WAMAN HARI PETHE SONS,MUMBAI vs. ADDL CIT CIR 15(1), MUMBAI

The assessee has raised two grounds of appeal in Form No.

Ground No. 1 relates to the grievance that the Ld. CIT(A) has enhanced the income by Rs. 61,27,898/- and the other ground relates to the addition of Rs. 19,11,084/- on account of advances from customers.

The assessee has also raised additional grounds of appeal by which it has questioned the enhancement made by the Ld. CIT(A) stating that the same is in contravention of the provisions of the law and in gross violation of the principles of natural justice inasmuch as the Ld. CIT(A) has not given any notice of enhancement.

We will first take up the additional ground of appeal as it goes to the root of the matter.

The assessee is in the business of manufacturing, retail trading and servicing of Gold ornaments and silver jewellery. Return for the year was filed on 28.10.2005 declaring total income at Rs. 1,02,5,317/-. The return was selected for scrutiny assessment and vide order dated 26.12.207 made u/s. 143(3) of the Act, following additions were made to the returned income.

The additions were contested before the Ld. CIT(A). In the meantime, the Assessing Officer issued notice u/s. 154 vide notice dated 4.1.2008 for rectification of mistake apparent from record and vide order dated 28.1.2008 made u/s. 154 of the Act, addition u/s. 68 was made to the tune of Rs. 61,27,898/-. The assessee preferred an appeal against this order also. The Ld. CIT(A) directed the AO to delete the addition made u/s. 68 of the Act in rectificatory order. It would be pertinent to mention here the very relevant observation of the Ld. CIT(A) which read as under:

This order of the Ld. CIT(A) was confirmed by the Tribunal in ITA No. 2277/M/09 vide order dated 25.3.2010. 7. 1. During the course of the Appellate proceedings preferred against the order dated 26.12.2007 made u/s. 143(3) of the Act and in pursuant to the directions of the Ld. CIT(A) given during the appellate proceedings against the order made u/s. 154 of the Act the AO submitted a letter No. Addl. CIT 15(1)/Remand Report/09-10 dated 2.4.209 requesting for enhancement of income in respect of advances from customers remain to be added to the total income amounting to Rs. 61,27,898/-. The proposal of the AO was forwarded

Taking a leaf out of the proposal made by the AO and after considering the reply of the assessee, the Ld. CIT(A) deleted the first three additions as mentioned at para-5 of this order and confirmed the fourth addition of Rs. 19,11,084/- and also enhanced the assessment by making an addition of RTs. 61,27,898/-.

Aggrieved by this, the assessee is before us. The Ld. Counsel for the assessee vehemently submitted that the enhancement made by the Ld. CIT(A) is without notice and is against the settled proposition of law laid down by the Hon’ble Supreme Court in the case of CIT Vs Rai Bahadur Hardutroy MOtilal Chamaria 66 ITR 443 (SC), Gedore Tools Pvt. Ltd. Vs CIT 238 ITR 268 (Del). It is the say of the Ld. Counsel that the enhancement made by the Ld. CIT(A) is bad in law and on this count only the appellate order need to be quashed.

Per contra, the Ld. Departmental Representative strongly supported the findings of the AO and also relied upon the findings of the Ld. CIT(A).

We have given a thoughtful consideration to the orders of the authorities below and with the assistance of the Ld. Counsel, we have gone through the relevant documentary evidences brought on record and referred to during the course of the proceedings. As mentioned elsewhere, after completing the assessment u/s. 143(3) of the Act, the AO issued notice for the rectification of mistake apparent from 5 Waman Hari Pethe Sons

A perusal of the order of the First appellate authority shows that the appellate authority has simply imbibed the rectification order of the AO. There is no denying that at no point of time, the first appellate authority has issued notice or asked independently the assessee to explain why enhancement should not be made to the assessed income. This is nothing but gross denial of natural justice. Sec. 251 of the Act gives power to the Ld. CIT(A) for enhancement but Sec. 251(2) puts a rider on such power providing that the Ld. CIT(A) shall not enhance an assessment unless the appellant has had a reasonable opportunity of showing cause against such enhancement.

In the present case as per the factual matrix mentioned hereinabove, the First appellate authority has simply proceeded in the light of the proposals of the AO and in our understanding of these

This act of the Ld. CIT(A) makes the order erroneous. However, in the interest of justice and fair play, we restore this issue to the file of the Ld. CIT(A) with a direction that the Ld. CIT(A) shall give a proper notice to the assessee clearly mentioning the points on which he intends to enhance the assessment and decide the issues afresh as per the provisions of the law. The additional ground raised by the assessee is allowed for statistical purpose.

In so far as the addition of Rs. 19,11,084/- is concerned, since we have restored the issue to the file of the Ld. CIT(A), the Ld. CIT(A) is directed to decide this issue also afresh after giving reasonable opportunity of being heard to the assessee.

In the result, the appeal filed by the assessee is treated as allowed for statistical purpose.

The first grievance of the assessee relates to the adhoc disallowance made by the AO and confirmed by the Ld. CIT(A) being out of motor car expenses 10%, out of general expenses 5% and out of sales promotion 5%.

While scrutinizing the return of income at para-3 of the assessment order, the AO has simply mentioned that though FBT has been paid under various heads, yet certain disallowances are 7 Waman Hari Pethe Sons

When the matter was agitated before the Ld. CIT(A), the CIT(A) restricted the disallowance to 10% out of motor car expenses and 5% each out of general expenses and sales promotion expenses.

Before us, the Ld. Counsel for the assessee could not add anything new to what has been stated before the lower authorities.

The Ld. DR simply relied upon the findings of the lower authorities.

We have perused the orders of the authorities below. There is no denial that the expenses are neither fully open to verification nor personal element can be ruled out. There is also no denial that the disallowances made by the AO are purely based on assumptions and surmises. However, we find that the Ld. CIT(A) has restricted the disallowances to 10% and 5% as mentioned elsewhere. In our considered opinion, this should meet the ends of justice, therefore, we decline to interfere.

The second grievance of the assessee relates to the addition made u/s. 68 of the Act amounting to Rs. 1,88,965/-.

This issue find place at para-4 of the assessment order wherein the AO has observed that the assessee has shown advances received from customers out of which a sum of Rs. 3,84,010/- has neither been adjusted towards sales shown nor assessee could furnish any evidence of confirmation from any of the customers. The AO accordingly added Rs. 3,84,010/-.

The assessee carried the matter before the Ld. CIT(A) and the CIT(A) has considered this issue on page-3 at para-4 of his order. After considering the facts and the submissions, the Ld. CIT(A) at para-4.1 observed that considering the nature of business of the assessee , it cannot be ruled out that customers do deposit some advances at the time of giving orders of purchase of jewellery which is later adjusted with the sales. The Ld. CIT(A) further found that the assessee could furnish full particulars of only 40 creditors involving an amount of Rs. 1,95,045/-. The Ld. CIT(A) accordingly accepted the genuineness to this extent and restricted the addition on account of such advances to Rs. 1,88,965/-.

Aggrieved by this, the assessee is before us.

The Ld. Counsel for the assessee could not bring the complete details of the remaining customers to substantiate its claim.

We have carefully perused the findings of the Ld. CIT(A). We find that the Ld. CIT(A) has accepted the advances of customers whose full name and addresses were provided. We also find that the 9 Waman Hari Pethe Sons

In the result, the appeal filed by the assessee is dismissed.

The sole grievance of the assessee relates to the adhoc disallowance made out of motor car expenses, general expenses and sales promotion.

A similar issue has been considered by us in ITA No. 7105/M/2012 qua ground No. 1 of that appeal. For our detailed reason therein, this ground is dismissed.

In the result, the appeals filed by the assessee in ITA Nos. 7105/M/2012 for A.Y. 2008-09 & 6159/M/2013 for A.Y. 2009-10 are dismissed and ITA No. 5152/M/2010 for A.Y. 2005-06 is allowed for statistical purpose.

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