Vildirect: IncomeTax-caselaws-2013-VIL-981-ITAT-MUM

2013-VIL-981-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

I.T.A. No. 8023/Mum/2011

Date: 04.12.2013

SHRI HITESH S. MEHTA

THE ACIT, CENTRAL CIRCLE-23, MUMBAI

For the Appellant : Shri Vijay Mehta & Shri Dharmesh Shah
For the Respondent : Dr. P. Daniel

BENCH

Shri Vijaypal Rao, JM And Shri N. K. Billaiya, AM,JJ.

JUDGMENT

Per N. K. Billaiya, AM:-

This appeal by the assessee is directed against the order of the Ld. CIT(A)-40, Mumbai dt.14.11.2011 pertaining to A.Y. 1991-92.

2. The assessee has raised 13 substantive grounds of appeal. At the very outset, the Ld. Counsel for the assessee submitted that under instructions he is not pressing ground No. 1. Ground No. 1 is accordingly dismissed as not pressed.

3. Ground No. 2 is of general in nature and needs no adjudication.

4. Ground No. 3 reads as under:

"The Ld. CIT(A) has erred in law and in facts in not determining the income based on the final books of account thereby confirming the net accretion method adopted by the AO for determination of the total income. The Ld. CIT(A) ought to have accepted book results shown by the appellant."

5. Facts on record show that in this case the assessment was completed u/s. 144/143(3) r.w. section 147 of the Act on 24.3.1994 determining total income at Rs. 4,58,41,900/-. This assessment order travelled up to the Tribunal. The Tribunal vide its order dt. 13.5.2004 in ITA No. 949/Mum/2002 considered it fit to set aside the matter back to the files of the CIT(A) to decide the issue afresh.

5.1. During the course of the appellate proceedings, the assessee furnished several details from time to time including books of account. A remand report was called from the AO. The contents of the remand report called from the AO are exhibited at para 4.3 of the order of the Ld. CIT(A). The remand report was sent vide letter dt. 23.10.2011, in response to which the assessee filed his reply dt. 31.10.2011. The entire issue revolves around the books of account of the assessee. It is an undisputed fact that books of accounts were not produced before the AO during the course of the assessment proceedings. The books of accounts were furnished for the first time before the Ld. CIT(A) with a request for their admission as additional evidence under Rule 46A.

5.2. After considering the entire facts brought during the course of the assessment proceedings and also during the course of the appellate proceedings, the Ld. CIT(A) agreed with the observations of the AO that the assessee had no books of account till 2001 even though the relevant financial year under consideration ended on 31.3.1991. The Ld. CIT(A) was of the opinion that the books of accounts which are being produced by the assessee were created recently. The source of which is either not known or considerably doubtful. The Ld. CIT(A) considered the observations of the AO in the remand report dt. 23.10.2011 recommending the rejection of the books of account which reads as under:

"The time of drawing of books of accounts is very relevant fact and that books of account maintained on day today basis or at least regular basis are less, prone to manipulation. In the present case, as admitted, there was no regular maintenance of books of accounts. Belated drawings of the books after several years from the end of the accounting year are more damaging and cannot be relied upon. Correct and true income cannot be deduced from such a belated books of account."

5.3. The Ld. CIT(A) went on to rely upon the appellate order in the case of Late Shri Harshad S. Mehta A.Y. 1992-93 wherein it has been held that the books of accounts are liable to be rejected. The Ld. CIT(A) finally concluded that "I find the books of account produced by the appellant can be admitted as directed by the Hon'ble Tribunal but the same cannot be accepted as correct record of financial transaction of the appellant. Accordingly, the same is rejected as being unreliable and non verifiable."

6. Aggrieved by this, the assessee is before us. The Ld. Counsel for the assessee strongly contended that the Ld. CIT(A) ought to have accepted book results shown by the assessee. It is the say of the Ld. Counsel that the delay in drawing the books of account was for valid reasons which have been accepted by the Tribunal in the case of ACIT Vs M/s. Fortune Holdings Pvt. Ltd in ITA No. 9020/M/95. The Ld. Counsel further argued that delay in drawing the books of account does not necessarily mean that they are incorrect. For rejection of books of account, specific defects need to be pointed out and in this case no specific mistake has been pointed out. To the observation of the Ld. CIT(A) that the books were not audited , The Ld. Counsel submitted that since there was no business income in the year under consideration, hence the assessee was not required to get his books audited.

