IN THE ITAT BANGALORE BENCH ‘B’
Jaico Automobile Engineering Co. (P.) Ltd.
V/s.
Assistant Commissioner of Income-tax, Circle 11(5), Bangalore
IT APPEAL NOS. 1057 & 1133 (BANG.) OF 2010
[ASSESSMENT YEAR 2007-08]
APRIL 30, 2012
ORDER
N.K. Saini, Accountant Member
These cross-appeals by the assessee and the department are directed against the order dated 30.06.2010 of the CIT (Appeals)-I, Bangalore.
2. Since the issues involved are common and the appeals were heard together, so these are being disposed of by this consolidated order for the sake of convenience.
3. First, we will deal with the appeal of the department in ITA No.1133/Bang/2010.
4. Following grounds have been raised in this appeal :
“1. The Order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and circumstances of the case.
2. The learned CIT(A) has erred in deleting the addition made on account of unaccounted scrap sales to the extent of Rs. 10,00,000-00 out of the total addition of Rs. 25,76,253-00 made on this account, without a proper basis and without appreciating the facts and circumstances under which the additions were made by the Assessing Officer.
3. The learned CIT(A) has erred in deleting the addition made on account of unaccounted scrap sales without considering the fact that the alleged unaccounted scrap sales was found in the course of survey and the assessee could not produce any evidence for the argument that the same is included in the scrap sales already shown in the books of accounts.
4. Without prejudice to the above, the CIT(A) is not correct in holding, after considering the facts and statement of Sri Ajmera, who was interrogated during the course of survey, that the Assessing Officer has not disputed the statement of Sri Ajmera.
5. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed in so far as the above mentioned issue is concerned and that of the assessing officer be restored.
6. The appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the appeal.”
5. From the above grounds, it is gathered that the only grievance of the department relates to the relief allowed to the assessee out of the addition made by the AO on account of unaccounted scrap sales.
6. The facts of the case in brief are that the assessee was engaged in the business of bus body building and fabrication. The return of income was filed on 31.01.2008 declaring a total income of Rs. 6,52,46,566, the said return was processed u/s. 143(1) of the Income-tax Act, 1961 [hereinafter referred to as “the Act” in short”] on 18.03.2009.
7. A survey u/s. 133A of the Act was conducted in the business premises of the assessee on 22.02.2008, consequent to the survey and material found at the time of survey, the case was selected for scrutiny. The Assessing Officer pointed out that during the course of survey, details of scrap sales were found, but the assessee out of total scrap sales, recorded only sales worth Rs. 31,45,974 and the balance sales of Rs. 25,76,253 was not accounted for in the books. The AO asked the assessee for explanation, one of the employee of the assessee viz., Mr. S.K. Ajmera replied as under:-
“Out of the above amounts, Rs. 10 lakhs has already been included in the sales shown for the financial year 2006-07. The details of the same will be furnished in your office shortly.”
8. The AO observed that the assessee did not furnish any evidence to substantiate its claim that Rs. 10 lakhs of the above sale had already been offered to tax in the earlier years. He accordingly added a sum of Rs. 25,76,253 to the income of the assessee considering the same as unexplained income.
9. The assessee carried the matter to the ld. CIT(Appeals) and the submissions made before him as incorporated in para 15 of the impugned order read as under:-
“With regard to the impugned addition account of the alleged scrap sale, the assessing authority had alleged that in the course of survey, it was found that details towards scrap sales were amounted to Rs. 25,76,253/- which, according to him, was not accounted for in the regular books of accounts. The assessing officer also had observed that the scrap sales to the tune of Rs. 31,45,974/- had been recorded in the books of accounts, It was also observed that Sri S.C. Ajmeera, on interrogation, has submitted that out of Rs. 25,76,253/-, the appellant company had declared Rs. 10.00 lakhs which included the scrap sales shown in the books of accounts. However, the assessing officer alleged that there was no proof provided by the appellant company to accept the statement of Sri. Ajmeera. Having held, the assessing officer had made the addition of Rs. 25,76,253/-.
In this regard, it is submitted that undisputedly the appellant company had declared scrap sales to the tune of Rs. 31,45,974/- in the books of accounts and offered for taxation. The alleged unaccounted scrap sales was found in the course of survey which was nothing but the sales made for which the amounts were received. It may be noticed that the various dates of sale recorded vary from April to December 2006 and January 2007. The party to whom such sales were made, had also been noted. It may kindly be appreciated that the sales have been recorded in the books of accounts were also with the same party. In other words, all these sales have been recorded in the books of accounts which form part of the total sales of Rs. 31,45,984/- as declared. The variations in dates were only on account of the dates of dispatch or delivery and the dates on which the amounts were received. In the circumstances, the impugned addition as made are totally uncalled for and the same was required to be deleted. In the alternative, the statement of Sri Ajmeera should have been given credence to and at least Rs. 10.00 lakhs should have been allowed out of Rs. 25,76,253/- and if at all any addition was required, it could only be in respect of the balance.”
10. The ld. CIT(A) after considering the submissions of the assessee restricted the addition to Rs. 15,76,253 by observing in para 15.1 of the impugned order as under:-
“After considering the facts and statement of Sri Ajmera, not disputed by the A.O, addition is restricted to Rs. 15,76,253/-. Appeal is partly allowed.”
11. Now both the parties are in appeal. The department is in appeal against the relief of Rs. 10 lakhs, while the assessee is in appeal against the sustenance of addition of Rs. 15,76,253.
12. The ld. CIT(DR) strongly supported the order of the AO and further submitted that the assessee did not furnish any evidence in support of its claim that a sum of Rs. 10 lakhs was offered for taxation in another year, so there was no option left with the AO, except to reject the claim of the assessee and to make the addition.
13. In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the order passed by the ld. CIT(A) on this issue is a non-speaking order because no cognizance has been given to the submissions made by the assessee and no reason has been given while confirming the addition of Rs. 15,76,253.
14. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the ld. CIT(A) in para 15 of the impugned order has reproduced the submissions made by the assessee and finding has been given in para 15.1 of the impugned order, which we have already reproduced in the former part of this order. From the observations of the ld. CIT(A) given in para 15.1, it is clear that no reason or basis has been given while allowing the relief of Rs. 10 lakhs and sustenance of addition of Rs. 15,76,253. In fact, the order passed by the ld. CIT(A) is a non-speaking order because while concluding the issue, the ld. CIT(A) has not given the reasons and also had not rebutted the contention of the assessee.
15. It is well settled that the order/judgment unsupported by reason is not a judgment in the eyes of law. It is also true that the reasons are the link between the material on record and the conclusion thereafter by the Court/Appellate authority. In our view the Ld. CIT(A) should have properly considered the arguments of the assessee as well as findings given by the Assessing Officer and thereafter he should have made independent findings either in favour or against the assessee. Considering the entire facts, we are of the opinion that the Ld. CIT(A) had not passed a proper order in the eyes of law. At this stage, we may refer to the decision of ITAT Ahmedabad Bench in the case of Gujarat Themis Biosyn Ltd. v. Jt. CIT [2000] 74 ITD 339. The ITAT Ahmedabad Bench, while interpreting the provisions of section 250(6) of the I.T. Act, 1961 held as under:
“The provisions of section 250(6) provides that the appellate orders of the Commissioner (Appeals) are to state the points arising in the appeal, the decision of the authority thereon and the reasons for such decision. The underlying rationale of the provisions is that such orders are subject to further appeal to the Tribunal. Speaking order would obviously enable a party to know precise points decided in his favour or against him. Absence of the formulation of the point for decision for want of clarity in a decision undoubtedly puts a party in quandary. Section 250(6) expressly embodies the principle of natural justice and such a provision is clearly mandatory in nature. The impugned order passed by the Commissioner (Appeals) in violation of the provisions of section 250(6) could not, therefore, be sustained.”
16. The ratio laid down by the ITAT Ahmedabad Bench in the aforesaid referred to case is squarely applicable to the facts of the present case.
17. The Hon’ble Punjab & Haryana High Court in the case of CIT v. Palwal Co-operative Sugar Mills Ltd. [2006] 284 ITR 153 has held as under:
“Every judicial/quasi judicial body/authority must pass a reasoned order which should reflect the application of mind of the concerned authority to the issues/points raised before it. The requirement of recording reasons is an important safeguard to ensure observance of the rule of law. It introduces clarify, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process. Another reason which makes it imperative for quasi judicial authorities to give reasons is that their orders are not only subject to the fight of the aggrieved persons to challenge them by filing statutory appeal and revision but also by filing writ petition under article 226 of the Constitution. Such decisions can also be challenged by way of appeal under article 136 of the Constitution of India. The High Courts have the power to issue writs of certiorari to quash the orders passed by quasi judicial authorities/Tribunals. Likewise in appeal the Supreme Court can nullify such order/decision. The power of judicial review can be effectively exercised by the superior courts only if the order under challenge contains reasons. If such order is cryptic and devoid of reasons, the courts can not effectively exercise the power of judicial review.”
18. The Hon’ble Supreme Court in the case of Mangalore Ganesh Beedi Works v. CIT [2005] 273 ITR 56 has held as under:
“Though in an order of affirmation in an appeal u/s 260A of Income Tax Act, 1961 repetition of the reasons elaborately may not be necessary, the arguments advanced / points urged have to be dealt with. Reasons for affirmation have to be indicated, though in appropriate cases they may be brief.”
It has further been held :
“Recording of reasons is a part of fair procedure. Reasons are the harbinger between the mind of the maker of the decision in the controversy and the decision or conclusion arrived at. They substitute subjectivity with objectivity. Failure to give reasons amounts to denial of justice.”
19. As we have already pointed out that in the present case, the ld. CIT(A) has not recorded any reason in support of his decision, therefore, the failure to give reasons amounts to denial of justice as per the ratio laid down by the Hon’ble Supreme Court in the aforesaid case, therefore, the present case requires readjudication at the level of the AO. Considering the totality of the facts as narrated hereinabove, we are of the opinion that this issue requires readjudication at the level of the AO because one of the reasons for making the addition was that the assessee did not furnish any evidence to substantiate its claim that the income had already been offered to tax in the earlier years. However, in the present case it is not clear as to whether the earlier record which was available with the AO had been considered while taking a view that no evidence was produced by the assessee. We therefore deem it appropriate to set aside this issue back to the file of the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee.
20. Now we will deal with the appeal of the assessee in ITA No.1057/Bang/2010. Following grounds have been raised in this appeal:
“1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have allowed the traveling expenses as claimed by the appellant in full and refrained from upholding the disallowance of Rs. 1,68,371/-.
2. The learned Commissioner (A) ought to have appreciated that the traveling expenses incurred by the wife of the Managing Director of the company along with him was essentially required for the business purpose and was liable to be allowed as held in various judicial pronouncements relied upon and cited before him.
3. The learned Commissioner (A) ought to have appreciated that the interest expenditure incurred by the appellant was exclusively for the purpose of business and no part of the loan was borrowed having been diverted towards non-business purpose.
4. The learned Commissioner (A) ought to have appreciated that no part of the loan borrowed had been provided to the relatives of the Directors to justify the disallowance as the company had sufficient non-interest bearing funds for such advances.
5. On the facts the learned Commissioner (A) ought to have accepted the submissions and also evidence placed before him and ought to have refrained from upholding the disallowance as made by the assessing authority.
6. The learned Commissioner (A) ought to have deleted the addition towards alleged unaccounted scrap sales in full.
7. The learned Commissioner (A) ought to have accepted the explanations offered by the appellant and appreciated that no part of the scrap sales was unaccounted to justify the upholding of the impugned addition to the extent of Rs. 15,76,253/-.
8. The learned Commissioner (A) erred in upholding the computation of capital gains on the transfer of immovable property to M/s. Gopalan Enterprises in the manner as determined by the assessing authority.
9. The learned Commissioner (A) ought to have appreciated that the sale consideration for the sale of immovable property was only Rs. 9 crores and the balance Rs. 5 crores was towards development of the area, out of which the profit derived by the appellant was offered for taxation and in the circumstances the capital gains as determined by the assessing authority was opposed to law and the impugned addition in this regard was liable to be deleted.
10. Without prejudice the capital gains computation as computed by the assessing authority was upheld by the learned Commissioner (A) is required to be sustained, then the expenditure towards cost of improvement as claimed by the appellant was required to be allowed in full.
11. The learned Commissioner (A) further ought to have appreciated that the capital gains as computed by the assessing authority having been sustained, the additional income offered out of Rs. 5 crores consideration by the appellant in its total income is liable to be deleted.
12. The learned Commissioner (A) erred in upholding the computation of capital gains in respect of alleged transaction with M/s. IDEB.
13. The learned Commissioner (A) ought to have appreciated that the joint development agreement proposed with IDEB had not been effected and the agreement entered into between the parties were not acted upon and consequently there was no transfer for justifying the computation of capital gains in the case of the appellant.
14. On the facts the learned Commissioner (A) ought to have appreciated that the cases cited had no application on the peculiar facts of the transaction and there being no transfer’ as contemplated U/s. 2(47) of the Act, no capital gains was liable to be computed for the relevant assessment year.
15. Without prejudice the learned Commissioner (A) ought to have appreciated that on real income theory as propounded by the Hon’ble Supreme Court there was no income under the head ‘capital gains’ computable for the relevant assessment year to justify the impugned addition and accordingly he ought to have deleted the impugned addition in full.
16. Without prejudice the disallowances are excessive, arbitrary and unreasonable and ought to be deleted in toto.
17. The learned Commissioner (A) erred in confirming the interest levied u/s.234B, 234C and 234D of the Act.
18. For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed.”
21. Ground Nos. 1 to 5 relates to the disallowance of the travelling expenses incurred by the wife of Managing Director.
22. The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had debited travelling expenses of Rs. 82,58,364 in its books of accounts and the details of travelling expenses revealed that an amount of Rs. 1,68,371 was stated to have been incurred for personal purposes, the AO disallowed the same u/s. 37 of the Act.
23. The assessee carried the matter to the ld. CIT(A), who confirmed the action of the AO by observing that the wife of the M.D. accompanied him to take care of his health as an attendant and not out of any obligation having direct nexus with the business activities of the assessee, therefore such expenditure could not be treated to have been incurred wholly and exclusively for the purpose of business of the assessee company. Now the assessee is in appeal.
24. During the course of hearing, the ld. counsel for the assessee at the very outset stated that this issue is squarely covered by the earlier decision dated 22.03.2012 of this Bench of the Tribunal in assessee’s own case in ITA No.1056/Bang/2010 for the A.Y. 2006-07, copy of the said order was furnished.
25. In his rival submissions, the ld. CIT(DR) could not controvert the aforesaid contention of the assessee.
26. After considering the submissions of both the parties and material available on record, it is noticed that similar issue having identical facts was also involved for the A.Y. 2006-07 in ITA No.1056/Bang/2010 in assessee’s own case, in the said year vide order dated 23.03.2012 the matter has been remanded back to the Assessing Officer for fresh adjudication and the relevant findings have been given in para 9 of the aforesaid referred to order which read as under:-
“9. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that the AO made the disallowance by observing that the directors and their spouses travelled abroad and that travel was personal in nature. On the other hand, the claim of the assessee is that the director of the company travelled for business purposes and his wife accompanied him. In the present case, the facts are not clear as to whether the director traveled for the business purposes, even there is contradiction in the stand taken by both the parties since the AO mentioned that the expenses were incurred for directors and their spouses, while claim of the assessee is that the wife of one of the director accompanied him because he was suffering from various diseases. The ld. CIT(A) confirmed the action of the AO by observing that the inherent element of enjoyment and entertainment to wife from such trips could not be ruled out. But nothing is brought on record to substantiate the above observations. We therefore considering the totality of the facts as discussed herein above and particularly in the absence of clear facts brought on record, think it appropriate to remand this issue back to the file of the Assessing Officer to be adjudicated afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee.”
27. So, respectfully following the aforesaid referred to order dated 22.03.2012 in ITA No.1056/Bang/2010 for the A.Y. 2006-07 in assessee’s own case, the issue is remanded back to the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee.
28. The next issue vide ground Nos. 6 & 7 relates to the sustenance of addition of Rs. 15,76,253 on account of unaccounted scrap sales. This issue, we have already adjudicated in the former part of this order while adjudicating the departmental appeal in ITA No.1133/Bang/2010 and the matter has been remanded back to the Assessing Officer for fresh adjudication. Therefore these grounds of the assessee’s appeal stands disposed of in the same manner as has been done while deciding the departmental appeal and our findings given therein shall apply mutatis mutandis.
29. Vide ground Nos. 8 to 11, the grievance of the assessee relates to the computation of capital gains on the transfer of immovable property to M/s. Gopalan Enterprises.
30. The facts of the case related to this issue in brief are that the AO noticed that during the course of survey u/s. 133A of the Act on 22.2.2008 conducted in the business premises of the assessee, it was found that the assessee had received Rs. 14 crores from M/s. Gopalan Enterprises. He also noticed that the assessee originally entered into an agreement on 11.8.06 for sale of property consisting of land and industrial building for an amount of Rs. 19,44,38,720, however the deal could not materialize and revised agreement was entered into on 29.11.2006 for an amount of Rs. 14 crores due to reduction in area of land and building. The AO pointed out that the said sale agreement was split into two parts i.e., Rs. 9 crores towards land and Rs. 5 crores towards sale of improvement and a separate agreement was entered into for sale of improvement. The AO also pointed out that the assessee offered to tax a capital gain of Rs. 5,55,31,547 which was worked out as under:-
