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Income Tax Appellate Tribunal, “F”
Before: SHRI C. N. PRASAD, JM & SHRI S. RIFAUR RAHMAN, AM
ITO Wd-(1) Shri Vikrant Jayant Taluka Palghar, Distt- Sankhe, Palghar-401404 4, Gr. Floor , Sagar बिधम/ Tarang, Tarapur Road, Vs. Chitralaya, Boisar, Tal. Palghar, Distt-Thane- 401504 स्थायीलेखासं./जीआइआरसं./PAN No. AMFPD2818B (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Raman Shah, AR by प्रत्यथीकीओरसे/Respondentby : Shri Samatha Mullamuri, DR सुनवाईकीतारीख/ : 27.02.2020 Date of Hearing घोषणाकीतारीख / : 23.07.2020 Date of Pronouncement आदेश / O R D E R
Per S. Rifaur Rahman, Accountant Member:
The present Appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals) – II in Shri Vikrant Jayant Sankhe short referred as ‘Ld. CIT(A)’, Mumbai, dated 05.08.2014 for Assessment Year (in short AY) 2004-05.
The brief facts of the case are, assessee filed his return of income declaring total income of ₹ 2,48,060/– on 27.09.2004. The return of income was accompanied with statement of total income, statement of affairs, audited financial report and audit report in the prescribed form No. 3 CB and 3 CD. The case was selected for scrutiny, notices under section 143 (2) and 142 (1) were issued and served on the assessee. The assessing officer issued several notices along with questionnaire calling record information/document to the assessee. Details of issue and serving of the notices are placed on record by the assessing officer and it is discussed elaborately in assessment order in page No. 2 and 3. Subsequently assessee himself appeared time to time and could not give the satisfactory reply to assessing officer. Accordingly assessing officer completed the assessment adopting best judgement as per section 144 Of the Income Tax Act 1961 (in short ‘Act’).
Shri Vikrant Jayant Sankhe 3. Since there was no assistance from assessee, assessing officer suo moto made the following additions:
A. AO observed that assessee has introduced ₹ 352,000 in its capital account under the proprietary concern M/s Mahalaxmi Motors & Services Station. B. AO observed that assessee has made an addition to fixed assets at ₹ 7,70,458/– before 30.09.2003 and has claimed depreciation@20%. Since assessee could not submit the relevant bills and documents, he disallowed depreciation. C. AO observed that assessee has declared agricultural income of ₹ 72,850/– D. AO observed that assessee has declared in the statement of affairs that assessee has received ₹ 2,14,150/– as marriage gift and presents. In the absence of details, it was added as unexplained cash credit. E. AO observed that assessee withdrawn ₹ 47,500/– for marriage expenses purpose. Since assessee has not furnished any detail, he estimated the marriage expenses to be at ₹ 1,00,000/–. He added that difference as unexplained expenditure under section 69C F. AO observed that assessee has climbed expenditure in this proprietary concerns M/s Siddhivinayak Tours and M/s Mahalaxmi Motors of Rs. 7,80,540/– and Rs. 2,18,834/– respectively. Since no details were Shri Vikrant Jayant Sankhe submitted he disallowed 20% of the expenses as unexplained. G. AO observed that assessee has shown the cost of building construction at ₹ 2,30,000/– in Mahalaxmi Motors Balance Sheet. To ascertain the actual cost of construction, the assessing officer referred the case to valuation officer on 16.10.2006. The valuation officer submitted the report dated 18.12.2006 and estimated the cost of construction of said building at ₹ 6, 18, 000/– since there are no representation from the assessee, the assessing officer added the difference of ₹ 3,88,000/– as unexplained investment.
