFORE-MENTIONE D OUTSTANDING LIABILITIES WITH THE SAID PARTIES. ASSESSEE MENTION ED THAT THERE WAS A ROBBERY IN ITS OFFICE AND IT CAUSED LOSSES TO THE T UNE OF ABOVE RS.6 CRORES. THE INSURANCE CLAIM MADE IN THIS REGARD FAI LED TO MATERIALIZE IN ITS FAVOUR AND THE PROCEEDINGS ARE STILL PENDING BE FORE THE CONSUMER FORUM. ADDED TO THIS, THE SUNDRY DEBTORS OF THE ASS ESSEE ALSO FAILED TO PAY DEBTS AMOUNTING TO THE TUNE OF RS. 2.9 CRORES ( ROUNDED OFF). THESE EVENTS CAUSED FINANCIAL HARDSHIP TO THE ASSESSEE AN D THE OUTSTANDING LIABILITIES MENTIONED ABOVE COULD NOT BE PAID TO TH E PARTIES. PAGE 3 OF 7 4. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSE SSEE FILED COPIES OF THE CONFIRMATION LETTERS FROM THE CREDITORS AS W ELL AS PURCHASE BILLS IN ADDITION TO THE RELEVANT LEDGER EXTRACTS. THESE DOCUMENTS CONSTITUTE ADDITIONAL EVIDENCES AND THEREFORE, THE CIT(A) REMA NDED THE MATTER TO THE FILE OF THE AO. IN THE REMAND REPORT DATED 1-3- 2011, AO MENTIONED THAT THE CONFIRMATIONS SUFFER FROM MANY DEFICIENCIE S AND ASKED THE ASSESSEE TO FILE THE ORIGINAL OF THE SAME. THE ASSE SSEE FAILED TO PRODUCE THE ORIGINAL CONFIRMATIONS CONTAINING PROPE R STAMP AND SEAL OF THE PARTIES. HOWEVER, THE ASSESSEE SOUGHT FURTHER T IME TO SUBSTANTIATE THE SAME WHICH WAS NOT DONE TILL 1 ST OF MARCH, 2011. THEREFORE, THE AO OBSERVED THAT THE CONFIRMATIONS FILED ARE SELF-MADE CONFIRMATIONS AND NOT SUPPORTED BY ANY EVIDENCE AND THEREFORE, DOUBTE D THE GENUINENESS OF THE TRANSACTION AND THE BOOK ENTRIES SHOWING THE LIABILITIES. THE CIT (A) CONSIDERED THE SAID REMAND REPORT AND CAME TO THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE IS NO T PROPER AND CANNOT BE ALLOWED IN THE ABSENCE OF ORIGINAL CONFIRMATION LETTERS FROM THE PARTIES. AT THE TIME OF PASSING OF IMPUGNED ORDER, ASSESSEE COULD NOT CONFIRM THAT SUCH LIABILITIES EXIST AS ON THAT DATE . THERE WAS A REQUEST BEFORE THE CIT(A) ALSO FOR SOME MORE TIME TO MEET T HE REQUIREMENTS. THE CIT(A) CAME TO THE CONCLUSION THAT GRANT OF FUR THER TIME WILL NOT BE OF ANY USE AS THE ASSESSEE FAILED TO UTILISE THE OPPORTUNITIES GIVEN TO THE ASSESSEE DURING THE ASSESSMENT AS WELL AS RE MAND PROCEEDINGS. ACCORDINGLY, THE CIT(A) DID NOT ACCEDE TO THE REQUE ST OF THE ASSESSEE FOR FURTHER ADJOURNMENT IN THE MATTER. ACCORDINGLY, CIT(A) CONCLUDED THAT THE SAID LIABILITIES SUFFERED FROM GENUINENESS AND FINALLY DISMISSED THE APPEAL FILED BY THE ASSESSEE. 5. AGGRIEVED BY THE SAME, ASSESSEE IS IN PRESENT AP PEAL BEFORE US. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THE PARTIES IN QUESTION ARE FROM BEL GIUM AND GETTING PROPER CONFIRMATIONS IN THE MANNER IS NOT IN THE HA NDS OF THE ASSESSEE. PAGE 4 OF 7 OTHERWISE, THE FACT IS THAT THE ASSESSEE PURCHASED THE SAID DIAMONDS FROM THE PARTIES MENTIONED ABOVE THROUGH THE PROPER CHANNEL DULY CERTIFIED BY THE CUSTOMS AUTHORITIES. LD COUNSEL OU TLINED THE FACT OF ASSESSEE REQUESTING FOR TIME AND THE ADJOURNMENT BE FORE THE REVENUE AUTHORITIES AND IT WAS DENIED PRESUMING