RAYUDU LABORATORIES LIMITED,HYDERABAD vs. DCIT., CENTRAL CIRCLE-2(4), HYDERABAD

3 ITA.No.725/Hyd./2025 without allowing any deductions, leading to duplication and overstatement of tax liability.

4. In a similar case, Aamor Inox Ltd., the Delhi ITAT recognized MEIS incentives as export-linked receipts, not taxable as income from other sources. It ruled that there's no estoppel against the statute- income initially offered to tax can still be contested. The appellant's situation is analogous, strengthening the claim that the scrip income is non-taxable capital receipt or part of business income.

7. The penalty levied u/s 270A was imposed without proving deliberate under-reporting or misreporting of income. The addition was made solely due to interpretational differences, not due to concealment or willful default.

4 ITA.No.725/Hyd./2025 ii. Grant a temporary relief of keeping the demand of Rs.14,00,352 under section 156 of the income tax act 1961, which is demanded from the appellant through demand notice dated 31-03-2022 in abeyance pending disposal of this appeal. iii. Pass any other orders as may be deemed fit in the facts and circumstances of the case. 10. The appellant requests for an opportunity of a personal hearing before the case is decided by the Income Tax Appellate Tribunal Hyderabad.”

5 ITA.No.725/Hyd./2025 of accounts properly and was not able to substantiate with the bills and vouchers. Accordingly, the Assessing Officer rejected the books of accounts of the assessee by invoking provisions of sec.145(3) of the Act and estimated the total income of the assessee by adopting 8% net profit on gross receipts. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.

5. The learned DR has relied upon the impugned order of the learned CIT(A) and submitted that once the books of accounts of the assessee are rejected and the turnover of the assessee is more than Rs.5 crores, then the Assessing Officer has rightly applied the income @ 8% but only grievance of the assessee in the grounds of appeal is that the Assessing Officer has separately assessed the income from sale of duty credit scrips and foreign exchange gain. At the outset, we note that the learned CIT(A) has considered and decided the issue in Paras- 6.4.1 and 6.4.2 as under:

“6.4.1. During the course of assessment proceedings, the assessee submitted information viz., computation of income, profit & loss account, balance sheet, bank account statements etc. for AY 2020-21 in response to notice issued u/s 142(1) of the IT Act. On 6 ITA.No.725/Hyd./2025 perusal of the information, the AO found that the assessee had gross receipts from business to the extent of Rs.5,10,36,478/-, other income of Rs.21,71,361/- and debited an amount of Rs. 4,93,41,319 to P&L A/c on account of various expenses for FY 2019-20 relevant to AY 2020-21. The assessee failed to submit documentary proof to substantiate the expenses debited to P&L A/c ie., bills/vouchers, ledger accounts etc. Accordingly, the AO issued a notice dated 01.03.2022 and served upon the assessee to show cause as to why the assessment should not be completed based on information available on record and findings as per survey conducted u/s 133A of the Act. However, the assessee failed to provide any documentary proof in respect of expenses debited to P&L A/C. The AO opined that in absence of supporting documents, the correctness and completeness of the accounts submitted by assessee cannot be verified and rejected the assesse's books of account by invoking provisions of section 145(3). Thus, the AO estimated income of Rs.40,82,918/- @ 8% of gross receipts shown at Rs.5,10,36,478/- and other income of Rs.21,71,361/-considered separately.

6.4.2. During the appeal proceedings, the appellant has been provided with sufficient time and opportunities but the appellant failed to furnish any explanation or written submissions along with evidences against the grounds contested in the present appeal. In view of the discussion above, I do not find any reason to disagree with the findings of the AO. Hence, the action of the AO in estimating income @ 8% on gross receipts by rejecting books of accounts u/s 145(3) in the assessment order is confirmed. Accordingly, the ground nos.1 to 10 are dismissed.”

7 ITA.No.725/Hyd./2025 6. Thus, by considering the facts and circumstances of the case, we are of the considered view that while taking the turnover of the assessee for estimation of income the foreign exchange gain to the extent of sales of the year under consideration shall be part and parcel of the turnover for the year under consideration and, therefore, cannot be separately assessed but the income of the assessee ought to have been estimated on the turnover including the foreign exchange gain on the turnover of the year under consideration. So far as the income from sale of duty credit scrips is concerned, since it is not clear from the record whether these sales are relating to the year under consideration or this credit is relating to the preceding year. Therefore, the Assessing Officer is directed to consider both these items of foreign exchange gain as well as sale of duty credit scrips relating to the year under consideration as part of the total turnover/gross receipts for estimation of the income.

8 ITA.No.725/Hyd./2025 Order pronounced in the open Court on 19.12.2025.