Case Law Details

Case Name : Jaswantlal J Shah Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No. 510/Mum/2018
Date of Judgement/Order : 06/05/2021
Related Assessment Year : 2009-10

Jaswantlal J Shah Vs ACIT (ITAT Mumbai)

In ground No.1 of appeal, the assessee has impugned the validity of assessment order on the ground that the Assessing Officer has no jurisdiction to pass the assessment order. The short contention of the assessee is that before changing jurisdiction of the Assessing Officer under section 127 of the Act, the same was not communicated to the assessee. The provisions of section 127(1) & (2) of the Act mandate that the competent authority after giving reasonable opportunity of hearing to the assessee and after recording the reasons for doing so shall pass the order transferring jurisdiction of any case from one Assessing Officer subordinate to him to any other Assessing Officer also subordinate to him. However, sub-section (3) to section 127 provides an exception to the above statutory provision i.e. where the jurisdiction of Assessing Officer is transferred from one Assessing Officer to another Assessing Officer within the same city, locality or place, there is no mandatory requirement to provide opportunity of hearing to the assessee. For the sake of ready reference the relevant provisions of subsection (3) to section 127 of the Act are reproduced herein below:-

“(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.”

In the present case, undisputedly the assessee’s case has been transferred from DCIT-15(2), Mumbai to ACIT, Central Circle-32, Mumbai i.e. the change in jurisdiction of Assessing Officer is within the same city. Hence, there was no statutory requirement for notice or prior intimation for change in jurisdiction to the assessee.

We have also considered the case laws on which the assessee has placed reliance. We find that in all the three decisions relied by assessee, the transfer of jurisdiction of the assessing officer was either covered by the provisions of sub-section (1) or subsection (2) of section 127 of the Act. Thus, the said decisions does not provide any support to the contents of the assessee, being factually at variance. In the case of Advantage Strategic Consulting (P) Ltd. Vs. PCIT (supra), the Hon’ble Madras High Court after considering various decisions (including the decisions relied by the assessee herein) held that where the jurisdiction of Assessing Officer is transferred within the same city, the assessee cannot pled for opportunity to be granted before an order of transfer, as there is no such statutory requirement under the Act, rather, the said procedure has been specifically excluded.

FULL TEXT OF THE ITAT JUDGEMENT

These three appeals by the assessee are directed against the order of Commissioner of Income Tax (Appeals) -53, Mumbai [in short ‘the CIT(A)’] for the assessment years 2009-10, 2010-11 and 2011-12, respectively. All the three impugned orders are dated 18/12/2017. Since, the issues involved in all the three appeals germinate from same set of facts, these appeals are taken up together for adjudication and are decided by this common order. For the sake of convenience these appeals are decided in seriatim.

ITA No.510/Mum/2018 – A.Y. 2009-10:

2. The assessee has assailed the order of CIT(A) by raising following grounds of appeal.

“1. The impugned assessment order passed by the A.O. for A.Y. 2009-10 is ab-initio void as the present A.O. has no jurisdiction to pass the Assessment Order for A.Y. 2009-10.

2. Addition of Rs.18,91,105/- made by the Ld. Assessing Officer (The AO for short) on account of so called bogus purchases, has been restricted to only 12.5% of the total purchase amount, presuming it to be the profit margin of the appellant, which is factually and legally incorrect. The profit margin of the appellant is about 1.5 to 3% only during the A.Y.

3. The Ld.CIT-Appeals-53, Mumbai failed to consider the submissions and the case-law submitted by the Appellant. He has failed to do complete justice in the case of the appellant.

4. The Appellant craves leave to add, amend or alter the Grounds of Appeal mentioned above.”

3. In ground no.1 of the appeal, the assessee has assailed the jurisdiction of Assessing Officer to pass the assessment order for assessment year 2009-10. The assessee has filed written submissions, the relevant extract of same is reproduced herein below:

“ 1. The Ld. Commissioner of Income Tax-Appeals – is not justified in law to hold that the transfer of the case from the Dy.CIT-15(2) to Dy.CIT, Central Circle- 32, on the basis of the order dated 01-07-2005 signed by the ITO (HQ) -15, is correct, legal and in conformity with the pro visions of S.I 27 of the Act.

2. An order u/s 127 of the Act must be communicated under the signature of the competent authority to clearly indicate that there has been an agreement between the CIT having jurisdiction over the case and the CIT having jurisdiction over the transferee AO. Such agreement must be communicated to the assessee.

