M/S. MAHAJAN SYNTHETICS, MUMBAI v. THE ITO 23(1)(1), MUMBAI

I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH MUMBAI. [ CORAM: D.MANMOHAN V.P. AND PRAMOD KUMAR AM ] I.T.A NO.712/ MUM/2008 ASSESSMENT YEAR: 2001-02 MAHAJAN SYNTHETICS .. APPELLANT MAHAJAN MILLS COMPOUND LBS MARG VIKHROLI(W) MUMBAI-79 PA NO.AAAFM 6306 R VS INCOME TAX OFFICER -23(1)(1) . RESPONDEN T AAYAKAR BHAVAN M.K. ROAD MUMBAI. APPEARANCES: C.V. DHARKAR FOR THE APPELLANT HARI GOVIND SINGH FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDI TION OF RS.1 00 000 MADE BY THE ASSESSING OFFICER UNDER SECTION 154 R.W.S. 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2001-02. 2. THE IMPUGNED ORDER PASSED BY THE CIT (A) IS DATED 2 8.11.2007 AND THE RECTIFICATION ORDER UNDER SECTION 154 PASSED BY THE ASSE SSING OFFICER IS DATED 18.10.2004. I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 2 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSM ENT IN THIS WAS COMPLETED UNDER SECTION 143(3) ON 15.3.2004. IN THE ASSESSMENT ORDER SO FRAMED THE ASSESSING OFFICER INTER ALIA OBSERVED AS FOLLOWS:- ON PERUSAL OF BALANCE SHEET IT IS FOUND THAT AN AM OUNT OF ` .1 37 501 IS OUTSTANDING AS BROKERAGE PAYABLE. THE AUTHORIZED R EPRESENTATIVE WAS ASKED TO EXPLAIN THE DETAILS OF TRANSACTION AND THE PERIOD S INCE WHICH THE SAME IS LYING OUTSTANDING IN THE BALANCE SHEET. THE AUTHORIZED R EPRESENTATIVE VIDE HIS LETTER DATED 31.12.2003 HAS EXPLAINED THAT THE UNPAID LIAB ILITY OF ` .1 37 501 PERTAINS TO BROKERAGE PAYABLE MR AMAN KAPOOR. HE HAS FURTHE R EXPLAINED THAT MR AMAN KAPOOR IS ALSO HAVING A DEBIT BALANCE OF ` .1 LAC IN THE SCHEDULE OF SUNDRY CREDITORS AND IS BEING INADVERTENTLY SHOWN SEPARATE LY SINCE 1999. HE HAS FURTHER EXPLAINED THAT THE NET OUTSTANDING BALANCE AS UNPAID LIABILITY IS ONLY ` .37 501. HE HAS CLARIFIED THAT THE BROKERAGE PAYAB LE RELATES TO TRANSACTION OF A.Y. 1997-98 AND AY 1998-99. LOOKING AT THE SPAN OF TIME OF THESE OUTSTANDING BR OKERAGE PAYABLE THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THIS UNPAID LIABILITY SHOULD NOT BE TREATED AS CESSATION OF LIABILITY U/S.41(1) OF THE I.T.ACT 1961 SINCE THESE AMOUNT ARE LYING SINCE 19 99. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COULD ONLY OFFER THE SAME EXPLANATION AS HAS BEEN DISCUSSED ABOVE. HE FURTHER ADDED THAT THERE WAS S OME DISPUTE WITH THE BROKER AND THE SAME IS TO BE PAID. TILL THE DATE OF HEARI NG THE SAID AMOUNT HAS NOT BEEN SETTLED. ON THE BASIS OF THE ABOVE DISCUSSION HELD FROM TIME TO TIME WITH THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE I HOLD THAT THE AMO UNT BEING SHOWN IN THE HEAD OF UNPAID LIABILITIES AMOUNTING TO ` .1 37 501 IS NOT TO BE PAID BY THE ASSESSEE AND THE SAME IS HEREBY TREATED AS CESSATION OF LIAB ILITY U/S.41(1) OF THE I.T.ACT AND IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESS EE. 4. HOWEVER IN THE COURSE OF COMPUTATION OF INCOME THE ASSESSING OFFICER ADDED ` .37 501 AS UNPAID LIABILITY UNDER SECTION 41(1). I T WAS IN THIS BACKDROP THAT THE RECTIFICATION PROCEEDINGS U/S.154 WERE INITI ATED BY THE AO ON THE GROUND THAT WHILE ADDITION ON ACCOUNT OF CESSATION OF LIABIL ITY AS NOTED IN THE BODY OF THE ORDER WAS ` .1 37 501 THE ACTUAL AMOUNT ADDED BACK TO THE INCO ME WAS ` .37 501. WHEN THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY TH E SAID RECTIFICATION SHOULD NOT BE CARRIED OUT THE ASSESSEE INTER ALIA SUBM ITTED AS FOLLOWS: THE LEARNED AO HAD IN THE COURSE OF ASSESSMENT PROC EEDINGS DEMANDED AN EXPLANATION ABOUT THE LIABILITY OF ` .1 37 501 REMAINING UNPAID. IT WAS EXPLAINED THAT AN AMOUNT OF ` .1 00 00 IS DEBIT BALANCE LYING IN SUNDRY CREDITOR I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 3 WHICH INADVERTENTLY IS REFLECTED SEPARATELY. THE NO TE BY WAY OF EXPLANATION ON THIS WAS DULY TAKEN ON RECORD AND ACCEPTED. WE TH EREFORE SUBMIT THAT THE LIABILITY WAS ONLY ` .37 501 AND NOT ` .1 37 501. WE SUBMIT THAT THE UNPAID LIABILITY WAS THUS ONLY ` .37 501 WHICH ALSO STANDS INCLUDED IN THE BODY OF ORDER AND AS WELL AS FROM T HE ASSESSMENT RECORDS. THE LEARNED AO HAS ALSO CONSIDERED AND ADDED THE AMOUNT OF ` .37 501 AND NOT ` .1 37 501. HOWEVER IT APPEARS THAT THROUGH INADV ERTENCE AND TYPOGRAPHICAL ERROR THE AMOUNT CONSIDERED FOR DISALLOWANCE IN THE PARA IS ` /1.37.501 WHILE THE AMOUNT ACTUALLY ADDED IS ` .37 601. WE THEREFORE REQUEST YOUR GOOD SELVES THAT THE PR OPOSED RECTIFICATION BE NOT CARRIED OUT AS IT IS PURELY AN INADVERTENT ERROR. THE MATERIAL ON RECORD AND THE INTENTION OF THE OFFICER WAS TO TREAT ONLY ` .37 501 AS UNPAID LIABILITY AND NOT ` .1 37 501. 5. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE SA ID EXPLANATION. HE OBSERVED THAT THIS EXPLANATION WAS NOT ACCEPTED DURING THE ORIGINAL PROCEEDINGS AS WELL AND SINCE BROKERAGE PAYABLE RELATES TO TRANSACTIO N OF A.Y. 1997-98 AND 1998- 99 THE AMOUNT TO BE ADDED WAS ONLY ` .1 37 501. ACCORDINGLY THE AO PROCEEDED TO MAKE AN ADDITION OF ` .1 00 000 WHICH WAS STATED TO BE A MISTAKE APPARENT FR OM RECORD. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. THE CIT (A) OBSERVED THAT THE ASSESSE E HAD FAILED TO PRODUCE ANY CONFIRMATION FROM THE PARTY AND THAT THERE IS NO EVIDENCE THAT EVEN ` .37 501 WAS PAYABLE AS ON 31.3.2001 AS BROKERAGE. HE WAS FURTH ER OF THE VIEW THAT THERE IS NO EVIDENCE OF THE BROKER THAT THERE IS NO EVIDENC E OF EVEN THE PART BROKERAGE PAID AND THAT THE ADMISSION OF THE OUTSTANDING AMOUNT OF ` .37 501 AS BOGUS AND ACCEPTANCE OF THE SAME ONLY TO BE ADDED TO THE ASSESSEE S INCOME IS CLEARLY INCONSISTENT. THE CIT (A) WAS THUS OF THE VIEW THAT SIN CE THERE WAS CATEGORICAL OBSERVATION BY THE AO TO THE FACT THAT ` .1 37 501 WAS THE BOGUS LIABILITY THE ADDITION OF ONLY ` .37 501 IN THE COMPUTATION PART OF THE ORDER WAS CLE ARLY A MISTAKE APPARENT FROM THE RECORD WHICH WAS RIGHTLY RECTIFIED BY THE AO U/S./154. THE RECTIFICATION ORDER WAS THUS UPHELD BY THE CIT (A). THE ASSESSEE IS NO T SATISFIED AND IS IN FURTHER APPEAL BEFORE US. I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 4 6. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS ALSO THE APPLICABLE LEGAL POSITION. 7. WE HAVE NOTED THAT AS EVIDENT FROM THE EXTRACT FROM ASSESSMENT ORDER REPRODUCED EARLIER IT WAS ALL ALONG THE STAND OF THE ASSESSEE THAT OUT OF ` .1 37 501 SHOWN AS BROKERAGE PAYABLE IN THE BALANCE SHEET THE NET OUTSTANDING BALANCE OF UNPAID LIABILITY WAS ONLY ` .37 501. THE ASSESSING OFFICER HAD TAKEN NOTE OF THIS CONTENTION AS ALSO THE FACT THAT A DEBIT BALANCE OF ` .1 LACS IN THE SCHEDULE OF SUNDRY CREDITORS IN THE NAME OF AMAN KAPOOR WAS TO BE TAKEN INTO ACCOUNT FOR COMPUTING THE CORRECT OUTSTANDING BROKERAGE PAYABLE. THE AO D ID NOT DISPUTE OR REJECT THIS STAND OF THE ASSESSEE. UNDISPUTEDLY IN PEN-ULTIMATE PAR AGRAPH OF THE ASSESSMENT ORDER THE AO REFERRED TO ` .1 37 501 AS AMOUNT SHOWN TOWARDS UNPAID LIABILITY AND CONCLUDED THAT THE SAME IS HEREBY REQUIRED TO BE ADDE D AS CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE ACT BUT IN THE COMPUTATIO N PART THE AMOUNT ACTUALLY ADDED IS ` .37 501. ON THESE FACTS A VIEW INDEED SEEMS POSSIBLE THA T THE AMOUNT WHICH WAS ADDED BACK BY THE AO WAS THE ACTUAL AMOUNT REMAINING UNPAID I.E. ` .37 501 AND IT IS PARTICULARLY SO FOR THE REASON THA T ASSESSEES CONTENTION ABOUT ACTUAL OUTSTANDING AMOUNT WHICH IS REQUIRED TO BE ADD ED BACK AT ` .37 501 WAS NOT SPECIFICALLY REJECTED BY THE AO. ON THESE FACTS THER EFORE IT CANNOT BE SAID THAT ADDITION OF ` .37 501 AS MENTIONED IN THE COMPUTATION PAT AS AGAI NST ADDITION OF ` .1 37 501 AS MENTIONED IN PEN-ULTIMATE PARAGRAPH WAS A MISTAKE APPARENT FROM RECORD ON WHICH NO TWO VIEWS ARE POSSIBLE. AS IS WELL SETTLED LEGAL POSITION IN THE LIGHT OF THE HONBLE SUPREME COURTS JUDGEMENT IN TH E CASE OF ITO VS VOLKRAT BROTHERS & ORS 82 ITR 50(SC) THAT IN ORDER TO BE CO VERED BY INHERENTLY LIMITED SCOPE OF EXPRESSION MISTAKE APPARENT FROM RECORD THE MISTAKE MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WHICH CAN BE ESTA BLISHED BY A LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY CONC EIVABLY BE TWO OPINIONS. WHAT IS PERCEIVED BY THE AO IS A MISTAKE APPARENT FROM RECORD ON THE FACTS OF THIS CASE IN OUR CONSIDERED VIEW IS SOMETHING WHICH IS CAPA BLE OF TWO VIEWS BEING TAKEN INASMUCH AS IT IS ALSO POSSIBLE VIEW OF THE MATTER THAT T HE CORRECT ADDITION TO BE MADE TO THE RETURNED INCOME OF THE ASSESSEE IN THIS CASE OUGHT TO HAVE ` .37 501 I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 5 SINCE THE ASSESSEES CLAIM ON THIS ASPECT OF THE MATTER W AS NOTED BUT NOT REJECTED BY THE AO. IN VIEW OF THESE DISCUSSIONS AS ALSO BEARING IN MIND THE ENTIRETY OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE CIT (A) INDEE D ERRED IN UPHOLDING THE IMPUGNED RECTIFICATION ORDER. WE THEREFORE UPHOL D THE PLEA OF THE ASSESSEE AND QUASH THE IMPUGNED RECTIFICATION ORDER. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY 2011 SD/- (D.MANMOHAN ) (VICE PRESIDENT) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI DATED 15 TH FEBRUARY 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XXIII MUMBA I 4. COMMISSIONER OF INCOME TAX 23 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 6 I.T.A NO.712/ MUM/2008 MAHAJAN SYNTHETICS 7