Delhi High Court
Nufarm Chemicals vs Asstt. Commissioner Of Income Tax. on 13 April, 1994
Equivalent citations: (1994)50TTJ(DEL)42
ORDER
M. A. BAKHSHI, J. M. :
The appeal of the assessed for asst. yr. 1988-89 is directed against the order dt. 6th Sept., 1990 of CIT(A), Faridabad. There was a delay of 246 days in filing of the appeal. assessed had filed an application for condensation of delay and the Bench vide separate order dt. 25th Feb., 1994 on consideration of the facts and circumstances of this case have condoned the delay.
2. The appeal was heard by us on merits on 4th April, 1994.
3. Appellant is a registered firm. During the previous year relevant to the assessment year in appeal, assessed derived income from the manufacturing of U. F. moulding powder, P. F. moulding powder and Phenol Formaldehyde Resins. assessed had filed the return of income declaring loss of Rs. 3,89,190. The Assessing Officer completed the assessment vide order dt. 25th Sept., 1989 at an income of Rs. 10,26,330.
4. assessed appealed to the CIT(A), who vide impugned order accepted the same in part. Various grounds of appeal have been raised before us.
5. First ground of appeal is as under :
"1.1 The learned CIT(A), Faridabad has erred in holding that adequate opportunity of hearing was given to the assessed by the Asstt. CIT, Faridabad.
1.2 Having found that on the last two dates of hearing, i.e., 21st Sept., 1989 and 25th Sept., 1989, the Asstt. CIT could not hear the assessed (for reasons that the CIT, Rohtak was in town on 21st Sept., 1989 and there was strike in the IT Office on 25th Sept., 1989) and that the assessment order was passed on 25th Sept., 1989 itself, he should have held that the assessed was denied a hearing by the Asstt. CIT and so his order was bad in law. In so far as he did not hold so, he erred on facts.
1.3 The learned CIT(A) erred in law and on facts in observing that prior to 21st Sept., 1989 fifteen hearings had been granted to the assessed. The observation is factually wrong. Even otherwise, he should have held that, despite earlier opportunities of hearings, the dates of hearing, i.e., 21st Sept., 1989 and 25th Sept., 1989 were granted to the assessed by the Asstt. CIT himself to give further explanation and clarifications, and therefore, no hearing the assessed on the said dates amounted to denying him the opportunities of rendering the explanation sought by the Asstt. CIT. Passing an order without hearing the assessed on 21st Sept., 1989 and 25th Sept., 1989 was without affording him proper opportunity. The learned CIT(A) erred in holding otherwise. His order, therefore, deserves to be reversed. The matter should be restored to the learned Asstt. CIT for affording proper opportunity of hearing to the assessed."
6. This ground is dismissed as not pressed.
7. Second ground of appeal is relating to addition of Rs. 7,94,000 on account of deposits. As per the balance-sheet a sum of Rs. 25,55,500 was reflected as fixed deposits. On scrutiny of accounts it was found that out of this sum of Rs. 25,55,500, deposits of Rs. 7,94,000 were on account of fresh deposits received during the year under appeal. As per the audited balance-sheet assessed had given the details of these deposits Along with the various particulars. It seems that the Assessing Officer had asked the assessed to furnish confirmations in respect of fresh deposits. assessed furnished confirmations in respect of eight parties. However, in respect of the remaining parties, assessed had requested for sufficient time or in the alternative Assessing Officer was requested to pick up 8 to 10 deposits according to his choice so that confirmations in respect of those depositors could be furnished. The Assessing Officer instead of allowing further opportunity proceeded to make the addition to the tune of Rs. 7,94,000 by invoking provisions of s. 68 and treating the amount of fresh deposits as income from other sources.
8. assessed appealed to the CIT(A), who held that assessed having failed to discharge the onus in respect of the fresh deposits, the Assessing Officer was justified in making the addition.
