M/s. MADHYA BHARAT PHOSPHATE PVT. LTD.., Bhopal V. THE DCIT 3(1), Bhopal

CO 51/IND/2014

AI Insights

The case involves M/s. Madhya Bharat Phosphate Pvt. Ltd., which filed cross-objections against the consolidated appeal-order passed by the Commissioner of Income-tax-II, Bhopal. The appeals arose from a consolidated assessment-order by the AO under sections 153A read with 143(3) of the Income-tax Act, 1961, for the assessment years 2005-06, 2006-07, and 2007-08. The main contention was regarding the disallowance of expenses claimed under various heads, which the AO had disallowed based on the absence of supporting bills and vouchers. The Tribunal, referencing decisions from the Delhi High Court and the Supreme Court, held that no addition could be made in completed or unabated years without incriminating material, leading to the deletion of the disallowances.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130913 (ITAT-INDORE)
• Duration Of Justice: 9 year(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-08-2023
• Assessment Year: 2007-2008
• Appeal Filed On: 03-08-2014
• Other Referred Cases: National Thermal Power Co. Ltd. Vs. CIT, CIT Vs. Kabul Chawla, PCIT Vs. Gahoi Dal & Oil Mills, PCIT Vs. Abhisar Buildwell (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect
• Section: 6; 143(3); 153A

Judgement Text

Page 1 of 7 आयकर अपीलȣय अͬधकरण, इंदौर Ûयायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER C.O.Nos. 49, 50 & 51/Ind/2014 (Arising out of I.T.(SS)A.No. 211, 212 & 213/Ind/2014 A.Ys.: 2005-06, 2006-07 & 2007-08 M/s.Madhya Bharat Phosphate Pvt.Ltd., 188, Pulbogda, Jinsi, Jehangirabad, Bhopal बनाम/ Vs. DCIT/ACIT, 3(1), Bhopal Cross-Objector Respondent Assessee by Shri Sumit Nema, Sr. Advocate Shri Gagan Tiwari, Advocate Revenue by Ms.Simran Bhullar, CIT DR Date of Hearing 29.08.2023 Date of Pronouncement 31.08.2023 आदेश / O R D E R Per Bench: Feeling aggrieved by a consolidated appeal-order dated 06.03.2014 passed by learned Commissioner of Income-tax-II, Bhopal [“CIT(A)”], which in turn arises out of a consolidated assessment-order dated 30.12.2011 passed by learned ACIT, 3(1), Bhopal [“AO”] u/s 153A r.w.s. 143(3) of Income-tax Act, 1961 [“the Act”], the assessee has filed these three (3) cross-objections for assessment-years [“AY”] 2005-06, 2006-07 and 2007-08. M/s. Madhya Bharat Phosphate Pvt.Ltd., Bhopal C.O.Nos. 49 to 51/Ind/2014 A.Ys.2005-06 to 2007-08 Page 2 of 7 2. These Cross-Objections filed by assessee arise from appeals filed by Revenue. The appeals of Revenue have already been dismissed vide order dated 09.02.2021 of ITAT, Indore on account of low-tax effect. However, in terms of section 253(4) of the act, the Cross-Objections are required to be disposed of by the ITAT as it they were appeals. Therefore, we proceed to dispose of these Cross-Objections. Since the Cross-Objections relate to the same assessee and involve identical controversy, we proceed to dispose of by this common order. 3. Originally, the assessee raised following grounds in Form No. 36A: C.O.No. 49/Ind/2014 for A.Y. 2005-06: “On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs. 2,80,000/- towards expenses claimed by the appellant under the heads specified by the AO.” C.O.No. 50/Ind/2014 for A.Y. 2006-07: “On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance to the extent of 10% under the various heads of expenses like repairs & maintenance, freight and salary to labour & staff.” C.O.No. 51/Ind/2014 for A.Y. 2007-08: “On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance to the extent of 10% under the various heads of expenses like repairs & maintenance, freight and salary to labour & staff.” Additional Grounds: Subsequently on 13.01.2023, the assessee has also raised additional grounds in all these three matters separately. But they are identical, therefore the additional grounds of first year i.e. AY 2005-06 are re-produced below: 1. That the CIT(A) erred on facts and in law, in upholding the addition in the assessment for the impugned year passed by the AO u/s 153A of the Act for which no proceedings were pending on the date of search, is without jurisdiction, bad in law and void ab initio as the same has M/s. Madhya Bharat Phosphate Pvt.Ltd., Bhopal C.O.Nos. 49 to 51/Ind/2014 A.Ys.2005-06 to 2007-08 Page 3 of 7 been passed in the absence of any incriminating material for the impugned assessment year found/seized as a result of search. 2. The impugned addition made to the income of the assessee for assessment year 2005-06 is not sustainable because no incriminating material concerning such additions was found during the course of search and further no assessment for such years were pending on the date of search i.e. 04/02/2010.” 4. Learned Representatives of both sides are ad idem that the additional grounds are legal in nature; go to the root of the matter; do not call for any new evidence; and can be decided on the basis of material already held on record. Therefore, in view of the decision in National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC), the additional grounds are admitted and taken for adjudication. 5. Since additional grounds challenge the very legality/maintainability of additions, we would first take up additional grounds. In these grounds, the assessee claims that while completing assessments u/s 153A, the AO has made additions in “completed/unabated years” without having any incriminating material which is without jurisdiction, bad in law and unsustainable. 6. Referring to the original grounds raised in Form No. 36A re-produced above, Ld. AR for assessee submitted that in these Cross-Objections, the assessee is contesting only disallowance of expenses made by AO and upheld by CIT(A). Then, Ld. AR carried us to the assessment-order to show as to how the AO has made impugned disallowances; the same is re-produced below: “(6.2) DISALLOWANCE OF EXPENSES The assessee was assessed u/s 143(3) for the A.Y. 2005-06 where administrative expenses were disallowed by the then Assessing Officer. During the course of assessment proceedings, the assessee was asked to provide bills vouchers etc. for support of expenses debited to trading and profit and loss account. The assessee failed to do so despite various reminders hence the disallowance of expenses cannot be ruled out in the period covered under present scrutiny. Accordingly, a lump sum disallowance is made under the heads of repairs & maintenance plant administration and selling and distribution expenses, salary and wages in following assessment years” M/s. Madhya Bharat Phosphate Pvt.Ltd., Bhopal C.O.Nos. 49 to 51/Ind/2014 A.Ys.2005-06 to 2007-08 Page 4 of 7 A.Y. AMOUNT 2005-06 2,80,000 2006-07 3,45,000 2007-08 4,05,000 [Emphasis supplied] 7. Thereafter, Ld. AR carried us to the relevant paras of the order of CIT(A); the same are re-produced below: “5.3 There is no denying the fact that AO is empowered to compute/assess total income of the appellant in the proceedings initiated u/s 153A of the Income-tax Act, 1961. But it is also a settled principle of law that this assessment is to be based on material brought on record justifying the additions so made by the AO. In the appellant’s case, A.O. has failed to do so completely. He has merely made reference of disallowance made u/s 143(3) for A.Y. 2005-06 and has stated that the appellant has failed to provide bills and vouchers etc in support of expenses debited to its Trading and P&L account. From perusal of records, it is seen that A.O. has raised specific query (Pt. No.16) in the questionnaire asking the appellant to give details in comparative chart for expenses incurred more than Rs. 1,00,000/- each during each of the assessment year under consideration and expenditure/turnover ratio for each of these expenses. In response, the appellant has submitted the required comparative chart of expenses exceeding Rs. 1,00,000/- for each of the year. The same is reproduced as under: (Chart is not being re-produced) Out of this, AO has made estimated adhoc disallowance for each of the year on account of repair and maintenance, salary to labor at factory site, administration and selling and distribution expenses. However, no adverse evidence has been brought on record by the AO found either during the course of search operations or extensive post search investigations made or entire course of assessment proceedings to show that the appellant has claimed bogus expenditure under these heads. The appellant’s declared turnover and purchases in its financial statements and returns, as mentioned in the submissions above, have been accepted by the AO. Similarly, no defect or deficiency has been specified either by the AO or the auditor in appellant’s audited books of accounts for all the years under consideration except for assessment year 2004-05 and 2005-06 for which years the appellant has not been able to produce its books of accounts, being not traceable. The same have been accepted by the AO himself after test check/verification of the same. Appellant’s declared turnover has increased substantially during these years starting from Rs. 67,23,380/- in assessment year 2004-05 to Rs. 33,23,38,774/- in assessment year 2010- M/s. Madhya Bharat Phosphate Pvt.Ltd., Bhopal C.O.Nos. 49 to 51/Ind/2014 A.Ys.2005-06 to 2007-08 Page 5 of 7 11. There are similar variations in other expenses too but for which no adverse inference drawn by the AO himself e.g. printing and stationery, canteen expenses, power and electricity, travelling and conveyance etc. 5.4 Further, AO has also not specified the details, as asked for by him and not provided by the appellant. Nothing has been brought on record to show that these expenses have been found incurred for non-business purposes or that their payments made outside appellant ’s books of accounts or are unverifiable. The very concept of token disallowance is bad in law because it is inherently based on surmises and conjectures and devoid of a legally sustainable foundation. It is a case where AO accepts all the contentions (sales/purchases etc.) but not the consequences flowing from accepting the same which is not found permissible. [ACIT v. Arthur Anderson & Co., (2005)94 TTJ 736 (Mum). 5.5 However, keeping in view appellant’s nature and turnover of business, non-maintenance of register for labour and wages as per appellant’s own admission before the AO non production of books of accounts for assessment years 2004-05 and 2005-06 and details and submissions made, it will be reasonable and justified to restrict the disallowance to 10% in respect of these expenses for various years as claimed by the appellant except for assessment year 2004-05 and 2005-06 in respect of which add made by the AO at Rs. 1,75,000 and Rs. 2,80,000 is found sustainable and confirmed. Accordingly, AO is directed to compute the disallowance @ 10% of these expenses claimed for assessment years 2006- 07 to 2010-11 under various heads for which AO has made impugned additions while giving effect to this appeal order. To this extent, this common ground of appeals for assessment years 2004-05 and 2005-06 is dismissed and is partly allowed for other five years.” [Emphasis supplied] 8. Referring to the emphasized portion of above orders, Ld. AR submitted that the AO has made lump sum disallowance of expenditure on the basis of similar disallowance made in AY 2005-06 but there is no reference of any seized-material in AO’s order. Further, the CIT(A) has categorically mentioned that the AO was not having any material or evidence. Thus, Ld. AR successfully demonstrated that the impugned disallowances have been made without having any seized or incriminating material. 9. Having shown this, Ld. AR submitted that the search was conducted on 04.02.2010 and the AYs 2005-06, 2006-07 and 2008-09 involved in these Cross-Objections were “completed/unabated years” within the meaning of M/s. Madhya Bharat Phosphate Pvt.Ltd., Bhopal C.O.Nos. 49 to 51/Ind/2014 A.Ys.2005-06 to 2007-08 Page 6 of 7 section 153A. He submitted that the Hon’ble Delhi High Court in the landmark decision in CIT Vs. Kabul Chawla (2015) 61 taxmann.com 412 (Delhi HC) : (2016) 380 ITR 573 has held that no addition can be made u/s 153A in an “completed/unabated year” without having incriminating material. The said decision was also followed by Hon’ble Jurisdictional High Court of Madhya Pradesh in the case of PCIT Vs. Gahoi Dal & Oil Mills (2021) 11 ITJ Online 314 (MP), ITA No. 21, 31 & 32 of 2019, order dated 12.07.2019. Recently on 24.04.2023, the Hon’ble Supreme Court has also approved Kabul Chawla’s decision in PCIT Vs. Abhisar Buildwell (P) Ltd. Civil Appeal No. 6580/2021, order dated 24.04.2023. Therefore, in view of these decisions, the disallowances made by AO have to be deleted. 10. Ld. DR for the revenue dutifully relied upon the orders of lower- authorities. 11. We have considered submissions of both sides and perused the orders of lower-authorities in the light of judicial decisions cited before us. We find that in the present matters, the AO has made lump sum disallowances of expenses without having recourse or reference to any seized or incriminating material. Further, the assessment-years involved in present Cross- Objections are “completed/unabated years”. These vital aspects are not rebutted or disputed by revenue. When it is so, the disallowances being contested by assessee in present matters are not sustainable as per the binding decisions cited above. In that view of matter, we are inclined to M/s. Madhya Bharat Phosphate Pvt.Ltd., Bhopal C.O.Nos. 49 to 51/Ind/2014 A.Ys.2005-06 to 2007-08 Page 7 of 7 delete the impugned disallowances. Ordered accordingly. The assessee succeeds in these additional grounds. 12. Since we have deleted the disallowances on legality/maintainability itself, it would be unnecessary to go into the merits of same. Accordingly, the merits are left open without adjudication. 13. Resultantly, these Cross-Objections are allowed. Order pronounced in the open court on 31.08.2023. Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore Ǒदनांक /Dated : 31.08.2023 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore