M/S. WORLD TRADE IMPEX LTD.,,BARODA vs. THE ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE-5,, BARODA

आदेश/O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER:

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1. That on facts and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs.70,50,096/- made in respect of cessation of liability u/s.41(1) of the Act.

2. That on facts, and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs.17,62,097/- in respect of difference in balances of following parties. (i) M/s.IPCL Baroda Rs.33,153/- (ii) BASF Styrenics P Ltd Rs.5,74,658 (iii) Swati Processors Rs.11,54,286/- Rs.17,62,097/-

3. That on facts, and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs.55,43,026/- made on account of alleged inflated purchases.

4. The appellant craves leave to add, alter, amend any ground of appeal.

3. At the outset, we note that there was a delay of 7 years and 3 months in filing the appeal by the assessee. There was a condonation petition and affidavit filed by the assessee. The reasons specified therein for the delay was that it has filed the CO bearing Co. No. 87/AHD/2009 originally against the appeal filed by the Revenue bearing No. 731/AHD/2009 which was dismissed due to low tax effect by the ITAT vide order dated 16-12-2015 and consequently, the CO in the same order was also dismissed by observing that the CO was supportive, though it had independent objections. Thereafter, the assessee filed the appeal belatedly raising the same contentions as raised in the CO discussed above. In view of the above, the Ld. AR for the assessee before us submitted that the delay in filing the appeal occurred due to unavoidable situations. Therefore, the delay in filing the appeal should be condoned. The relevant extract of the delay application dated 25-05-2016 filed by the assessee is extracted as under: That the assessee above-named has filed an appeal before the ITAT for the above A.Y. The order of CIT(A) was received on 07.01.2009 by the assessee. Hence, the last date of filing the appeal was 08.03.2009. However, the appeal is being filed now, resulting in a delay of about 7 years and 3 months.

The delay has occurred due to the following reason. According to the order of CIT(A) dated 16/12/2008, the addition of low gross profit was deleted and the remaining additions were confirmed. The Department had filed a second appeal before the Hon'ble ITAT being ITA.NO. 731/Ahd/2009. The assessee had received the Form No. 36 and grounds of appeal filed by before the Department on 17/04/2009. Thereafter, filed cross objection Hon'ble ITAT on the in Form No. 36A 15/05/2009 being C.O. No.87/Ahd/2009 which was within 30 days of receipt of appeal filed by the Department, as permissible by the Act.

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However, recently the appeal filed by the Department 1.8 dismissed vide a consolidated order dated 16/12/2015 as not maintainable due to low tax effect of CBDT Instruction bearing No. dated 10/12/2015. are 21/2015 The details of present assessee mentioned at Sr. No. 114 6 115 of the said order. Vide para 8 on page 7 of the said order, the Hon'ble ITAT has also held that the cross objections filed in seven cases as also dismissed are the appeal filed by the Department is dismissed as not maintainable and not admitted. It is further held that the cross objections are merely supporting the conclusion of the CIT (A) and does not require any adjudication by the Hon'ble Bench.

However, it is respectfully submitted that the grounds raised in the CO filed by the assessee are not merely supportive in nature, but raise independent grounds of appeal on the issues which were decided against the assessee by the order of CIT(A). Further, the CO was also filed within time. However, stated above, now the appeal of Department and CO are dismissed in view of CBDT Instructions. Hence, the present appeal is being filed wherein the grounds of appeal raised are exactly identical to the grounds raised in the above CO filed earlier. The above order of ITAT received by the assessee on 26/04/2016.

Hence, the delay has occurred due to the Bonafide reasons stated as above, and for reasons beyond the control of the assessee, and hence, in the interest of justice, it is humbly requested that the delay may kindly be condoned, and the appeal be heard on merits, and oblige.

639/Ahd//2012 A.Y. 2003-04 4 5.1 From the above, we note that the Hon’ble Madras High Court was pleased to condone the delay for 20 years approximately by holding that there was sufficient and reasonable cause on the part of the assessee for not filing the appeal within the period of limitation. Thus, the delay in the instant case is just 7 years and 3 months which cannot be inordinate or excessive in comparison to the delay of 20 years approximately.

5.2 The next controversy arises what is the sufficient cause, it has not been defined anywhere under the Act but refers to an occasion which is beyond the control of a normal person. What is beyond the control of a person, the test of reasonable approach under normal circumstances should be applied. As such no hard and fast rule can be applied to figure out whether there was sufficient cause for the delay. It depends upon a case-to-case basis. However, the Hon’ble Courts in the series of judgements have held that while condoning the delay the expression of sufficient cause should be construed for advancing substantial justice to the party concerned. For evaluating sufficiency of cause and then, for deciding condonation of delay, following principles laid down by Hon'ble Apex Court in the case of Mst. Katiji (167 ITR 471) should be kept in mind: (i) Ordinarily, a litigant does not stand to benefit by lodging an appeal late. (ii) Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. (iii) "Every day's delay must be explained" does not mean that a pedantic approach should be taken. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common-sense pragmatic manner. (iv) When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of anon-deliberate delay. (v) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. (vi) It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing in justice and is expected to do so 639/Ahd//2012 A.Y. 2003-04 5 5.3 From the above judgment of the Hon’ble Apex Court, we note that the substantial justice deserves to be preferred rather than deciding the matter based on technical defects.

5.4 It is trite law that where a case has been presented in the Court beyond limitation, the petitioner has to explain the Court as to what was the "sufficient cause" which means an adequate and enough reason which prevented him to approach the Court within limitation as held by Hon’ble Supreme Court in the following cases: (a) Basawaraj v. Land Acquisition Officer, (2013) 14 SCC 81: "9. Sufficient cause is the cause for which the defendant could not be blamed for his absence. The meaning of the word "sufficient" is "adequate" or "enough", in as much as may be necessary to answer the purpose intended. Therefore, the word "sufficient" embraces no more than that which provides a platitude, which when the act done suffices to accomplish the purpose intended in the facts and circumstances existing in a case, duly examined from the viewpoint of a reasonable standard of a cautious man. In this context, "sufficient cause" means that the party should not have acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case or it cannot be alleged that the party has "not acted diligently" or "remained in active". However, the facts and circumstances of each case must afford sufficient ground to enable the court concerned to exercise discretion for the reason that whenever the court exercises discretion, it has to be exercised judiciously. The applicant must satisfy the court that he was prevented by any "sufficient cause" from prosecuting his case, and unless a satisfactory explanation is furnished, the court should not allow the application for condonation of delay. The court has to examine whether the mistake is bona fide or was merely a device to cover an ulterior purpose. (See Manindra Land and Building Corpn. Ltd. v. Bhutnath Banerjee (AIR 1964 SC 1336 Mata Din v. A. Narayanan [(1969) 2 SCC770),Parimal v. Veena [(2011) 3 SCC 545] and Moniben Devraj Shah v. Municipal Corpn.of Brihan Mumbai (2012) 5- SCC 157].)”

(b) Ajay Dabre v. Pyare Ram 2023 SCC Online SC 92: ‘13. This Court in the case of Basawaraj v. Special Land Acquisition Officer while rejecting an application for condonation of delay for lack of sufficient cause has concluded in Paragraph 15 as follows: "15. The law on the issue can be summarised to the effect that where a case has been presented in the court beyond limitation, the applicant has to explain the court as to what was the "sufficient cause" which means an adequate and enough reason which prevented him to approach the court within limitation. In case a party is found to be negligent, or for want of bona fide on his part in the facts and circumstances of the case, or found to have not acted diligently or remained inactive, there cannot be a justified ground to condone the delay. No court could be justified in condoning such an inordinate delay by imposing any condition whatsoever. The application is to be decided only within the parameters laid down by this Court in regard to the condonation of delay. In case there was no sufficient cause to prevent a litigant to approach the court on time condoning the delay without any justification, putting any condition whatsoever, amounts to passing an 639/Ahd//2012 A.Y. 2003-04 6 order in violation of the statutory provisions and it tantamounts to showing utter disregard to the legislature." 14. Therefore, we are of the considered opinion that the High Court did not commit any mistake in dismissing the delay condonation application of the present appellant.

5.5 Thus, it is crystal clear from the above legal proposition that the discretion to condone the delay has to be exercised judiciously based on facts and circumstances of each case. We also note that the Hon’ble Gujarat High Court in the case of Vareli textile industry versus CIT reported in 154 Taxman 33 has held as under: It is equally well-settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on merits.

5.6 From the above, it is transpired that a meritorious case of the assessee should not be thrown away due to negligence or on account of technical lapses.In the light of the above stated discussion, we proceed to evaluate whether the delay in the present case needs to be condoned in the given facts and circumstances. Considering the reasons for the delay discussed above, we are of the opinion that it is the fit case where the delay has to be condoned irrespective of the duration/period of the delay. In this case, the non-filing of an affidavit by the Revenue opposing the condonation of delay itself is sufficient for condoning the impugned delay. We also note that there is no allegation from the Revenue that the appeal was not filed by the assessee within the time deliberately. Therefore, we are inclined to prefer substantial justice rather than technicality in deciding the issue. We also find that if we reject the application of the assessee for condoning the delay then it would amount to legalizing injustice on technical ground whereas the Tribunal can remove injustice and to do justice. Thus, we condone the delay occurred in filing the impugned appeal by the assessee and proceed to hear the appeal on merit for the adjudication.

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639/Ahd//2012 A.Y. 2003-04 9 amount as per reply received from the party is also not correct since as per appellant there is no liability at the end of the year. Hence the liability appearing in the appellant's books ceased to exist and the disallowance is confirmed. 12. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

639/Ahd//2012 A.Y. 2003-04 11 are of the view that no addition for the entire amount of sale can be made under the provisions of section 41(1) of the Act. As such, the Hon’ble Courts in such facts and circumstances has held that some percentage of profit on the impugned sale should be brought to tax so as to render the justice. In holding so, we draw support and guidance from the judgement of Hon’ble Gujarat High Court in case of CIT vs. President Industries reported in 258 ITR 654 where it was held as under: The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative.

20. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 17,62,097/- on account of difference in ledger balance of the parties.

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Name of parties Amt. as per Amt. as per Difference assessee book party book amt. Indian Petrochemicals 1,31,54,948/- 1,31,88,101/- 33,153/- Corp. Ltd, Baroda BASF Styrenics P Ltd, 8,60,620/- 14,35,178/- 5,74,658/- Bharuch 21.1 The assessee during the assessment proceedings failed to explain/reconcile the difference in ledger balance as stated above. Likewise, the AO found that in the case of the creditor party, namely M/s Swati Processors Pvt Ltd. in respect of which the assessee has shown a credit balance of Rs. 11,54,286/- only, no response to the notice issued under section 133(6) of the Act was received. Likewise, the assessee also failed to submit ledger confirmation from the impugned parties. Thus, the AO added the above stated difference amount and balance from Swati Processors Pvt Ltd to the total income of the assessee.

27.1 With respect to the party, namely Swati Processors Pvt Ltd, we note that the assessee has shown purchases during the entire year in dispute amounting to Rs. 1,50,78,125/- only. But the AO and the learned CIT-A has doubted on the closing balance outstanding against such party. In our considered opinion, the basis adopted by the authorities below is not sustainable. It is for the reason that only part of the purchases has been doubted representing the closing balance. As such, the revenue cannot pick and choose, treating part of the transaction as genuine and part of the transactions as bogus. Furthermore, the assessee cannot

639/Ahd//2012 A.Y. 2003-04 14 be made subject to the addition if the party does not respond to the notice issued by the revenue. As such the revenue has been given ample power under the statute for collecting the information from the concerned party. In the present case, the AO should have conducted spot enquiries by deputing the inspector of income tax under the provisions of the Act. But what we find is this that the AO, without exercising the power granted under the statute, has made the addition of the closing balance to the income of the assessee merely on account of non- response of the party. As such, we are not inclined to approve the basis adopted by the AO which was subsequently confirmed by the learned CIT-A for making the addition discussed above. Hence, we are inclined to delete the same. Thus, the ground of appeal of the assessee is hereby partly allowed.

28. The next issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO for ₹ 55,43,026/- on account of inflated purchases.

29. The AO during the assessment proceedings found that the assessee has shown purchases from certain parties belonging to the same group at different rates during the same month. On question by the AO, the assessee contended that it is buying the petroleum products, price of which is regulated by the market forces. As per the assessee, the purchases were made by it at the market rate and therefore no addition is warranted. However, the AO was not satisfied with the contention of the assessee on the reasoning that the assessee has made purchases at different rates during the same month from the parties belonging to the same group. According to the AO, the assessee has shown inflated purchases. Thus, the AO has adopted the minimum price as the standard price of the month and worked out the inflated purchases for each month aggregating to ₹ 55,43,026/- and added to the total income of the assessee.

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Coming to appeal by the assessee

639/Ahd//2012 A.Y. 2003-04 17 37.1 Out of the above additions, the assessee preferred appeal before the learned CIT(A) only against the first 2 additions. In other words, the assessee has not preferred an appeal against the addition on account of excess depreciation, business promotion and bad debts. The other 2 additions, i.e. cessation of Liability and inflated purchases, were also confirmed by the learned CIT(A).

37.2 Subsequently, the AO issued show cause notice proposing to levy penalty under section 271(1)(c) of the Act. The assessee submitted that full disclosure was made in the return of income and during the assessment proceedings based on which the assessment was made. The finding in the assessment order may be sufficient to make addition to total income but the same cannot be basis for levy of penalty. Accordingly, the assessee prayed to drop the penalty proceedings.

37.3 However, the AO found that the assessee neither during the assessment proceedings nor during the penalty proceedings furnished plausible explanation regarding the additions. Thus, the AO invoked the provisions of explanation 1 to section 271(1)(c) of the Act and held that the assessee willfully, knowingly, and without any cause furnished inaccurate particulars income and thereby concealed the income. Hence, the AO levied the penalty of Rs. 49,52,688/- being 100% of the tax amount sought to be evaded.

38. The aggrieved assessee preferred an appeal before the learned CIT(A). The learned CIT(A) concurred with view of the AO and confirmed the levy of penalty by observing as under: 6. Thus, a perusal of the assessment order and the order of CIT(A) shows that the appellant was not able to give any bonafide explanation relating to these disallowances. Moreover, whatever explanations were furnished by the appellant, were found to be false. Even during the course of penalty proceedings, the only submission made by the appellant before the A.O. was that the findings rendered in the assessment proceedings, though they constitute good evidence, do not form conclusive evidence in penalty proceedings. It was stated that full and true disclosures have been made as per the return of income and as per the details submitted at the time of assessment proceedings. During the course of appellate proceedings too, the appellant has mostly made submissions regarding the 639/Ahd//2012 A.Y. 2003-04 18

legality of imposing of penalty. It is a settled law now, that the department is not required to prove mens rea on behalf of the assessee before levy of penalty u/s 271(1)(c). Hence, the decisions relied upon by the appellant in this regard are not applicable for the A.Y. 2003-04. From the submissions made by the appellant, it is seen that the appellant has not been able to submit an explanation which it has been able to substantiate. The explanations are general in nature and are not bonafide. Moreover the facts leading to the addition of these amounts in the assessment order were unearthed by virtue of inquiries made by the A.O. during the course of assessment proceedings and hence, appellant's claim that it had disclosed all the facts relating to these amounts and material to the computation of total income is not correct. In such circumstances, the appellant's contention that penalty levied u/s 271(1)(c) in its case is not tenable and the impugned penalty order should be quashed, is devoid of any merit. As a result, it is held that the A.O. has rightly levied penalty u/s 271(1)(c) in this case by invoking the explanation (1) to section 271 of the I.T. Act, 1961. It is also seen that there are altogether eleven additions made in the assessment order. But the A.O. has initiated penalty proceedings only in regard to six additions. This shows that the A.O. has applied his mind and has arrived at a satisfaction before initiating penalty proceedings u/s 271(1)(c).

639/Ahd//2012 A.Y. 2003-04 19 41.1 It settled the position of law that once the quantum addition itself is not sustained then the question of levy of penalty under section 271(1)(c) of the Act does not arise. Thus, the penalty on account of the addition of inflated purchases is hereby deleted.

41.2 Likewise, the addition on account of cessation of liability was reduced substantially based on an ad-hoc percentage basis, treating the same as business transactions. Thus, it is transpired that the quantum addition itself is based on an estimated basis and therefore, in our considered view, the same cannot be made subject to the penalty under the provisions of section 271(1)(c) of the Act.

41.3 Coming to the levy of penalty on account on addition of excess depreciation and business promotion expenses and bad debts, in this regard, we note that every addition to total income in the assessment proceeding cannot ipso facto empower the revenue to levy penalty under section 271(1)(c) of the Act. As such the penalty proceedings and assessment proceeding are different. The AO, to levy penalty, is required to bring conclusive material to establish that the income was concealed, or inaccurate particulars were furnished to evade taxes. There may be cases where a claim made by the assessee in the return of income was not accepted by the revenue in assessment and accordingly, addition was made but such inaccurate or inacceptable claim, cannot be termed as inaccurate particulars. In this connection, we refer the judgment of Hon’ble Supreme Court in the case Reliance Petroproducts reported in 322 ITR 158 wherein it was held as under: The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] 41.4 In the instant case also, the claim made by the assessee in the income tax return was not found acceptable by the revenue. But there is no finding that 639/Ahd//2012 A.Y. 2003-04 20 disclosure made by the assessee in return in respect of such claims are inaccurate, false. Hence respectfully following the order of the Hon’ble Supreme Court discussed above, we hereby direct the AO to delete the penalty levied by him. In view of the above detailed discussion, the ground of appeal of the assessee is hereby allowed.