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Facts
The assessee's assessment for A.Y. 2013-14 was reopened under Section 147 based on information that VAT/CST payments of Rs.5,04,899/- were made using fake challans. The Assessing Officer added Rs.1,00,97,980/- as unexplained cash credits under Section 69A, representing the entire turnover based on these alleged payments. The CIT(A) dismissed the assessee's appeal without receiving submissions or documentary evidence.
Held
Following its own precedent for the same assessee for A.Y. 2012-13 on an identical issue, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the Assessing Officer. The AO is directed to re-adjudicate the issue, specifically verifying facts regarding the assessee's entitlement to claim deduction for amounts allegedly misappropriated by VAT consultants, after considering relevant details and records.
Key Issues
The key issues are the validity of the reopening assessment and notice under Section 147/148, including limitation periods and jurisdictional errors, and the merits of the addition of turnover as unexplained cash credits under Section 69A based on disputed VAT/CST payments.
Sections Cited
250, 147, 144, 144B, 69A, 148, 149, 151A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ DB-A ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
(िनधा�रण वष�/Assessment Year: 2013-14) M/s Devi Agro Industries Vs. Income Tax Officer HYDERABAD Ward 1 PAN:AAFFD9813M NIZAMABAD (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri P Murali Mohan Rao, CA राज� व �ारा/Revenue by:: Shri Gurpreet Singh, Sr.AR सुनवाई की तारीख/Date of hearing: 23/07/2025 घोषणा की तारीख/Pronouncement: 30/07/2025 आदेश/ORDER
Per Vijay Pal Rao, Vice President
This appeal filed by the assessee is directed against the order dated 7/4/2025 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2013-14.
The assessee has raised the following grounds of appeal:
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The assessee firm did not file any return of income for the A.Y under consideration. The Assessing Officer reopened the assessment on the basis of the information received from the Commercial Tax Officer that the assessee has paid VAT/CST to the extent of Rs.5,04,899/- which was doubted as fake and fraud challans. The Assessing Officer completed the asst u/s 147 r.w.s. 144 by taking the turnover of the assessee based on the alleged payments towards VAT/CST of Rs.5,04,899/-.
The assessee challenged the action of the Assessing Officer before the learned CIT (A). However, there was no submissions as well as no supporting documentary evidence filed before the learned CIT (A) and therefore, the appeal of the assessee was dismissed.
Before the Tribunal, the learned Counsel for the assessee has submitted that an identical issue has been considered by this Tribunal for the A.Y 2012-13 in assessee’s own case in vide order dated 4/12/2024 whereby the Tribunal has remanded this issue to the record of the Assessing Officer for fresh adjudication after verification and examination of the relevant record to be filed by the assessee. Accordingly, he has pleaded that the matter may be remanded to the record of the Assessing Officer.
On the other hand, the learned DR has not disputed the fact that for the A.Y 2012-13 the Tribunal has remanded the issue of addition made by the Assessing Officer based on the payment of VAT/CST.
Having considered the rival submissions as well as the relevant material available on record, at the outset we note that for the A.Y 2012-13 this Tribunal in assessee’s own case has considered the identical issue of addition made by the Assessing Officer based on the report of the Commercial Department that the assessee has claimed to have paid VAT/CST by producing fake challans, in Para 10 to 13 as under: “10. We have gone through the record in the light of the submissions made on either side. It is a fact that no part of the total sum of Rs.1,04,60,903/- was proved to have been remitted to the Government exchequer and therefore, learned Assessing Officer disallowed the same. Assessee claims to be a victim of the fraud committed by the agent and entitled to claim deduction in respect of such sum also, which the authorities below denied. To establish the fraud, assessee filed complaint against the tax auditor and produced the copies of FIR and the CID report before the learned CIT(A). But, the authorities below refused to grant any relief under section 37(1) of the Act. 11. On this aspect, in the case of Badridas Daga vs. CIT [1958] 34 ITR 10, the Hon'ble Apex Court affirmed the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under section 10(1) of the 1922 Act, corresponding to section 28 of the Act, if it arises out of the carrying on of the business and is incidental to it. In the case of Associated Banking Corporation of India Ltd. vs. CIT [1965] 56 ITR 1, the Hon'ble Court held that the loss must be deemed to have arisen only when the employer comes to know about it and realizes that the amounts embezzled cannot be recovered.
It was held by the Hon'ble Supreme Court in the case of Associated Banking Corporation of India Ltd. (supra) that it would be wrong to say that irrespective of other considerations, as soon as an embezzlement of the employer's funds takes place, whether the employer is aware or not of the embezzlement, there results a trading loss, and so long as there is a reasonable prospect of recovery of the embezzlement, trading loss in a commercial sense cannot be deemed to have resulted. Further in the case & 802/Hyd/2024 of Hopkin and Williams (Travancore) Ltd. v. CIT (1967) 64 ITR 76 (Ker) it was held that deduction claimed was an admissible deduction if it was not possible to recover the loss from the persons responsible for the same. If the assessee has made the necessary attempts to recover the loss from the persons concerned and had failed or if the assessee did not make such attempts, because it was useless to make them in view of the financial position of the persons concerned, then and then alone the loss could be allowed. All the factual aspects require consideration by the authorities below in the light of the decisions reported in the cases of Badridas Daga (supra) Associated Banking Corporation of India Ltd. (supra) and Hopkin and Williams (Travancore) Ltd (supra). It would, therefore, be in the interest of justice to set aside the impugned order and restore the issue to the file of the learned Assessing Officer for verification of the facts in respect of entitlement of the assessee to claim deduction of the amount said to have been misappropriated by the VAT consultants.
We, therefore, set aside the impugned order and restore the issue to the file of the learned Assessing Officer for verification of the facts in respect of entitlement of the assessee to claim deduction of the amount said to have been misappropriated by the VAT consultants. Grounds are accordingly treated as allowed for statistical purposes.”
Accordingly, in view of the earlier order of this Tribunal for the A.Y 2012-13, the impugned order of the learned CIT (A) is set aside and the matter is remanded to the record of the Assessing Officer for readjudication of the same after
Page 7 of 8 considering the relevant dertails, facts and record to be filed by the assessee.
In the result, appeal filed by the assessee is allowed for statistical purposes.