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Facts
The Revenue filed an appeal before the ITAT against the order of the CIT(A) which granted relief to the assessee on two issues: suppression of sales (Rs. 7,11,12,030/-) and cessation of liability (Rs. 35,58,258/-). The original additions were made by the AO under Section 143(3) of the Income Tax Act.
Held
The Tribunal found that the assessee failed to provide sufficient supporting documents for the variation in manufacturing yield, which was the basis for the addition on account of sales suppression. The Tribunal also noted that certain liabilities for cessation were unverified and potentially old. Therefore, both issues were remanded back to the AO for fresh verification.
Key Issues
1. Whether the CIT(A) was justified in allowing relief on account of sales suppression without proper substantiation of manufacturing yield variations by the assessee. 2. Whether the CIT(A) erred in allowing relief on cessation of liability without adequate verification of the nature and age of such liabilities.
Sections Cited
143(3), 250, 40A(3), 14A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH” KOLKATA
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The ITAT Registry has informed that there is a delay of 12 days in filing of this appeal by the Revenue. An application for condonation of delay has been filed as under:
Dates Events/Reasons for delay 27.02.2024 Order of Ld. CIT(A)-27, Kolkata, dated 22.02.2024 in appeal no. CIT(A), Kolkata-6/10215/2018-19 received in the office of Ld. Pr. CIT, Central-2, Kolkata and the office of DCIT, Central Circle-4(3), Kolkata.
City Alloys Pvt. Ltd. 27.04.2024 Period of 60 days from the receipt of Order of Ld. CIT(A)-27, Kolkata in the office of Ld. Pr. CIT, Central-2, Kolkata finished. 27.04.2024 was a holiday being a Saturday. 28.04.2024 28.04.2024 was a holiday being a Sunday. Approval for filing further appeal before the Hon'ble ITAT, Kolkata received on 02.05.2024. 29.04.2024 Approval for filing further appeal before the Hon'ble ITAT, Kolkata received on 02.05.2024. 30.04.2024 Approval for filing further appeal before the Hon'ble ITAT, Kolkata received on 02.05.2024. 01.05.2024 Approval for filing further appeal before the Hon'ble ITAT, Kolkata received on 02.05.2024. 02.05.2024 Approval for filing further appeal before the Hon'ble ITAT, Kolkata received. Necessary papers/documents for filing appeal being arranged. 03.05.2024 Online Appeal filed In view of the above, it is requested to kindly condone the delay in filing appeal for the sake of substantial justice. Verification I, the undersigned, do hereby verify on solemn affirmation in Kolkata that the contents of this affidavit are true to the best of my knowledge and nothing material has been concealed.” 1.1 Considering the reasons given the delay is hereby condoned and the appeal is admitted for adjudication.
1.2 On the last date of hearing, none appeared on behalf of the assessee. However, it was decided by the Bench to conclude hearing in the matter with the assistance of Ld. DR.
The present appeal emanates from the order of the Ld. Commissioner of Income Tax, Kolkata-27 [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2014-15, dated 22.02.2024.
2.1 In this case, the Ld. AO passed an order u/s 143(3) of the Act dated 28.11.2016, through which the following additions were made:
City Alloys Pvt. Ltd. Cessation of liability Rs. 35,58,258/- Sale suppression Rs. 7,11,12,030/- Disallowance u/s 40A(3) Rs. 1,06,797/- Disallowance of penalty etc. Rs. 2,88,641/- Disallowance u/s 14A Rs. 10,145/- 2.2 Aggrieved with this action, the assessee approached the Ld. CIT(A), who gave relief on two substantive issues pertaining to addition of Rs. 7,11,12,030/- on account of suppression of sales and Rs. 35,58,258/- added on account of alleged cessation of liability.
2.3 Aggrieved with this action of Ld. CIT(A), the Revenue is in appeal before the ITAT through the following grounds of appeal:
“1. That in the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing relief on account of Sale suppression amounting to Rs. 7,11,12,030/- without appreciating the material brought on record and facts evaluated by the A.O. in the assessment order 2. That in the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing relief on account of Cessation of liability amounting to Rs. 35,58,258/- without appreciating the material brought on record and facts evaluated by the A.O. in the assessment order.
That the department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case.”
3. Before us, the Ld. DR read out various portions from the Ld. AO’s order and vehemently argued that the Ld. AO had investigated the percentage yield with respect to the manufacturing process and found that the yield varied between 66.95% to 94.01% on a monthly basis. The Ld. DR pointed out the detailed findings on page 3 para 5 of the Ld. AO’s order and averred that the assessee did not produce any worthwhile material to support the contention that lower yield was on account of poor quality of raw material. It was further pointed out that the Ld. AO has recorded that no supporting documents, like daily production register, etc were produced before the Ld. AO to justify the claim that the yield varied on account of inconsistency in the raw material quality. In this manner, the City Alloys Pvt. Ltd. addition of Rs. 7,11,12,030/- was supported. Regarding the addition of Rs. 35,58,258/- it was pointed out that some parties were subjected to verification which were shown as “other current liability”, but the assessee was unable to produce any verification from them. Even notices served on 3 parties could not be served as they were not traceable on the addresses mentioned by the assessee. Since, these were old outstanding balances the Ld. AO proceeded to treat them as liabilities which had ceased to exist and added the amounts standing against their name (impugned amount).
3.1 Regarding the finding given by the Ld. CIT(A), it was mentioned that the Ld. CIT(A) went by the fact that “the AO could not bring corroborative evidence on record which proves that these liabilities were already repaid” (para 6.2.2 of the impugned order). The Ld. DR read out this portion and stated that the attempt by the Ld. AO to find corroboration was frustrated because the parties could not be located at the given addresses. On this reasoning he supported the action of Ld. AO and assailed the action of Ld. CIT(A).
3.2 Regarding the addition on account of alleged suppression of sales, the Ld. DR pointed out that in paras 5.2.4 to 5.2.5. The Ld. CIT(A) has mentioned that the Ld. AO could not have arbitrarily estimated suppression based on percentage yield. The Ld. DR further pointed out that the Ld. AO had given detailed reasonings and the assessee had not been able to justify the huge variation in yield percentage by production of necessary books of accounts pertaining to daily production.
We have carefully considered the averments of Ld. DR and have gone through the documents before us. A careful perusal of the orders of authorities below shows that regarding the addition on account of alleged suppression of sales the sticking point was the non-production of supporting documents like daily production register. It has also been mentioned that the recycled scrap has also not been duly accounted for by the assessee. Hence, we deem it fit to remand this matter back to the 4 City Alloys Pvt. Ltd. file of Ld. AO so that the assessee gets a chance to present the necessary details before him to justify the variation in percentage yield. To this extent, we do not agree with the finding of Ld. CIT(A) that the Ld. AO has not been able to make out the case in this regard as there is considerable finding regarding the shortcomings in the details produced before him to enable a valid justification for the huge variation in yield percentage. It is felt that with this remanding back to the file of Ld. AO, the assessee would supply the relevant documents and details to the Ld. AO so that the exact position in this regard can be ascertained.
4.1 Regarding the addition of Rs. 35,58,258/- on account of alleged cessation of liability it is felt that there is a possibility that some of these liabilities may be alive or they may have been extinguished in earlier years. This matter is also remanded to the file of Ld. AO for verification from the assessee, who needs to produce complete details and explain how these old liabilities are brought forward from previous years even when, prima facie, the parties may not be available on their given addresses.
In result, appeal of the assessee is remanded to the file of Ld. AO and the appeal of the revenue is allowed for statistical purposes.
Order pronounced in the court 19.02.2025.