ITO WARD - 16(1), NEW DELHI V. MLR FOODS PVT LTD, NEW DELHI

ITA 112/DEL/2021

AI Insights

The case involves an appeal by the Income Tax Officer against MLR Foods Pvt Ltd concerning several additions made to the company's income for the assessment year 2012-13. The additions were initially made by the Assessing Officer under various sections of the Income Tax Act, 1961, including unexplained cash deposits and disallowances under sections 40A(3) and 36(1)(iii). The CIT(A) later deleted these additions, leading to the Revenue's appeal to the Tribunal. The Tribunal found that the CIT(A)'s decision was well-reasoned and supported by the remand report of the AO, which did not substantiate the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470525 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: PRIYANSH JAIN
• Keywords: Proportionate interest; Additional evidence; Unexplained cash credit; Depreciation
• Section: 143(2); 68; 13; 40A(3); 40a(ia)

Judgement Text

"ITA No. 112/DEL/2021 [A.Y. 2012-13] The Income-tax Officer Vs. MLR Foods Pvt Ltd Page 1 of 13 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘E’ BENCH, NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 112/DEL/2021 [A.Y. 2012-13] The Income-tax Officer Vs. MLR Foods Pvt Ltd Ward – 16(1) C – 173, Ganesh Nagar-II New Delhi Shakurpur, New Delhi PAN – AABCL 0568 Q (Applicant) (Respondent) Assessee By : Shri Priyansh Jain, CA Department By : Shri Amit Katoch, Sr. DR Date of Hearing : 13.03.2025 Date of Pronouncement : 27.03.2025 ORDER PER NAVEEN CHANDRA, A.M:- This appeal by the Revenue is preferred against the order of the ld. CIT(A)-32, New Delhi dated 11.09.2020 for A.Y 2012-13. ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 2 of 13 2. The grievances of the Revenue read as under: “That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,05,96,415/- u/s 68 of the Act by ignoring the clear findings of the AO mentioned in the assessment order. 2. That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting addition of Rs. 7,93,898/- u/s 40A(3) citing exception under Rule 6DD. 3. That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting addition of Rs. 25,5,254/- as the assessee failed to establish the genuineness of his claim. 4. That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in partially deleting addition of Rs. 18,51,846/- made on account of addition of site expenses as the assessee failed to establish the power expenses claimed. 5. That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting addition of Rs. 5,17,778/- made on account of disallowance of depreciation as the assessee failed to establish the date on which the fixed asset was put to use. 6. That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 14,08,797/- out of total addition of Rs. 18,51,846/- made on account of proportionate interest disallowed u/s 36(1)(iii) holding that the loans ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 3 of 13 were taken from bank for working capital and plant and machineries which were put to use on 02.09.2011 as the assessee could not prove the genuineness of his claim. 7. That, having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 6,71,095/- on account of undervaluation of stock, as the assessee failed to produce Books of Accounts during the course of assessment proceedings in spite of having been afforded sufficient opportunities. Moreover, the assessee could not bring on record how the closing stock had been worked out. 8. That, on the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the appeal of the assessee while merely relying on the case laws which are not relevant to the present case by ignoring the fact that as per proviso (b) to section 68 of the Act, the assessee has to prove to the identity, creditworthiness and genuineness of the transaction to the satisfaction of the AO which the assessee failed to prove during the assessment proceedings. 9. That, the Ld. CIT(A) erred in rejecting the objections of AO regarding admission of additional evidence without passing a speaking order dealing with objections of the AO on the issue. 10. That, the Ld. CIT(A) erred in not giving on opportunity to AO under rule 46A(3) after admission of additional evidence.” ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 4 of 13 3. The ld AR of the assessee heavily relied on the order of the CIT(A) to aver that the AO has wrongly made the additions and the CIT(A) has deleted the additions on the basis of remand report of the AO. 4. The ld. DR relied on the orders of the authorities below. 5. Brief facts of the case are that the assessee company e-filed its return of income for the A.Y. under consideration on 15.10.2012 declaring total income of Rs. 24,29,650/-. The case was selected for scrutiny through CASS and accordingly, notice u/s 143(2) of the Income-tax Act, 1961 [the Act, for short] was issued on 06.08.2013 which was duly served upon the assessee company. 6. The AO upon enquiries, came to the conclusion that the assessee explanation is not satisfactory and consequently, the Assessing Officer passed the assessment order after making the following disallowances: a. Unexplained cash deposit Rs. 3,05,96,415 b. Addition u/s 40A(3) Rs. 7,93,898 c. Unexplained cash credit Rs. 25,57,254 d. Addition u/s 40a(ia) Rs. 60,665 e. Adhoc (50%) addition of site expenses Rs. 4,02,508 f. Disallowance out of depreciation Rs. 5,17,778 g. Disallowance of proportionate interest Rs. 18,51,846 h. Undervaluation of Stock Rs. 6,71,095 ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 5 of 13 8. Aggrieved, the assessee went in appeal before the ld. CIT(A) who decided the issue in favour of the assessee. 9. Now the Revenue is aggrieved and is in appeal before us. 10. We have heard the rival submissions and have perused the relevant material on record. The ld. CIT(A) has given a categorical finding which we reproduce as under for ready reference: “6.3 In the ground of appeal No. 1, the appellant has impugned the addition of Rs.3,05,96,415/- made by the AO. The AO has observed that as per bank statement, assessee had made cash deposits amounting to Rs.3,61,90,000/- and other payments in cash were made to Jagdamba Milk Dairy amounting to Rs.4,00,000/-, Yadav Dairy Rs.4,33,898/-, wages & salary Rs. 12,39,112/-, Rs. 18,57,704/. Thus, total cash deposits and expenses comes to salary 19 to Rs. 4,01,20,714/-. He also observed that total cash available to the assessee as per details on file were Rs. 95,24,299/- only on account of cash sales and sale remittances in cash. Thus, as per the AO the balance cash deposits/cash expenses amounting to Rs. 3,05,96,415/- remained unverifiable. He held that as the assessee has failed to discharge its onus, balance cash deposits/expenses amounting to Rs 3,05,96,415/-added to the income of the assessee u/s 68 of the 1.T. Act, 1961. ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 6 of 13 The AR of the appellant has contended that the AO has taken wrong figures. In fact total cash deposit in the bank itself was Rs.3,93,14,000/- instead of Rs.3,61,90,000/-. Further as per the audited books of accounts the total cash outgo were Rs. 7,53,96,622/- as under: Particulars Amount Cash deposited in bank 3,93,14,000 Payment made to Jagdamba Milk Dairy 4,00,000 Payment made to Yadav Dairy 4,33,898 Wages & Salary 12,39,112 Salary 18,57,704 Loan repayment in cash 2,79,721 Payment to creditors 8,377 Expenses Payable 63,295 Computer 3,500 Branch transfers 40,44,958 Direct & indirect expenses other than those mentioned above by the Hon Assessing Officer 31,87,395 Payment to milk supplier 2,45,64,662 Total 7,53,96,622 The above table indicates that the Assessing Officer has made the addition without going through the facts on records and calculated the amount in an inappropriate manner, ignoring the accounting principal and cash flow statement. He mistaken in holding in the assessment order that total cash deposits and expenses comes to Rs.4,01,20,714/-instead of 7,53,96,622/-. Similarly, the appellant explained that the source of the cash as per the books were ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 7 of 13 Rs.7,54,93,167/- (i.e. all the debits in the cash book for the year), which has been miscalculated and wrongly held by the AO that the sources available for payments made by the assessee company had been only Rs. 95,24,299/- instead of actual figure amounting to Rs.7,54,93,167/-. Accordingly, in the manner of calculation adopted by the AO, the actual cash surplus from operations of head office would be Rs.96,545/- (7,53,96,622 - 7,54,93,167) instead of cash deficit of Rs.3,05,96,415/-. If opening cash of Rs. 1,65,240 is also considered then closing cash in hand would come to Rs. 2,61,785/- (Rs. 96,545/- +1,65,240/-), which is as per the balance sheet. In the remand proceedings the appellant produced all the necessary details in respect of the cash transactions viz. partywise sales made and payment received in cash as well as by cheques, complete cash book, cash flow statement, purchase of milk from various parties and details of cash expenses and deposits made in the bank account etc.. The appellant also produced confirmations from various purchase and sale the parties. These details were also produced by the appellant before the AO during assessment proceedings on 09-03-2015. But the AO didn't make any inquiry during assessment proceedings. In remand proceedings the appellant produced all the details but the debtors of the appellant didn't respond to the notice u/s 133(6). The non- compliance of the debtors to the notice could be for many reasons. One of the major factor is the aging. After lapse of so many years sending the notices to the last known addresses of the debtors as provided by the appellant doesn't carry any meaning. There could be ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 8 of 13 many reasons for the no responses from them. These details were provided by the appellant to the AO during assessment proceedings. If he had