7. The Ld. Departmental Representative strongly supporting the findings of the Ld. CIT(A) submitted that the assessee was notified as a notified person in the Harshad Mehta group cases on 8.6.1992 whereas the impugned financial year ended on 31.3.1991 much before the date when the assessee was notified as a notified person. The Ld. DR further submitted that the books of accounts were not found during the course of search and seizure operation in 1992. It is the say of the Ld. DR that it would be a futile exercise in accepting the book results when the entries do not tally with the seized documents.

8. We have carefully considered the rival submissions and perused the orders of the lower authorities and the relevant material evidences brought on record. Before proceeding further, it would be pertinent to consider the decision of the Tribunal in the case of M/s. Fortune Holdings Pvt. Ltd (supra) exhibited at pages 306 to 309 of the paper book wherein the Tribunal at para-5 on page-3 held as under:

"We have heard the rival contention. We have also perused the paper book containing 170 pages filed on behalf of the assessee containing the particulars relating to the various proceedings initiated against it by the income-tax department, CBI, Special Court etc. Strong reliance was placed on behalf of the assessee on the fact that since the assessee was wholly preoccupied with these proceedings, it could not collect the details called for by the notice and make an effective and meaningful compliance with the same. We find that the proceedings had started with the search in the year 1992 and thereafter a number of proceedings were going on against it such as CBI enquiry, prosecution etc. The directors were arrested and they were released and one of the conditions for releasing them on bail was that they should not attempt to meet any of the prosecution witness including the employees and business contacts. The directors were given permission to attend the office of the assessee company only from 3.8.1993. At the same time, they were also required to be present on all days of the trial in the criminal matters. The assessee was given permission by CBI to look into the documents seized only on 1.3.1994 which date fell after the due date for compliance with the notice. In all a total of 377 cases appeal to have been pending against 15 companies of the Harshad Mehta group of which 15 were pending against the assessee company. The difficulty was compounded by the fact that the employees also left assessee's services on account of non-payment of salaries. It is also seen from the order of the Special Court dated 3.2.94 that no Chartered Accountant was willing to take up the audit of the assessee company's account. The documents seized from the assessee by the CBI have been listed in pages 97 to 116 of the paper book. Thus, all these details given in the paper book and also explained by the assessee before the CIT(A) show that the assessee was prevented by reasonable cause from complying with the notice issued u/s. 142(1). In the face of various proceedings which are quite serious in nature, it is a little difficult to imagine that the assessee could have effectively complied with the terms of the notice. In our view, therefore, the CIT(A) is justified in holding that the assessee was prevented by reasonable cause and in canceling the penalty on that ground. No materials have been placed before us to show that his conclusion is in any way unreasonable and untenable. We, therefore, confirm his order and dismiss the appeal."

9. In another order of the Tribunal which is very much relevant on the facts of the case is a consolidated order in respect of 11 cases of Shri Harshad Mehta group pertaining to different person where one of the party is the assessee in the present case. This order is exhibited at pages 310 to 315 of the paper book wherein the Tribunal has held inter alia as under:

"All these facts and circumstances indicate that it was not possible for the assessee to complete assessee's books of account in response to summons issued u/s. 131(1) of the Act. Therefore, there is no force in the contention of Ld. Departmental Representative that assessee could prepare their books of account by click of mouse. Thus, the Ld. CIT(A) was right in coming to the conclusion that assessee had reasonable cause. The Tribunal finally concluded that the assessee was prevented by reasonable cause for not complying with the summons and revenue's appeal was accordingly dismissed."

The reason for delay in preparation of the books of account has been admitted by the Tribunal. We do not find any reason why the same were rejected as being non admitted by the lower authorities. At the most the books cannot be said to be contemporary but the entries in the books are contemporary and based on the seized documents and bank statements including contract notes. The Ld. CIT(A) himself has contradicted in the concluding para of 8.12 of his order at page-8, when he mentioned " I find that the books of accounts produced by the appellant can be admitted as directed by the Hon'ble Tribunal but the same cannot be accepted as correct record of financial transactions of the appellant." As the reasons for the delay in the preparation of the books of accounts have been conclusively established and accepted by the decisions of the Tribunal [ supra ], we do not find any reason why the Ld. CIT(A) should have rejected the book results. As the admission of the books of account have attained finality by the decision of the Tribunal, the Ld. CIT(A) is directed to compute the income as per books of account. Ground No. 3 is allowed for statistical purpose.

