ACIT., CIRCLE-6(1), HYDERABAD vs. VK WAREHOUSING ENTERPRISES, HYDERABAD

The Appellant respectfully seeks leave to submit additional factual and legal arguments during the proceedings before Your Honours.” On the other hand, the revenue has assailed the impugned order of the CIT(A) on the following grounds of appeal before us:

The Ld. CIT(A) erred in law in granting relief of taxation under normal provisions of the I.T. Act, where the addition was made u/s.69C r.w.s. 115BBE of the I.T. Act, 1961 3. Any other ground that may be urged at the time of hearing.”

Succinctly stated, the assessee firm had filed its return of income for the year under consideration on 06/11/2017, declaring a loss of Rs. 34,91,97,973/-. Subsequently, the return of income was selected for scrutiny assessment under CASS and notice under Section 143(2) was issued and duly served upon the assessee firm. As there was no compliance to the statutory notices issued under Sections 143(2) and 142(1), despite repeated opportunities, the AO completed the assessment to the best of his judgment, vide order passed under Section 144 of the Act, dated 26/11/2019, determining its income at Rs. 3,37,78,220/-.

The AO, while framing the assessment made the following additions/disallowances, viz. (i) disallowance of amount claimed under the head “any other amount allowable as deduction”, treating the same as unexplained expenditure under Section 69C of the Act: Rs. 34,58,38,297/-; (ii) disallowance of depreciation: Rs. 3,11,24,473/-; (iii) disallowance under Section 40(a)(ia) of the Act: Rs. 32,89,736/-; (iv) disallowance of interest on delayed remittance of TDS: Rs.1,37,887/-; and (v) addition of unexplained cash deposits u/s 68 of the Act: Rs. 25,85,800/-. Accordingly, the AO, vide his order passed under Section 144 of the Act, dated 26/11/2019, converted the returned loss into a positive income of Rs. 3,37,78,220/-.

Subsequently, the AO passed a rectification order under Section 154 of the Act, dated 10/11/2021, wherein he rectified the rate of tax applied and subjected the additions made under Section 68 and Section 69C of the Act to tax under Section 115BBE, enhancing the demand substantially.

On appeal, the CIT(A) partly allowed the assessee’s appeal. The CIT(A) upheld the disallowance of depreciation, the disallowance under Section 40(a)(ia), and the addition of unexplained cash deposits. However, the CIT(A) was of the view that although the disallowance of Rs. 34,58,38,297/- was to be sustained on merits, but the invocation of Section 69C was not justified, as the assessee firm had admitted that the said amount represented “capital expenditure” that was incurred towards the construction of warehouses and was wrongly reflected in the return of income. Accordingly, the AO was directed to recompute the tax liability without invoking Section 69C in respect of the said amount.

Thereafter, the assessee firm assailed the rectification order passed by the AO under Section 154 of the Act before the CIT(A), who vide a separate order dated 28/02/2025, directed the AO to apply the provisions of Section 115BBE only in respect of the addition made under Section 68 of Rs. 25,85,800/- and vacated the application of Section 115BBE in respect of the disallowance of Rs. 34,58,38,297/-.

Both the assessee firm and the revenue, aggrieved with the order of the CIT(A), have carried the matter in appeal before us.

We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and he material available on record.

Shri. Rajesh Vaishnav, CA, the Ld. Authorised Representative (for short, “AR”) for the assessee company has challenged, inter alia, the confirmation of disallowance of depreciation, the addition of unexplained cash deposits, the disallowance under Section 40(a)(ia), and has also alleged denial of proper opportunity of being heard.

We have given thoughtful consideration to the contentions of the Ld. Authorised Representatives of both parties on the aforesaid issues.

As regards the disallowance of depreciation of Rs. 3,11,24,473/-, we find that the CIT(A) had proceeded on the premise that the assessee firm had claimed depreciation on capital work-in-progress relating to incomplete warehouses which were not put to use during the year. However, it is seen from the “written submissions” filed before the CIT(A) that the assessee firm had specifically contended that it had an “Opening balance” of depreciable assets as on 01/04/2016 amounting to Rs. 8,03,49,732/-, and that the capital expenditure of Rs. 23,05,58,865/- completed during the year was transferred to the “fixed assets account”, while only the incomplete portion was retained under CWIP. We find that these factual assertions of the assessee firm have not been examined or controverted by the CIT(A). In our considered view, the issue requires verification of the facts. Accordingly, we set aside this issue to the file of the CIT(A) for fresh adjudication after verifying the factual position and in accordance with law.

Apropos the addition of unexplained cash deposits of Rs. 25,85,800/- under Section 68 of the Act, the assessee firm had explained before the CIT(A) that the said deposits were sourced from cash withdrawals aggregating to Rs. 27,26,560/- made from its current accounts during the period 25/05/2016 to 30/07/2016. The assessee firm had furnished before the CIT(A) the bifurcated details of such withdrawals. However, the CIT(A) had rejected the said explanation on the ground that the same was not substantiated. We find that once a specific explanation supported by primary details was placed on record, the CIT(A) was required to adjudicate the same by passing a speaking order. We therefore set aside this issue to the file of the CIT(A) for fresh adjudication in accordance with law.

Coming to the disallowance of interest of Rs. 1,37,887/- paid on delayed remittance of TDS, we find no infirmity in the order of the CIT(A). The issue is squarely covered against the assessee firm by the judgment of the Hon’ble High Court of Madras in CIT v. Chennai Properties & Investments Ltd. (1999) 239 ITR 435 (Madras). Accordingly, we uphold the aforesaid disallowance.

As regards the disallowance of Rs. 32,89,736/- under Section 40(a)(ia), we note that although the assessee firm did not substantiate its claim either before the AO or before the CIT(A), it has contended before us that tax was duly deducted and deposited within the prescribed time. In the interest of justice, we restore this issue to the file of the CIT(A) for fresh adjudication, who is directed to adjudicate the said issue after affording the assessee an opportunity of being heard and verifying the relevant records.

In so far the plea of the assessee company regarding the denial of a proper opportunity of being heard by the CIT(A) is concerned, we find that the same is found to be devoid of merit, as the record clearly shows the issuance of multiple statutory notices. We thus, in terms of our aforesaid observations, reject the aforesaid claim of the assessee company.

Coming to the grievance of the Revenue, we find that no specific violation of Rule 46A of the Income-tax Rules, 1962 has been demonstrated before us. However, we also observe that the CIT(A) has summarily accepted the claim of the assessee company that the amount of Rs. 34,58,38,297/- represented capital expenditure, without any factual verification. We, therefore, direct the CIT(A) to verify the said claim. In case any additional evidence is relied upon by the assessee company, the same, before drawing any inferences, shall be confronted to the AO in accordance with Rule 46A.

In the result, both the appeals filed by the assessee firm and the revenue are partly allowed for statistical purposes, in terms of our observations recorded hereinabove.