M/S OSHO HOME APPLIANCES,BADDI vs. ITO, PARWANOO

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘SMD’, CHANDIGARH

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

ITA No. 190/CHD/2018 (Assessment year: 2004-05) M/s Osho Home Appliances, Vs. The Income Tax Officer, Plot no.2H EPIP, PHASE-1, PARWANOO. Jharmajri, Baddi, H.P. PAN No. AADFY9591L (Appellant) (Respondent)

Appellant by : Shri Manoj Kumar, CA Respondent by : Smt. Sukhwinder Sharma, Addl.CIT (DR)

Date of hearing : 07.05.2018 Date of Pronouncement : 11.05.2018

ORDER PER ANNAPURNA GUPTA, AM

The present appeal filed by the assessee is

against the order passed by the CIT(Appeals), Shimla

dated 18.8.2017 and relates to assessment year 2004-

05.

assessment in the present case was completed u/s 144

of the Income Tax Act, 1961 (hereinafter referred to as

“Act”), which was invoked by the AO on account of the

non-cooperative attitude of the assessee throughout

the assessment proceedings, which fact was brought

out by the AO by way of a detail showing the number

of the dates on which the case was fixed for hearing

and the response of the assessee to the same by way of

either seeking adjournment or not attending at all, and

which is also reproduced at page 4 of the CIT(appeals)

order. The AO after invoking section 144 of the Act,

proceeded to assessee the income making additions to

the returned income by disallowing deduction claimed

by the assessee u/s 80 IC of the Act, since as per the

AO the scrutiny of expenses incurred by the assessee

showed no manufacturing activity carried out by it.

The AO thereafter restricted the net profit declared by

the assessee on its manufacturing activity to 5% as

against 8% shown by the assessee, holding the net

profit returned by the assessee to be abnormally high

and further treated the balance of the net profit as

income from other sources of the assessee. The AO

also estimated the net profit earned by the assessee

from its trading business at the rate of 3% of sales, job

work and AMC income at Rs.1,32,945/- as against net

loss of Rs.4884/- shown by the assessee and made

addition of the same to the income of the assessee. The

AO further made addition on account of unexplained

capital introduced in the firm by the partners and

loans raised during the year to the extent of Rs. 3 lacs

and Rs.4 lacs respectively.

before the CIT(Appeals). During the pendency of

appeal the CIT(Appeals) issued enhancement notice to

the assessee stating that since the books of accounts

of the assessee were not reliable and were defective,

the net profit rate of 3% was to be applied on the total

turnover shown by the assessee, resulting in

enhancement of income at Rs.2,23,445/-. Further

another enhancement notice was issued to the

assessee stating that the entire capital introduced

during the year as also the entire loans taken during

the year needed to be added to the income of the

assessee as being unexplained instead of the addition

made by the AO to the extent of only Rs.3 lakh and

Rs.4 Lacs respectively on account of the same. The

assessee filed additional evidences before the CIT(A),

along with an application seeking admission of the

same, stating that there was sufficient cause for not

producing the evidences during assessment

proceedings and therefore requesting the CIT(A) to

admit them now. Besides written submissions were

filed by the assessee on each addition/ disallowance

made by the AO. The CIT(Appeals) after considering the

submissions of the assessee, refused to admit the

additional evidences stating that the assessee had

been non-cooperative throughout the assessment

proceedings and the reason stated by the assessee for

not being able to produce the evidences before the

CIT(Appeals) were not sufficient and appeared to be

devoid of any merits. Thereafter the Ld. CIT(Appeals)

upheld all the additions made by the AO and dismissed

the appeal filed by the assessee.

in appeal before us challenging the various additions

upheld by CIT(Appeals) and also challenging the action

of the CIT(Appeals) in confirming the ex parte

assessment framed and rejecting the application

seeking admission of additional evidences filed by the

assessee as per Rule 46A of the Income Tax

Rules,1962. The assessee has raised following

grounds of appeal:

“1. The ld. CIT(A) is wrong in confirming the ex-parte assessment u/s 144 for non-producing information because assessee was prevented by sufficient cause from producing the information during the assessment proceedings. 2. The Id. CIT(A) is wrong in rejecting the application of additional evidences filed under Rule-46A because assessee was prevented by sufficient cause from producing the information during the assessment proceedings. 3. The Id. CIT(A) is wrong in confirming the addition of Rs. 9,53,018/- made on account of disallowance of deduction u/s 80IC. 4. The Id. CIT(A) is wrong in confirming the addition of Rs. 1,32,945/- made by applying arbitrarily rate of 3% on trading sales, job work and AMC income. 5. The Id. CIT(A) is wrong in confirming the addition of Rs.3,00,000/- made by Id. assessing officer on account of capital contribution by considering it as income from unexplained sources and further enhancing the addition from Rs.3,00,000/- to Rs.9,70,572/-. 6. Without prejudice to ground no. 5, the Id. CIT(A) is wrong in enhancing the estimated income of the assessee firm from Rs.3,00,000/- to Rs.9,70,572/- on account of capital contribution by considering the same as unexplained u/s 68 without appreciating the fact that power of enhancement is not to be exercised by CIT(A) to substitute the estimate made by the assessing officer and further income was enhanced without admitting the additional evidences filed by the assessee during the appellate proceedings, which is against the principles of natural justice.

grounds challenging the framing of exparte assessment

order and the rejection of the application seeking

admission of additional evidences, raised by the

assessee in ground No. 1 and 2.

counsel for the assessee stated that the assessee had

amply demonstrated the existence of sufficient cause

with the assessee for not having participated in the

assessment proceedings. Ld. counsel for the assessee

drew our attention to the submissions made before

the Ld. CIT(Appeals) in this regard reproduced at para

4.1 of the order as under:

The aforesaid appeal is pending before your goodself for adjudication wherein the assessment order was passed u/s 144 of the Income Tax Act, 1961. During the appellate proceedings, assessee firm filed written submissions along with various documentary evidences. In response to the same, your goodse/f vide order sheet entry asked the assessed why,the additional evidences should be admitted. In this regard, it is submitted that assessee firm could not attend/file the information before the assessing officer because of the following reasons: - Reasons for admission of additional evidences:- a) That the assessee firm was engaged in the business of manufacturing of laboratory equipments at Plot No. 2H, EPIP, Pahse-1, Jahrmajri, Tehsil- Nalagarh and having two partners Sh. Mahindera Tandon and Sh. Vipul Tandon. b) That Mr. Mahindra Tandon is the father of Mr. Vipul Tandon and he is the one who was looking after all the operating functions of the assessee firm i.e. marketing, administration function, execution work etc. c) That the father of the managing partner Mr. Tirath Ram Tandon was suffering from prolonged illness at the time of assessment proceedings and finally due to illness, father of the managing partner died on 06.06.2006.(Copy of death certificate is enclosed as per Annexure-1). That due to prolonged illness of the father of the managing partner and his hospitalization for a period in different hospitals, all the family members were mentally disturbed by such incidents i.e. illness and death of father of managing partner. Further, the other Partner of the assessee firm i.e. son of managing partner was of ordinary background and did not know the intricacies of the Income-tax law and the statutory requirements there-under and a/so was totally unaware of assessment proceedings. d) That due to death of father of the managing partner, • A/I the family members of managing partner of the assessee firm were in great shock and he is the one who had to hold his family in this crisis situation. • A/so, the managing partner was busy in organizing 'Shok Sabha Programme' according to family rituals and traditions. e) Further, later on, assessee firm also faced financial crisis and finally, the assessee firm had been taken

over by the Himachal Pradesh Financial Corporation (H.P.F.C.) and put the same to auction. f) That the assessee firm could not even reorganize the business which had to be discontinued due to above mentioned circumstances. That due to these sufficient reasons and circumstances, assessment proceedings could not be attended as prevented by sufficient cause. However, on recovery of adverse situations, assessee firm filed all the records/evidences before your goodself during the appellate proceedings. Keeping in view of all above facts and circumstances of the case, assessee prays for admission of additional evidence to provide substantial justice as assessee is prevented by sufficient cause.” 8. Referring to the same Ld. counsel for the assessee

stated that it is clearly evident from the above that the

circumstances prevailing with the assessee when the

assessment proceedings were on, being the demise of

the father of the managing partner of the assessee firm

after a prolonged illness because of which the partner

was in a state of shock and because of the fact that

later on the assessee firm also faced financial crisis

and was taken over by the Himachal Pradesh financial

Corporation which had put the assessee firm to

auction, the assessment proceedings could not be

attended by the assessee. Ld. Counsel for the assessee

contended that the assessee had thus duly

demonstrated the existence of sufficient cause with the

assessee which prevented it from participating in the

assessment proceedings. Ld. counsel for the assessee

thereafter drew our attention to the relevant findings

of the CIT(Appeals) rejecting the assessees application

for admission of additional evidences at para 5.1 of the

order as under:

“5.1 The first issue to decided is regarding the admission of additional evidence which the appellant has filed during the appellate proceedings. In this regard, the total non cooperation of the assessee during the assessment proceedings has been elaborately highlighted in the assessment order, the extracts of which has been reproduced supra. No information on the major issues flagged by the Assessing officer was furnished by the assessee. The assessment proceedings were literally converted into a farce or mockery by the appellant. The ITO acted on the material before him and also duly issued a notice to the appellant for the purposes of section 144 of the Act. No books of accounts, bills, vouchers and other related documents were produced by the assessee before the A.O. The record of the assessment proceedings clearly establishes that ample time and opportunities were available to the assessee to furnish the complete information in order to establish the genuineness of his accounts but the assessee miserably failed to discharge his onus. As regards the plea set up by him that he was prevented by sufficient cause from furnishing the requisite information, the same is found to be devoid of any merit. The assessment was completed almost 6 months after the demise of the partner's father and ample opportunities were provided . The reasons given by the appellant have been perused. The assessment order clearly brings out that the information called for by the A.O. was not produced before the AO. The assessment proceedings continued from 09.06.2005 till 23.112006 which is a long enough period to enable compliance of the notices issued by the A.O and furnish the information called for. Instead, the assessee continued to sit on the fence and showed scant respect to the A.O.'s notices and to the assessment proceedings. There is no mention in the assessment order about the reasonable cause which prevented the assessee from furnishing the desired information. The appellant has also not filed any copies of letters to the A.O. bringing out the same. The entire history of his assessment proceedings smacks of his contumacious conduct and shows neither due diligence nor any sincerity of purpose. Hence the plea regarding his inability to furnish the necessary evidence at the stage of assessment proceedings amounts to just a bald assertion and deserves to be rejected. By seeking admission of additional evidence under Rule 46A of the IT. Rules, 1962, the appellant is only trying to seek the reassessment of his case. It is a strategy being resorted to by the appellant to exploit the appellate proceedings to his undue advantage after completely squandering the time and opportunity available to him during the course of assessment proceedings. Since the assessment proceedings had clearly been converted into a farce by the assessee, the assessee is not found entitled to

any indulgence at the stage of appellate proceedings. Hence his request to adduce additional evidence is hereby rejected.” 9. Referring to the same it was contended by the Ld.

