NAVBHARAT FUSE COMPANY LIMITED, RAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1), RAIPUR

ITA 119/RPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4826 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 27-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bad and doubtful debts; Corroborative evidences; Capital expenditure
• Section: 115JB; 145(3)

Judgement Text

आयकर अऩीऱीय अधधकरण, रायऩ ु र न्यायऩीठ, रायऩ ु र IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश स ू द, न्याययक सदस्य एवं श्री अरुण खोड़वऩया, ऱेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अऩीऱ सं./ITA No.119/RPR/2019 (ननधाारण वषा / Assessment Year : 2015-2016) Navbharat Fuse Company Ltd., Navbharat Udyog Bhawan, Ring Road No.1, PO:Ravigram, Telibandha, Raipur Vs ACIT-3(1), Raipur PAN No. : AAACN 7537 N (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) ननधााररती की ओर से /Assessee by : Shri R.B.Doshi, CA राजस्व की ओर से /Revenue by : Shri Sanjay Kumar, Sr. DR स ु निाई की तारीख / Date of Hearing : 27/07/2022 घोषणा की तारीख/Date of Pronouncement : 21/09/2022 आदेश / O R D E R Per Arun Khodpia, AM : This appeal is filed by the assessee against the order passed by the CIT(A)-I, Raipur, dated 16.01.2019, on the following grounds :- 1. Ld. CIT(A) erred in upholding rejection of books u/s 145(3) and estimation of net profit at Rs. 4,41,48,924/- in place of returned income of Rs.1,76,65,280/-. He erred in confirming the addition of Rs. 2,64,83,644/- made by AO. Rejection of books and invocation of sec. 145(3) is arbitrary & not justified. The addition made by AO and sustained by CIT(A) is not justified. 2. Without prejudice to ground no.1, Ld. CIT(A) failed to appreciate that depreciation should have been allowed as deduction from the income estimated by AO, in terms of mandatory Circular of CBDT. The AO erred in not allowing depreciation from the income estimated by him. 3. The AO erred in making addition of Rs. 2,84,00,797/- to the book profit u/s 115JB, disallowing deduction on account of bad debts. Disallowance of bad debts while computing book profit u/s 115JB is illegal and not justified. Ld. CIT(A) erred in confirming the action of AO. The AO erred in making addition of Rs. 1,76,47,641/- to the book profit u/s 115JB, being expenses claimed by appellant, holding it to be capital expenditure. Disallowance of expenses ITA No.119/RPR/2019 2 while computing book profit u/s 115JB is illegal and not justified. Ld. CIT(A) erred in confirming the action of AO. 2. Brief facts of the case are that the assessee is a public limited company and filed its return of income electronically on 02.12.2015 declaring total income at Rs.1,76,65,280/-. The case of the assessee was selected for limited scrutiny through CASS with the following reasons :- i. Large amount not credited to Profit and Loss Account as per schedule A-OI ii. Low net profit or loss shown from large gross receipts iii. Large other expenses claimed in the Profit & Loss A/c iv. Mismatch in sales turnover reported in Audit Report and ITR v. Mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report and ITR. 3. Thereafter the AO issued statutory notices, upon which the assessee filed his reply along with copy of ITR, computation of income, audit report along with balance sheet and profit and loss account. After verification of all the documents filed by the assessee during the course of assessment proceedings, AO further asked the assessee to produce documentary evidences in support of its claim of expenses in the P&L account, however assesee failed to furnish the details, bills, vouchers or supporting evidences as desired by the AO. It is also observed by the AO that assessee had debited exceptional items involving Bad Debt of Rs. 2,84,00,797/- pertaining to earlier year apart from bad debt of Rs. /6,74,441/- to the P&L and assessee could not submit the documentary evidences for verification of the AO. The AO then exercising its powers conferred under section 145(3) of the Act had rejected the books of accounts of the assessee company and assessed the income adopting ITA No.119/RPR/2019 3 8% of the gross receipt and brought the taxable income to the hands of the assessee at Rs.4,41,48,924/-. Further the AO noted that the assessee has not added the amount of Rs.2,84,00,797/- to the unascertained liability while debiting the amount to the profit and loss account. Therefore, the AO added the book profit u/s.115JB of the Act to the total income of the assessee. 4. Against the above additions made by the AO, the assessee preferred appeal before the CIT(A) and the CIT(A) dismissed the appeal of the assessee observing as under:- 2.3 As per the appellant it had furnished audited accounts which contains answer to the point of limitation of scrutiny. 1 do not find this argument of the appellant acceptable. Point of limited scrutiny includes examination of low net profit or loss shown, large expenditure claimed and mismatch of sales turnover in the audited report and ITR. Unless appellant produces books of account and vouchers as requisitioned by the AO, these issues cannot be verified. Audited financial statements cannot be substantiated for primary records of ledgers and vouchers. Assessee having failed to produce the same. I find the AO justified in rejecting the books of account and estimating profit. The addition made by the AO is hereby sustained. 3.3 Regarding the issue of profit under MAT the appellant has produced no details of bad debts written off. Onus is on the appellant to substantiate any credits or debits made in its accounts. Bad debts written off are allowable items u/s.36(1)(vii) of the Act. However, it is AO’s duty to verify whether these details were debited in books of accounts and if so in which year. If the assessee does not provide even these elementary details, the AO cannot be held to be at fault in recomputing the books profit. Therefore appellant’s accounts are rejected and addition made by the AO is sustained. 