Shri Kenche Kumar, Hospet V. Assistant Commissioner Of Income Tax, Central Circle- 2(1), Bangalore

ITA 46/BANG/2023

AI Insights

The case involves Shri Kenche Kumar, who appealed against the order of the Commissioner of Income-Tax (Appeals)-11, Bangalore, which upheld the Assessing Officer's decision to reassess his income for the Assessment Year 2010-11. The primary contention was the validity of the notice issued under section 148 of the Income Tax Act and the subsequent disallowance of certain expenses related to purchases and processing of iron ore, as well as transportation charges. The Tribunal examined the legal and factual basis of these disallowances and the procedural validity of the notice under section 148.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124394 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 21-06-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Section: 147; 148; 37; 143(3); 37(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 46/Bang/2023 Assessment Year : 2010-11 Shri Kenche Kumar, Door No. 847, 21 st Ward, Bellary Road, Opp. Lucky Tyres, Hospet, Bellary – 583 201. PAN: AVSPK7166L Vs. The Assistant Commissioner of Income Tax, Central Circle – 2(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri V. Srinivasan, Advocate Revenue by : Smt. Supriya Rao .O.N, Addl. CIT (DR) Date of Hearing : 22-06-2023 Date of Pronouncement : 27-06-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 29.11.2022 passed by Ld.CIT(A)-11, Bangalore for A.Y. 2010-11 on following grounds of appeal: “1. The impugned order passed by the learned Assessing Officer as upheld by the learned Commissioner of Income- Tax (Appeals)-11 is opposed to law, weight of evidence, probabilities, facts and circumstances of the case. 2. The Appellant denies itself liable to be taxed in excess of returned income of Rs.37,74,530/- under the facts and circumstances of the case. Page 2 ITA No. 46/Bang/2023 3. The learned Commissioner of Income-Tax (Appeals) is not justified in dismissing the appeal without independent application of mind and without proper appreciation of the facts and circumstances of the case. 4. The learned CIT(A) erred in law in not holding that, reasons recorded by the learned Assessing Officer for invoking the provisions of section 147 of the Act are mere "Reasons to suspect" and much less of "Reasons to believe" and is in violation of the pre mandated requirements in terms of provisions of section 147 of the Act under the facts and circumstances of the case. 5. The learned CIT(A) erred in law in upholding the view of the learned Assessing Officer that, the purchase and processing expenses incurred by the Appellant i.e., Rs.55,09,148/- and Rs.54,24,300/- respectively aggregating to Rs.1,09,33,448/- was hit by the Explanation 1 to the provisions of section 37(1) of the Act under the facts and circumstances of the case. 6. The learned CIT(A) erred in law in not holding that the purchase and processing charged incurred by the Appellant were essential elements towards the sale reported by the Appellant under the facts and circumstances of the case. The learned CIT(A) further erred in law in disallowing the purchase and processing charges and taxing the sale proceeds in entirety which is against the canons of taxation under the facts and circumstances of the case. 7. The learned CIT(A) erred in law in not holding that in view of absence of action from competent authorities the act of independent invoking Explanation 1 to the provisions of section 37(1) of the Act by the learned Assessing Officer was not warranted under the facts and circumstances of the case. 8. The learned CIT(A) erred in law in upholding the disallowance of Rs.18,05,780/- incurred by the Appellant towards the transportation charges under the facts and circumstances of the case. 9. The Appellant crave leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. Page 3 ITA No. 46/Bang/2023 10. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.” 2. For the year under consideration the assessee had filed his return of income on 13.10.2010 declaring an income of Rs.37,74,530/-. A notice u/s. 148 of the act was issued by the Ld.AO on 04.07.2016 and the assessee had filed his return of income on 31.10.2016. Subsequently, the Ld.AO passed order u/s. 143(3) r.w.s. 147 of the Act on 30.11.2016, determining the income at Rs.1,61,13,758/-. Aggrieved by the order of the Ld.AO, the assessee filed an appeal before the Ld.CIT(A). 