ACIT CIRCLE 3(2)(1), MUMBAI, MUMBAI vs. SUNJEWELS PRIVATE LIMITED, MUMBAI

Briefly the facts are, the assessee is a resident corporate entity, stated to be engaged in the business of manufacturing of gold and diamond studded jewellery, exclusively meant for export. For the assessment year under dispute, the assessee filed its return of income on 30.11.2016, declaring total income at Rs.32,86,71,400/- under the normal provisions of the Income Tax Act, 1961 (‘Act’ for short) and book profit of Rs.20,71,08,479/- u/s. 115JB of the Act. The return of income so filed by the assessee was selected for scrutiny.

In course of assessment proceeding, the A.O. enquired into various issues and called upon the assessee to furnish party-wise details of purchases exceeding Rs.1 crore with complete address and TIN along with ledger account copies, etc. In response to the query raised, the assessee furnished the details. After verifying the details, the A.O. observed that in the year under consideration, the assessee had made purchases from five parties. However, except in case of Srushti Diam, the assessee had furnished the details in respect of rest of the parties. Thus, alleging lack of verifiable evidence, the A.O. disallowed the purchases of Rs.2,21,80,000/- made from Srushti Diam and added it to the income of the assessee by treating it as unexplained expenditure u/s. 69C of the Act. Proceeding further, the A.O. observed that in the year under consideration, the assessee had claimed expenditure to the tune of Rs.28,92,631/- on account of legal and professional charges paid to following two parties: (a) Pheilippe De Haer - Legal Charges Rs. 12,05,645/- (b) Udwadia & Udeshi - Legal Charges Rs. 16,869/-

Contesting the additions/disallowances made by the A.O., the assessee preferred an appeal before the first appellate authority.

In course of proceedings before the first appellate authority, the assessee furnished various documentary evidences as additional evidence to prove the genuineness of purchases made from Srushti Diam, as also the legal and professional charges paid to the parties. The additional evidences furnished by the assessee were forwarded to the A.O. for enquiry, verification and furnishing a report. Though, the A.O. after verifying the evidences furnished a report, however, the first appellate authority set aside the assessment order with a direction to the A.O. to examine the issues concerning the additions de novo after providing reasonable opportunity of being heard to the assessee and verifying the additional evidences furnished by the assessee.

Drawing our attention to section 251(1)(a) of the Act, ld. DR submitted that the first appellate authority has the power of restoration only in a case where the assessment has been completed u/s. 144 of the Act to the best of the judgment of the A.O. He submitted, since the assessment order in the instant case has been passed u/s. 143(3) of the Act, the first appellate authority had no jurisdiction to set aside the assessment order. The ld. Counsel appearing for the assessee though agreed that as per the provisions of section 251(1)(a) of the Act, the first appellate authority could not have set aside the assessment

We have considered rival submissions and perused the materials on record. A reading of the assessment order reveals that the disputed additions were made by the A.O. purely for lack of verifiable evidence. However, before the first appellate authority, the assessee did furnish supporting documentary evidences to prove the genuineness of the purchases made from Srushti Diam as also the legal and professional charges paid to two parties. The observations of the A.O. in the remand report are as under: Sub:- Remand Report in the case of SUNJEWELS PRIVATE LIMITED (AABCE3619L) for AY 2016-17 with reference to Appeal Number CIT (A), Mumbal- 18/10386/2018-19-reg. In this case, the return of income was E-filed on 30.11.2016 declaring total income of Rs. 32,86,71,400/- under normal provision of Income tax Act and book profit of Rs. 20,71,08,479/- under section 115JB of the Act. The case was selected for the scrutiny and order under section 143(3) was passed on 27.12.2018 wherein the following addition were made:

Addition In respect of Legal and Professional Charges paid to Udwadia and Udeshi: During the course of remand proceeding, the assessee filed the copy of Invoice raised by Udwadia and Udeshi having invoice no. 069, 086, 087, 103, 117, 130, 141, 143, 146, 157, 001 and 009. In this connection, the assessee also submitted the ledger account of Udwadia and Udeshi in the books of the assesee along with the bank statement highlighting the payment made to the Udwadia and Udeshi.

Addition in respect of Legal and Professional Charges paid to Phellippe Dehaer: During the course of assessment proceedings, the assessee submitted the copy of the invoice raised by Pheilippe Dehser along with the ledger account of the same person in the books of the assessee. Furthermore, the bank statement of the assessee highlighting the payment made to the person is also submitted. Besides that the assessee submitted the copy of the passport of the person along with the consultant agreement. Due to the above discussion on the three issue as discussed above the additional evidence may be accepted on its merit.

From the aforesaid observations of the A.O. in the remand report, it is evident that the A.O. was more or less satisfied with the authenticity of the evidences, hence, did not make any adverse observations with record to the acceptability of such evidences. Rather, the A.O. has commented that the additional evidences may be accepted on merits. Thus, once the A.O. has verified the evidences and given a clean report, the first appellate authority should have decided the appeal on merits instead of restoring the issues again to the A.O. for de novo assessment. Once the A.O. has completed the whole exercise of factual verification in course of remand proceedings, no useful purpose is going to be served by again resorting the issue back to him. In view of the aforesaid, we are inclined to set aside the impugned order of learned first appellate authority and restore the issues back to him for fresh adjudication after providing due and reasonable opportunity of being heard to the assessee. While deciding the issues, the first appellate authority must take due cognizance of the observations made by the A.O. in the remand report, referred to by us in this order, and decide the appeal on merits. Grounds are allowed for statistical purpose.