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Facts
The assessee claimed exemption of Rs.1,59,55,195/- under section 10AA for AY 2011-12, stating it was engaged in manufacturing and exporting diamonds. The AO denied this, finding no manufacturing expenses debited and alleging an inflated profit due to non-payment of remuneration to partners. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the assessee was negligent in complying with procedures before the AO and CIT(A). However, in the interest of substantial justice, the delay in filing the appeal before the CIT(A) was condoned subject to a payment of Rs. 10,000/-. The order of the CIT(A) was set aside, and the matter was restored to the CIT(A) for fresh adjudication.
Key Issues
Whether the CIT(A) erred in upholding the disallowance of exemption under section 10AA and whether the delay in filing the appeal before CIT(A) should be condoned.
Sections Cited
10AA, 143(3), 147, 148, 250, 80IA(10)
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Before: SHRI PAWAN SINGH & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 29.12.2023 by the National Faceless Appeal Centre, Delhi /Commissioner of Income-tax (Appeals) [in short ‘Ld. CIT(A)’] for the Assessment Year (AY) 2011-12, which in turn arises out of assessment order passed by Assessing Officer u/s 143(3) r.w.s. 147 of the Act dated 08.12.2017. Grounds of appeal raised by the assessee are as under: “GROUND NO.1 The learned CIT(A) erred in upholding the order passed by the learned DCIT Circle-3(2), Surat, under section 143(3) rws 147 of the Act, even though it is capricious in nature and has been made ignoring the established and /AY.2011-12 Runi Impex undisputed facts. The said order is contrary to the facts and circumstances of the case and the applicable provisions of the Act. GROUND NO.2 The learned CIT(A) erred in upholding the disallowance of claim of Rs.1,59,55,195/- made u/s 10AA of the Income Tax Act, though the same was contrary to the facts and circumstances of the case and the evidence available on record. The appellant craves leave to add, to alter or amend the aforesaid grounds of appeal, if called for, before the disposal of the appeal.”
Facts of the case in brief are that assessee filed its return of income NIL for assessment year 2011-12 after claiming exemption of Rs.1,59,55,195/- u/s 10AA of the Act. Subsequently, assessment was completed u/s 143(3) of the Act by accepting returned income. The assessee-firm claimed that it was engaged in business of trading, manufacturing and exporting of cut and polished diamonds during the year. The AO, however, found that there was no manufacturing activities by assessee during the year because no manufacturing expenses were debited by assessee in its books of account. The case of assessee was reopened u/s 147 of the Act after duly recording reasons for reopening and notice u/s 148 of the Act was issued on 24.10.2016. In response thereto, assessee filed copy of the original return of income filed on 24.09.2011 and requested to treat it as return u/s 148 of the Act. The AO found that assessee is a partnership firm consisting of three partners. It was found during the assessment proceedings that no remuneration was paid to the working partners and nothing has been debited in the profit and loss account nor any provision in this regard has been created. Since the assessee’s /AY.2011-12 Runi Impex profit is claimed as exempt u/s 10AA of the Act, provisions of sub-section 80IA(10) r.w.s. 10AA(9) of the Act could be invoked to reduce the inflated profit claimed for deduction u/s 10AA of the Act. By not claiming remuneration and interest to the partners, assessee had inflated profit by way of a collusive arrangement. Keeping in view the facts of the case as discussed above, deduction Rs.1,59,55,195/- claimed by assessee-firm u/s 10AA of the Act was found inadmissible and accordingly, was added back to the total income of assessee. Aggrieved by the addition made by AO, assessee preferred appeal before CIT(A).
The appeal was instituted on 09.03.2018 against the order dated 08.12.2017. Hence, there was delay of 85 days. The assessee contended that it was not able to engage an Authorized Representative to contest the case before CIT(A). The CIT(A) issued notices fixing the hearings on 01.05.2023, 29.05.2023, 15.06.2023 and 23.06.2023 requesting appellant to submit petition for condonation of delay with supporting evidences. However, the appellant did not file any petition or supporting evidence till date of appellate order. Therefore, the CIT(A) held that there was no sufficient cause for delay in filing appeal. He has relied on the decision of Hon’ble Supreme Court in case of Baswaraj and Ors vs. the Sp. Land Acquisition Officer AIR 2014 SC 746 and Anil Kumar Sharma vs. United India Insurance Co. Ld. And Ors. (2015 CPJ 453) (NC). The CIT(A) observed that no condonation petition with supporting evidence were filed in spite of four opportunities given to the appellant.
/AY.2011-12 Runi Impex Therefore, case of the appellant is not covered under sufficient cause provided in the Act for admitting delayed appeal. He, therefore, held that appeal filed by the appellant was not maintainable for being filed beyond the prescribed time limit.
3.1 The CIT(A) has, however, decided the case on merits also, which is at para-5 and 5.1 of the appellate order. He held that appellant failed to disclose the true and correct materials relating to the manufacturing activity from the factory claimed to have been located in SEZ in the original proceedings. The AO did not form his opinion about eligibility of deduction u/s 10AA and fulfilment of the conditions for the said deduction in the original assessment order. Therefore, contention of assessee that there was no new material for reopening as well as there were change of opinion is not correct. The CIT(A) relied on the decision of Hon’ble Supreme Court in case Rajesh Jhaveri Stock Brokers Pvt. Ltd. (Civil Appeal No.2830/2007) and Raymond Woollen Mills, 236 ITR 34 (SC) and rejected the ground of assessee on validity of reopening u/s 147 by issue of notice u/s 148 of the Act. Regarding denial of deduction u/s 10AA of the Act, the CIT(A) found that no manufacturing expenses have been debited despite claim of manufacture of jeweller to the extent of Rs.7,61,86,866/-. He has discussed various related facts in para-7.2 of the appellate order and held that appellant failed to demonstrate with supporting evidences that manufacturing activity was actually carried out by the appellant
Before us, Ld.AR of the assessee filed paper book containing 328 pages. The appellant has also submitted affidavit of Ms. Keval Vanani, partner of the appellant-firm where it was stated that the affairs of the firm were looked after by her. She was not well versed with the income tax laws, Rules, etc. The then accountant, Mr. Chatan Zamrala used to interact with the CA for timely compliance of various provisions of income tax Act. The accountant suddenly resigned from the firm with effect from 31.12.2017 without handing over the charge including pending matters. When assessee got reminders for payment of the outstanding demand, assessee came to know about the order passed by the AO. Thereafter, a new consultant, M/s Akhilesh Bhargava was appointed and appeal was filed. The Ld. AR submitted that the delay is only 85 days which cannot be called as inordinate delay. He submitted that the delay was neither deliberate nor intentional and was due to circumstances beyond the control of assessee. He requested to condone the delay and direct the CIT(A) to decide the matter on merit in accordance with law.
/AY.2011-12 Runi Impex 5. On the other hand, Ld.Sr-DR for the Revenue supported the order of lower authorities. He stated that assessee has been negligent in pursuing the appeal before CIT(A).
We have heard both the parties and perused the materials on record. The Ld. AR has argued that CIT(A) has passed order without giving reasonable and sufficient opportunities of being heard to assessee. In absence of any details, the AO denied the deduction of Rs.1,59,55,195/- as claimed u/s 10AA of the Act. The Ld.CIT(A) confirmed the action of AO by not admitting the appeal, which was filed late by 85 days. The appellant has filed an affidavit giving reasons as to why there was delay in filing the appeal before CIT(A). It is settled law under taxation proceedings that when technical considerations are pitted against cause of substantial justice, the cause of substantial justice may be preferred. However, on overall consideration of the facts in the present case, we find that assessee was negligent in making compliance before AO as well as CIT(A). Still keeping in view the principles of natural justice, the delay in filing appeal before Ld. CIT(A) is condoned subject to payment of Rs.10,000/- (Rupees ten thousand) to District Legal Services Authority, Surat within 15 days from the date of receipt of this order. Original receipt shall be kept in record of this case and copy thereof shall be filed before AO. Considering the fact that we have condoned the delay of appeal before CIT(A) subject to payment of cost, we set aside the order of CIT(A) and restore the matter back to the file of /AY.2011-12 Runi Impex CIT(A) for fresh adjudication after giving reasonable opportunity of being heard to assessee. The appellant is directed to be more vigilant and to make timely compliance of the notices issued by CIT(A). With these directions, the grounds of appeal
raised by the assessee is allowed for statistical purposes.
7. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced under proviso to Rule 34 of the ITAT Rules, 1963 on 03/04/2025 in the open court.