Aggrieved with the above order, assessee preferred an appeal before Ld CIT(A). Before Ld CIT(A) assessee filed elaborate submission and additional evidences, he also submitted the reason for non-appearance before AO that assessee has met road accident and because of medical issues and change of address, the statutory notices were not served to him. After considering the submissions of the assessee, Ld CIT(A) remanded the additional evidences to the assessing officer. After verifying the additional evidences, AO submitted remand report. After considering the remand report and submissions on remand
Shri Vikrant Jayant Sankhe report from assessee, Ld CIT(A) gave partial relief to the assessee. a. With regard to addition of ₹ 352,000/– which assessee has introduced as fresh capital. He observed that since assessing officer has separately added marriage gift and agricultural income, it amounts to double addition to that extent. Ld CIT(A) has deleted the same and he sustained the balance addition to the extent of Rs. 1,12,500/- b. with regard to agricultural income, after considering assessee submission, he opined that there are as many as 6 co-owners in the agricultural land. It fetched ₹ 30,000 as deposit and annual rent of ₹ 25,000/– accordingly he determined the share of the assessee at ₹ 9,167/–. Accordingly he allowed to that extent and balance addition was sustained. c. With regard to ad hoc disallowance of various expenses incurred in the proprietary concerns of the assessee, he observed that certain expenses like insurance, bank charges, interest are verifiable, it is fully verifiable and exclusively incurred for the purpose of business. He directed the assessing officer to allow to that extent. d. All other disallowances were sustained by Ld CIT(A).
Shri Vikrant Jayant Sankhe 5. Aggrieved with the above order, assessee preferred an appeal before us, raising following grounds of appeal:-
Unexplained Capital at Rs. 1,12,500/- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-H, Thane erred in confirming the Unexplained additional capital of Rs. 1,12,500/-.
Sundry Creditors u/s 68 at Rs. 1,71,850/- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane erred in confirming the addition u/s 68 of for Unexplained Sundry Creditors at Rs. 1,71,850/- b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-H, Thane failed to understand that the appellant had submitted confirmation of Sundry Creditor from one of major party and the confirmation was not for entire sum of Sundry Creditor amount shown in Balance Sheet. c) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane erred in relying on Assessing officer remand report and not verifying copy of confirmation letter filed from M/s Guru Govind Motors.
Shri Vikrant Jayant Sankhe 3. Depreciation at Rs. 1,54,091/- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)- 11, Thane erred in confirming disallowance of depreciation at Rs. 1,54,091/- b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane erred in not verifying purchase bills submitted for purchase of vehicles at the time of hearing and simply relying on remand report sent by AO.
4. Agriculture Income at Rs. 63,683/- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane erred in confirming disallowance of agriculture income at Rs. 63,683/-
Marriage Gift at Rs. 1,64,150/- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane erred in not accepting Gift in Marriage at Rs. 1,64,150/-. b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane has stated that Aher Register which shows gifts
Shri Vikrant Jayant Sankhe from as many as 439 persons, hence marriage expenses disclosed were certainly at lower side, but on other side failed to accept that Marriage gills received at Rs. 1,64,150/-
Marriage Expenses at Rs. 52,500/- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane owed in making addition of Rs. 52,500/- on ground of Marriage expenses.
7. Adhoc Disallowance at Rs. 1,63,374/- :- a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals)-II, Thane erred in confirming adhoc disallowance of expenses at Rs. 1,63,374/-.
8. Difference in value of cost of construction of building at Rs. 3,88,000/- a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-II Thane erred in confirming addition made on ground of difference in value of cost of construction. b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) II Thane, erred in not verifying the Shri Vikrant Jayant Sankhe supporting documents and explanation submitted at the time of hearing at the time of appeal proceedings.
The appellant craves, leave to add to, amend, alter or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal, if necessary.
6. At the time of hearing, Ld AR brought to our notice all the material facts on the record and he brought to our notice the respective paragraphs of assessment order and appellate order and their respective findings. He also submitted additional evidences in support of purchase and in affidavit of mother-in- law of the assessee. He submitted that since these additional evidences are relevant for the disposal of the appeal and these additional evidences which are relevant for ground No. 3 and 5. He prayed that the additions may be deleted.
7. On the other hand learned DR supported the findings of the tax authorities and he submitted that assessee has not submitted any relevant information or cooperated with the tax authorities to complete the assessment.
