SHRI RAJAN MANHAZI AYROORKAROT, v. THE ITO WD-4(3), THANE

ITA 1361/MUM/2005 | 2001-2002
Pronouncement Date: 29-03-2011 | Result: Allowed

Appeal Details

RSA Number 136119914 RSA 2005
Assessee PAN AAOPA5714K
Bench Mumbai
Appeal Number ITA 1361/MUM/2005
Duration Of Justice 6 year(s) 1 month(s) 11 day(s)
Appellant SHRI RAJAN MANHAZI AYROORKAROT,
Respondent THE ITO WD-4(3), THANE
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 29-03-2011
Date Of Final Hearing 16-03-2011
Next Hearing Date 16-03-2011
Assessment Year 2001-2002
Appeal Filed On 17-02-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI PRAMOD KUMAR ACCOUNTANT MEMBER I T A NO: 1388/MUM/2005 (ASSESSMENT YEAR: 2001-02) INCOME TAX OFFICER WARD 4(3) THANE APPELLANT VS SHRI RAJAN MANHAZI AYROORKAROT MUMBAI RESPONDENT (PAN: AAOPA5714K) I T A NO: 1361/MUM/2005 (ASSESSMENT YEAR: 2001-02) SHRI RAJAN MANHAZI AYROORKAROT MUMBAI APPELLANT VS INCOME TAX OFFICER WARD 4(3) THANE RESPONDENT ASSESSEE BY: SHRI SAMEER DALAL REVENUE BY: SHRI A K MAYAK O R D E R R V EASWAR PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2001-02. THE ASSESSEE IS AN INDIVIDUAL DEALING IN IMPORT LICENSES UNDER THE NAME AND STYLE OF S R ASSOCIATES. THE APPEALS ARISE OUT OF THE ASSESSMENT ORDER PASSED ON 29.03.2003 UN DER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THE ASSESSEE FILED RETURN OF INCOME DECLARING IN COME OF ` 2 15 920/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DECLARED SALES OF ` 2 82 96 274/- AGAINST PURCHASES OF ` 2 77 04 670/- AND THE CLOSING STOCK AMOUNTED TO ` 5 89 670/-. THE ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 2 GP SHOWN CAME TO 4.17% AND AFTER CLAIMING FURTHER E XPENSES OF COMMISSION SALARY ETC. IT CAME DOWN TO 0.75%. T HE SUNDRY CREDITORS SHOWN AMOUNTED TO ` 1 21 08 885/-. THE ASSESSEE FILED A LEDGER EXTRACT OF THE SUNDRY CREDITORS AND SUNDRY D EBTORS AS PER HIS BOOKS OF ACCOUNT. IN ORDER TO VERIFY THE GENUINENE SS OF THE TRANSACTIONS THE ASSESSING OFFICER CALLED FOR INFOR MATION FROM THE DEBTORS AND CREDITORS UNDER SECTION 133(6) OF THE A CT. IN SOME OF THE CASES THE LETTERS WERE RETURNED UNSERVED WITH P OSTAL REMARKS SUCH AS NOT KNOWN LEFT ETC. IN ADDITION TO T HE ABOVE VERIFICATION THE ASSESSING OFFICER ALSO ISSUED SUMMONS TO PERSON S TO WHOM THE ASSESSEE HAD PAID COMMISSION BUT IN ALMOST ALL THE CASES THE SUMMONS RETURNED UNSERVED. IN CASES WHERE THERE WA S RESPONSE FROM THE DEBTORS AND CREDITORS THERE WAS A DIFFERE NCE BETWEEN THE BALANCE AS PER THE ASSESSEES BOOKS AND THE BALANCE AS PER THE INFORMATION RECEIVED FROM THE DEBTOR OR THE CREDITO R. SUCH CASES HAVE BEEN TABULATED IN PAGE 2 OF THE ASSESSMENT ORD ER. THE DIFFERENCE IN THE CASE OF SUNDRY CREDITORS AROSE IN TEN CASES AND THE TOTAL DIFFERENCE WAS ` 33 26 261/-. IN THE CASE OF EIGHT SUNDRY DEBTORS THE DIFFERENCE WAS ` 13 68 403/-. 3. ON THE BASIS OF THE ABOVE ENQUIRY THE ASSESSING OFFICER PROPOSED TO ADD THE ENTIRE AMOUNT OF LOAN CREDITORS SHOWN IN THE ASSESSEES BOOKS OF ACCOUNT AND THE COMMISSION CLAI MED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE DID NOT SUBM IT ANY REPLY TO THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFIC ER. THEREFORE THE ENTIRE AMOUNT STANDING IN FAVOUR OF THE SUNDRY CREDITORS NAMELY ` 1 21 08 885/- WAS ADDED AS ALSO THE COMMISSION OF ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 3 ` 3 50 318/-. THE TOTAL INCOME WAS THUS DETERMINED A T ` 1 26 75 120/- AS AGAINST THE RETURNED INCOME OF ` 2 15 920/-. 4. THE ASSESSEE APPEALED TO THE CIT(A) AND WOULD AP PEAR TO HAVE FILED WRITTEN SUBMISSIONS OBJECTING TO THE ADD ITIONS. DURING THE HEARING BEFORE THE CIT(A) ON 12.08.2004 THE ASSESS EE SUBMITTED THE FOLLOWING ADDITIONAL EVIDENCE: - (A) REVISED STATEMENT OF PARTY BALANCES (B) REVISED BALANCE SHEET AS ON 31.03.2001 (C) PARTY CONFIRMATION STATEMENTS (D) LEDGER ACCOUNTS OF SUNDRY CREDITORS AND SUNDRY DEBTORS WITH SUPPORTING EVIDENCE (E) REVISED / RECTIFIED BOOKS OF ACCOUNT. IN SUPPORT OF THE APPLICATION FOR ADMISSION OF ADDI TIONAL EVIDENCE IT WAS STATED THAT THE REVISED STATEMENTS WERE BEING S UBMITTED BECAUSE THOSE GIVEN DURING THE ASSESSMENT PROCEEDIN GS WERE ERRONEOUS WHICH RESULTED IN HUGE ADDITIONS. IT WAS EXPLAINED THAT THE ASSESSEE RUNS THE BUSINESS ALL BY HIMSELF FROM HIS RESIDENCE AT BHAYANDER AND THAT HE HAD TO DEPEND UPON AN OUTSIDE CONSULTANT FOR PREPARATION OF HIS BOOKS OF ACCOUNT AND FINALIZ ATION OF THE ACCOUNTING STATEMENTS INCLUDING PROFIT AND LOSS ACC OUNT AND BALANCE SHEET AND THESE WERE FILED WITH THE RETURN OF INCOME. THE ASSESSEE WAS NOT WELL VERSED WITH THE BOOK KEEPING OR TAX MATTERS. IT WAS FURTHER POINTED OUT THAT THE ACCOUNTANT HAD NOT PROPERLY RECORDED THE PARTY TO PARTY PAYMENTS WITH THE RESUL T THAT THE FINAL CLOSING BALANCES WERE ERRONEOUS AND HE HAD ALSO NOT PROPERLY RECORDED THE TRANSACTIONS WHICH RELATED TO EARLIER YEARS. IT WAS ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 4 SUBMITTED THAT DUE TO THE ABOVE ERRORS COMMITTED BY THE ACCOUNTANT THERE WERE DISCREPANCIES IN THE CLOSING BALANCES. THE ASSESSEES CASE WAS THAT HE WAS A VICTIM OF PROFESS IONAL NEGLIGENCE. IT WAS ACCORDINGLY PLEADED BEFORE THE CIT(A) THAT HE SHOULD BE ALLOWED TO PRESENT THE CORRECT FACTS AND HAVE HIS INCOME ASSESSED ON THE BASIS OF THOSE FACTS WITHOUT BEING AFFECTED BY ERRONEOUS ACCOUNTING ENTRIES. A PLEA WAS ACCORDING LY MADE THAT THE ADDITIONAL EVIDENCE SHOULD BE ADMITTED UNDER RU LE 46A OF THE INCOME TAX RULES. IT WAS ALSO STATED THAT THE FAIL URE TO PRODUCE THE ADDITIONAL EVIDENCE BEFORE THE ASSESSING OFFICER WA S NEITHER WILLFUL NOR UNREASONABLE. A FEW AUTHORITIES WERE CITED BEF ORE THE CIT(A) REGARDING ADMISSION OF ADDITIONAL EVIDENCE. 5. THE CIT(A) FORWARDED A COPY OF THE ASSESSEES WR ITTEN SUBMISSIONS AND THE PLEA FOR ADMISSION OF ADDITIONA L EVIDENCE TO THE ASSESSING OFFICER WITH A DIRECTION TO HIM TO EX AMINE THE ADDITIONAL EVIDENCE AND SUBMIT HIS REPORT. THE ASS ESSING OFFICER SUBMITTED A REPORT ON 29.09.2004 AND THE FINDINGS G IVEN BY HIM IN THE SAID REPORT ARE REPRODUCED BY THE CIT(A) FROM P AGES 11 TO 15 OF THE IMPUGNED ORDER. 6. ON RECEIPT OF THE REMAND REPORT FROM THE ASSESSI NG OFFICER WHO HAD IN EFFECT CONTENDED THAT ALL THE ADDITIONS SHOULD BE CONFIRMED THE CIT(A) SENT THE SAME TO THE ASSESSEE FOR COUNTER COMMENTS. THE ASSESSEE WOULD APPEAR TO HAVE FURNIS HED DETAILED COUNTER COMMENTS WHICH ARE REPRODUCED BY THE CIT(A) IN PAGES 15 TO 18 OF THE IMPUGNED ORDER. THE PARA-WISE COMMENT S OF THE ASSESSEE HAVE ALSO BEEN REPRODUCED BY HIM IN THE PA GES UP TO ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 5 PAGE 23. FINALLY THE CIT(A) CONFIRMED THE ADDITION OF ` 9 08 609/- WHICH INCLUDED THE BALANCE SHOWN IN RESPECT OF AHUJ A INTERNATIONAL AT ` 8 99 809/- AND PROFIT OF ` 8 800/-. HE ALSO CONFIRMED THE DISALLOWANCE OF THE COMMISSION OF ` 3 50 318/-. THE BALANCE OF ` 1 12 00 276/- WAS DELETED FROM THE ASSESSMENT. WHI LE GRANTING THE RELIEF THE CIT(A) HAS TAKEN NOTE OF THE REVISE D STATEMENT OF ACCOUNTS AND CONFIRMATIONS FROM THE PARTIES FILED B EFORE HIM AS ADDITIONAL EVIDENCE. 7. THE DEPARTMENT HAS FILED AN APPEAL BEFORE US CHA LLENGING THE RELIEF GRANTED BY THE CIT(A) WHEREAS THE ASSESS EE HAS COME IN APPEAL CHALLENGING THE ADDITION OF ` 8 99 809/- AND THE DISALLOWANCE OF THE COMMISSION OF ` 3 50 318/-. 8. THE MAIN CONTENTION OF THE DEPARTMENT IN ITS APP EAL BEFORE US IS THAT THE CIT(A) HAS NOT STRICTLY FOLLOWED THE PROCEDURE PRESCRIBED BY RULE 46A OF THE INCOME TAX RULES FOR ADMITTING THE ADDITIONAL EVIDENCE. WE ARE OF THE VIEW THAT THE C ONTENTION IS WELL FOUNDED. RULE 46A(1) SAYS THAT THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE ANY ADDITIONAL EVIDENCE ORAL OR DOCUMENTAR Y BEFORE THE CIT(A) OTHER THAN WHAT WAS PRODUCED BY HIM BEFORE T HE ASSESSING OFFICER EXCEPT IN THE FOLLOWING CIRCUMSTANCES NAM ELY: - (A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMI T EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED; OR (B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCED THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE ASSESSING OFFICER; OR ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 6 (C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING BEFORE THE ASSESSING OFFICER ANY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL; OR (D) WHERE THE ASSESSING OFFICER HAS MADE THE ORDER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO ADDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. SUB-RULE (2) SAYS THAT NO EVIDENCE SHALL BE ADMITTE D BY THE CIT(A) AS ADDITIONAL EVIDENCE UNLESS HE RECORDS IN WRITING THE REASONS FOR THE ADMISSION. SUB-RULE (3) SAYS THAT THE CIT(A) S HALL NOT TAKE INTO ACCOUNT ANY ADDITIONAL EVIDENCE UNLESS THE ASSESSIN G OFFICER HAS BEEN ALLOWED A REASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS - EXAMINE THE WITNESS PRODUCED BY THE ASSESSEE OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITNESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE. SUB-RULE (4) SAYS THAT NOTHING IN THE RULE SHALL AF FECT THE POWER OF THE CIT(A) TO CAUSE AN ENQUIRY BY HIMSELF UNDER SEC TION 251(1)(A) OF THE ACT. IT IS NOT IN DISPUTE BEFORE US THAT IN THE PRESENT CASE THE CIT(A) HAS NOT INVOKED HIS OWN POWERS OF ENQUIRY G IVEN UNDER THE STATUTE. THEREFORE HE OUGHT TO HAVE STRICTLY FOLL OWED RULE 46A WHILE ADMITTING THE ADDITIONAL EVIDENCE ADDUCED BY THE ASSESSEE. THE FIRST STEP TO BE TAKEN BY HIM IS TO RECORD THE REASONS FOR THE ADMISSION OF THE ADDITIONAL EVIDENCE IN WRITING. I N THE IMPUGNED ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 7 ORDER WE HAVE SEARCHED IN VAIN FOR SUCH REASONS. A LL THAT THE CIT(A) RECORDS IS THAT THE ASSESSEE ADDUCED ADDITIO NAL EVIDENCE WITH A PRAYER FOR ADMISSION OF THE SAME. HE HAS NO T RECORDED HIS REASONS AS TO WHY THE ADDITIONAL EVIDENCE SHOULD BE ADMITTED AS REQUIRED BY SUB-RULE (2) OR RULE 46A. THERE IS NOT HING IN HIS ORDER TO SHOW WHETHER ANY OF THE FOUR SITUATIONS ENVISAGE D BY SUB-RULE (1) WAS PRESENT JUSTIFYING THE ADMISSION OF THE ADDITI ONAL EVIDENCE. IN FACT THERE IS ALSO NOTHING IN THE WRITTEN SUBMISSIO NS TO SHOW THAT ANY OF THOSE SITUATIONS WAS PRESENT SO THAT THE ASS ESSEE COULD JUSTIFIABLY ASK FOR ADMISSION OF THE EVIDENCE. THE CIT(A) HAS PROCEEDED TO FOLLOW THE PROCEDURE PRESCRIBED IN SUB -RULE (3) WITHOUT FIRST FOLLOWING THE PROCEDURE PRESCRIBED BY SUB-RUL E (2) NAMELY THAT HE SHOULD RECORD THE REASONS FOR ADMISSION IN WRITI NG. ONLY AFTER HE ADMITS THE ADDITIONAL EVIDENCE BY GIVING REASONS CA N HE SEND THE SAME TO THE ASSESSING OFFICER FOR EXAMINATION / REB UTTAL AS ENVISAGED BY SUB-RULE (3). IN THE PRESENT CASE THE CIT(A) WITH RESPECT SEEMS TO HAVE OVERLOOKED THAT THE ASSESSEE HAD TAKEN THE PLEA THAT WHATEVER BOOKS OF ACCOUNT WERE PRODUCED B EFORE THE ASSESSING OFFICER AND WHATEVER BALANCE SHEET AND PR OFIT AND LOSS ACCOUNT WERE FILED BEFORE HIM WERE ALL WRONG. IT W AS ON THIS PRETEXT THAT THE ASSESSEE HAD FILED WHAT HE CALLED REVISED OR RECTIFIED ACCOUNTS BEFORE THE CIT(A) INCLUDING REVISED BALANC E SHEET AND REVISED LEDGER ACCOUNTS WITH SUPPORTING EVIDENCE. THE ASSESSEE HAD ALSO ADDUCED PARTY CONFIRMATION STATEMENTS FOR REVISED BALANCES. IN EFFECT THE ASSESSEE WAS DISOWNING THE BOOKS OF ACCOUNTS PRODUCED BY HIM BEFORE THE ASSESSING OFFIC ER ON THE ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 8 BASIS OF WHICH THE ASSESSMENT WAS MADE. THE ASSESS ING OFFICER HAS RECORDED IN THE ASSESSMENT ORDER THAT THE ASSES SEE DID NOT BOTHER TO REPLY TO THE SHOW CAUSE NOTICE ISSUED BY HIM. IF AT ALL THE ASSESSEE WANTED TO SAY THAT THE BOOKS OF ACCOUNTS O N THE BASIS OF WHICH THE RETURN WAS FILED WERE NOT CORRECTLY WRITT EN THERE WAS AN OPPORTUNITY GIVEN TO HIM BY THE ASSESSING OFFICER T O GO BEFORE HIM AND EXPLAIN THE SAME AND FILE REVISED ACCOUNTS BEFO RE THE ASSESSING OFFICER HIMSELF WHICH COULD HAVE BEEN EX AMINED BY HIM BEFORE THE ASSESSMENT ORDER WAS PASSED. THIS ASPEC T SEEMS TO HAVE BEEN OVERLOOKED BY THE CIT(A) AND THIS WAS QUI TE A STRONG IMPEDIMENT WHICH THE ASSESSEE WAS OBLIGED TO EXPLAI N BEFORE THE CIT(A) WHILE SEEKING ADMISSION OF THE ADDITIONAL EV IDENCE. IF THE ASSESSEE WAS PREVENTED BY ANY CAUSE FROM PRODUCING THE REVISED ACCOUNTS BEFORE THE ASSESSING OFFICER AGAIN IT WAS UPON HIM TO EXPLAIN THE SAME BEFORE THE CIT(A). WE ARE POINTIN G OUT ALL THIS ONLY TO HIGHLIGHT THE IMPORTANCE OF RULE 46A AND TH E OVERWHELMING NEED FOR THE CIT(A) TO RECORD REASONS FOR ADMITTIN G THE ADDITIONAL EVIDENCE. IN OUR OPINION HE WAS NOT JUSTIFIED IN MISSING THE FIRST STEP WHILE DEALING WITH THE ADDITIONAL EVIDENCE AND IN PROCEEDING TO SEND THE ADDITIONAL EVIDENCE FOR THE COMMENTS OR RE BUTTAL OF THE ASSESSING OFFICER. AS ALREADY POINTED OUT HERE IS AN ASSESSEE WHO DISOWNED THE VERY ACCOUNTS WHICH HE PRODUCED BE FORE THE ASSESSING OFFICER AND THEREFORE IT WAS ALL THE MO RE NECESSARY FOR THE CIT(A) TO HAVE STRICTLY COMPLIED WITH RULE 46A. 9. WE ARE THEREFORE SATISFIED THAT THE FAULTY PROCE DURE ADOPTED BY THE CIT(A) IN ADMITTING THE ADDITIONAL EVIDENCE HAS VITIATED HIS ITA NO: 1388/MUM/2005 ITA NO: 1361/MUM/2005 9 ORDER ENTIRELY. WE THEREFORE SET ASIDE THE ENTIRE ORDER OF THE CIT(A). WE RESTORE THE APPEALS TO HIS FILE FOR BEING DISPOS ED OFF IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR OBSERVATION S MADE IN THE PRECEDING PARAGRAPHS. THUS BOTH THE APPEALS WHICH ARE CROSS APPEALS ARE ALLOWED BUT ONLY FOR STATISTICAL PURPO SES. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH 2011. SD/- SD/- (PRAMOD KUMAR) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI DATED 29 TH MARCH 2011 SALDANHA COPY TO: 1. SHRI RAJAN MANHAZI AYROORKAROT C/O N CHANDULAL & CO. CHARTERED ACCOUNTANTS 88-94 BIG THREE BUILDING 1 ST FLOOR ROOM NO. 06 ANANDILAL PODAR MARG DHOBI TALAO MUMBAI 400 002 2. INCOME TAX OFFICER WARD 4(3) IIND FLOOR QURESHI MANSION NAUPADA THANE (WEST) 400 602 3. CIT-III THANE 4. CIT(A)-II THANE 5. DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI