ARUN IMPEX PRIVATE LIMITED,MUMBAI vs. DCIT CIRCLE 4(1)(1), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 1428/MUM/2026 Assessment Year: 2017-18

Arun Impex Private Limited DCIT Circle 4(1)(1), 622, Cotton Exchange Mumbai Building, Kalbadevi Road Vs. Kalbadevi Mumbai - 400002 (PAN: AAACA5900C) (Appellant) (Respondent)

Present for: Assessee : Shri Kapil Sanghavi, CA Revenue : Shri Surendra Mohan, Sr. DR Date of Hearing : 07.05.2026 Date of Pronouncement : 04.08.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

This appeal filed by the assessee is against the order of ld. CIT(A)/National Faceless Appeal Centre vide DIN: ITBA/NFAC/S/250/2025-26/1083380320(1), dated 07.12.2025 passed against the assessment order by the ACIT, Circle 4(1)(2), Mumbai, u/s 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 27.12.2019, for the Assessment Year 2017-18. 2. Grounds taken by assessee are reproduced as under: “1. Hon’ble CIT(A) erred in law by confirming the addition made by AO without issue of show cause notice and thereby upholding assessment in violation of principle of natural justice.

2 ITA No.1428/Mum/2026 Arun Impex Pvt. Ltd. AY 2017-18 2. Hon’ble CIT(A) erred in facts by confirming the restriction of wastage made by Ld. A.O. in relation to 12% as against 18.04% claimed by appellant. 3. Hon’ble CIT(A) erred in fats by sustaining the disallowance made by Ld. A.O. of payment made to parties covered u/s 40A(2)(b). 4. Hon’ble CIT(A) erred in facts by sustaining the disallowances made by Ld. A.O. with regard to travelling expenses of Rs.2,20,925/-. 5. Hon’ble CIT(A) erred in confirming the disallowance made by Ld. A.O. by observing that the appellant failed to ‘substantiate’ its submissions dated 26.12.2019, without appreciating that complete particulars, justification of payment made to related party, comparative details, and documentary evidence were filed but were neither examined nor rejected through any reasoned finding."

4.1. Ld. CIT(A) confirmed the aforesaid additions/disallowances. Aggrieved, assessee is in appeal before the Tribunal. We have heard both the parties and perused the material on record. Also, given thoughtful consideration to the orders of the authorities below.

3 ITA No.1428/Mum/2026 Arun Impex Pvt. Ltd. AY 2017-18 5. Ground no. 2 is regarding addition on account of alleged excess wastage, restricting the claim of wastage by the assessee from 18.04% to 12%, resulting in an addition of Rs.1,06,97,050/-. Assessee submitted that manufacturing process involves multiple cycles of casting, machining and recycling, resulting in cumulative process loss. Assessee had maintained day-to-day stock and production records. The wastage claimed was also supported by a Chartered Engineer's certificate. It was further submitted that Government of India Public Notice No.38 (RE-00) 97/02 recognised wastage of 20% in the manufacture of bicycle tube valves from brass.

5.1. We note that the books of account of assessee have not been rejected by ld. Assessing Officer under section 145(3). No specific defect has been pointed out in the stock register or production records maintained by the assessee. Ld. Assessing Officer has proceeded to estimate the wastage by restricting the same to 12% without demonstrating, on the basis of any cogent material, that the wastage actually recorded by the assessee was incorrect or inflated. Assessee has also placed on record, details showing wastage percentages in the preceding and succeeding years, namely 18.71% in A.Y. 2014-15, 21.87% in A.Y. 2015-16, 23.47% in A.Y. 2016-17 and 19.15% in A.Y. 2018-19. Importantly, wastage claimed by the assessee in A.Y. 2018-19 was accepted in scrutiny assessment proceedings completed under section 143(3). There is no material placed on record by the Revenue to demonstrate any change in the manufacturing process, raw material or machinery during the year under consideration. In these circumstances, we find no justification in restricting the wastage to an arbitrary figure of 12% adopted by the ld. AO. The addition is based essentially on estimation without bringing any cogent material on record to establish that the actual wastage claimed by assessee was

4 ITA No.1428/Mum/2026 Arun Impex Pvt. Ltd. AY 2017-18 excessive or fictitious. The principle that the books of account cannot be disregarded without pointing out specific defects also assumes significance in the present case.

5.2. We also find force in the submission of assessee regarding consistency. Though each assessment year is a separate unit of assessment, where the facts and circumstances remain identical and no fresh material or change in circumstances is brought on record, a different view cannot be taken merely on the basis of an estimate. The Revenue has accepted substantially similar wastage percentages in the surrounding years. No distinguishing feature for the year under consideration has been brought to our notice. Considering the totality of facts and circumstances, we hold that restriction of wastage to 12% and consequential addition of Rs.1,06,97,050/- is not sustainable. Accordingly, the addition so made is deleted. Ground no. 2 is allowed.

6.1. We find from the material placed before us that assessee had explained about the nature of services rendered by the related parties was not comparable with the general casting work undertaken by the unrelated parties. M/s Vishal Enterprise was stated to be engaged in specialised precision casting requiring exact dimensional specifications,

5 ITA No.1428/Mum/2026 Arun Impex Pvt. Ltd. AY 2017-18 whereas M/s Hindustan Impex was engaged in rubberization, threading and electroplating. Assessee had also furnished comparative details and sample bills in support of the nature of services rendered. Disallowance has been made at a flat rate of 50% without any specific finding as to what portion of the expenditure was excessive or unreasonable. Such an ad hoc disallowance, without determining the fair market value of the specific services rendered, cannot be sustained merely because the payments were made to related parties.

6.2. In our considered view, the mere fact that the payment has been made to a person covered under section 40A(2)(b) does not, by itself, justify a disallowance. Ld. Assessing Officer is required to examine whether the expenditure is excessive or unreasonable having regard to the fair market value of the goods or services, the legitimate needs of the business or the benefit derived by the assessee. In the present case, the comparison made by ld. Assessing Officer is between different categories of job work. The rate of general casting cannot, without further examination, be treated as the fair market value of specialised precision casting or value-added processes such as rubberization, threading and electroplating. It is also relevant that, in respect of rubberization work, assessee has furnished details showing that an unrelated party was charging the same rate as the related concern.

6.3. We also take note of the fact that the same nature of transactions with the related parties were accepted in the subsequent assessment year under scrutiny proceedings, as submitted by the assessee. No material has been brought before us to demonstrate any change in the nature of services or rates charged.

6 ITA No.1428/Mum/2026 Arun Impex Pvt. Ltd. AY 2017-18 6.4. Considering the above factual position, we find that the disallowance made under section 40A(2)(b) is not tenable. The same is therefore deleted. Ground no. 3 is allowed.

7.1. We note that the machinery in question had been purchased in earlier years and was already installed and in use. Depreciation had also been claimed on the machinery in the intervening years. Therefore, the expenditure incurred on travel of technicians for maintenance of existing machinery cannot be treated as expenditure incurred for acquisition or installation of a new asset. Further, travelling expenses are supported by third-party invoices. Neither ld. Assessing Officer nor ld. CIT(A) has recorded any finding that the travel was bogus or that the expenditure was not actually incurred. In the absence of any adverse finding regarding the genuineness of the expenditure and considering the nature of the services rendered, the expenditure is allowable as revenue expenditure incurred for the purposes of business. Accordingly, we delete the disallowance of Rs.2,20,925/-. Ground no. 4 is allowed.

7 ITA No.1428/Mum/2026 Arun Impex Pvt. Ltd. AY 2017-18 8. Assessee vide ground nos.1 and 5 has challenged the assessment proceedings on the ground that the additions were made without issuance of a specific show-cause notice and that the detailed submission filed by assessee on 26.12.2019 was not considered before passing the assessment order.

8.1. We have considered the said contention. It is noticed that assessee had participated in the assessment proceedings and had furnished various details from time to time. At the same time, assessee has specifically contended that its detailed submission dated 26.12.2019, stated to have been filed through the e-filing portal, was not considered by ld. Assessing Officer and that the assessment order was passed immediately thereafter. However, in view of our findings hereinabove whereby the additions/disallowances have been deleted on merits, the issue relating to the alleged violation of principles of natural justice is rendered academic and general in nature and therefore, does not call for separate adjudication.

Sd/- Sd/- (Pawan Singh) (Girish Agrawal) Judicial Member Accountant Member Dated: 04 August, 2026 MP, Sr.P.S. Copy to: 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai