PRAKASH N. KOTADIA, MUMBAI v. ITO 25(2)(2), MUMBAI

ITA 730/MUM/2011 | 2005-2006
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 73019914 RSA 2011
Assessee PAN AIIPK5203H
Bench Mumbai
Appeal Number ITA 730/MUM/2011
Duration Of Justice 5 month(s) 21 day(s)
Appellant PRAKASH N. KOTADIA, MUMBAI
Respondent ITO 25(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 15-07-2011
Date Of Final Hearing 27-06-2011
Next Hearing Date 27-06-2011
Assessment Year 2005-2006
Appeal Filed On 25-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.V. EASWAR PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NOS. 730 731 & 732/MUM/2011 (ASSESSMENT YEAR: 2005-06) SHRI PRAKASH N. KOTADIA INCOME TAX OFFICER - 25(2)( 2) A/8 604 6TH FLOOR SAI RAJESH MUMBAI BLDG. CHS LTD. SHIMPLI ROAD VS. BORIVALI (W) MUMBAI 400092 PAN - AIIPK 5203 H APPELLANT RESPONDENT APPELLANT BY: SHRI P.K. PARIDA RESPONDENT BY: SHRI PARESH JOHRI O R D E R PER B. RAMAKOTAIAH A.M. THESE APPEALS ARE BY THE ASSESSEE AGAINST THE ORDER S OF THE CIT(A) XXXV MUMBAI CONFIRMING THE EXPARTE ORDER U/S 144 A S WELL AS PENALTIES LEVIED UNDER SECTION 271(1)(B) AND 271(1)(C). 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE INDIVIDUAL FILED RETURN OF INCOME ON 31.10.2005 ADMITTING TOTAL INCOME OF ` 1 12 860/- WHICH WAS ACCEPTED UNDER SECTION 143(1). SUBSEQUENTLY THE CAS E WAS SELECTED FOR SCRUTINY AND ACCORDING THE ASSESSMENT ORDER NUMBER OF OPPORTUNITIES WERE GIVEN TO THE ASSESSEE. IN THE SCRUTINY ASSESSMENT U /S 144 THE A.O. DISALLOWED 10% OF THE PURCHASES 25% OF ADVERTISEME NT AND SALARY EXPENSES AND WHOLE AMOUNT OF INTEREST CLAIMED AND BROUGHT TO TAX UNSECURED LOANS SHOWN IN THE BALANCE SHEET. ASSESSEE CAME TO KNOW A BOUT THE EXPARTE ORDER UNDER SECTION 144 AFTER SERVICE OF PENALTY ORDER UN DER SECTION 271(1)(B) AND 271(1)(C). AS PER THE ADMITTED FACTS ON RECORD ASS ESSEE APPROACHED THE A.O. FOR COPY OF THE ASSESSMENT ORDER AND FILED THE APPE ALS BELATEDLY WITH THE CIT(A). WHILE ADMITTING THAT THE APPEAL IN THE CASE OF QUANTUM WAS FILED BELATEDLY AND CONDONING THE DELAY THE CIT(A) DID N OT CONDONE THE DELAY WITH REFERENCE TO THE PENALTY APPEALS AS THE SAME WAS SU PPOSED TO HAVE BEEN ITA NOS. 730 731 & 732/MUM/2011 SHRI PRAKASH N. KOTADIA 2 SERVED ON THE ASSESSEE WHEN HE CAME TO KNOW ABOUT T HE QUANTUM ORDER AND THE DELAY IN FILING THE APPEALS THERE ON WAS NOT PR OPERLY EXPLAINED. ACCORDINGLY PENALTY APPEALS WERE DISMISSED. IN THE QUANTUM APPEAL PROCEEDINGS THE CIT(A) REMANDED THE MATTER TO THE A .O. WHO AGAIN GAVE NUMBER OPPORTUNITIES BUT THE ASSESSEE DID NOT APPEA R. IN VIEW OF THIS THE CIT(A) AFTER DISCUSSING WITH THE REPRESENTATIVE AN D CONSIDERING THE LETTER FILED ON 26.12.2010 CONFIRMED THE ADDITIONS AS THE ASSESSEE HAS NOT SUPPORTED THE CLAIMS MADE BY HIM IN THE RETURN. CIT (A) WAS OF THE VIEW THAT THE A.O. WAS JUSTIFIED IN DISALLOWING VARIOUS EXPEN SES AND BRINING TO TAX THE UNSECURED LOANS ALONG WITH INTEREST. 3. BEFORE US THE LEARNED COUNSEL PLACED PAPER BOOK JUS TIFYING VARIOUS CLAIMS MADE IN THE RETURN WITH A PLEA THAT THE MATT ER MAY BE RESTORED TO THE A.O. FOR CONSIDERING ASSESSEES CLAIMS AFRESH. ALTE RNATELY THE LD. COUNSEL ALSO SUBMITTED THAT ASSESSEE HAS NO OBJECTION IF TH E NET PROFIT IS DETERMINED AT 6% TO SETTLE THE MATTER. IN SUPPORT OF THE ESTI MATION AT 6% A CHART WAS FILED OF INCOMES DECLARED FROM A.Y. 2001-02 TO 2008 -09 TO SUBMIT THAT ASSESSEE HAS DONE BUSINESS IN THE ASSESSMENT YEARS 2005-07 AND 2006-07 WHEREAS IN THE LATER YEARS IT SWITCHED TO GARMENT B USINESS AS HE INCURRED LOSSES. IT IS ALSO SUBMITTED THAT ASSESSEE HAS EARN ED NET PROFIT OF 5.40% IN A.Y. 2006-07 AS AGAINST 1.91% IN THIS YEAR ON TRADI NG OF UTENSILS AND HOME APPLIANCES. IT WAS REQUESTED THAT THE BOOK RESULTS MAY BE REJECTED AND PROFIT BE ESTIMATED WITHOUT ANY FURTHER ITEM-WISE DISALLOW ANCE OF ADDITIONS. 4. THE LEARNED D.R. HOWEVER SUBMITTED THAT THE MATTE R NEED NOT TO BE REFERRED TO THE A.O. AS ASSESSEE WAS GIVEN SUFFICIE NT OPPORTUNITY BOTH BY THE A.O. AND BY THE CIT(A) AND REFERRED TO THE ORDERS O F OPPORTUNITIES GIVEN TO THE ASSESSEE. HE FURTHER SUBMITTED THAT ASSESSEE HA S AGREED FOR 6% NET PROFIT BUT ON THE ISSUE OF CASH CREDITS WHICH ARE N OT PROVED THESE SHOULD BE CONFIRMED AS THIS ADDITION WAS MADE UNDER SECTION 6 8/69. THEREFORE IT WAS SUBMITTED THAT THE ISSUE OF CASH CREDIT SHOULD BE C ONSIDERED SEPARATELY. 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED DOCUMENTS PLACED ON RECORD AS ADDITIONAL EVIDENCE AND THE MERITS OF THE CLAIMS. AS SEEN FROM THE RECORD A.O. HAS GIVEN NUMBER OF OPPORTUNITIES TO TH E ASSESSEE DURING THE ITA NOS. 730 731 & 732/MUM/2011 SHRI PRAKASH N. KOTADIA 3 COURSE OF ASSESSMENT PROCEEDINGS. AS PER THE ORDER OF THE CIT(A) ASSESSMENT ORDER WAS OBTAINED AFTER PENALTY ORDERS WERE SERVED ON THE ASSESSEE. THEREFORE THE CIT(A) CONDONED THE DELAY I N FILING THE APPEAL. DURING THE COURSE OF APPELLATE PROCEEDINGS THE CIT( A) HAS REMANDED MATTER AND THE A.O. AGAIN TRIED TO EXAMINE THE ISSUES BUT ASSESSEE FAILED TO APPEAR AND DID NOT FURNISH ANY DOCUMENTARY EVIDENCE WITH R EFERENCE TO THE CLAIMS. THEREFORE WE ARE OF THE OPINION THAT THERE IS NO N EED TO ACCEPT ASSESSEES CONTENTIONS ON FAILURE OF NATURAL JUSTICE ( GROUND NO 1) WHILE PASSING THE ORDER EXPARTE. THIS GROUND OF THE ASSESSEE IS REJEC TED AS IT IS ASSESSEE WHO HAS NOT AVAILED THE OPPORTUNITIES PROVIDED. THEREFO RE THIS GROUND NO.1 IS REJECTED. 6. COMING TO THE MERITS OF THE ADDITION MADE BY THE A. O.( GROUND NO.2) THE A.O. MADE AN ADDITION OF ` 6 10 014/- MAINLY PERTAINING TO 10% OF PURCHASES AT ` 5 80 900/-. A SIMILAR DISALLOWANCE AT 10% OF ADVER TISEMENT EXPENSES AND SALARY EXPENSES WERE ALSO MADE BY THE A.O. AS NOTICED FROM THE ASSESSMENT ORDER THE A.O. HAS NOT BASED HIS OR DER ON ANY PAST RECORD OR ON ANY COMPARATIVE RESULTS. ASSESSEE HAS FILED I TS RETURN ALONGWITH TAX AUDIT REPORT. AS SEEN FROM THE P & L ACCOUNT ASSESS EE HAS SALES OF ` 59 24 600/- AND EARNED A G.P. OF ` 5 40 344/- WHICH IS APPROXIMATELY ABOUT 9% OF THE TURNOVER. ASSESSEE CLAIMED VARIOUS EXPENSES INCLUDING INTEREST EXPENDITURE AND A.O. CHOOSE TO DISALLOW ON LY TWO ITEMS OF ADVERTISEMENT AND SALARY EXPENSES WHEREAS THE REST OF THE EXPENSES WERE ALLOWED. THEREFORE WE ARE OF THE OPINION THAT THER E IS NOT NEED TO DISALLOW THE TOTAL PURCHASES AND EXPENSES AT 10%. 7. IN ADDITION TO THE ABOVE THE A.O. ALSO BROUGHT TO TAX THE UNSECURED LOANS OBTAINED BY THE ASSESSEE AS REFLECTED IN THE BALANCE SHEET OF ` 4 92 197/- AND FURTHER DISALLOWED INTEREST CLAIM OF ` 45 191/-. AS SEEN FROM THE ANNEXURE TO TAX AUDIT REPORT ASSESSEE PAID THIS INTEREST ON CASH CREDITS RECEIVED DURING THE YEAR PART OF WHICH WERE ALSO R EPORTED AS RECEIVED FROM RELATIVES UNDER SECTION 40A(2)(B). AS SEEN FROM THE OUTSTANDING AMOUNT THE AMOUNT OF `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` 59 24 600/-. ASSESSEE HAS SHOWN A DISCOUNT OF ` 14 000/- IN THE P & L ACCOUNT WHICH SHOULD BE BROUG HT TO TAX SEPARATELY. ASSESSEE MADE CLAIM FOR LIC PAYMENT AS A REBATE UNDER SECTION 88. THE A.O. SHOULD CONSIDER THIS AND REWORK OUT TH E TOTAL INCOME ACCORDINGLY. WITH THIS DIRECTION GROUND NO. 2 ON ME RITS IS CONSIDERED PARTLY ALLOWED. 8. APPEAL IN ITA NO. 731/MUM/2011 IS PARTLY ALLOWED. 9. ITA NO. 730/MUM/2011 IS APPEAL ON PENALTY UNDER SE CTION 271(1)(B) OF ` 10 000/-. AS CAN BE SEEN FROM THE ORDER THE A.O. DI SCUSSED VARIOUS DEFAULTS COMMITTED BY THE ASSESSEE BY NOT RESPONDIN G TO NOTICES BUT LEVIED ONLY PENALTY OF ` 10 000/- WITHOUT SPECIFYING FOR WHICH DEFAULT THE A MOUNT OF ` 10 000/- WAS LEVIED. IN FACT PENALTY OF ` 10 000/- IS LEVIABLE FOR EACH OF THE DEFAULT. THERE IS ONLY ONE NOTICE ISSUED ON 21.07.2 006 STATED TO HAVE BEEN SERVED ON 02.08.2006. AFTERWARDS THERE ARE MANY OTH ER NOTICES STATED TO ITA NOS. 730 731 & 732/MUM/2011 SHRI PRAKASH N. KOTADIA 5 HAVE BEEN ISSUED AND SERVED. NONE WERE RESPONDED B Y THE ASSESSEE. SINCE THE A.O. HAD NOT SPECIFIED FOR WHICH DEFAULT HE WAS LEVYING PENALTY OF ` 10 000/- WE ARE UNABLE TO EXAMINE WHETHER THERE IS ANY BONAFIDE REASON FOR NOT ATTENDING ON THAT DAY. IN FACT ASSESSEE SUB MITTED BEFORE THE CIT(A) THAT THE REASON FOR NOT APPEARING BEFORE WAS THAT H E AS TRAVELLING TO AHMEDABAD AND WAS NOT IN MUMBAI AS HE INCURRED LOSS ES IN THE BUSINESS AND MOVED OUT OF MUMBAI. SINCE THE ENTIRE ORDER WAS EXPARTE AND ASSESSEE HAS COME TO KNOW ABOUT THE EXPARTE ORDER SUBSEQUENT LY AFTER LEVY OF