8. Considered the rival submissions and material on record. We noticed that the assessment was completed under section 144
Shri Vikrant Jayant Sankhe of the Act since assessee could not submit the details properly at the time of assessment and assessee himself appeared in a few occasions. In the absence of proper submission from the assessee, we observed that assessing officer has made the addition excessively even though he could have made the reasonable additions. He almost made all the additions, he could see on the paper. Ld CIT(A) accepted the additional evidences and remanded the matter to assessing officer. We noticed that even the Ld CIT(A) gave certain concessions but still he has sustained the addition made by the assessing officer. In our considered view most of the additions are excessive and our observations are as under:
9. After accepting the additional evidences submitted before us, we thought it fit to remit this issue back to the assessing officer to redo the assessment de novo. After observing that the matter was already remanded to assessing officer and again remitting this issue back to the assessing officer will not serve any purpose and also considerable time has elapsed. We thought it fit to dispose of this appeal based on the following observations. We noticed that assessing officer has made
Shri Vikrant Jayant Sankhe following additions on business income carried on by the assessee, on introduction of capital, on marriage gift and expenditure, agricultural income and construction of building. We will deal the issue on ground wise.
With regard to ground No. 1 on introduction of capital, Ld AR brought to our notice statement of affairs as on 31.03.2003 in which assessee was holding FDR with Tata Finance of ₹ 1,10,000/– and interest accrued on above FDR of ₹ 26,830/–. During this assessment year he submitted that assessee has liquidated the above deposits and interest. The Ld CIT(A) rejected above source of income as it will not increase cash flow to the assessee. We do not agree with Ld CIT(A) but it is one of the source that can increase cash balance of the assessee during this assessment year. We noticed that Ld CIT(A) has sustained addition to the extent of ₹ 1,12,500. Since there is evidence that assessee has encashed the deposit along with interest and there is a established source for the assessee, accordingly we deem it fit to delete the addition sustained by the Ld CIT(A). Accordingly the ground No. 1 raised by the assessee is allowed.
Shri Vikrant Jayant Sankhe 11. With regard to ground No. 2 & 7, these additions are relating to business income of proprietary concerns run by the assessee. We noticed from the records that assessee has already declared profit in M/s Shree Siddhivinayak Tours of ₹ 85,393.68 against the grass receives of ₹ 10,96,418/– (@ 7.79% of gross receipts) and in M/s Mahalaxmi Motors ₹ 1,50,873.91/– against the commission income of ₹ 4,10,116/– (@ 36.79% of receipts). From the above the profit declared by the assessee which is about 8% from travel business and 36.79% in commission business. When we look at the disallowances made by the assessing officer in M/s Shree Siddhivinayak Tour, we noticed that AO made the addition rejecting outstanding sundry creditors to the extent of ₹ 1,71,850/- and ad hoc disallowance of expenditure to the extent of ₹ 43,767/–. In total ₹ 2,15,617/–. After disallowance made by AO, the total profit determined by AO in travel business is ₹ 3,01,011/– which is equal to 27.45%. In our view, this is too high. We doubt that any travel business can fetch real profit at that level. We observed that even presumption tax (under section 44AD) proposes only 8% as reasonable profit. It clearly indicates that assessing officer has made this assessment in overzealous.
Shri Vikrant Jayant Sankhe The various courts have held that only real and actual income alone can be taxed and unrealistic or highly presumptive income cannot be proper to tax. As discussed above, in our considered view the reasonable profit expected in this line of business could be 8 to 10%. Since assessee has already declared 7.79% as its income, we direct assessing officer to estimate the total income at 10%. Therefore, we direct assessing officer to sustain the profit @ 2.21% of travel business.
With regard to commission business, assessee has already declared 36.79% and after ad hoc disallowance of ₹ 1,56,108/–. The total income determined by AO after disallowance will be ₹ 3,06,982/– which is equal to 74.85% of gross receipts. The Ld CIT(A) already directed the assessing officer to consider the real and actual expenditure and redo the actual profit after allowing the real expenditure incurred by the assessee for the purpose of business. After verifying the profit and loss account, the expenses claimed by the assessee seems to be reasonable and we do not see any reason to disturb the profit declared by the assessee. Even the sundry creditors was disallowed only due to non availability of information from assessee and otherwise, no business will be Shri Vikrant Jayant Sankhe carried out without any creditors, as far as in this case, assessee submitted before Ld CIT(A) that he has received the booking advance, which is accounted as creditors. Accordingly, We direct assessing officer to delete addition in respect of sundry creditors and ad hoc disallowance of expenditure. In short we direct assessing officer to estimate 2.21% of travel business only. In the result the ground No. 2 and 7 are partly allowed.
