INCOME TAX OFFICER-21(2)(4), MUMBAI vs. NATWAR B WAGHELA, MUMBAI

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-33, Mumbai (in short ‘the CIT (A)’) dated 07/04/2017 for the assessment year 2009-10. The assessee has filed Cross Objections assailing the findings of CIT(A) in dismissing assessee’s ground of appeal challenging validity of reopening of assessment under section 148 of the Income Tax Act, 1961 (in short ‘ the Act’).

The Cross Objections filed by the assessee are time barred by 167 days. The assessee has filed an application seeking condonation of delay supported by an affidavit. A perusal of the same shows that the delay in filing of the cross objections has been attributed to the death of assessee Shri Natwar B. Waghela. After examining the affidavit we are satisfied that the delay in filing of the cross objections is not deliberate and is for the bonafide reasons explained therein. Thus, the delay of 167 days in filing of cross objections is condoned and the same are admitted to be heard along with the appeal of Revenue.

Ms. Kavita P. Kaushik, representing the Department submitted that the Assessing Officer reopened assessment for assessment year 2009-10, as the assessee had indulged in bogus purchase of machinery from declared hawala dealers. During the course of reassessment proceedings, notices under section 133(6) of the Act were issued to the vendor of the machine i.e. M/s. Span Enterprises as well to the party who had allegedly installed the machine i.e. Jupiter Graphics. The notices were sent to the respective parties on the addresses furnished by the assessee. However, the notices were received back unserved from the Postal Authorities with the remark “Left”. Summons under section 131 of the Act were also issued to M/s. Jupiter Graphics, however the same could not be served. Further, the assessee failed to produce the vendor of the machine as well as the party that had installed the machine. The names of both the above said parties appear in the list of hawala dealers declared by Maharashtra Sales Tax Department.

Per contra, Shri Nimesh Chotnani, appearing on behalf of the assessee vehemently defended the order of CIT(A) in deleting the addition on merits. The ld. Authorized Representative for the assessee submitted that the assessee had purchased colour Offset Printing Machine. The said machine was (A.Y.2009-10) C.O.NO.187/MUM/2019 imported by M/s. Insight Communications, Okhala. The machine was supplied to the assessee by M/s. Span Enterprises and the machine was installed at the premises of the assessee by M/s. Jupiter Graphics. The assessee had taken loan from Andhra Bank for the purchase of the machine. The ld. Authorized Representative for the assessee referred to loan sanction letter from the Bank at pages 46 and 47 of the Paper Book. The ld. Authorized Representative for the assessee submitted that the bank before issuing sanction letter had made detailed enquiries about the genuineness of the purchase of machinery and the vendors. The payments for supply of machinery and installation of machinery were directly made by the bank to the respective parties. The ld. Authorized Representative for the assessee referred to the certificate issued by bank at page 44 of the Paper Book indicating that the payments were made by the bank to M/s. Jupiter Graphics and M/s. Span Enterprises. The ld. Authorized Representative for the assessee further pointed that the assessee had furnished sufficient evidence in the form of invoices, bank sanction letter and books of accounts to prove the genuineness of transactions. To further buttress his submissions the ld. Authorised Representative submitted that there was substantial increase in turnover of the assessee after installation of new machine. The ld. Authorized Representative for the assessee asserted that the Assessing Officer has erred in disallowing the cost of fixed asset without taking note of the fact that the same was not debited to the P&L Account.

We have heard the submissions made by rival sides and have perused the orders of authorities below. The Revenue in its appeal has assailed the findings of first appellate authority in deleting the addition of Rs.57,36,933/- in (A.Y.2009-10) C.O.NO.187/MUM/2019 respect of bogus purchases and further allowing assessee’s claim of depreciation on printing machine. The assessee purportedly purchased Offset printing machine from M/s. Span Enterprises. The Assessing Officer in order to verify genuineness of the purchase issued notice under section 133(6) of the Act to the vendor of the machine. The notice was received back unserved with the remarks ‘Left’. The Assessing Officer thereafter, sent Inspector to the address who reported that the vendor was not available at the address furnished by the assessee. Similar was the fate of the notice and the visit by Inspector at the premises of M/s. Jupiter Graphics, a firm instrumental in installation of the machine at assessee’s premises. After examining the material available on record, we observed that the Inspector never visited the premises of assessee to verify existence of the machine at the assessee’s site. The Assessing Officer merely on the basis of enquiries conducted at the alleged premises of the supplier formed an opinion that it is a case of bogus purchase.

