Income Tax Appellate Tribunal - Jodhpur
Ambiance Home Furnishings Private ... vs Deputy Commissioner, Central ... on 11 December, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR.
BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER &
SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER
I.T.A. No. 467/Jodh/2023
Assessment Year: 2018-19
Ambiance Home Furnishing Vs. Deputy Commissioner
Private Limited, Central Circle-1,
th
A-865(A) Boranda 4 phase, Jodhpur.
Jodhpur. (Respondent)
[PAN: AAMCA1021C]
(Appellant)
Appellant by Sh. Mayank Thaparia, Adv.
Respondent by Sh. Arvind Kumar Gehlot, JCIT
Date of Hearing 24.10.2024
Date of Pronouncement 11.12.2024
ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM By way of present appeal the assessee challenges the order of the Commissioner of Income Tax (Appeals), Jaipur-5 dated 29.09.2023 [ for short "CIT(A)"] which relates to the assessment year 2018-19. That order of the ld.
CIT(A) arise because the assessee has challenged the assessment order dated 17.06.2021 passed under section 143(3) of the Income Tax Act,1961 [ for short "Act" ] by the ACIT, Central Circle-1, Jodhpur.
2. Assessee challenged the impugned order of the ld. CIT(A) on the following grounds:
"1. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the AO's order dated 17-06-2021 passed for the AY 2018-19 u/s. 143(3) without appreciating true and correct facts of the case and not addressing the technical grounds/plea raised before him.
2. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the addition of Rs. 20,29,084/- made u/s. 69B of the Act on account of unexplained investment in stock whereas this entire addition was made on statement of the assessee.
3. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the AO's action of taxing the income of Rs. 20,29,084/- at higher rate u/s. 115BBE ignoring the fact that the same represented business income of the assessee.
4. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the AO's action of treating excess cash of Rs. 44,669/- as income from other sources u/s. 69A and charging the tax at higher rate u/s. 115BBE of the Act ignoring the fact that the same represented business income of the assessee.
5. That on the facts and circumstances of the case, the Id. CIT(A) erred in confirming the AO's action in disallowing depreciation of Rs. 19,65,440/- by endorsing the AO's view that building was not completed in the AY 2018-19 whereas the fact is that building was completed and was being used for business purpose.
6. The appellant craves leave to add or to amend the foregoing ground of appeal, if it becomes necessary to do so in the interest of justice.
3. Brief facts of the case are that the assessee-company e-filed its return of income for AY 2018-19 in Form ITR-6 on 31/03/2018 declaring total income at Rs. 2,47,89,490/-. However, on 28/03/2019 the assessee-company e-filed revised return showing income of Rs. 2,47,89,490/-. A survey u/s 133A of the Income Tax Act, 1961 (the Act) was conducted in this case on 27-28/02/2018 and as such, in view of CBDT guidelines the case was selected for 2 compulsory scrutiny and notice u/s 143(2) dated 25/09/2018, issued and served upon the assessee digitally by the ACIT, Circle-3, Jodhpur.
3.1 Thereafter, in compliance to the CBDT Instruction F. No. 225/126/2020/ITA-II dated 17.09.2020 order u/s 127 was issued by the Pr.
CIT-1, Jodhpur vide No. Pr. CIT-1/Ju./127/2020-21/983 dated 20/10/2020 centralizing the case with Central Circle-2, Jodhpur. Subsequently, the PCIT (Central), Rajasthan, Jaipur issued order u/s 127(1) dated 25/01/2021, vide endorsement No. PCIT(C)/DCIT (Hq)/C-Misc/2020-21/1763 and transferred the jurisdiction over the case from DCIT, CC-2, Jodhpur to DCIT, CC-1, Jodhpur. After receipt of assessment folder and impounded material from the O/o DCIT, CC-2, Jodhpur, issued notice u/s 142(1), along with detailed questionnaire vide letter dated 09/02/2021 was issued through ITBA and served digitally on the email ID of the assessee. In compliance to this notice assessee have filed written submissions / requisite details and explanations, which are placed on file and considered by the ld. AO. Computer generated set of books of a/c consisting of cash book, ledger, journal, purchase & sales registers, bank book and relevant bills / expenditure vouchers were produced which were test checked by ld. AO.
3.2 The assessee-company is engaged in manufacturing of handicraft and furniture items for export. Ld. AO noted trading results as declared for the year 3 under assessment and that of preceding assessment year which was tabulated herein below: -
AY Turnover Gross Profit GP Rate Net profit NP Rate
2017-18 Rs. 11,22,79,517 Rs. 2,19,34,949 19.54% Rs. 70,15,977 6.25%
2018-19 Rs. 21,64,73,195 Rs. 5,09,73,142 23.55% Rs. 2,46,66,603 11.39%
Ld. AO considering the facts as emerges from the above table that the assessee has performed and shown better trading results/profits rates have been declared this year in comparison to preceding assessment year and therefore, ld. AO did not intend to interference in the book results declared.
3.3 As is evident that the premises of the assessee was surveyed as per provision of section 133A of the Act on 27-28/02/2018. During the survey trading account as on 27/02/2018, was generated from computer installed in the office of the company wherein stock of Rs.
35,06,180/- was mentioned. The survey team upon physical verification found stock valued for Rs. 55,35,265/- [Rs. 44,47,664/- at the premises of assessee-company + Rs. 10,87,600/- at the premises of M/s.
Furnicraft India, F-615, Boranada, Jodhpur] was found. This resulted into the excess stock of Rs. 20,29,084/- (Rs. 55,35,264/- minus Rs.
35,60,180/-) was detected by the survey team. While the proceeding 4 under survey statement of Shri Mahesh Panwar, Director, was recorded u/s 131 during survey proceedings wherein he was asked to explain the excess stock found. Shri Mahesh Panwar, Director, admitted the excess stock of Rs. 20,29,084/- and surrendered the same for taxation.
However, in the revised return e-filed on no additional income of Rs.
20,29,084/- surrendered on account of unexplained excess stock. In the light of this facts vide questionnaire dated 09/02/2021 issued u/s 142(1) of the Act, the assessee was asked to show cause as to why the undisclosed investment made in purchase of excess stock of Rs.
20,29,084/- may not be treated as unexplained investment u/s 69B on stock and taxed in accordance with the provision of section 115BBE of the Act.
3.4 Assessee vide reply dated 22/02/2021, submitted that during survey physical stock as on 28/02/2018 was found at Rs. 55,35,264/-.
As regards non- inclusion of surrendered excess stock of Rs.
20,29,084/- in the income returned, the assessee submitted that the Director, whose statement was recorded, had categorically mentioned that there may be some mistake in calculation and when examined in detail, it was observed that the very basis of calculating the excess stock was the value of stock as per books taken for Rs. 35,06,180/- as 5 per trading account prepared on the date of survey. The assessee further submitted that while preparing trading account during survey, expenses / purchases aggregating Rs. 41,10,878/- relating to the period 01/4/2017 to 27/02/2018 were not considered. Considering expenses / purchases of Rs. 41,10,878/- and after taking into account of physical stock found, re-casted trading account was prepared. Even the ld. AO noted in the assessment order that after that the trading results were better and hence, question of having any further excess stock would be ruled out. The surrendered amount of stock of Rs.
20,29,084/- was not considered because in fact there was no such excess stock, which fact is further corroborated by that assessee that there was not a single unrecorded transaction either of any purchase / sale and/or any expenses nullifying the apprehension of any excess stock over the stock as per books calculated in a correct manner. The surrender of alleged excess stock was made by the Director under mistaken belief without following the mercantile system of accounting and, therefore, is not correct to further tax that amount merely based on the statement.
3.5 The assessee further submitted that, if viewed from the angle of overall trading results, the export sales have been doubled in 6 comparison to preceding year. Further, most of the expenses have drastically reduced thereby increasing the gross profit in terms of quantum as well as in terms of percentage. The trading results for the year are far better than that of preceding year and, therefore, one cannot even infer for any leakage in the books of account as to suppression of any profit.
3.6 As regards the invoking of provision of section 15BBE of the Act, the assessee has referred to the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Bajargan Traders in D.B.I.T.A. No. 258/2017 dated 12/09/2017 in support of his contention that stock surrendered during survey, if any, is to be assessed as business income as its sources is the carrying on of business activity only. The ld. AO having considered the submission of the assessee but found not acceptable because during survey, stock registered was not found and stock position on the date of survey was provided by Shri Kanhaiyalal Biarwa, Accountant of the assessee-company. Statement of Shri Mahesh Panwar, Director, was recorded, wherein he admitted the stock position worked out and provided by the Accountant, Shri Kanhaiyalal.
