DR. C. VIJAYABASKAR,PUDUKOTTAI V. DCIT, CENTRAL CIRCLE-2(1), CHENNAI

MA 65/CHNY/2025

AI Insights

The case involves Dr. C. Vijayabaskar, the appellant, who filed miscellaneous applications against the Income Tax Appellate Tribunal's order dated 28.02.2025, which had not considered certain grounds related to the disallowance of quarry expenses and additions on excess quarrying for the assessment years 2016-17 to 2018-19. The appellant argued that the Tribunal's earlier order did not address the specific issues raised in his appeals, despite detailed arguments and submissions provided during the hearings. The Tribunal acknowledged the oversight and recalled the order for the purpose of re-evaluating the specified appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712105 (ITAT-CHENNAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P.K. SENTHIL KUMAR
• Assessee Lawyers: SUGASH
• Keywords: Rejection of books of accounts; Cost of acquisition; Tax effect; Wrong claim; Capital asset converted into stock in trade; Bogus

Judgement Text

"आयकर अपीलीय अधिकरण, ‘ए’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI माननीय श्री मनु क ुमार धिरर ,न्याधयक सदस्य एवं माननीय श्री अमिताभ शुक्ला, लेखा सदस्य क े सिक्ष BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./MA Nos.63/Chny/2025, Assessment Years: 2016-17 (ITA No.589/Chny/2023) आयकर अपील सं./MA Nos.64/Chny/2025, Assessment Years: 2017-18 (ITA No.590/Chny/2023) आयकर अपील सं./MA Nos.65/Chny/2025, Assessment Years: 20-18-19 (ITA No.591/Chny/2023) Dr.C.Vijayabaskar, No.14/28-1, Sowrastra Street, Illupur, Pudukottai, Tamil Nadu-622 102. [PAN: ACPPV4888A] Deputy Commissioner of Income Tax, Central Circle-2(1), Chennai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri Mr.Sugash, Advocate प्रत्यर्थी की ओर से /Revenue by : Shri P.K.Senthil Kumar, Addl.CIT सुनवाई की तारीख/Date of Hearing : 18.07.2025 घोषणा की तारीख /Date of Pronouncement : 25.07.2025 आदेश / O R D E R PER MANU KUMAR GIRI, JUDICIAL MEMBER: By means of these miscellaneous petitions MA 63-85/Chny/2025 in I.T.A. Nos. 589-591/Chny/2025, the assessee seeks to rectify and amend the Tribunal order dated 28.02.2025 and prayed for considering the appeals filed by the assessee in I.T.A. Nos. 589- 591/Chny/2025 for the assessment years 2016-17, 2017-18 and 2018- 19. Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 2 - of 24 2. The ld. counsel for the assessee has filed the memo 02.06.2025 as under: BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH CHENNAI M.A. Nos.63-65/CHNY/2025 In ITA Nos. 589-591/Chny/2023 & 695-702/Chny/2023 Name of the Appellant : Dr. C. Vijayabaskar, No. 14/28-1, Sowrastra Street, Illupur, Pudukottai-622102. Respondent : The Deputy. Commissioner of Income Tax, Central Circle 2 (1), Chennai-600 034. Asst. Year : 2016-17 to 2018-19 P.A. No. : ACPPV4888A MEMO FILED ON BEHALF OF THE APPLICANT 1. It is submitted that against the final Order passed by the Hon'ble Income Tax Appellate Tribunal, Chennai in ITA Nos. 589- 591/Chny/2023 & 695-702/Chny/2023 dt. 28.02.2025, we filed a miscellaneous application M.A.Nos.63-65/CHNY/2025 under Section 254(2) of the Income Tax Act, 1961 to consider the issues of disallowance of quarry expenses and addition on excess quarrying. Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 3 - of 24 2. It is submitted that the Miscellaneous Application was listed on 09.05.2025. However, the matter was reflected in the cause list dated 09.05.2025 as 'adjourned to due course.' 3. It is submitted that the applicant preferred a writ petition before the Hon'ble Madras High Court via WP. No. 18462 of 2025 to expeditiously dispose of the M.A. Nos. 63-65/CHNY/2025 and the same was disposed by the High Court on 15.05.2025 by directing this Hon'ble Tribunal to consider the applicant's Misc. Application on merits and within a period of 8 weeks. The operative portion of the Order is extracted hereunder:- The grievance of the petitioner is that two appeals filed by the petitioner were not even considered when the common order was passed. Seeking rectification of the order dated 28.02.2025, the petitioner filed M.A.Nos.63-65/CHNY/2025 under Section 254(2) of the Income Tax Act, 1961. All that the petitioner wants is that the miscellaneous applications be disposed of. 3. In my view, no exception can be taken to the aforesaid request, I direct the first respondent to dispose of the petition mentioned rectification petitions on merits and in accordance with law within a period of eight weeks from the date of receipt of a copy of this order. The writ petition is allowed accordingly. 4. It is submitted that the copy of the Order dt. 15.05.2025 is enclosed along with the present memo. Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 4 - of 24 In light of the above, it is most humbly prayed that this Hon'ble Court maybe pleased to take the present memo on record and thus render justice. 3. The Hon’ble High Court has passed the following order dated 15.05.2025 in W.P.No.18462 of 2025: ORDER Heard the learned counsel for the petitioner. 