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Facts
The assessee, Teleplex Construction Co., filed its income tax return declaring a total income of Rs. 74,23,580/-. The Assessing Officer (AO) made substantial additions amounting to Rs. 3,95,66,691/-, Rs. 7,09,503/-, and Rs. 9,21,52,897/-. The Commissioner of Income Tax (Appeals) dismissed the assessee's appeal.
Held
The Tribunal held that the addition of Rs. 3,95,66,691/- (25% of purchases) was made on an ad-hoc basis without rejecting the books of accounts. It also noted that the addition of creditors under Section 68, which included opening creditors and net creditors for purchases, amounted to double taxation as a portion of purchases was already added under Section 69C. The Tribunal relied on the Delhi High Court's judgment in CIT vs. Shri Vardhman Overseas Ltd.
Key Issues
Whether ad-hoc additions to purchases and current liabilities (creditors) sustained by the CIT(A) are valid without rejecting the assessee's books of accounts and in light of potential double taxation.
Sections Cited
143(3), 144B, 145(3), 250, 251(1)(a), 251(1)(b), 251(2), 68, 69C, 115BBE, 270A, 271AAC(1), 44AB
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
O R D E R
PER VIMAL KUMAR, JM:
The appeal filed by the Assessee is against order dated 08.07.2024 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the Ld. CIT(A)’] passed u/s 250 of the Income Tax Act, 1961, [hereinafter referred to as ‘the Act’] arising out of assessment order dated 28.02.2024 of Ld. Assessing Officer/ Assessment Unit [hereinafter referred as ‘the AO’] under section 143(3) r.w.s 144B of the Act for Assessment Year 2022-23.
Brief facts of the case are that the assesse filed return of income on 02.10.2022 declaring total income of Rs.74,23,580/-. The case of assessee was selected through CASS. The assessee had shown high liabilities as compare to low income/receipts
Teleplex Construction Co. vs. DCIT and the assessee has substantial purchases from suppliers who are Non Filer(s). The assessee showed business as contractor. Notice u/s 143(2) dated 02.06.2023, Notices u/s 142(1) dated 11.08.2023, 18.09.2023, 25.09.2023, 27.10.2023, 26.12.2023 and 08.01.2024 and show cause notice dated 02.02.2024 were issued. The assessee made part compliance. On completion of proceedings, Ld. AO vide order dated 28.02.2024 made additions of Rs.3,95,66,691/-, Rs.7,09,503/- & Rs.9.21,52,897/-. Against order dated 28.02.2024 of Ld. AO, the assessee filed appeal before the ld. CIT(A) which was dismissed vide order dated 08.07.2024.
Being aggrieved, appellant assessee preferred present appeal on following grounds: “
1. That the Ld. CIT(A) NAFC, Delhi has grossly erred in dismissing the appeal without adjudicating the incurable legal infirmities that go to the root of the case and vitiate the assessment Order namely: (i) Illegally assuming jurisdiction by issuing a defective notice u/s 143(2) of the Act; (ii) Defying binding CBDT instructions; and (iii) Assessing a high amount of deemed income by ad-hoc additions to income based on presumptions and assumptions in place of assessing the real income.
2. That the impugned order passed by Ld. CIT(A) NAFC, Delhi dismissing the appeal is illegal and void as it was framed hurriedly without service of any of the notice(s) upon the appellant as mentioned in the impugned order upon the appellant.
3. That in the facts and circumstances of the case, the dismissal of Appeal by Ld. CIT(A) NAFC, Delhi is not sustainable as the Appellant was prevented to submit replies and upload documents due to non-service of any of the notices allegedly sent by CIT(A) NFAC.
4. That on the facts and circumstances of the case, the impugned order is illegal and void as the Ld. CIT(A) NFAC, neither made any inquiries through AO nor adjudicated any of the Grounds of appeal
Delhi and thus defied the provisions of sub- sections (6) of sections 250, 251(1)(a), 251(1)(b) and Explanation of section 251(2) of the Income Tax Act, 1961.
5. That on the facts and circumstances of the case and in view of: (i) non-service of notices; (ii) violation of principles of natural justice; (iii) denial of proper opportunity and (iv) summarily dismissal of appeal resulting in violation of provisions of sections 250(6), 251(1)(a), 251(1)(b) and Explanation of section 251(2)
6. That the Ld. CIT(A) NFAC, Delhi has grossly erred in dismissing the appeal and in sustaining the ad-hoc addition of Rs. 3,95,66,691/- being 25% of total Purchase expenses as unexplained expenditure u/s 69C of the Income Tax Act, 1961 without bringing any cogent reason.
7. That the Ld. CIT(A) NFAC, Delhi grossly erred in dismissing the appeal and in sustaining the ad-hoc addition of Rs. 9,21,52,897/- being 25% of total Current Liabilities Rs. 36,86,11,589/-ns unexplained Cash credits u/s 68 of the Income Tax Act, 1961 without bringing any cogent reason.
8. That on the facts and circumstances of the case the Ld. Assessing officer has grossly erred in invoking section 115BBE of the Income Tax Act, 1961 on all additions to the income. 9.. That on the facts and circumstances of the case the Ld. Assessing officer grossly erred in initiating penalty proceedings u/s 270A and 271AAC(1) of the Income Tax Act, 1961.
10. That the Ld. CIT(A) NFAC, Delhi grossly erred in dismissing the appeal and in sustaining the ad-hoc addition of Rs.7,09,503/-being 10% of total expenses Rs.70,95,030/- without bringing any cogent reason.
11. That the Ld. CIT(A) NFAC, Delhi grossly erred in dismissing the appeal and in sustaining the mechanical rejecting the trading results and invoking provisions of sec. 145(3) of the Income Tax Act, 1961 without bringing any cogent reason.”
Through application dated 22.01.2026 under Rule 11 of the ITAT Rules, 1963, the assessee sought permission for following additional grounds of appeal: “
1. That the illegal and adhoc additions made by the Ld. AO and upheld by Ld. CIT (A)-NFAC, Delhi were incorrect under the law and to the facts of the case as the correctness, completeness and bonafides of books of accounts maintained on basis of which audited financials were prepared and which formed part of Income tax Return filed were neither doubted nor controverted nor rejected u/s145(3) of the Income tax Act, 1961.
2. That the illegal and adhoc additions u/s 68 on creditors by the Ld. AO and upheld by Ld. CIT (A)-NFAC, Delhi was illegal and wrong under the law and to the facts of the case because the total creditors Rs. 35, 11,40 867/- included creditors of Rs. 20,50,46,454/- relating to preceding year(s).”
5. Ld. Authorized Representative for appellant/assessee submitted that during FY 21-22 (AY 22-23), the firm has executed contracts awarded by two Public Sector Undertakings viz., Bharat Sanchar Nigam Ltd. (BSNL) and Indian Telephone Industries (ITI) which included laying of Optical Fiber Cable and maintenance services. 5.1 That during the year 2021-22, the firm also executed work of laying Gas Pipe Line in Moradabad (UP) for Torrent Gas- Moradabad (UP).
5.2 That for AY 2022-23 against a turnover of Rs.21 crores approx. the appellant filed return of income declaring an income of Rs. 74,23,580/-.(NP ration 3.57% and GP ration 8.56%) 5.3 That the accounts of the firm are audited u/s 44AB of the Income Tax Act, 1961. The firm files its return on basis of actual income earned as per audited financials. That the returned income has been accepted in all preceding years and no variations have been to the returned income.
5.4 That the case of AY 2022-23 was selected for scrutiny. That it was the first year of assessment and the assessee was not much familiar about face less assessment procedures. It filed relevant details but could not upload the voluminous details called for in time due to limited size of each attachment at ITBA portal.
5.5 That the case was assessed u/s 143(3) wherein huge additions were made and the returned income Rs.74,23,580/- by making ad-hoc and twice taxing same issues/amounts was assessed to Rs.13,98,52,671/-. The details of additions are given in Table below:
Note-2 Addition of 25% of all current liabilities Rs. 36,86,11,589 i.e. Rs. 921,52,897 3.3 That an ad-hoc addition of Rs. 921.52,897/- being 25% of total current liabilities Rs. 36,86,11,589 has been made u/s 68 which includes addition on creditors.
Creditors Addition 3.4 In above addition of total current liabilities, the addition of 25% of creditors is wrong as the opening creditors Rs.20,50,46,454 cannot be added u/s 68. Moreover, as the creditors increased during year Rs. 14,60,94,412 гepresent net creditors o/s for purchases Rs. 15,82,66,767/-of CY cannot be added again u/s 68 as 25% of purchases has already added u/s 69C and thus it amounts to double taxation. Creditors cannot be added u/s 68 in view of Hon'ble Delhi HC judgement in CIT v. Shri Vardhman Overseas Ltd., (2012) 343 ITR 408 (Delhi) because the assessee had not written back the amounts to its P&L account, and the balance sheet still showed the liabilities as existing debts and paid off in subsequent Financial Year(s) which has already been accepted as correct by the Ld.AO while framing the assessment. Therefore, the entire addition of creditors included in 25% of total current liabilities deserves to deleted. Other Current liabilities 3.5 Other Current liabilities are either statutory due paid in subsequent year or other business liabilities paid in next or subsequent year and hence are not liable for 25% additions u/s 68 of the Act.
Ld. Departmental Representative submitted that the additions were made due to disallowance of creditors who were non filer.
From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. AO vide order dated 28.02.2024 made additions by making adhoc and taxing same issues.
7.1 Additions Rs.395,66,691/- being 25% of Purchases Rs.15,82,66,767 has been made on ad-hoc basis without rejection of books of accounts u/s 145(3) of the Act without disturbing corresponding Sales which have been accepted in assessment. The AO had accepted the books of accounts and not disturbed the audited financials u/s 145(3) of the Act as forming part of ITR.
7.2 The creditors increased during the year Rs.14,60,94,412/- represent net creditors o/s for purchases Rs.15,82,66,767/- of CY cannot be added again u/s 68 as 25% of purchases has already added u/s 69C and thus it amounts to double taxation.
7.3 As per judgement of Hon’ble Delhi High Court in CIT vs. Shri Vardhman Overseas Ltd., [2012] 343 ITR 408 (Delhi) because the assessee had not written back the amounts of its P & L Account, therefore, the addition of creditors included in 25% of total current liabilities deserves to deleted. Accordingly, additional grounds of appeal No.1 & 2 and Ground of Appeal No.6 & 7 are accepted. Ground of appeal No.1 to 5 and 7 being academic in nature are left open.