M/S. KARUR SREE RAMA TRADING,KARUR vs. DCIT, CIRCLE-2, KARUR

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Trichy, dated 08.07.2019 relevant to the assessment year 2011-12. Besides challenging the enhancement of estimated addition of ₹.47.82 lakhs in the grounds of appeal, the ld. Counsel for the assessee has mainly disputed the ex-parte order of the ld. CIT(A) in enhancing the disallowance under section 40A(3) of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee has filed its return of income for the assessment year 2011-12 on 13.09.2011 admitting NIL income. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued and questionnaire was also issued. After verification of records and considering the submissions of the assessee, the assessment was completed under section 143(3) of the Act by adjusting the brought forward loss of ₹.1,23,65,025/- and making various addition to the extent of ₹.30.75 lakhs. On appeal, the ld. CIT(A) enhanced the disallowance under section 40A(3) of the Act.

On being aggrieved, the assessee is in appeal before the Tribunal. By filing various decisions of various courts, the ld. Counsel for the assessee has submitted that the ld. CIT(A) has suo motu enhanced the disallowance under section 40A(3) of the Act without affording an opportunity of being heard before such enhancement of assessment and prayed for suitable directions. On the other hand, the ld. DR supported the appellate order.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Since there was no proper representation from assessee’s side despite various opportunities afforded, the ld. CIT(A) proceeded to decide the appeal after considering the materials available on record. On perusal of the records, the ld. CIT(A) has observed that the assessee has shown yarn purchase of ₹.424.90 lakhs, Dye charges of ₹.206.44 lakhs, weaving charges of ₹.148.92 lakhs and processing charges of ₹.176.23 lakhs totalling to ₹.956.55 lakhs. Accordingly, the AR of the assessee was informed that owing to deficient Tax Audit Report and if the assessee was not to furnish the breakup of expenses made in cash, an appropriate percentage of expenses so made would be disallowed and added to the disallowance made by the Assessing Officer, who had mentioned that the net profit at ₹.30.83 lakhs was much lower than normal expected profits on aggregate of export and local yarn sales of approximately ₹.15 crores. However, the assessee has not turned up with breakup of expenses, etc. Accordingly, the ld. CIT(A) estimated the disallowance under section 40A(3) of the Act at ₹.47.82 lakhs. Taking into account of disallowance of ₹.20 lakhs already made by the Assessing Officer, the assessment was further enhanced by ₹.27.82 lakhs [₹.47.82 lakhs – ₹.20 lakhs]. Before us, the ld. Counsel for the assessee has submitted that the ld. CIT(A) has suo motu enhanced the disallowance under section 40A(3) of the Act and prayed for affording one more opportunity of being heard to the assessee for filing relevant details before the ld. CIT(A). In view of the above facts and circumstances, we are of the opinion that in order to meet the ends of natural justice, one more opportunity may be given to the assessee for furnishing relevant details as required by the ld. CIT(A). Accordingly, we set aside the appellate order and remit the matter back to the file of the ld. CIT(A) to decide the issue afresh after considering relevant details as may be filed by the assessee by affording an opportunity of being heard to the assessee.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 30th September, 2021 in Chennai.