3. During appellate proceedings, the assessee filed additional grounds of appeal. The additional grounds of appeal 1 to 3 were legal issue challenging the validity of issuance of notice u/s. 148 of the Act. Since these can’t be decided on the basis of material available on record, the same are admitted. 3.1. After considering various submissions of the assessee, the legal issues raised by the assessee in the additional grounds of appeal 2-3 were dismissed as per the observations in paras 4-4.3 of the impugned order by observing as under: Page 4 ITA No. 46/Bang/2023 Page 5 ITA No. 46/Bang/2023 3.2. On merits, the Ld.CIT(A) decided the issue by observing as under: Page 6 ITA No. 46/Bang/2023 Page 7 ITA No. 46/Bang/2023 Page 8 ITA No. 46/Bang/2023 Page 9 ITA No. 46/Bang/2023 3.3. In respect of the disallowance of processing fees amounting to Rs.18,05,780/-, the Ld.CIT(A) upheld the view of Ld.AO by observing as under: Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. 4. Ground nos. 1,2,4 and 5 are general in nature and therefore do not require adjudication. 5. Ground no. 3 is challenging the validity of assessment u/s. 148 of the act which the Ld.AR has not argued at the time of hearing. 6. Ground no. 6 is on the additions made u/s. 37(1) invoking Explanation 1. 6.1. The revenue authorities disallowed the purchase and processing fees incurred by the assessee amounting to Rs.55,09,148/- and Rs.54,24,300/- respectively aggregating to Page 10 ITA No. 46/Bang/2023 Rs.1,09,33,448/-, disallowance of transportation charges claimed by assessee amounting to Rs.18,05,780/-. 6.2. The Ld.AR submitted that, the assessee is involved in purchase and processing of iron ore. During the year under consideration, assessee had made purchases from unregistered dealers who do not have any licence or permission. It is submitted that the revenue authorities disallowed the purchases as they were hit by Explanation 1 to section 37(1) of the Act. The primary argument of the Ld.AR is that the sales are not been disturbed by the Ld.AO. He further submitted that once the sale is accepted purchases cannot be doubted. 6.3. It is submitted by the Ld.AR that assessee incurred transportation charges to the extent of Rs.18,05,780/-. The revenue disallowed the expenditure as assessee could not produce evidences in respect of the same. It is submitted by the Ld.AR that the total transportation charges claimed by assessee was Rs.3,48,47,678/- however evidences were not available in respect of Rs.18,05,780/- that was subjected to disallowance. 6.4. The Ld.AR submitted that assessee’s records were seized by the department as well as the lokayukta department owing to the search operations conducted. Therefore assessee was not able to locate most of the records as these are more than a decade old i.e., pertaining to the Financial Year 2009-10. 6.5. On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 7. We have perused the submissions advanced by both sides in the light of records placed before us. Page 11 ITA No. 46/Bang/2023 7.1. The disallowance of Rs.1,09,33,448/- comprises of following two items: a) Purchase of iron ore and lumps amounting to Rs.55,09,148/-. b) Processing charges of Rs.54,24,300/-. 7.2. The above expenditure was disallowed by the Ld.AO by invoking explanation 1 to section 37 of the act. The Ld.AO was of the opinion that as the assessee has purchased lumps and iron ore fines from undisclosed sources from the grey market through cash payments. It was the opinion of the Ld.AO that the persons from whom the purchases were made did not have valid license from the Government and that assessee had therefore failed to prove the genuineness of such purchases from such unregistered dealers. 7.3. In our opinion, though the purchases were not made from registered dealers and that assessee could not provide with the details of such persons from whom purchases were made, it would be only the profit element embodied in such purchases that could be added to the income of the assessee. Both sides submitted that some estimation may be made in respect of the profits that would have arose in the hands of the assessee out of such undisclosed purchases. As assessee does not have any details as submitted by the Ld.AR, in the interest of justice, we estimate the profit from such purchase to be at 12%. The Ld.AO is directed to restrict the disallowance at 12% of Rs.1,09,33,448/-. Accordingly, ground nos. 5, 6 & 7 raised by assessee stands partly allowed. Page 12 ITA No. 46/Bang/2023 8. The next disallowance made by the Ld.AO is of Rs.18,05,780/- incurred by the assessee towards transportation charges. 8.1. It is the observation of the Ld.CIT(A) that assessee had not produced complete details and supportive evidences for the transportation bills to the extent of the amount disallowed. We note that the total transportation charges claimed by assessee was Rs.3,48,47,678/- out of which the disallowance was made to the extent of Rs.18,05,780/-. 8.2. In the remand report placed at pages 34-36 of the paper book, the assessing officer has noted as under: “That the transportation charges are supported by proper documentary evidences and it is exclusively met for the business and the same should be allowed — During the course of assessment the assessee produced evidences for incurring transportation charges, the AO after verifying the same came to a conclusion that expenditure to the extent of Rs.18,05,780 was either not properly vouched or incomplete, hence the AO proposed for disallowance transportation expenditure to the extent of Rs.18,05,780 and the authorized representative agreed for this disallowance, the acceptance of the AR for this disallowance is duly noted in the order sheet and the same is acknowledged by the AR (copy of the order sheet is enclosed), hence the assessing officer disallowed the transportation expenditure to the extent of Rs.18,05,780 out of total transportation charges claimed of Rs.3,48,47,678 the same is mentioned in the order sheet noting made on 30.11.2016. Once the addition is accepted by the assessee, the assessee cannot challenge the same in appellate proceedings, by accepting the addition, the assessee prevented the assessing officer from carrying any further investigation, but now has raised the same in the appellate proceedings.” 8.3. Assessee has filed a rejoinder in respect of the same has denied any such admission during the assessment proceedings and has submitted vide rejoinder dated 08.11.2022 filed with the Ld.CIT(A) on 16.11.2022 as under: “2. The disallowance of transportation charges: Page 13 ITA No. 46/Bang/2023 The learned Assessing Officer in the remand report has stated that a sum of Rs.18,05,780/- has been accepted by the authorized representative for the disallowance towards the transportation charges during the course of assessment proceedings. The learned Assessing Officer in the remand report has reiterated that the ground for the said disallowance is that the said sum is not property vouched or incomplete. The Appellant submits that the entire notion of the learned Assessing Officer is based on mere surmise conjunctures and suspicion without placing reliance on any cogent material on record. The Appellant during the course of assessment proceedings had submitted the bank statements, transportation charges details. The learned Assessing Officer without appreciating the nature of the business of the Appellant in it's real sense had resorted for the disallowance of the said sum on mere guess work. The Appellant in this regards at the foremost submits that consent does not confirm jurisdiction unless the law holds otherwise. The Appellant wishes to place reliance on the following judicial precedents where it has been held that mere consent cannot confer jurisdiction. a. CIT Vs MRP Firm 56 ITR 67 (SC) b. Pullongode Rubber Vs State of Kerala 91 ITR 18 c. S.R Kosti Vs CIT 276 ITR 165 d. Nirmala L Mehta Vs CIT 269 ITR 1 e. Bhandari Metal & alloys Vs State of Karnataka 136 STC 292 The Appellant further submits that the learned Assessing Officer without appreciating the details as furnished during the course of assessment proceeding and further without appreciating the nature of the business of the Appellant has completely erred in law in disallowing the said sum of Rs.18,05,780/-.” 8.4. We note that admittedly assessee do not have any documents to support in respect of the expenditure incurred towards transportation. However we note that the authorities have not objected to the nature of the expenditure being arising out of business. Both sides submitted that an estimation may be made to disallow the transportation expenditure for want of sufficient documentation. Page 14 ITA No. 46/Bang/2023 In the interest of justice, we direct the Ld.AO to estimate the disallowance at 25% of Rs.18,05,780/-. Accordingly, ground no. 8 raised by assessee stands partly allowed. In the result, the appeal filed by assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 27 th June, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 27 th June, 2023. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore