ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), BANGALORE vs. M/S BHAKTA MARKANDESHWARA MINERALS, HOSPET

The facts relating to the case are stated in brief. The assessee herein is a partnership firm belonging to Shri K. Mahesh Kumar family. The revenue carried out search & seizure operation u/s 132 of the Act on 25.10.2010. On account of search operations, all the cases of assessees belonging to the family were centralised. The assessee, initially, filed its return of income u/s 139 of the Act on 9.12.2010 declaring a total income of Rs.22,48,790/-. In the search proceedings, Shri Mahesh Kumar furnished a letter dated 28.3.2011 before the investigation officials, wherein he agreed to offer additional income of Rs.25 crores in the hands of various assessees belonging to his family. It was submitted that the above said surrender of income represents business profits, unexplained investments/advances in respect of group concerns and also to overcome shortcomings till the assessment year 2011-12.

In the above said offer letter, a sum of Rs.4 crores was offered in the hands of the assessee for assessment year 2010-

In compliance to the same, the assessee filed a return of income for assessment year 2010-11 on 4.12.2012 declaring total taxable income of Rs.4,22,48,790/- under the head , 1787 & 1891/Bang/2017 M/s. Sri Bhakta Markandeshwara Minerals, Hospet Page 3 of 12 profits & gains of business, apparently u/s 153A of the Act. In the statement of total income, the assessee stated that the above said income of Rs.4.22 crores has been estimated on the total turnover of Rs.21.05 crores, in the absence of maintenance of books of accounts, as per declaration given u/s 132(4) of the Act in order to buy peace from the department. It was also stated that though the assessee was not a party to the said declaration, yet it is surrendering the said income to buy peace with the department and to avoid protracted litigation. However, the assessee did not file any return of income for AY 2011-12.

We shall take up the appeals filed by both the parties for AY 2010-11. The assessing officer took up the return of income for scrutiny and called for various details. However, the assessee failed to comply with the same and furnished only bank statements. Hence, the assessing officer proceeded to complete the assessment to the best of his judgement u/s 144 of the Act.

The A.O. noticed that the assessee has declared gross income of Rs.21.05 crores and declared profit of Rs.4.22 , 1787 & 1891/Bang/2017 M/s. Sri Bhakta Markandeshwara Minerals, Hospet Page 4 of 12 crores. Accordingly, the AO observed that the assessee has claimed expenses to the tune of Rs.16.83 crores. During the assessment proceedings the A.O. asked the assessee to submit details like nature of expenses, supporting bills or vouchers, details of purchases, permits for purchase of iron ore, transportation details, etc. Since the assessee did not furnish the details, the A.O. disallowed 20% of expenses i.e. 20% of Rs.16.82 crores, which worked out to Rs.3.36 crores.

The A.O. also examined bank accounts of the assessee and noticed that an aggregate amount of credit of Rs.61.50 crores have been found deposited by way of cash/cheques.

The assessee challenged both the additions by filing appeal before Ld CIT(A). The Ld. CIT(A) confirmed the disallowance of expenses and hence the assessee is in appeal before us.

In respect of addition of unexplained bank deposits, the Ld. CIT(A) deleted the same with the observation that he had confirmed the addition in the hands of Shri K. Mahesh Kumar on substantive basis and hence there is no requirement to sustain addition made on protective basis. Aggrieved, the revenue is in appeal before us.

We shall first take up the appeal of the assessee, wherein the issue relating to disallowance of expenses is being contested. The Ld. A.R. submitted that the assessee has offered the income of Rs.4.22 crores on estimated basis on the total turnover of Rs.21.05 crores. When the income is estimated, there is no scope for making any disallowance of expenses. When a specific query was raised as to how the return of income was furnished u/s 139 of the Act, the Ld A.R submitted that the books of accounts of the assessee have , 1787 & 1891/Bang/2017 M/s. Sri Bhakta Markandeshwara Minerals, Hospet Page 6 of 12 been misplaced. He submitted that this fact was brought to the notice of the department by Shri K Mahesh Kumar in his letter dated 28-03-2011. Accordingly he submitted that the assessee was constrained to estimate the income and further, it could not furnish various details called for by the AO. In any case, while filing return of income in response to notice u/s 153A of the Act, the assessee has clearly stated in the return of income that the income of Rs.4.22 crores is estimated on the total turnover of Rs.21.05 crores. Accordingly, he reiterated that, when the income is estimated there is no scope for making any disallowance out of alleged expenses. In the alternative, the Ld. A.R. submitted that the additional income of Rs.4 crores was offered, inter alia, to take care of the shortcomings, if any till the assessment year 2011-12. In that view of the matter also, the disallowance of 20% expenses is not justified as the said surrender of Rs.4 crores would take care of deficiencies, if any.

On the contrary, the Ld. D.R. placed his reliance on the order passed by the A.O.

We shall now take up the appeal filed by the revenue relating to deletion of protective addition relating to unexplained bank deposits. The Ld. A.R. submitted that the Ld. CIT(A) has deleted the protective addition, for the reason that the unexplained bank deposits has been confirmed by him on substantive basis in the hands of Shri K. Mahesh Kumar. The Ld. A.R. submitted that Shri K Mahesh kumar , 1787 & 1891/Bang/2017 M/s. Sri Bhakta Markandeshwara Minerals, Hospet Page 8 of 12 filed appeals before Tribunal challenging the above said decision of Ld CIT(A). The said appeals filed by Shri K. Mahesh Kumar before the Tribunal in to 1822/Bang/2017 have since been disposed of by the Tribunal, vide its order dated 17.1.2020 and the Tribunal has restored the issue to the file of Ld. CIT(A) for examining the additions afresh by considering the evidences furnished by the assessee.

We find merit in the said submissions of Ld. A.R. Since the Ld. CIT(A) has deleted the protective addition on the ground that he has confirmed the substantive addition made in the hands of K. Mahesh Kumar and since the said issue has been restored back to his file by the Tribunal in the case of K.

Now we shall take up the appeal filed by revenue for assessment year 2011-12. In this year ALSO, the A.O. noticed that the aggregate amount of bank deposits made was Rs.76.34 crores. Since the assessee did not file any return of income and also did not furnish any details, the A.O. assessed the entire deposits of Rs.76.34 crores on “protective basis” in the hands of the assessee, while substantive addition was made in the hands of Sh. K. Mahesh Kumar in AY 2011-12, for the very same reasons discussed above, while dealing with an identical issue in assessment year 2010-11.

The Ld. CIT(A) deleted the protective addition on the reasoning that he has confirmed the addition on substantive basis in the hands of Shri K. Mahesh Kumar. The revenue is aggrieved.

For the reasons discussed on an identical issue in assessment year 2010-11, this issue needs to be set aside to the file of Ld CIT(A), i.e. we have noticed that the Tribunal has restored the substantive addition made in the hands of Shri K.

The Ld. A.R. submitted that the assessing officer has framed the assessment for A.Y. 2011-12 in the hands of the assessee by assessing the unexplained bank deposits. The Ld. A.R. submitted that the assessee firm has been dissolved w.e.f.

The Ld. A.R. submitted that in the event that the issue of protective addition is restored to the file of Ld. CIT(A), the Ld , 1787 & 1891/Bang/2017 M/s. Sri Bhakta Markandeshwara Minerals, Hospet Page 11 of 12 CIT(A) may be directed to adjudicate ground nos.3 & 4, as they go to the root of the matter.

We agree with the contentions of the assessee. Since the assessee is claiming that it did not exist during the period relevant to the assessment year 2011-12, the said claim goes to the root of the matter and the same is required to adjudicated first by Ld. CIT(A). Accordingly, direct the Ld. CIT(A) to adjudicate ground nos. 3 & 4 urged before him.

In the result, the appeal of the assessee filed for AY 2010-11 is treated as allowed and the appeals of the revenue filed for AY 2010-11 and 2011-12 are treated as allowed.