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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No. 2059/H/2017 Assessment Year: 2014-15 Shyam Baba Ferro Alloys Vs. Income Tax Officer, Pvt. Ltd., Hyderabad. Ward – 3(3), Hyderabad. PAN – AAOCS 3654H (Appellant) (Respondent) ITA No. 2203/H/2017 Assessment Year: 2014-15 Income Tax Officer, Vs Shyam Baba Ferro Alloys Ward – 3(3), Hyderabad. Pvt. Ltd., Hyderabad. PAN – AAOCS 3654H (Appellant) (Respondent) Assessee by: Shri P. Murali Mohan Rao Revenue by: Shri M. Srinivas Date of hearing: 20/05/2021 Date of pronouncement: 21/09/2021 O R D E R PER L.P. SAHU, A.M.: Both these appeals are cross appeals filed by the assessee and revenue are directed against CIT(A) - 3, Hyderabad’s order dated 12/10/2017 for AY 2014-15
:- 2 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. involving proceedings u/s 143(3) of the Income- Tax Act, 1961; in short “the Act”.
Briefly, the facts of the case are that the assessee, a private limited company, filed its return of income declaring loss of Rs.50,O8,147/-. Subsequently, the assessee’s was taken up for scrutiny. In response to notice issued u/s.143(2) of the IT Act, the assessee furnished all the details called for. The assessing officer finalized the assessment proceedings vide order u/s.143(3) dated 30.12.2016. While finalizing the assessment, the assessing officer rejected the book results by invoking the provisions of section 145 of the IT Act. Further, the assessing officer estimated the income from business at 2% on Rs.19,44,34,695/- representing revenue from operations. The assessing officer also treated the amount of Rs.4,23,51,491/- as income from speculation business rejecting the claim of the assessee that the same represent “income from other sources”. Thus, the assessing officer computed the total income at Rs. 4,62,40,185/- as against loss of Rs. 50,08,147/- declared by the assessee.
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) partly allowed the appeal of the assessee by observing as under: “IX) The submissions of the appellant and the findings in the assessment order have been perused. Though the Assessing Officer is justified with regard to rejection of
:- 3 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. book results, as held by various judicial authorities, the AO has to estimate the income in a judicious and reasonable manner. In this connection the re- constructed trading account furnished by the appellant has been seen. The same is an under: Trading account By To Electricity expenses 15,07,26,753 Receipts 19,44,34,695 Eligible depreciation 1,04,27,860 Other income: i)Profit on trading in 4,23,51,491 commodities ii) Interest on deposits 9,95,732 Consumption of raw Loss 60,14,788 material 6,27,06,807 Other incidental exp. Debited to trading a/c 83,52,801 Expenses directly debited to P&L Account (excluding depreciation) 1,15,82,485 24,37,96,706 24,37,96,706 X) As can be seen from the above re-constructed trading account it is clear that Electricity charges and eligible depreciation cannot be disturbed. Even the figure of consumption of raw material is supported by audited financial statements. Therefore, the only item that may not have complete supporting evidence is expenditure. The total expenditure debited to trading and profit and loss account amounted to Rs. 1,99,35,286/- (Rs.83,52,801+1,15,82,485).Therefore, the disallowance that can be made is from the expenditure that was claimed by the appellant. In view of these facts it is opined that disallowance of the loss worked out may meet the ends of the justice. Therefore, the total income is decided as Nil rejecting the loss claimed to have been incurred by the appellant. Hence, Ground No. 4 in appeal is allowed.
:- 4 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. XI) Ground No.5 in appeal relates to treating the income from other source as income from speculation business. The other point now left out is whether the receipts of Rs. 4,23,51,491/- constitute income from other sources or income from speculation business. In view of above discussion and as the amount was already brought into the reconstructed trading account and it was decided to ignore the resultant loss, the question with regard to head of that income is only of academic interest and therefore it does not require any adjudication. Hence, Ground No. 5 in appeal is dismissed.
Aggrieved by the order of the CIT(A), both the assessee and the revenue are in appeals before the ITAT.
The grounds raised by the assessee are as under: “1. The Order of the Commissioner of Income Tax (Appeals) is erroneous both on facts and in law. 2. The Ld. CIT(A) ought to have allowed the appeal in full. 3. The Ld. CIT (A) erred in holding that the Assessed Officer was justified in rejecting the book results and computing the income by invoking the provisions of section 145(3) of the Act. 4. The Ld. CIT(A) ought to have appreciated that the conditions specified in section 145(3) of the Act are not satisfied in the appellant's case for invoking the provisions of section 145(3) of the Act for the Asst year under consideration. 5. The Ld. CIT (A) ought to have appreciated that AO had not specified any deficiencies or inconsistencies in the accounts maintained by the assessee so as to invoke the provisions of section 145(3) of the Act.
:- 5 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad.
The Ld. CIT (A) ought to have appreciated that the AO had only made general observation that the assessee had not produced material and details called for and that the invoking of provisions of section 145(3) based on such observations is not in order. 7. The Ld. CIT (A) ought to have appreciated that the appellant has maintained regular books of account which had been audited U / s 44AB of the Act and the provisions of section 145(3) cannot be invoked in the appellant's case. 8. The Ld. CIT (A) erred in rejecting the loss claimed of Rs. 50,08,147/- and in determining the income at Rs. Nil for the asst year under consideration. 9. Without prejudice to other grounds, the Ld. CIT (A), having accepted the books of account of the assessee, erred in disallowing expenditure by merely relying on the statement without bringing any corroborative evidence on record. 10. Without prejudice to other grounds, the Ld. CIT (A) erred in not giving any opportunity of being heard while making a fresh addition to the income of the assessee viz. a viz. improving the order of assessing officer 11. The appellant may add or alter or amend or modify or substitute or delete and I or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
5.1 The grounds raised by the revenue are as under: “1. The Learned CIT(A) erred on both in law and on facts of the case.
:- 6 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. 2. The Learned CIT(A) having upheld the action of the AO in rejection of the books results and invoking provisions of the Section 145(3) of the IT Act., ought to have confirmed the assessment in which the income from business was estimated at the rate of 2% of the revenue from operations if Rs. 19,44,34,695/- which comes to Rs. 38,88,694/- and the income from trading in commodities of Rs. 4,23,51,491/ - was assessed separately as income from speculation business. 3. The Learned CIT (A) erred in deleting the addition made at Rs. 4,23,51,494/- towards income on speculative business as academic in nature when assessee itself declared the same in its return under the head "other income" and all AO did is to treat the same as "Speculative Business" and taxed accordingly. 4. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 5. Any other ground(s) that may be urged at the time of hearing.”
As regards the ground Nos. 3 to 7 raised by the assessee relating to rejection of books of account, the AO rejected the book results and computed the income by invoking provisions of section 145(3) of the IT Act. The reasons mentioned was that the appellant was unable to produce the complete books of accounts and purchase bills and also bills in support of expenditure incurred. In the written submission it was submitted that the appellant was in the business of manufacturing of silicon manganize and ferro silicon and maintained regular account books for the business carried on. It was also submitted that the
:- 7 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. appellant filed return of income along with audited financial statements and therefore the assessing officer was not justified to reject the book results, without furnishing any convincing reasons.
6.1 The CIT(A) observed that it is the duty of the appellant to produce the information required including the account books in response to the notice issued u/s 143(2) of the IT Act. The observations of the assessing officer contained in the assessment order were not proved to be incorrect as the appellant did not produce any convincing explanation with regard to non-production of all the material required for the purpose computation of income. Therefore, the AO is justified in rejecting the book results and computing the income by invoking provisions of section 145(3) of the IT Act.
6.2 After hearing both the parties and perusing the material on record as well as the orders of revenue authorities, we find no infirmity in the action of the CIT(A) in confirming the order of the AO by holding that appellant did not produce any convincing explanation with regard to non-production of all the material required for the purpose computation of income. Therefore, we confirm the order of the CIT(A) and dismiss the grounds raised by the assessee on this issue.
:- 8 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. 7. With regard to ground No.8 relating to rejecting the loss claimed of Rs. 50,08,147/-, the CIT(A)’s reasoning by considering the reconstructed trading account is proper and we do not find any reason to interfere with decision of CIT(A). Accordingly, we uphold the order of the CIT(A) and dismiss the ground No. 8.
Ground Nos. 1 & 2 are general in nature, hence, need no adjudication. Ground Nos. 9 to 11 are argumentative in nature, need no adjudication.
The revenue has raised 5 grounds of appeal, out of which, ground Nos. 1, 4 & 5 are general in nature, therefore, no adjudication is required for the same.
As regards ground Nos. 2 & 3 raised by the revenue relating the action of the CIT(A) in deleting the addition made at Rs. 4,23,51,494/- towards income on speculative business, the CIT(A) deleted the same observing that since the said amount already brought into the constructed trading account and decided to ignore the resultant loss, the question with regard to head of that income is only academic interest.
10.1 After hearing both the parties and perusing the material on record, we are in agreement with the CIT(A)’s
:- 9 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. observations and, therefore, the ground raised by the revenue is dismissed on this issue.
We make it clear that the decision in this order shall not be taken as a precedent for any other cases.
In the result, both the appeals of the assessee as well as revenue are dismissed in above terms. A copy of this common order be placed in the respective case files.
We lastly acknowledge that although the instant appeals, except for the AY 2014-15, are being decided after a period of 90 days from the date of hearing as per Rule 34(5) of the IT(AT) Rules 1963, the same however, does not apply in the covid lockdown situation as per hon'ble apex court's recent directions dated 27-04-2021 in M.A.No.665/2021 in SM(W)C No.3/2020 'In Re Cognizance for extension of limitation' making it clear that in such cases where the limitation period (including that prescribed for institution as well as termination) shall stand excluded from 14th of March, 2021 till further orders. Pronounced in the open court on 21st September, 2021.
Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 21st September, 2021.
:- 10 -: ITA Nos. 2059 & 2203//Hyd/2017 Shri Shyam Baba Ferro Alloys Pvt. Ltd., Hyderabad. kv Copy to : 1 Shri Shyam Baba Ferro Alloys Pvt. Ltd., C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82 2 ITO, Ward – 3(3), Hyderabad. 3 CIT(A) – 3, Hyderabad 4 Pr. CIT – 3, Hyderabad. ITAT, DR, Hyderabad. 5 6 Guard File.