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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri K. Narasimha Chary, JM]
ORDER Per Shri K. Narasimha Chary, JM:
This appeal by assessee is arising out of order of CIT(A)-III, Kolkata vide appeal No. 430/CC-XXIII/CIT(A)C-III/2006-07/Kol dated 24.01.2013. Assessment was framed by ACIT, CC-XXIII/Kolkata u/s. 144 of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2003-04 vide his order dated 31.03.2006.
Briefly stated facts are that the assessee is a partnership firm engaged in trading of timber. Assessee filed its return of income on 1.12.2003 declaring the total income of Rs.52,140/-. However, in spite of notices under section 143(2) and 142(1) of the Act, none appeared on behalf of the assessee, as such the AO completed assessment u/s 144 of the Act, adding a sum of Rs. 19,28,242/- by treating the loans as cash credits under section 68 of the Act and disallowing the interest claimed as expenditure to a tune of Rs. 1,11,448/-. Matter was carried in appeal to the CIT(A), who by way of impugned order, dismissed the same.
Challenging the impugned order, the assessee preferred this appeal before us on the following grounds: “1.) That the CIT(A) having admitted that assessment order shows issue of notices u/s.143(2) & 142(1) is wrong in holding that appellant has not brought anything on record to suggest that such notices were not served on it and thereby sustaining the ex parte order u/s.144 passed by A.O.
Shree Mahabir Timber Works, AY 2003-04 2.) That the observation of Ld. CIT(A) that the appellant has failed to prove creditworthiness of the loan of creditors and thereby sustaining addition of Rs.19,28,242/- u/s.68 is erroneous and arbitrary since the assessment u/s. completed ex parte without allowing opportunity of hearing. 3.) That on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm the disallowance of interest of Rs.l,11,448/- is erroneous and arbitrary for the same reason as in ground no.2.”
It is the argument of the learned AR that no opportunity was given to the assessee during the assessment proceedings and the order passed under section 144 of the Act is an ex parte one. Even during the first appellate stage also, the learned CIT failed to note that the additions made by the AO are purely based on surmises and conjectures inasmuch as the details of the unsecured creditors do not contain the name of one Sulali Agarwal or the amount of Rs.7,50,000/- and it is not known wherefrom the AO gather such name and figures. Submitting that the proceedings before the AO and the first appellate authorities are without notice to the assessee, learned AR prayed to allow the appeal, deleting the additions made to their income. On the other side, learned DR submits that the notices sent to the assessee were returned unclaimed and the authorities had no option but to proceed in the absence of the assessee.
Point that arises for our consideration is whether the authorities are justified in making additions to the income of the assessee.
Pursuant to his arguments, learned AR took us to the schedule of unsecured loans appended to the balance sheet and submits that there is no name of Sulali Agarwal in this list. So also he has taken us to the Annexure VI wherein the particulars of each loan or deposit taken or accepted. In this list also the name of Sulali Agarwal is not to be found. Basing on this he submits that the assessment proceedings are not proper and without notice to the assessee, resulting in miscarriage of justice, as such additions made in such proceedings are liable to be deleted.
We have heard rival submission and on a careful consideration of the matter and going through the Assessment Order and First appellate order, it seems that notices were issued to the assessee, but there was no response. Learned AR submits that there is a labour related problem in the premises of the assessee due to which no communication was received by them about the pending proceedings. He submits that now the things are clear
Shree Mahabir Timber Works, AY 2003-04 and he undertook across the bar that the assessee would cooperate with the department in the proceedings.
Further, as could be seen from the documents that were filed along with the return, the name of Sulali Agarwal is not to be found in any of the list of creditors. It is not known where from this name and figures were gathered. Learned CIT failed to consider this aspect, but proceeded on the ground that since the assessee did not enter any appearance either before the AO or before him, the claim of the assessee was not accepted. Since this is a verifiable fact, the matter requires verification. By ordering such verification the highest that would happen is that a cause could be decided on merits, in stead of rejecting a rightful claim on technical considerations. When the technicalities are pitted against the possibility of delivery of substantial justice, it is always in the interest of justice to prefer the later to the former. With this view of the matter, we are inclined to set aside the matter to AO for fresh disposal. We make it amply clear that it is the last opportunity to the assessee to seek appropriate relief by cooperating with the AO. Issue is answered accordingly. The Ld. AO is also directed not to make any addition in respect of opening balance of loan creditors u/s. 68 of the Act. In respect of amounts received from loan creditors during the year as per audited Balance sheet, the assessee is directed to adduce all evidences in support of its claim to prove the veracity of the parties.