(Prayer: Tax case appeal preferred under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Bench 'A', Chennai, dated 8.10.2013, in I.T.A.No.1359/MDS/2013.)
T.S. Sivagnanam, J.
1. This appeal by the assessee is directed against the order passed by the Income Tax Appellate Tribunal, Bench "A", Chennai in I.T.A.No.1359/MDS/2013 dated 8.10.2013, for the assessment year 2008-2009.
2. The assessee is a 100% Export Oriented Unit, which was granted approval by the Development Commissioner, MEPZ-SEZ, Chennai vide approval dated 16.5.2004. The assessee is carrying on manufacturing and export of table, kitchen and other household articles made from stainless steel. The assessee claimed deduction under Section 10B of the Income Tax Act (Act) in respect of the income derived from the manufacturing and export activities carried on by it. The assessee made a claim for the assessment year 2005-2006 and though certain claims made by it, were disallowed, the eligibility of their claim under Section 10B as a 100% Export Oriented Unit was accepted for the said assessment year. However, it appears that there was certain internal dispute between the Directors of the Company on account of misunderstanding, which resulted in action being initiated before the Company Law Board by filing applications under Sections 397 and 398 read with Sections 402 and 235 to 237 of the Companies Act. It is the claim of the assessee that during the period when there was a dispute, they were facing tremendous strain and on account of the same, they were fully engaged in the process of resolving such dispute.
3. Nevertheless, the assessee filed its return for the assessment year 2008-09 on 30.9.2008. The return was processed under Section 143(1) of the Act resulting in a demand. The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Act was issued on 24.8.2009. Thereafter, the assessee filed a revised return on 30.3.2010. Pursuant to the notice, the assessee appears to have placed certain documents and authorised representative also appeared before the Assessing Officer. The Assessing Officer completed the assessment and passed an order dated 27.12.2010, wherein, among other things, the Assessing Officer disallowed the claims under Sections 10B, 40(a)(ia) as well as under Section 43B of the Act, apart from levying interest under Section 234B and C of the Act. Aggrieved by such an order of assessment dated 27.12.2010, the assessee preferred appeal before the Commissioner of Income Tax (Appeals). Before the First Appellate Authority, the assessee raised the following grounds:
"(a). In support of the claim for deduction u/s 10B of the Act, the Assessee had fulfilled the basic conditions for the same as prescribed under the Act, namely
- Registered as 100% EOU - for this copy of green card was produced at the time of Assessment.
- Filing of return of income by due date - the return was filed on 30.9.2008, and
- A certificate in Form 56G from a Chartered Accountant – the certificate was produced at the time of Assessment.
(b). The additional requirement of FIRC was sought on 21.12.2010. The company had approached the banker (with whom it had discontinued relationship. It was learnt that the FIRC pertaining to financial year 2007-2008 would take considerable time since the back up documents had to be retrieved. The Assessing Officer could not extend time beyond 31.12.2020 and hence the order was passed denying the Assessee an opportunity to further substantiate its claim for deduction u/s 10B.
(c). The Assessee sold scrap/rejects for Rs.32,45,802/- and had not collected Tax at source. The sale of scrap has been included in the income in the Profit and Loss account and also is part of the profit disallowed by the Assessing Officer. The Assessing Officer has overlooked this fact and added the amount u/s 40(a)(ia), a section meant for disallowance of expenses.
(d). The Assessee had filed the necessary TDS certificates and details for tax deduction at source in respect of job work and clearing agent charges. The Assessing Officer has not perused the same and has disallowed the expenses totaling Rs.1,34,09,399/- under section 40(a)(ia).
(e). The Assessing Officer further disallowed a sum of Rs.7,28,910 being duties and taxes payable u/s 43B without examining the details of the duties and taxes and the payment details.
(f). It is the contention of the Assessee that the Assessing Officer had passed the Assessment Order without examining the documents filed and also without affording sufficient opportunity to the Assessee to substantiate his case."
4. On the above grounds, it was contended that the Assessing Officer erred in making the additions without fully examining the documents or providing reasonable opportunity to the assessee and that the order of remand is in violation of the principles of natural justice. While the appeal was pending, the dispute among the Directors of the Company, was settled and the matter before the Company Law Board, was settled by order dated 4.3.2011. Before the First Appellate Authority, the assessee filed an application under Rule 46A of the Income Tax Rules, 1962, for acceptance of the following documents as additional evidence:
"(i) Approval Certificate from Government of India as a 100% Export Oriented Unit.
(ii) Bank Certificate of Export and Realisation for the Financial year 2007-2008.
(iii) Invoices for charges incurred for Labour Works for the Financial year 2007-2008.
(iv) Invoices for charges incurred for Clearing Agent for the Financial year 2007-2008.
(v) Invoices for charges incurred for Job Works for the Financial year 2007-2008.
(vi) Financial and Balance-sheet for the Assessment year 2008-2009.
(vii) Details of Payment and Tax Deduction and Deposit of tax into Central Government Account for the period 01.04.2005 to 31.05.2006."
5. In the said application filed under Rule 46A, the assessee prayed that the First Appellate Authority may admit the additional documents set out above, and forward the same to the Assessing Officer and obtain a remand report thereon and adjudicate on the above documents and pass necessary orders. The First Appellate Authority first, went into the object, with which, Rule 46A was enacted, and thereafter, took note of the proceedings before the Assessing Officer and observed that the Assessing Officer had given seven opportunities of hearing to the assessee and therefore, it cannot be said that the order appealed against, was passed without affording sufficient opportunity to the assessee to adduce evidence relevant to any of the grounds of appeal. Hence the First Appellate Authority held that the conditions laid down under Rule 46A, have not been satisfied by the assessee. While dealing with the substantive issue in the appeal, the Commissioner did not go into the merits of the grounds raised by the assessee, but pointed out that the hearing fixed, had been adjourned seven times and in spite of those opportunities given, the assessee did not appear before the Assessing Officer. Therefore, the First Appellate Authority concluded that equity comes to the aid of the vigilant and not the slumberer and dismissed the appeal. In so doing, reliance was placed by the Commissioner on the decision in the case of CIT V. MULTIPLAN (INDIA) PVT. LTD. reported in 38 ITD 320 (DELHI).
6. Aggrieved by the above order, the assessee preferred appeal to the Tribunal reiterating the grounds raised before the First Appellate Authority on the merits of their claim, and submitted that the remand report relied on by the Commissioner was not furnished to the assessee, and therefore, the assessee contended that the order of the First Appellate Authority is wholly erroneous.
7. The Tribunal after hearing both sides, pointed out that the order of assessment was passed on 27.12.2010, and between the issuance of notice under Section 143(2) and the assessment order, there was a time gap of one year and four months for the assessee to file necessary confirmations, verifications or other documents and since there was no evidence forthcoming, the Assessing Officer had made all the above additions. Furthermore, the Tribunal approved the order passed by the Commissioner rejecting the application filed under Rule 46A, as well as the order rejecting the appeal on the ground that the assessee was not vigilant. Aggrieved by the same, the assessee has filed this tax case appeal and seeks admission on the following substantial questions of law:
(i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in confirming the rejection of Petition under Rule 46A filed by the Appellant, by the Commissioner of Income-tax (Appeals)?
(ii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in not noting the gross violation of the principles of natural justice in the completion of both assessment as well as appellate proceedings?
(iii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in not noting the gross violation of the principles of natural justice in passing the impugned order of the Commissioner of Income-tax (Appeals) based on a remand report of the Assessing Officer dated 22.4.2013, a copy of which was not supplied to the Appellant?
(iv) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the impugned order of the Commissioner of Income-tax (Appeals) dated 29.4.2013, was wholly illegal and perverse in so far as the same was passed even prior to the date of hearing of the appeal, being 15.5.2013?
(v) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in not noting that detailed submissions have been advanced on the merits of the claims concerning relief u/s 10B, disallowances u/s 49(a)(ia) and Section 43B of the Income-tax Act that had not been adjudicated upon by the Commissioner of Income-tax (Appeals)?
(vi) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in not adjudicating upon the merits of the additions/disallowances made in the order of assessment, in respect of which, detailed Grounds of Appeal had been raised?
8. The learned Counsel appearing for the appellant/assessee, while reiterating the grounds raised before the First Appellate Authority, which, we have extracted above, submitted that the Tribunal erred in not adjudicating upon the issues raised in the appeal notwithstanding that detailed grounds of appeal on additional evidence as well as on merits had been raised. Further, it is submitted that the proceedings for assessment had been effectively taken up only in November, 2010, viz. at the fag-end of the period of limitation and furthermore, the remand report of the Assessing Officer dated 22.4.2013, was not furnished to the assessee and the contents thereon, were unilaterally accepted by the first appellate authority and that too, without any opportunity of hearing to the assessee. Further, the learned Counsel submitted that there was a strained relationship among the Directors, which was ultimately resolved by the Company Law Board by passing an order dated 4.3.2011. Further, it is contended that the Commissioner of Income Tax (Appeals) at the hearing on 19.4.2013, adjourned the case to 16.5.2013, and however, passed an order on 29.4.2013 itself, even prior to the original date of hearing, which was already fixed. The learned Counsel further submitted that the fact that the eligibility of the assessee to claim exemption under Section 10B of the Act, could not have been disputed as such a claim was accepted from the assessment year 2005-2006 onwards. Furthermore, the learned Counsel reiterated the various contentions on factual issues.
9. Per contra, the learned Counsel appearing for the Revenue, by placing reliance on the orders passed by the First Appellate Authority, as well as by the Tribunal, submitted that the First Appellate Authority pointed out that several hearing opportunities were given and since the assessee did not respond, the assessment was completed resulting in the demand. Further, the learned Counsel submitted that the First Appellate Authority rightly appreciated the scope of Rule 46A and the assessee having not satisfied the four conditions, which have been laid down thereunder, the First Appellate Authority rightly declined permission to the assessee for reception of additional documents. The learned Counsel further submitted that from the tabulated statement given in paragraph No.10 of the order of the First Appellate Authority, it is evidently clear that the assessee was not vigilant and therefore, the order passed by the First Appellate Authority as confirmed by the Tribunal, is fully justified.
10. We have considered the rival submissions and perused the materials placed on record.
11. From the facts narrated above, it is seen that the assessee filed its return of income for the assessment year 2008-2009 on 30.9.2008. The return was processed under Section 143(1) on 21.8.2009. Thereafter, the case was selected for scrutiny and the notice under Section 143(2) was issued on 24.8.2009. After the issuance of such notice, the assessee filed revised return on 30.3.2010. The Assessing Officer on examining the details available on record, held as follows:
"1. The assessee was asked to reconcile the return filed originally on 30.09.2008 and the revised return on 30.03.2010. However, there was no reconciliation furnished by the assessee.
2. It was also learnt that the assessee did not file any TDS returns. No other details furnished during the course of assessment though the assessee's representative appeared.
3. The assessee, as appear from the original return, claimed a deduction u/s.10B of Rs.72,60,802/- and computed the liability u/s.115JB. However the assessee could not furnish any proof for such claim like the approval, details of FIRCs and the realization of export receipts etc. Hence no allowance u/s.10B is extended to the assessee.
Addition : Rs.72,60,802/-
4. As per clause 27 of Form 3CD filed, it was mentioned that TDS not collected u/s.206 in respect of scrap sales of Rs.32,45,802/- made during the year. Since the assessee had not added back the same in the computation, the same is disallowed u/s.40(a)(ia) for the reason that there is no compliance to Chapter XVIIB.
Addition : Rs.32,45,802/-
5. The assessee had debited a sum of Rs.96,61,194/- towards job work charges and Rs.37,48,205/- towards clearing agent charges. However, the assessee could not furnish any proof for its compliance to provisions u/s.40(a)(ia) and hence the same is disallowed.
Addition : Rs.1,34,09,399/-
6. Duties and taxes payable:
The assessee had accounted a sum of Rs.7,28,910/- as opening balance in the schedule 10 of Balance Sheet under Liabilities and Provisions. Since the assessee had not discharged the duties and taxes, the said sum is disallowed u/s.43B.
Addition : Rs.7,28,910/-"
12. For the above said reasons, the Assessing Authority disallowed the claims under Sections 10B, 40(a)(ia) and 43B of the Act. In the memorandum of appeal before the First Appellate Authority, the assessee pointed out that the status of the appellant/assessee as a 100% Export Oriented Unit could not have been disputed as the assessee had fulfilled the basic conditions, for which, the copy of the green card was produced at the time of assessment and as regards the filing of return of income by due date, the return was filed on 30.9.2008, and a certificate in Form 56G from the Chartered Accountant was produced at the time of assessment. As regards FIRC, which was an additional requirement, the assessee explained by stating that the Company had approached the Bankers, with whom, they discontinued their relationship, and since the FIRC pertains to the financial year 2007-2008, it would take considerable time to retrieve such documents; but, the Assessing Officer could not extend time beyond 31.12.2010, and therefore, denied the claim for exemption under Section 10B. Similarly, the assessee also explained that they sold scrap/rejects and had not collected any tax at source. Further, as regards TDS certificates, it was specifically contended that those certificates were not perused by the Assessing Officer, though it had been filed by the assessee along with the return. Similarly, as regards the taxes payable under Section 43B, it was contended that the Assessing Officer did not notice the payment details of duties and taxes. Though all these contentions were raised, the First Appellate Authority did not proceed to examine the matter on merits.
13. Nevertheless, the assessee filed an application under Rule 46A for reception of additional documents/certificates referred to supra. On filing of such application, the First Appellate Authority called for a remand report from the Assessing Officer. It is not in dispute that the remand report received by the First Appellate Authority, was not communicated to the assessee. Be that as it may, the First Appellate Authority also made a passing reference to the remand report, but proceeded to reject the application under Rule 46A, on the ground that seven opportunities were granted to the assessee and therefore, it cannot be said that it was a case of lack of opportunity and held that the assessee had not satisfied the four conditions required under Rule 46A. Even after coming to such a conclusion, the First Appellate Authority did not proceed to examine the matter on merits, but appears to have taken a very hyper-technical view that the assessee having not been vigilant, is not entitled for any remedy and opined that they were in fact, careless and dismissed the appeal on such a technical ground. It is to be noted that in the remand report dated 22.4.2013, the Assessing Officer had stated only about the various adjournments taken by the assessee in the course of hearing of the assessment proceedings. Curiously enough the remand report as extracted by the First Appellate Authority in paragraph No.8 of its order, does not refer about the merits of the assessee's claim as regards the documents, which were filed by it along with the return, and as raised by the assessee in the memorandum of grounds of appeal before the First Appellate Authority. When the assessee took up the matter to the Tribunal, the Tribunal also did not make any endeavour to consider the claim of the assessee on merits, but proceeded to confirm the order of the First Appellate Authority purely on technical ground.
14. We have noticed from the grounds raised before the First Appellate Authority, that the assessee had filed the TDS Certificates and details of tax deduction at source in respect of the job work charges and clearing agent charges. This has not been adverted to by the Assessing Officer. But, the Assessing Officer has stated that it is learnt that the assessee did not file any TDS return. As regards FIRC, which was an additional requirement, t
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he assessee could not produce the same since it was for the financial year 2007-2008 and it further stated that they had approached their Bankers, with whom, they had discontinued relationship; but, the Assessing Officer could not extend time beyond 31.12.2010. It is to be noted that for the assessment year 2005-2006, the assessee made a claim under Section 10B and there appears to have been no dispute as regards the assessee's entitlement for such a claim. Rather their status as a 100% Export Oriented Unit was accepted. In such circumstances, it is not known as to why the Assessing Officer doubted the assessee's status as a 100% Export Oriented Unit. It is stated that the assessee along with the return, had produced copy of the green card and filed the return of income within the due date and also produced the certificate in Form 56G from the Chartered Accountant. 15. From all the above facts, it is evidently clear that the assessee has been denied fair and reasonable opportunity to put forth their contentions. It is to be noted that though the grant of adjournments by the Assessing Officer, itself is admitted by the Commissioner of Appeals, still the Commissioner proceeded to hold that the assessee was not vigilant in view of the seven adjournments, which appear to have been taken on the ground of calamity that happened in the family of the deceased Counsel. Therefore, once the Officer has accepted the cause shown by the assessee or their Counsel for the purpose of adjournment, and adjourned the matter for a subsequent date, the Commissioner cannot fall back on the reasons assigned, or on account of the fact that the case was adjourned seven times, to reject the appeal in limini, without going into the merits. 16. In the above circumstances, we are fully convinced that the matter has to be gone into on merits and accordingly, set aside the order of the Tribunal as well as the Commissioner and restore the matter to the file of the Assessing Officer for considering the merits of the claim of the assessee based on the documents filed before the Commissioner. 17. Accordingly, this tax case appeal is disposed of. No costs.