2011 (10) TMI 608 - AT - Income Tax

Tribunal sets aside orders, remands for reconsideration. Assessee granted fair hearing opportunity.

Applitech Solutiions Ltd. Versus The D.C.I.T. (OSD),

Applitech Solutiions Ltd. Versus The D.C.I.T. (OSD), - TMI Issues Involved:1. Disallowance of depreciation.2. Disallowance of interest expenses.3. Addition of unexplained cash credits.4. Violation of principles of natural justice.5. Condonation of delay in filing the appeal.Detailed Analysis:1. Disallowance of Depreciation:The CIT(A) confirmed the disallowance of depreciation amounting to Rs. 4,83,92,457/- based on the assessment year 2000-01 findings, where the purchase of computers from Rahul Infotech Pvt. Ltd. and Vandana Computers Pvt. Ltd. was deemed sham. The AO disallowed depreciation following the findings that these entities were employees of the assessee and denied sales of computers to the assessee. The Tribunal noted that the matter for the earlier year was already restored to the AO for reconsideration.2. Disallowance of Interest Expenses:The CIT(A) upheld the disallowance of interest expenses amounting to Rs. 79,43,558/- by following the assessment year 2000-01 order. The AO had disallowed the interest on the grounds that loans were paid to the same entities (Rahul Infotech Pvt. Ltd. and Vandana Computers Pvt. Ltd.) whose transactions were found to be sham. The Tribunal acknowledged that similar issues were restored to the AO for reconsideration in the earlier assessment year.3. Addition of Unexplained Cash Credits:The CIT(A) confirmed the addition of unexplained cash credits amounting to Rs. 3,15,86,025/- based on findings from previous years, deeming transactions with Rahul Infotech Pvt. Ltd., Vandana Computers Pvt. Ltd., Design Tech Computers, and Soft Design as sham. The CIT(A) directed the AO to verify debit balances for some transactions, but confirmed additions for others, citing them as fake companies. The Tribunal noted that the assessee did not receive a fair opportunity of hearing and that similar issues were restored to the AO for reconsideration in earlier years.4. Violation of Principles of Natural Justice:The assessee contended that the assessment proceedings were conducted without proper opportunity of being heard due to ongoing liquidation proceedings. The CIT(A) dismissed this ground without detailed findings. The Tribunal recognized that the assessment order was framed in the name of the Official Liquidator and that the assessee did not get a fair opportunity of being heard due to the liquidation process.5. Condonation of Delay in Filing the Appeal:The appeal was filed with a delay of 665 days. The assessee explained that the delay was due to liquidation proceedings initiated by the Hon'ble Gujarat High Court, which disrupted the management of the company. The Tribunal, considering the substantial justice and the Supreme Court's decision in the case of Collector, Land Acquisition Vs Mst. Katiji And others, adopted a pragmatic and liberal approach and condoned the delay. The Tribunal noted that similar issues were restored to the AO for reconsideration in earlier years, justifying the condonation of delay.Conclusion:The Tribunal allowed the appeal for statistical purposes, setting aside the orders of the authorities below and restoring all grounds of appeal to the AO for reconsideration. The AO was directed to give reasonable and sufficient opportunity of being heard to the assessee, ensuring compliance with the principles of natural justice. The Tribunal emphasized that the assessee did not receive a fair opportunity due to the liquidation proceedings and the assessment framed in the name of the Official Liquidator.