Ita/283/2010 Of Smt Madhu Solanki v. The Income Tax Officer

IN THE HIGH COURT OF KARNATAKA AT BENGALURU| ON THE 13 DAY OF NOVEMBER, 2018| BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND| THE HON'BLE MR. JUSTICE K.NATARAJAN INCOME TAX APPEAL No. 283 OF JZO1 BETWEEN Smt. Madhu Solank!]W/o Sri. Shantilal SolankiC/o Rajendra Metals.No.2, KRS Road.Mysore. .. Appellant (By Sri A.Snankar and Sri M.Lava, Advocates) AND The Income -Tax Officer| Ward-1(3)HMT Bnavan, GanganagarBellary Road.Bangalore-560 032. ...Respondent. (By Sri K.V.Aravind, Advocate) This income tax appeal is filed under section 260-A of I.T Act, 1961 arising out of order dated: 29.03.2010 passed in|ITA No.974/BNG/2009 for the Assessment year 1998-99,|praying to i) formulate the substantial questions of law statedtnerein ii) allow the appeal and set aside the order passed by theITATBangaloreIn|TTA.No.974/BNG/2009,dated29.03.7010 and etc. Tnis income tax appeal, coming on for hearing this day,RAVI MALIMATH J., delivered the following: JUDGMENT Tne appellant is an individual assessee carrying on|Dusiness in iron and steel in the name of M/s.Madhu Steels. —She filed a return of income for the assessment year 1998-99deciaring income from business at Rs.68,594/- and from other|sources at Rs.8,091/-, in all total of Rs.76,685/-. The case)was selected for scrutiny and notice under Section 143 (2)|was issued. Assessing officer passed an assessment order anddetermined the total income at Rs.2,27,940/-. Thereafter the|premises were subjected to survey under Section 133A of theIncome Tax Act. Statements were recorded of the appellant. —Based on the submissions the assessments were reopened.|The assessing office thereafter proposed to add a sum of|Rs.46,61,745/- aS bogus creditors in respect of creditpurchases made by the appellant from M/s.Magnum Trading.Company and M/s.Sharada Enterprises. The assessment)order was passed adding the said amounts. Aggrieved by the)same, an appeal was filed before the CIT (Appeals) which was| dismissed. Aggrieved by the same, an appeal was filed before|the Tribunal which was also rejected. Hence, this appeal. 2. By the order dated 28.10.2010, the appeal was|admitted to consider tne following substantial questions otflaw: (i) Wnether the Tribunal was Justified in notadjudicating the ground raised by the appellant, inrespect of|assumptionof|jurisaictionfor.reassessment under Section 14/7 whicn ts thefoundation for a valid assessment, is bad in law onthe facts and circumstances of the case? (ii) Whether on tne facts and circumstancesof the case, the notice issued under Section 148 isvalid in law? (iii) Whether the Tribunal was Justified in.law in confirming the additions of Rs.18,89,884/-being the amount due to M/s.Magnum Tradingcompany and consequently passed a perverseorder by confirming the additions made by theAssessing Officer under Section 68 of the Act, onthe facts and circumstances of the case? (iv) Whether the Tribunal was Justified in.law in confirming aaaition of Rs.27,71,861/- beingthe amount due to M/s.Shnarada Enterprises and consequently passed the perverse order byconfirming the aaditions made by tne AssessingOfficer under Section 68 of the Act, on the factsand circumstances of the case? (v) Without prejudice whether the Tribunalwas Justified in law in not holding that the incomedetermined by the Assessing Officer will lead to anabsurd Gross Profit ratio and consequently theadaition ought to have been deleted on the factsand circumstances of the case? (vi) Whether the addition of Trade creditorsclosing balance can be made under Section 68 ofthe[ncome|TaxActOf)thefacts andcircumstances of the case?| (vil) Whether the authorities below arejustified in law In holding that the appellant tsliable to pay interest under Sections 234B and234C of the Act on the facts and circumstances ofthe case? 3. Both the learned counsels submit that the substantial questions of law require to be re-framed. Therefore, they|nave addressed arguments with regard to tne same. (v) Without prejudice whether the Tribunalwas Justified in law in not holding that the incomedetermined by the Assessing Officer will lead to anabsurd Gross Profit ratio and consequently theadaition ought to have been deleted on the factsand circumstances of the case? (vi) Whether the addition of Trade creditorsclosing balance can be made under Section 68 ofthe[ncome|TaxActOf)thefacts andcircumstances of the case?| (vil) Whether the authorities below arejustified in law In holding that the appellant tsliable to pay interest under Sections 234B and234C of the Act on the facts and circumstances ofthe case? 3. Both the learned counsels submit that the substantial questions of law require to be re-framed. Therefore, they|nave addressed arguments with regard to tne same. 4. On hearing learned counsels we are of the consideredview that the following substantial questions of law arise for|consideration in this appeal: (1) Whether the Tribunal was Justified in not|adjudicating the ground raised by the appellant, inrespect=of|assumption Of|jurisaictionfor.reassessment under Section 147 which ts thefoundation for a valid assessment, is bad in law onthe facts and circumstances of the case? (ii) Whetner the authorities committed anerror in aading a sum of Rs.46,61,745/- as boguscreditors thereby resulting in a gross profit ratio of58.79%?) 5. Learned counsel for the appellant contends that the.question of jurisdiction goes to the root of the case; that the|Tribunal has not even considered the contentions regarding|the jurisdiction for re-assessment under Section 14/7 ofIncome Tax Act. His further contention is that the assessingautnoritycommittedal)error;In|addingCdSUTTof|Rs.46,61,745/- on the basis that they are bogus creditors. |But if such a reasoning is to be accepted, then, in that event, the gross profit ratio would almost amount to 58.29%, which cannot be accepted. The same is disputed by the learned|counsel for the Revenue. 6. Heard learned counsels. 7. In so far as question of jurisdiction for re-assessment|under Section 147 of the Income Tax Act is concerned, the|Tribunal should have considered the said contention. Tne plea|of the appellant is that the re-assessment could not have|been done. Therefore, there was no jurisdiction to pass such.an order. Whatever may be the plea of the appellants, non-|consideration of the said ground which pertains to jurisdictionhas not been considered by the Tribunal. Therefore, non-consideration of the question of jurisdiction is erroneous. In|these circumstances, the first question is answered in favour|of the assessee by holding that the Tribunal was not justifiedin ignoring the grounds urged by the appellant with regard to jurisdiction for re-assessment under Section 14/7 of theIncome Tax Act. 8. In so far as second substantial question of law is concerned, learned counsel for the assessee contends that as a consequence to the additions, gross profit ratio would) amount to 58.29%, which is erroneous and tnat the same|cannot be accepted. Therefore, the addition is erroneous, it)requires to be reconsidered. Some of the material placed bytne assessee have not been considered properly by the)Tribunal. The same is disputed by the learned counsel for the|Revenue.| 8. In so far as second substantial question of law is concerned, learned counsel for the assessee contends that as a consequence to the additions, gross profit ratio would) amount to 58.29%, which is erroneous and tnat the same|cannot be accepted. Therefore, the addition is erroneous, it)requires to be reconsidered. Some of the material placed bytne assessee have not been considered properly by the)Tribunal. The same is disputed by the learned counsel for the|Revenue.| 9. However, on hearing learned counsels, we are of the|view that the contentions of the assessee requires to be)accepted. If the amounts are added on tnen the gross profit|ratio would amount to almost 58.29% which is erroneous. [t.does not arise in the said type of Dusiness of the assesee;|tnat there cannot be such a nuge profit ratio of 58.29%. —Moreover certain material placed by the assessee have not|been considered. Ihnerefore, we are of tne view that the|matter requires to be reconsidered by the Tribunal. Under|these circumstances, the second substantial question is)answered in favour of the assessee by holding that the|authoritiescommittedan)error;in adding a sumOf Rs.46,61,745/- as bogus creditors with respect to the creditpurchase made by the assessee. AS a consequence to|answering botn the substantial questions of law, the appeal is allowed. The order of the Tribunal dated 29.03.2010 passed|in I.T.A.No.974/Bang/2009 is set aside. The matter requires|to be reconsidered afresh by the Tribunal. All contentions are|left open. Sd/-JUDGE Cm/- Sd/-JUDGE|