2. The petitioner had suffered an adverse order at the hands of the assessing officer on 28.02.2025. Aggrieved by the same, the petitioner filed nine appeals before the Commissioner of Income Tax (Appeals). The above appeals filed by the petitioner were partly allowed. With respect to the disallowed portion, the petitioner approached the Income Tax Appellate Tribunal, Chennai. In respect of the allowed portion, the Revenue also filed independent appeals before the Income Tax Appellate Tribunal. All the appeals were disposed of by a common order on 28.02.2025. The grievance of the petitioner is that two appeals filed by the petitioner were not even considered when the common order was passed. Seeking rectification of the order dated 28.02.2025, the petitioner filed M.A.Nos.63-65/CHNY/2025 under Section 254(2) of the Income Tax Act, 1961. All that the petitioner wants is that the miscellaneous applications be disposed of. 3. In my view, no exception can be taken to the aforesaid request, I direct the first respondent to dispose of the petition mentioned rectification petitions on merits and in accordance with law within a period of eight weeks from the date of receipt of a copy of this order. The writ petition is allowed accordingly. No Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 5 - of 24 costs. Consequently, connected miscellaneous petitions are closed. 4. The assessee has filed the following Miscellaneous Petitions u/s.254(2) of the Act: PETITION TO RECTIFY & AMEND THE ORDER DATED 28.02.2025 UNDER SECTION 254(2) OF THE INCOME TAX ACT, 1961 The Appellant in the ITA No.589 to 591 of 2013 and Respondent ITA No. 695 to 702 of 2023 is filing the present petition to rectify and amend the order of the Hon'ble ITAT'A' Bench, Chennai dated 28.02.2025 on the following grounds:- On matters of disallowance of quarry expenses and addition on excess quarrying 1. It is humbly submitted that in the appeal before the Hon'ble ITAT against the order of the Ld. CIT(A), the issues of disallowance of quarry expenses and addition on account of excess quarrying rough stones were prayed for full relief. On these matters during the course of the hearing in addition to the arguments, the written submissions were placed on the grounds raised in ITA No.589-591 of 2023 for AY 2016-17, 2017-18 &2018-19. These grounds and the submissions on facts & in law were not adjudicated as is apparent from the decision in the impugned order in para 27 to Para 42:- (A) Disallowance of a part of the quarry expenses: There is no basis for the Ld. CIT(A) to restrict the expenses to 70% disallowing 30% of the claims made. This has been done arbitrarily without pointing any inaccuracies in the accounts maintained particularly when there was no material found during search indicating Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 6 - of 24 inflation in accounts. The AO/CIT(A) failed to bring on record any evidences to substantiate that the purchases of the assessee are either inflated or suppressed except technical mistakes on bifurcation of the heads of expenses. The AO/CIT(A) has not rejected the books of accounts of the assessee to estimate the income or expenses. The Ld.CIT(A) though understood the intricacies of the business model, had restricted the claim of expenses to 70% without any method or reasons for disallowance at 30% which is again not based on any evidences or justification. This restriction is arbitrary and an injustice to the assessee, for the simple reason that no two quarries are the same. Further, there has been no findings as to any bogus claim of expenses. Hence, in this line of industry there cannot be any fair re-estimate of expenses. Hence, the entire claim of expenses need to be allowed without any restriction on which grounds were raised supported with submissions and evidence in paper book but adjudicated. Grounds raised by assessee regarding two disallowance one of quarry part disallowances and second on unaccounted sale of blue metal have not been considered by the Hon'ble ITAT. This is evident from para 3 at page 10 of the impugned order wherein it has only recorded that only the revenue is on further appeal before this Tribunal whereas the asseseee has raised grounds in the three years where the additions were sustained covering AY 2016-17, 2017-18 & 2018-19. For the earlier years, the additions were not sustained finally by the Ld CIT (A) and there was no demand or cause of action. The impugned finding of CIT (A) to the extent that quarry expenses was disallowed up to 30% of such expenses was thus challenged. This argument of the assesseewas not even considered and not discussed by the Hon'ble Tribunal. This is also evident from perusal of last three lines at para 4 at page 12 of the impugned order which reads that the grounds raised by Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 7 - of 24 the revenue stands dismissed. However, there is no discussion on the grounds raised by assessee. (B) Excess quarrying: 1. As per RDO report, using the estimation of DVO, the volume of excess stone quarried was arrived at 1,02,241.39 cubic metre and the excess gravel unearthed was arrived at 71,912.62 cubic metre as regards one Sri Subbiah query. The RDO estimated the volume of minerals found at the quarry sites at 20,63,964.61 cubic metres. The RDO deducted this volume of minerals from the volume of minerals estimated by the department vide DVO's report as below: Particulars Stones (Cubic Meter) Gravel (Cubic Meter) Volume of minerals removed without permission as per the report Income tax department 21,66,206.00 2,75,562.00 Volume of minerals dumped on the leased/licensed spot/nearby it according to the report of Asst. Director (LSD) Pudukottai/Tahsildar Illupur and Asst. Director (G&M) Pudukottai 20,63,964.61 2,03,649.38 Volume of minerals quarried and taken out without permission 1,02,241.39 71,912.62 ii. It is to be mentioned that grounds were raised and written arguments were placed that these excess quarrying were determined in the hands of Shri.Subbaiah and Shri.Kubendran in their Assessments and cannot be in the hands of the appellant. There has Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 8 - of 24 been no evidence of unaccounted sale or falsification in sale account found during search or from the Investigation into the books to substantiate that there was any consequent excess sale of blue metal by the appellant should have been considered as per the grounds raised which was not adjudicated. Hence, the entire excess quarrying in the hands of the appellant needs to nullified. iii. On unaccounted sale of blue metal at Page no.16 at para 6, the ITAT has recorded that only revenue is on further appeal without observing that assessee is on appeal as regards AY 2016-17 to 2018- 19 in which year there is a Tax impact. This aspect has to be considered by this Hon'ble Tribunal. C) In the grounds of appeal in the written submissions with regard to the issue of disallowance of quarry expense, only AYs: 2016-17, 2017- 18 and 2018-19 mentioned in the heading as well as in the first lines. It is humbly submitted that no specific appeal were filed for AY 2011-12 to 2015-16 on account of the relief given by the Ld CIT(A) with regard to the disallowance of quarry expenses for AYs:2011-12 to 2015-16, vide paras 265 & 266 in page 245 of the CIT (A) order dated 31/03/2023 that there was no tax impact and no such addition were sustained. In the said order the Ld CIT(A) had held that, \"the disallowance of \"quarry expenses\" made in the assessment orders for AYs:2011-12 to 2015-16 and the addition of \"unaccounted sale of blue metal\" made in the assessment orders for AYs: 2011-12, 2012-13 and 2015-16 are legally unsustainable and the same are directed to be deleted. The Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 9 - of 24 relevant additional grounds for the said assessment years are accordingly allowed. 266. It is also held that the decisions rendered earlier in this order with regard to the issues of \"disallowance of quarry expenses\" and \"addition of unaccounted sales of blue metal\", while disposing off the grounds of appeal dealing with the merits of the said additions, are subject to the decision rendered on legal grounds for the relevant assessment years.\" D) It is submitted that the whole of the argument in appeal was against 'disallowance of quarry expenses' in its entirety and the manner in which it had been dealt with by the AO as well as by Ld. CIT(A) while dealing the merits. It was submitted that the disallowance of quarrying expenses for AYs:2011-12 to 2015-16 was not sustainable and for the same reason the disallowance of quarry expenses for AYs:2016-17 to 2018-19 was also not sustainable. Hence, there was no acceptance of disallowances for AYs: 2011-12 to 2015-16 for there was no such addition sustained after 1 appellate order. Hence, defacto the grounds had included the issue for all the assessment years without exception. The action of disallowance of quarry expenses in toto has been objected to in the appeal in the year 2016-17, 2017-18 & 2018-19 in which years the disallowance was sustained and had a Tax impact and thus there was grounds for relief through the appeal. E) The relief sought was that, there shall not be any disallowance under the head quarry expenses. To bring more clarity it is further submitted that the disallowance of quarry expenses for AYs: 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16 was not accepted by the Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 10 - of 24 appellant even on merits and as these addition was not sustained resulting in NIL. Tax effect and there was no cause for filing appeals for those years. Hence the actual intention of the appellant was amply expressed both during the arguments as well as in the descriptive part of the paper book/grounds which were not adjudicated. F) Also at para 38.1 at page 108 of the ITAT order, the complete additional grounds raised by the appellant / assessee regarding lack of proper approval under 153 D. Though the said argument was considered and rejected by the ITAT, at para 40 at page 111 of the impugned judgment, the mentioning of the additional grounds ought to have been done at para 38.1. It is prayed that this clerical error may also be corrected. Thus, for the aforementioned reasons, it is humbly prayed that this Hon'ble Tribunal may be pleased to RECTIFY & AMEND the order dated 28.02.2025 passed by this Hon'ble Tribunal in ITA Nos. 589591/Chny / 2023, by adjudicating the grounds and supportive arguments of the assesse on the two issues described herein above. 5. The grounds of appeal (‘GOA’ in short) in ITA Nos. Nos. 589- 591/Chny/2025 for the assessment years 2016-17, 2017-18 and 2018- 19 are respectively as under: GOA for AY 2016-17: 1. The Common order dated 31.03.2023 of the Ld CIT(A)-19, in ITA No 428/21-22. for the impugned year in so far as the additions made in the Assessment order are partly or fully confirmed is contrary to facts, opposed to law and untenable. Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 11 - of 24 2. The Learned CIT (A) erred in not deleting all the additions made in the Assessment as not being supported by any adverse Seized materials or evidence that can lead or correlate to the Income of the Appellant. Disallowance of Quarry Expenses 3. Ld CIT(A)-18 erred in partly confirming by estimate 30% of the Quarry expenses which was erroneously disallowed in full in the Assessment order in the absence of any adverse material found during the search on 07.04.2017 as regards inflation in those expenses. 3.1 Ld CIT (A)-18 further erred in confirming partly the Disallowance of Quarry Expenses after having held that the quarry expenses is as per the Business arrangement for procuring raw material which is a fact on record and therefore in the absence of any adverse material or findings, cannot be subject to partial disallowance by estimation for the same ought to be fully allowed having been incurred fully and exclusively for the business. 4. Ld CIT(A)-18 grossly erred in directing the Ld AO to workout GP at 40% of the recomputed production and unaccounted sales of blue metal on the basis of alleged assumption of alleged excess quantities of rough stone procured from the two quarries. GOA for AY 2017-18: 1. The common order dated 31.03.2023 of the Ld. CIT(A)-19, in ITA No 418/21-22. for the impugned year in so far as the additions made in the Assessment order are partly or fully confirmed is contrary to facts, opposed to law and untenable. 2. The Learned CIT (A) erred in not deleting all the additions made in the Assessment as not being supported by any adverse Seized Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 12 - of 24 materials or evidence that can lead or correlate to the Income of the Appellant. Disallowance of Quarry Expenses 3. Ld CIT(A)-19 erred in partly confirming by estimate 30% of the Quarry expenses which was erroneously disallowed in full in the Assessment order in the absence of any adverse material found during the search on 07.04.2017 as regards any inflation in those expenses. 3.1 Ld CIT (A)-19 further erred in confirming partly the Disallowance of Quarry Expenses after having held that the quarry expenses is as per the Business arrangement for procuring raw material which is a fact on record and therefore in the absence of any adverse material or findings, cannot be subject to partial disallowance by estimation for the same ought to be fully allowed having been incurred fully and exclusively for the business. Addition of unaccounted sales of blue metal 4. Ld CIT(A)-18 grossly erred in directing the Ld AO to workout GP at 40% of the recomputed production and unaccounted sales of blue metal on the basis of alleged assumption of alleged excess quantities of rough stone procured from the two quarries. 4.1 Ld CIT(A) failed to consider the fact that the addition as regards alleged unaccounted sale was made in the Assessment order without support of any adverse seized materials but was made on the opinion of the DVO of the Valuation cell of the Department and hence was based on assumptions and estimation. 4.2 The Ld CIT(A) failed to take note of the fact that all raw materials emerging from the excavation of the two adjunct quarry site was crushed and sold which was duly accounted for. Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 13 - of 24 4.3 The Ld CIT(A) further failed to take note of the fact that there was no adverse material found as regards suppression of sale or unaccounted sale during the search and that in the absence of any adverse material the reference to Valuation cell by the Investigation officer was bad in law and further relying on any report order of the designated authority, as regards the already excavated quarry is untenable as not based on any leading and concrete material evidence and hence, untenable in law and contrary to facts 4.4 The Ld CIT(A) in para 258 and para 265 of the impugned order gives clear findings that there was no seized material as regards the issue, hence the entire addition ought to have been deleted. 5 For these and among other grounds that may be allowed to be adduced later, the Appellant humbly and respectfully prays that the appeal be allowed and that the additions sustained by the Ld. CIT (A) in the Impugned Appellate order be deleted. GOA for AY 2018-19: 1. The common order dated 31.03.2023 of the Ld. CIT(A)-19, in ITA No 418/21-22. for the impugned year in so far as the additions made in the Assessment order are partly or fully confirmed is contrary to facts, opposed to law and untenable. 2. The Learned CIT (A) erred in not deleting all the additions made in the Assessment as not being supported by any adverse Seized materials or evidence that can lead or correlate to the Income of the Appellant. Disallowance of Quarry Expenses 3. Ld CIT(A)-19 erred in partly confirming by estimate 30% of the Quarry expenses which was erroneously disallowed in full in the Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 14 - of 24 Assessment order in the absence of any adverse material found during the search on 07.04.2017 as regards any inflation in those expenses. 3.1 Ld CIT (A)-19 further erred in confirming partly the Disallowance of Quarry Expenses after having held that the quarry expenses is as per the Business arrangement for procuring raw material which is a fact on record and therefore in the absence of any adverse material or findings, cannot be subject to partial disallowance by estimation for the same ought to be fully allowed having been incurred fully and exclusively for the business. Unexplained cash mobilized for RK Nagar Bye-Election 4. Ld CIT(A) erred in partly confirming the Addition of Rs 12,51,20,000/-being alleged expenses and vote cover transaction as regards the RK Nagar bye election on the basis of some loose sheets seized from third party places. 4.1 The Ld CIT(A) erroneously observed that there is corroborative evidence in leading to the addition which the Ld AO had assumed that the Appellant having mobilised the collection of cash and distribution of money in respect of RK Nagar Bye election. 4.2 Ld CIT(A) misguided himself in confirming the addition particularly when the alleged money did not belong to the Appellant, either in his individual capacity or as a beneficial owner and that the Appellant was neither the candidate in the bye election, nor the official in charge of the bye election on behalf of his political party. 4.3 Ld CIT(A) ought to have considered the fact, that the third-party loose sheets relied upon do not have any evidentiary value being not reliable and are questionable reason why not considered by any other Investigating Agency and brushed aside by the Hon'ble Madras high Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 15 - of 24 court in a Criminal writ petition which fact is already on record, However, overlooked. 4.4 Ld CIT(A) failed to consider that in the sworn statement of the third parties, they have not mentioned the name of the Appellant as the owner of the Cash in the alleged transaction. Further, it is not evident that the Appellant had given the cash and to consider that those statements were obtained under undue influence and duress a fact established in the Cross and re-examination of the witnesses supported with their detailed affidavits. 4.5 Ld CIT(A) ought to have appreciated the credence of the evidentiary value of each of the third-party loose sheets and statements of the witnesses who had turned hostile and that the evidence has to be evaluated as provided in the Indian Evidence Act 1872 and that they must relate to the person in whose name the ownership is alleged. In the absence of any such reliable and concrete material evidence, the addition made erroneously by the Ld AO ought to have been fully deleted 5. For these and among other grounds that may be allowed to be adduced later, the Appellant humbly and respectfully prays that the appeal be allowed and that the additions sustained by the Ld. CIT (A) in the Impugned Appellate order be deleted 6. The ld. Counsel for the assessee has filed the detailed written submissions as under: BRIEF NOTE OF WRITTEN SUBMISSIONS On matters of disallowance of quarry expenses and addition on excess quarrying 1. It is humbly submitted that in the appeal before the Hon’ble ITAT against the order of the Ld.CIT(A), the grounds on issues of Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 16 - of 24 disallowance of quarry expenses and addition on account of excess quarrying rough stones were prayed for full relief in the relevant years where additions finally sustained. On these matters during the course of the arguments, in addition to the written submissions it was pleaded as below: A. Disallowance of a part of the quarry expenses: o There is no basis for the Ld. CIT(A) to restrict the expenses to 70% disallowing 30% of the claims made. This has been done arbitrarily without pointing any inaccuracies in the accounts maintained. The AO/CIT(A) failed to bring on record any evidences to substantiate that the purchases of the assessee are either inflated or suppressed. The AO/CIT(A) has not rejected the books of accounts of the assessee to estimate the income or expenses. The Ld.CIT(A) though understood the intricacies of the business model, had restricted the claim of expenses to 70% which is adhoc and again not based on any evidences or justification. This restriction is arbitrary and a grave injustice to the assessee, for the simple reason that no two quarries are the same. No comparison can be made between any two quarries on account of geological factors which vary from place to place even if they are only a metre apart. Further, there has been no evidence found during search nor there was any findings as to any bogus claim of expenses. Hence, in this line of industry there cannot be any fair estimate of expenses. Hence, the entire claim of expenses needs to be allowed without any restriction. Moreover, this particularly has to be seen with the fact that after meeting all the expenses, the resulting accounts were allowed 40%, and the net profit was allowed 19%, which is high compared to the industry norms. o If the 30 % of the quarrying expenses are disallowed, the GP for AY 2016-17 would be 60.71 % and for AY 2017-18 58.7 & and for AY 2018-19, it is 43.80 % as against the declared gross profit of 47.87% for AY 2016-17 and 40.31 % for 2017-18 and 43.81 % for AY 2018-19. This would result in extraordinary addition to profits to income unsupported by any incriminating evidence found at the time of search and while also an unreasonably high GP ratio inconsistent with the actual Gross profit declared year after year. o It is submitted that, the assessee has not claimed any expenses with regard to the purchase of rough stones, which is the raw material for the production of blue metal. This has been absorbed in the quarry expenses. By subsuming the purchase cost of rough stones into the quarry expenses, the assessee has only claimed lesser expenditure on the production, thereby admitting much higher profit margin. This practice is a revenue favourable model. Thus, though the other blue metal producers have admitted a net profit ratio of about 5 to 7% only, whereas the assessee by virtue of the above methodology adopted has offered a substantially higher GP of around 40% and higher net profit Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 17 - of 24 ratio of about 19% (average for FYs: 2016-17 to 2020-21). The NP ratio for FYs: 2016-17 to 2020-21 are given below: o S. No F.Year Turnover Net profit Net profit ratio 1 2016-17 30,68,92,795.27 5,22,94,017.01 17.04 2 2017-18 41,26,16,994.18 7,94,38,833.68 19.25 3 2018-19 53,96,80,053.98 10,16,65,989.30 18.84 4 2019-20 44,68,75,264.62 8,37,67,594.48 18.75 5 2020-21 31,10,07,400.14 6,01,14,828.81 19.33 Hence, the assessee has admitted/resulted much higher profits in the returns of income. In this scenario, resorting to disallowance of quarry expenses, even a part of it, would be a grave injustice. The assessee should not be penalized for offering a much higher profit as stated above. Hence, it is humbly prayed on the facts and circumstances of the case, that there shall not be any disallowance of the claim of the quarry expenses and the decision of the Ld CIT(A) disallowing 30% of the claim of the quarry expenses shall be deleted as per the grounds raised in the appeal concerning years in which the addition was finally sustained. o Grounds raised by assessee regarding unaccounted sale of blue metal have not been considered by the Hon’ble ITAT. This is evident from para 3 at page 10 of the impugned order itself wherein it has only recorded that only the revenue is on further appeal before this Tribunal whereas the asseseee has impugned the finding of CIT (A) to the extent that CIT (A) had disallowed 30% of query expenses. This argument of the assessee was not even considered not discussed by the tribunal. This is also evident from perusal of last three lines at para 4 at page 12 of the impugned order which reads that the grounds raised by the revenue stands dismissed. However, there is no discussion on the grounds raised by assessee. B. Excess quarrying: i. As per RDO report, the volume of excess stone quarried was arrived at 1,02,241.39 cubic metre and the excess gravel unearthed was arrived at 71,912.62 cubic metre. The RDO estimated the volume of minerals found at the quarry sites at 20,63,964.61 cubic metres. The RDO deducted this total volume of minerals from the Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 18 - of 24 volume of minerals excavated and quantified the actual movement of mineral to be taken out of the quarry premises and without permissions as under:- ii. It is to be mentioned that these excess quarrying were quantified only in the hands of Shri.Subbaiah and Shri.Kubendran and not in the hands of the appellant. There has been no adverse material seized during search nor there was any evidence to substantiate that there was any excess sale of blue metal by the appellant. No suppression of sales has been established or detected. Hence, the entire unaccounted sale by excess quarrying in the hands of the appellant needs to nullified. iii. On the unaccounted sale of blue metal at Page no.16 at para 6, The Hon’ble ITAT has recorded that only the Revenue is on further appeal, without observing that the assessee is also in appeal on this issue in the years where they have adjudicated and finally sustained the addition. Thus, the grounds raised by the assessee have not been considered. This aspect ought to have been considered. C. In the grounds of appeal, in the written submissions, with regard to the issue of disallowance of quarry expenses, only AYs:2016-17, 2017-18 and 2018-19 was mentioned in the heading as well as in the first lines. It is humbly submitted that it was on account of the fact that the addition on this issue were finally sustained only for those three years noted above and that the relief was given by the Ld CIT(A) with regard to the disallowance of quarry expenses for AYs:2011-12 to 2015-16, vide paras 265 & 266 in page 245 of the order dated 31/03/2023. Hence, the said Particulars Stones (Cubic Meter) Gravel (Cubic Meter) Volume of minerals removed without permission as per the report Income tax department 21,66,206.00 2,75,562.00 Volume of minerals dumped on the leased/licensed spot/nearby it according to the report of Asst. Director (LSD) Pudukottai/Tahsildar Illupur and Asst.Director (G&M) Pudukottai 20,63,964.61 2,03,649.38 Volume of minerals quarried and taken out without permission 1,02,241.39 71,912.62 Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 19 - of 24 cause of action for aforesaid 4 years in the said order the Ld CIT(A) had held that, “the disallowance of “quarry expenses” made in the assessment orders for AYs:2011-12 to 2015-16 and the addition of “unaccounted sale of blue metal” made in the assessment orders for AYs: 2011-12, 2012-13 and 2015-16 are legally unsustainable and the same are directed to be deleted. The relevant additional grounds for the said assessment years are accordingly allowed. 266. It is also held that the decisions rendered earlier in this order with regard to the issues of “disallowance of quarry expenses” and “addition of unaccounted sales of blue metal” , while disposing off the grounds of appeal dealing with the merits of the said additions, are subject to the decision rendered on legal grounds for the relevant assessment years.” D. It is submitted that the whole of the argument in appeal was against the ‘disallowance of quarry expenses’ in entirety and the manner in which it had been dealt with by the AO as well as by Ld. CIT(A) while dealing the merits. It was submitted that the disallowance of quarrying expenses for any of the years was not sustainable and for the same reason the disallowance of quarry expenses for AYs: 2016-17 to 2018-19 was also not sustainable. Hence, defacto the grounds or the arguments nor the written submissions had included the issue for all the assessment years without exception and particularly for the AYs 2016-17 to AYs 2018-19. The action of disallowance of quarry expenses in toto has been objected to in the appeal and the same was not considered in the order of the Hon’ble ITAT. E. The relief sought was that, there shall not be any disallowance under the head quarry expenses. To bring more clarity it is further submitted that there was no addition sustained on the account of disallowance of quarry expenses for AYs: 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16 and it was not accepted by the appellant for those years. Hence the actual intention of the appellant was amply expressed both during the arguments as well as in the descriptive part of the paper book/grounds. F. The appellant further submits that the AO’s disallowance of quarry expenses and addition for “unaccounted sale” rests on a wholly erroneous factual premise he treated the entire DVO‐reported excavation as blue metal without any basis. Although the DVO’s report estimates both volume and quality, it assumes contrary to geological and expert evidence that every cubic metre of earth is rough stone fit for crushing. This prejudiced approach was compounded by the AO’s claim that the assessee failed to maintain a clear bifurcation of expenses, Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 20 - of 24 despite full accounts being on record. Even the CIT(A) observed (at para 64) that it is “an erroneous presumption” to equate total excavation with rough stone. G. The finding at para 12 at page 35 only reiterates that the ground raised by the revenue stand dismissed, however there is no discussion on ground raised by the assessee. The ITAT has missed out the substantive grounds namely disallowance of quarry expenses and deletion of alleged unaccounted sale. H. It is submitted that in the impugned order the Hon’ble ITAT, the grounds and averments of the appellant were not brought on record, discussed and adjudicated. Thus, in the facts and circumstances of the case it is humbly prayed that the submissions made by the appellant on these issues may kindly be considered and full relief may kindly be granted rendering justice. I. Also at para 38.1 at page 108 of the ITAT order, the complete additional grounds raised by the appellant / assessee regarding lack of proper approval under 153 D. Though the said argument was considered and rejected by the ITAT, at para 40 at page 111 of the impugned judgment, the mentioning of the additional grounds ought to have been done at para 38.1. This clerical error may also be corrected. JUDGMENTS ON DISALLOWANCE OF QUARRY EXPENSES- Proposition :- 1) Adhoc disallowance made on the basis of surmises is not sustainable; 2) AO cannot arbitrarily disallow quarrying expenses without rejection of the books of accounts. J. The assessing officer had not rejected the books of account to estimate the expenses and thereby to estimate the profits of the assessee in this case. Hence, the estimation of expenses,that, is disallowance of expenses arbitrarily is bad in law and facts of the case. Even in cases where the books of accounts are rejected, the process has to stand the test of law. It cannot be exercised arbitrarily. To reject the books of accounts the Assessing officer should invoke the provisions of section 145(3) of the Income Tax Act 1961 in a real spirit of law. The assessing officer has to work out and deliberate a detailed exercise and pointing out all such reason and defects due to which the assessing officer is unable to rely on the books of accounts maintained and accordingly to estimate the expenses and thereby deduce the net profit earned by the assessee,. Instead without doing such a detailed exercise and without pointing out such defects the assessing officer has estimated the expenses (by Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 21 - of 24 arbitrarily disallowing the expenses either in part or in full) and thereby the net profit rate arbitrarily. Even if some defects are pointed out, they should stand the true test and requirements of section of 145(3) of the Income Tax Act 1961. This is well deliberated by The Honorable bench of ITAT, third Member Bench in the matter of Raja & Co Vs Assessing officer ward Baramulla. The Honorable bench has held rejection of books of accounts not justified as the reasons recorded for rejection of such books of accounts are not meeting the criteria as laid down in section 145(3) of the Income Tax Act 1961. Even to reject the books of accounts the AO should have proceeded Within the framework of law under Section 145(3) under any of the following Circumstances only: a) Where assessing officer is not satisfied about the correctness or completeness of the accounts; or b) Where method of accounting cash or mercantile has not been regularly followed by the assessee ; or c) Accounting Standards as notified by the Central Government have not been regularly followed by the assessee. K. Though the broad parameters have been laid down in the Section itself under which the provisions are required to be invoked for rejection of books of account in a particular case, yet, a definite ground work is sine- qua non on part of the Assessing Officer before resorting to the provisions of section 145(3) of the Income Tax Act 1961. The Assessing Officer is required to analyse various other parameters which have the effect on the gross profit rate of the assessee for the relevant period, before drawing any conclusion on the merit of such claim. It is the duty of the Assessing Officer to pin point the malice and bring it out in the Assessment order. Therefore, the Courts expect that the Assessing Officer shall bring on record specific defects in the books of account of the assessee before invoking the provisions of Section 145(3). The Power vested with the assessing officer under section 145(3) has to be exercised judiciously not arbitrarily. L. When the Assessing Officer does not accept the assessee’s method of accounting then he has to resort to the provisions of Section 145(3) for computation of income by adopting such other basis as quantified by him. The Karnataka High Court in the case of Karnataka State Forest Industries Corporation Ltd., Vs. CIT (1993) 201 ITR 674 has held that the Assessing Officer’s powers under the Section are not arbitrary and he must exercise his discretion and judgment judicially. A clear finding is necessary before invoking the Section 145(3) of the Act. Hon’ble Supreme Court and the various High Courts in number of cases have held that before invoking the provisions of Section 145(3) of the Act Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 22 - of 24 [earlier Sections 145(1) and 145(2)]. The Assessing Officer has to bring on record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of the accounts of the assessee or the method of accounting employed by it. M. Even in cases, where the AO resorts to rejection of books of accounts and attempts to estimate expenses/profit, Before rejection of books of account, the Assessing Officer must record a clear finding that system of accounting followed by an assessee cannot deduce correct profit or income. Where the accounts are consistently maintained on a basis that has been accepted in the past and there is no material to indicate how it was defective the Assessing Officer cannot reject the books of account merely because in his view, a different method of accounting would be better suited. CIT v. Margadarshi Chit Funds (P.) Ltd. [1985] 155 ITR 442/[1984] 19 Taxman 73 (AP). N. The Hon'ble Karnataka High Court, in CIT v. Anil Kumar & Co. [2016] 386 ITR 702/67 taxmann.com 278 held that jurisdiction to estimate assessee's income is not available when books of account have not been rejected. O. In the case of Danayya Shavaputrayya Math D S Math v. ACIT ITA No.1286/Bang/2024, it was held that the adhoc disallowance is not justified without rejecting the books of accounts of the assessee. Therefore, the appellant respectfully submits that the Hon’ble ITAT’s order has not adjudicated key issues raised in the appeal, namely: (i) the arbitrary disallowance of 30% quarry expenses for the above mentioned assessment years despite no rejection of books, no adverse findings, and higher-than-industry profit margins; (ii) the addition on account of alleged excess quarrying and unaccounted sales, which are unsupported by any evidence against the appellant and were wrongly attributed; (iii) the fact that grounds raised by the assessee have not been discussed at all in the impugned order, as seen in paras 10, 12, and 35; (iv) that the written submissions and arguments clearly covered all relevant years, including those where partial relief was granted earlier; and (v) a clerical omission at para 38.1 regarding the additional ground on Section 153D approval, which was later discussed but given no finding. Further, it is submitted that in 153 A assessment, no assessment could be passed sans evidence on excess quarrying which could not be attributed in the hands of the appellant. In light of the above, it is humbly prayed that the appellant’s MA may be allowed as prayed for. Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 23 - of 24 7. Per contra, ld.DR, Mr. P.K. Senthil Kumar, Addl. CIT referred para 3-4 of the Tribunal dated 28.02.2025 and pleaded that in revenue’s appeal, the issue of quarry expenses is already decided by the Tribunal affirming the order of the CIT(A). Therefore, no rectification or amendment of order dated 28.02.2025 is required u/s 254(2) of the Act. 8. We have heard the rival submissions and perused the Tribunal order dated 28.02.2025 and find that although in the cause title the appeal numbers of the assessee’s appeal are find mentioned as ITA No.589/Chny/2023 for AY 2016-17, ITA No.590/Chny/2023 for 2017- 18 and 591/Chny/2023 for 2018-19. We also find that assessee during the course of hearing ld. counsel fot the assessee argued in detail on the issue of quarry expenses. However, there is no adjudication by the Tribunal on the appeals raised by the assessee. 9. Hence, in the light of the above conspectus of matter, we recall the order dated 28.02.2025 for limited purpose to adjudicate the three appeals of the assessee in ITA No.589/Chny/2023 for AY 2016-17, ITA No.590/Chny/2023 for 2017-18 and 591/Chny/2023 for 2018-19. We make it clear that nothing here is said on the merits of the grounds raised in all three appeals. All three M.A.s are allowed. 10. The registry is directed to fix these three appeals ITA No.589/Chny/2023 for AY 2016-17, ITA No.590/Chny/2023 for 2017- 18 and 591/Chny/2023 for 2018-19 for regular hearing and issue notice of hearing of these three appeals to both parties for 18.08.2025. Pronounced in Bench on 25th July, 2025 at Chennai. Sd/- Sd/- (अधमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member (मनु क ुमार धिरर) (MANU KUMAR GIRI) न्याधयक सदस्य / Judicial Member Printed from counselvise.com MA Nos 63, 64 & 65/Chny/2025 Page - 24 - of 24 चेन्नई/Chennai, धदनांक/Dated: 25th , July-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai/Coimbatore/Madurai/Salem. 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF Printed from counselvise.com "