MAYUR GLOBAL PRIVATE LIMITED ,JAIPUR vs. ITO WARD 1(3), JAIPUR , JAIPUR

Brief facts apropos to this application are as follows:- The asseessee company is subsidiary company of Mayur Leathers products Pvt. Ltd. (hereinafter referred as the holding company) and the office of both the holding company and Assessee Company is at the same premises i.e. F26A, RIICO INDUSTRIAL AREA, MANPURA MACHEDI, TEHSIL AMER, JAIPUR-303805 At the outset we submit that the staff of the holding company used to manage the administrative and business operations of the assessee company. Further we submit that the holding company availed a credit facility from CANARA BANK (hereinafter referred as the bank) and the assessee company provided corporate guarantee. Further it is pertinent to mention that both the holding and assessee company started facing financial difficulties from the financial year 2016-17 and the situation turned worse when the bank has classified the account of the holding company as Non- Performing Assets (NPA) on 28/02/2023. Thereafter, the bank issued notice u/s 13(2) of the SARFAESI Act to the holding company on 01/03/2023 and further issued notice u/s section 13(4) of the SARFAESI Act on 12/06/2023 and took possession of the mortgaged properties of the holding company and Assessee Company as well. As a result, the office premises of both the companies went into possession of the bank from the said date. And all the actions against the holding company by the bank the assesssee company which is subsidiary company also getting directly Mayur Global Pvt. Ltd. vs.ITO affected. And it is noteworthy that the holding company has filed an application under Section 10 of IBC Code with NCLT Meanwhile, seeing that the company is facing financial crises and unable to pay salaries and bank accounts also become NPA, the staff of the holding company, which was also used to manage all the functions of assessee company, stopped coming to the office and left their jobs and there were no one to look after the administrative functions and the business operations of the company as the owners and upper management were busy in saving the assets of the company, which were put into the auction process by the bank. In this case it is pertinent to mention that the assessee company filed an appeal before the Ld. CIT (A) and the order to this appeal was passed on 10/02/2023 and sent to the mail id of the company i.e. mip@mayurleather.com and, neither the management of the assessee company was aware about the order nor the staff informed them. It is also apposite to mention that the aforesaid e-mail id was operated by the staff of the company only. Further it is pertinent to mention that the management of the company got aware about the impugned order dated 10/02/2023 passed by the Ld. CIT (A), when the director of the company received a call from the income tax department for recovery of tax/outstanding demand in the month of June 2024. Further we submit that both the companies are still facing harsh proceedings under SARFAESI Act and some of the assets of the companies has been auctioned and some are still on the verge of auction. Hence from the above stated factual situation it is clear that the assessee company has sufficient reasons for delay in filing instant appeal.

That after the director of the company received a call from the income tax department for recovery of tax/outstanding demand in the month of June 2024, the management came to know about the impugned order dated 10/02/2023 and requested their counsel to prepare this instant appeal to seek justice thereafter, the counsel prepared the appeal and filed before your Honour's on 27/06/2024.

Thus as the matter is unique itself therefore nobody could understand what should be done in this situation therefore there was Mayur Global Pvt. Ltd. vs.ITO no negligence's of either assessee nor the counsels. Thus due to the above the appeal could not be filed within time. In support of these contention an affidavit of a director is enclosed.

It is submitted that the Hon'ble Supreme Court in the case of Collector, Land & Acquisition v. Mst. Katiji& Others (1987) 167 ITR 471 (SC) has advocated for a very liberal approach while considering a case for condonation of delay. The following observations of the Hon'ble Court are notable: "The legislature has conferred the power to condone delay by enacting section 5 of the Limitation Act 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits'. The expression sufficient cause' employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of Justice-that being the life-purpose of the existence of the Institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But, the message does not appear to have percolated down to all the other Courts in the hierarchy." The said judgment is a leading case on the subject and has a binding force on all the officers subordinate thereto.

Further in the case of Vijayeta Buildcon (P.) Ltd.v.Assistant Commissioner of Income Tax, Central Circle-01, Jaipur Dated :OCTOBER 27, 2020 Hon'ble ITAT JAIPUR condone the delay of 654 days and held that:- "It has been further stated that the matter came to light of the present management on 11-7-2018 when an enquiry was made by the Assessing officer for payment of outstanding demand and thereafter, the appeal papers were prepared and appeal was submitted before the Registry on 20-8-2018 though with a delay of 654 days. We therefore find that there is no culpable negligence or malafide on the part of the assessee company in delayed filing of the present appeal and as soon as it came to know of the old tax matter pertaining to the period prior to change of the management, It took steps and filed the present appeal. Therefore, in the factual matrix of the present case, we find that there exists sufficient and reasonable cause for condoning the delay in filing the present appeal and as held by the Hon'ble Supreme Court, where substantial justice and technical considerations are pitted against each Mayur Global Pvt. Ltd. vs.ITO other, the cause of substantial justice deserved to be preferred. Therefore, in exercise of powers under section 253(5) of the Act, we hereby condone the delay in filing the present appeal as we are satisfied that there was sufficient cause for not presenting the appeal within the prescribed time and the appeal is hereby admitted for adjudication on merits."

The action or inaction by an assessee, on the advice of its counsel, whether correct or Incorrect, if caused a delay, has been held to be reasonable and sufficient cause in these cases also. Kindly refer N. Balakrishnan v. M. Krishna Murthy(1998) 7 SCC 123 published in 30 BCAJ 922, Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi and Anothers 118 ITR 507. That it is also settled that for the mistake of the Counsel, the party cannot be suffered. Reliance on Mahaveer Prasad Jain v/s CIT, 172 ITR 331(MP), Concord India Insurance Co. Ltd v/s Smt. Nirmala Devi, 118 ITR 507(SC), Kripa Shankar v/s CIT/CWT 181 ITR 183(All), N. Balakrishnan v/s M. Krishanmurthy 7 SSC123.

The Hon'ble Jaipur Bench of ITAT has also condoned the delay in the case of Ganesh Himalaya Pvt.Ltd. v. ACIT 22 Tax World 415 (3p) where the filing was delayed because the son of the Managing Director had become victim of some misdeeds committed by the Holigans, particularly when on the similar points in the earlier four years, the appeals were filed in time. In the instant case also, the appeal could not be filed in time because of the above reasons and time taking a various process which were bonafide and was a sufficient cause and there was no melafide intention.

Recent Decision of Apex Court in a recent decision, the apex court have again reiterated that the expression "sufficient cause" should receive a liberal construction. The Hon'ble court have also held that advancing of substantial justice should be of prime importance. Kindly refer Vedbai VS. Shantaram Baburam Patil& Others 253 ITR 798 (SC). Prayer: In view of above facts and circumstance and with the sympathy and settled legal position, the delay so caused may kindly be condoned.”

The fact as culled out from the record is that the assessee company is engaged in the business of manufacturing of leather shoes and shoes uppers in the domestic market. The return of income in this case was e-filed on 30/09/2015 declaring total income at Rs.39,88,350/- which was processed u/s 143(1) of the IT Act, 1961. The case was selected for limited scrutiny under the Mayur Global Pvt. Ltd. vs.ITO CASS. Accordingly, notice u/s 143(2) issued on 26/07/2016, fixing the case for hearing on 18/08/2016. The notice was served upon the assessee through speed post. In compliance to the said notice, the ld. AR of the assessee attended. During assessment proceeding the ld. AO noted from the balance sheet of the assessee, the assessee has made investment of Rs.1,26,25,464/- and expenditure income of Rs.7,63,417/- due to dividend received and Rs. 5,03,712/- profit on sale of share also claimed. On the other hand, the assessee had debited interest expenses of Rs.22,95,858/- in its profit and loss account. There is a nexus between expenditure made and investment made by the assessee. Additionally, managerial / administrative cost of making the above investment cannot be denied. Regarding the investments made, it is evident that the assessee has made certain investments during the period under consideration to generate exempt income there from and also claimed some expenses which were shown as deductions from the taxable income of the assessee. This is against the basic principle of the taxation to pay tax on the net income i.e. gross income minus expenses to earn that income. Expenses incurred can be allowed only to the extent they are relatable to the taxable income. As per show cause notice, the Mayur Global Pvt. Ltd. vs.ITO assessee was asked to explain as to why disallowance u/s 14A be not made. Assessee did not file any reply on the issue. Consequently ld. AO made addition u/s 14A of Rs.5,44,650/-. After receipt of the order the assessee preferred an application u/s. 154 of the Act stating that the view taken by the ld. AO is incorrect as the assessee has offered the dividend and profit on sale of share as income only the consequential disallowance u/s. 14A cannot be made when the assessee has not claimed any exempt income. Therefore, an application u/s. 154 of the Act was preferred by the assessee which was rejected by the ld. AO by an order dated 12.03.2018.

Aggrieved from the above order of the Assessing Officer the assessee preferred u/s. 154 of the Act the assessee preferred an appeal before the ld. CIT(A). After perusing the submissions of the assessee, the ld. CIT(A) has dismissed the appeal of the assessee. The relevant finding of the ld. CIT(A) is as under:-

We are enclosing computation of Total income for the Income Tax Return filed by the Assessee for A.Y 2015-16 in which the return is filed on Total Income including the following Exempted Incomes.

Dividend Income Exempt u/s 10(34). Rs.763417/- 2. Profit on Sales of Shares- LTCG Exempt u/s 10(38) Rs.503712/- The assessee had not claimed benefit of Exempted Incomes in the Income Tax Return filed for A.Y 2015-16. We are also enclosing Profit & Loss Account of Assessee which will make it clear that IT Return is filed on Total Income which includes Exempted Incomes also. 03) We are enclosing Revised Computation of Total Income after making disallowance u/s 14A of IT Act, 1961 and simultaneously claiming benefit of Exempted Incomes u/s 10(34) & 10(38) of IT Act, 1961. We request you to please appreciate the fact if disallowance u/s 14A is made then assessee is entitled to claim benefit of Exempted Incomes." The Assessing Officer while rejecting the petition u/s 154 has stated as under: "On verification of assessment record it is found that assessee has not claimed above exemption in the return of income. Assessee also not claimed the above exemptions during the course of assessment proceeding, even when show cause notice issued regarding disallowance of interest u/s 14A of I.T. Act. Hence, the assessee claim is not acceptable as the mistake not being apparent on the face of the record. However, assessee has filed a revised computation along with application u/s 154, but same is not being considered as neither the exemption claimed in return nor brought to notice during the assessment proceeding.

The ld. AR of the assessee submitted that when there is no income which is claimed as exempt income there cannot be any disallowance u/s. 14A of the Act and this mistake being apparent Mayur Global Pvt. Ltd. vs.ITO on record is required to be rectified and the view taken by the lower authority is against the fact that the assessee has not claimed any exempt income. Thus, the mistake being apparent on record is required to be corrected as per provision of section 154 of the Act.

Per contra, the ld. DR supported the order of the ld. CIT(A). She also stated as there is no mistake apparent on record there is no merit in the appeal so filed by the assessee.

We have heard both the parties and perused the materials available on record. The appeal of discord in this case the assessing officer considered that the income so offered in the profit and loss account filed by the assessee is having dividend income and share of profit on shares. These incomes are in the nature of exempt income he computed the disallowance as per provisions of section 14A of the Act. The assessee was given show cause notice but assessee could not response the ld. AO disallowed the amount as per provision of section 14A of the Act. The assessee preferred an application u/s. 154 of the Act which was rejected on the pretext that the assessee could not brought to the contention during the assessment proceeding and consequently the Mayur Global Pvt. Ltd. vs.ITO rectification application was rejected. The ld. AO on this aspect seems to be too technical when the assessee categorically submit that the income which the ld. AO considered as exempt is already taxed in the hands of the assessee. The relevant facts as is appearing on record shows as under:-