Case Law Details
Hindustan Marble & Granite Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that delay of 288 days committed as assessment order mailed to email ID of erstwhile employee and hence delay in filing of an appeal condoned. Matter remanded back to CIT(A) for fresh adjudication.
Facts- A search and seizure action u/s. 132 of the Act was conducted at the office premises of the assessee and certain incriminating material were found and seized from the said premises. AO completed the assessment u/s. 143(3) r.w.s. 153D of the Act on 26.09.2021 determining the assessee’s total income at Rs.5,56,59,610/- and also initiated penalty proceedings u/s. 271AAB of the Act. Aggrieved by the assessment completed u/s. 143(3) of the Act the assessee preferred an appeal before the CIT(A).
CIT(A) dismissed the appeal as the same was filed with a delay of 288 days.
Conclusion- Held that an application for condonation of delay was filed before the ld. CIT(A) stating that the assessment order was mailed to the email ID of erstwhile employee, who resigned from the firm on 26th June, 2018. The assessee came to know the fact only when they received the recovery notice dated 11.11.2022 and immediately thereafter took necessary steps to file appeal before the ld. CIT(A) and finally filed the appeal on 23.01.2023. In our opinion this is a fit case to condone the short delay of 288 days in filing the appeal before the ld. CIT(A). Accordingly, the delay is condoned.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the ld CIT(A)-11, Bangalore’s order dated 29.03.2024 vide DIN: ITBA/APL/ M/250/2023-24/1063648001(1) passed under Section 250 of the Income Tax Act, 1961 (the Act) for the Assessment Year (AY) 2020-21.
2. The assessee has raised the following grounds of appeal: –
“1. The order of the learned assessing officer in so far as it is against the appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the case and the Learned Commissioner of Income Tax (Appeals) erred in upholding the same.
2. The Ld. Commissioner erred by mechanically dismissing the appeal by not condoning the delay, ignoring the facts of the case and Affidavit furnished by the Appellant wherein the reason for the delay was explained.
3. The learned CITA has failed to appreciate the reasons for the delay in filing the appeal which was purely due to improper serving of the penalty order in as much as the employee whose email id was given had left the Appellant and the email remained unattended and consequently, the penalty order remained unattended.
4. The learned CIT(A) has erred in relying upon several decisions when the facts of the case is clear that the penalty order was not served to the appellant on time and the learned CIT(A) ought to have heard the appeal on merits and erred in dismissing the appeal on technical reasons.
5. The order passed u/s 143(3) r.w.s 153D of the Act is bad in law and void-ab- initio as there was no valid search and consequently all the actions are bad in law and hence the penalty order so passed based on such assessment order needs to be cancelled.
6. The assessment order so passed by the learned assessing officer is beyond the limitation period under the facts and circumstances and hence all the consequential acts thereunder is bad in law and order needs to be cancelled.
7. The Ld. Commissioner (Appeals) failed to note that the Appellant had filed the return of the current assessment year 2020-21 by providing the mail id of bcr@hmgstones.com whereas the Ld. AO admittedly not served the penalty order to the above mail id but to the mail id of ramesh@hmgstones.com, Thus by not serving the order as stipulated u/s 282 r.w.r. 127, the Ld. AO erred on primary facts.
8. Penalty in respect of addition in respect of stock in trade: The Ld. AO erred in the order of Rs. 2,75,46,363/- made by artificially increasing the value of stock in trade @27% of the cost though the same was made at the behest of search officers on estimation basis without there being any seized material to support the undisclosed income of the Appellant, the penalty levied on such incorrect addition is bad in law, considering penalty is an independent proceeding.
9. It is also submitted that there is no concept called estoppel under the provisions of the Income Tax Act and mere admission without there being anything more corroborative materials unearthed in search proceedings or brought to record by the assessing authority won’t render such mere admission automatically taxable in the assessment stage when the order was made u/s 143(3) r.w.s.153D of the Act, especially when the purpose of scrutiny assessment is to ascertain the true and correct income and not to confer the admission made on estimation basis and hence levying the penalty on such incorrect assessment is also equally incorrect.
10. The Ld. AO erred in passing the penalty for mere change in the methodology as the Appellant was adhering to the weighted average cost of stock in trade valuation on FIFO basis consistently over the years since its inception and there was no issue in this regard and this fact was duly disclosed in the Firm’s annual reports and the Department was very much aware of this disclosure and there was no issue in this regard for the past 30 years, wherein the Firm’s book was subjected to scrutiny assessment and also subjected to Search action, making adjustment to closing stock of current year on stand-alone basis is incorrect.
11. The Search Party did not find any errors in the quantity of stock between the physical verification and the book stock and they only recommended to add the value of overheads in the stock valuation and the Appellant complied with the same. Hence mere increase to the stock value so made is not an undisclosed income when there was no requirement to change the consistently adopted method of accounting all of a sudden from weighted average method consequently under the circumstances, levying the penalty is patently incorrect.
12. The learned AO has not made out any case to bring out how there is “undisclosed Income” as per section 271AAB and has thus erred in levying penalty without satisfying the basic elements for levy of penalty.
13. The Ld. AO erred in the order by levying the penalty without complying with the preconditions laid down u/s 271AAB of the Act.
14. The Ld. AO erred in the order when the underlying addition was made on adhoc basis in as much the stock value was increased at flat rate of 27% without there being any tangible materials.
15. The Ld. AO erred in the order by holding that the present method of stock valuation does not account the direct costs in valuing the closing stock when the Appellant Firm is not into the business of manufacture and there is no value addition but into the mere trading business and no direct cost apart from the small employee cost of Rs. 13,25,273/- was incurred during the current AY 2020-21, whereas addition of Rs. 2,75,46,363/- was made towards the undervaluation of stock. Hence when there is no nexus between the amount of addition and direct costs, when the addition made itself is incorrect, the levy of penalty is also incorrect.
16. The Ld. AO failed to note that no real income exists representing the undisclosed income as required u/s 271AAB of the Act and hence levy of penalty u/s 271AAB is incorrect.
17. The Ld. AO erred in levying the penalty when the approximation was based out of the entries found in the books of accounts on 04.03.2020 much prior to the date of closure of books of accounts when the books of accounts were unaudited. The question of valuing the stock on a daily basis does not arise when the Appellant has a consistent method of valuation of stock when the books are well maintained to get full details of the quantity purchased and sold and closing stock and the valuation thereof is always done at the end of the year. The search party took the value in the stock records and came to a conclusion that it has to be revised upward without any basis.
18. The Ld. AO failed to appreciate that any adjustment to the stock done during the year before filing the return of income cannot be a matter for levy of penalty as the books were unaudited at that stage and the Appellant would have modified the method of valuation in the normal course.
19. The Ld. AO erred in the order when the valuation of stock is done at the end of the year on a consistent method, levying penalty on this amount when there was no error in the physical quantity of goods is totally incorrect.
20. The Ld. AO erred in the order as she failed to appreciate that the valuation of stock was only method of approximation and addition so made to the current year’s closing stock will be deducted in the immediate succeeding year in the form of opening stock-in-trade and the addition was made on applying arbitrary yardsticks and hence even under this ground the addition will not constitute the undisclosed income as there is revenue neutrality.
21. Regarding the writing off of the credit and debit balances:
The Ld. AO erred in the order as she failed to note that the Appellant had maintained the normal books of accounts and write of creditors balances was completely based on such normal books of accounts and hence amount stated by the Ld. AO does not fit into the definition of undisclosed income as required u/s 271AAB of the Act.
22. The Ld. AO failed to note as the Appellant Firm is writing off the creditors balances as required u/s 41(1) of the Act since past many years and no contravention of the extant provision was brought to the records by the Ld. AO as the Appellant has been voluntarily reviewing the balances which is no more payable/receivable during the closure of books and the ledger balances on the date of balance sheet date on regular basis and search was not made on balance sheet date but on 04.03.2020 and the accounts were yet to be subject to audit on the date of search, hence stating income has escaped the assessment is premature and levying the penalty u/s 271AAB of the Act is incorrect
23. The Ld. AO erred in holding that the Appellant had undisclosed income as required u/s 271AAB when on facts the Appellant at the time of search had even irrecoverable debit balances of its customers which was not claimed as deduction, which were pending for write off of Rs. 4,63,960/- as per Annexure no.01 of the statement recorded u/s 132 dated 06.03.2020. This fact proves that the balances in debtors and creditors are written off during the closure of books at the time of preparation of financials and there was no requirement to term such balances as undisclosed.
24. It is also submitted that there is no concept called estoppel under the provisions of the Income Tax Act and mere admission without there being anything more corroborative materials unearthed in search proceedings or brought to record by the assessing authority won’t render such mere admission automatically taxable in the assessment stage when the order was made u/s 143(3) r.w.s.153D of the Act, especially when the purpose of scrutiny assessment is to ascertain the true and correct income and not to confer the admission made and hence levying the penalty on such incorrect assessment is also incorrect.
25. The Ld. AO failed to appreciate that quantification u/s 41(1) is year-end exercise and this can be better understood by the fact that appellant as on 04.03.2020, before the search parties approximated the balance to be written off as Rs. 1,78,00,994/- whereas as on 31.03.2020, as the Appeliant could identify few more parties of Rs.74,637/- and the actual written off during the year amounted to Rs. 1,78,75,631/- and hence genuine routine exercise cannot be a subject matter for levy of penalty.
26. The notices issued by the Ld. AO is not as per the instructions issued by the CBDT and hence all the consequential actions are bad in law.
27. The Ld. AO erred in the order as she failed to appreciate that the penalty u/s 271AAB is not mandatory.
28. The Officers below erred in the order by misinterpreting the penal provisions of the Act.
29. Without prejudice to any other ground, the Ld. AO erred in the order by not providing the due opportunity in the penalty proceedings also the Ld. AO has levied the purported penalty order on 11.03.2022 much before the time limit provided to file the appeal against the scrutiny order which was expiring on 30.05.2022.
30. The Appellant submits that each of the above grounds are mutually exclusive and without prejudice to one another.
31. The appellant craves permission to add, delete, alter, amend, vary, omit or substitute any of the grounds at the time of hearing.
32. For these and other grounds that may be urged at the time of hearing, the appellant prays that the Hon’ble Income Tax Tribunal may kindly delete the penalty levied by the Ld. AO in her order under the principles of natural justice.”
3. The brief facts of the case are that the assessee is engaged in the business of trading in Marble, Granite and other natural stones. A search and seizure action u/s. 132 of the Act was conducted at the office premises of the assessee on 04.03.2020 and certain incriminating material were found and seized from the said premises. Subsequently the assessee filed its return of income for the relevant assessment year on 13.01.2021 declaring a total income of Rs.5,56,59,610/-. Thereafter notices u/s. 143(2) and 142(1) were issued on 15.02.2021 and 17.08.2021 calling for various details and in reply the assessee has made submission on 17.09.2021 and admitted an amount of Rs.2,75,46,363/- on account of excess value of stock found. The AO completed the assessment u/s. 143(3) r.w.s. 153D of the Act on 26.09.2021 determining the assessee’s total income at Rs.5,56,59,610/- and also initiated penalty proceedings u/s. 271AAB of the Act. Aggrieved by the assessment completed u/s. 143(3) of the Act the assessee preferred an appeal before the CIT(A).
4. Before the ld. CIT(A) the appeal was filed with a delay of 288 days. Even though the assessee has filed a detailed affidavit explaining the reasons for the delay, but the ld. CIT(A) dismissed the appeal holding that the assessee has failed to explain the excessive and unreasonable delay in filing the appeal.
5. Before us the ld. A.R. of the Assessee vehemently submitted that the CIT(A) dismissed the appeal on the sole ground that the sufficient cause for delay in filing appeal is not established. The ld A.R. drew our attention to the application for condonation of delay and affidavit filed before the CIT(A), which are part of the appeal bunch filed before us.
6. The learned D.R., on the other hand, supported the order of the CIT(A) and submitted that the assessee was given ample opportunities to file the reasons by issuing various notices u/s. 250 of the Act. However, no response was filed with respect to the substantial delay of about 4 months in filing the appeal. Further the DR submitted that the cause given by the assessee is very general & unverifiable and therefore the ld. CIT(A) is correct in dismissing the appeal for want of sufficient cause for delay in filing the appeal.
7. We have heard the rival contentions and perused the material on record. It is undisputed fact that the assessee has filed the appeal before the ld. CIT(A) with a delay of 288 days. On perusal of the record we find that an application for condonation of delay was filed before the ld. CIT(A) stating that the assessment order was mailed to the email ID of erstwhile employee, who resigned from the firm on 26th June, 2018. The assessee came to know the fact only when they received the recovery notice dated 11.11.2022 and immediately thereafter took necessary steps to file appeal before the ld. CIT(A) and finally filed the appeal on 23.01.2023. The assessee submitted that the delay was not deliberate and prayed for admitting the appeal after condoning the delay.
8. In the case of Collector, Land Acquisition v. Mst. Katiji & Ors. Reported in (1987) 167 ITR 471 (SC), the Hon’ble Supreme Court laid down six principles. For the purpose of convenience the principles laid down by the Hon’ble Supreme Court are reproduced hereunder: –
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 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 pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational, commonsense and pragmatic manner.
iv. When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-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 the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
9. Being so, when substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of non-deliberate delay. In our opinion this is a fit case to condone the short delay of 288 days in filing the appeal before the ld. CIT(A). Accordingly, the delay is condoned.
10. After condoning the delay, in our opinion, it is appropriate to remit the issue in dispute with regard to the merit of the addition made by the ld. AO to the file of the ld. CIT(A) as he failed to adjudicate the same. Accordingly, the issue in dispute is remitted to the file of the ld. CIT(A) for fresh adjudication.
11. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 13th August, 2024.
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