MAHADHAN AGRITECH LIMITED (FORMERLY KNOWN AS SMARTCHEM TECHNOLOGIES LTD),MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 8(1), MUMBAI

ITA 5423/MUM/2024Status: DisposedITAT Mumbai24 July 2025AY 2020-21120 pages
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What did the Tribunal hold?

The Tribunal held that the disallowance under Section 35AD for AY 2017-18 was to be deleted. The NPK Fertiliser Unit qualified as a "specified business" under Section 35AD(8)(c)(vii), and all conditions for weighted deduction were satisfied. Incidental use of certain assets for another fertilizer unit within the same business did 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 legally untenable. The Tribunal directed the deletion of the disallowance made under Section 35AD. Regarding the stock difference for AY 2019-20, the Tribunal held that minor timing discrepancies between physical stock and book records, constituting a marginal percentage of total inventory, could not be the basis for disallowance, especially when plausibly explained as a timing issue. The AO's ad-hoc rate for computing disallowance was also unjustified. Consequently, the disallowance under normal provisions and the consequential adjustment under Section 115JB were deleted. The issue regarding additions being beyond the scope of Section 153A was kept open as the issues 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 exempt 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 and AY 2020-21 arose from assessment orders under Section 143(3). The issues involved were identical across the years, leading to clubbing of the appeals. 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), including issues related to Section 153A scope, inflated capital expenditure, depreciation on goodwill, donation expenses, and stock differences. The Revenue filed an appeal for AY 2019-20 against the deletion of disallowance under Section 14A.

What were the issues?

1. Whether the disallowances and additions made under Section 153A for AY 2016-17 to 2018-19 are justified, considering no incriminating material was found during the search under Section 132, and whether the scope of assessment is limited to undisclosed income unearthed during the search. 2. Whether the CIT(A) erred in confirming additions under Section 69A for alleged inflated capital expenditure without incriminating material for the relevant assessment years. 3. Whether the CIT(A) erred in confirming the denial of depreciation on goodwill and other intangible assets for AY 2016-17 to 2019-20, and the addition of depreciation on goodwill for AY 2016-17 and AY 2018-19 under Section 115JB. 4. Whether the CIT(A) erred in confirming the disallowance of depreciation on alleged inflated capital expenditure for AY 2016-17 to 2018-19, and the addition of depreciation on alleged inflated capital expenditure under Section 115JB for AY 2016-17, AY 2018-19, and AY 2019-20. 5. Whether the CIT(A) erred in confirming the disallowance of expenses incurred on donations for AY 2016-17. 6. Whether the CIT(A) erred in confirming the disallowance of deduction claimed under Section 35AD for AY 2017-18. 7. Whether the CIT(A) erred in confirming disallowance on account of stock difference under normal provisions and under Section 115JB for AY 2019-20. 8. Whether the CIT(A) erred in deleting the disallowance under Section 14A for AY 2019-20. Assessee's Contentions: The assessee argued that for assessments under Section 153A, no incriminating material was found, limiting the scope to undisclosed income unearthed. They contended that additions for inflated capital expenditure and depreciation were unjustified. They also argued for the allowability of depreciation on goodwill and donations. Regarding Section 35AD, they argued the NPK Fertiliser Unit qualified as a specified business, and incidental use of assets did not violate the provisions. For stock differences, they argued it was a timing issue and not unaccounted sales. For Section 14A, they argued it was inapplicable as no dividend income was 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 be

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