PENALTY WE ARE OF THE OPINION THAT THERE IS A BONA FIDE REASON FOR NOT RESPONDING TO THE NOTICES. ANOTHER REASON GIVEN BEF ORE THE CIT(A) WAS THAT HE RELIED ON THE TAX PRACTITIONER WHO DID NOT TAKE INITIATIVE AND SUBSEQUENTLY HIRED ANOTHER CHARTERED ACCOUNTANT TO LOOK AFTER THE MATTER. IN EARLIER YEARS HE WAS OFFERING ONLY SALARY INCOME AND WAS NOT CONVERSANT WITH IT NOTICES. CONSIDERING THE EXPLANATION WE AR E OF THE OPINION THAT THERE IS A BONAFIDE REASON FOR NOT ATTENDING TO VARIOUS N OTICES. WE ARE ALSO OF THE OPINION THAT THE CIT(A) SHOULD HAVE CONSIDERED THE ISSUE ON MERITS RATHER THAN REJECTING THE APPEAL ON TECHNICAL REASONS OF D ELAY IN FILING THE APPEAL BEFORE HIM. SINCE CONDONATION WAS GRANTED IN MAIN A PPEAL WE ARE OF THE OPINION THAT THE DELAY ON FILING PENALTY APPEAL ALS O SHOULD HAVE BEEN CONDONED AND APPEAL DECIDED ON MERITS. ON CONSIDERI NG THE EXPLANATION AND EXAMINING THE RECORD WE ARE SATISFIED THAT THERE I S NO NEED FOR LEVY OF PENALTY UNDER SECTION 271(1)B). ACCORDINGLY THE SAM E CANCELLED. 10. WITH REFERENCE TO ITA NO. 732/MUM/2011 I.E. PENALTY UNDER SECTION 271(1)(C) THE PENALTY WAS LEVIED ONLY ON CASH CRED ITS AND INTEREST DISALLOWED AND OTHER ADDITIONS WERE NOT CONSIDERED FOR LEVY OF PENALTY. THE ONLY AMOUNT OF ` 5 37 388/- WAS CONSIDERED FOR LEVY OF PENALTY. AS D ISCUSSED IN THE QUANTUM ORDER THIS AMOUNT INVOLVE NOT ONLY INTEREST AMOUNT CREDITED TO THE LOAN ACCOUNT BEING DOUBLE DISALLOWANCE BUT THE AMOU NT ALSO RECEIVED FROM VARIOUS FAMILY MEMBERS. THERE ARE ALSO CERTAIN AMOU NTS WHICH ARE RECEIVED DURING THE YEAR THE DETAILS OF WHICH WERE ENCLOSED TO THE TAX AUDIT REPORT. THE A.O. HAD NOT CONSIDERED ANY OF THE DETAILS FILE D ALONGWITH THE RETURN BUT ONLY TAKEN THE OUTSTANDING BALANCE IN THE BALANCE S HEET AS UNEXPLAINED CASH CREDIT. NO ENQUIRY WAS MADE BY THE A.O. AND AL SO CONSIDERING THE FACT ITA NOS. 730 731 & 732/MUM/2011 SHRI PRAKASH N. KOTADIA 6 THAT ASSESSEE COULD NOT APPEAR BEFORE THE A.O. BEIN G AN EXPARTE ORDER WE ARE OF THE OPINION THAT JUST BECAUSE THERE IS DISAL LOWANCE PENALTY UNDER SECTION 271(1)(C) IS NOT WARRANTED. NOT ONLY THAT I N THE QUANTUM APPEAL THIS ISSUE WAS ALSO CONSIDERED AND THE ENTIRE INCOME WAS DETERMINED ON THE BASIS OF ESTIMATE AT 6% OF THE TURNOVER AS NET PROF IT. THEREFORE ON THAT REASON ALSO THE PENALTY CANNOT BE SUSTAINED. KEEPIN G IN VIEW ALL THE FACTS OF THE CASE WE ARE OF THE OPINION THAT THE PENALTY UN DER SECTION 271(1)(C) IS NOT WARRANTED. ACCORDINGLY THE SAME IS CANCELLED. 11. IN THE RESULT APPEAL IN ITA NO. 731/MUM/2011 IS PA RTLY ALLOWED AND ITA NOS. 730 & 732/MUM/2001 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 15 TH JULY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXV MUMBAI 4. THE CIT XXV MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.