NAKODA GRANITE AND MARMO P.LTD,RAJASTHAN vs. ITO 10(1)(2), MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-21, Mumbai, dated 24.06.2014, which in itself arises from the order passed by the A.O under Sec.144 r.w.s. 263 of the Income tax Act, 1961 (for short ‘Act’), dated 30.10.2006 for A.Y 2001-02. The assessee has assailed the order of the CIT(A) by raising before us the following grounds of appeal: “Under the facts and circumstances of the ease CIT (A) has erred in dismissing the appeal on account of late filing of the appeal and erred in not condoning the delay. CIT (A) has erred in not considering the fact that the addition made by A.O on merits were not maintainable and therefore he should have given due regards to merit as against technical fault of the assessee. CIT(A) has erred in not considering the proposition of supreme court in case of Improvement trust V/S Ujagar Singh supreme court civil appeal P a g e | Nokoda Granite Vs. ITO-10(1)(2) no 2395 of 2008, where it has been held that unless the delay is writ large and assessee has good case on merit the delay should be condoned. CIT (A) has erred in not considering the fact that if the matter was decided on merits the addition made by A.O were to be deleted as per the remand report submitted by AO in respect to the appeal filed. CIT(A) has erred in brushing aside remand report of the A.O called for by him where the AO had admitted that addition could not be made in the year under consideration and merely deciding the appeal on technical Breach. RELIEF CLAIMED 1. Looking to the facts and circumstances of the case the additions made by A.O be deleted and Income be assessed at income of Rs.nil/- as returned by the appellant.

Facts in brief In this case the assessment u/s. 143(3) of the I. T. Act was completed on 31.12.2013 assessing a total income of Rs.Nil after allowing unabsorbed depreciation of Rs.8,40,126/-. Subsequently, the CIT-10, Mumbai finds that the assessee had taken unsecured loans amounting to Rs,.18.24 lakhs from 4 parties for which confirmations were not filed at the time of assessment. Further, the unsecured loans at Rs.38, 70,982/- including Rs.34,500/- from the Director, as per balance sheet also remained to be examined at the time of framing the assessment. Accordingly, the CIT-10, Mumbai passed an order u/s.263 of the I. T. Act and cancelled the assessment order dt.31.12.2003 treating P a g e | Nokoda Granite Vs. ITO-10(1)(2) the same as "erroneous and prejudicial to the interest of revenue. The CIT-10 directed A.O. to make the fresh assessment after allowing the assessee proper opportunity of being heard. 3.1 Accordingly, notices were issued and served upon the assessee. In response to this, the assessee filed some details and thereafter, there was no compliance from the assessee. Therefore, after giving show cause notice, the assessment u/s. 144 r.w.s.263 was completed on the basis of material available on record. On perusal of details and ledger account, the A.O. finds that the cash credit appearing in the books of accounts of the assessee is not genuine one and assessee failed to prove the creditworthiness and genuineness of the creditors. Accordingly, Rs. 18.24 lakhs being unexplained cash was added in total income of the assessee and assessment was completed u/s.144 r.w.s. 263 of the I. T. Acton 30.10.2006 raising a demand of Rs. 10,65,458/-. The assessment order alongwith demand notice were duly served on the assessee. 3.2 Now after period of 6-7 year Assessee preferred an appeal before your honour and submitted details inform of additional evidence. After going through the said details, the opportunity of hearing had given to the assessee and asked to file required details in support of their contention. In response to this, C.A. Mr. Salil Lodha on behalf of assessee attended and submitted required details and explained the matter.

During the course of proceeding the assessee has contended that in the year 2007-08, Mr. Mahendra Kothari purchased the said company and accordingly, changed the old directors. Now the new Director are Mahendra Kothari and Smt. Snehlata Kothari. As per their contention, the assessee company came to know regarding income tax dues only after pressing the recovery of income tax.

On perusal of details submitted by the assessee before your honour and also during the course of remand proceeding, it is seen that no new loan were taken by the assessee during the year and the amount which were added is the closing balance of previous year. The copy of ledger account of all the parties and confirmation thereof were perused and primfacie it appears to be correct. In view of the above, the appeal may be decided on the facts and merit of the case.”

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short ‘A.R’) for the assessee at the very outset submitted that the CIT(A) loosing sight of the specific claim of the assessee that the original assessment order passed under Sec.144 r.w.s 263 of the Act was not received by the assessee, had thus most arbitrarily dismissed the appeal. It was submitted by the ld. A.R that on merits the assessee had a good case as the A.O in his remand report had himself admitted that the amount of Rs.18,24,500/- which was assessed as an unexplained cash credit under Sec.68 in the hands of the assessee pertained to the closing balances of the previous year and no fresh loan was taken by the assessee during the year under consideration. The ld. A.R submitted that the assessee company which was incorporated on 18.01.1995 had its registered office at NH-8, Piparda-Kankoroli, Rajsamand. The ld. A.R further submitted that the assessee had its head office at Badala House, 175/1, Fatehpura, Udaipur and was carrying out its business in Mumbai from 17-1, Mathuradas Colony, Kalina, Santacruz (E). The ld. A.R taking us through the facts of the case (Page 2-6) of APB submitted that the directors of the assessee company were Mr. Sampatlal Badala, Shri Sampat Badala and Smt. Prem Devi Badala (wife of Shri Sampat Badala). It was submitted by the ld. A.R that the aforesaid properties were owned by the directors of the assessee company. Mr. Sampat Badala who owned the property at Mumbai, had allowed an income tax practitioner viz. Mr. N. Shiva Rao who was looking after affairs of the company and filing its returns of income to carry on his profession from the premises of the assessee at 17- 1, Mathuradas Colony, Kalina, Santacruz (E), Mumbai. The ld. A.R submitted that due to heavy business losses suffered by the assessee P a g e | Nokoda Granite Vs. ITO-10(1)(2) company, the aforesaid properties situated at Mumbai and Udaipur were sold by Sh. Sampat Kumar Badala. However, Mr. N. Shiva Rao continued to file the returns of income of the assessee company mentioning the aforesaid Mumbai address. The business of the assessee company was sold in the year 2007-08 to Mr. Mahindra Kothari and Smt. Snehlata Mahindra Kothari, who as the new directors substituted the old directors, with an understanding from the latter that all pending income tax work would be completed till the year 2009-10 and no disputed amount would be payable after that date. It was submitted by the ld. A.R that in the backdrop of the aforesaid facts Mr. N. Shiva Rao gave an undertaking to the directors of the assessee company that he would clear all the pending income tax matters of the assessee company. The ld. A.R submitted that during the absence of the aforesaid directors of the assessee company, viz. Sampat Kumar Badala, Shri Sampatlal Badala and Smt Prem devi Badala from Mumbai, the correspondences pertaining to the assessment proceedings which were initiated by the A.O under Sec.143(2) pursuant to the directions given by the CIT under Sec.263 were probably served on Mr. N. Shiva Rao, however the same were never communicated to the aforesaid directors of the assessee company. It was submitted by the ld. A.R that in the backdrop of the aforesaid facts assessment was framed by the A.O under Sec.144 treating the entire outstanding balance of Rs.18,24,500/- as an unexplained cash credit under Sec.68 in the hands of the assessee. It was submitted by the ld. A.R that as the property of the assessee at Mumbai viz. 17-1, Mathuradas colony, Santacruz (E), Mumbai, was sold by the old directors of the assessee company in the year 2005, therefore, the revised assessment order passed by the A.O on 30.10.2006 at the said Mumbai address of the assessee was not received by the said directors, as they were no more available at the said address. It was further submitted by the ld. A.R that not only the representative of the assessee Mr. N. Shiva Rao had failed in communicating the notices which were received from the department, but even the A.O had erred in failing to appreciate that as all the correspondences of the assessee with the CIT-10, Mumbai in the course of the revision proceedings, as well as the order passed by him under Sec.263 clearly mentioned the registered P a g e | Nokoda Granite Vs. ITO-10(1)(2) office address of the assessee, viz. NH-8, Piparda-Kankoroli, Rajsamand, Rajasthan, therefore, there was no reason for him to have passed the order under Sec. 144 r.w.s. 263 at the Mumbai address of the assessee company viz. 17-1, Mathuradas Colony, Kalina Santa Cruz (E), Mumbai. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that as the assessment order was passed on the wrong address, therefore, the same was never communicated to the assessee. The ld. A.R in order to impress upon us that the A.O had passed the order under Sec. 144 r.w.s. 263 at a wrong address, as well as the fact that the revenue was well aware of the fact that the directors of the assessee company viz. Sh. Sampatlal Badala, Sh. Sampat Badala and Smt. Prem Devi Badala were available at the registered office address of the assessee company viz. NH-8, Piparda Rajsamand, Rajasthan, took us through a chart which was filed during the course of the proceedings before us, as under:

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find from a perusal of the order passed by the CIT(A) that the appeal of the assessee was dismissed by him for the reason that the same involved a delay of a period of more than six years. We have deliberated on P a g e | Nokoda Granite Vs. ITO-10(1)(2) the facts in context of the impugned delay in filing of the appeal by the assessee before the CIT(A). We find that as averred by the ld. A.R and on the basis of the facts gathered from the affidavit of Smt. Sneh lata Mahindra Kothari, director of the assessee company (with effect from 19.02.2008), the earlier directors of the assessee company viz. Shri Sampatlal Badala, Shri Sampat Badala and Shri Prem Devi Badala had due to heavy business losses suffered by the assessee company had resigned as directors and had walked out of the business and transferred the same to Shri Mahindra Kothari and Smt. Sneh Lata Kothari, who were inducted as the new directors of the company. We find that as Shri Sampat Badala had sold his property at Mumbai from where the company was earlier functioning, viz. 17-1 Mathuradas Colony, Kalina, Santacruz (E) in the year 2005, thus there could have been no occasion for the assessee to have received the order passed by the A.O under Sec.144 r.w.s. 263, dated 30.10.2006 at the address which was mentioned by the A.O in the assessment order. We are of the considered view that the CIT-10, Mumbai being aware of the fact that the directors of the assessee company were no more available at the aforementioned address viz. 17-1 Mathuradas Colony Kalina, Santacruz (E), had thus passed the order under Sec.263 dated 12.07.2005 at the registered address of the assessee company, viz. NH-8, Piparda-Kankoroli, Rajsmand, Rajasthan. We find it beyond comprehension that now when the order was passed by the CIT-10, Mumbai at the registered address of the assessee company at NH-8, Piparda Rajsamand, Rajasthan, thus there could be no valid reason on the part of the A.O to have passed the order under Sec. 144 r.w.s 263 at the Mumbai address of the assessee, viz. 17-1, Mathuradas Colony Kalina, Santacruz (E). We thus, are of the considered view that as the A.O had passed the assessment order under Sec. 144 r.w.s. 263 making a wrong mention of the address of the assessee, which as observed by us hereinabove was clearly in contradiction of the address at which the order under Sec.263 was passed by the CIT-10, Mumbai, thus the probability that the assessment order was not served on the directors of the assessee company, in the absence of any material proving to the contrary, cannot be ruled out. We may herein observe that even during the course of the hearing P a g e | Nokoda Granite Vs. ITO-10(1)(2) of the appeal before us the ld. D.R had failed to place on record any such material which could conclusively prove to the hilt that the assessment order passed by the A.O under Sec. 144 r.w.s. 263, dated 30.10.2006 was validly served upon the assessee. We are of a strong conviction that in the backdrop of the aforesaid facts it emerges that the assessment order passed by the A.O under Sec.144 r.w.s. 263 was not served on the assessee company. Rather, it was only after the new tax consultant of the assessee company was made aware of the outstanding tax liability, that at his request a copy of the assessment order was made available to him. We thus, are of the considered view that it can safely be concluded that as the assessment order was made available to the assessee only as on 20.02.2013 (as deposed by the director in her affidavit), thus the appeal filed by the assessee with the CIT(A) on 06.03.2013 was well within the stipulated time and did not involve any delay. Before parting, we may herein observe that as observed by us hereinabove, no material had been placed on record by the ld. D.R which could have persuaded us to conclude that the order passed by the A.O under Sec. 144 r.w.s. 263, dated 30.10.2006 was earlier validly served on the assessee.

We thus, in the backdrop of the aforesaid facts restore the matter to the file of the CIT(A) with a direction to readjudicate the issue on merits. We may herein observe that as the matter has been set aside by us for fresh adjudication, thus we refrain from adverting to the merits of the case.

The appeal of the assessee is allowed for statistical purposes.