3. Therefore, the impugned orders dated 24-01-2014 for AY 2009-10, dated 25-03­2013 for AY 2010-11 and dated 29-01-2014 for AY 2011-12 are liable to be quashed and set aside.

CASES RELIED UPON:

1. Rentwork India P. Ltd vs Pr.CIT-14 (Bom. HC) Writ Petition No. (L) 1944 of 2017 decided on 11-10-2017

2. Noorul Islam Educational Trust vs. CIT-1 (2016) 388 ITR 489

3. Ajantha Industries and Ors. Vs CBDT and Ors (1976) 102 ITR 281 (SC)”

4. Usha Gaikwad representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. Departmental Representative strongly supporting the findings of CIT(A) in upholding jurisdiction of the Assessing Officer in passing the assessment order pointed that the Assessing Officer’s jurisdiction has been changed by the competent authority vide order dated 01/07/2005 passed under section 127 of the Income Tax Act, 1961 ( in short ‘the Act’). The ld. Departmental Representative referred to the provisions of sub-section (3) to section 127 of the Act to contend that when jurisdiction of Assessing Officer is transferred within the same city, opportunity of hearing is not required to be given to the assessee. The ld. Departmental Representative further pointed that similar objection was taken by the assessee in assessment years 2005-06, 2006-07 & 2008-09 in ITA No.2599/Mum/2014, ITA No.2444/mum/2011 & ITA No.8274/Mum/2011, respectively. The Tribunal vide order dated 08/05/2017 common for aforesaid assessment years dismissed assessee’s ground challenging the jurisdiction of Assessing Officer on identical set of facts. The ld. DR to buttress her submissions also placed reliance on the following decisions:

Shree Ram Vessel Scrap (P) Ltd. vs CIT, 32 taxmann.com 120 (Guj.) &

Advantage Strategic Consulting (P) Ltd. Vs. PCIT, 88 taxmann.com 104 (Mad.)

5. We have considered the submissions of rival sides and have examined the orders of authorities below. In ground No.1 of appeal, the assessee has impugned the validity of assessment order on the ground that the Assessing Officer has no jurisdiction to pass the assessment order. The short contention of the assessee is that before changing jurisdiction of the Assessing Officer under section 127 of the Act, the same was not communicated to the assessee. The provisions of section 127(1) & (2) of the Act mandate that the competent authority after giving reasonable opportunity of hearing to the assessee and after recording the reasons for doing so shall pass the order transferring jurisdiction of any case from one Assessing Officer subordinate to him to any other Assessing Officer also subordinate to him. However, sub-section (3) to section 127 provides an exception to the above statutory provision i.e. where the jurisdiction of Assessing Officer is transferred from one Assessing Officer to another Assessing Officer within the same city, locality or place, there is no mandatory requirement to provide opportunity of hearing to the assessee. For the sake of ready reference the relevant provisions of subsection (3) to section 127 of the Act are reproduced herein below:-

“(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.”

In the present case, undisputedly the assessee’s case has been transferred from DCIT-15(2), Mumbai to ACIT, Central Circle-32, Mumbai i.e. the change in jurisdiction of Assessing Officer is within the same city. Hence, there was no statutory requirement for notice or prior intimation for change in jurisdiction to the assessee.

5.1. We have also considered the case laws on which the assessee has placed reliance. We find that in all the three decisions relied by assessee, the transfer of jurisdiction of the assessing officer was either covered by the provisions of sub-section (1) or subsection (2) of section 127 of the Act. Thus, the said decisions does not provide any support to the contents of the assessee, being factually at variance. In the case of Advantage Strategic Consulting (P) Ltd. Vs. PCIT (supra), the Hon’ble Madras High Court after considering various decisions (including the decisions relied by the assessee herein) held that where the jurisdiction of Assessing Officer is transferred within the same city, the assessee cannot pled for opportunity to be granted before an order of transfer, as there is no such statutory requirement under the Act, rather, the said procedure has been specifically excluded.

5.2. We further find that the Co-ordinate Bench of Tribunal in assessee’s own case in assessment years 2005-06, 2006-07 and 2008-09 (supra) has dismissed identical ground raised by the assessee challenging jurisdiction of Assessing Officer on same set of facts. We find no infirmity in the impugned order. The ground No.1 of appeal is without any merit, hence, the same is dismissed.

6. In ground No.2 of appeal, the assessee has assailed addition on account of bogus purchases. The assessee is a trader in ferrous and non-ferrous metals. On the basis of information received from the Sales Tax Department, Government of Maharashtra, assessment for assessment year 2009-10 in the case of assessee was reopened. As per the information received, the assessee had obtained bogus purchase bills aggregating to Rs.18,91,105/- from various dealers declared as hawala operators. The assessee could not prove genuineness of the dealers as the notice issued by the Assessing Officer under section 133(6) of the Act on the addresses furnished by the assessee were returned back unserved by the postal authorities with remarks ‘not known’ or ‘left’. No confirmations were either filed by the assessee from the said dealers. No documentary evidence in the form of transport receipts, proof of delivery stock register etc. were furnished by the assessee to prove trail of goods. In other words, the assessee failed to discharge his onus in proving genuineness of purchases. In the absence of cogent evidence, the Assessing Officer made addition of the entire such bogus purchases. In first appellate proceedings, the CIT(A) restricted the addition to 12.5% of such purchases.

6.1. Undisputedly, during assessment proceedings, the Assessing Officer accepted the sales declared by the assessee. Without purchases there cannot be sales. The Hon’ble Bombay High Court in the case PCIT vs. Paramshakhti Distributors Pvt. Ltd. in Income Tax Appeal No.413 of 2017 decided on 15/07/2019 has held that it is only the profit embedded in such transactions that has to be disallowed. The entire alleged bogus purchases cannot be added. The G.P. in trading of ferrous and non-ferrous metals generally range between 5% to 8%. The CIT(A) has estimated G.P. on bogus purchases at 12.5%. The estimation of G.P. by the CIT(A) in our considered opinion is on higher side. To meet the ends of justice, we restrict G.P. on bogus purchases to 6%. The findings of CIT(A) on this issue are modified to that extent. Consequently, ground No.2 of the appeal is partly allowed.

7. The ground No.3 & 4 of appeal are general in nature, hence, requires no adjudication.

8. In the result, appeal of the assessee is partly allowed in the terms aforesaid.

ITA No.511/Mum/2018 – A.Y.2010-11:

9. The assessee has assailed the order of CIT(A) by raising following grounds of appeal.

“1. The impugned assessment order passed by the A.O. for A.Y. 2010-11 is ab -initio void as’ the present A.O. has no jurisdiction to pass the Assessment Order for A.Y. 2010-11.

2. Addition of Rs.80,22,203/- on account of undisclosed peak cash is factually and legally incorrect.

3. The Ld.CIT-Appeals-53, Mumbai failed to consider the submissions and the case-law submitted by the Appellant and the CIT-Appeals erroneously confirmed the findings of the Dy. CIT, Central Circle-32,Mumbai.

4. The Appellant craves leave to add, amend or alter the Grounds of Appeal mentioned above.”

10. The ground No. 1 of the appeal is identical to the ground No.1 raised in the appeal for assessment year 2009-10. The assessee has assailed change in jurisdiction of the Assessing Officer on same set of facts. Since, the ground raised in appeal and the facts germane to the issue are identical to the one already adjudicated by us, in the appeal of assessee for assessment year 2009­10, the findings given by us in assessment year 2009-10 would mutatis mutandis apply to the ground No.1 raised in appeal for assessment year 2010-11. Thus, ground No.1 of appeal is dismissed.

11. In ground No.2 of appeal, the assessee has assailed addition made on account of bogus purchases. The assessee has allegedly obtained bogus purchase bills aggregating from various hawala operators. The Assessing Officer has made addition of Rs.80,22,203/- on the basis of peak purchases in cash. The CIT(A) has upheld the findings of Assessing Officer. It is relevant to mention here that the Assessing Officer while making the addition on account of bogus purchases has not disputed the sales declared by the assessee. The Assessing Officer has erred in making addition by taking peak cash of alleged bogus purchases without rejecting the sales. The addition has been made by the Assessing Officer merely on surmises and conjectures. The assessee is in the trading of ferrous and non-ferrous metals. Generally, the G.P in trading of ferrous and non-ferrous ranges between 5% to 8%. Taking into consideration entirety of facts, we restrict the addition on account of bogus purchases by estimating G.P. at 6% of the total bogus purchases. The findings of the CIT(A) on this issue are set-aside and ground No.2 of the appeal is partly allowed.

12. The ground No.3 & 4 of appeal are general in nature, hence, require no adjudication.

13. In the result, appeal of the assessee is partly allowed.

ITA No.512/Mum/2018 – A.Y.2011-12:

14. The assessee in appeal has raised following grounds:

“1. The impugned assessment order passed by the A.O. for A. Y. 2011-12 is ab- initio void as the present A.0. has no jurisdiction to pass the Assessment Order for A.Y. 2011-12.

2. Addition of Rs.56,69,240/-by invoking Rule 8D rws 14A by the AO ,, as against the tax free income of Rs 14,70,968/-claimed by the appellant was reduced to Rs 38,23,485/-.This action of the Ld. CIT-A (53),Mumbai, is factually and legally incorrect. The Ld. CIT-Appeals failed to consider the submissions and the case-law submitted by the Appellant.

3. An addition, on account of deemed rent, of Rs.2,38,000/-has been made by the Ld. AO. It has been confirmed by the Ld. CIT-Appeals erroneously. The findings of the Asst. CIT, Central Circle-32, Mumbai based on conjectures only.

4. Addition of Rs 36,50,738/- has been made by the AO on account of so called bogus purchases. The Ld. CIT Appeals has restricted the addition to 12.5% of this amount, taking the profit margin to be 12.5%.The profit margin of the appellant has been between 1.5 to 3% only during the year in question.

5. Hon’ble Tribunal may be pleased to consider the records and submissions of the case and do justice to the appellant.

6. The Appellant craves leave to add, amend or alter the Grounds of Appeal mentioned above.”

15. The ground No.1 is identical to the ground raised in assessment year 2009-10 and 2010-11. For parity of reasons, the ground No.1 of the appeal is dismissed.

16. In ground No.2 of appeal, the assessee has assailed disallowance made under section 14A r.w.r. 8D. During the period relevant to assessment year under appeal, the assessee has earned exempt income of Rs.7,35,484/-. No suo-motu disallowance has been made by the assessee for earning exempt income. The Assessing Officer invoked the provisions of Rule 8D and made disallowance of Rs.56,69,240/-. In first appellate proceedings, the CIT(A) after examining the facts has reduced the disallowance in respect of interest expenditure under Rule 8D(2)(ii) by restrict it to Rs.36,34,288/- i.e. to the extent interest expenses claimed, as against disallowance of Rs.54,80,043/-made by the Assessing Officer. The total disallowance made by CIT(A) under section 14A r.w.r. 8D is Rs.38,23,485/-.

It is no more res-integra that disallowance under section 14A cannot exceed the exempt income earned. Therefore, we direct the Assessing Officer to restrict the disallowance under section 14A to the extent, exempt income earned by the assessee during the period relevant to assessment year 2011-12. The ground No.2 of the appeal is partly allowed in the terms aforesaid.

17. In ground No.3 of appeal, the assessee has assailed addition of Rs.2,38,000/- on account of deemed rent. On perusal of records we find that the assessee has three properties i.e. Bungalow at Deolali, Shop at Ahmedabad and flat at Abhilasha CHS Ltd., Mumbai (self-occupied). The Assessing Officer determined deemed rental income from house property in respect bungalow at Deolali Rs.1,68,000/- and Shop at Ahmadabad at Rs.70,000/- (Total Rs.2,38,000/-). The assessee assailed computation of deemed rent on the aforesaid properties before the CIT(A). The CIT(A) following the order of Tribunal for assessment year 2008-09 and 2009-10 upheld the findings of Assessing Officer. We find that the issue of deemed rent is recurring. Similar addition was made by the Assessing Officer in AY 2008-09 and 2009-10 on same set of facts. After being unsuccessful before the CIT(A), the assessee carried the issue in appeal before the Tribunal. It would be relevant to mention here that the issue was agitated by the assessee in appeal for AY 2008-09 and 2009-10 before the Tribunal in proceeding arising from assessment made under section 143(3) of the Act. The Tribunal in ITA No. 2598/Mum/2014 for AY2009-10 decided on 08/05/2017 after examining the facts rejected the contentions of the assessee by observing as under:

“22. We have considered rival contentions and found that as per balance sheet of the assessee AO seen that the assessee possessed three house properties as per the details of fixed assets i.e. bungalow at Deolali, Flat at Abhilasha CHS Ltd. and shop at Ahmedabad out of which the Flat at Abhilasha CHS Ltd., Mumbai was a self occupied property. Accordingly, the assessee was asked vide letter dated 12.12.2011 to show cause as to why the bungalow at Deolali and the shop at Ahmedabad should not be treated as deemed let out properties within the meaning of provisions of Section 23(4) of the Act. The assessee vide letter dated 15.12.2011 claimed that his shop in Ahmedabad and the house in Deolali were in bad, dilapidated and un-tenantable condition and that these remained vacant and no rent was earned as it was not possible to let out the properties. Thus, it was contended that no rental income could have been earned from these properties.

23. The AO observed that Section 23(4) clearly states that where the property referred to in Section 23(2) consists of more than one house, the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause 23(4)(a), shall be determined under sub-section (1) as if such house or houses had been let. Hence, it was held that the bungalow at Deolali and the shop at Ahmedabad were liable to be treated as deemed let out properties. It was observed that the assessee had not shown any rental income from the Deolali bungalow as well as the Ahmedabad shop. AO followed reasoning given in the Assessment Year 2007-08 and 2008-09 and added Rs.1,68,000/- to total income of the assessee on account of rent from those properties.

24. The assessee had furnished copy of the Purchase Deed (in Gujarati language) in respect of the shop at Ahmedabad which seemed to have been executed on 25.09.2008. The annual value of the shop at Ahmedabad was determined by the AO. at Rs.75,000/-. Since the assessee had acquired the said shop in September, 2008, the value was computed for 7 months at Rs.43,750/- which was also treated as income of the assessee from house property.

25. By the impugned order CIT(A) confirmed the action of the AO after observing as under:-

6.3 I have considered the submissions of the appellant and perused the materials available on record. The issue for consideration is determination of annual letting value (AL V) of the house at Deolali and the shop at Ahmedabad. It is observed from the record that even in the earlier AY.s 2007-08 and 2008- 09, the ALV of the house at Deolali was assessed at Rs.1,68,000/-. It is also observed that my predecessor has vide his order for AY.2007-08 dated 01.10.2010 upheld the action of the AO in computing ALV of the said house at Rs.1,68,000/-. Though the appellant claims to have submitted municipal valuation of the house at Deolali, it is found that no such documents have actually been placed on record. Without prejudice to the above, the appellant has also not brought on record any judicial authorities holding that the AL V of the properties covered by Section 23(4) has to be taken on the basis of the municipal rateable value rather than the fair rent. As regards the shop at Ahmedabad, it is seen that the appellant does not have a consistent or coherent stand. On the one hand, it is claimed that the said shop is in a bad, dilapidated and untenantable condition which remained vacant during the period and on the other hand, it is said to have been used for the purpose of business of the appellant. There is nothing on record to indicate that the appellant is carrying on any business at Ahmedabad. In view of the above discussion, I do not find any legal or factual error or infirmity in the action of the A.O. in assessing the ALV of the house/ bungalow at Deolali and the shop at Ahmedabad at Rs.1,68,OOO/- and Rs.43,750/- respectively. The additions made by the AO in this regard are accordingly confirmed. Ground NO.3 raised by the appellant is thus dismissed.

26. We have considered rival contentions and found that AO & CIT(A) has recorded detailed finding to support ALV of house and shops so arrived at. Nothing was placed before us by learned AR to controvert the findings of lower authorities. Accordingly we do not find any reason to deviate from the findings recorded by lower authorities.”

Since, no change in facts in the impugned assessment year has been brought before us, we find no reason to take a different view. Thus, the ground No.3 of the appeal is dismissed sans-merit.

18. In ground No.4 of appeal, the assessee has assailed addition on account of bogus purchases. During the period relevant to assessment year under appeal, the assessee has allegedly obtained bogus purchase entries aggregating to Rs.36,50,738/-. Since, the assessee failed to prove genuineness of purchases and the dealers, the Assessing Officer made addition of the entire alleged bogus purchases. In first appellate proceedings the CIT(A) restricted the addition to 12.5%. The issue in present appeal is identical to the one adjudicated by us in the appeal of the assessee for assessment year 2009-10. For parity of reasons we restrict G.P. to 6% of the bogus purchases. The findings of CIT(A) are modified to that extent and ground No.4 of the appeal is partly allowed.

19. The ground No.5 & 6 of appeal are general in nature, hence, require no adjudication.

20. In the result, appeal of the assessee is partly allowed.

21. To sum-up, appeal of the assessee for assessment year 2009-10, 2010-11 and 2011-12 are partly allowed.

Order pronounced in the open court on Thursday the 6th day of May, 2021.

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