THE DCIT, CIRCLE-4,, AHMEDABAD vs. GOPAL IRON & STEEL CO.(GUJ.) LTD.,, AHMEDABAD

As transpires from the order of the authorities below, assessment in the impugned case was framed ex-parte u/s. 144 of the Act, on account of non-compliance of the assessee to various notices issued to it, making addition on various counts, totaling in all to Rs. 5,01,84,927/-, as under: (i) Addition u/s. 68 – Unsecured loan 65,25,474/- (ii) Disallowance of depreciation 6,62,355/- (iii) Addition u/s. 69- Unexplained investment 58,64,847/- (iv)Addition u/s. 68- Unexplained credit 42,05,417/- (v) Out of expense 70,38,632/- (vi) Estimation of gross profit 2,58,88,202 Total 5,01,84,927/-.

The assessee carried the matter in appeal before the Ld. CIT(A), Challenging the validity of order passed on account of failure to issue the jurisdictional notice u/s. 143(2) of the Act within the prescribed time, as also the various additions made on merit. Evidences were filed before the Ld. CIT(A) in support of the grounds raised on merits ,which were sent to the Assessing Officer (A.O.) for his comments, after considering which the Ld. CIT(A) deleted all the additions made on merits while he dismissed the ground raised by the assessee regarding the validity of assessment framed. Against the aforesaid order both the Revenue and the Assessee have come up in appeal before us, with the Revenue challenging the deletion of addition made on merits by raising the following grounds: 1. The Ld.CIT(A) has erred in law and on facts in-admitting additional evidence and in deleting the addition of Rs. 65,25,474/- made on account of unexplained credit u/s.68 of the Act, without properly appreciating the fact that ample opportunities given to the assessee to produce necessary evidence have not been availed/complied by the assessee forcing the AO to resort to passing ex-parte order u/s.144 of the Act.

And the assessee agitating the dismissal of its legal ground raised before the Ld. CIT(A) is as under: 1. The Ld. CIT appeal has erred both in law and facts the rejecting the assessee claim that no notice u/s 143(2) was served upon the assessee as required under the relevant provision of the act. Since no notice u/s 143(2) for A.Y. 2009-10 was served the assessment framed as well as the appellate order passed not accepting the above facts are both bad in law and as such the assessment as well as the order of the CIT pertaining to this point be annulled.

During the course of hearing before us, Ld. Counsel for the assessee did not press the grounds raised by it in its Cross Objection. The grounds raised by the assessee in its Cross Objection in CO. No. 247/Ahd/2014 are therefore dismissed and the Cross Objection of the assessee accordingly is dismissed.

As per the revenue’s appeal, we find that the primary challenge of the revenue is against the adjudication of the merits of the case by the Ld.CIT(A) by entertaining the additional evidences filed by the assessee.

We have gone through the order of the Ld. CIT(A) and we find that before the Ld. CIT(A), the assessee had filed submissions in writing vide his application dated 10.04.2012 which was forwarded to the A.O. for his comments. The remand report of the A.O. dated 31.12.2013 was in turn forwarded to the assessee for his comments thereon which was duly submitted ,as reproduced at page 4 to 10 of the CIT(A)’s order. After considering all of the above, Ld. CIT(A) admitted the additional evidences filed by the assessee stating that they were contemporary in nature and noting that the assessee was unable to produce them as he was facing difficulty due to the circumstances. The relevant findings of the Ld. CIT(A) at page 10 of the order is as under: “ I have carefully considered the details filed by the appellant, the report of the A. O. and the counter comments filed by the appellant. Certain evidences were not produced by the appellant before the A.O. Further, the evidence now being submitted are

The copy of the submissions filed before the Ld. CIT(A) was placed before us at paper book page no. 4 to 24 to bring out the reason for non-compliance during assessment proceedings, as the assessee harboring the bonafide belief that no proceedings for the impugned year, i.e A.Y 2009-10 ,had been initiated since no notice for assuming jurisdiction to frame assessment, u/s 143(2) of the Act, was received by it within the stipulated time and the only other such notice received mentioned A.Y 2008-09.The submissions of the assessee in this regard are as under: 2. The Appellant Company had filed it's return of income for the A.Yr. 2009-10 on 24-09- 2009, declaring total income at Rs. 20,94,480/- on the basis of Audited Accounts for the year ended 31-3-2009. Since the Appellant Company did not receive any notice under section 143(2) within the period of six months from the end of the financial year in which return of income was filed for this year, the appellant was under a bona fide belief that the return of income filed u/s 139(1) was accepted under section 143(1) of the Act. Therefore, the notices issued by the A.O. u/s 142(1) on 7-2-2011 & on subsequent dates were not complied with because-the notices were taken to have been issued without jurisdiction, in the absence of any notice issued u/s. 143(2) for the A.Yr. 2009-10. The notice u/s 143(2) issued on 27-8-2010 was in fact for the assessment year 2008-09. It is, therefore, a fact that no notice u/s 143(2) was received for the A. Yr. 2009-10. This fact was brought to the notice of the A.O. by the A.R. of the Appellant Company. Thereupon the A.O. had supplied the copy of the notice u/s 143(2) of the Act, dated 27-8-2010 which was apparently issued by the Office of the D.C.I.T., Circle-4, Ahmedabad. This fact, among other facts, was specifically brought to the notice of the A.O. by the Authorized Representative of the Appellant Company vide letter dated 12-11-2011 and thereafter vide reply to the Penalty Show Cause notice u/s 274 of the I. T. Act, all these facts were again submitted before the A.O. for his consideration. It was specifically brought to the notice of the A.O. that there was no notice u/s. 143(2) for the A. Yr. 2009-10 and therefore the A.O. could not have assumed valid jurisdiction to issue any notices u/s. 142(1) for the A. Yr. 2009-10 in this case. The appellant company, being under a bona

Further on scrutiny of the submissions made before the Ld. CIT(A), we find that while contesting the additions made, the assessee had referred to its audited accounts and to the past history of the case. We shall be referring to all the additional evidences filed, while adjudicating the various grounds raised by the revenue, but suffice to say, we have perused the contents of the submissions made by the assessee before the ld. CIT(A) and we are in agreement with the Ld. CIT(A) that all the evidences filed were contemporary in nature and could not be treated as additional evidences. Moreover as stated above, the assessee bonafidely believed that no proceedings for the impugned year were initiated and therefore did not comply with the notices filed, though, at the same time, it was cooperating with the department in the assessment for assessment year 2008-09.

The Ld. D.R. has been unable to point out any infirmity in the observations and findings of the ld. CIT(A) while admitting the additional evidences as above. We therefore are not in agreement with the contention of the revenue that the additional evidences were wrongly admitted by the Ld. CIT(A) while adjudicating the issues on merit in favour of the assessee.

In ground no. 1, the challenge is to the deletion of addition made on account of unsecured loans taken by the assessee amounting to Rs. 65,25,474/-. The A.O. made addition of the same since the assessee failed to furnish any details with regard to the same. The findings of the A.O. are at Para 15 of his order treating the unsecured loans as unexplained credits and making addition of the same u/s. 68 of the Act. The ld. CIT(A) deleted the addition on finding that the addition related to three loans all taken from directors of the assessee company, out of which two loans were old not taken during the impugned year , while the third loan, taken in the name of one Mr. Bhavesh G. Patel, part of it was taken in earlier year which was assessed and no addition made on account of the same while for the balance assessee had filed confirmation regarding the deposits and the A.O. had also received confirmations from the parties against notices u/s. 133(6) issued to them in remand proceedings. The relevant findings of the Ld. CIT(A) at para 5.3 of his order is as under: 5.3 Decision: I have carefully considered the facts of the case, the assessment order-and the written submission of the appellant. The AO has made the addition of unsecured loans appearing in the balance sheet. The appellant has explained, during the course of appellate proceedings that the loans have been taken from the directors of the company who are assessed to tax and are regularly filing the return of income. The loans have been taken from three directors. The loans in respect of two directors are old and only interest has been credited in that account. There is some addition in the other account namely from Mr Bhavesh G Patel. Shri Bhavesh is regularly assessed to tax and is filing return of income. It is also noted that no addition was in respect of loan taken from him in earlier years. The appellant has also filed his confirmation regarding the deposit. It is noted from the remand report that he has verified the information on test check basis. Notices under section 133 (6) was issued and the confirmations were received. In view of

The submissions of the assessee before the ld. CIT(A) is as under: 1. Unsecured Loans addition u/s 68 Rs. 62,25,474/- : This amount pertains to loan taken from the directors as evident from the Balance Sheet available with the A.O. from where he has taken this figure. Last year also loan is appearing in the name of Directors. All the directors are Income tax assesseees. A comparative chart is enclosed for ready reference.

It is evident that with respect to the issue of unsecured loans, the assessee had established from its financial results that they were majorly old loans. Further the enquiry conducted by the A.O. during remand proceedings also confirmed the genuineness of the unsecured loans. The A.O. having himself found the loan to be genuine after making due enquiry, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made on account of unsecured loans u/s. 68 of the Act amounting to Rs. 65,25,474/-.

In ground no. 2, the revenue has challenged the deletion of disallowance of depreciation amounting to Rs. 6,62,355/-. With respect to the same, the assessee had submitted before the Ld. CIT(A) is as under: 2. Disallowance of Depreciation on newly acquired assets - The Company's accounts are audited by Chartered Accountants for Company Law purpose as well as for 44AB and had the supporting evidence been with the auditor they would have qualified the report which is not done hence the disallowance is un called for and deserves to be deleted.

We have noted from the above that the disallowance of depreciation was made since no details were available with the A.O. vis-à-vis the purchase of new assets. The Ld. CIT(A)noted from the records of the assessee as well as the Tax Audit Report filed, that the assets were duly accounted for in the books of the assessee. Further the bills of the assets purchased were forwarded to the A.O. for verification, and no adverse comments were made by him on the same. We note that it was only contemporary data/evidence which was furnished by the assessee, verified by the A.O. and no infirmity found in the same.

In view of the above therefore, we hold, the Ld. CIT(A) was justified in admitting the evidences and deleting the disallowance of depreciation amounting to Rs. 6,62,355/-.

In ground no. 3, the revenue is aggrieved by the deletion of addition of Rs. 58,64,847/- made u/s. 69 of the Act. The impugned addition related to the bank balance reflected in the return of income filed by the assessee on account of the same remaining unreconciled with the bank. The A.O. therefore added the entire balance of Rs. 58,64,847/- as unexplained investment u/s. 69 of the Act.

Before the Ld. CIT(A), the assessee submissions are as under: 7.2 Appellant's submission :- The relevant extracts from the submission of the appellant are reproduced here under:-- Addition u/s 69 unexplained investments of Rs. 5864847/-.: The above amount comprised of the following. A.Y. 2009-10 A.Y. 2008-09 Bank Balance Current A/c Rs. 1200/- Rs. 14050950/- F.D. [PNB] Rs. 572700/- Rs. 5727000/- Accrued Interest on F.D. Rs. 136647/- Rs. 61025/- Rs. 5864847/- Rs. 19838975/- Firstly there is no increase in the above investments in comparison to last year. Secondly all are old investments and carried forward from last year. Hence addition is illegal and application of section 69 is purely based on presumptions and under such circumstances no addition can be made and hence above addition deserves to be deleted."

Ld. CIT(A) deleted the addition holding as under: 7.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The addition was made by the AO as the appellant did not furnish the reconciliation of the bank statement reflected in the balance sheet. During the course of appellate proceedings the appellant gave the explanation. It is noted that the investment which have been added by the AO are In respect of the bank account and are duly reflected in the books of accounts of the appellant. The figure of addition includes balance with Punjab National bank current-account, fixed deposit with Punjab National bank and interest in accrued on the bank fixed deposit. It is clear from the

We have noted that the Ld. CIT(A) deleted the addition on finding that these balances were duly reflected in the books of account of the assessee and were majorly carried forward from the earlier years. We find that it was only contemporary evidence which was appreciated by the ld. CIT(A) for the purposes of holding that the entire bank balance was explained as appearing in the books of accounts of the assessee. Even the A.O. did not make any adverse comment with regard to the same in his remand report. The Ld. CIT(A) we hold was therefore wholly justified in deleting the addition made u/s 69 amounting to Rs. 58,64,847/- . Ground of appeal No.3 is dismissed.

In ground no. 4, the revenue has challenged the deletion of addition made on account of unexplained credit amounting to Rs. 42,05,417/-. The Assessing Officer, we find, made the addition in relation to the sundry creditors reflected in the return of income ,for failure of the assessee to furnish necessary details. While the sundry creditors reflected amount to Rs. 2,42,05,417/- the A.O. accepted sundry creditors to the extent of Rs. 2 crores to be genuine while the remaining amounting to Rs. 42,05,417/- was treated as unexplained credit, on estimate basis. The assessee submitted before the Ld. CIT(A) is as under: 8.2 Appellant's submission:- The relevant extracts from the submission of the appellant are reproduced here under:- 1. "u/s. 68 Unexplained credits Rs.4205417/- : This amount represents goods creditors from whom the Company had purchased goods / services etc and such creditors are not covered u/s 68. Further the total creditors are to the tune of Rs.24205417/- and out of that on estimate basis he has added Rs.4205417/- How the addition can be made u/s 68

The Ld. CIT(A) deleted the addition holding as under: 8.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. It is noted that the AO has made the addition as he asked the appellant to furnish the details of sundry creditors of Rs. 2.42 crores appearing in the balance sheet. The appellant did not furnish the details and therefore, he estimated that the sundry creditors which were genuine should be at Rs. 2 crores and accordingly he made an addition of the balance sundry creditors shown in the balance sheet, i.e., Rs. 42.05 Lacs. The appellant has submitted and v.ehementally objected to the addition. It has been pointed out that the addition is without any basis and on the basis of estimate. The appellant has submitted that no addition in such manner can be done. I have carefully perused the information available on record. The scheduled 10 of the balance sheet submitted by the appellant show that there are current liabilities of Rs. 2.42 crores appearing in the balance sheet out of which the outstanding L/C were at Rs. 2.21 crores. The balances are sundry creditors for others and advance received from customers. The entries are duly reflected in books of accounts and there was no basis and reason of disallowance or addition should be made by the AO by estimating the sundry creditors. It appears that the AO was acting with a biased mind. Subsequently, the present AO, his remand proceedings, has made sample verification of the details given by the appellant and no adverse comment has been given in the remand report. Further, the books of accounts of the appellant company were audited and the auditors have not given any remark about the sundry creditors in the, balance sheet. In view of these facts and the submission of the appellant the disallowance made by the AO are directed to be deleted. The ground of appeal is accordingly, allowed.

We have noted once again that based on the financial statement of the assessee and on the verification made by the A.O. himself during remand proceedings, the Ld.CIT(A) found the addition made to be unjustified.

The AO having himself found the outstanding balances to be genuine, there remains no grievance of the Revenue. Ground of appeal No.4 is dismissed.

The next ground, Ground No.5, raised is with regard to disallowance of expenses amounting to Rs. 70,38,632/- which constituted 15% of the total expenditure incurred on Power and Fuel, Salary and Wages, Advertisement, Donation, Other expenses and Interest as summarized at page 28 of the CIT(A)’s order for want of evidence.

Before the Ld. CIT(A), the assessee submitted as under: 9.2 Appellant's submission :- The relevant extracts from the submission of the appellant are reproduced here under:- 2. Out of expenses : 15% on estimate basis of the following expenses. a) Power and Fuel Expenses: Firstly these expenses have gone down to Rs.2.42 crores in comparison to last year 3.49 crores. Secondly such expenses are covered in calculation of

The Ld. CIT(A) deleted the addition are as under: 9.3 Decision: I have carefully considered the facts of the case, the assessment order and written submission of the appellant. The AO has disallowed 15% of certain expenses as, in his opinion, the appellant was not able to give proper justification in support of the expenditure. During the course of appellate proceedings, the appellant has submitted that the expenses are genuine and not excessive. It has also given a comparison chart showing the expenses in various heads of last four years. It has been submitted that there is no abnormal increase in the expenditure and the same should therefore, be allowed fully. The information given by the appellant were also sent to the AO for verification and it is noted that the AO has commented that he has verified the information on sample basis. Further it is also noted that the appellant's case has been completed in the scrutiny in several others years and there has been no disallowance on this basis except that in assessment year 2007 - 08 where a disallowance of Rs. 20,000/- on lump-sum basis was made. I have carefully considered the information available on record, the submission of the appellant as well as the report of the AO in remand proceedings. It is noted that the books of accounts of the appellant company are audited and there is no abnormal increase in the expenditure shown by the appellant as compared to earlier years. The expenses in this year are at Rs. 4.69 crores as against the turnover of 50.58 crores. The expenditure in earlier year that is 2008 - 09 was at 5.58 crores as against the turnover of 92.02 crores. Similarly for the year 2007 - 08 the expenditure was 4.72 crores as against

We have perused the order of the Ld. CIT(A) who we find has deleted the addition noting that there was no abnormal increase in these expenses as compared to the preceding years and further noting the fact that the A.O. had verified the expenses on sample basis and made no adverse comments. He also noted that in scrutiny assessment for earlier years no disallowance of such expenses was made except of a meagre amount of Rs. 20,000/- on lump sum basis in assessment year 2007-08. The Ld. CIT(A) noted that the expenditure in the impugned year was comparable with the turnover of the assessee and in the absence of any specific defect/ abnormality pointed out by the A.O. , he deleted the disallowance. 31. We see no reason to interfere in the well reasoned order of the Ld. CIT(A),particularly when the AO himself found the assesses claim to be correct in remand proceedings.

Ground of appeal No.5 is dismissed.

The revenue has lastly agitated against the deletion of addition made by the A.O. by estimating gross profit by Rs. 2,58,88,202/-.

. Before the Ld. CIT(A), the assessee submitted as under: 10.2 Appellant's submission :- The relevant extracts from the submission of the appellant are reproduced here under:- 3. Estimate of Gross Profit Rs.25888202/-

The Ld. CIT(A) deleted the GP addition holding as under: 10.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The assessing officer has made an addition by estimating the GP of the appellant company as the gross profit shown by the appellant company was 6.7% of the total turnover. The AO gave a show cause to estimate the gross profit at 12% by estimating the turnover at Rs. 60 crores. The appellant did not give reply during the course of assessment proceedings and accordingly the AO estimated the GP by increasing the turnover to 60 crores and applying the rate of 10%.

The Ld.CIT(A),we have noted deleted the addition finding that there was no basis with the AO for either rejecting the Books of the assessee or for applying the GP rate for estimating the profits. He also noted that the Books of the assessee were duly audited. Accordingly he held the act of the AO of rejecting the Books of the assessee and estimating the Gross Profit to be entirely baseless and thus unjustified.

Before us Ld.DR was unable to point out any infirmity in the above findings of the Ld.CIT(A) .

We therefore see no reason to interfere in the order of the Ld.CIT(A).

Ground of appeal No.6 is dismissed.

The appeal of the Revenue therefore stands dismissed.

In effect both the Revenues appeal and the assesse’s CO is dismissed.