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Facts
The assessee, engaged in manufacturing Ferro Alloys and Master Alloys, filed its return declaring total income. The Assessing Officer made several additions, including on account of late payment of ESIC, disallowance of depreciation, and disallowance of commission expenses. The CIT(A) partly allowed the assessee's appeal.
Held
The Tribunal held that the ground regarding violation of natural justice was general and dismissed. The ground related to late payment of ESIC was dismissed in light of a Supreme Court decision. The ground for depreciation was allowed in favor of the assessee. The ground related to capitalisation of interest expenses was allowed. Grounds related to commission expenses were partly allowed and partly dismissed. The addition under Section 68 was allowed.
Key Issues
Whether additions made by the AO and upheld by CIT(A) regarding late ESIC payment, depreciation, capitalisation of interest, and commission expenses are valid. Whether natural justice was violated.
Sections Cited
139(1), 143(2), 142(1), 68, 133(6)
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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & Ms. SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JUDICIAL MEMBER:
This appeal is filed by the Assessee against order dated 29.05.2024, passed by the CIT(A)-13, Mumbai for Assessment Year 2012-13.
The Assessee has raised the following grounds of appeal:
“1) The Ld. CIT(A) has erred in law and on facts by not considering that the additions and the disallowances made by the Id. AO are in violation of principle of natural justice since no proper opportunity of hearing was granted. 2) The Ld. CIT(A) erred in law and on facts by not deleting the addition of Rs.6,598/ on account of late payment of employee’s contribution towards ESIC despite the fact that employee’s contribution is paid prior to filing of the Return u/s.139(1) of the Act. 3) The Ld. CIT(A) has erred in law and on facts by not allowing depreciation @ 60% and therefore disallowing the depreciation of Rs.43,943/-.
Assessment Year: 2012-13 Kastwel Foundries vs. DCIT Page 2 of 4 4) The Ld. CIT(A) has erred in law and on facts in upholding the disallowance of AO amounting to Rs.2,16,995/- by holding the Appellant has not provided evidence to prove business nexus towards the capital funds used. 5) The Ld. CIT(A) has erred in law and in facts in making disallowance of commission expenses of Rs.5,37,822/-. 6) The Ld. CIT(A) has erred in law and in facts in making disallowance of commission expenses of Rs.1,71,750/- 7) The Ld. CIT(A) has erred in law and in facts in upholding the addition made by the Ld. AO of Rs.31,000/- u/s.68 of the Act. 8) Other grounds as per the grounds of appeal attached herewith.”
3. The assessee is deriving income from manufacturing of Ferro Alloys and Master Alloys. The return of income was filed by the assessee on 29.09.2012 declaring total income of Rs.70,20,916/-. During the assessment year, the assessee disclosed gross profit of Rs.4,19,24,989/- which amounts to 15.60% of the turnover. The gross profit during the Financial Year 2010-11 relevant to Assessment Year 2011- 12 was 13.62% of the turnover. The case was selected under CASS and notice for scrutiny under Section 143(2) of the Income Tax Act, 1961 was issued on 06.08.2013. Thereafter, notice under Section 142(1) of the Act was also issued on 22.12.2014 alongwith questionnaire. The assessee submitted information and attended proceedings. The Assessing Officer made various additions as follows :-
Total Income as per return of income Rs.70,20,916/- Add: On account of late payment of ESIC Rs. 6,598/- Add: Interest on IT Refund Rs. 24,048/- Add: Disallowance of depreciation claim Rs. 43,943/- Add: Disallowance of Interest paid on TDS Rs. 2,579/- Add: Capitalisation of interest expenses Rs. 2,16,995/- Add: Disallowance of commission expenses Rs. 7,57,682/- Add: U/s. 68 of the IT Act Rs. 31,000/- Assessment Year: 2012-13 Kastwel Foundries vs. DCIT Page 3 of 4 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). the CIT(A) partly allowed the appeal of the assessee.
As regards ground no.1, the same is general in nature and hence dismissed.
As regards ground no.2, the same is dismissed as the Hon’ble Apex Court has decided these issues of late payment to employee’s contribution towards ESIC against the assessee in the case of Checkmate Services Pvt. Ltd., 448 ITR 518 (SC).
As regards ground no.3, the same is in favour of the assessee as 60% of depreciation is allowable depreciation.
As regards ground no.4, the Ld. AR submitted that the title was not cleared and the extension of business related to the business of manufacturing Steel Alloys the land touching the facilities should have been taken into account instead of disallowing the amount of Rs.2,16,995/- by holding that the assessee has not provided evidence through business nexus towards the capital fund used.
The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
In this context, as regards ground no.4, the CIT(A) has ignored the fact which was mentioned by the Assessing Officer that the capital funds used was having direct nexus related to the capital project by the partners and the assessee has paid 12% interest to the partners and 15% on unsecured loans. The interest paid for purchase of plot is required to be capitalized as held by the Assessing Officer do not have any base when the assessee has categorically mentioned and shown from his conduct that it is for business purpose only. Ground no.4 is thus allowed.
As regards ground no.5 relating to disallowance of commission expenses of Rs.5,37,822/- the assessee submitted the details of commission paid with name address and phone numbers. Three persons Vikram Singh Jangid, Ajaya Duggal & S.V. Associates did not respond to the notices of the Assessing Officer issued under Section 133(6) of the Act. But before the CIT(A) except S.V. Associates, other two parties have responded and, therefore, the CIT(A) has rightly disallowed the commission expenses of Rs.1,66,187/- (tax effect) and the amount is Rs.5,37,822/-. Ground no.5 is dismissed.
Assessment Year: 2012-13 Kastwel Foundries vs. DCIT Page 4 of 4 12. As regards ground no.6, the same is also rightly disallowed as the assessee has not provided details about the commission expenses of S.V. Associates. Thus, ground no.6 is dismissed.
As regards ground no.7 where the CIT(A) has made addition of Rs.31,000/- under Section 68 of the Act, the Bank accounts of the minor was regularly accredited by small cash deposits and that has been explained by the assessee before the Authorities and thus ground no.7 is allowed.
In the result, appeal filed by the Assessee is partly allowed.
Order pronounced in the open Court on this 15th April, 2025.