THAT THERE I S NO NEED FOR SUCH GRANT OF FURTHER TIME. IF SUFFICIENT OPPORTUNITY IS GIVEN, ASSESSEE WOULD HAVE PROCURED AND FILED CONFIRMATIONS IN ORIGINAL. WITHOUT PREJUDICE TO THE ABOVE, LD. COUNSEL FOR THE ASSESSEE ARGUED THAT REVENUE CANNOT RAISE THE ISSUE OF GENUINENESS OF PURCHASE OF THE D IAMONDS FROM THE SAID PARTIES IN THE A.Y 2007-08 AS THE PURCHASE BEL ONGED TO THE PERIOD PRIOR TO 2004. SIMILARLY, LD COUNSEL MENTIONED THAT THE PROVISIONS OF SEC. 41(1) CANNOT BE INVOKED IN THE YEAR UNDER CONS IDERING WHEN THE AMOUNTS ARE STILL SHOWN IN THE BOOKS AS OUTSTANDING . HOWEVER, LD COUNSEL MENTIONED THAT THE SAID LIABILITIES ARE APP EARING IN THE BOOKS AS OUTSTANDING ONES. THE LD. COUNSEL FOR THE ASSESS EE ALSO FILED THE COPIES OF THE FOLLOWING DECISIONS OF THE ITAT TO SU PPORT HIS CASE. THEY ARE: M/S KAPS ADVERTISING VS. ITO (2011) 48 SOT 63 (DEL) AND (2) DSA ENGINEERS (BOM) VS. ITO (2009) 30 SOT 31 (MUM). 6. ON THE OTHER HAND, LD. DR RELIED HEAVILY ON THE ORDERS OF THE AO AS WELL AS CIT(A) AND SUBMITTED THAT THE ASSESSEE W AS GIVEN ADEQUATE OPPORTUNITIES TO FILE CONFIRMATIONS IN ORIGINAL AND THE COPIES OF THE CONFIRMATIONS FILED BEFORE THE AUTHORITIES SUFFER F ROM DEFICIENCIES. HOWEVER, THE FACT THE ASSESSEE HAS NOT PAID THE OUT STANDING AMOUNTS FOR ALL THESE YEARS I.E. FROM 2004 TILL 2012, IT S HOULD BE DEEMED THAT THE SAID LIABILITIES CEASED TO EXIST. IN THAT CASE THE PROVISIONS OF SECTION 41(1) ARE RIGHTLY INVOKED. FURTHER, IT IS THE CASE OF THE CIT(A) THAT THE VERY FACT THE ASSESSEE FAILED TO EVIDENCE THE GENUI NENESS OF THE LIABILITIES BY FILING THE CONFIRMATION LETTERS, THE PRESUMPTION IS THAT THE RELATED PURCHASE TRANSACTIONS ARE DOUBTFUL. PAGE 5 OF 7 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE PAPER BOOK FILED BEFORE US. PARA 5 OF THE IMPUGNED ORDER OF THE CIT(A) DISCUSSES THE A RGUMENTS RELATING TO GRANTING OF REASONABLE OPPORTUNITY, FAILURE TO F ILE THE ORIGINAL CONFIRMATION/DETAILS OF THE PARTIES, FINANCIAL HARD SHIPS, GENUINENESS OF THE LIABILITIES AND ITS EXISTENCE IN PRESENTI. ON THE ISSUE OF GRANTING FURTHER TIME OR ADJOURNMENT, CIT(A) CAME TO THE CON CLUSION THAT THERE IS NO POINT IN ADJOURNING THE SAME AS THE ASSESSEE WAS GRANTED ADEQUATE TIME BY THE AO AND THE CIT(A). ON THE ISSU E OF FAILURE TO FILE THE CONFIRMATION LETTERS IN ORIGINAL, CIT(A) OBSERV ED THAT THE VERY PURCHASE TRANSACTIONS ARE DOUBTFUL AND THEREFORE, T HE IMPUGNED LIABILITIES ARE NON-EXISTENT. RELEVANT PORTIONS FRO M PARA 5 OF THE IMPUGNED ORDER THAT CONTAIN THE ABOVE DISCUSSION AR E EXTRACTED AS UNDER: I AM OF THE OPINION THAT GRANTING ANY FURTHER ADJ OURNMENT WOULD NOT SERVE ANY PURPOSE. THAT APART AS NOTED FR OM THE REMAND REPORT, THE APPELLANT IS UNABLE TO PROVE THE EXISTENCE OF THE LIABILITY AS REQUIRED BY THE AO. .. THE QUES TION OF NONPAYMENT TO THE AFORESAID TWO PARTIES AND THE REA SONS THEREOF WOULD ARISE ONLY IN THE CONTEXT THAT THE TRANSACTIO NS WITH THESE PARTIES AND THE LIABILITIES THEREOF AS ON DATE IS P ROVED TO BE GENUINE. IN THE ABSENCE OF PROVING THE TRANSACTION TO THE SATISFACTION OF THE AO, IT IS CONCLUDED THAT THE LI ABILITY AS SHOWN IN THE BOOKS IS NOT ESTABLISHED AND TO THAT EXTENT THE RE IS AN EXCESS OF ASSETS OVER THE LIABILITIES WHICH ARE BROUGHT TO TAX 8. THEREFORE, THE GRIEVANCE OF THE ASSESSEE CENTERS AROUND THE VERY APPLICABILITY OF THE PROVISIONS OF SECTION 41( 1) OF THE ACT TO THE CLAIMS OF THE ASSESSEE. THESE ISSUES WERE RAISED BE FORE THE CIT(A) VIDE THE GROUNDS 1 AND 2 AS EVIDENT FROM FORM 35. B UT THE CIT(A) DID NOT ADJUDICATE THEM BY PASSING A SPEAKING ORDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 250(6) OF THE ACT. IN FAC T, THE CIT (A) HAS MADE OUT A NEW CASE BY GIVING FINDING ON THE GENUIN ENESS OF THE PAGE 6 OF 7 LIABILITIES WHICH IN TURN QUESTION THE VERY PURCHAS E TRANSACTIONS AND NOT ON THE CESSATION OF LIABILITIES, THE ISSUE RAISED B EFORE US. THEREFORE, THE GROUNDS RAISED BY ASSESSEE BEFORE US WERE NOT ACTUA LLY ADJUDICATED BY THE CIT(A). 9. FURTHER, IT IS NOTICED FROM THE ORDERS OF THE RE VENUE THAT AO/CIT(A) INSISTED ON THE FILING OF THE CONFIRMATIO NS IN ORIGINAL AND IN THE PROCESS, THEY REJECTED COPIES OF CONFIRMATIONS DATED 28 TH AND 29 TH OCTOBER, 2010 WHICH ARE PLACED AT PAGES 60A TO 60C OF THE PAPER BOOK. IT IS NOTICED THAT THE SAID COPIES OF CONFIRM ATIONS ARE NEITHER CONFIRMED BY THE PARTIES CONCERNED NOR THEY ARE IN THE PROPER FORMAT. FURTHER, IT IS EVIDENT FROM THE ORDERS OF THE REVEN UE THAT THE ASSESSEE IS IN A POSITION TO FILE CONFIRMATION PROVIDED ADEQ UATE TIME IS GIVEN TO HIM. FURTHER, THE FACT IS THAT THE REQUEST FOR ADJO URNMENT WAS DENIED BY THE CIT(A). AS SUCH, THE CIT(A) HAS NOT DEAL WIT H THE ASSESSEES GROUNDS IN APPEAL RELATING TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 41(1) OF THE ACT WITH REFERENCE TO THE YEAR OF CESSATION OF LIABILITY. THE IMPUGNED ORDER ALSO HAS NOT CONSIDER ED THE CITED DECISIONS RELIED UPON BY THE ASSESSEE ON THE ISSUE OF CESSATION OF LIABILITY. IN THESE CIRCUMSTANCES, IN OUR OPINION, THE MATTER SHOULD BE REMANDED TO THE FILES OF THE CIT(A) FOR WANT OF HIS CATEGORICAL ADJUDICATION ON THE GROUNDS RAISED BY THE ASSESSEE RELATING TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 41(1) OF THE ACT. CIT(A) SHALL NOT ONLY CONSIDER THE CASE LAWS RELIED UPON BY THE ASSESSEE BUT ALSO GIVE REASONABLE OPPORTUNITY OF BEING HEARD. ASSESSE E SHALL FILE ORIGINAL CONFIRMATION LETTERS FROM THE PARTIES, ANY AND EVER Y DETAILS OR EVIDENCES BEFORE THE CIT(A) TO DEMONSTRATE THAT THE PURCHASE TRANSACTIONS AND THE OUTSTANDING LIABILITIES ARE GE NUINE. ACCORDINGLY, THE GROUNDS RAISED ARE SET ASIDE . PAGE 7 OF 7 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 0 TH OCTOBER, 2012. SD/- SD/- (D.MANMOHAN) (D. KARUNAKARA RAO) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 10.10.2012. P/-* COPY TO- 1) APPELLANT 2) RESPONDENT 3) CIT(A) MUMBAI. 4) CIT CITY MUMBAI 5) DR B BENCH MUMBAI //TRUE COPY// BY ORDER DY/ASST.REGISTRAR,ITAT MUMBAI.