HALLEX APPLIED POWER PVT LTD,NEW DELHI vs. DCIT CIRCLE-11(1), NEW DELHI
Facts
The assessee company did not file its income tax return for AY 2010-11. Information from tax authorities revealed significant turnover (Rs. 4,87,50,347) from various sources with TDS deducted, leading the AO to believe income had escaped assessment and initiate reassessment proceedings u/s 148, assuming a 10% net profit. The assessee subsequently filed a return declaring income, but challenged the validity of the reassessment and the disallowance of costs and other business expenses by the lower authorities.
Held
The Tribunal upheld the validity of the reassessment proceedings (Grounds 1, 2, 3), ruling that the AO had 'reason to believe' and not merely 'reason to suspect' based on the assessee's non-filing of return and substantial undeclared revenue, even with an assumed profit margin for quantification. However, regarding the disallowance of cost of sales and other expenses (Grounds 4 & 5), the Tribunal noted that evidence, including bank statements, was not properly examined by the AO or CIT(A). Thus, these issues were restored to the AO for a de novo assessment, granting the assessee a fresh opportunity to present evidence.
Key Issues
Validity of reassessment proceedings initiated u/s 147/148 based on an assumed net profit, and the disallowance of cost of sales and other business expenses.
Sections Cited
Section 139(1), Section 147, Section 148, Section 143(2), Section 151(1), Section 288A, Section 288B, Section 32
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘H’: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI BRAJESH KUMAR SINGH
per law, the same is also not acceptable as the estimation of 10% of the
gross receipts made by the AO was for the purpose of quantification of the
escaped income and even though the word used by the AO is ‘assuming’
8 ITA No.230/Del/2021
but in the given facts of the case, it cannot be said to be an unreasonable
assumption. The AO was conscious of the fact that in this case, the
assessee company had not filed its return of income and there was an
escapement of turnover amounting to Rs.4,87,50,347/-, the profit of
which he wanted to assess, for which an assumption of 10% of the
escaped turnover amounting to Rs.4,87,50,347/- was made by him in the
reasons recorded and it did not mean that the AO only wanted to assess
10% of the escaped turnover as contended by the assessee. Therefore, the
contention of the assessee company in ground no.1, 2 and 3 challenging
the reopening of the assessment and the AO having not made addition of
his 10% NP, for which, he invoked 147, while making other additions are
not accepted and the same are rejected. Ground nos.1, 2 and 3 of the
appeal are dismissed.
Ground no.4 and 5 of the appeal are reproduced again for ready
reference:-
Without prejudice, The Ld. CIT(A) erred in facts, circumstances of the case and in law in denying the cost of sales offered in computation of income after accepting sales in same computation of income.
The Ld. CIT(A) erred in facts, circumstances of the case and in law in denying expenses of the nature of interest & depreciation stating assessee did not earn business income after accepting sales as business income”.
9.1. In this regard, the submissions of the assessee vide letter dated
19.02.2019 (page 25 and 26 of the paper book), which was reiterated
before us, are reproduced as under:-
9 ITA No.230/Del/2021
“Ground 4: Without Prejudice, above- Not allowing costs attributable to additional sales offered in ROI and accepted in assessment: Though the appellant had not credited sales and debited corresponding costs in the P&L account, it offered the sales and claimed costs attributed to the sales in return of income. It is an admitted fact that one cannot have sales without costs. The AO Accepted the sales but did not give benefit of costs due to a typographical initially committed by appellant about the costs - Used the term Bad debts instead of costs - Later it was also clarified and also shown that no bad debts have been claimed. Despite AO seeing that what is claimed is only the costs attributable to sales (break up of costs were also provided), and that no bad debts have been claimed, he holding on to the erroneous terminology used by the appellant, denied deduction of costs of sales from sales. If the stand of AO is given credence, then, it would lead to a situation where assesee is expected to make 100% NP .
Ground 5: Disallowance of entire expenses debited to P&l Account: The AO disallowed entire expenses debited to P&L Account except depreciation, stating that expenses claimed by assesee company cannot be allowed in the absence of any business income. This assertion of the AO is factually incorrect as in the Return of Income, the assesee had indeed offered business income of 67.45 lacs. The schedule to the Profit & Loss Account furnished to AO gave full break up of these expenses. He never ever raised any question on these nor issued any show cause notice before making addition. Since the addition has been made on a factually incorrect observation that no business income has been offered, kindly direct deletion of these additions.”
9.2. The assessee company relied upon the computation of income
(page no.8 and 9 of the paper book), which is reproduced as under:-
10 ITA No.230/Del/2021
11 ITA No.230/Del/2021
9.3. It is contended by the AR that an amount of Rs.2,61,20,575/- was
not allowed by the AO on the ground that the AO held it to be a bad
debts, whereas, the assessee company submitted that it was a
typographical error and that the amount of Rs.2,61,20,575/- was the cost
incurred in realizing the sales. Further, the AO did not allow the
expenditure under the head ‘other expenses’ amounting to
Rs.10,54,712/- on the ground that these expenses cannot be allowed in
the absence of any business income, whereas, the assessee submits that
it had offered business income amounting to Rs.67.45 lakhs and the
schedule to the profit & loss account furnished to the AO gave full break-
12 ITA No.230/Del/2021
up of these expenses. The AR further submitted that the AO never ever
raised any question on these nor issued any show-cause notice before
making the addition. It was further submitted that since the addition has
been made on a factually incorrect observation that no business income
has been offered, the addition may be deleted.
Before the ld. CIT(A), the assessee gave the following break up of
expenditure of Rs.2,61,20,575/- as under:-
(i) cost of stock in hand – Rs.1,24,32,322/-
(ii) Payment to Asian Power Controls Ltd. -Rs.1,36,88,253/-
10.1. However, the learned CIT(A) rejected the claim on the ground
that the assessee did not furnish any invoices, bills, vouchers, payments
details pertaining to the expenses incurred. The learned CIT(A) also
observed that if the cost included stock value, then why the balance-sheet
and profit & loss account shows the closing stock at Rs.1,24,32,322/-.
He also noted that the same stock cannot be stated to be consumed on
one hand and on the other hand cannot be stated to be still lying. With
regard to the expenditure of Rs.1,36,88,253/- being amount paid to M/s
Asian Power Controls Ltd., the learned CIT(A) held that the assessee did
not furnish any invoices, bills, vouchers, payments details pertaining to
the expenses incurred to show that payment was genuinely made and it
was an expenditure. Regarding the expenses of Rs.10,23,375/- in P & L
Account (mentioned wrongly as Rs.10,54,712/- in the assessment order),
the learned CIT(A) held that the assessee failed to produce the
13 ITA No.230/Del/2021
documentary evidence and proof of expenses claimed and other expenses
claimed in P & L Account and hence rejected the claim of the assessee.
Against the above order, the assessee is in appeal before us.
The ld. Counsel for the assessee reiterated its submissions as
before the ld. CIT(A)
11. The learned DR relied upon the orders of the authorities
below.
We have considered the submissions of the assessee company and
the facts of the case. There is a merit in the contention of the assessee
company that the amount of Rs.2,61,20,575/-which was claimed to be
the cost incurred in respect of sales receipts and not bad debts, was never
examined by the AO on the ground that the assessee was not clear itself
in claiming the deduction even though the assessee company claimed
before the appellate proceedings that the break up of the cost were
provided to the AO and it was also asserted by the assessee company that
no bad debts have been claimed. The contention of the assessee that if the
stand of the AO is given credence, then it would lead to a situation, where
assessee is expected to make 100% net profit needs verification.
The learned CIT(A) rejected the claim on the ground that no
evidence of the expenses claimed regarding the opening stock of
Rs.1,24,32,322/- was furnished as well as no details of payments of
Rs.1,36,88,253/- being amount paid to M/s Asian Power Controls Ltd.
was furnished. However, on perusal of the bank statements, as appearing
14 ITA No.230/Del/2021
on pages No.16 to 24 of the paper book, which was also filed before the
AO, it is seen that on page no.18 of the paper book that the following
transfers have been made to M/s Asian Power Controls Ltd.
(i) 08.01.2010-Rs.8,50,055/-
(ii) 11.01.2010-Rs.65,00,055/-
(iii) 19.01.2010-Rs.45,00,055/-
Total:-Rs.1,18,50,165/-
Thus, it is seen that out of the expenses claimed amounting to
Rs.1,36,88,253 paid to M/s Asian Power Controls Ltd., evidence at least
to the extent of Rs. 1,18,50,165/-/- is appearing in the account of the
assessee company which was neither examined by the AO or the learned
CIT(A). Further, there are various other debits in the bank account of the
assessee, which also not examined by them. The assessee company
submitted before us that the details of the expenses claimed are available
with them and it was also submitted before the AO as well as the Ld.
CIT(A), which was not examined by them. Further, it is also to be noted
that the main promotor was suffering from cancer during that year which
ultimately lead to his demise in 2015. Therefore, in the interest of justice,
the assessee company deserves one more chance to explain the facts
properly before the AO on the merits of the addition/disallowances made
in the assessment order. Thus, keeping in view totality of facts and
circumstances of the case and in the interest of justice, we restore this
issue to the file of the AO for de novo assessment. Needless to say that the
15 ITA No.230/Del/2021
assessee be given reasonable opportunity of being heard. Therefore, ground nos. 4 & 5 are set-aside to the file of the AO for de novo assessment.
In the result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 8th May, 2024.
Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 08.05.2024. ff^? ff^ ff^ ff^
