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Income Tax Appellate Tribunal, JABALPUR BENCH, JABALPUR
Before: SHRI SANJAY ARORA, HON’BLE & SHRI MANOMOHAN DAS, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR BEFORE SHRI SANJAY ARORA, HON’BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. Nos. 175 & 176/JAB/2016 (Asst. Years: 2004-05 & 2005-06)
Hajarimal Mishrimal Bafna, vs. Addl. CIT Range, Tar Bazar, Shastri Bazar, Chhindwara (M.P.) Pandhurna, Chhindwara (M.P.) [PAN : AACHH2050R] (Appellant) (Respondent) Assessee by : None Revenue by : Shri Ravi Mehrotra Sr. DR Date of hearing : 12/10/2022 Date of pronouncement : 29/11/2022
O R D E R Per Sanjay Arora, AM: This is a set of two appeals by the Assessee, agitating the adjudication by the Commissioner of Income Tax (Appeals)-1, Jabalpur (‘CIT(A)’, for short), partly allowing it’s appeals contesting it’s assessments under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 26/12/2006 and 24/12/2007 for Assessment Years (AYs.) 2004-05 & 2005-06 respectively, vide his orders dated 09/03/2016 & 13/03/2016 respectively. The appeals raising common issues, were heard together, and are being disposed of per a common order for the sake of convenience, even as was by the Tribunal in the first round.
The appeals were initially disposed off by the Tribunal vide it’s consolidated order dated 10/11/2017, allowing the assessee’s appeals on the legal ground of jurisdiction of the Assessing Officer (AO) to act as the assessee’s AO. The same 1 | P a g e
ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT was, however, on it being moved by the Revenue u/s. 254(2) of the Act, recalled by the Tribunal vide it’s order dated 29/04/2022 upon finding it’s earlier adjudication as grossly and gravely mistaken, for being decided afresh in accordance with law after hearing the parties. There has, however, been no representation by or on behalf of the assessee in the ensuing proceedings before the Tribunal on each of the other three occasions on which the matter was posted for hearing, nor even a request for adjournment despite service of notices of hearing, with, rather, Smt. Uma Prashar Advocate (in whose name Vakalatnama is on record) from the chamber of Shri G.N. Purohit, ld. Sr. Advocate, who represented the matter before the first appellate authority, as indeed before the Tribunal, both in the first round as well as in the rectification proceedings, personally informing the Bench on 21/07/2022 that they are withdrawing their Vakalatnama. Hearing was, accordingly, proceeded with ex-parte the assessee- appellant.
We have heard the party before us, and perused the material on record. We shall proceed ground-wise, toward which we may reproduce the relevant Grounds:- AY: 2004-05 1. The assessment order frame by additional commissioner is without jurisdiction the additional ground should have been allowed. The order of assessment should be annulled. 2. Without prejudice to the above ground no notice u/s. 142(1) or 143(1) was issued by the additional commissioner after 30.11.2006 i.e. alleged confirmation of jurisdiction by CIT. The order framed is without jurisdiction should be annulled as non est. 3. That the learned CIT(A) is not justified in confirming the addition of Rs. 51,200/- on account of shortage in soybean seed account. The addition should be deleted.
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ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT 4. The learned CIT(A) is not justified in confirming the addition of Rs.5,03,985/- on account of debit notes. The addition should be deleted. 5. The appellate authority is not justified in confirming the addition of Rs. 2342/- on account of shortage in soybean account same should be deleted. 6. The learned CIT(A) is not justified in confirming the addition of Rs. 8,50,261/- for disallowance of hamali expenses. The addition should be deleted. AY: 2005-06 1. That the learned CIT(A) is not justified in confirming the addition of Rs. 1,29,524/- on account of disallowance of loss in cotton sold to sister concern. The addition should be deleted. 2. The confirmation of addition of Rs. 5,28,665/- is not justified. The borrowed funds are used for business. The disallowance of interest is unwarranted the addition of Rs. 5,28,665/- should be deleted. 3. The addition of Rs. 91,233/- u/s.43B is uncalled for should be deleted. 4. The assessment order framed by additional commissioner is without jurisdiction. The additional ground should have been allowed. The order of assessment should be annulled. 