The assessee in order to prove the genuineness of the purchase has furnished invoice and the sanction letter of the bank. The assessee had financed the purchase and installation of the machine from Andhra Bank. The bank had certified that payments were made to. M/s. Span Enterprises, the vendor and M/s. Jupiter Graphics, who had installed the machine. This fact has not been rebutted by the Department. It is noteworthy that the machine was purchased during the financial year 2008-09 and Inspector visited the premises of the vendors in December, 2014. The possibility of vendors shifting the place of business in between cannot be ruled out. Further, we observe that no finding of fact has been recorded by the Assessing Officer that these parties never had their place of work at the given addresses. Thus, the right course to (A.Y.2009-10) C.O.NO.187/MUM/2019 verify purchase and installation of machine was to visit the premises of the assessee, which the Inspector failed to do.

We further observe that the purchases alleged to be bogus is not a trading asset but a fixed asset. The purchase of fixed asset is not reflected in the P&L Account, hence, the same was not claimed by the assessee as an expenditure. Once the expenditure has not been claimed, the same cannot be disallowed. We do not find any infirmity in the order of CIT(A) in deleting the addition qua alleged bogus purchase of machinery and allowing assessee’s claim of depreciation on the same. The appeal of Revenue is without any merit, hence, the same is dismissed.

The assessee in cross objections has assailed the order of CIT (A) in dismissing assessee’s objection challenging reopening of assessment. The ld. Authorized Representative for the assessee submitted that the assessee had filed objections against notice under section 148 of the Act. The Assessing Officer without disposing the objections by passing a reasoned order has proceeded to pass assessment order. Giving chronology of events, the ld. Authorized Representative for the assessee submitted that notice under section 148 of the Act was issued to the assessee on 07/02/2014. The assessee replied to said notice on 07/04/2014. The ld. Authorized Representative for the assessee pointed that while responding to the notice the assessee asked for the reasons recorded for reopening, as well as objected to the notice issued under section 148 of the Act. The ld. Authorized Representative for the assessee referred to the said reply at page 27 of the Paper Book. The Assessing

On the other hand, ld. Departmental Representative vehemently supported the findings of CIT (A) in rejecting assessee’s ground challenging validity of reopening.

Both sides heard. The Hon’ble Supreme Court of India in the case of G.K.N. Drive Shafts India Ltd. vs. ITO, 259 ITR 19(SC) has laid down the procedure to be followed by the Assessing Officer for disposal of the objections and also the time line for filing of objections by the assessee in the case of reopening of assessment. For the sake of completeness the relevant extract of the judgment of Hon’ble Apex Court is reproduced herein below:-

To sum up, appeal of the Revenue, as well as, cross objections of the assessee are dismissed.

This appeal was heard on 24/02/2020. As per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963, (ITAT Rules, 1963), the order was required to be “ordinarily” pronounced within a period of 90 days from the date of conclusion of the hearing of appeal. The instant appeal was heard prior to the lockdown declared by the Hon’ble Prime Minister on 24-03-2020 in view of COVID-19 pandemic. The lockdown was forced due to extra ordinary circumstances caused by world wide spread of COVID-19. Thereafter, the lockdown was extended from time to time. Therefore, the pronouncement of order beyond the period of 90 days from the date of hearing is not under “ordinary” circumstances. The Co-ordinate Bench of the Tribunal in the case of (A.Y.2009-10) C.O.NO.187/MUM/2019 DCIT vs. JSW Ltd., for A.Y 2013-14 decided on 14/05/2020, under identical circumstances, after considering the provisions of Rule 34(5) of the ITAT Rules, 1963, judgements rendered By Hon’ble Apex Court and the Hon’ble Bombay High Court on the issue of time limit for pronouncement of orders by the Tribunal and the circumstances leading to lockdown held:- “10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only inconsonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which ITA No. 6103 and lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.”

The appeal of the Revenue and cross objections by the assesse are dismissed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.