AXORA RESOURCES LIMITED,BANGALORE vs. INCOME TAX OFFICER, KOLKOTA

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ITA 1275/KOL/2025Status: DisposedITAT Kolkata16 September 2025AY 2022-23Bench: SHRI DUVVURU RL REDDY, VP\nAND\nSHRI RAJESH KUMAR, AM\nITA No.1275/KOL/2025\n(Assessment Year:2022-23)\nAxora Resources Limited\nUnit No.2983, 4th Floor, 12th\nMain, HAL 2nd Stage, Bengaluru,\nKarnataka-560008\n(Appellant)\nVs.\nIncome Tax Officer,\nAayakar Bhavan,\nKolkata-700069, West Bengal\n(Respondent)\nPAN No. AAACN9658G\nAssessee by\nRevenue by\nDate of hearing:\nDate of pronouncement:\nShri S.K. Tulsiyan, AR\nShri Raja Sengupta, DR\n20.08.2025\n16.09.2025\nORDER\nPer Rajesh Kumar (A6 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the addition of ₹25,55,776/- on account of unsubstantiated work-in-progress (WIP) was not sustainable. The AO disallowed 10% of the capital WIP without basis, overlooking the assessee's plea that these were expenses incurred on capital account and not charged to the Profit and Loss account. The Tribunal found no justification for disallowance from capital WIP when it was not debited to the P&L, and disallowances cannot be made on presumption. The addition of ₹63,16,231/- for unsubstantiated expenses was also set aside. The AO made an ad-hoc disallowance of 10% of total expenses due to a perceived increase and lack of details, despite the assessee requesting time to reply and the books of account being audited without adverse inference. The Tribunal held that such ad-hoc disallowance is not sustainable without rejecting the books of account. For the addition of ₹7,40,51,268/- on account of purchases from non-filer suppliers, the Tribunal held that the addition was made on an ad-hoc basis (12.5% of purchases) without rejecting the books of account or invoking Section 145(3). The Tribunal noted that the non-filing of returns by suppliers is not within the assessee's control and the department can proceed against them. The addition was deleted. The Tribunal directed the AO to delete the additions in all three grounds.

What were the facts?

The assessee, Axora Resources Limited, filed an appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2022-23. The appeal challenged additions made by the Assessing Officer (AO) and sustained by the CIT(A). Grounds 1-3 were dismissed as not pressed. Ground 4 concerned an addition of ₹25,55,776/- on account of unsubstantiated work-in-progress (WIP). The AO had disallowed 10% of the capital WIP of ₹2,55,89,774/-. Ground 6 related to a disallowance of ₹63,16,231/- for unsubstantiated expenses. The AO made an ad-hoc disallowance of 10% of total expenses due to a perceived increase and lack of details. Ground 7 involved an addition of ₹7,40,51,268/- made on an estimation basis for purchases from non-filer suppliers.

What were the issues?

1. Whether the addition of ₹25,55,776/- on account of unsubstantiated work-in-progress (WIP) is valid, considering the assessee's contention that these were capital expenses not charged to the Profit and Loss account. (Section 145 of the Income Tax Act, 1961, implicitly relevant due to estimation). Assessee argued that the AO disallowed 10% of capital WIP without basis, as it was not charged to the P&L and expenses were on capital account. Revenue (through CIT(A)) affirmed the AO's disallowance for lack of supporting evidence. 2. Whether the disallowance of ₹63,16,231/- on account of unsubstantiated expenses is sustainable, given the assessee's request for time to furnish details and the absence of rejection of books of account. (Section 145 of the Income Tax Act, 1961, implicitly relevant). Assessee contended that the AO made an ad-hoc disallowance without allowing sufficient time to reply and without rejecting books of account, which were audited. Revenue (through CIT(A)) affirmed the AO's disallowance. 3. Whether the addition of ₹7,40,51,268/- on an estimation basis for purchases from non-filer suppliers is justified, especially when the AO did not reject books of account or invoke Section 145(3). (Section 145(3) of the Income Tax Act, 1961, explicitly mentioned). Assessee argued that the addition was made on an ad-hoc basis, without rejecting books, and that the non-filing of returns by suppliers was not the assessee's fault. Revenue (through CIT(A)) confirmed the AO's addition.

Which sections of the Income-tax Act were involved?

Section 145,Section 145(3),Section 133(6)

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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

Before: SHRI DUVVURU RL REDDY, VP & SHRI RAJESH KUMAR, AM

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 04.06.2025 for the AY 2022-23.

2.

Ground No.1 to are not pressed and therefore dismissed as not pressed.

3.

The issue raised in ground no.4 is against the order of ld. CIT (A) confirming the addition of ₹25,55,776/- as made by the ld. AO on account of unsubstantiated work-in-Progress (WIP).

3.1. During the course of assessment proceedings, the ld. AO observed from the note-9, which is in regard to the property/ plant 3.2. In the appellate proceedings, the ld. CIT (A) simply affirmed the order of the ld. AO on the ground that the assessee has not furnished the supporting evidences.

3.3. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO observed from the note no.9, which is as regards property, plant and equipment and related amortization that assessee has incurred as capital WIP of ₹2,55,89,774 as on 31.03.2022. The ld. AO has disallowed 10% of the total capital work in progress by overlooking the assessee plea that it was never charged the said amount to the Profit and Loss account and there were the expenses incurred on capital account. Accordingly, we don’t find any basis for disallowance out of such capital WIP when this is not charged to profit and loss account. Moreover, no disallowance can be made on the basis to presumption and surmises. Accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition. The ground no. 4 is allowed.

5.

The issue raised in ground no.6 is against sustaining the disallowance of ₹63,16,231/- on account of unsubstantial expenses.

5.1. During the course of assessment proceedings, the ld. AO called upon the assessee to furnish the details of expenses claimed under various head of income. The total of these expenses other than the foreign exchange loss comes to 6,36,02,311/-. According to the ld. AO, there was huge increase in these expenses during the year. The assessee sought time to reply the said query vide letter dated 12.03.2024, however, assessment order was passed on 18.03.2024 holding that the assessee did not furnish the details and consequently the adhoc disallowance of 10% was made which worked out to ₹63,60,231/-.

5.2. The ld. CIT (A) in the appellate proceedings simply affirmed the ld. Assessing Officer 5.3. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO has made the disallowance at 10% of the total expenses under various heads on the ground that there was huge increase of expenses during the year and the assessee has not furnished any details/ evidences qua these expenses. Whereas as a matter of fact the assessee requested the ld. AO vide letter dated 12.03.2024, to allow some time to reply to the said query. However, the ld. AO passed the assessment order on 18.03.2024. We note that these expenses incurred by the assessee are on account of insurance of ₹10,93,252/-, legal and professional charges of ₹57,11,025/-, Rent of ₹62,39,101/-, selling expenses of ₹2,53,45,188/-. We note that the ld. AO has made a disallowance on estimated basis by simply stating

6.

The issue raised in ground no.7, is against the addition of ₹7,40,51,268/- made by the ld. AO on estimation basis.

6.1. During the course of assessment proceedings, the ld. AO called upon the assessee to furnish the details of purchases made during the year with PAN and amounts partywise. In reply, the assessee submitted the consolidated purchase register containing names of the parties from whom the purchases were made. The ld. AO thereafter issued show cause notice dated 07.03.2024, giving the show cause to the assessee as to why the substantial purchases made from the suppliers who are non-filers should not be added to the income of the assessee. The ld. AO issued notices u/s 133(6)of the Act to all 41 parties, however, only from three parties responses were received in which there were some differences in their amounts. The ld. AO extracted the details of these parties and their responses at page no.8 and 9 of the assessment order. Accordingly, the assessee was called upon to furnish the documents with supporting documents. The assessee was given only 5 days’ time to reply to the show cause 6.2. Aggrieved assessee preferred the appeal before the ld. CIT (A), who simply confirmed the order of the ld. Assessing Officer.

6.3. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO has made an addition of ₹7,29,48,478/- at the rate of 12% of the total purchases from 17 parties, who according to the ld. AO were non-filer of the returns. In our opinion, non-filing of return by the suppliers is not within the control of the assessee and if the said suppliers have not filed the returns of income , the department can proceed against these suppliers. In this case, we note that the assessee has given a complete detail along with the evidences before the ld. AO and the ld. AO issued notice u/s 133(6) of the Act to all 41 parties out of which only 3 responded. In our opinion, the addition cannot be made merely on the ground that the parties have not responded to the notice u/s 133(6) of the Act. Moreover, the disallowance made is on adhoc basis by applying a percentage of 12.5% on the total purchases from 17 parties. In our opinion,if the ld. AO was not relying the books of account then the ld. AO should invoke the provisions of Section 145(3) of the Act and only then the estimate disallowance of expenses or estimate the income, however, that was not done. Therefore, we are

7.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 16.09.2025.

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