BHAIRAVNATH SUGAR WORKS LIMITED,PUNE vs. DCIT CIR-1(1), PUNE

Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. CIT(A) / NFAC in confirming the penalty of Rs.3,25,18,832/- levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

Facts of the case, in brief, are that the assessee is a domestic company engaged in the business of manufacturing of sugar and major activities of the company are crushing of sugarcane and production of the refined sugar and other by-products. It filed its original return of income on 26.09.2011 declaring total loss of Rs.7,93,90,056/- under normal provisions of the Act and book profit u/s 115JB of the Act of Rs.1,25,19,593/-. The assessment u/s 143(3) was completed on 27.11.2015 thereby assessing total loss at Rs.6,59,98,304/- and book profit at Rs.1,53,43,986/- subject to suitable action that may be taken after receiving the DVO report since the case was referred to DVO for valuation of building and plant & machinery. The Assessing Officer in the assessment order made addition on account of excess claim of depreciation, disallowance of Pooja expenses and income tax expenses. After receiving the DVO’s report the Assessing Officer passed an order u/s 154 on 31.03.2022 computing total income at Rs.3,67,29,260/- as against the income computed in the assessment order passed u/s 143(3) r.w.s. 147 dated 21.12.2018 at a loss of Rs.6,34,98,304/-. In the said rectification order disallowance of excess depreciation on building of Rs.1 crore and also disallowance of excess depreciation on plant & machinery of Rs.9,02,27,561/- were made to the total income assessed earlier by considering the DVO report. Subsequently, penalty proceedings u/s 271(1)(c) were initiated for concealment of income on account of excess claim of depreciation of Rs.10,02,27,561/- (Rs.1,00,00,000 + Rs.9,02,27,561). Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty of Rs.3,25,18,832/- u/s 271(1)(c) of the Act.

In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer.

Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find while deciding the appeal filed by the assessee challenging the order of the Ld. CIT(A) against such order passed u/s 154 the Tribunal vide ITA No.14/PUN/2026 order dated 29.07.2026 has restored the issue to the file of the Assessing Officer for adjudication of the issue afresh. Since the addition which is the basis for levy of penalty u/s 271(1)(c) in the impugned order has already been restored to the file of the Assessing Officer, therefore, we deem it proper to restore this issue also to the file of the Assessing Officer for adjudication of the penalty issue afresh and in accordance with law after completion of the quantum proceedings. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Facts of the case, in brief, are that the assessee filed its return of income on 29.09.2015 declaring total income of Rs.1,49,37,220/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Subsequently, the case of the assessee was reopened u/s 147 of the Act on the basis of information flagged by DDIT (Inv.) Unit-1, Indore, according to which a Survey action u/s 133A was carried out on 03.12.2016 in the case of M/s. Dnyanradha Multi State Co-Operative Credit Society Limited at Indore Branch and its key persons. As per the information received it was observed that huge cash has been deposited in various accounts maintained in Indore Branch of Dnyanradha Multi state Co-Operative Credit Society Limited. The Society has current accounts of 57 parties and each party was assigned a unique account number in which the cash was accepted from the parties. The cash so received was in turn deposited in the Bank account of the Society maintained in Axis Bank. Thereafter, the funds were transferred to other parities by NEFT/RTGS. It was gathered from the information that the assessee M/s Bhairavnath Sugar Works Limited is also one such third party who has received an amount of Rs.1,01,97,700/- from the Axis Bank account mentioned above for the year under consideration.

Further, another information was received on Insight portal that a search & seizure action u/s 132 was carried out on 17.04.2017 & 18.04.2017 in the case of M/s. Dnyaneshwari Multi State Co-Operative Credit Society Limited at Mumbai Branch and its key persons. As per the information received it was observed that M/s. Dnyaneshwari Multi State Co-Operative Credit Society Limited was receiving huge amount of cash from various persons (mostly persons of small means or mere carriers of cash), deposited the same in its Bank Accounts and was transferring out these funds through RTGS/other banking modes to various non- genuine entities on the instructions of the persons bringing the cash/the operator managing them. It was also noticed that no proper KYC documents, deposit and withdrawal slips and other such documents were maintained. Thus, the AO/DDIT has observed that the society has been mainly used as a conduit for placement of unaccounted cash into the banking system. Since M/s. Bhairavnath Sugar Works Limited was also one such third party who has received an amount of Rs.5,01,42,962/- during the assessment year under consideration from M/s. Dnyaneshwari Multi State Co-Operative Credit Society Limited, therefore, the Assessing Officer, after recording reasons, reopened the assessment and issued notice u/s 148 of the Act. The assessee in response to the same filed its return of income on 14.07.2021 declaring total income of Rs.1,49,37,220/-.

During the course of assessment proceedings the Assessing Officer asked the assessee to provide the following details:

Since the assessee did not make any submission the Assessing Officer made addition of Rs.6,03,39,662/- to the total income of the assessee by observing as under:

In appeal, the Ld. CIT(A) / NFAC upheld the addition made by the Assessing Officer by observing as under:

Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee referring to para 5 of the assessment order drew the attention of the Bench to the same and submitted that the Assessing Officer has made addition on the ground that the assessee failed to establish the identity and creditworthiness of the two entities from whom it has received these amounts nor has established the genuineness of the transactions. He drew the attention of the Bench to the submissions made before the Ld. CIT(A) / NFAC which is at page 152 of the paper book and which read as under:

He submitted that the two amounts mentioned by the Assessing Officer are nothing but sale proceeds of sugar to different persons and such sales have already been accounted for in the Profit and Loss Account and are towards sale of sugar, therefore, the addition of the same as unexplained cash credit is not justified because the sale proceeds cannot be treated as unexplained cash credit. He submitted that the Assessing Officer has not rejected the books of account and accepted the purchases and sales. Since the cash so received from the two bank accounts is nothing but the sale proceeds, therefore, the addition made by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC is not justified. Relying on the following decisions, he submitted that the provisions of section 68 are not applicable to the sale proceeds:

He accordingly submitted that the order of the Ld. CIT(A) / NFAC sustaining the addition made by the Assessing Officer is not in accordance with law and therefore has to be set aside and the Assessing Officer be directed to delete the addition.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We find the Assessing Officer in the instant case made addition of Rs.6,03,39,662/- u/s 68 on the ground that the assessee has routed its own unaccounted cash through Dnyanradha Multi state Co-Operative Credit Society Limited and M/s. Dnyaneshwari Multi State Co-Operative Credit Society Limited and failed to establish the identity and creditworthiness of the two entities from whom it has received these amounts nor has established the genuineness of the transaction. We find the Ld. CIT(A) / NFAC upheld the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the amount of Rs.1,01,97,700/- sent by Dnyanradha Multi state Co-Operative Credit Society Limited and received by the assessee through RTGS / NEFT is on account of sale proceeds of sugar sold to various parties / persons who have deposited the purchase consideration of sugar in the said bank account of the society maintained in its name which in turn has been remitted to the bank account maintained by the assessee. Similarly, the amount of Rs.5,01,42,962/- sent by M/s. Dnyaneshwari Multi State Co-Operative Credit Society Limited was also on account of sale proceeds of sugar remitted to the bank account of the assessee company by different parties / persons towards purchase of sugar from the assessee. It is the submission of the Ld. Counsel for the assessee that the above amounts deposited in the bank account of the assessee in those two banks are nothing but sale proceeds of sugar and that the sale proceeds have already been reflected in the Profit and Loss Account and offered to tax. It is his submission that the provisions of section 68 do not apply to the sale proceeds. Since it is the submission of the Ld. Counsel for the assessee that the amounts so received are towards sale proceeds and that given an opportunity the assessee is in a position to substantiate the same with necessary evidence, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the matter to the file of the Assessing Officer with a direction to give one opportunity to the assessee to substantiate its case by producing evidence to his satisfaction that the amounts so received are towards sale of sugar by providing relevant sale invoices and reconciliating how it has been reflected in the sales. The Assessing Officer shall decide the issue as per fact and law after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

After hearing both the sides we find the Assessing Officer in the instant case made addition of Rs.3,50,36,504/- on the ground that the assessee has received large number and quantum of RTGS in total amounting to Rs.3,50,36,504/- i.e. Rs.1,48,02,303/- from the Dnyaneshwari Multi State Urban Cooperative Credit Society Limited and Rs.2,02,34,201/- from M/s. Classic Traders. We find the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.

We find the facts and the grounds raised by the assessee in the present appeal are identical to the facts and the grounds in ITA No.590/PUN/2026. We have already decided the grounds raised by the assessee and restored the issue to the file of the Assessing Officer with certain directions for fresh adjudication. Following similar reasonings, the grounds raised by the assessee in the instant appeal are also restored to the file of the Assessing Officer for adjudication of the issue afresh and in accordance with law in the light of the said directions. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, all the three appeals filed by the assessee are allowed for statistical purposes.

The concerned Pr.CIT, Pune

DR, ITAT, ‘A’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, ////