The alleged un-entered expenditure / purchase bills of Rs. 41,10,878/-
were not found during survey proceedings with the Accountant and at 7 the factory / office premises. The stock position as on 28/02/2018 was worked out after considering all expenses / purchases / sales from 01/04/2017 to 27/02/2018. The accountant as well as the Director never stated that certain bills for purchases / expenses remained to be entered. Statement of Shri Mahesh Panwar, Director, was recorded u/s 131 of the Act, which has got evidentiary value and cannot be allowed to be retracted based on created documents, which were not found during survey proceedings. Had there been any such un-entered expenditure / purchase bills, the assessee could have brought the same to the notice of authorities immediately after the survey, which is not the case. Thus, the claim regarding to un-entered purchases / expenses of Rs. 41,10,878/- is nothing but an attempt to get away with surrendered excess stock, which reflects the assessee's intention not to pay legitimate tax. Based on these observations ld. AO noted that assessee failed to explain the difference in stock on the date of survey and, therefore, bound to include the same its income as admitted by its Director during the course of his statement recorded u/s 131 of the Act.
Hence, excess stock of Rs. 20,29,084/- treated as unexplained investment made out of unaccounted sources of income within the 8 meaning of section 69B of the Act and added to the income of the assessee.
3.7 During survey action u/s 133A at the business premises of the assessee- company on 27/02/2018 cash of Rs. 1,69,700 was found as against cash-in- hand as per books at Rs. 1,25,031/-. Thus, there was excess cash of Rs. 44,669/- which was surrendered by Shri Mahesh Panwar, Director, as undisclosed income of the assessee-company.
The assessee has disclosed the excess cash in the return of income but has paid tax thereon at normal rates as business income. Since the excess cash was admitted by the Director as undisclosed income of the company, vide questionnaire dated 09/02/2021 the assessee was asked to show cause as to why the excess cash of Rs. 44,669/- may not be treated as d taxed u/s 115BBE of the Act, as unexplained money and taxed. The assessee submitted that proposed levy of tax u/s 115BBE on surrendered excess cash of Rs. 44,669/- by treating the same as unexplained money u/s 69A is not justified because the source of excess cash is duly established to have been generated out of business activities. The ld. AO did not considered the contention of the assessee and considered the excess cash to be taxed as per provision of section 69A of the Act which clearly stipulates that where in any 9 financial year the assessee is found to be owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account if any, maintained by the assessee for any source of income and the assessee offers no explanation about the nature and source of acquisition of money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the AO, satisfactory, the money and the value of the bullion, jewellery or other valuable articles may be deemed to be income of the assessee of such financial year.
Admittedly, during survey, excess cash of Rs. 44,669/- was found and on account of lack of any plausible explanation, the same was admitted and surrendered for taxation. Since, at the time of survey the excess cash was not claimed to be out of business income, the same is required to be treated as unexplained money u/s 69 of the Act, which is liable to tax u/s 115BBE of the Act. Accordingly, the amount of surrendered excess cash included in the ITR amounting to Rs. 44,669/-
is excluded from business income and added again under the head income from other sources as unexplained money u/s 69A of the Act and is further subjected to tax u/s 115BBE of the Act.
103.8 During the course of survey at business premises of M/s. Shakti Art Industries, Annexure-A, Exhibit 27 (containing page No. 1 to 76) was found and impounded u/s 133A(3)(ia) of the Act. On perusal of Page No. 39 of said Exhibit- 27 it was observed that during FY 2016- 17, relevant to AY 2017-18, the assessee-company claimed depreciation of Rs. 10,27,605/- in respect of factory under construction where no production / manufacturing activities were being carried on.
Similarly, in FY 2015-16, relevant to AY 2016-17, the assessee claimed depreciation of Rs. 2,55,849/- in respect of machinery, which was not installed / put to use. While recording statement u/s 131 Shri Mahesh Panwar, Director, was asked questions and claim of depreciation but he failed to furnish any plausible explanation in this regard. The statement of Shri Mahesh Panwar, Director, recorded u/s 131 on 27/02/2018. Vide questionnaire dated 09.02.02021 the assessee was asked to furnish explanation in this respect. The assessee submitted that part of building, which was complete, was put to use for storage of material and as such in FY 2016-17 depreciation was claimed in respect of completed part of building at A-865(A), 4th Phase, Industrial Area, Boranada, Jodhpur and rest of the building was shown at "capital work-in- progress". During the year relevant assessment year, the 11 assessee was carrying its business activities in a rented premises and even part of the building of M/s. Furnicraft India was taken on rent but still the assessee was short of working space and, therefore, the management decided to use the building located at A- 865(A), 4th Phase, Industrial Area, Boranada, Jodhpur to the extent completed.
The assessee has furnished copy of Building Account, which shows addition was made up to 31/03/2016 for Rs. 1,02,90,785/- on the part of the building which was complete and used as godown and submitted that depreciation was rightly claimed in AY 2016-17 and 2017-18.
Reply filed by the assessee was not considered as the assessee has claimed that part building was complete and was being used for storage, whereas during survey, entire building was physically inspected and the AO observed that both the portions have been constructed in the same period and looking to passage and building structure, it did not appear that the building was used as show-room or material storage as the buildings were incomplete and no physical stock was found kept there. Ld. AO therefore, hold that the assessee wrongly claimed depreciation in respect of incomplete building, which was not put to use, and, therefore, the same requires to be disallowed and the same was computed as reiterated herein below: -
F.Ys Opening WDV as Addition during Dep. Claimed Allowable Closing WDV as 12 st st on 1 April the year by the on 31 March assessee 2015-16 Rs. 0 Rs. 1,02,90,785 Rs. 5,14,539 Rs. 0 Rs. 1,02,90,785 2016-17 Rs. 1,02,90,785 Rs. 85,37,479 Rs. 10,27,605 Rs.0 Rs. 1,88,28,264 2017-18 Rs. 1,88,28,264 Rs. 5,21,006 Rs. 19,65,440 Rs. 0 Rs. 1,93,49,270 Based on these fact ld. AO noted that the assessee has claimed excess depreciation u/s 32 amounting to Rs. 19,65,440/- which was disallowed.
Assessment was computed by making the above additions.
4. Aggrieved, from the said order of assessment, assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee dismissed the appeal of the assessee by giving following findings on the legal issues raised before him:-
"5.2 I have considered the facts of the case and written submission of the appellant as against the observations/ findings of the AO in the assessment order for the year under consideration. The appellant had alleged that earlier notice issued u/s 143(2) is without any jurisdiction. In this regard it is to be mentioned that notice u/s 143(2) was issued well within the stipulated time provided in the Act. Further following the CBDT circular, all the survey cases has been transferred to central circle. Therefore the assessment proceedings and assessment order waspassed by the new jurisdictional officer after giving proper notices u/s 142(1) and questionnaire. The AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. The AO had duly analyzed and considered the submission of the appellant and had given finding on the same. Thus, considering the above facts and circumstances, ground no. 1 has no merit and accordingly it is hereby dismissed."
Ld. CIT(A) has also dismissed the grounds raised by the assessee on the merits of the case of the assessee.
5. As the assessee did not find any relief from the appeal so filed the assessee has preferred the present appeal on the ground as stated 13 hereinabove. Apropos to the grounds so raised the ld. AR of the assessee filed a detailed written submission which reads as under;
"With your Honour's kind permission, before arguing the grounds of appeal and unwarranted additions sustained vide order u/s. 250(6) of the Act by the CIT(A), Jaipur-5, vide appellate order dated 29-09-2023, your humble appellant would like to narrate brief facts of the case as under:-
The appellant company is engaged in manufacturing of handicraft and furniture items for export. It has e-filed its return of income for the AY 2018-19 on 31-03-2019 declaring the total income at Rs. 2,48,89,490/- which was revised on 28-03-2019 declaring the total income at Rs. 2,47,89,490/-. A survey u/s. 133A of the Act was conducted in this case on 27-28/02/2018. Being a survey case, the same was selected for scrutiny and initially, noticeu/s. 143(2) of the Act was issued by the ACIT, Circle-3, Jodhpur. Subsequently, the case was transferred from the ACIT, Circle-3, Jodhpur to 14 the DCIT, Central Circle-2, Jodhpur vide PCIT(Central), Rajasthan order u/s. 127 of the Act dated 25-01-2021. During the course of assessment proceedings, the assessee duly appeared before the AO and filed all requisite information / details/documents as and when required by the AO. Since the trading results declared by the assessee were better than that of the immediately preceding year, no adverse inference was called for by the AO in respect of audited books of accounts. During the course of assessment proceedings, the AO noted that the during the course of survey, there was stock of Rs. 35,06,180/- tallied from trading account maintained in computer installed at the office of premises of the assessee company whereas on physical verification, stock of Rs. 55,35,265/- [Rs. 44,47,664/- the premises of the assessee company + Rs. 10,87,600/- at the premises of M/s Furnicraft] was found. Thus, the AO observed that there was excess stock of Rs. 20,29,084/- [ Rs. 55,35,264/- - Rs. 35,60,180/-] and proceeded to add the same to the total income of the assessee. While doing so, the AO merely highlighted part statements of Sh. Mahesh Panwar, Director of the assessee company recorded during the course of survey ignoring the fact that Sh. Mahesh Panwar clearly stated during the course of statement that the variance in stock might have occurred due to clerical oversight or incomplete books of accounts. Similarly, the AO noted that excess cash of Rs. 44,669/- was found during the course of survey which though was declared by the assessee but did not pay tax as per provisions of section 115BBE of the Act. The AO excluded this difference in excess cash of Rs. 44,669/- from business income and proceeded to tax the same under the head income from other sources as unexplained money u/s. 69A of the Act. Besides, the AO noted that the assessee claimed depreciation amounting to Rs. 19,65,440/- on building. The AO was of view that this building was under construction and did not put to use for business. Accordingly, the AO proceeded to disallow depreciation claimed at Rs. 19,64,440/-. The AO passed u/s. 143(3) of the Act dated 17-06-2021 determining the assessee's total income at Rs. 2,87,84,020/- by making additions as discussed supra. The AO's order dated 17-06-2021 was challenged before ld. CIT(A), Jaipur-5. The said order of the AO was confirmed by the ld. CIT(A), Jaipur-5, vide order dated 29-09-2023. That the ld. CIT(A), Jaipur-5 has grossly erred in confirming the additions and the assessee denies its liability towards the same. Aggrieved with the first appellate authority's order, the appellant preferred the present appeal before your honour, raising following grounds of appeal:-
x x x x After discussing the brief facts of the case and grounds of appeal, the appellant very humbly and respectfully begs to submit the following facts and submissions in support of the grounds of appeal raised in the present appeal before your honor for your kind consideration and allowing appropriate relief:15
(Ground No. 1) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the AO's order dated 17-06-2021 passed for the AY 2018-19 u/s. 143(3) without appreciating true and correct facts of the case and not addressing the technical grounds/plea raised before him Our submissions:-
At the outset, the appellant contends that while confirming the AO's order dated 17-06- 2021 passed for the AY 2018-19, the ld. CIT(A) in his appellate order dated 29-09-2023 failed to record proper and speaking findings as far as appellant's technical grounds/pleas are concerned. For ready reference, your honour's kind attention is invited towards the following technical grounds/plea raised before the ld. CIT(A):-
i. No notice u/s. 143(2) of the Act was issued by AO i.e. ACIT, Central Circle-1, Jodhpur who has jurisdiction over assessee's case;
ii. Not allowing proper opportunity before completing the assessment proceedings ;
iii. Preparing of inventory of stock by unauthorized persons; and iv. Entire additions are based on statement recorded during the course of survey proceedings which are inadmissible as per settle legal position.
Your humble assessee made detailed submissions before the ld. CIT(A) which are reproduced by the CIT(A) in his appellate order dated 29-09-2021 but failed to consider and record proper speaking while addressing these technical pleas. In para 5.2 of the appellate order, the ld. CIT(A) very casually stated that notice u/s. 143(2) of the Act was issued well within the stipulated time following the CBDT Circular. For ready reference, para 5.2 of CIT(A)'s order dated 29-09-2023 is reproduced as under:-
"5.2 I have considered the facts of the case and written submission of the appellant as against the observations/ findings of the AO in the assessment order for the year under consideration. The appellant had alleged that earlier notice issued u/s 143(2) is without any jurisdiction. In this regard it is to be mentioned that notice u/s 143(2) was issued well within the stipulated time provided in the Act. Further following the CBDT circular, all the survey cases has been transferred to central circle. Therefore the assessment proceedings and assessment order waspassed by the new jurisdictional officer after giving proper notices u/s 16 142(1) and questionnaire. The AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. The AO had duly analyzed and considered the submission of the appellant and had given finding on the same. Thus, considering the above facts and circumstances, ground no. 1 has no merit and accordingly it is hereby dismissed."
Hon'ble Sir, from the above findings of the CIT(A), it is clear that he has not considered the assessee's plea in assessee's case notice u/s. 143(2) of the Act ought to have been issued by the ACIT, Central Circle-1, Jodhpur having jurisdiction over assessee's case. It may be noted that in assessee's case survey was conducted on 27-28/02/2018 whereas notice u/s. 143(2) of the Act was issued on 25-09-2018. Thus, survey was conducted before issuance of notice u/s. 143(2) and CBDT in Instructions issued time and again specifically directed the AO of the Department that scrutiny in survey cases would be conducted by AO holding Central Charge. Therefore, it was constant that notice u/s. 143(2) of the Act was to be issued by the AO of Central Charge. However, no such notice u/s. 143(2) of the Act was issued by the AO of Central Charge i.e. ACIT, Central Circle-1, Jodhpur which is clear violation of ratio laid down in the case of ACIT Vs. HOTEL BLUE MOON(2010) 229 CTR(SC) 219.
Similarly, the CIT(A) failed to consider the assessee's plea that the AO did not provide proper opportunity to his assessee before finalizing the assessment. The ld. CIT(A) in his appellate order dated 29-09-2023 simply rejected this plea of the assessee by stating that the AO had duly analyzed and considered the submission of the appellant and had Page | W-6 given finding on the same. Sir, the ld. CIT(A) while recording such findings failed to consider the assessee about "reasonable opportunity". In India, the principles of natural justice are firmly grounded in Article 14 and 21 of the Constitution. Principles of natural justice are attracted whenever a person suffers a civil consequence or a prejudice is caused to him in any administrative action. Mainly there are two principles:
a) Nemo in propria causa judex, esse debet - no one should be made a judge in his own cause, or the rule against bias.
b) Audi alteram partem - no one should be condemned unheard.
The principle of audi alteram partem is the basic concept of the principle of natural justice. The omni potency inherent in the doctrine is that no one should be condemned unheard. In the field of administrative action, this principle has been applied to ensure fair play and justice to affected persons. In the case of Smt. Maneka Gandhi v. Union of India and another, AIR 1978 SC 597, it has been observed that even where there is no specific 17 provision for showing cause, yet in a proposed action which affects the rights of an individual it is the duty of the authority to give "reasonable opportunity" to be heard. The CIT(A) did not record any findings that "reasonable opportunity" was provided by the AO while completing the assessment order.
Another very vital plea of the assessee was totally ignored by the CIT(A). The assessee had argued that the inventory of stock was prepared by unauthorized persons. In this regard, the assessee wishes to reproduce its written submissions made before the ld. CIT(A) as under:-
x x x x Moreover, the assessee has contended before the CIT(A) that entire additions are based on statement recorded during the course of survey proceedings. However, the ld. CIT(A) 29- 09-2023 simply rejected this claim of the assessee without even considering various case- laws relied upon by the assessee before.
Sir, the above technical plea was duly raised before the ld. CIT(A) vide ground no 2 of appeal filed before him. However, the CIT(A) without commenting on the same dismissed the ground of appeal. In fact, no records were called for to verify this plea of the assessee. Section 250 of the Act, itself states that CIT(A) order should be a speaking order. Moreover, it is the consistent opinion of the various courts that first appellate authority always pass order considering each and every please / grounds of appeal. However, in our case, CIT(A) passed the order dated 29-09-2023 without commenting such ground of appeal / technical plea raised before him.
Hon'ble Sir, for want of justice, the assessee submits that alleged Inventory of Stock [PB Pg. 47] was not prepared by the Assessing Officer within the provisions of sec. 2(7A) and 133A and it was unlawfully prepared by some other un-empowered Income-tax Authority who is not the Assessing Officer. Hence, orders of authorities below may kindly be held as illegal so as consequence additions made by the AO and sustained by the CIT(A) in appellate order dated 29-09-2023.
Humble Prayer:- In view of the above, the appellant requests your honour to hold the CIT(A)'s order dated 29-09-2023 as non-speaking so as additions sustained in the order dated 29-09-2023.
18(Ground No. 2) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs. 20,29,084/- made u/s. 69B of the Act on account of unexplained investment in stock whereas this entire addition was made on statement of the assessee Before arguing this ground of appeal, for the sake of clarity, your humble applicant would like to reproduce AO's relevant findings regarding the addition of Rs. 20,29,084/- as recorded in the assessment order as under:-
"5) As stated above, in this case a survey u/s 133A of the Act was conducted on 27-
28/02/2018. As per Trading A/c as on 27/02/2018, generated from computer installed in the office of the company, there was stock of Rs. 35,06,180/-. On physical verification, stock of Rs. 55,35,265/- [Rs. 44,47,664/- at the premises of assessee-company + Rs. 10,87,600/- at the premises of M/s. Furnicraft India, F-615, Boranada, Jodhpur]was found. Thus, during survey, excess stock of Rs. 20,29,084/- (Rs. 55,35,264/- minus Rs. 35,60,180/-) was detected. Statement of Sh. Mahesh Panwar, Director, was recorded u/s 131 during survey proceedings wherein he was asked to explain the excess stock. Sh. Mahesh Panwar, Director, admitted the excess stock of Rs. 20,29,084/- and surrendered the same for taxation. Relevant portion of statement of Sh. Mahesh Panwar, Director, is reproduced hereunder: -
19 20However, in the revised return e-filed on no additional income of Rs. 20,29,084/-
surrendered on account of unexplained excess stock has been reflected.
5.1) Therefore, vide questionnaire dated 09/02/2021 issued u/s 142(1) of the Act, the assessee was asked to show cause as to why the undisclosed investment made in purchase of excess stock of Rs. 20,29,084/- may not be treated as unexplained investment u/s 69B on account of purchase of excess stock and taxed u/s 115BBE of the Act.
5.2) Vide reply dated 22/02/2021 (PB Pg. 48-57), the assessee submitted that during survey physical stock as on 28/02/2018 was found at Rs. 55,35,264/-. As regards non-
inclusion of surrendered excess stock of Rs. 20,29,084/- in the income returned, the assessee submitted that the Director, whose statement was recorded, had categorically mentioned that there may be some mistake in calculation and when examined in detail, it was observed that the very basis of calculating the excess stock was the value of stock as per books taken for Rs. 35,06,180/- as per trading account prepared on the date of survey. The assessee further submitted that while preparing trading a/c during survey, expenses / purchases aggregating Rs. 41,10,878/- relating to the period 01/4/2017 to 27/02/2018 were not taken into account. (PB Pg 58-61) Taking into account expenses / purchases of Rs. 41,10,878/- and also after taking into account of physical stock found, re- casted trading a/c has been prepared which is reflecting better trading results and hence, question of any excess stock would be ruled out. The surrendered amount of stock of Rs. 20,29,084/- was not considered because in fact there was no such excess stock, which fact is further corroborated as there was not a single unrecorded transaction either of any purchase / sale and / or any expenses nullifying the apprehension of any excess stock over the stock as per books calculated in a correct manner. The surrender of alleged excess stock was made by the Director under mistaken belief without following the mercantile system of accounting and, therefore, is not correct for being taxed. The assessee further submitted that, if viewed from the angle of overall trading results, the export sales have doubled in comparison to preceding year. Further, most of the expenses have drastically reduced thereby increasing the gross profit in terms of quantum as well as in terms of percentage. The trading results for the year are far better than that of preceding year and, therefore, one cannot even infer for any leakage in the books of a/c as to suppression of any profit.
As regards taxing surrendered excess stock u/s 115BBE of the Act, the assessee has referred to the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Bajargan Traders in D.B.I.T.A. No. 258/2017 dated 12/09/2017 in support of his contention that stock surrendered during survey, if any, is to be assessed as business income as its sources is the carrying on of business activity only.
5.3) I have gone through the assessee's reply and the same is not found acceptable. During the course of survey, stock registered was not found and stock position on the date of survey was provided by Sh. Kanhaiyalal Biarwa, Accountant of the assessee- company, which is evident from following portion of statement of Sh. Kanhaiyalal Bairwa: -
न 18 आपके यापा रक प रसर म कल रात का जो फिजकल प से टॉक का का म
ू यांकन कया गया
िजसके अनुसार कुल Finished Goods कुछ Unfinished Goods था, Finished Goods पर आपके $पछले साल के यापार खाते के अनसार Direct Expesens 18.40 &तषत (Direct Expenses + Packign Material) जो क आपक) सहम&त से लागत म जोडा गया तथा कुल अं&तम टॉक पये 44,47,664/- आंका गया है, जब क आपने जो अपनी बक ु स ् के अनुसार अं&तम टॉक यये 35,06,180/- बताया है । इस कार पये 9,41,484 /- अ2धक पाया गया इस स4ब5ध म आपका 6या कहना है ।
उ8तर म9 यह मानता हूँ क Books के अनुसार तथा आपने जो हमारे कम;चा रय= तथा मेरे सामने जो टॉक का आकलन कया वह सह? है तथा इसमे फक; पये 9,41,484/- सह? है । इस स4बंध म , यह लाभ के Aलये Surredner करने का &नण;य तो क4पनी के Directors ह? ले सकते है म9 तो यहा Aसफ; कम;चार? हूं। म9 अपको इस बारे म अवगत करवा दं ग ू ा।
Statement of Sh. Mahesh Panwar, Director, was recorded, wherein he admitted the stock position worked out and provided by the Accountant, Sh. Kanhaiyalal. The alleged un-entered expenditure / purchase bills of Rs. 41,10,878/- were not found during survey proceedings with the Accountant and at the factory / office premises. The stock position as on 28/02/2018 was worked out after taking into account all expenses / purchases / sales from 01/04/2017 to 27/02/2018. The Accountant as well as the Director never stated that certain bills for purchases / expenses are to be entered. Statement of Sh. Mahesh Panwar, Director, was recorded u/s 131 of the Act, which has got evidentiary value and cannot be allowed to be retracted on the basis of created documents, which were not found during survey proceedings. Had there been any such un-entered expenditure / purchase bills, the assessee could have brought the same to the notice of authorities immediately after the survey, which is not the case. Thus, the claim regarding to un-entered purchases / expenses of Rs. 41,10,878/- is nothing but an attempt to get away with surrendered excess stock, which reflects the assessee's intention not to pay legitimate tax. In view of the above, the assessee has not able to explain the difference in stock on the date of survey and, therefore, bound to include the same its income as admitted by its Director during the course of his statement recorded u/s 131 of the Act. Hence, excess stock of Rs. 20,29,084/- is treated as unexplained investment made out of unaccounted sources of income within the meaning of section 69B of the Act and added to the income of the assessee.
The undersigned hereby records satisfaction for initiation of penalty proceedings u/s 271AAC r.w.s. 274 of the Income Tax Act, 1961 in respect of income added u/s 69B of the Act.
[Addition U/s 69B: Rs. 20,29,084/-]"
Hon'ble Sir, the assessee has contended before the ld. CIT(A) that ld. AO has erred in law as well as on facts while making arbitrary addition of Rs. 20,29,084/- on account of alleged excess stock u/s. 69B of the Act. The addition made is illegal, contrary to the facts and not in conformity with the law. The assessee in detailed submissions stressed that entire is simply based on statement recorded during the course of survey which was subsequently recordedand no documentary evidences were brought on record by the AO in support of addition during the course of assessment proceedings. However, the CIT(A) rejected the assessee's submissions and recorded his findings in para X x x x Hon'ble Sir, it is clear from the above findings of the ld. CIT(A) while confirming the addition of Rs. 20,29,084/-, he has not acted as judicious authorityand his entire focus on the fact a survey was conducted in assessee's case and during the course of survey proceedings Sh. Mahesh Panwar, Director of he admitted the stock position worked out and provided by the Accountant, Sh. Kanhaiyalal.
Sir, the your humble assessee strongly objects the CIT(A)'s action in confirming the AO's action in making addition of Rs. 20,29,084/- on account of excess stock.
For want of justice, the assessee humbly submits that both the AO and CIT(A) ignored the fact and assessee's repetitive submissions that two business concerns were running on survey locations (two factory plots without physical partition) and office of both concerns are in the same and common portion of factory lands but this fact was hidden from the survey proceedings for stock (which is kept in open grounds) purpose also. It was explained by the assessee before the lower authorities vide reply dated 22/02/2021 (PB Pg. 48-57) that during survey physical stock as on 28/02/2018 was found at Rs. 55,35,264/-. As regards non-inclusion of surrendered excess stock of Rs. 20,29,084/- in the income returned, the assessee submitted that the Director, whose statement was recorded, had categorically mentioned that there may be some mistake in calculation and when examined in detail, it was observed that the very basis of calculating the excess stock was the value of stock as per books taken for Rs. 35,06,180/- as per trading account prepared on the date of survey. The assessee further submitted that while preparing trading a/c during survey, expenses / purchases aggregating Rs. 41,10,878/- relating to the period 01/4/2017 to 27/02/2018 were not taken into account. Taking into account expenses / purchases of Rs. 41,10,878/- and also after taking into account of physical stock found, re-casted trading a/c has been prepared which is reflecting better trading results and hence, question of any excess stock would be ruled out. The surrendered amount of stock of Rs. 20,29,084/- was not considered because in fact there was no such excess stock, which fact is further corroborated as there was not a single unrecorded transaction either of any purchase / sale and / or any expenses nullifying the apprehension of any excess stock over the stock as per books calculated in a correct manner. The surrender of alleged excess stock was made by the Director under mistaken belief without following the mercantile system of accounting and, therefore, is not correct for being taxed.
It may be noted that correct stock position can only be arrived at after taking into account expenses/purchases. Since the survey happened during the currency of financial year, therefore, any trading results derived during the intervening period are provisional and are subject to final check by the auditor as well as management.
The assessee further submits that the assessee has produced books of accounts before Ld. A.O. and nothing contrary was found to support his allegation that stock might have been managed later on. No defect was as regards to 'Stock' was found in the books of assessee as there is no such allegation in his any notice and copies of all the survey documents were obtained only during the assessment proceedings and books of both the assessee's were audited longback.
The assessee may submit that the only reason advanced by the AO for making the addition on account of excess stock was the amount was surrenderedby the assessee as his undisclosed income in the statement recorded during the course of survey on 27-02- 2018. However, the said admissions were almost immediately retracted by the appellant by not including the same in the return of income. This fact was not all considered by the CIT(A) in his appellate order dated 29-09-2023. In fact, the CIT(A) went on to record erroneous findings that no explanation was given by the assessee regarding excess stock found during the course of survey. Sir, our above explanation is bonafide and ought to have been considered the below authority, but they conveniently ignored the assessee's submissions / explanation.
Hon'ble Sir, the assessee further submits that admission is an extremely important piece of evidence and it is generally admissible against its maker. In the income-tax proceedings, generally oral evidences or explanations are recorded in the form of statements. These statements are recorded in the assessment proceedings or on various other occasions so as to be ultimately used in assessment of correct income. These statements can be of the assessee or of the witnesses. Recording of the oral evidence in the form of statements is also known as oral examination, the purpose of which is to elicit truth. There are certain provisions under the Income-tax Act, 1961, which empower the Income-tax authorities to record statements of the assessee, witnesses, loan creditors, trade creditors etc., on oath or otherwise in the course of assessment proceedings or in the course of search and seizure and survey operations. As per Section 133A(3)(iii) of the Act, an income-tax authority, during the course of survey proceedings u/s 133A, if he considers it necessary, is empowered to 'record the statement of any person which may be useful for or relevant to any proceedings under the Act', the relevant provision is reproduced hereunder for the sake of clarity:
x x x x It is well-settled law that though statements recorded will have evidentiary value, yet they are not always conclusive proof since the person making the statement can rebut and retract. Admissions play a very important role in the income-tax proceedings, as they generally bind the maker. In the absence of any denial or explanation therefore, an admission is almost conclusive regarding the facts contained therein. They generally dispense with the requirement of adducing further evidence or proof to support a fact. Though section 31 of the Indian Evidence Act, 1872 states that admissions are not conclusive proof of the matters admitted, yet admissions in the absence of rebuttal may conclude an issue. Underthe Income-tax Act also admissions bind the maker when these are not rebutted or retracted. Some important judgments of the Supreme Court explain the concepts and relevance of admissions and rebuttal or retraction of admitted facts, as under:
(i) Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18
(ii) Narayan Bhagwantrao Gosavi, Balajiwale v. Gopal Vinayak Gosavi AIR 1960 SC 100 -
(iii) Satinder Kumar (HUF) v. CIT [1977] 106 ITR 64 (HP)
(iv) Avadh Kishore Das v. Ram Gopal AIR 1979 SC 861
Hon'ble Sir, the issue regarding the evidentiary value of the statements recorded during survey u/s. 133A was examined in details by the Hon'ble Madras High Court in the case of CIT vs. S. Kadar Khan Son (2008) 300 ITR 157 (Madras). The Hon'ble HC held that section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. The facts of this case were as under:-
x x x x Sir, kindly note the fact that this decision was later affirmed by the Supreme Court in Commissioner of Income-tax, Salem vs. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC) wherein the Apex Court held that section 133A of the Act does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition.
Subsequently, following the aforesaid judgment of the Hon'ble Madras High Court in the case of S. Kadar Khan , the Honble Delhi ITAT in the case of Mahesh Ohri vs. ACIT 59 SOT 16, 154 TTJ 33 (2013) held that where apart from statement under section 133A(3)(iii), revenue had not brought anything on record in support of its conclusion that assessee had undisclosed income, addition made by Assessing Officer could not be sustained. The facts of this case were that the assessee was engaged in the trading of home furnishing items. A survey under section 133A was carried out at the premises of the assessee. During the course of survey, the assessee made declaration and surrendered a sum of Rs. 2 crore for taxation. The Assessing Officer found that the assessee had not filed a revised return and failed to incorporate the surrendered amount for taxation in the return, thus, he issued a show cause notice inviting the explanation of the assessee. The assessee contended that he had not made any voluntary disclosure. The statement recorded during the course of survey was not given on oath and it had no evidentiary value. The revenue was unable to find out any incriminating material during the course of survey which suggested that the assessee had undisclosed income of Rs. 2 crores. The Assessing Officer was not satisfied with the explanation of the assessee and made an addition of Rs. 2 crore. The Commissioner (Appeals) confirmed the order of the Assessing Officer.
x x x x Your humble assessee also wish to place reliance upon the Hon'ble ITAT Jaipur in the case of Unique Art Age Vs. ACIT 152 ITD 600 (Jaipur Trib.) wherein the Hon'ble Jaipur ITAT held that statement recorded under section 133A on oath during survey could not be relied as evidence. The facts of this were as follows:-
x x x x The facts of the your humble appellant's case are quite similar to the case of Unique Art Age (supra) and the ratio laid down is squarely applicable to the case of the appellant.
Your humble assessee also wishes to place reliance on the following judicial precedents:-
The Hon'ble ITAT Ahmedabad Bench 'C' in the case of Ashok Manilal Thakkar vs. ACIT [2005] 97 ITD 361 (AHD.) affirmed the AO's action where he did not make any addition after failure to bring on record any evidence to prove that the assessee had earned to the extent of additional income offered by him pursuant to survey operation carried out at assessee's premises.
Similarly, the Hon'ble ITAT Mumbai Bench 'D' in the case of Jain Trading Co. vs. ITO [2007] 17 SOT 574 (MUM.) held that - whether an assessee who makes an offer of additional income during course of an enquiry by income-tax authorities is not bound by his offer of additional income for all time to come, and can retract from his offer by furnishing complete details of his trading activity and his income in course of assessment proceedings and discharge his burden. It was held in the affirmative along with the finding that in such circumstances, additionalincome cannot be added to income of assessee.
The Hon'ble Gujarat High Court in the case of DCIT vs. Narendra Garg & Ashok Garg (AOP) [2016] 72 taxmann.com 355 (Gujarat) held that where assessee retracted from disclosure made in statement under section 132(4) which was not accepted by revenue, and if no undisclosed income was found during search, revenue could not make addition on bare suspicion and presumption.
The appellant further submits that the AO erroneously applied the provisions of section 69B in its case. For better appreciation section 69B of the Act reads as under:-
x x x x From the plain reading of section, it is clear that provisions of sec. 69B apply to those assessees who either do not maintain books of account or even if they maintain accounts, the items covered by these sections are not recorded in such books. In the instant case of our humble appellant, it duly maintained the books of accounts and items covered by these sections are duly recorded in the books of account as such the AO is not justified in applying the provisions of sec. 69B in our case.
Sir, without prejudice to above, it may also be noted that during the year under consideration, your humble assessee had shown better trading results in as much as, the turnover in the year under consideration almost doubled and not only this, Net profit/ Net Profit rate also increased substantially in comparison to immediate preceding year. Thus, there is no question of suppression of stock.
Humble Prayer In view of facts discussed above, legal position and judicial precedents cited supra, the assessee very humbly submits that the addition of Rs. 20,29,084/- u/s 69B of the Act on account of excess stock has been made only on the basis of statement recorded during survey and stock and cash inventories have been prepared either by unauthorized officials or not signed by the authorized officer, ignoring the submissions and documentary evidences submitted by the assessee during the course of assessment proceeedings (PB Pg 48-61) and are therefore, cannot be considered as valid material during the course of assessment proceedings. The CIT(A) while sustaining the addition of Rs. 20,29,084/- on account of excess stock filed to consider the assessee's submissions in respect perspective and arbitrary confirmed the AO's action in this regard which needs to be held as perverse and deserves to be reversed.
On the strength of the above, your humble assesee requests that the addition made on the basis of such statement and unreliable materials may kindly be directed to be deleted.
(Ground No. 3) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the AO's action of taxing the income of Rs. 20,29,084/- at higher rate u/s. 115BBE ignoring the fact that thesame represented business income of the assessee.
As regards taxing the income of Rs. 20,29,084/-, the assessee humbly places its reliance towards decision of Hon'ble Jurisdictional ITAT, Jodhpur Bench which while deciding various appeals, in ITA No. 142 to 146/Jodh/2018 for AY 2014-15, vide their common order dated 25-05-2018 following decision of Hon'ble Rajasthan High Court in the case of Bajrang Traders (IT Appeal No. 258/2017 dated 12-09-2017) held that where income is found to be taxed under the head 'Business and profession", there is no justification for taxing such income u/s. 115BBE of the Act.
Sir, section 115BBE provides the mechanism for calculating tax on certain income. Thus, unless it is established that assessed income includes any income of the nature referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the tax cannot be charged at higher rates. In the present case of the Assessee, the alleged undisclosed receipts from business does not fall at all in the scope of Section 68, 69, 69A or 69B, 69C, 69D and in thecaptioned notice also there is no such allegations and findings as to how the addition regarding alleged undisclosed receipts falls within the scope of Section 68, 69, 69A or 69B, 69C, 69D of the Act. Rather even if the allegations of are assumed, there is source of alleged undisclosed receipts stands explained as receipts from sale of house/ plot as alleged. Thus, on the basis of said allegation itself, no addition is warranted u/s Section 68, 69, 69A or 69B, 69C, 69D of the Act. It is clear that section 115BBE does not apply to explained item i.e. stock which is duly appearing in the books of accounts. In view of the above, it is humbly submitted that taxing of alleged undisclosed on money u/s 115BBE is unwarranted. In view of above, the appellant hereby prays to delete the entire addition made by the ld. Assessing officer and sustainedby the CIT(A).
(Ground No. 4) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the AO's action of treating excess cash of Rs. 44,669/- as income from other sources u/s. 69A and charging the tax at higher rate u/s. 115BBE of the Act ignoring the fact that the same represented business income of the assessee The AO noted that excess cash of Rs. 44,669/- was found during the course of survey which though was declared by the assessee but did not pay tax as per provisions of section 115BBE of the Act. The AO excluded this difference in excess cash of Rs. 44,669/- from business income and proceeded to tax the same under the head income from other sources as unexplained money u/s. 69A of the Act. The CIT(A) sustained the AO's action by recording findings as under:-
"7.2 I have considered the facts of the case and written submission of the appellant as against the observations/ findings of the AO in theassessment order for the year under consideration. During survey proceeding excess cash of Rs 44,669/- was found and surrendered by the Director as undisclosed income of the assessee company. The appellant had disclosed this excess cash in ROI and paid the tax at normal rate. The AO considered this under section 115BBE of the Act. Section 69A is clearly applicable in this case. The Appellant had not explained the sources of such excess cash found therefore it cannot be ascertained that the cash has been generated from business. Thus, the case laws relied by the appellant is not applicable. The action of AO for taxing the same under section 1115BBE is upheld and ground of appeal on this issue is dismissed.
Hon'ble Sir, it is submitted since excess cash of Rs. 44,669/- found during the course of survey was nothing but pertained to the assessee's business which was duly offered in the return of income as part of business income and as such as per laid down by the Hon'ble Jurisdictional ITAT, Jodhpur Bench which while deciding various appeals, in ITA No. 142 to 146/Jodh/2018 for AY 2014-15, vide their common order dated 25-05- 2018 following decision of Hon'ble Rajasthan High Court in the case of Bajrang Traders (IT Appeal No. 258/2017 dated 12-09- 2017) held that where income is found to be taxed under the head 'Business and profession", there is no justification for taxing such income u/s. 115BBE of the Act.Our view is also supported by the following judicial precedents:-
Our view is supported by the following decision:
1. CIT vs Rahil Agencies 2017 Tax Pub (DT) 379 (Mum-Trib)
2. Shri Lovish Singhal vs ITO Ward-2 Sri Ganganagar Sir, Hon'ble Sir, your humble assessee contends that the CIT(A)'s action in sustaining the AO's action in taxing cash of Rs. 44,669/- at higher rate is simply based on statement of Mahesh Panwar, Director recorded during the course of survey, apart from that no other evidence have been brought on record by the AO. While sustaining the AO's action in taxing cash of Rs. 44,669/- at higher rate, the CIT(A) also endorsed the findings of the AO without exercising his quasi judicial power. The CIT(A) confirmed theAO's action just because in statement Sh. Mahesh Panwar, Director of the assessee company accepted the excess cash. The CIT(A) failed to take note of the facts that Sh Mahesh Panwar, Director nowhere asserted that the excess cash was not pertained to his business receipts/income nor considered that Sh Mahesh Panwar, Director subsequently retracted from his statement. The assessee strongly places his reliance upon decision of the Hon'ble Madras High Court in the case of S. Kadar Khan (supra) wherein it was held that where apart from statement under section 133A(3)(iii), revenue had not brought anything on record in support of its conclusion that assessee had undisclosed income, addition made by Assessing Officer could not be sustained. Sir, present assessee's case is not different from that of case of S. Kadar Khan (supra). Hence, ratio laid down by the Hon'ble Madras High is squarely applicable in present case.
Humble Prayer:- In view of the above, the assessee humbly requests your honour that the ld. CIT(A)'s action in sustaining the AO's action in applying higher tax rate u/s. 115BBE in respect of cash of Rs.44,669/- may kindly be reversed.
(Ground No. 5) That on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the AO's action in disallowing depreciation of Rs. 19,65,440/- by endorsing the AO's view that building was not completed in the AY 2018- 19 whereas the fact is that building was completed and was being used for business purpose.
For the sake of clarity, the AO's relevant findings regarding the addition of Rs. 19,65,440/- as recorded in the assessment order are reproduced as under:-
X x x x Hon'ble Sir, the assessee has objected to the AO's action in making addition of Rs. 19,65,440/- on account of disallowance of depreciation in the first appeal. It was submitted before the CIT(A) that depreciation was claimed in respect of building located at building-865(A), 4th Phase, Industrial Area, Boranada, Jodhpur. During the FY 2016- 17, a part of the building was complete and was put to use for storage of material and as such in the FY 2016-17 depreciation was claimed in respect of completed part of building and rest of the building was shown at "capital work-in-progress". During the year relevant assessment year also due to shortage of space, the management of the company decided to use the building located at A-865(A), 4th Phase, Industrial Area, Boranada, Jodhpur to the extent completed. The assessee furnish copy of Building Account as proof of addition which was made up to 31/03/2016 for Rs. 1,02,90,785/- on the part of the building which was complete and used as godown. Hon'ble Sir, the AO did not consider assessee's claim and noted that both the portions had been constructed in the same period and looking to passage and building structure, it did not appear that the building was used as show-room or material storage as the buildings were incomplete and no physical stock was found kept there. Before the CIT(A), the assessee reiterated that back side of the building had been constructed which was being used for commercial activities of the appellant. It was further submitted before the CIT(A) that Block of assets of the appellant company included opening WDV of Building and Plant & machinery of Rs. 1,88,28,264/-, the assesee made addition of Rs. 5,21,006/- during the year under consideration and the assessee company claimed Rs.19,54,440/- as depreciation allowance on block of assets carrying depreciation as per rate prescribed. The assessee also referred to provisions of sec. 32 and certain case-laws to argue that the assets like office /building premises which were kept ready which amounted to the passive use of the said assets duly qualified for depreciation. However, the CIT(A) in appellate order dated 29-09- 2023 rejected the assessee's claim by observing as under:-
x x x x Hon'ble Sir, from the above findings of the CIT(A), it is very much clear that these were nothing but endorsement of AO's observations only that too repetition of report of the survey party. Sir, authorities below have not considered the facts as well as the assessee's submissions in right perspective.
Again for want of justice, the assessee submits that during the FY 2016-17, a part of the building , Jodhpur was complete and was put to use for storage of material and as such in the FY 2016-17 depreciation was claimed in respect of completed part of building and rest of the building was shown at "capital work-in-progress". CIT(A) and the AO have not disputed this fact at all. During the year relevant assessment year, due to shortage of space, the management of the company decided to use the building located at A-865(A), 4th Phase, Industrial Area, Boranada, Jodhpur. As documentary proof, the assessee had submitted copy of Building Account, which shows addition was made up to 31/03/2016 for Rs. 1,02,90,785/- on the part of the building which was complete and used as godown. No comments have been offered by the both the authorities below in their respective orders. It may be noted that Sh. Mahesh Panwar, Director of the assessee company, while answering to question 19 specifically stated that building is in two part and both are separated from each other, back side of the building had been constructed which was being used for commercial activities of the assessee company. The AO got confused by the fact that entire building (bothparts) was not constructed fully or well furnished and disallowed the depreciation. Sir, it may be noted that Block of assets of the assesee company included opening WDV of Building and Plant & machinery of Rs. 1,88,28,264/- and further addition of Rs. 5,21,006/- was made in building account during the year under consideration. Merely, because at the time of survey, stock was not there, it cannot be said that building / storage was not there.
As far as depreciation under section 32 of the Income Tax Act is concerned, it is submitted that while conferring the benefit of depreciation, section 32 lays down two conditions to be satisfied by an assessee. These two conditions are, firstly, that the asset must be owned by the assessee and, secondly, the asset must be used for the purpose of business orprofession of the assessee during the previous year.
The expression "used for the purpose of business " would include not only cases where the building and machinery are actively employed but also cases where there is passive use of the same in business. An asset could be said to be in use when it is kept ready for use.
It is submitted that in computing income from business or profession one of the most important items of allowances is the allowance for depreciation, providedby Section 32 of the Income Tax Act. Depreciation is a non-cash expense which results from the reduction/diminution in the value of certain capital assets including buildings. This deduction towards depreciation is very essential to arrive at the Income from Business/profession of the taxpayer and also to amortize the capital cost of the amount invested in business assets. The purpose of allowing depreciation is to provide in the course of time for replacement of the asset which is allowed to be depreciated over a period of time.
Further, as per s. 32(1) the asset is to be owned and "used" for the purpose of business or profession, the expression "used for the purpose of business" when applied to block asset would mean use of block asset and not any specific items in the said block as individual assets have lost their identity after becoming inseparable part of the block asset.
Furthermore, ownership and usage of the asset by the assessee for the purpose of the business and profession are only the pre-requisites for grant of depreciation u/s. 32 of the Act. The assessee has been using the part of the building as storage and show-room. The AO merely only on the basis of observation of the survey party, concluded that building were not completed and cannot be used as business purpose. Generally, in the handicraft business, the building which are not fully furnished, be used as Godown for storage of items. Merely because the building was not fully furnished, it cannot be said that it was not being used for business purpose. The assessee humbly places its reliance on the following judicial precedents CIT v/s Integrated Technologies Ltd (High Court of Delhi Manupatra ITA No. 530/2011) - The assessee filed a further appeal before the Tribunal and questioned the decision of the CIT(Appeals) regarding allowance of depreciation. The Tribunal held that the assessee was entitled to the allowance of depreciation on plant and machinery on the footing that they were kept ready for use in the business once it got revived and that amounted to passive use of the assets, which would meet the requirements of Section
32. This, according to the Tribunal,also supported the assessee's plea that it was making all efforts to revive the business and was keeping the plant and machinery and other assets ready for use. It means that they were kept ready for use as and when the business was revived, would be sufficient compliance with Section 32 should not detain us sinceit has already been decided in the affirmative by at least three judgments of this Court.
CIT v. Refrigeration & Allied Industries Ltd. (2001) 247 ITR 12 (Del.) - The expression "used for the purpose of business " would include not only cases where the machinery or plant are actively employed but also cases where there is passive use of the same in business. An asset could be said to be in use when itis kept ready for use.
The Commissioner Of Income Tax -V/s Panacea Biotech Ltd (Delhi High Court) (2009) 183 Taxman 212, held as under:-
Flat fitted with amenities & ready for use and also used for office use, entitled for depreciation. In this under mentioned case, The high court held:
X x x x In the case of Whittle Anderson Ltd. v. CIT 79 ITR 613 (Bom.)- The word "used" should be understood in a wide sense so as to embrace passive as well as active user ; when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be "used" for the purposes of the business which earned the profits although it was not actually worked.
In this connection, it is further submitted that as far as depreciation allowance is concerned, the explanation 5 to section 32(1) provides that the provisions of this sub section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. In the case of Rakesh Singh versus Assistant Commissioner of Income-tax ITAPPEAL NO. 1027 (BANG.) OF 2011 [ASSESSMENT YEAR 2007-08] on AUGUST 24, 2012, the ITAT Bangluru held that:
"The depreciation allowance under Explanation 5 of section 32 of the Act is mandatory allowable if the said asset is used for the purpose of business of the assessee. In other words, whether the assessee makes a claim of depreciation or not in his return of income, the Assessing Officer is duty bound to grant depreciation allowance by virtue of Explanation 5 to section 32(1) of the Act (Inserted by Finance Act, 2001 w.e.f. 1/4/2002)."
Further, the expression "put to use" in a general sense may otherwise also mean and include an asset that is ready for use. In many cases, an asset is not actually used during the year, but is kept ready for use. For example, standby plant and machinery, step-ins, spare parts, etc. Further, in many cases like strike, lock out, flood, fire,etc., the assets cannot be actually used, even if desired. In these cases, though the assets are not actually used during the previous year, even then depreciation is not denied considering the intention to use such assets.
Hon'ble Sir, the assessee claimed as deductible expenses in Income Tax Return for the Assessment Year 2015-16, therefore, the assets like office /building premises were kept ready which amounted to the passive use of the said assets and not only this, it was being used as storage of handicraft items, hence claim of depreciation on that assets, are reasonable and within the four corners of the law. The AO's action is totally based on presumption which was drawn by the survey party and the CIT(A)'s order is just endorsement of AO's findings without there being any consideration to the assessee's factual and legal submissions.
Humble Prayer In view of above, depreciation claimed on Buildings as well as plant & machinery is allowable as expenditure incurred for the purpose of business under section u/s 32 of the Income Tax Act. Therefore, the assessee humbly request your honour necessary direction may kindly be issued to allow the same.
The appellant humbly requests that suitable relief as per law maykindly be provided in respect of ground nos. 1 to 5 above."
6. To support the contentions raised in the written submission the ld. AR of the assessee has relied upon the following evidence: -
S. No. Description Annexure 1. Written submission Pg W-2 to W-46 2. Impounding order u/s 133A(3)(ia) as well as physical Pg. 47-49 stock sheet prepared during course of survey proceedings dated. 27.02.2018 3. Reply dated 22.02.2021 submitted before ld. AO Pg. 50-59 4. Details of goods received in February 2018 on delivery Pg. 60 challan but invoices issued in March 2018 5. Details of expenses not booked as on date of survey Pg 61-63 pertaining to pre survey period and re-casted trading results.
7. The ld. AR of the assessee in addition to the written submission so filed vehemently argued that making addition for excess stock is merely on the statement of the director and not considering the evidence produced by the assessee. The assessee already offered the excess cash as regular income and the depreciation on the building was claimed as the assets were put to use and was used to store the stock of goods sold by the assessee. Merely on the date of survey no stock found does not mean that the said assets is not used by the assessee.
8. Per contra, ld. DR relied upon the orders of the lower authorities. Ld. DR specifically submitted that the assessee has has voluntarily without any undue influence threat or coercion accepted the excess stock the difference has been computed based on the records produced at the time of survey. Before making the statement of admission of excess stock the assessee was confronted with all the documents and therefore the excess stock found was disclosed based on all the evidence made available to the assessee and therefore, the addition was rightly sustained by the lower authority. As regards the excess cash the same being covered as per provision of section 69A of the act and therefore same is required to taxed as per provision of section 115 BBE of the act. As regards the claim of deprecation the assessee failed to establish the use of the assets for business no stock found to have been placed on that premises and therefore, the addition on excess claim of depreciation is also required to be sustained.
9. We have heard both the parties and perused the materials available on record. Ground No.1 raised by the assessee challenges the impugned order on technical ground wherein the assessee prayed that the Id. CIT(A) erred in confirming the AO's order dated 17-06-2021 passed for the AY 2018-19 u/s.
143(3) without appreciating true and correct facts of the case and not addressing the technical grounds/plea raised before him. Since this issue goes into the root of the proceeding carried out we would like to deal with this ground first. Apropos to this ground the relevant finding of the ld. CIT(A) reads as under:
"5.2 I have considered the facts of the case and written submission of the appellant as against the observations/ findings of the AO in the assessment order for the year under consideration. The appellant had alleged that earlier notice issued u/s 143(2) is without any jurisdiction. In this regard it is to be mentioned that notice u/s 143(2) was issued well within the stipulated time provided in the Act. Further following the CBDT circular, all the survey cases has been transferred to central circle. Therefore the assessment proceedings and assessment order waspassed by the new jurisdictional officer after giving proper notices u/s 142(1) and questionnaire. The AO had provided sufficient opportunity to the appellant during the course of assessment proceeding to submit explanation and followed the principle of natural justice. The AO had duly analyzed and considered the submission of the appellant and had given finding on the same. Thus, considering the above facts and circumstances, ground no. 1 has no merit and accordingly it is hereby dismissed."
As is evident from the above finding that the ld. CIT(A) though admitted to the fact that notice u/s. 143(2) which is mandatory requirement before framing the assessment has not been given by the assessing officer who framed the assessment u/s. 143(3) of the Act. Thus, it would be appropriate to deal with the relevant provision of the Act herein below:
Assessment.
143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:--
xx xx xx xx (2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:
Provided that no notice under this sub-section shall be served on the assessee after the expiry of three months from the end of the financial year in which the return is furnished.
(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment:
Before us at the time hearing of the present appeal the ld. DR did not brought anything contrary to the contention raised by the assessee in his written submission thus, on being clear fact of the case that the mandatory notice was not issued by the assessing officer he cannot proceed to make the assessment u/s. 143(3) as mandated by the law and therefore, the framing of the assessment without issuing notice u/s. 143(2) which mandatory to be issue to the assessee being not issue the assessment framed has not legal binding and is null and void. To support our this view we support from the decision of our Hon'ble Rajasthan High Court in the case of Principal Commissioner of Income-tax v. Kamla Devi Sharma [ 96 taxmann.com 659 (Rajasthan) ] wherein the Hon'ble court held that ;
7. The Bench have heard both the sides on this issue and perused the material available on the record. The Hon'ble Delhi High Court in the case of Pr.CIT v. Jai Shiv Shankar Traders Pvt. Ltd. 383 ITR 0448 (Delhi), in the similar circumstances, has held as under:
"No noticeunderSection143(2) of the Act was issued to the Assessee after 16th December 2010, the date on which the Assessee informed the AO that the return originally filed should be treated as the return filed pursuant to the noticeunderSection 148 of the Act. (Para 12) The Madras High Court held likewise in Sapthagiri Finance & Investments v. ITO (2013) 90 DTR 289 (Mad). The facts of that case were that a noticeunderSection 148 of the Act was issued to the Assessee seeking to reopen the assessment for AY 2000-01. However, the Assessee did not file a return and therefore a notice was issued to it underSection 142 (1) of the Act. Pursuant thereto, the Assessee appeared before the AO and stated that the original return filed should be treated as a return filed in response to the noticeunderSection 148 of the Act. The High Court observed that if thereafter, the AO found that there were problems with the return which required explanation by the Assessee then the AO ought to have followed up with a noticeunderSection143(2) of the Act. (Para 17) As already further noticed, the legal position regarding Section 292BB has already been made explicit in the aforementioned decisions of the Allahabad High Court.
That provision would apply insofar as failure of "service" of notice was concerned and not with regard to failure to "issue" notice. In other words, the failure of the AO, in re-assessment proceedings, to issue noticeunderSection143(2) of the Act, prior to finalising the reassessment order, cannot be condoned by referring to Section 292BB of the Act. (Para 18) The resultant position was that as far as the present case was concerned the failure by the AO to issue a notice to the Assessee underSection143(2) of the Act subsequent to 16th December 2010 when the Assessee made a statement before the AO to the effect that the original return filed should be treated as a return pursuant to a noticeunderSection 148 of the Act, was fatal to the order of reassessment. (Para 19) Consequently, there was no legal infirmity in the impugned order of the ITAT. No substantial question of law arises. The appeal was dismissed." (Para 20) Thus, the facts of the assessee's case are similar to the facts of the case involved in the decision of the Hon'ble Delhi High Court wherein it has been categorically held that the issue of notice U/s 143(2) in reassessment proceedings, prior to finalizing re-assessment order, cannot be condoned by referring to Section 292BB and is fatal to the order of reassessment. Respectfully following the same, we hereby set aside the order of the authorities below and allow the grounds No. 1 to 4 of the assessee's appeal.
8. Since we have quashed the reassessment proceedings, therefore, there is no need to adjudicate the issues raised in grounds No. 5 to 9 of the appeal.
5. In our considered opinion, the tribunal is bound by the decision of Delhi High Court in the case of Jai Shiv Shankar Traders Pvt. Ltd.(supra) and has rightly followed the same, which is not challenged.
6. In that view of the matter, we are in complete agreement with the view taken by the tribunal. Hence, no substantial question of law arises.
7. The appeal stands dismissed.
We also have taken a note that recently the Hon'ble Calcutta High Court has also taken a similar view of the matter while deciding the case of Principal Commissioner of Income-tax v. Weedo Ventures (P.) Ltd. 167 taxmann.com 614 (Cal.) and High Court have held that ;
3. The short issue fell for consideration before the learned tribunal was whether the assessing officer did not have jurisdiction to issue notice under section 143[2] on the relevant date. This legal issue was not raised by the assessee at the earliest point of time namely, before the assessing officer nor before the Commissioner of Income Tax [Appeals] and it was raised for the first time before the learned tribunal by filing additional grounds. The revenue opposed such a prayer yet the learned tribunal having been convinced that the issue of jurisdiction goes to the root of the matter permitted the assessee to canvas such issue. After hearing the parties learned tribunal found that the assessing officer did not had jurisdiction and consequently the assessment was void ab initio in coming to such a conclusion. The learned tribunal had referred the decision of this court in the case of West Bengal State Electricity Board v. Dy. CIT [2005] 147 Taxman 234/278 ITR 218 (Cal) and also the decision in the case of Pr. CIT v. Oberoi Hotels (P.) Ltd [2018] 96 taxmann.com 104/409 ITR 132 (Calcutta)
4. Following the decision of the Hon'ble Supreme Court in Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 thus we find that the legal position had been rightly taken note of by the learned tribunal and the assessee cannot be prevented from raising the question of jurisdiction which is an issue which goes to the root of the matte and the learned tribunal had rightly permitted the assessee to canvas the issue and also rightly concluded that the assessment was bad in law. Thus, we find there is no substantial question of law arising for consideration in this appeal.
5. With the above we note that the revenue could not factually controvert the submissions of the assessee that notice under section 143[2] and section 142[1] of the Act was issued by an officer, who did not have jurisdiction over the assessee.
Even the SLP made before the apex court by revenue was dismissed by the apex court in the matter 167 taxmann.com 615 (SC) on 23.09.2024. Ld. DR did not demonstrate any contrary view on the matter and thus, having binding precedent view on the matter we are of the considered view that the assessment made without issue of notice u/s. 143(2) of the Act get null and void. Based on this observation ground no. 1 raised by the assessee is allowed.
10. Since we have considered the technical ground raised by the assessee ground no. 2 to 5 raised by the assessee on merits of the issue become educative in nature and therefore, the same are not decided. Ground no. 6 being general in nature does not require our finding.
In the result, the appeal of the assessee is allowed.
Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/-
¼ Mk0 ,l- lhrky{eh ½ ¼ jkBkSM deys'k t;UrHkkbZ ½
(Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Dated 11/12/2024
*Ganesh Kumar, Sr. PS
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
True Copy
By order
42
3
22
4
42
5
42
6
42
7
ITA No. 467/Jodh/2023 9
Ambiance Home Furnishing Pvt. Ltd.