5. Aggrieved by the order of Ld CIT(A), now, the assessee is in further appeal before the Tribunal. 6. Ld. AR before us submitted that the assessee company had tried to substantiate its contentions before both the lower authorities but was ITA No.119/RPR/2019 4 unable satisfy them. Ld AR further drew our attention to a para submitted before Ld CIT(A) that during the assessment proceedings the then AR of the asseseee had explained the reason for low profit, which reads as under:- During the course of assessment proceedings the appellant had explained the reasons for low profit or loss shown in the Profit and Loss A/c which was mainly on account of unfortunate event of explosion in detonating fuse manufacturing building of the company located at Abhanpur (CG) in the midnight of 31-07-2014. Due to the said event, the entire building, plant and machinery etc of its Detonating Fuse manufacturing unit completely for destroyed and 5 workers got killed in the said explosion. The said explosion resulted in suspension of Detonating Fuse License of the company and temporary shutdown of its units for around 50 days. Due to this incidence, the company sales got adversely affected. Proportionate expenses amounting to Rs. 1,76,47,641/- pertain to the period of shut down has been shown as exceptional item and shown in Other Expenses in ITR. Further it was also evident from the details of audited balance sheet that due to claim of Bad debts of earlier year written off of Rs.2,84,00,797/- as mentioned in Note No. 24 Exceptional Items, Net profit of the company had gone low. It is worth mentioning here that the appellant had himself disallowed the said amount of Rs 2,84,00,797/- while computing its taxable income for the said year. Thus the reasons for reduction in Net Profit had not influenced the Taxable Profit. Relevant portion is attached and marked. It is therefore prayed that assessment of the Income at Rs. 4.41,48,924/- by adopting 8% of Gross Receipts of Rs. 55,18,61,548/- and rejecting the book results be deleted and the original, return of income, declaring total income of Rs. 1.76.65,280/- be accepted Ld AR further submitted that since the books of the assesee company were rejected u/s 145(3) of the Act on account of non compliance, the assessee request for restore the matter back to the AO for representing its case again before the AO. 7. On the other hand, ld. Sr DR relied on the orders of the authorities below ITA No.119/RPR/2019 5 8. We have heard rival submissions and perused the record carefully. In the present case it is observed by both the authorities below that assessee was failed to provide necessary elementary details / information like bills, vouchers or documentary evidence in support of the expenses claimed. Thus books of accounts of the the assessee company are rejected u/s 145(3) of the Act. By the AO which was further upheld by the Ld CIT(A). An estimated income of 8% after depreciation was adopted by the AO, Mat calculation was revised considering the amount of Rs. 2,84,00,797/- as a Provision for Unascertained Liability not permissible to be deducted while computing book profit u/s 115JB of the Act and thus added back. 9. The Appellant is a public limited company having books of accounts duly audited. admittedly the bad debt for the earlier year written off for Rs. 2,84,00,797/- mentioned in note 24 of the balance sheet of the assessee company was suo motu disallowed by the assessee company while computing its taxable income, thus have not influenced the taxable income of the assessee company. During the relevant assessment year the company had faced an unfortunate event of explosion in detonating fuse manufacturing building located at Abhanpur(CG), due to the said accident the entire building, plant and machinery etc of the said unit were destroyed and 5 workers got killed. The operations of the detonating unit was then suspended for around 50 days. Due to the said mishappening sale of the company got adversely affected. ITA No.119/RPR/2019 6 10. From the aforesaid discussion, it appears that the assessee had a valid reason for decrease in its sale and income for the impugned year, however the same cannot be established from reading of the material available before us. To find out the corrects facts of the case, a detailed study of the information and evidences is called for. Further, AO’s stand of rejecting the books of the assessee company and estimated the income at 8%, but without any reasoned basis for adopting 8% is not justifiable. CIT(A) has also given his opinion purely based on AO’s findings without any further value addition to it. The assessee was also found to be a noncompliant during the assessment proceedings. In totality of these circumstances since it is difficult to verify, analyse and adjudicate the issues raised under this appeal in absence of necessary documents/ information. We think it fit, in the interest of justice, to restore the issues in this appeal to the file of Assessing Officer for re-adjudication. The liberty is granted to the assessee to produce all the relevant documents, evidences and other details as are required to prove its case before the Assessing Officer and directed to cooperate with the department during these proceedings. 11. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in pursuance to Rule 34(4) of ITAT Rules, 1963 on 21/09/ 2022. Sd/- (RAVISH SOOD) Sd/- (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रायऩ ु र/Raipur; ददनाांक Dated 21/09/2022 Prakash Kumar Mishra, Sr.P.S. ITA No.119/RPR/2019 7 आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : आदेशान ु सार/ BY ORDER, (Assistant Registrar) आयकर अऩीऱीय अधधकरण, रायऩ ु र/ITAT, Raipur 1. अऩीऱाथी / The Appellant- 2. प्रत्यथी / The Respondent- 3. आयकर आय ु क्त(अऩीऱ) / The CIT(A), 4. आयकर आय ु क्त / CIT 5. विभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रायऩ ु र/ DR, ITAT, Raipur 6. गार्ड पाईऱ / Guard file. सत्यावऩत प्रयत //True Copy//