Counsel for the assessee that the Ld. CIT(Appeals) had

dismissed the contentions of the assessee summarily

by simply stating that the assessment was completed 6

months after the demise of the partners father and

ample opportunities were provided despite which the

assessee failed to produce relevant information before

the assessing officer. Ld. counsel for the assessee

pointed out that the CIT(Appeals) had simply harped

on the fact that the assessee did not participate in the

assessment proceedings which smacked of his

contumacious conduct and showed that he was not

diligent and sincere in his approach to the assessment

proceedings. Ld counsel for the assessee stated that

the CIT(Appeals) had not duly considered the

circumstances in which the assessee firm was at the

time of the assessment proceedings when the father of

the managing partner of the assessee firm had expired

due to prolonged illness and Ld. counsel for the

assessee pointed out that the Ld. CIT(Appeals) had

also failed to consider the fact that the assessee firm

was also facing financial crisis and had been taken

over by the Himachal Pradesh Financial

Corporation(hereinafter referred to as “HPFC”).

was asked as to what evidence was placed before the

Commissioner of Income Tax regarding the prevailing

financial crisis in the assessee firm and its takeover by

the Himachal Pradesh Financial Corporation. To this

the Ld. counsel for the assessee contended that

evidences were available and would be placed if

opportunity was given to the assessee in this regard.

Ld. counsel for the assessee thereafter stated that his

limited prayer before us was that the issue of

admission of additional evidences be restored back to

the CIT(Appeals) to afford the assessee an opportunity

to present its case with all necessary evidences and

with a direction to the CIT(Appeals) to consider its

circumstances holistically and in entirety and

thereafter pass an order with regard to the admission

of additional evidences.

CIT(Appeals) had given a categorical finding that the

assessee had not been able to demonstrate the

existence of sufficient cause which prevented him from

adducing the additional evidences before the AO and

its contention that because of the prolonged illness

and death of the father of the managing partner he was

prevented from attending the assessment proceedings,

was devoid of merit since the assessment proceedings

were carried on up to a period of 6 months thereafter,

which was sufficient period for the assessee to attend

the assessment proceedings and furnish the necessary

evidences.

we find merit in the contention of the Ld. counsel for

the assessee. We are in agreement with the Ld.

Counsel for the assessee that the CIT(Appeals) had not

taken into consideration the entire circumstances as

demonstrated by the assessee to exist when the

assessment proceedings were on and which thereby

prevented him from participating in the proceedings

and filing all necessary evidences. The Ld.

CIT(Appeals) has, we find, only considered the fact of

illness and death of the father of the managing

director of the assessee firm and held that this was

not sufficient cause to prevent the assessee from

participating in the proceedings before the AO. The Ld.

CIT(Appeals) did not consider the financial crisis said

to exist in the firm resulting in the firm being taken

over by HPFC. Thus without considering the entire

situation, as pointed out by the assessee to be

prevailing at the time of assessment, the CIT(Appeals)

we find dismissed the assessees plea of existence of

sufficient cause preventing it from attending the

assessment proceedings and also refused therefore to

admit the additional evidences filed by the assessee.

The assessee also we find has contended that it could

sufficiently demonstrate with evidences the existence

of financial crisis in the assessee firm prevailing at

that time and its consequent takeover by HPFC. We

find that the existence of financial crisis coupled with

the personal loss suffered by the managing partner of

the assessee are relevant facts which need to be

considered in entirety for determining the existence of

sufficient cause with the assessee preventing it to

attend the assessment proceedings and thus filing the

necessary evidences. It is only after considering the

entire facts and circumstances that the decision on the

admissibility of additional evidences should be taken.

The Ld. CIT(Appeals) having failed to consider all the

facts we consider it fit and in the interest of justice to

restore the appeal denovo to the CIT(Appeals) to decide

afresh the admissibility of additional evidences

adduced by the assessee after considering all

contentions and evidences filed by the assessee and

thereafter decide the rest of the grounds raised by the

assessee in accordance with law. We may direct that

due opportunity of hearing be given to the assessee in

this regard.

statistical purposes.

Sd/- Sd/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER *Rati* Copy to: 1. The Appellant 2. The Respondent