VERTEX SPINNING LTD,MUMBAI vs. DCIT 5(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.256/MUM/2018 (Assessment Year: 2010-11) M/s Vertex Spinning Limited, 1101, 10th Floor, Embassy Centre, Nariman Point, Mumbai - 400021 [PAN: AABCV5617N] …………… Appellant Vs Dy. Commissioner of Income Tax, Circle-5(3), Aayakar Bhavan, Mumbai ……………. Respondent ITA No. 4032/MUM/2017 (Assessment Year: 2010-11) Dy. Commissioner of Income Tax 5(3)(2), Room No. 573, Aayakar Bhavan, 5th Floor, Mumbai - 400020 ……………… Appellant M/s Vertex Spinning Limited, Vs 1101, 10th Floor, Embassy Centre, Nariman Point, Mumbai - 400021 ……………. Respondent [PAN: AABCV5617N] Appearances For the Appellant/Assessee : Ms. Dinkle Hariya For the Respondent/Department : Shri Achal Sharma Date of conclusion of hearing : 22.09.2022 Date of pronouncement of order : 20.12.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present cross appeals arise from the order of Commissioner of Income Tax (Appeals)-10, Mumbai [hereinafter referred to as „the CIT(A)‟], passed on 27.02.2017

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 for the Assessment Year 2010-11, which in turn arose from the Assessment Order, dated 14.03.2013, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟].

The appeal was accompanied by application for condonation of delay of 6.5 months in filing the appeal. As per the affidavit furnished by the Assessee explaining the aforesaid delay, the staff/consultant of the Assessee had misplaced the order passed by CIT(A) which could only be located after 6.5 months. Thus, the delay was caused on account of mistake by staff/consultant and was beyond the control of the Assessee. In view of the aforesaid reasons furnished by the Assessee, we are satisfied that the Assessee had sufficient cause for not filing the appeal in time, we condone the delay in filing the present appeal and proceed to examine/adjudicate the same on merits.

“1. Passing of ex-parte order 1.1 The Learned Commissioner of Income-tax (Appeals)-10, Mumbai [“Ld. CIT(A)”], erred in confirming the action of the A.O. in passing ex-parte order u/s 144 of the Act. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, no such action was called for.

Without prejudice to the above 2.1 It is submitted that in the facts and the circumstances of the case, and in law, the Ld. CIT(A) erred in confirming the action of the A.O. in making estimating the profit of the Appellant at Rs. 2,80,20,897/- on the basis of the 3% of the total turnover.

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 2.2 It is submitted that in the facts and the circumstances of the case, and in law, no such addition was called for. 2.3 Without prejudice to the above, assuming –but not admitting – that any estimation was called for, the estimation confirmed by the Ld. CIT(A() is arbitrary, excessive and not in accordance with the law.”

The Assessee had filed the above revised grounds vide letter dated 31.05.2019.

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 02.01.2013. Since the aforesaid notices were not complied with summons under Section 131 of the Act were issued on 25.02.2013. The aforesaid summons were also not complied with. Therefore, the Assessing Officer proceeded to frame assessment under Section 144 read with Section 143(3) of the Act on the Assessee. The Assessing Officer examined the trading results for the Assessment Year 2008-09 and 2009- 10. According to the Assessing Officer, the trading results for Assessment Year 2008-09 were comparable to the Assessment Year 2010-11 and therefore adopting the net profit rate of 6.23 % as declared by the Assessee for the Assessment Year 2008-09, the Assessing Officer computed profits of the business for the Assessment Year 2010-11 at INR 5,81,90,064/-. Further, the Assessing Officer made a addition of INR 13,80,57,827/- being the balance of sundry creditors reflected in the return of income as the Assessee had failed to produce the books of accounts and other documentary evidence. The Assessing Officer also made addition of INR 3,79,36,795/- in respect of disallowed of deduction for total expenses aggregating claimed by the Assessee. Thus, the Assessing Officer assessed the total income of Assessee at INR 23,41,84,686/- as against returned income of INR 21,44,363/-.

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 the 6.23% of the turnover estimated by the Assessing Officer.

Ground No. 1 of Appeal by Assessee 7. Ground No. 1 raised by the Assessee is directed against the order of CIT(A) confirming the action of Assessing Officer in passing ex-parte Assessment Order under Section 144 of the Act. We have considered the rival submissions and perused the material on record. Perusal of grounds of appeal filed before CIT(A) shows that the Assessee had not raised this ground before the CIT(A). Even otherwise, on perusal of assessment order, it is clear that sufficient opportunity was granted to the Assessee to produce books of accounts and furnished relevant documents. The Assessee chose to stay away from the proceedings and did not comply with the notices and the summons issued by the Assessing Officer. Therefore, the Assessing Officer had no option but to invoke provisions of Section 144 of the Act. In view of the aforesaid, Ground No. 1 raised by the Appellant is dismissed as being devoid of merit.

Ground No. 2.1 to 2.3 of Appeal by Assessee along with Ground No. 1 of Appeal by Revenue 8. Ground No. 2.1 to 2.3 raised by the Assessee are directed against the order of CIT(A) confirming the action of Assessing Officer in making addition on account of estimated profits to the extent of 3% of the total turnover. The contention of the

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 Assessee is that the books of accounts that the Assessee were audited and therefore, the actual profits declared by the Assessee should have been accepted. During the course of hearing, the Ld. Authorised Representative for the Assessee had submitted that additional evidence was produced in the appellate proceedings before the CIT(A) in respect of which supplementary remand report was called for by the CIT(A). However, the Assessing Officer did not submit any supplementary remand report. The CIT(A) erred in confirming addition of estimated profit to the extent of 3% of turnover as the same was excessive and arbitrary. She submitted that net profit rate of 0.23% as declared by the Assessee in the return of income should have been accepted and therefore, the addition on account of estimated profit is liable to be deleted. Per contra, the Ld. Departmental Representative referring to Ground No. 1 of the appeal preferred by the Revenue submitted that the addition on account of estimated profits should be restored to 6.23% of the total turnover as was estimated by the Assessing Officer. Referring to paragraph 5 and 6 of the Assessment Order, he submitted that the Assessing Officer had estimated profit after examining the trading results for the Assessment Year 2008-09 and 2009- 10. Since the trading results of Assessment Year 2010-11 were comparable with Assessment Year 2009-10, the net profit rate declared by the Assessee itself for the Assessment Year 2008-09 was adopted. On the contrary, the CIT(A) had reduced net profit rate from 6.23% to 3% without any basis.

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 was framed on the Assessee under Section 144 read with Section 143(3) of the Act. In appeal before CIT(A), the Assessee produced additional evidence. The relevant extract of the order of CIT(A) dealing with additional evidence read as under:

“2.1 The assessment was concluded u/s 144 since there was no much compliance before the AO Later during the course of appellate proceedings, the appellant has filed certain additional information under Rule 46A and my predecessor has forwarded the said information to AO calling for remand report vide his letter dated 18/09/2013 As the appellant has not complied much and not furnished the desired details to the AO, the AO has concluded the remand proceedings and forwarded the remand report to CIT(A) suggesting no relief to the appellant by supporting the stands taken by the AO vide his report dated 08/01/2014 Later, the appellant vide his letter dated 05/03/2014 has made a request to the AO for a supplementary report as the details by him belatedly were not verified by the AO The AO having submitted the remand report already on 08/01/2014 has sought further permission of the CIT(A) as per law. The CIT(A) has asked for the supplementary report vide his letter dated 04/08/2016 within 15 days from the receipt of his letter. However, there was no compliance from the AO till the passing of this order. As such, the issues are decided on merits as per the details available on records.” 10. On perusal of above, it can be seen that the CIT(A) had taken into consideration all the evidence submitted by the Assessee while deciding the issue on merits even though the Assessing Officer had vide his Remand Report, dated 08.01.2014,

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 recommended that no relief should be granted to the Assessee as desire details have not been furnished by the Assessee. The fact that the Assessing Officer had not furnished supplementary report (in respect of details submitted by the Assessee belatedly) did not lead to any adverse inference being drawn against the Assessee as the CIT(A) proceeded to decide the issue on merits based upon material on record without rejecting the additional evidence. Further, on perusal of remand report, dated 08.01.2014 furnished by the Assessing Officer as well as correspondences exchange by the Assessee with Assessing Officer during the remand proceedings (placed at page 64 to 194 of the paper book) it can be seen that the additional evidences furnished by the Assessee pertained to addition on account of sundry creditors and disallowance of expenses which has been deleted by the CIT(A). As regards estimation of profits, we note that the Assessing Officer found that the figures of opening and closing stock for Assessment Year 2008-09 were comparable with the Assessment Year 2010-11 and therefore, adopted net profit rate of 6.23% declared by the Assessee for the Assessment Year 2008-09 for estimating profits for the Assessment Year 2010-11. The CIT(A) granted relief to the Assessee while restricting the aforesaid rate of 6.23% to 3% in order to meet the end of justice keeping in view the fact that the Assessing Officer had not taken into consideration the prevailing market rate while estimating the profits. We note that the CIT(A) has, in paragraph 5.2 of the order, returned a finding that the Assessee had failed to justify sharp decline in the net profits within a short period of 3 years. However, the profits as declared by the Assessee in

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 return of income did show a declining in trend. Therefore, we hold that the net profit rate of 3% adopted by the CIT(A) for estimating profits for the Assessment Year 2010-11 was just and proper given the facts and circumstances of the present case. The order passed by CIT(A) on this issue does not call for interference. Accordingly, Ground No. 2.1 to 2.3 raised by the Assessee as well as Ground No. 1 raised by the Revenue are dismissed.

Ground No. 2 of Appeal by Revenue 11. Ground No. 2 raised by the Revenue is directed against the order of CIT(A) deleting the addition of sundry creditors of INR. 13,80,57,827/-. In the return of income filed by the Assessee, the sundry creditor stood at INR 13,80,57,827/-. The Assessing Officer added the aforesaid amount to the estimated profits on the ground that Assessee had failed to produce the books of accounts. The Ld. Departmental Representative relied upon the order passed by the Assessing Officer whereas the Authorised Representative of the Assessee referred to the findings given by CIT(A) on this issue. We have considered the rival submissions and perused the material on record. The Assessee had produced additional evidence before CIT(A) giving breakup of sundry creditors as well as balance confirmations issued by the various parties (placed at page 64 to 194 of the paper-book). In remand report, dated 08.01.2014, the Assessing Officer objected to the admission of additional evidence. A perusal of order of CIT(A) shows that the additional evidence filed by Assessee was not rejected by the CIT(A). However, the CIT(A) was not required to consider the additional evidence, as the CIT(A) deleted the aforesaid addition holding that once the books of 9

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 accounts are rejected by the Assessing Officer, the same cannot be relied upon to make other additions/disallowances. We do not find any infirmity in the order passed by CIT(A) on this issue. We also note that the Assessing Officer had simply made the addition on account of sundry creditors of INR 13,80,57,827/- without invoking any provisions of the Act. Accordingly, Ground No. 2 raised by the Revenue is dismissed.

In result, present appeals preferred by Assessee as well as Revenue are dismissed.

Order pronounced on 20.12.2022.

Sd/- Sd/- (Prashant Maharishi) (Rahul Chaudhary) Accountant Member Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 20.12.2022 Alindra, PS

ITA. No. 256/Mum/218 & 4032/Mum/2017 Assessment Year: 2010-11 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai