MAHADHAN AGRITECH LIMITED (FORMERLY KNWON AS SMARTECH TECHNOLOGIES LTD ) ,MUMBAI vs. COMMISSIONER OF INCOME TAX (APPEALS)-MUMBAI-50, MUMBAI

ITA 2228/MUM/2024Status: DisposedITAT Mumbai24 July 2025AY 2016-17120 pages
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What did the Tribunal hold?

The Tribunal held that the NPK Fertiliser Unit qualifies as a "specified business" under Section 35AD(8)(c)(vii), and all conditions for claiming weighted deduction were satisfied. Incidental use of certain assets for another fertilizer unit within the same business does not violate Section 35AD(7A)/(7B). Furthermore, the condition of "claimed and allowed" in prior years was not met in AY 2017-18, making the disallowance under Section 35AD legally untenable. Therefore, the disallowance under Section 35AD was directed to be deleted. Regarding the stock difference for AY 2019-20, the Tribunal found that minor timing discrepancies between physical stock and book records are common and cannot be the basis for disallowance, especially when the difference was marginal (0.70% of total inventory) and plausibly explained as a timing issue. The AO's ad-hoc rate for computing disallowance was also deemed unjustified. Consequently, the disallowance made by the AO and the consequential adjustment under Section 115JB were deleted. The Tribunal noted that the issue regarding additions being beyond the scope of Section 153A due to lack of incriminating material was kept open as the additions were decided on merits. For AY 2019-20, the Tribunal confirmed the deletion of disallowance under Section 14A, holding that in the absence of any dividend income, the invocation of Section 14A is legally untenable, and the amendment by the Finance Act, 2022, is prospective. The appeals filed by the assessee were allowed, and the appeal filed by the Revenue was dismissed.

What were the facts?

The assessee, Mahadhan AgriTech Limited (formerly Smartchem Technologies Ltd.), filed appeals against orders of the CIT(A) for Assessment Years (AY) 2016-17 to 2020-21. The appeals for AY 2016-17 to 2018-19 arose from search assessment orders under Section 153A, while AY 2019-20 was a search year assessment under Section 143(3), and AY 2020-21 was also under Section 143(3). The issues involved across these years were identical, leading to consolidated hearing. The assessee's grounds of appeal primarily challenged the confirmation of disallowances and additions made by the Assessing Officer (AO) and upheld by the CIT(A), particularly concerning search materials, capital expenditure, depreciation on goodwill, donations, and stock differences. The Revenue also filed an appeal for AY 2019-20 against the deletion of a disallowance under Section 14A.

What were the issues?

1. Whether the CIT(A) was justified in confirming disallowances and additions made under Section 153A for AY 2016-17 to 2018-19, when no incriminating material was found during the search under Section 132, and whether the scope of assessment under Section 153A is limited to undisclosed income unearthed during the search. 2. Whether the CIT(A) erred in confirming the denial of depreciation on goodwill and other intangible assets for AY 2016-17, 2017-18, 2018-19, and 2019-20, and the addition of depreciation on alleged inflated capital expenditure for AY 2016-17, 2017-18, 2018-19, and 2019-20, both under normal provisions and for book profit computation under Section 115JB. 3. Whether the CIT(A) erred in confirming disallowance of expenses incurred on donation for AY 2016-17. 4. Whether the CIT(A) erred in confirming disallowance of deduction claimed under Section 35AD for AY 2017-18. 5. Whether the CIT(A) erred in confirming additions of undisclosed income under Section 69A on account of alleged inflated capital expenditure for AY 2017-18 and 2018-19. 6. Whether the CIT(A) erred in confirming disallowance of depreciation on alleged inflated capital expenditure for AY 2018-19. 7. Whether the CIT(A) erred in confirming the disallowance made on account of stock difference under normal provisions and under Section 115JB for AY 2019-20. 8. Whether the CIT(A) erred in confirming the deletion of disallowance under Section 14A for AY 2019-20. Assessee's Contentions: The assessee argued that for Section 153A assessments, no incriminating material was found, limiting the scope to undisclosed income unearthed during the search. They contended that the CIT(A) erred in confirming disallowances related to capital expenditure, depreciation on goodwill, donations, Section 35AD claims, and stock differences. The assessee also argued that Section 14A is not applicable when no exempt income is earned. Revenue's Contentions: The Revenue argued that the amendment to Section 14A by the Finance Act, 2022, should be given retrospective effect.

Which sections of the Income-tax Act were involved?

Section 153A,Section 132,Section 69A,Section 115JB,Section 35AD,Section 133A,Section 14A

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Income Tax Appellate Tribunal, ‘D’ BENCH

Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL

For Appellant: Shri Madhur Agrawal, Shri, Shri Soumen
For Respondent: Shri Bare Ganesh Sudhakar
Hearing: 07/05/2025Pronounced: 24/07/2025

Heard together (6 matters)

ITA No.2227/Mum/2024
ITA No.2228/Mum/2024
ITA No.2229/Mum/2024
ITA No.3937/Mum/2024
ITA No.5423/Mum/2024
ITA No.3569/Mum/2024

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PER AMIT SHUKLA (J.M): The aforesaid appeals have b

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