Case Law Details
Golden Traders Vs ITO (ITAT Delhi)
Introduction: In the case of Golden Traders vs. ITO, ITAT Delhi grappled with an income tax addition under Section 69B of the Income Tax Act. The addition was made due to the failure of the assessee to compile data and information during the COVID-19 pandemic, which disrupted normal business operations. This article provides a detailed analysis of the case and its implications.
Detailed Analysis:
1. Background: The appeal was filed by Golden Traders against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2018-19. The key issue in contention was an income tax addition made under Section 69B.
2. The Grounds of Appeal: The assessee raised multiple grounds of appeal, challenging the assessment order on various counts. These grounds included assertions that the assessment was based on conjectures and surmises, that the additions made were incorrect, and that the assessment proceedings were carried out arbitrarily. The grounds also highlighted issues related to the impact of COVID-19 on the ability to compile necessary data and the violation of the principles of natural justice.
3. Assessment and Additions: The Assessing Officer made two significant additions to the assessee’s income:
- A difference of Rs. 53,07,046 between the purchase figures reported in Form 26AS and the books of account was treated as unexplained expenditure.
- Unsecured loans amounting to Rs. 83,51,000 were treated as unexplained investments under Section 69B.
4. Assessee’s Argument: The assessee contended that the COVID-19 pandemic severely disrupted normal business operations, making it impossible to compile the required data and information during the assessment proceedings. The assessee emphasized that it had maintained proper books of account, submitted audit reports, and filed its income tax return within the due date.
5. Failure to Receive Notices: The assessee also highlighted that it had not received notices during the proceedings before the Commissioner of Income Tax (Appeals) as the notices were sent to an email address that did not belong to them. This further complicated the situation.
6. Restoration by ITAT Delhi: Considering the extraordinary circumstances created by the COVID-19 pandemic and the apparent lapses in communication and compliance, ITAT Delhi decided to restore the matter back to the Assessing Officer for fresh consideration. The assessee was directed to extend full cooperation to the Assessing Officer in presenting the relevant facts and documents for a fair determination.
Conclusion: The case of Golden Traders vs. ITO is a testament to the challenges posed by the COVID-19 pandemic in conducting income tax assessments. The restoration of the matter to the Assessing Officer underscores the importance of considering exceptional circumstances and granting opportunities for compliance, especially when external factors such as a pandemic disrupt normal business operations. It remains to be seen how the Assessing Officer will reevaluate the case based on the presented facts and information.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 17.03.2023 arising from the assessment order dated 22.04.2021 passed by the Assessing Officer (AO) under Section 144 r.w. Section 144B of the Income Tax Act, 1961 (the Act) concerning AY 2018-19.
2. The grounds of appeal raised by the assessee read as under:
“1. That the Ld AO has erred in law and on fact in making wrong and incorrect assessment u/s.144 of Income Tax Act 1961 without appraising all facts and figures and on mere Imaginary grounds based on conjectures and surmises.
2. That the Ld. CIT(A) also erred in upholding the incorrect order contrary to the settled provisions of act passed by the Ld. A. O. Thus, both the orders are liable to be set aside.
3. That the Ld AO has erred in law and on fact in the assessment order making the addition of Rs.53,07,046/- being difference in purchase and Rs.83,51,000/- relating to squared up unsecured loans, which is bad in law and Ld. CIT(A) also ignored the vital facts which are apparently appearing on the facts of the case but instead he uphold the order of the A.O.
4. That the Id. AO has erred in law and on facts in passing assessment order u/s. 144 as the assessment has been framed arbitrarily without ensuring proper opportunity of being heard in respect of both additions by not serving the notice on correct address of appellant as stipulated u/s. 282 of IT Act, 1961 and Ld. CIT(A) has erred in upholding the same.
5. That there has been violation of principle of natural justice and equity as the Appellant was prevented from making a reply to the show cause notice due to unprecedented situation of Covid-19.
6. That the Appellant has never received any notices during the proceedings before Commissioner Appeal as the same were sent only by Emails to stantoshkumar.965@rediffmail.com which admittedly does not belong to appellant and was never conveyed to the appellant from the said person to whom the said email id belongs.
7. That the Id. CIT(A) dismissed the appeal of appellant on the ground of non-submission of explanation which they could not present due to circumstances beyond their control and in the interest of natural justice, it is therefore prayed one more opportunity may be given to the assessee to substantiate his case on merits.
