TMI Blog2017 (3) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... hich though are subject to verification, we are unable to persuade ourselves to subscribe to the finding of the A.O in the remand report that most of the expense were incurred in cash, and as such the genuineness of the same could not be established. We are further of the considered view that in the absence of a copy of the remand report being made available to the assessee, the latter had remained divested of any opportunity of bringing the aforesaid serious infirmities in the body of the remand report to the notice of the CIT(A). Thus the observations of the A.O in the body of the remand report do not inspire any confidence, and the same when pitted against the facts projected before us by the assessee are apparently found to be incorrect. A.O is herein directed to verify the genuineness and veracity of the bifurcated details of the ‘Other expense’ aggregating to ₹ 3,77,44,684/- as had been furnished by assessee at Page 5 of ‘APB’ furnished before us, and in the backdrop of the fact that the details as regards the same were not open for verification before the A.O during the course of the original assessment proceedings, shall therein proceed with and make necessary ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that the additions/disallowances made by an A.O in an assessment framed under Sec. 144 cannot be dislodged by an appellate authority on merits. - Decided against revenue - ITA No. 4254/MUM/2013, ITA No. 4803/MUM/2013 - - - Dated:- 28-2-2017 - SHRI R.C. SHARMA, AM AND SHRI RAVISH SOOD, JM Assessee by : Shri Biren Gabhawala Revenue by : Shri Saurabh Kumar ORDER Per Ravish Sood, JM The present appeals filed by the assessee and the revenue are directed against the order passed by the CIT(A)-1, Mumbai, dated 31.03.2013, which in itself arises from the order passed by the A.O under Sec. 144 of the Income Tax Act 1961 (for short Act ), dated 28.12.2011. We herein advert to the appeal filed by the assesse company:- ITA NO. 4255/MUM/2013: The assessee assailing the order of the CIT(A) had raised the following grounds of appeal before us:- 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of income tax (Appeal) erred in upholding the disallowance of ₹ 1,25,92,563/- made by the learned Assessing Officer out of purchases alleging want of verification. 1.1 On the facts and in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act . 3. That during the course of the assessment proceedings the A.O observing that the assessee had incurred an expenditure of ₹ 19,23,06,494/-, which comprised of Purchases of ₹ 12,48,05,498/-, Other expenses of ₹ 3,77,44,683/- and Manufacturing expenses of ₹ 2,97,56,313/-, but had failed to furnish details of the said expenditure along with documentary evidence to substantiate the genuineness and veracity of incurring of the same, therefore proceeded with and carried out an ad-hoc disallowance of 25% of the said expenditure, which worked out to ₹ 4,80,76,623/-. The A.O after telescoping the aforesaid disallowance of ₹ 4,80,76,623/-(supra) as against certain other separate disallowances aggregating to ₹ 1,25,23,923/-made by him, thus disallowed the balance amount of ₹ 3,55,52,700/- and added the same to the returned of income of the assessee company. The A.O after deliberating on certain other disallowances therein assessed the income of the assessee company at ₹ 5,33,52,215/- under Sec. 144 of the Act . 4. The assessee assailed the assessment order in appeal before the CIT(A). That during the course of the appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had been got verified by the assessee during the course of the remand proceedings. (ii). Finding of the CIT(A) The CIT(A) going by the observations of the A.O in the remand report that the said expenses had been verified, thus deleted the same. The CIT(A) thus on the basis of his aforesaid observations partly allowed the appeal of the assessee. 5. The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That during the course of hearing of the appeal, it was at the very outset submitted by the ld. Authorized Representative (for short A.R) for the assessee that no copy of the remand report was made available to the assessee, as a result whereof the latter had remand divested of furnishing any replication as regards the same. It was submitted by the Ld. A.R that the A.O had hushed through the matter and on the basis of premature observations had drawn adverse inferences as regards the genuineness and veracity of the purchases and other expenses incurred by the assessee in the normal course of its business. The Ld. A.R in order to substantiate the genuineness and veracity of the purchases, therein submitted that though due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication, was called for, and the A.O had in all fairness carried out the same. It was further averred by the Ld. A.R that the A.O had rightly carried out the disallowance of 25% of the Other expenses in the hands of the assessee. It was thus averred by the Ld. D.R that the appeal of the assessee was devoid and bereft of any merits and as such was liable to be dismissed. 6. We have heard the Ld. Representatives for both the parties, perused the orders of the lower authorities as well as the material placed before us. We have given a thoughtful consideration to the facts of the case and though are not oblivious of the settled position of law that non-cooperation on the part of an assessee and failure to comply with the notices and information called for by the A.O during the course of the assessment proceedings would therein bring him within the sweep of Sec. 144(1)(b), and inescapably invite framing of a best judgment assessment in his hands, and as such, now when in the backdrop of the facts involved in the present case, it emerges that the assessee had failed to comply with the notices issued by the A.O and evaded furnishing of the requisite information, despite specifical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the assessee, the latter had remained divested of any opportunity of meeting out the adverse inferences recorded by the A.O in the said report. 8. We have further given a thoughtful consideration to the facts of the case and are of the considered view that the observations of the A.O that majority of the Other expenses aggregating to ₹ 3,77,44,684/- had been incurred by the assessee in cash and were supported by self made vouchers, as a result whereof the genuineness of the same could not be established, is found to be in absolute contradiction and serious conflict with the facts projected before us by the assessee on the basis of the bifurcated details of the Other expenses , viz. nature of expenses and the mode of payment as regards the same (Page 5 of APB ). That a perusal of the details of the Other expense aggregating to ₹ 3,77,44,684/-(supra) reveals that the same comprised of expenses in the nature of Govt. dues of ₹ 1,00,33,581/- paid by the assessee, while for out of the remaining expenses of ₹ 2,77,11,103/-, expenses aggregating to ₹ 2,35,87,815/- had been incurred by the assessee vide cheques, and as such expenses only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edless to say, the A.O shall during the course of the set aside proceedings afford reasonable opportunity of being heard to the assessee, and the latter shall remain at a liberty to substantiate the allowability of its claim by placing on record documentary evidence or leading any further evidence as it deems fit. That if the A.O finds the claim of the assessee as not being in order, then he shall pass a speaking order giving clear and specific reasons for so concluding, before disallowing any part of the said expenses in the hands of the assessee. The issue pertaining to the disallowance of Other expenses of ₹ 94,36,170/- (i.e 25% of ₹ 3,77,44,683/-) as sustained by the CIT(A) is thus set aside to the file of the A.O for fresh adjudication, strictly in light of our aforesaid directions. The Ground of appeal No. 2 is thus allowed for statistical purposes in light of our aforesaid observations. 9. We now advert to the disallowance of purchases which had been sustained by the CIT(A) to the extent of ₹ 1,27,92,563/-. We find that the observations of the CIT(A) that the assessee had filed confirmations in 26 out 49 cases, are not found to be in conformity with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive parties during the course of proceedings before the lower authorities, however the same as on date, as claimed by the Ld. A.R by drawing support from Page 1 to 3 of the APB , had been gathered from the said remaining parties. We have given a thoughtful consideration to the aforesaid facts and are of the considered view that in light of the claim of the assessee that no copy of the remand report was made available during the course of the appellate proceedings, coupled with the fact that though the confirmations of the remaining parties could not be collected during the course of proceedings before the lower authorities due to reasons beyond the control of the assessee, but had now been collected, and last but not the least the methodology adopted by the CIT(A) for working out the disallowance being based on misconceived facts and all the more adopting an irrational method, thus does not inspire any confidence, we therefore in all fairness and in totality of the aforesaid facts therein restore the issue to the file of the A.O for making necessary verifications. The A.O shall during the course of the set aside proceedings afford reasonable opportunity to the assessee to substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a thoughtful consideration to the contention of the revenue and are unable to persuade ourselves to subscribe to the same. We though are not oblivious of the settled position of law that as per Section 144(1)(b), on the failure on the part of the assessee to comply with all the terms of a notice issued during the course of the assessment proceedings, the A.O. therein gets vested with the jurisdiction to frame the assessment to the best of his judgment, and to the said extent find ourselves to be in agreement with the contention raised by the revenue as regards the validity of the assumption of jurisdiction by the A.O to frame a best judgment assessment u/s 144 in the aforesaid set of circumstances, but then the said powers are not unbridled, and the A.O in the garb of framing a best judgment assessment under Sec.144 cannot be said to have obtained a license to frame an arbitrary assessment in the hands of the assessee. We are of the considered view that despite assuming jurisdiction to frame an assessment under Sec. 144, the A.O continues to remain under a statutory obligation to act in a fair manner and frame the assessment by adopting a judicious approach on the basis of the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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