10. Ground No. 4, 5 & 6 relate to the determination of the total income by considering net accretion to various assets.

11. As we have directed the Ld. CIT(A) to compute the taxable income as per books of account of the assessee qua in ground No. 3, additions contested for ground No. 4,5 & 6 are deleted. Ground No. 4 to 6 are accordingly allowed.

12. Ground No. 7 reads as under:

"The Ld. CIT(A) has erred in law and in facts in confirming the determination of unaccounted investments as per annexure A-3 of the assessment order at Rs. 3,79,42,133/- on the basis of the information collected from various companies allegedly showing the shareholding of the appellant without appreciating that the copies of the said letters/information was neither provided to the appellant during assessment proceedings nor during remand proceedings."

13. This issue has been considered by the Ld. CIT(A) at page 15 on para 13.1 of his order. During the course of the assessment proceedings, the AO issued letters to various companies to know the holding in shares of those companies by the assessee in cases where the companies reported higher than the accounted holding. The AO has made additions by treating the same as unaccounted holding. The assessee strongly objected to this and submitted a statement of holding shares in various companies. The assessee also asked for the various materials collected by the AO. The assessee also asked for granting inspection and copies of the materials relied upon by the AO. It was strongly contended that reliance on materials collected behind the back of the assessee is grossly in violation of the principles of natural justice and no addition can be made on the addition can be made on the basis of such evidences. The Ld. CIT(A) was not convinced with these submissions of the assessee and confirmed the additions made by the AO.

14. Before us, the Ld. Counsel for the assessee reiterated what has been submitted before the lower authorities and strongly submitted that additions in violation of the principles of natural justice cannot be sustained.

15. Per contra, the Ld. Departmental Representative submitted that since the assessee was shareholders in various companies. The assessee himself should have obtained the letter from the company directly. We do not agree with the submission of the Ld. DR. One of the basic principles of natural justice is that no evidence collected behind the back of the assessee could be used against the assessee unless an opportunity is given to the assessee to rebut the same. As the Revenue authorities have grossly erred in relying upon the evidences collected behind the back of the assessee, the additions based on such materials deserves to be deleted. We, accordingly reverse the findings of the Ld. CIT(A) and direct the AO to delete the addition of Rs. 3,79,42,133/- which have been made on the basis of the information collected from various companies behind the back of the assessee. This ground of the assessee is accordingly allowed.

16. Grievance raised vide ground No. 8 is consequential to our findings given in ground No. 7 of the appeal hereinabove. This ground of the assessee is allowed.

17. Ground No. 9 relates to the confirmation of the disallowance of deduction on account of interest expense claimed by the assessee.

18. Identical issue has been considered by us in ITA No. 9158/M/2010 in assessee's own case for A.Y. 1996-97 vide order dt. 29. 11.2013. Respectfully following the findings of the Tribunal in assessee's own case, this issue is restored back to the files of the AO to follow the directions of the Tribunal in A.Y. 2005-06 and 2006-07 as mentioned in ITA No. 9158/M/10 (supra). Ground No. 9 is allowed for statistical purposes.

19. Ground No. 10 relates to the disallowance of deduction of other expenses claimed by the assessee in the books of account.

20. As we have directed the CIT[A] to compute the income as per books of account of the assessee, all the expenses debited in the books of account will automatically be allowed by the AO as per our findings given in ground No. 3 of this order. Ground No. 10 is accordingly allowed.

21. Grievance raised vide ground No. 11 and 12 are consequential to our findings given for ground No. 3 of this appeal. As we have directed the AO to compute the income as per books of account of the assessee, these issues will be decided afresh. Ground No. 11 & 12 are accordingly allowed.

22. Ground No. 13 relates to the chargeability of interest u/s. 234A, 234B and 234C of the Act. Levy of interest is mandatory but consequential.

23. In the result, the appeal filed by the assessee is partly allowed for statistical purpose.

Order pronounced in the open court on 4th December, 2013.

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.