TIRUMALA CHEMICALS & ALLIED INDUSTRIES,HYDERABAD vs. ACIT., CIRCLE-5(1), HYDERABAD

Succinctly stated, the assessee firm, which is engaged in the business of manufacturing and trading of edible oils, had filed its return of income for AY 2011-12 declaring an income of Rs. 20,53,420/-. The assessment was originally framed under section 143(3) of the Act by estimating net profit at 2% of turnover, resulting in assessed income of Rs. 1,68,90,413/-.

Aggrieved, the assessee firm carried the matter in appeal before the CIT(A), who restricted the addition to Rs. 1,30,05,619/-, i.e., at 1.54% of turnover by applying the profit rate of comparable companies.

On further appeal, the Tribunal set aside the matter and restored it to the file of the AO for fresh adjudication with a direction to grant an adequate opportunity to the assessee firm.

During the course of the set aside assessment proceedings, the AO issued notices under section 142(1) of the Act and called upon the assessee firm to produce the books of account, purchase and sales details, salary records, and details of sundry creditors. However, the assessee firm, despite sufficient opportunities, furnished partial details and failed to produce complete books of account and supporting evidence. The AO also issued notices under section 133(6) to various parties, most of which were returned unserved or remained uncomplied.

The AO, backed by the aforesaid facts, rejected the books of account under section 145(3) of the Act on the basis, viz. (i). that salary expenses were not supported by proper evidence and the original records were not produced; (ii). key employees could not be produced; (iii). statutory compliances such as TDS and ESI were not demonstrated; and (iv). statements recorded indicated discrepancies in employment details. In respect of sundry creditors aggregating to Rs. 80,23,007/-, confirmations filed by the assessee firm lacked PAN, complete addresses, and identity details, and most notices issued under section 133(6) remained unserved. Also, the AO observed that the payments were largely stated to be in cash and not verifiable. The AO

Consequently, the AO, in the absence of any new evidence submitted by the assessee firm during the course of the set aside proceedings, rejected the book results under Section 145(3) of the Act and determined its income at Rs. 1,30,05,618/-, i.e., at 1.54% of turnover as was determined vide consequential order dated 21/04/2016. 8. On appeal, the CIT(A) in the course of the second round of proceedings confirmed the action of the AO, observing that despite remand, the assessee firm had failed to produce complete books of account or furnish credible supporting evidence. It was further held that the assessee firm had failed to establish the genuineness of the creditors, salary expenses, and stock records, and that no new material was produced to rebut the AO's findings.

The assessee firm aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record.

We find that the present appeal filed by the assessee firm involves a delay of 152 days. Elaborating on the reasons leading to the delay in filing the appeal, the Ld. AR submitted that the same had crept in because the notices intimating the fixation of hearing of the appeal on 14/01/2021, 04/11/2024, and 10/01/2025 were dropped in the e-mail address of the assessee firm, which was, though, provided in the “Form 35” but was no longer in use. The Ld. AR submitted that it was only when the Chartered Accountant of the assessee firm had logged into the income tax portal account of the assessee firm for learning about the update on appeal proceedings that it was gathered that its appeal was disposed of by the CIT(A) vide his order dated 23/01/2025. The Ld. AR, to support his contention, had drawn our attention to the “affidavit” dated 24/10/2025 filed by the assessee firm. The Ld. AR submitted that as the delay in filing the appeal had crept in because of a bona fide reason and not for any lackadaisical approach of the assessee firm, the same, in all fairness and interest of justice, be condoned.

Per Contra, the Ld. Departmental Representative (for short, “DR”) objected to the seeking of condonation of delay by the assessee appellant.

We have given thoughtful consideration to the explanation of the assessee-appellant regarding the delay involved in filing the present appeal. In our view, as the delay in filing the appeal had crept in because of a bona fide reason, the same, in all fairness, merits to be condoned. Our aforesaid view is supported by the recent decision of the Hon'ble Tax Officer, Ward-2, Ambikapur in Special Leave Petition (Civil) Nos. 26310-26311/2024, dated 31st January, 2025. The Hon'ble Apex Court, while setting aside the order of the Hon'ble High Court of Chhattisgarh, which had approved the declining of the condonation of the delay of 166 days by the Income-Tax Appellate Tribunal, Raipur Bench, had observed that a justice-oriented and liberal approach should be adopted while considering the application filed by an appellant seeking condonation of the delay involved in filing the appeal. We thus, in terms of our aforesaid observations, condone the delay of 152 days involved in the filing of the present appeal.

We find that the assessee firm has raised a plea of violation of principles of natural justice on the ground of improper service of notices under section 282 of the Act r.w Rule 127. However, the record indicates that, although notices were issued through the ITBA system and multiple opportunities were afforded to the assessee firm, including during the remand proceedings, it failed to participate effectively or 7 Tirumala Chemicals & Allied Industries vs. ACIT furnish complete details. Also, the assessee firm had failed to place on record material to demonstrate any prejudice caused due to alleged improper service. Accordingly, we find no substance in the aforesaid claim of the assessee firm and reject the ground to the said effect.

Coming to the issue of rejection of books of account, it is settled law that where the accounts are not reliable, incomplete, or not supported by proper evidence, rejection under section 145(3) is justified. In the present case, salary expenses were not substantiated by primary records; creditors remained unverified despite statutory notices; and stock discrepancies were noticed. Apart from that, the assessee firm had failed to produce complete books and supporting evidence. We therefore find no infirmity in the action of the AO in rejecting the books of account of the assessee firm.

In our view, once the books of accounts are rejected, estimation of income becomes necessary. The AO, in the course of the set aside proceedings, has adopted the estimated net profit rate at 1.54% of turnover that was taken by the CIT(A) in the first round of litigation, which in turn was based on industry practice, past history, and defects in accounts. We find that the assessee firm has not brought any material on record to show that the rate adopted is arbitrary or excessive. We therefore find the estimation reasonable and do not see any reason to interfere.

We, thus, in the backdrop of our aforesaid observations, find no infirmity in the order of the CIT(A), who had confirmed the assessment framed by the AO, and, thus, uphold the same.

In the result, the appeal filed by the assessee firm being devoid and bereft of any substance is dismissed.

Krishna Complex, Tilak Road, Abids, Assessee Hyderabad. Hyderabad, Telangana-500001. 2. राज"व/ The Revenue : ACIT, CIRCLE 5(1), HYDEABAD IT Towers, A C Guards, Masab Tank, Hyderabad, Hyderabad, Telangana,500004

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file