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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
ORDER PER N.K. SAINI, A.M. This is an appeal by the assessee against the order dated 11.05.2010 of the ld. CIT(A)-IV, New Delhi.
Following grounds have been raised in this appeal:
“1. The entire order of the Commissioner of Income Tax (Appeals)-IV [‘CIT(A)’] is based on conjectures, surmises, incorrect application of law and erroneous assumptions and is hence liable to be quashed. 2. The CIT(A) has not followed principles of natural justice while passing the impugned order without 2 CRA Exploration (India) Pvt. Ltd. granting adequate opportunity to the Appellant to present its case, while upholding the assessment order passed by the Assistant Commissioner of Income Tax, Circle 3(1), New Delhi [‘AO’].
That the CIT(A) has grossly erred in facts and law in upholding the order of the AO in disallowing the business expenditure of the Appellant and not considering the same in the normal course of business.
4. That the CIT(A) has grossly erred in facts and law in upholding the order of the AO in not appreciating the nature of business of the Appellant and holding that the entire expenditure should be capitalized.
5. That the CIT(A) has grossly erred in facts and law in upholding the order of the AO in not appreciating that the Work-in-Progress (‘WIP’) represents actual expenditure incurred by the appellant in connection with exploration studies carried out and thus the provision made is an allowable expense.
6. That the CIT(A) has grossly erred in facts and law in upholding the order of the AO, in stating that the appellant has not commenced its business.
7. That the CIT(A) has grossly erred in facts and law in upholding the order of the AO, in examining the commencement of business issue again as the issue has been already decided in the assessment year 2001-02 by the AO himself.
3 CRA Exploration (India) Pvt. Ltd.
8. That the CIT(A) has grossly erred in facts and law in upholding the order of the AO, in considering insufficiency of income as a criterion for deciding the commencement of business and consequently disallowing deduction of legitimate business expenditure.
9. That the CIT(A) has grossly erred in facts and law in upholding the order of the AO, in taxing the ‘Liabilities Written back’ when the entire expenses incurred by the Appellant had been disallowed as capital expenditure.
That the CIT(A) has grossly erred in facts and law in upholding the order of the AO, which itself was a non-speaking order based on conjectures, surmises, incorrect application of law and erroneous assumptions. The above grounds are mutually exclusive and without prejudice to each other. The appellant craves leave to add, alter, amend, modify or withdraw any one or more of the above grounds of appeal
.”
3. The main grievance of the assessee vide Ground No. 2 relates to the opportunity not being granted by the ld. CIT(A) while passing the impugned order.
Facts of the case in brief are that the assessee filed the return of income on 19.11.2003 declaring a loss of Rs. 4,75,88,420/- which was processed u/s 143(1) of the Income 4 CRA Exploration (India) Pvt. Ltd. Tax Act, 1961 (hereinafter referred to as the Act) on 15.03.2004. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had debited total operating expenses of Rs. 4,77,00,577/- and only credited Rs. 1,21,162/- towards liabilities no longer required, written back. The AO also noticed that out of the total expenses of Rs. 4,77,00,577/- a sum of Rs. 4,72,73,172/- had been transferred to work-in-progress. He asked the assessee to explain as to why the provision for work-in-progress should not be disallowed. It is claimed that the assessee brought to the notice of the AO that its business was fully operational during the year under consideration and it had received Government approvals (Reconnaissance Permits) for carrying the activities of searching for all or any diamond, gold and other associated minerals lying with in the area for which permit had been granted. The AO did not find merit in the submissions of the assessee by observing that no payment had been made towards salary, wages and no depreciation was claimed on fixed assets which indicated that there was no business activity conducted by the assessee during the year under consideration. He further observed that the expenditure was incurred by the assessee 5 CRA Exploration (India) Pvt. Ltd. for carrying on the research to discover new mines and minerals which was capital in nature. He, therefore, disallowed a sum of Rs. 4,77,00,577/- and worked out the taxable income at Rs. 1,12,162/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who passed the ex-parte order by observing that the opportunities were provided to the assessee on 17.10.2007, 19.11.2007, 16.04.2009, 21.12.2009 and 03.05.2010 and that the assessee did not provide any submissions or documents during the course of appellate proceedings except the submission made at the time of filing the appeal. The ld. CIT(A) also mentioned that it was the submission of the assessee that its business was fully operational during the year and it had entered into various business agreement to carry out its business activity. The ld. CIT(A) dismissed the appeal of the assessee by passing the ex-parte order observing therein as under:
“After going through the facts of the case and the observations of the Assessing Officer it is observed that specific instances had been pointed out by the Assessing Officer indicating that there were no business receipts during the year and there was no claim with regard to expenses like salaries, wages, depreciation etc. The AR of the 6 CRA Exploration (India) Pvt. Ltd. appellant has not controverted the findings of the Assessing Officer and has only relied on the argument that certain agreements had been entered into by the appellant for conducting business activities. Further the specific observations of the Assessing Officer that the amount claimed was in the nature of a provision and could therefore not be allowed as an expense has also not been controverted by the appellant. Further the appellant has been provided a large number of opportunities to provide explanations and details in support of its contentions. Despite these opportunities no further submissions or documents have been provided even during the appellate proceedings. Keeping in view the circumstances and facts of the case I am inclined to agree with the observations of the Assessing Officer. Accordingly these grounds of the appellant are dismissed.”
Now the assessee is in appeal. During the course of hearing the ld. Counsel for the assessee submitted that the notice of hearing was not received by the assessee and the ld. CIT(A) without considering the facts in right prospective and without discussing submission of the assessee, confirmed the action of the AO. He requested to restore the case back to the file of the ld. CIT(A).
In her rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that 7 CRA Exploration (India) Pvt. Ltd. there was no business activity conducted by the assessee, therefore, the expenses claimed by the assessee were rightly added by the AO and the ld. CIT(A) was fully justified in confirming the addition made by the AO.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the ld. CIT(A) mentioned in the impugned order that many opportunities were provided to the assessee. However, it is not brought on record as to whether the notice for hearing on 03.05.2010 was served upon the assessee or not. It is also noticed that the ld. CIT(A) mentioned in the impugned order that the assessee primarily argued that its business was fully operational during the year and it had entered into various business agreement to carry out its business activity. However, it is not brought on record that what were the details of various business agreements. In the present case, the ld. CIT(A) has taken a contradictory stand, on the one hand he stated in the face of the impugned order that nobody was present for the assessee or the department. On the other hand, he stated at page no. 3 of the impugned order that the Authorized Representatives of the assessee argued that the assessees business was fully operational. So, it is not clear as to whether any person 8 CRA Exploration (India) Pvt. Ltd. represented the case of the assessee before the ld. CIT(A) or not. It is well settled that nobody should be condemned unheard as per the maxim “audi alteram partem”. We therefore, considering the totality of the facts of the present case, deem it appropriate to set aside this case back to the file of the ld. CIT(A) to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. We also direct the assessee to cooperate and not to seek undue and unwarranted adjournments.
In the result appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 15/10/2015).