With regard to ground No. 3, assessee has submitted additional evidence before us for the purchase of Tata car which is placed on record. Since it is an additional evidence, we deem it fit to remit this issue back to the file of assessing officer to verify the genuineness of the submitted bill and if it is found proper, we direct assessing officer to allow the depreciation claimed by the assessee against this car. Accordingly ground raised by the assessee is allowed for statistical purpose.
With regard to ground No. 4, agricultural income, no new material or any new document submitted before us. We do not see any reason to interfere with the findings of Ld CIT(A).
Shri Vikrant Jayant Sankhe 15. With regard to ground No. 5, marriage gift received in the marriage of the assessee, Ld CIT(A) sustained the addition made by the AO to the extent of ₹ 1,64,150/–. Before us Ld AR submitted a affidavit from mother-in-law of the assessee in which she confirmed that she had given Shagun on the occasion of marriage of her daughter. After considering the affidavit, in our view, in the Indian marriages it is common in marriages to receive and give Shagun or marriage gifts. Therefore we do not see any reason to retain this addition. Accordingly we direct assessing officer to delete this addition.
With regard to ground No. 6, marriage expenses, we noticed that AO has estimated the marriage expenses to the extent of ₹ 1 lakh and assessee has already declared marriage expenses to the extent of ₹ 47,500/– and accordingly he has made the addition of ₹ 52,500/–. We noticed that assessee also accepted the estimation of income and submitted that assessee’s parents has incurred the above said expenditure. However they’ve not submitted any new submission before us. However they submitted that assessee’s mother has withdrawn ₹ 50,000 from postal account. In our view, It is common in the Indian
Shri Vikrant Jayant Sankhe marriages to receive gifts from parents and relatives. We do not see any reason to retain this addition. Accordingly we direct assessing officer to delete this addition.
With regard to ground No. 8 relating to addition of ₹ 3,88,000/– which is valuation difference determined by the assessing officer after obtaining valuation report from DVO in the year 2006. We noticed that assessee has completed the construction during financial years 2003 – 04 & 2004-05 and the valuation was done in the financial year 2006 – 07 which is after 2 years. Before us, Ld AR brought to our notice the reassessment order passed for AY 2005-06 and the reasons for forming opinion and initiation of reassessment proceedings that the assessment was reopened mainly to verify the above and accordingly after verification, assessment was completed without making any addition. Therefore, AO himself confirms that the construction was completed in two years and in this AY, AO makes the addition based on DVO report and whole addition was made only in this AY. He submitted that it amounts to double addition. After considering the Ld AR submission, we are inclined to accept and AO cannot make the difference of Shri Vikrant Jayant Sankhe valuation from the valuation report and actual cost declared by assessee in his statement of affairs since the construction was carried in two years. Accordingly, the ground raised by the assessee is accordingly allowed.
In the net result, appeal filed by the assessee is partly allowed.
It is pertinent to mention here that this order is pronounced after a period of 90 days from the date of conclusion of the hearing. In this regard, we place reliance on the decision of co- ordinate bench of this Tribunal in the case of JSW Ltd in & 6103/Mum/2018 dated 14.5.2020, wherein this issue has been addressed in detail allowing time to pronounce the order beyond 90 days from the date of conclusion of hearing by excluding the days for which the lockdown announced by the Government was in force. The relevant observations of this tribunal in the said binding precedent are as under:-
However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We
Shri Vikrant Jayant Sankhe are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows:
(5) The pronouncement may be in any of the following manners:— (a) The Bench may pronounce the order immediately upon the conclusion of thehearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date forpronouncement.
(c ) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall notordinarily(emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the noticeboard.
Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon’ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax
Shri Vikrant Jayant Sankhe Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances.
Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitationhasexpired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating 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”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should
Shri Vikrant Jayant Sankhe be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled’ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary”period.
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 in consonance 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 suomotu 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”,inthelightoftheaboveanalysisofthelegalposition, theperiodduringwhich 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
Shri Vikrant Jayant Sankhe 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.
To sum up, the appeal of the assessee is allowed, and appeal of the Assessing Officer is dismissed. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the noticeboard.
Respectfully following the aforesaid judicial precedent, we proceed to pronounce this order beyond a period of 90 days from the date of conclusion of hearing.
Order pronounced as per Rule 34(5) of ITAT Rules and by placing the pronouncement list in the notice board on 23.07.2020.