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TMI Blog2019 (12) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... esponse to his questionnaire dt 12.01.2016 and showcause notice dt 23.02.2018 issued by the Ld. CIT(Appeal). iii)The Ld. CIT (Appeal) erred in passing the impugned order in breach of the principles of natural justice by issuing show-cause notice dt. 23.02.2018 without conveying reason for the proposed additions and also by not considering the appellant's explanation submitted to him on 15.3.2018. iv) The Ld. CIT (Appeal) erred in making addition of Rs. 4,51,21,897/- as unexplained "cash in hand" though it formed part of closing bank balance as reported in audited financial statements for which confirmation were duly placed on record before the Ld. CIT (Appeal) and the Assessing Officer. 2. (i) That on the facts and in circumstances of the case, the Ld. CIT (Appeal) erred in making further addition of Rs. 10,77,29J43/- by treating 50% of outstanding trade liability as per Balance Sheet of the appellant as its income. (ii) Without prejudice, the Ld. CIT (Appeal) erred in passing a selfcontradictory order by treating 50% of outstanding trade liability of the appellant as bogus though treating the foreign exchange loss on its revaluation as business expenditure. (iii) Without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition on the basis of incorrect appreciation of facts and erroneous computation of availability of the cash during financial year 2012-13 and erred in not taking into account opening balance of trade receivables and not making adjustment for other non-cash expenditures like depreciation, forex loss booked etc. The Ld. counsel submitted that the learned CIT(A) is not justified in enhancing the income of the assessee on the issues which has already been investigated by the Assessing Officer and found satisfactory by him. 4. On the merit of the addition, the Ld. counsel of the assessee referred to various pages of the paper book and submitted that the learned CIT(A) has wrongly computed availability of the cash in books of account at Rs. 2.11 crore as against availability of Rs. 6.43 crores. The Ld. counsel also submitted that the learned CIT(A) is not justified in making addition for outstanding liabilities in absence of any waiver of liability in the year under consideration. He submitted that even the current liability raised in the year under consideration is a genuine one and which has been repaid by the assessee in subsequent assessment year and such remittance has been fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (PY: Rs. 17,000,000) which was resulted in erosion of company net worth. The company proposes to funds its operations for the year ended March 31, 2014 primarily from the support by holding company, which will enable it to settle its obligations as and when they fall due and operate as a going concern." The holding Italian company provided the financial cushion to the assessee company so that it does not lack competition and is able to complete against the cheaper Chinese products. 2) Erroneous observations in paragraph 19 of CIT(A) Order:- The Ld. CIT(A) states that the Appellant has not provided any evidence in respect of purchase of goods imported from Pneumax Spa Italy, (the parent company). This is a baseless and factually incorrect allegation. In para 2 of his order, the AO states: "The assessee has furnished various details during the assessment proceedings. Books of account of the assessee company were audited u/s 44AB of the I. T. Act, 1961 and copy of Audit Report was also furnished. The assessee produced complete hooks of accounts along with ledgers, bills & vouchers which were examined on test basis and returned back." (Pg. 19/AM) a) Copy of foreign expore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of the goods imported from the AE are bogus. In this connection, attention is invited to Notes 24-28 of Accounts giving details of the impugned International Transactions. (Pg. 80-84/Vol-I). Show-cause notice u/s 251 is at Pg. 1048/Vol-V. It may also be noted that the assessee company in response dt. 15.3.2018 to show cause notice explained to the CIT(A) as to how it discharged the outstanding liabilities of Rs. 17 crores upto 20.11.2015 in the subsequent years (Pg. 1050 at 1058/Vol- Vr. w. Pg. 684-839/Vol- V). The assessee company also furnished details and documentary evidence of the remittances made through the Banks (Pg. 684-839/Vol-IV). These remittances were fully accepted in subsequent assessment u/s 143(3) Pg. 53/Supp. PB. The parent company also did not charge interest on the outstanding payable by the assessee company. 4) In paragraph 22 of the order the CIT (A) has held that the Appellant has incurred bogus liability in favour of sister concern and accordingly disallowed 50% amount of outstanding liability of Rs. 21,54,59,486 on adhoc basis without making adjustment for 'opening liabilities' of Rs. 15.30 crores (Pg. 69/Vol-I). Ad-hoc 50% disallowance and alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax stated that this office has no jurisdiction to enhance the income of the appellant. The reliance was placed on the law laid down by the Hon'ble Apex Court in the case of "CIT Vs. Shapoorji Pallanji Mistry 44 ITR 891 SC'! and the law laid down by Hon'ble Delhi High Court in the case of "CIT Vs. Sardarilal & Co. (2001) 251 ITR 864 Delhi" and sought the filing of the notice issued to the appellant u/s 251(2) qua enhancement of its income liable to tax. 10. The reliance being placed by the appellant on the authorities of the Hon'ble Apex Court and Hon'ble Delhi High Court is of no help. The said authorities are in respect of a new source of income and not the existing source of income. The instant notice u/s 251(2) was issued in respect of the same business of the appellant which was considered by the Id. AO in the impugned assessment order. What was being asked to be explained was not the new source of income but the discrepancies notice in respect of the same source of income which was considered by the learned AO." 8. We find that the learned CIT(A) has followed the decision of the Hon'ble Supreme Court in the case of CIT Vs Kanpur Coal Syndicate (1964) 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ITO." 8.2 The Hon'ble Supreme Court in the case of CIT Vs Nirbheram Deluram (supra) has observed as under: "3. Having regard to the decision in Jute Corporation of India Ltd. (supra), it must be held that the High Court was in error in holding that the appellate power conferred on the AAC under s. 251 was confined to the matter which had been considered by the ITO and the AAC exceeded his jurisdiction in making an addition of Rs. 2,30,000 on the basis of the other 10 items of hundis which had not been explained by the assessee. This means that even if question No. 2 is answered in the affirmative, questions Nos. 1 and 3 must be answered in the negative. The appeal is, therefore, allowed, the impugned judgment of the High Court in so far as it relates to question Nos. 1 and 3 is set aside and the said questions are answered in the negative, i.e., in favour of the Revenue and against the assessee. No order as to costs." 8.3 In the case of Goel Die Cast Ltd. Vs Commissioner of Income-tax (appeals) and ANR (supra) , the Hon'ble Punjab and Haryana High Court has observed as under: " A perusal of the above extracted provisions of s. 251 of the Act, which defines powers of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommrs. to exercise the power which Parliament has conferred upon them. It would also be anomalous if the Crown, adducing evidence in support of an existing assessment, was precluded by the effect of s. 52(2) from adducing evidence of the taxpayer's true income because it would thereby be adducing evidence leading to an increased assessment". Similarly, in Way vs. Underdown (H.M. Inspector of Taxes) (1974) 49 TC 215, 231 (CA), in disposing of a petition similar to the one raised herein, Plowman J. stated as follows : Even if it is right that the Inspector can only give reasons in support of the assessment and is not entitled to argue that it should be increased, the Commrs. undoubtedly have power under s. 52(6) to increase assessments, and it may be that the Inspector in the present case was doing no more than reminding the Commrs. what their jurisdiction was. In the light of the above decisions, we hold that it is open to the ITO to bring to the notice of the CIT(A) any lapse or omission or error in the assessment and invite the appellate authority to exercise the power vested in him to enhance the assessment or take other steps to undo the harm or error. It is idle to conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its purchases and almost 60% of the purchases was kept outstanding and which cause the pile up of huge trade payables. It was further found that against the consumption of inventories of Rs. 8,18,18,269/- the appellant was keeping a huge stock of inventory for Rs. 6,45,53,883/- which was almost 60% of the inventories consumed by the appellant. Likewise, out of the total receipts of Rs. 14.37,98,408/- the appellant has shown trade receivables of Rs. 6,03,17,764/- which meant A that the cash received in the business was only Rs. 8,34,80,644/-. Out of this cash received the appellant paid Rs. 6.23.41.326/- in cash. Therefore, the appellant should have with it a cash availability of Rs. 2,11,39,318/-. Further, the appellant has shown huge amount of cash available with it as cash in hand of Rs. 6,62,61,215/-. There was absolutely no justification of having such huge cash in hand idle when the appellant was saddled with enormous liabilities. The accounts submitted by the appellant with the return of income and before the Ld. AO did not explain why the appellant was having such huge cash in hand when it was having far more bigger liabilities to discharge and why the cash in hand was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 4,51,21,897/- and restore the matter back to the file of the Ld. CIT(A) for deciding afresh after providing adequate opportunity of being heard to both the assessee as well as to the Assessing Officer. The Ground No. 1(iv) of the appeal is accordingly allowed for statistical purposes. 10. As far as the issue of addition for 50% out of trade payables is considered, the Ld. CIT(A) observed as under : "19. Admittedly, the appellant has booked huge amount of liabilities from its sister concern, M/s Pneumax SpA Italy. The appellant has brought nothing on record to justify the incurring of such huge liabilities to its sister concern. The proof of the goods actually having been purchased by the appellant from its sister concern in Italy were not placed on record. No documentary evidence that the said goods which were shown to have been traded by the appellant from its sister concern had actually reached this country from Italy were furnished. No details of custom duty, etc., paid were furnished either. The appellant also not brought any material on record that the liabilities were incurred from its sister concern in the exigencies of its business. Some vague arguments were advan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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