INCOME TAX OFFICER, WARD-3(2), HYDERABAD vs. RAYALASEEMA STEEL RE-ROLLING MILLS PRIVATE LIMITED, HYDERABAD

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ITA 499/HYD/2019Status: DisposedITAT Hyderabad21 February 2022AY 2013-145 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that neither the CIT(A) nor the AO had adequately examined the issue of burning loss by comparing it with industry benchmarks or the assessee's production register. Similarly, the grounds related to unexplained cash credits and incentives to sister concerns required critical examination. Therefore, the Tribunal remitted the entire matter back to the AO for de-novo consideration.

What were the facts?

The Revenue appealed against the CIT(A)'s orders deleting additions made by the AO concerning unexplained cash credits and burning loss. The AO had made additions for unexplained cash credits and burning loss, which the CIT(A) had deleted. The Revenue argued that the assessee failed to prove the identity, genuineness, and creditworthiness of entities and that the burning loss claimed was excessive.

What were the issues?

Whether the CIT(A) erred in deleting additions related to unexplained cash credits and burning loss without proper examination. The need for de-novo consideration of these issues by the AO.

Which sections of the Income-tax Act were involved?

Section 133(6)

AI-generated summary — verify with the full judgment below

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

Before: SHRI A. MOHAN ALANKAMONY & SHRI S.S. GODARA

Hearing: 14/02/2022Pronounced: 21/02/2022

Assessment Year: 2013-14 Income Tax Officer, Vs. Rayalaseema Steel Re- Ward-3(2), Rolling Mills Pvt Ltd., Hyderabad. Hyderabad. PAN: AADCR 8243 G (Appellant) (Respondent) Assessee by: Sri Bhupesh Dand Revenue by: Sri T. Sunil Goutam, Sr. AR Date of hearing: 14/02/2022 Date of pronouncement: 21/02/2022 ORDER PER A. MOHAN ALANKAMONY, AM.:

The captioned two appeals are filed by the assessees against the orders of the Ld. CIT (A)-3, Hyderabad in appeal No.0791 & 385/ITO- 3(2)/Hyd/CIT(A)-3/2016-17, dated 18/01/2019 and 16/1/2019 respectively for the AY 2013-14.

2.

The Revenue has raised six grounds in and they are extracted herein below for reference:

“1. The Ld. CIT (A) erred on both law and facts of the case.

2. The Ld. CIT (A) erred in deleting the addition made by the AO amounting to Rs. 22,15,000/- towards unexplained cash credits despite the fact that the assessee failed to prove the identity, genuinity and creditworthiness of the 7 entities involved.

3. The Ld. CIT (A) ought to have appreciated the fact that the efforts made by the AO in identifying the above 7 entities by issuance of notice U/s. 133(6) were returned unserved as either left or no such address by the postal authorities.

4. The Ld. CIT(A) erred in granting relief amounting to Rs. 11,33,000/- towards unexplained cash credits as share application money received despite the fact that the assessee failed to prove the identify, genuinity and creditworthiness of the 8 entities involved.

5. The Ld. CIT (A) ought to have upheld the addition made by the AO towards burning loss amounting to Rs. 1,45,20,480/- considering the fact that the AO after having considered the factors involved for arriving burning loss, allowed the same at 2.5% despite the benchmark being 0.5% to 2%.

6. Any other ground(s) that may be urged at the time of hearing.”

3.

The Revenue has raised seven grounds in and they are extracted herein below for reference:

1.

The Ld. CIT(A) erred on both law and facts of the case.

2. The Ld. CIT(A) erred in deleting the addition made by the AO amounting to Rs.95,82,800/- towards unexplained cash credits despite the fact that the assessee failed to prove the identity, genuinity and creditworthiness of the 20 entities involved.

3. The Ld. CIT(A) ought to have appreciated the fact that the efforts made by the AO in identifying the above 20 entities by issuance of notice U/s. 133(6) were returned unserved as either ‘left’ or ‘no such address’ by the postal authorities.

4. The Ld. CIT(A) erred in granting relief amounting to Rs. 16,70,000/- towards unexplained cash credits as share application money received despite the fact that the assessee failed to prove the identity, genuinity and creditworthiness of the 8 entities involved.

5. The Ld. CIT(A) erred in deleting the addition of Rs. 83,18,000/- made towards ‘incentives’ given to sister concern by the AO treating the same as ‘loan’ given without appreciating the fact that an ‘incentive’ need not be repaid at a later date and whereas, a loan has to be repaid.

6. The Ld. CIT(A) ought to have upheld the addition made by the AO towards burning loss amounting to Rs. 3,94,73,840/- considering the fact that the AO after having considered the factors involved for arriving burning loss, allowed the same at 2.5% despite the benchmark being 0.5% to 2%.

7.

Any other ground(s) that may be urged at the time of hearing.”

4.

At the outset, the grounds relating to burning loss amounting to Rs. 1,45,20,480/- with respect to M/s. Rayalaseema Industries (India) Private Limited and Rs. 3,94,73,840/- with respect to M/s. Rayalaseema Steel Re-Rolling Mills Private Limited was argued by the Ld. DR. He vehemently submitted that the Ld. CIT (A) has granted relief to the assessee arbitrarily without examining the facts of the issue and the general trend in the industry. The Ld. DR further argued that prima facie it was evident that in the industry burning loss variation will not be more than 0.5% to 2% while as the assessee had claimed 5% as the burning loss. It was therefore pleaded that the order of the Ld. AO may be upheld. The Ld. AR on the other hand vehemently argued in support of the order of the Ld. CIT (A).

5.

After hearing both the sides, we are of the view that neither the Ld. CIT (A) nor the Ld. AO has examined the issue by comparing with the other entities in the industry as well as by examining the production register of the assessee. The Auditor’s report on tax audit is also not examined by the Ld. Revenue Authorities wherein the quantity and production details have to be mandatory stated. Therefore, in the interest of justice, we are of the view that the matter has to be remitted back to the file of the Ld. AO for de-novo consideration. The other grounds raised by the Revenue pertain to unexplained cash credit and granting incentives to the sister concern the facts of which is required to be critically examined by the Ld. Revenue Authorities which is lacking in the case of both the assessees. Therefore, we are of the view that the entire matter with respect to both the appeals has to be remitted back to the file of the Ld. AO for fresh consideration. Accordingly, we hereby remit both the appeals back to the file of the ld. AO for de-novo consideration.

6.

In the result, both the appeals of the Revenue are allowed for statistical purposes.

Pronounced in the open Court on the 21st of February, 2022.

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