MAITHRI LABORATORIES PRIVATE LIMITED,HYDERABAD vs. ACIT., CENTRAL CIRCLE-2(4), HYDERABAD

ITA 1059/HYD/2024Status: DisposedITAT Hyderabad04 February 2025AY 2020-2146 pages
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What did the Tribunal hold?

The Tribunal held that the CIT(A) erred in allowing deduction on an estimation basis at 10% for expenditure incurred against unaccounted cash receipts from the sale of spent solvents/scrap. The Tribunal noted that income cannot be earned without expenditure, and handling hazardous waste involves various costs like handling charges, packing, salary, wages, and transportation. While direct evidence of expenditure was lacking, entries in the seized material indicated cash outflow to employees. These employees, in notarized affidavits, confirmed disbursing amounts received from unaccounted cash receipts for making higher payments to workers involved in handling hazardous waste. The Tribunal found these notarized affidavits to hold evidentiary value. The Tribunal observed that the AO did not dispute the veracity of these affidavits. Therefore, the Tribunal decided to consider the claim for deduction of expenditure against the unaccounted cash receipts. The Tribunal found that the cash outflow entries in the seized document, coupled with the employees' affidavits, supported the claim that the cash disbursed to head office employees was utilized for payments to workers involved in the collection and disposal of spent solvents/scrap. The Tribunal did not decide on the issue related to Section 2(22)(e) as it was not elaborated in the provided text.

What were the facts?

The assessee, M/s. Maithri Laboratories Private Limited, and the Revenue are in cross-appeals before the Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, for Assessment Year 2020-21. The appeals challenge the order of the Commissioner of Income Tax (Appeals) - 12 dated 13.08.2024. A search and seizure operation under Section 132 of the Income Tax Act, 1961, was conducted on the assessee on 24.02.2021. Subsequently, a notice under Section 153A was issued. The assessee filed a return of income declaring Rs.62,75,49,070/-. The Assessing Officer (AO) completed the assessment under Section 143(3) r.w.s. 153A, determining total income at Rs.62,75,49,070/-, making additions for unaccounted receipts from sale of used solvent/scrap (Rs.1,02,22,479/-) and dividend distribution tax (Rs.38,01,30,472/-). The CIT(A) partly allowed the assessee's appeal, allowing a deduction of Rs.10,22,248/- (10% of receipts) for expenditure against unaccounted receipts and dismissing the addition for deemed dividend.

What were the issues?

1. Whether the CIT(A) erred in not allowing the claim of additional deduction of expenditure of Rs.1,05,97,782/- against unaccounted cash receipts from sale of spent solvents and scrap, as evidenced by cash outflows in the names of employees and notarized affidavits, for arriving at the real income. 2. Whether the CIT(A) erred in allowing deduction of expenditure only to the extent of Rs.10,22,248/- on an estimate basis at 10% of the gross unaccounted cash receipts from sale of spent solvents and scrap. 3. Whether the CIT(A) erred in granting relief to the assessee by reducing the income returned under Section 153A by allowing 10% of gross amount realized on sale of spent solvent towards unsubstantiated alleged payments to workers for handling hazardous waste in the absence of demonstrable contemporaneous evidence. 4. Whether the CIT(A) erred in appreciating that the outstanding debit balance of M/s. MSN Laboratories Pvt. Ltd. is in fact a loan/advance which attracts the provisions of Section 2(22)(e) of the Act. Assessee's Contentions: - The CIT(A) erred in not allowing the full claim of additional expenditure of Rs.1,05,97,782/- against unaccounted receipts from sale of spent solvents and scrap. - The CIT(A) erred in not considering notarized affidavits of employees and labour contractors as additional evidence substantiating the claim. - The CIT(A) erred in allowing deduction only on an estimate basis at 10%. Revenue's Contentions: - The CIT(A) erred in granting relief to the assessee. - The CIT(A) erred in reducing income by allowing 10% of gross amount realized on sale of spent solvent towards alleged payments to workers without demonstrable evidence. - The CIT(A) erred in appreciating that outstanding debit balance of M/s. MSN Laboratories Pvt. Ltd. is a loan/advance attracting Section 2(22)(e).

Which sections of the Income-tax Act were involved?

Section 132,Section 153A,Section 143(3),Section 2(22)(e)

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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”, HYDERABAD

Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HONBLE

For Appellant: Shri M.V. Prasad, C.A, Shri K.S. Rajendra Kumar
For Respondent: Shri B. Bala Krishna, CIT-DR
Hearing: 23.12.2024Pronounced: 04.02.2025

Heard together (2 matters)

ITA No.1059/Hyd/2024
ITA No.1124/Hyd/2024

Read from the judgment's own cause title. This page is filed under one of them.

PER BENCH : The cross appeals filed by the assessee, as well as the Revenue are directed against the order of the learned Commissioner of Income Tax (Appeals) - 12 dated 13.08.2024.

Since, the facts are identical and issues are common but for the figures, for the sake of convenience, these two appeals were heard together and are being disposed of, by this consolidated order.

The order continues below.

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