5. The learned CIT(A) is not justified in not allowing the refund of Rs. 500/- excess appeal fees inadvertently paid by the assessee, same may please be allowed. AY: 2004-05 4. Ground No.1 disputes the assessment as without jurisdiction. The issue has been discussed in detail by the ld. CIT(A) at pgs. 2-5 of his order, after obtaining the comments both from the AO and the assessee, reproduced in his order. The assessee’s challenge is with reference to the Office Memorandum (OM) dated 19/9/2011 issued by Commissioner of Income Tax-1, Jabalpur (‘CIT’, for short) (PB pgs. 21-25) in pursuance of the Notification dated 31/07/2001 u/s. 120(1)/(2) of the Act, vide which it was clarified that Jt./Adl. CIT heading the Ranges shall 3 | P a g e
ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT have no powers of an Assessing Officer. The same was, however, to no effect inasmuch as the same was passed oblivious of the Notification No. 267, dated 17/09/2001 by the Central Board of Direct Tax (CBDT) vesting the power of the AO with the Jt./Adl. CIT who stood authorised u/s. 120(4)(b) (reproduced in part at para 2D as the assessee’s submissions dated 18/04/2012/PB pgs.7-12), which in the instant case was by the CIT-1, Jabalpur vide his order dated 30/11/2006. The same is in conformity with the law, which stood amended to include Jt./Adl. CIT in sec. 2(7A) of the Act, defining the AO, by Finance Act, 2007 w.r.e.f. 01/6/1994. The order u/ss. 127 (1) & (3) of the Act transferring the assessee’s case from Asstt. CIT, Circle Chhindwara to Addl. CIT, Range Chhindwara had been passed by CIT-1, Jabalpur on 31/01/2006 (PB pgs.8-19). In view thereof, the ld. CIT(A) found the Addl. CIT, Chhindwara as fully competent to act as the assessee’s AO. We find no reason to disturb his finding and toward which we have perused, apart from the impugned order, the assessee’s submissions before the ld. CIT(A) (PB, pgs.4-6, 7-25, 29-40). We agree that the order u/s. 120(40(b) dated 30/11/2006 can have only prospective effect. That, however, would not impact the legality of an assessment made by the Addl. CIT subsequent to that date. Further, the order u/s. 127 dated 31/01/2006 which the assessee challenges could in our view only be before the Hon'ble High Court under it’s writ jurisdiction, even as no case of any mala fides has been made out and, further, the transfer is within the same city. In our clear view though, this aspect, i.e., the jurisdiction of the authority to act as the AO in a given case cannot be questioned in the appellate proceedings under the Act in view of the clear mandate of law per sec. 124, requiring all such issues to be decided through the administrative route. This was also noted by the Tribunal per its recall order also, citing the decision in R.B. Seth Teomal v. CIT [1959] 36 ITR 9 (SC), finding the same to be one of the fundamental flaws inflicting the Tribunal’s order dated 10/11/2017, even as the Tribunal’s order was without reference to the order under appeal before it. Case law in the matter is in fact legion, and toward which we may, only for the sake of completeness of our 4 | P a g e
ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT order, cite some decisions, as under, and which would also meet be the assessee’s reliance on the decision by the Tribunal in Bindal Apparels Ltd. v. ACIT [2006] 104 TTJ (Del) 950: CIT v. Shri Shyam Sunder Infrastructure (P.) Ltd. [2015] 92 CCH 33 (Del) CIT v. British India Corporation Ltd. [2011] 337 ITR 64 (All) Udaipur Distillery Co. vs. CIT [1973] 87 ITR 516 (Raj) Seth Kanhaiya Lal, In Re [1941] 9 ITR 25 (All) The assessee’s legal plea questioning the territorial jurisdiction of the Addl. CIT to act as it’s AO is, in view of the foregoing, without any legal force. We may before parting also clarify, inasmuch the assessee’s Ground makes reference to the additional ground before the first appellate authority, that same has been rightly dismissed by him for want of authorisation, which being a part of the appeal memo, could be verified only by the appellant. He has, nevertheless, disposed of the assessee said Gd. on merits, discussed hereinbefore, being in pari materia to it’s Gd. 1 before him. Further, though we have upheld his findings, finding the assessee’s plea as without substance, we clarify the clear position of law of the same as being not a subject matter of an appeal under the Act, and not liable to be resolved through the appellate procedure under the Act. We decide accordingly.
Vide Ground 2, the assessee assails the assessment on the ground that no notice u/s. 143(2) stands issued by the AO, i.e., Addl. CIT, Chhindwara, after 30/11/2006, i.e., the date of order u/s. 120(4)(b) by the CIT-1, Jabalpur, authorising him to act as an AO. True, there is no issue of notice u/s. 143(2) for AY 2004-05 on or after 30/11/2006. How could, one wonders, that invalidate the notice u/s. 143(2) dated 17/3/2005 by the Asst. CIT, Circle Chhindwara, i.e., the incumbent AO, duly served on the assessee on 18/3/2005; the said notice being also within time and, thus, a valid notice seeking to assume jurisdiction to frame an assessment u/s. 143(3), and which has been by the incumbent AO on 26/12/2006, again noted by the ld. CIT(A) at pg.5 of his order. Though the assessee’s Ground
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ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT speaks of notice u/s. 142(1) as well, the same is not a jurisdictional notice and, therefore, it’s relevance in challenge to the validity of the assessment is neither understood nor explained, being also not before the ld. CIT(A), nor covered in the assessee’s submissions before him. Notice u/s. 142(1) is clearly toward obtaining information deemed relevant by the assessing authority from the assessee. The second function of the said notice is to cause furnishing of a return of income where the same has not been furnished u/s. 139, and which is clearly not the case. In sum, the Ground is without merit and, accordingly, dismissed.
Ground 3 is in respect of an addition for Rs. 51,200 toward shortage in soybean seed account. The assessee, a trader in oil seeds and cotton, was found to have claimed a loss by way of shortage, at 40.96 quintals. A perusal of the assessment order reveals the said loss, though claimed as a shortage, in fact represents unaccounted sale of accounted for stock, which has been adjusted in accounts as shortage by recording purchase for this quantity at nil cost. This was detected during the survey u/s. 133A at the assessee’s business premises on 18/3/2014. No wonder the same was found by the ld. CIT(A), after hearing the assessee, to be a brazen attempt on it’s part to tally stock found short. Here it needs to be clarified that the objection of the shortage as reasonable, i.e., considering the volume traded in (160063 Qtls.), is misleading inasmuch as, as explained by the AO, there is no delivery of goods to the assessee on their purchase. The goods are bought at pre-determined rates fixed by the buyers (oil extraction units), on whose behalf goods are, though shown as bought and sold, ‘bought’ by the assessee for a pre-determined addhat (commission). The goods are accordingly despatched from the supplier’s premises direct to that of the buyer (plant owners), whereat the same are weighed and debit notes for difference/s in weight, if any, allowing for a tolerance, raised. Debit notes were also verified by the AO to find them to have been raised by the buyers (toward shortage, moisture content, damage seeds etc.) on the assessee on a regular basis, i.e., where the parameters exceeded the defined
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ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT tolerance limits. Occasionally, where the assessee was able to secure a better bargain, so that its ‘purchase’ rate is below its ‘sale’ rate, it also benefits, i.e., apart from commission, by way of trading profit. The addition is, thus, well founded with no rebuttal at any stage and, accordingly, confirmed.
7.1 Ground 4 impugns an addition for Rs. 5,03,985/- on account of debit notes raised on the assessee by it’s buyers, M/s. Betul Oil and Foods Ltd. and M/s. Itasri Oils Ltd., found debited in the assessee’s accounts on 01/4/2003, i.e., the first day of the relevant previous year. The debit notes raised on the assessee (also refer para 6 above), were found by him to be usually followed by debit notes raised in response by the assessee, i.e., where and to the extent it did not fully accept the claim/s made on it, and were accordingly credited to the purchase account (with corresponding debit to the buyer’s account). The impugned debits, which did not bear any corresponding credit/s, were, on enquiry, found to be in respect of supplies (sales) made from May, 2002 to March 27, 2003. The same, therefore, though accounted for during the current year, in fact, pertained to an earlier year. No evidence toward the same being in respect of a dispute and, thus, settled later, i.e., during the current year, was adduced in respect of the contention of the loss having crystalized only during the current year. The ld. CIT(A) found no evidence of any dispute qua the same; the assessee even otherwise failing abysmally to show the same to be a result of one-time settlement arrived at between the parties. On principle, the assessee admittedly following mercantile system of accounting, the AO’s stand was found by him as unexceptional. Reference in his detailed order (pg. 7-18) stands made to s.5 r/w s. 145; the assessee referring to s.145 and abundant case-law toward the law in the matter, viz. Rakesh Shantilal Mardia v. Dy. CIT [2012] 210 Taxman 565 (SC) Kedarnath jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) Laxmipat Singhania v. CIT [1969] 72 ITR 291 (SC) Keshav Mills Ltd. v. CIT [1953] 23 ITR 230, 239 (SC) J&K industries Ltd. [2007] 13 Scale 204 (SC) CIT v. Kerala Financial Corporation Ltd. [1985] 155 ITR 246 (Ker.) 7 | P a g e
ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT P. Mariappa Gounder v. CIT [1984] 147 ITR 676 (Mad.) 7.2 Income, which is by definition only net of expenses, is to be assessed and chargeable to tax only in the right year, law in the matter is well settled and toward which one may refer to decisions the CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC); CIT vs. Chunilal V. Mehta & Sons P. Ltd. [1971] 82 ITR 54 (SC); Laxmipat Singhania (supra), et. al., apart from sections 4 & 5 of the Act. Given the clear law, the issue arising to our mind is principally one of fact. There is no evidence whatsoever that any settlement has been, as claimed, arrived at between the parties, much less during the current year, i.e., on the first day of the accounting year, on which the debit notes were entered in the accounts at full amount thereof. In fact, the accounts for the preceding year having not been closed by 01/4/2003, and the expenditure relating to the immediately preceding year, the same would have been in such a case, and not incorrectly, liable to be booked on 31/3/2003. This, besides in agreement with the matching principle, has its basis in the accrual concept which, governed by the accounting principles of conservatism and prudence, mandates making an accounting estimate on the basis of the information available, and making a provision in accounts on the basis of such an estimate. In other words, inasmuch as the books for the previous year relating to AY 2003-04 have not been closed on 01/4/2003, information as on 01/4/2003, to the extent it relates to conditions obtaining as on 31/3/2003, would need to be taken into account for the purpose of the estimate as on 31/03/2003. This would also make it incumbent on the assessee to justify, in addition to what had transpired on 01/4/2003, its claim in full, so that an expenditure which, as on 01/4/2003, i.e., the date on which the estimate on the basis of the available information was to be made, was estimated at nil, was finally determined in full at the impugned sum of Rs. 5.04 lacs on 01/4/2003 itself, representing the total amount of debit notes-in-hand as on 31/03/2003. The assessee’s claim is, clearly, without any basis on facts, as indeed in law. We therefore uphold the disallowance as confirmed by the ld. CIT(A). 8 | P a g e
ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT
7.3 We decide accordingly.
Ground 5 is in respect of shortage of 1.32 Qtnls., valued at Rs. 2,342, made and confirmed for the same reasons that informed the addition qua shortage in soybean seed account (Gd.3), since confirmed by us (refer para 6). The facts and circumstances being the same, we have no reason to take a different view in the matter and, accordingly, confirm the addition. We decide accordingly.
Ground 6 is in respect of hamali expenses, claimed at Rs. 10,01,281, disallowance of which, at Rs. 8,50,261, stands confirmed in full in first appeal. The amount disallowed is in view of the vast difference in the rate on which hamali charges are claimed as paid (Rs. 5.08 per bag) and that by another party in the trade (rs. 0.30 – 0.35 per bag). The assessee having received a reimbursement from the buyer @ rs. 3.50 per bag, as against as rs. 4 per bag in the case of the competitor, the AO allowed expenditure at 0.85 per bag, i.e., on 1,77,670 qtls., i.e., at rs. 1,51,020. The disallowance, thus, at Rs. 8,50,261 (Rs. 10,01,281 – Rs. 1,51,020) was confirmed on the same basis in absence of any evidence. The same position continues; there being no improvement in the assessee’s case thereafter. It is pertinent to note that the assessee had in fact reported a net income of Rs. 13,352 under this head for the immediately preceding year. Further, the very fact that the assessee has received compensation at an average of Rs. 3.50 per bag for the year and, further, been allowed expenditure @ 0.85 per bag, implies an acceptance of expenditure at Rs. 4.53 per bag, which is the relevant rate, and not Rs. 0.85 per bag, stated as allowed by the AO. This also explains marginal income under this head for the preceding year, the reimbursement exceeding the expenditure by some paisa per bag. We find no reason for interference. We decide accordingly.
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ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT AY: 2005-06
The brief facts of the case are that the assessee claimed a loss of rs. 20,20,707 on ginned cotton account which, on examination, revealed it to be on sale of opening stock (1830 qtls.). A part of this (197.45 qtls) was sold to a sister concern (Navkar Impex Pvt. Ltd. – NIPL) for a total of Rs. 8,95,030, i.e., at an average of Rs. 4532.95 per Qtl. Sales to STI India Ltd. (1293 qtl.), to whom sales were made on proximate dates, were at Rs. 6214 to 6284 per qtl. No evidence toward the goods sold to NIPL being of cheaper quality, as claimed before him, shown, the AO regarded the sale rate (on sale to NIPL) at Rs. 6214 per qtl. On that basis, he reduced the loss claimed by Rs. 3,31,924. The ground is for Rs. 1,29,524 in view of the increased valuation of the opening stock on account of closing stock for the immediately preceding year being increased by Rs. 2,02,400. The ld. CIT(A) has confirmed the addition in view of the facts on record, adverting to s.40A(2)(a). In our clear view, the impugned addition is in fact for Rs. 3,31,924. This is as reduction in the claimed loss by Rs. 2,02,400 is to be in any case given effect to in view of the addition in the value of closing stock for AY 2004-05 and, thus, in income for AY 2004-05, i.e., an independent matter. The assessee has not led any evidence to substantiate it’s claim of the quantity sold to NIPL, it’s sister concern, being of a cheaper variety. Where so, it’s purchase price would also be at a lower rate, i.e., vis-a-vis that sold to third parties. It has also not been shown that the sister concern deals in the business of the cheaper variety/s of ginned cotton. In our view, the sale rate for the goods sold for the cotton sold to NIPL should, accordingly, be estimated at the average rate for the third parties which, as per the data available, works to Rs. 5976.02 per qtl., as under: (Amt. in Rs./Qty. in Qtls.)
Amount Quantity Rate Remarks Sale 1,06,51,185 1830.00 (12671892 minus 2020707) NIPL 8,95,030 197.45 4532.95 Others 97,56,155 1632.55 5976.02 10 | P a g e
ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT
The loss, on the basis of an average sale rate of 5976 per qtl., qua the sale to NIPL, works to Rs. 2,84,931. Subject, therefore, to the confirmation of our working as correct, we confirm the addition at this sum. The assessee gets part relief. We decide accordingly.
The basis of the disallowance agitated per Gd. 2, made and confirmed at Rs. 5,28,665, is in respect of interest calculated @15% p.a., on: a) loss disallowed for AY 2004-05 : Rs. 17.88 lacs b) personal investment/s : Rs. 17.36 lacs made at Rs. 2,68,200 (a) and at Rs. 2,60,465 (b) respectively. There is no disagreement in principle. Two adjustments, however, in our opinion, would require being made. Firstly, interest on loss to the extent of Rs. 5.04 lacs has been disallowed on the ground that the same does not relate to AY 2004-05, but to the immediately preceding year. That would not though impact the interest liability in its respect. The proportionate interest thereon would be Rs. 75,600. Two, the period of personal investment/s made during the year (Rs. 17.73 lacs) is not specified, so that the same stands presumably made during the relevant previous year, and not at the beginning thereof, as implied by the AO’s working. Interest thereon, at an average, assuming it being spread uniformly over the year, would be at one-half that computed by him, i.e., Rs. 1,30,233. The assessee, accordingly, gets a total relief for Rs. 2,05,833. We decide accordingly.
The disallowance per Gd. 3 comprises two sums, i.e., Rs. 37,513 and Rs. 53,720; the former being entry tax stands disallowed u/s. 43B on it not being paid up to the date of filing the return, i.e., 25/10/2005. No evidence toward it’s payment by the due date of filing the return for the year, i.e., 31/10/2005, has been brought on record. The disallowance, since confirmed, is therefore upheld. The basis for disallowance of Rs. 53,720 is of it being penalty under commercial tax,
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ITA Nos. 175 &176/JAB/2016 (A.Yrs. 2004-05 & 2005-06) Hajarimal Mishrimal Bafna v. Addl. CIT sales tax and entry tax. The law in the matter is well-settled, and the same cannot be an incident of business, to be accordingly allowed as a business deduction u/s. 37(1). The disallowance, confirmed on that basis, is again upheld for the same reason; the assessee not bringing any material to substantiate its claim of the same being not penalty, and compensatory in nature. We decide accordingly. 13. Ground 4 is in pari metria with Gd. 1 for AY 2004-05, decided on the same basis, and to the same effect. Rather, as afore-noted, a Ground (cause of action) not verified by the appellant is not valid. Further, there is no objection lodged with the AO disputing his jurisdiction u/s. 124 for this year. Reference, accordingly, be therefore made to para 4 of this order. The Ground is accordingly dismissed. 14. Ground No.5 does not arise out of the assessment order or the impugned order. It is also not clear as to how the same is a part of assessment being appealed against. The same is accordingly dismissed as not maintainable. We decide accordingly. 15. In the result, the assessee’s appeal for AY 2004-05 is dismissed, and that of AY 2005-06 is partly allowed. Order pronounced in open Court on November 29, 2022 Sd/- Sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: 29/11/2022 vr/- Copy to: 1. The Assessee: Shri Hajarimal Mishrimal Bafna, Tar Bazar, Shastri Bazar, Pandhurna, Chhindwara (MP) 2. The Revenue: Addl. Commissioner of Income Tax Range, Chhindwara (MP) 3. The Principal CIT-1, Jabalpur (MP) 4. The CIT(A)-1, Jabalpur. 5. The Sr-D.R., ITAT, Jabalpur. 6. Guard File. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur. 12 | P a g e