9. The learned counsel for the assessed contended that assessed had been accepting the deposits right from asst. yr. 1982-83. The deposits had been accepted through brokers. The payments had been received by cheques. The payment of interest was also made by means of cheques. Referring to the audited balance-sheet and statement of accounts, learned counsel pointed out that complete details in respect of the depositors had been furnished Along with the return of income. Assessing Officer undoubtedly had asked for confirmations in respect of the depositors but in view of insufficient time available to the assessed the confirmation in respect of eight depositors were furnished and in respect of other depositors adequate opportunity was sought. In this connection, our attention was invited to assesseds letter placed at page 44 to 47 of the paper book by virtue of which Assessing Officer had been requested to give adequate opportunity so that confirmations in respect of all the depositors could be obtained and furnished or in the alternative confirmation in respect of any 8 to 10 deposits of the choice of the Assessing Officer was undertaken. The Assessing Officer instead of providing sufficient opportunity to the assessed proceeded to make the assessment. According to the learned counsel, firstly, the assessed has discharged the primary onus. Secondly, the Assessing Officer has violated the principles of natural justice by not giving adequate opportunity of furnishing evidence to the assessed.
10. Learned counsel also explained the scheme of acceptance of deposits by the assessed-firm. With reference to extract from the letter dt. 24th Oct., 1987 relating to asst. yr. 1986-87 placed at page 61 of the paper book Sri Anand Prakash pointed out that M/s Gogia Investments Advisory Centre, A-21, Kirti Nagar, New Delhi and M/s Security Investment, H-23, Connaught Circus, New Delhi had invited deposits from the public on behalf of the assessed by means of advertisement through newspapers and by post. The depositors had filled the prescribed forms giving complete address, specimen signature, particulars of cheque, name of the bank etc. These application forms Along with cheques were forwarded to the assessed, who on collecting the amounts of the deposits issued FDRs directly to the depositors., assessed paid commission to the agents for procuring the deposits. The application forms received from the depositors Along with photostat copies of the fixed deposit, etc., had been produced before the Assessing Officer for scrutiny though admittedly such application forms, etc., have not been placed on record before the Assessing Officer or before the CIT(A). The Assessing Officer, according to the learned counsel, has allowed the payment of commission to the two agents as genuine expenditure incurred for the purposes of business.
11. The deposits have all along been accepted in the past. In the face of this background, the Assessing Officer according to the learned counsel, was not justified in holding that assessed has failed to discharge the initial onus.
12. The learned counsel further contended that firstly the assessed has discharged the primary onus relating to the fresh deposits. Secondly, if at all the onus is held no to have been discharged the Assessing Officer having violated the principles of natural justice by not giving adequate opportunity to the assessed, the addition made is unsustainable in law. In this connection, reliance has been placed on the following decisions :
Devamani Atha vs. CIT (1 (1978) 112 ITR 837 (Ori) Sarogi Credit Corpn. vs. CIT (1976) 103 ITR 344 (Pat) Addl. CIT vs. Bahri Bros. P. Ltd. (1985) 154 ITR 244 (Pat) CIT vs. Orissa Corpn. (P) Ltd. (1986) 159 ITR 78 (SC) According to the learned counsel, audit report gives all the names and addresses of the depositors, payment has been received by crossed cheques and repayment has also been made by crossed cheques, commission has been paid to brokers, interest has also been paid by means of cheques. Tax has been deducted at source wherever required.
13. It was accordingly contended that the addition made by the Assessing Officer and sustained by the CIT(A) may be deleted.
14. The learned Departmental Representative, on the other hand, contended that Assessing Officer had given adequate opportunity to the assessed to furnish the evidence in support of the genuineness of the depositors. According to Shri Gupta, the mere furnishing of particulars in the case of the depositors was not sufficient for accepting the deposits as genuine. assessed is duty bound to furnish proof in regard to the identity, genuineness and the creditworthiness of the depositors. The depositors are not assessed to income-tax as no income-tax permanent account number has been indicated. Notwithstanding the fact that assessed got sufficient time, the confirmation from the parties had not been furnished to the Assessing Officer. According to Shri Gupta, assessed never wanted to co-operate with the Department as there was no explanation from the assessed as to why the confirmations could not be obtained till September, 1989 when further time was asked for collecting information. Sri Gupta further contended that the information furnished by the assessed as per page number 103 to 336 was not filed with the Assessing Officer. Whether such papers were produced before the Assessing Officer or not Sri Gupta stated he is not in a position to say anything with certainty. Sri Gupta relied upon the decision of the Tribunal in the case of B. Tex. Corpn. vs. ITO (1992) 46 TTJ (Bom) (TM) 668 : (1993) 202 ITR 17 (Bom) (TM) (AT) in support of the contention that mere filing of confirmatory letters and permanent account number of alleged creditors is not sufficient to discharge the onus. Since assessed failed to discharge the onus in respect of the fresh deposits Sri Gupta urged that the addition sustained by the CIT(A) may be confirmed.
15. We have given our careful consideration to the rival contentions. There can be no quarrel with the proposition that the initial onus in regard to the deposits is upon the assessed. The assessed has to establish the identity of the depositors, genuineness of the deposits and the creditworthiness of the depositors. The question, therefore, for our consideration is as to whether on the facts and in the circumstances of this case, assessed can be said to have discharged the initial onus. It is also to be considered to whether Assessing Officer has given adequate opportunity to the assessed for furnishing the necessary evidence.
16. A perusal of the audited statement of accounts furnished Along with the return of income reveal that details of deposits had been furnished giving the following particulars :
FDR No., Date of purchase, Maturity date, name of the depositors, amount of deposit, depositors address.
A sum of Rs. 25,55,500 reflected the deposits out of which Rs. 11,68,500 pertained to earlier years. The deposits pertaining to earlier years have been accepted as genuine. A further sum of Rs. 5,93,000 have been traced to the deposits made on account of renewals of old deposits. The remaining amount of Rs. 7,94,000 are the fresh deposits made during the year under appeal. In respect of these deposits assessed had furnished the particulars as in earlier years. In earlier years assessed having explained the nature of the deposits the scheme for accepting the same and the procedure as laid down under Public Deposits Rules, 1975 as applicable to public limited company having been followed, the Department accepted the deposits as genuine in such years. In the year under appeal, assessed it seems believed that similar information would suffice for the purpose of acceptance of the deposits as genuine. However, this was not so. The Assessing Officer had directed the assessed to furnish confirmations in respect of all the fresh depositors. It is well settled that principles of estoppel do not apply to income-tax proceedings. The Assessing Officer was not bound to accept the deposits as genuine on the basis of information similar to the information furnished in earlier years. The Assessing Officer has two options. Either to accept the deposits as genuine on the basis of information furnished by the assessed or to demand further evidence. In this case Assessing Officer has exercised the second option, i.e., demanding further evidence in the shape of confirmations. assessed has furnished confirmations in respect of eight parties. These confirmations give cheque number, date, name of the bank and the amount of deposit. Complete name and address of the parties is also indicated. This letter also confirms that the depositor is not assessed to income-tax. Such confirmations have been filed in respect of eight depositors only. If assessed had not requested the Assessing Officer to give adequate opportunity or to select 8 to 10 depositors in respect of which complete information could be furnished there would be no difficulty to hold that assessed had failed to comply with the requirement of the Assessing Officer. However, as per letter dated nil placed at page 44 to 47 addressed to Asstt. CIT, Faridabad, assessed has submitted as under :
"Respectfully this is to submit that on the last date of hearing, i.e., 21st Sept., 1989 we were asked to file papers on 25th Sept., 1989 because of the visit of CIT, Haryana, Rohtak. On 25th Sept., 1989 there being strike in protest against recent Muzaffarnagar incident, no proceedings were held.
2. We beg to submit the additional requisite information as under :
(a) Replies to the queries raised in your letter dt. 16th Aug., 1989
(i) (1) Employees/staff welfare expenses - Rs. 35,830 Details remain furnished as Annexure No. 13 to our letter dt. 15th Dec., 1988.
(2) Repairs to plant and machinery - Rs. 1,05,693 Details remain furnished of items above Rs. 1000 each as Annexure No. 4 to our letter dt. 8th Feb., 1989. The aggregate thereof comes to Rs. 67,302.41. The balance of Rs. 38,390.46 pertains to repairs below Rs. 1000 each item.
Same details remain again resubmitted as Annexure No. 4 to our letter dt. 20th Feb., 1989.
(3) Deposits and loans Cumulative Ordinary/ Non-cumulative Total Rs.
Rs.