8. That the appellant reserves the right to add alter and amend or to delete any or all the grounds of appeal on or before the date of hearing.
9. That the facts and circumstances would undoubtedly demonstrate that the appellant is a victim of circumstances which happened due to the reasons beyond the control particularly on account of unprecedented situation of theCovid-19 which affected the entire globe. To meet the ends of interest of justice, present is a fit case, where the appellant should be afforded an opportunity to make all his submissions along with the facts and records before the authority to reconsider the assessment order.”
3. When the matter was called for hearing, the ld. counsel for the assessee submitted that;
3.1 The assessee is a partnership firm having PAN AARFG0927H and was formed on 21.04.2017 with the object to do business of trading of Scrap etc. The assessee procures the scrap from the factories / industries and sells them in the same form or after dismantling. During the AY 2018-19, being the subject matter of the present proceedings, assessee had undertaken total scrap purchases for Rs. 3,55,59,446/- and out of that made total sales for Rs. 2,78,57,115/- and left with closing stock amounting to Rs. 97,76,370/-. The assessee had maintained proper books of account, which were audited under Income Tax Act 1961 and Audit Report in Form 3CB-3CD was uploaded on Income Tax Portal along with audited balance sheet and Profit and Loss account. The Assessee filed their Income Tax Return within the due date in Form ITR-5 on 31.10.2018. Further, all the purchase and sales bills are duly recorded, authenticated & substantiated by the corresponding GST returns. The assessee’s case for the subject assessment year was selected for scrutiny for the reasons “Large squared up loans during the year” as per the Tax Audit Report and “Low income from TCS receipts – Scrap.” in comparison to Form 26AS. A notice u/s. 143(2) was issued on 28.09.2019 for the purposes of scrutiny. The assessment proceedings were however undertaken during the period of Covid-19 when the entire Globe was under complete lockdown and movement within our country was also severely restricted. The assessee was thus unable to compile the data and information sought by Ld. AO during the assessment proceedings due to unavailability of their accountant and back up staff handling their assessment matter due to ongoing Covid-19 pandemic. The applicant was totally handicapped and helpless to comply with the notices.
3.2 Consequently, the Assessing Officer passed assessment order u/s. 144 on 22.04.2021 by recording reasons and made following additions:
a) As seen from the Annual Information Statement i.e., Form-26AS available with the department, the assessee has made purchases to the tune of Rs. 4,08,66,492/- from M/s Indus Towers Limited and TCS was deducted at Rs.4,08,665/-, whereas the purchases reported in the P&L account is Rs. 3,55,59,446/-. Since, the assessee has not submitted any information, the difference amount of Rs.53,07,046 (4,08,66,492 – 3,55,59,446) is treated as unexplained expenditure and added back to total income.
b) As seen from Form-3CD during the year under reference, the assessee has shown squared up loans to different parties to the tune of Rs. 83,51,000/- and since, the assessee has not furnished any evidence or reply, the entire amount of Rs.83,51,000/- is treated as unexplained investment u/s 69B.
3.3 As a result of aggregate additions of Rs.1,36,58,046/-thus made, a tax demand for Rs.1,10,48,800/- was fastened on the assessee.
3.4 The ld. counsel submits that the assessee could not explain the facts of his case due to an unprecedented situation of Covid-19 and the Assessing Officer made addition by not appreciating the facts and data in correct perspective the assessment order is premised under misconceived facts as under:
a) Wrongly compared the figures of amount paid / credited for TCS purposes to the tune of Rs.4,08,66,492/-as reflected in Form 26 AS with the purchases as per books of account and incorrectly added the difference amount of Rs. 53,07,046/ – to the income as unexplained expense, which otherwise, is the amount of GST paid and not any unexplained expense or undisclosed income.
b) incorrectly considered the unsecured loans marked squared up in the Tax Audit report as loan repaid and add back them as unexplained investments u/s. 69B. Whereas the entire amount of unsecured loans of Rs. 83,51,000 was received by proper banking channel and duly recorded in audited books of accounts, out of which only Rs.14,00,000 was actually repaid during the year as recorded in books of account and remaining Rs.69,51,000/- was continued to remain outstanding as reflected under liability head of audited balance-sheet as on 31.3.2018. However, this material aspect and record was totally ignored.
3.5 The ld. counsel thus submits that both the additions made by the Assessing Officer are without any substance and against the rudimentary principles of accounting owing to erroneous understanding of facts.
3.6 Citing reasons for non compliance before the CIT(A), the ld. counsel contends that all the partners of the assessee firm have done their schooling up to intermediate level from their Village in Uttar Pradesh. None of them are well versed with the complex scheme of faceless appellate proceedings, its mode and manner of serving of notices and compliance thereon. Thus, they were completely dependent on the Chartered Accountant operating near to their place of business assigned to handle the appellate proceedings. The Assessee had provided full information, reconciliation, documents and data in their support and access to their login on Income Tax Portal to the consultant. It was pointed out that assessee never received any notices towards the proceedings before Commissioner of Income Tax (Appeals) as emails were being sent to santoshkumar.965@rediffmail.com which does not belong to them. It is submitted that the assessee never received any physical notices for the above said CIT(A) hearings either. It was submitted that being the beginner in the trade, the assessee had no prior experience to face the proceedings before the Income Tax Authorities and the issue in question was their first experience.
3.7 The ld. counsel next submitted that the assessee was vigilant and regularly in follow up with the consultant to know the progress of their appeal but the AR never informed any pending compliance. The assessee was taken by surprise about the dismissal of appeal before CIT(A) on 17.03.2023 and for non-furnishing of submission by the consultant in support of their grounds of appeal.
3.8 The Ld. counsel, in essence, submitted that the ld. CIT(A) dismissed the appeal ex-parte and confirmed the addition made by Ld. AO due to failure of consultant in this regard and due to Covid-19 pandemic before Assessing Officer. The Assessee was thus again deprived to make his submissions and documents with correct facts before the CIT(A) due to negligence on the part of his AR.
3.9 In the backdrop, the ld. counsel contends that the appeal before CIT(A) was dismissed without the opportunity which has resulted in an incorrect addition against them.
3.10 On merits, the ld. counsel adverted to the mismatch in the value of supplies received from Indus Tower Ltd. amounting to Rs.53,07,046/- and pointed out that the TCS @1% has been collected on the gross value of purchases including GST component whereas the assessee has booked the purchases at net value and the GST component as well as advance component were excluded. The mismatch is thus fully explainable on facts. As regards the addition on account of unexplained investments, it was submitted that the transactions are fully supported by the confirmation and other cogent evidences to discharge onus lay upon the assessee. An opportunity in this regard could not be utilized due to ongoing pandemic.
3.11. In the circumstances narrated above, the ld. counsel urged for an opportunity to place correct facts and details for appreciation of the Revenue Authorities. The ld. counsel thus sought suitable relief in the matter.
4. The ld. DR, on the other hand, supported the action of the Assessing Officer and CIT(A) and submitted that the assessee is a habitual defaulter and neither attended before the Assessing Officer nor availed the opportunity given at the stage of CIT(A) and therefore, on the face of such a proverbial neglect displayed by the assessee, the action of the Revenue Authorities were correct and righteous and therefore, no interference therewith is called for.
5. We have carefully considered the rival submissions and perused the first appellate order under challenge as well as the assessment order. The material referred to and relied upon in the course of hearing has also been perused.
6. The action of the Assessing Officer in making additions towards alleged mismatch in the purchases shown in the books vis-à-vis Annual Information Report in 26AS and unexplained investments towards settlement/repayment of loan etc. is subject matter of controversy. It is the contention of the assessee that it was hamstrung and handicapped in adducing the requisite evidences to support the correctness of purchases declared and source of payments of loan etc. due to ongoing pandemic and consequent travel difficulties and strict government regulations to assuage due to safety concerns.
7. It is common knowledge that Covid-19 caused unprecedented disruption across the globe at the relevant time when the assessment and the first appellate order were made. Hence, we find some force in the plea of the assessee against any deliberate complacency. However, in the same vein, in the absence of relevant facts available before the lower authorities it is not possible to draw any conclusion on the correctness of the plea on merits by the Tribunal at this stage. In the circumstances, we consider it just and proper to summarily restore the matter back to the file of the Assessing Officer for de novo consideration of the subject matter and fresh determination of the issues involved in the light of relevant facts and in accordance with law after giving proper opportunity to the assessee. The assessee is directed to extend full co-operation to the Assessing Officer in this regard failing which the Assessing Officer shall be at liberty to draw appropriate inference. Therefore, all the issues involved in the present appeal are set aside and remitted back to the file of the Assessing Officer for determination thereof afresh.
8. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 31/08/2023
