AMBARWADIKAR INDUSTRIES PVT LTD,AURANGABAD vs. ACIT, CIR-3, AURANGABAD, AURANGABAD

“On the facts and circumstances prevailing in the case, the Ld. CIT(A), NFAC has erred in confirming the addition of Rs. 19,46,66,937/- on account of stock discrepancy made by the Ld.AO in as much as the details of furnished goods and by products with their respective values was enclosed before the AssessingOfficer, similarly stock list of store material was also submitted before the Ld.AO. However, the Hon'ble CIT(A) NFAC, Delhi did not consider the above details given before the Ld.AO who passed the assessment order. Hence, the same may kindly be considered. 2.On the facts and circumstances prevailing in the case, the ld.CIT(A), NFAC has erred in confirming the addition/disallowance amounting to Rs. 81,11,900/- u/sec 36(1)(iii) of the IT Act made by the Ld.AO even though the appellant is having substantial founds of their own and as such the advanes given to the sister concerned are allowable. It is requested that the same may kindly be allowed addition may be deleted. 3.On the facts and circumstances prevailing in the case, the Ld.CIT(A)/ NFAC has erred in not providing the notice of hearing on the email address given by the appellant in form No. 35 which was clearly mentioned ‘ambarwadikargroup@gmail.com.”. However, it is found that no notice of hearing has been uploaded on the aforesaid email address of the appellant and such the notice of hearing u/sec 250 has not been served effectively on the email address given in form No. 35 under Ack No. 602222471250117 dt. 25.01.2017. this is a violation of natural justice and as much the order passed u/sec 250 dated 29.01.2025 for the A.Y. 2014-15 under DIN ITBA/NFAC/S/250/2024-25/1072677106(1) was without proper and effective service of the notice, it is requested to kindly set aside the order passed by Hon'ble CIT(A)/NFAC. In this regard the appellant relied, in favour of the claim of the decision delivered by the Hon'ble High Court of Karnataka dt. 25th May 2023 vide Writ petition No. 7336 of 2023 (T-It) in the ccase of Sterling Urban Ventures Pvt. Ltd. Vs. Assessment Unit Income Tax Department and DCIT of IT Circle 6(1)(1) The assessee carves right to add, alter, amend, modify, delete the grounds of appeal and right to make detailed submissions, clarifications and explanation on the grounds of appeal at the time of hearing.”

The brief facts of the case are that, the assessee is a private limited company and is engaged in the business of manufacturing of sugar. The assessee has filed the return of income for A.Y.2014-15 on 20.11.2014 disclosing a total income of Rs.16,31,873/- and the return of income was processed u/sec 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS for the reasons-(i). Low net profit or loss shown from large gross receipt (ii). Large interest expenses relatable to exempt incom u/sec 14A of the Act and (iii). Unsecured Loans from persons who have not filed their return of income.Accordingly, the A.O has issued notice u/sec 143(2) and u/sec142(1) of the Act along with the questionnaire. In compliance, the Ld.AR of the assessee appeared from time to time and filed the submissions, Audited financial statements, Tax Audit report etc. The A.O on perusal of the financial statements found that(i) the assessee has disclosed the closing stock of sugar at 1,42,252 quintals and whereas as per information collected by the department the assessee company has pledged the closing stock of sugar with Bank of Baroda is at 2,55,086 quintals. And a show cause notice was issued on the assessee to explain and reconcile the difference of closing stock. In compliance, the assess has filed the submissions on 30.12.2016 along with letter of chief branch manager stating that the pledge sugar stock with the bank is at 1,40,546 quintals. The A.O has issued summons on the bank to reconcile the stock pledge and obtained the information stating the pledge stock at 139885 quintals. The A.O has dealt on the facts and details of stock pledged as on 31.03.2016 and 31.03.2014 at page 3 of the order and calculated suppressed stock of sugar at 55,949 quintals and made addition of value of suppressed stock as undisclosed stock of Rs.19,46,66,937/-.(ii) the A.O found that the assessee has incurred huge liability towards financial expenses and diversion of barrowed funds to the related parties and a show cause notice was issued, but there was no proper compliance and the A.O has disallowed interest expenses under section 36(1)(iii) of the Act for diversion of funds for non business purposes of Rs.81,11,800/-(iii) the A.O found that the assessee has unpaid provident fund and the assessee submissions are that due to critical financial conditions it remain unpaid, and the A.O was not satisfied with the explanations and made addition of Rs.21,85,995/- and (iv) th A.O find that the assessee has debited huge expenses under “Other Expenses” and called for details and to prove genuineness of expenses are incurred for business purpose. Since the reply of the assessee is not supported by proper bills and evidences, the A.O has estimated the disallowance @5% of the claim , which works out to Rs.36,85,490/-. Finally, the A.O has assessed the total income of Rs. 21,02,82,200/- and passed the order u/sec 143(3) of the Income Tax Act dated 31.12.2016. 3. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) has considered the grounds of appeal, statements of facts, submissions and finding of the AO but sustained (i) the addition of closing stock discrepancy (ii)disallowance of interest u/sec36(1)(iii) of the Act and (iii) disallowance of unpaid provident fund. The CIT(A) has granted relief in other grounds of appeal and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed appeal before the Hon'ble Tribunal.

At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining the disallowance/additions made by the AO overlooking the facts, submissions and the evidences filed by the assessee. Whereas, in respect of the first disputed issue of pledge of closing stock, the Ld.AR submitted that the CIT(A) has not considered the quantitative details and value of by products and finished products and stock list of stores material filed in the proceedings and copies of letters issued by the bank on the holding of current stock, pledge and release of stock etc to explain the difference in the stock quantity. On the second issue, of disallowance of interest u/sec 36(1)(iii) of the Act for diversion of barrowed funds to the related parties, the Ld.AR submitted that the advances provided to related/sister concerns are out of own funds and therefore no disallowance is warranted. The Ld.AR substantiated the submissions with the factual paper book and prayed for allowing the appeal. Per contra, the Ld.DR supported the order of CIT(A).

We heard the rival submissions and perused the material available on record. The sole crux of the disputed issue envisaged by the Ld.AR that the CIT(A) has not considered/ overlooked the facts of the quantitative details and value of by products and finished products and stock list of stores material filed in the proceedings and copies of letters issued by the bank on the holding of current stock, pledge of stock and release of stock etc to explain the difference in the stock. The Ld.AR demonstrated the letters issued by the bank and submissions on the stock available at Godown, current closing stock, release of stock quantity and pledge of stock details placed at 52 to 56 of the paper book which were filed and not considered. On the second disputed issue of disallowance of interest u/sec36(1)(iii) of the Act for diversion of barrowed funds to the related parties, the Ld.AR contentions are that the advances/ loans provided to related/sister concerns are out of own funds and no barrowed funds were utilized and demonstrated the availability of own funds as per the audited balance sheet. the Ld. AR submitted that the CIT(A) has erred in not considering the facts that the assessee has own / surplus funds more than the interest bearing funds utilized for the purpose of business and the interest is paid to related /sister concerns are out of own capital/ surplus funds and disallowance of interest is warranted. The Ld.AR explained that the assessee has good case on merits on these two disputes issues and shall substantiated with the material evidences on the claims and prayed for opportunity to authorities. Accordingly, we explain before the lower considering the facts, circumstances and submissions set- aside the order of the CIT(A) on these two disputed issues and to meet the ends of justice, we restore the disputed issues to the file of the Assessing Officer to verify and adjudicate afresh on merits and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. And, we allow the grounds of appeal of the assessee for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

The Pr. CIT concerned. 4. तिभागीयप्रतितिति, आयकरअिीिीयअतिकरण, “A” बेंच, पुणे/ DR, ITAT, “A” Bench, Pune. गार्डफ़ाइि / Guard File. 5. ////