Rs.
up to 31st March, 1987 (not matured) Asst. yr.1987-88 5,41,000 6,27,500 11,68,500 1st April, 1987 to 31st March, 1988 Asst, yr. 1988-89 7,61,500 6,25,500 13,87,000 Less : Old (renewed) 3,21,000 2,72,000 5,93,000 Fresh/loan/deposits received 4,40,500 3,53,500 7,94,000 Therefore, fresh/new deposits and loans received in this year are Rs. 7,94,000 in aggregate (and not Rs. 13,87,000) Genuineness of these loans/deposits raised by us from public Full details of the loans/deposits and also of squared-up accounts remain furnished as Schedule VI to the Tax Audit Report and Annexures No. 1 and 2 to our letter dt. 20th Feb., 1989 and Annexure No. 17 to our letter dt. 8th Feb., 1989.
Scheme for raising loans/deposits These loans/deposits are invited and accepted by us in conformity with the procedure laid down under Public Deposit Rules, 1975 as applicable to public limited companies. The scheme followed by us is explained in Annexure No. 4/1 and 4/2 to our letter dt. 15th Dec., 1988 (photocopy enclosed as Annexure No. 1 for your ready reference) In addition, we have further to submit that all the loans except a few are received through the brokers who procure deposits by sending advertisement in papers and mail. The assessed pays commission for the procurement. The bills of brokers giving details of deposits procured have already been attached with our letter dt. 20th Feb., 1989 vide Annexure No. 3/4 to 3/15. Since the deposits are accepted by proper system of procurement through brokers, the same are being accepted in all the earlier years, having been properly verified by the brokers on their bill which are all available and any adverse inference is not called for.
Confirmations so far procured being submitted hereby All the same, in compliance with the desire of the assessing authority, we could procure so far confirmations from 8 parties which are enclosed as Annexure No. 2.
Humble request In past assessments so far, the genuineness of the loans and deposits raised by us from the public has been accepted on the facts of our following the procedure laid down under Public Deposit Rules, 1975 as applicable to public limited companies.
If further satisfaction is required in this year, apart from the 8 confirmations mentioned above, then sufficient time and adequate opportunity be given in case confirmations in respect of all the deposits/loans is required since the assessment will become time-barred only after 31st March, 1990, however, if assessment is desired to be completed earlier, then on test check basis confirmations in respect of any 8 to 10 deposits of your choice be asked for. We undertake to co-operate fully and try our best in either of the alternatives. We are enclosing as Annexure No. 3 photo copies of the bill of Security Investment Centre, brokers, which could not be given earlier."
17. As is clear from above assessed did not refuse to furnish the information as called for by the Assessing Officer. Two alternatives had been suggested. Assessing officer had been asked to give adequate time so that confirmations from all the depositors could be procured and furnished. In the alternative, assessed had asked for selecting 8 to 10 depositors in respect of which complete information could be furnished for scrutiny. Instead of acceding to the request of the assessed, Assessing Officer has proceeded to make the assessment and added sum of Rs. 7,94,000 as income from undisclosed sources. This action of the Assessing Officer is not appreciable. The assessment was getting barred by limitation by the end of 31st March, 1990. Assessing Officer has completed the assessment vide order dt. 25th Sept., 1989. Thus it is evident that there were no time constraints with the Assessing Officer for not allowing further time to the assessed relating to furnishing of information/evidence in respect of the depositors. There has, in our view, been clear violation of principles of natural justice. We, therefore, consider it fair and reasonable to remit this matter to the file of the Assessing Officer with the direction to proceed afresh from the stage of violation. It seems that assessed has complete information in regard to the depositors. assessed had given two options to the Assessing Officer in respect of furnishing of information called for. Let the Assessing Officer exercise the option and give adequate opportunity to the assessed to furnish the evidence. Once assessed complies with the requirement of the Assessing Officer relating to furnishing of evidence the onus will shift to the Revenue. Let this issue be decided afresh in accordance with law after giving reasonable opportunity of being heard to the assessed.
18. Ground No. 3 is relating to disallowance of interest amounting to Rs. 1,42,920. The interest is relating to the deposits of Rs. 7,94,000. As a consequential measure of setting aside the issue relating to the deposits of Rs. 7,94,000 this issue is also remitted to the file of the Assessing Officer for fresh disposal as above.
19. Ground No. 4 reads as under :
"That the learned CIT(A) has erred in restoring back the additions of Rs. 89,500 to the file of Assessing Officer. He ought to have allowed the same."
20. This is dismissed as not pressed.
21. Ground No. 5 is relating to the disallowance of Rs. 1,63,861. assessed had claimed expenses pertaining to preceding years on the ground that these amounts were debited to the P&L account in the year under consideration. Out of the total claim of Rs. 1,63,861 a sum of Rs. 1,04,320 related to commission on deposits pertaining to asstt. yr. 1985-86, Rs. 59,541 related to lease rent on account of machinery pertaining to asst. yrs. 1985-86 and 1986-87. assessed claimed that the commission payable to M/s Gogia Investments Advisory Centre, New Delhi relating to asst. yr. 1985-86 had not been claimed as a deduction earlier as the settlement had taken place in the year under appeal. The claim has been rejected on the ground that no evidence whatsoever has been furnished by the assessed justifying deduction in the year under appeal relating to the expenditure pertaining to earlier years. The position has not improved before us. We, therefore, decline to interfere.
22. Similarly, in respect of lease rent assessed claimed that the lease rent payable to M/s Nuchem Investment P. Ltd. relating to asst. yrs. 1985-86 and 1986-87 had been withheld on account of unsatisfactory working of the machinery supplied by them. Since the fault in the machinery is rectified during the year under appeal, assessed claimed the deduction for the year under appeal.
23. The payment of lease rent is claimed to a sister concern. The machinery did not work for earlier years nor was any rent paid. There is no justification for allowance of deduction in the year under appeal on account of lease rent of machinery pertaining to earlier years. The addition, therefore, is confirmed.
24. Ground Nos. 6 and 7 read as under :
"6.1. The learned CIT(A) erred in restoring to the file of the Asstt. CIT the question of addition on account of gross profit amounting after finding out that the Assessing Officer had not pointed out any shortcoming or discrepancy in the books of accounts maintained by the assessed and that he had "not given any reasons and basis for applying proviso to s. 145(1)" giving fresh innings to the learned Asstt. CIT on this point was against law.
6.2 The decline in the gross profit rate is not defect in the accounts and, therefore, the learned CIT(A) erred in restoring the matter to the file of Asstt. CIT for this reason alone. His order on this point deserves to be reversed any may kindly be reversed.
7. That, the learned CIT(A) ought to have allowed interest of Rs. 39,320 instead of restoring back to the Assessing Authority."
25. These are dismissed as not pressed.
26. Ground No. 8 relates to addition of Rs. 950 on account of advertisement expenses. A sum of Rs. 450 had been paid by the assessed to Gurgaon Durga Puja Committee and a sum of Rs. 500 to National Association for the Blinds. The Assessing Officer made the disallowance by holding these payments as donations not qualifying for deduction. Learned counsel for the assessed invited our attention to letter placed at page 72 of the paper book in support of the contention that a sum of Rs. 450 had been paid to Gurgaon Durga Puja Committee on account of advertisement in a souvenir published by them. Similarly, sum of Rs. 500 had been paid to National Association for Blinds on account of advertisement charges of telephone directory of Faridabad. The expenditure was clearly allowable as a business expenditure and the authorities have wrongly disallowed the same.
27. The learned Departmental Representative relied upon the orders of the Revenue authorities.
28. We have perused the evidence on records and are satisfied that the expenditure incurred by the assessed was on account of advertisement. As per letter issued by Gurgaon Durga Puja Committee placed at page 72 of the paper book, it is evident that advertisement charges in a souvenir for a full page were quoted at Rs. 450. assessed has paid the amount for advertisement in the souvenir which is allowable as a legitimate business expenditure. Similarly, receipt from National Association for the Blinds has been placed at page 57 of the paper book which clearly indicates that payment had been made by the assessed on account of advertisement. The Association is also registered for the purposes of provisions of s. 80G of the IT Act, 1961. However, assesseds claim is on account of advertisement and not on account of donation. Since the expenditure has been incurred for inserting an advertisement in a telephone directory which was to be issued by the National Association for the Blinds, the expenditure qualified for deduction under s. 37 of the Act. We, therefore, delete the addition of Rs. 950.
29. No other ground of appeal has been pressed.
30. In the result, appeal is partly allowed.