DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, RAJAMAHENDRAVARAM vs. ANDHRA PAPER LIMITED, RAJAMAHENDRAVARAM

PER BENCH :

The captioned appeals are filed by the Revenue and the Cross

objections are filed by the assessee. Since the issues raised in both the

Revenue’s appeals and the Cross objections raised by the assessee are

interconnected, for the sake of convenience, they are clubbed, heard

together and disposed off in this consolidated order. Appeal wise

adjudication is given in the following paragraphs of this order.

ITA No: 162/Viz/2022 (AY: 2012-13) (By Revenue)

Commissioner of Income Tax (Appeals), National Faceless Appeal Centre,

Delhi [CIT(A)-NFAC] in DIN & Order No. ITBB/NFAC/S/250/2022-

23/1043723324(1), dated 04/07/2022 arising out of the order passed

U/s. 143(3) of the Act dated 27/03/2015 for the AY 2012-13.

engaged in manufacturing of paper, paper boards filed its return of

income for the AY 2012-13 admitting a total income of Rs. NIL, on

29/09/2012. Further, the assessee filed the revised return of income on

21/11/2013 declaring NIL income. Subsequently, the case has been

taken up for scrutiny under CASS with a reason to examine “Large

Refund claim of Advance Tax and High Ratio of Refund to TDS”. Notice

U/s. 143(2) of the Act was issued and served on the assessee. Notice

U/s. 142(1) of the Act dated 7/4/2014 and 11/4/2014 were issued

respectively calling for the information. In response, Sri K. Chakrapani,

General Manager (Taxation) and Sri Aditya, Senior Officer were

authorized by the assessee-company and they furnished the required

information called for by the Ld. AO. After examining the replies made

by the assessee, the Ld. AO made following disallowances:

(i) Depreciation on Goodwill - Rs. 27,22,713/- (ii) Expenditure U/s. 35D - Rs. 5,14,730/- (iii) Unabsorbed depreciation - Rs. 48,78,000/- (iv) Disallowance of Miscellaneous Expenses - Rs. 36,47,979/- (v) Disallowance of sundry creditors - Rs. 30,35,000/- (vi) Disallowance of consumption of Stores and others - Rs. 7,11,06,000/- (vii) Disallowance of repairs & - Rs. 5,61,78,040/- Maintenance (viii) Disallowance U/s. 14A - Rs. 37,60,200/- (ix) Disallowance of raw material - Rs. 24,94,07,400/- Purchase (x) Disallowance of forwarding & - Rs. 2,18,20,000/- Transport Charges

assessee could not produce the details of bills and vouchers for

examination and has produced only the copies of the ledger account.

Therefore, the Ld. AO estimated the above disallowances of the total

expenses incurred by the assessee under the respective heads and

framed the assessment. Aggrieved by the order of the Ld. AO, the

assessee has filed an appeal before the CIT(A)-NFAC. The Ld. CIT(A)-

NFAC considering the submissions of the assessee during the appeal

proceedings partly allowed the appeal of the assessee. Aggrieved by the

order of the Ld. CIT(A)-NFAC, the Revenue is in appeal before us.

revised it to six grounds as follows:

“1. The order of the Ld. CIT(A) is erroneous both on facts and in law. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in restricting the disallowance of general expenses of Rs. 15,47,549/- to 20% of these expenses, when the assessee failed to prove its genuineness before the Assessing Officer. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition towards sundry creditors amounting to Rs.30,35,000/- when the assessee failed to prove the identity, genuineness and creditworthiness of the creditors before the Assessing Officer. 4. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in deleting the certain percentage of disallowances made by the Assessing Officer from the expenses; @ 20% from “consumption of stores, spares and others”, @ 30% from “Repairs & Maintenance”, @ 10% from “raw material purchases”, @ 30% from “forwarding & transport charges” and @ 40% from “research & development

expenses” when the assessee failed to prove the genuineness of expenditure before the Assessing Officer. 5. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in deleting the disallowance of interest on loans at Rs. 37,60,200/- made by the Assessing Officer when it is evident from the record that the assessee made investment in mutual funds to an extent of Rs. 250.68 lakhs and offered meager interest of Rs. 21,000/- as interest from mutual funds. 6. The appellant craves leave to add or delete or amend or substitute any ground of appeal before and/or the time hearing of appeal.”

adjudication.

expenses of Rs. 15,47,549/- restricting the disallowance to 20% of Rs.

15,47,549/- by Ld CIT(A), the Ld. DR submitted that the assessee failed

to provide any details before the Ld. AO inspite of opportunities provided

to the assessee. The Ld. DR further submitted that the Ld. AO has

rightly disallowed the expenses which were not incidental to the business

and hence pleaded that the order of the Ld. AO on this ground be

upheld. Per contra, the Ld. AR submitted that the details of ledger

accounts bearing the details of the expenses have been submitted to the

Ld. AO. The Ld. AR further submitted that some of the sample invoices

were also submitted before the Ld. AO for examination. The Ld. AR

therefore pleaded that the order of the Ld. CIT(A)-NFAC be upheld.

on record and the orders of the Authorities below. The Ld. AO while

examining the P & L Account observed that certain miscellaneous

expenses were not incidental to the business of the assessee and details

of expenses were not furnished before him. However, the Ld. AO has

failed to give the details of the various expenses but has merely

mentioned that no details are furnished and hence the disallowance was

made. The Ld AO’s findings are extracted below:

“8. The examination of Misc. Expenses vide Schedule 2.21 to Profit & Loss Account shows that following expenses have been claimed by the assessee. Sl Head of Expenses Amount Remarks No. (Rs.) 1. Other expenses – 5,49,071 These expenses are not Pooja incidental to the business at all. So the same is disallowed. 2. Other expenses – 15,47,549 No details were furnished. General So, the expenses are disallowed. 3. Full time Directors’ 8,14,113 incidental expenses 4. Other Directors’ 7,37,246 Remuneration is paid to the incidental expenses Directors. So further expenses are not allowed. Total 36,47,979

In view of the aforesaid remarks, the entire amount of Rs. 36,47,979 is disallowed and added back to the total income.”

Before us the Ld. AR claims that all the details of expenses have been

submitted before the Ld. AO and also before the Ld. CIT(A)-NFAC. We

further find that the Ld. CIT(A)-NFAC has simply observed that the Ld.

AO has not verified about the nature of business use of the expenses

claimed by the assessee as miscellaneous expenses. The findings of the

Ld. CIT(A)-NFAC are extracted below:

“4. Ground No.8 of the appeal is against disallowing general expenses amounting to Rs. 15,47,549/-. The Ld. AO has simply stated that details were not furnished. Nothing has been stated about nature of business use and verifiability of these expenses. In view of the overall facts of the case, it will be reasonable to restrict the addition to 20% of these expenses ie., to Rs. 3,09,510/- resulting in relief of Rs.12,38,039/-. The ground of appeal is ‘partly allowed’.”

The Ld. CIT(A)-NFAC has also erred in giving the finding whether these

expenses warrant any disallowance based on the submissions made by

the Ld AR before the Ld. CIT(A)-NFAC. The Ld Revenue Authorities have

not examined but has merely stated that evidences were not produced

before them. In such a situation the Ld AO could have rejected the

books of accounts. The Ld AO has not categorically substantiated the

adhoc percentile disallowances with details in the Assessment Order. In

these circumstances, we deem it fit to remit the mater back to the file of

the Ld. AO to verify the details of expenses and compute the

disallowance, if any, by passing a speaking order on this issue.

Accordingly, this ground raised by the Revenue is allowed for statistical

purposes.

amounting to Rs. 30,35,000/- the Ld. DR submitted that these creditors

are more than three years old and no details of such creditors are

available with the assessee. The Ld. DR further submitted that

confirmation of balances from creditors was also not furnished. The Ld.

DR therefore pleaded that the order of the Ld. AO be upheld. Per contra,

the Ld. AR submitted that the details of the sundry creditors were

noticed by Ld AO, arising out of the aging analysis that has been

submitted before the Ld. AO and also before the Ld. CIT(A)-NFAC. The

Ld. AR further submitted that the Ld. AO did not ask for any further

enquiries on our submissions. Without providing any opportunity for us

to substantiate the long pending creditors the Ld. AO erred in disallowing

the same while framing the assessment. He therefore pleaded that the

order of the Ld. CIT (A)-NFAC be upheld.

on record and the orders of the Ld. Revenue Authorities. It is found from

the assessment order that the Ld. AO has merely stated that the details

of sundry creditors are not available and confirmation letters are not

furnished and hence could not be verified. The Ld. AO has merely based

on the surmises and conjectures treated the creditors more than 3 years

old as bogus and added it to the total income. On the contrary, the Ld.

CIT(A) found that the Ld. AO has not stated any specific reasons or

conducted any enquiries during the assessment proceedings to examine

the genuinity of the sundry creditors present in the books of account.

However, the Ld. CIT(A)-NFAC also failed to examine the documentary

evidence submitted before him, as claimed by the Ld. AR which were

provided online to the Ld. CIT(A)-NFAC during the appeal proceedings. In

the light of the above circumstances, we deem fit to remit the matter

back to the file of the Ld. AO with a specific direction to examine the

sundry creditors name wise, year wise and decide the case accordingly

pass a speaking order on this issue, by providing one more opportunity

to the assessee. Therefore, this ground raised by the Revenue is allowed

for statistical purposes.

stores, spares and other expenses, the Ld. DR submits that no details

were provided by the assessee except for filing the ledger statements. No

vouchers or bills were produced before the Ld. AO for examination and

hence the Ld. AO has considered the ad-hoc disallowance of various

expenses. He therefore pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. AR submitted that relevant details of vouchers along

with ledger copies were produced before the Ld. AO which were also

mentioned by the Ld. AO in para 14 of the assessment order. The Ld. AR

also submitted that there is no provision in the Income Tax Act to

disallow expenses on percentage basis without assigning any proper

reasons while examining the bills and vouchers. The Ld. AR further

submitted that the above expenses are normal business expenses

incurred by the assessee and therefore no disallowance is warranted. He

therefore pleaded that the order of the Ld. CIT(A)-NFAC be upheld.

on record and orders of the Authorities below. Similar to the other

grounds raised by the Revenue, we find that the assessee has submitted

the ledger account copies and sample bills and vouchers before the Ld.

AO and also before the Ld. CIT(A)-NFAC. However, the Ld. AO has failed

to identify the expenditure invoice wise but has generally disallowed a

portion of expenditure on adhoc basis without providing any valid

reasons for the same. Similarly, while deleting the addition made by Ld

AO, the Ld. CIT(A)-NFAC has also failed to mention the examination of

the bills and vouchers submitted before him but has merely stated that

the Ld. AO has disallowed a huge amount without bothering to go into

the details and reasonableness and without comparing with the earlier

years. In view of the above discussions, we find that both the Ld. AO and

the Ld. CIT(A)-NFAC have not examined the bills and vouchers submitted

by the assessee before either disallowing or allowing the claim of the

assessee. We therefore direct the Ld. AO to examine these expenses and

decide the matter in accordance with law after providing one more

opportunity to the assessee and pass a speaking order. Therefore, this

ground raised by the Revenue is partly allowed for statistical purposes.

Rs. 37,60,200/- as per section 14A of the Act. The Ld. DR submitted

that the Ld. AO has rightly disallowed the interest as per the provisions

of section 14A of the Act. The Ld. DR further submitted that the

assessee in suo motto has disallowed only Rs. 2,40,000/- u/s. 14A of the

Act while filing the return of income whereas the assessee failed to

consider the interest expenditure on the funds utilized for the purpose of

investments. The Ld. DR pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. AR submitted that the assessee on his own account

has disallowed a sum of Rs. 2,40,000/- suo motto which was neither

disputed nor considered by the Ld. AO. The Ld. AR pleaded that in the

absence of any dissatisfaction being recorded by the Ld. AO regarding

suo motto disallowance, any further disallowance by the Ld. AO on the

interest amount is not valid in law. The Ld. AR relied on the decision of

the Hon’ble Karnataka High Court in the case of Essilor India (P.) Ltd vs.

DCIT [137 Taxmann.com 60 (Karnataka). He therefore pleaded that the

order of the Ld. CIT (A)-NFAC be upheld.

on record and the orders of the Ld. Revenue Authorities. Admittedly, the

Ld. AO has failed to record his satisfaction that the claim made by the

assessee regarding the suo motto disallowance of Rs. 2,40,000/- u/s.

14A of the Act while filing its return of income is not in accordance with

the disallowance made u/s. 14A r.w Rule 8D(1) of the Act. The reliance

placed by the Ld. AR in the case of Essilor India (P.) Ltd (supra) wherein

it has been held that where the Assessing Officer has failed to record his

satisfaction with regard to the claim of the assessee that it had incurred

any expenses to earn any exempt income except for a sum as claimed by

the assessee, the impugned disallowance u/s. 14A by invoking Rule 8D

by the Ld. AO was unjustified. Similarly, we find that Hon’ble Calcutta

High Court in the case of Principal Commissioner of Income Tax vs. West

Bengal Infrastructure Development Finance Corporation Ltd [2022] 143

taxmann.com 135 (Calcutta) has held that where the Assessing Officer

has failed to give any cogent reason of dissatisfaction regarding

computation of disallowance U/s. 14A but has reached the conclusion on

a mere ground that the disallowance made suo motto was not

convincing, impugned addition made in reference to same was to be

deleted.

we are inclined to dismiss this ground raised by the Revenue and we find

no infirmity in the order of the Ld. CIT(A)-NFAC on this issue.

Accordingly, this ground raised by the Revenue is dismissed.

purposes.

ITA No. 189/Viz/2022 (AY: 2013-14) (By Revenue)

NFAC, Delhi in DIN & Order No. ITBA/NFAC/S/250/2022-

23/1044556463(1), dated 08/08/2022 arising out of the order passed

U/s. 143(3) of the Income Tax Act, 1961 [the Act] dated 29/12/2016.

under:

“1. The order of the Ld. CIT(A) is erroneous both on facts and in law. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in deleting the disallowance made by the AO at 40% of the expenses claimed under the head “Research & Development expenses”, when the assessee failed to prove the genuineness of expenditure before the Assessing Officer. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in restricting disallowance to 20% out of the total disallowance of Rs. 34,56,716/- made by the AO on account of ‘General Expenses – others’ and granting relief of Rs. 27,65,373/- when the assessee has failed to prove its genuineness before the Assessing Officer.

adjudication.

Development Expenses and General Expenses made by the Ld. AO.

Similar issues were decided by us while adjudicating the Revenue’s

appeal in ITA No. 162/Viz/2022. Hence, the decision taken by this

Bench in Para No. 8 while adjudicating the identical issues in appeal No.

162/Viz/2022 mutatis mutandis applies to the instant grounds raised by

the Revenue also.

purposes.

CO Nos.22 & 23/Viz/2022 (AY: 2012-13 & 2013-14) (By assessee)

nature and therefore the adjudication of the Cross Objections raised by

the assessee becomes infructuous.

Pronounced in the open Court on the 28th February,2023.

Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER Dated : 28.02.2023 OKK - SPS आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ 1. The Assessee–M/s. Andhra Paper Limited (M/s. International Paper APPM Ltd), Sri Ram Nagar, Rajamahendravaram, Andhra Pradesh – 533105. राज�व/The Revenue – Deputy Commissioner of Income Tax O/o. 2. DCIT, C-1, AayakarBhawannVeerabhadrapuram, Rajamahendravaram, Andhra Pradesh -533106. 3. The Principal Commissioner of Income Tax, आयकरआयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ 5. DR,ITAT, Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam