2015 (10) TMI 20 - AT - Income Tax

Estimation of income - Trading addition made on account of gross profit - CIT(A) directing to apply a G.P. rate of 11% to the sales for working out gross profit - Held that - Case was fixed for hearing on 24.09.2010 after about one year when the case was earlier fixed on 5.10.2009. The Ld. CIT(A) mentioned that the accountant of the assessee attended the proceeding and requested for adjournment. The said request was rejected by mentioning that the appellate proceedings were going on since May, 2008, no other reasons has been given from the noting of the ld. CIT(A), it is clear that the case was fixed for hearing in the year 2010 only once on 24.09.2010 and on the said date the accountant of the assessee appeared and a request was made for adjournment. The ld. CIT(A) has not mentioned the contents of that request, there may be some compelling reasons for seeking the adjournment but nothing is mentioned in the impugned order. It is also noticed that the case was fixed for hearing by the ld. CIT(A) on 24.09.2010 and by rejecting the request of the assessee for adjournment the impugned order was passed on 27.09.2010. In our opinion, the ld. CIT(A) has not allowed an appropriate & proper opportunity of being heard to the assessee. It is well settled that nobody should be condemned unheard as per the maxim Audi Alteram Pertam . Thus we deem it appropriate to set aside the impugned order and remand the case back to the file of the AO to be adjudicated afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. The assessee is also directed to co-operate and not to seek undue or unwarranted adjournments. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Appeal against CIT(A) order increasing G.P. rate and making additions to assessable income.
2. Departmental appeal challenging direction to apply 11% G.P. rate and sustainment of disallowances.
3. Main issue: Sustenance/deletion of trading addition on gross profit and challenge to disallowances.
4. Proper opportunity of being heard not given by AO and CIT(A) leading to appeal.

Issue 1: Appeal against CIT(A) Order:
The appellant challenged the CIT(A) order increasing the G.P. rate to 11% from 0.64% and making additions to the assessable income. The appellant argued that the G.P. rate was determined on a historic basis, not actual, and was excessive and arbitrary. The additions made by the Assessing Officer under section 69 of the I.T. Act were deemed illegal and without basis. Additionally, various other additions/disallowances were contested as arbitrary and unjust. The appellant sought to amend, add, or delete grounds of appeal during the hearing.

Issue 2: Departmental Appeal:
The departmental appeal focused on the direction to apply an 11% G.P. rate, questioning the justification for deviating from the 16.64% rate declared in the previous year. The department argued that the books of accounts had defects warranting the application of section 145(3) of the I.T. Act. The department contested the relief granted to the appellant and challenged the merit of the case.

Issue 3: Main Issue - Trading Addition and Disallowances:
The main issue revolved around the trading addition made by the AO on gross profit and the disallowances of expenses. The AO had adjusted the income to nil after making significant additions. The CIT(A) partially allowed relief to the appellant but sustained some additions. The appellant contested the sustenance of these additions, while the department appealed against the relief granted.

Issue 4: Lack of Proper Opportunity of Being Heard:
During the hearing, it was highlighted that both the AO and the CIT(A) did not provide proper opportunities of being heard to the appellant. The AO passed the assessment order without allowing sufficient time for explanations, and the CIT(A) proceeded ex parte despite repeated adjournment requests. The Tribunal observed that due process was not followed, emphasizing the importance of providing a fair hearing. Consequently, the Tribunal set aside the CIT(A) order and remanded the case to the AO for fresh adjudication, stressing the need for reasonable opportunity and cooperation without unwarranted adjournments.

This detailed analysis covers the various issues raised in the appeals, including challenges to G.P. rate adjustments, additions to assessable income, sustenance of trading additions, and the lack of proper opportunity of being heard. The Tribunal's decision to remand the case underscores the significance of procedural fairness in tax assessments and appeals.