any doubt then he could have made enquiry from them. Moreover, these debtors were not cash creditors but purchase parties who made purchases from the appellant and paid to it the purchase consideration in cash. The AO has not doubted the sale turnover of the appellant declared in the books then there can be no doubt in the sales made to these parties even if not confirmed through notice u/s 133(6). Sales to these parties have been duly reflected in the books then receipts from them cannot be taxed u/s 68 as held in the case laws relied upon by the AR of the appellant in his submission dated 01/09/2020. These receipts are not cash credits, but the AO made addition of Rs.3,05,96,415/- of cash deposited in the bank account u/s 68 on absurd reasons without following the accounting principles. He didn't take into consideration the cash derived from the cash book and cash flow statement for source of cash which includes cash received from debtors and other sources. In view of these facts of the case the addition of Rs.3,05,96,415/- cannot be sustained. Accordingly, the addition of Rs.3,05,96,415/- made by the AO u/s 68 is hereby deleted. The ground of appeal no. 1 is allowed. 6.4 In the ground of appeal No. 2, the appellant has impugned the addition of Rs. Rs.7,93,898/- made by the AO u/s 40A(3) of the Act. The AO observed on perusal of confirmation filed that assessee has made payments in cash in excess of Rs. 20,000/- to M/s Jagdamba Milk Dairy and M/s Yadav Dairy amounting to Rs. ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 9 of 13 3,60,000/- and 4,33,898/ respectively. He disallowed and added back them to the income of the assessee u/s 40A(3) of the 1.T. Act, 1961. I have considered the submissions of the AR of the appellant and I am inclined to agree with the counsel that the addition of Rs.7,93,898/- made by the AO was not called for as these are payments were made to different farmers through milk collection centers which is covered under exception clause of rule 6DD and there is no violation of section 40(A)(3) of the Income Tax Act, 1961. Thus, the addition of Rs.7,93,898/-cannot be sustained and accordingly the AO is directed to delete the same. In the result, this ground of appeal is allowed. 6.5 In the ground of appeal No. 3, the appellant has impugned the addition of Rs. 25,57,254/. The AO made this addition on the ground that instead of furnishing the details in a proforma the assessee's AR filed purchase and sale summary which was an extract of all purchases and sales and all without complete postal addresses. The AO also noticed that the assessee did not file confirmations in respect of Sh. Abdul Majeed, Anmol Dairy and Harry Milk foods Pvt. Ltd amounting to Rs. 4,56,122/, 21,01,132/ totaling to Rs. 25,57,254/-. Hence purchases made from these parties remained unverifiable. As assessee had failed to discharge its onus, balance cash deposits/expenses amounting to Rs. 25,57,254/- is added to the income of the assessee u/s 68 of the I.T. Act, 1961. ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 10 of 13 I have considered the order of the AO and detailed submissions of the AR of the appellant. The appellant has provided details of the purchases made from these parties and payments made to them. These details were also provided by him during assessment proceedings as well as remand proceedings. However, in remand report the AO reiterated his stand as he took in the assessment order and no further comments given on the bills as well as ledger accounts of these parties. It is noticed that in the assessment order the assessing officer named three parties Sh. Abdul Majeed, Anmol Dairy and Harry Milk foods Pvt. Ltd, but made addition in respect of purchases made only from the first two parties u/s 68 of the Act. Whereas, no addition on account of the purchases made from third party was made from whom purchases to the extent of Rs. 18.97Cr were made and payment to the extent of Rs.17.67 Cr were made through bank during the year and outstanding was Rs.1.62 Cr. This shows arbitrary approach of the AO. As regard the first two parties it has been explained that the purchases were made in the beginning of the financial year and accounts were squared off by paying major amount to them through banks and some amount through cash. As under: ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 11 of 13 Abdul Majeed Account: Date Particulars Vch Type Debit Credit 05/04/2011 Milk Purchase Purchase 4,56,122 07/04/2011 SBI Bank CC A/c No.31452798616 Payment 4,50,000 10/04/2011 Cash Payment 6122 Total 4,56,122 4,56,122 Anmol Dairy Account: Date Particulars Vch Type Debit Credit 05/04/2011 Milk Purchase Purchase 21,01,132 09/04/2011 SBI Bank CC A/c No.31452798616 Payment 21,00,000 10/04/2011 Cash Payment 1132 Total 21,01,132 21,01,132 The Ld AR submitted that the AO has made the addition u/s 68 on account of balance of cash deposits/expenses amounting to Rs.25,57,254/- which is absolutely incorrect as these are not question of cash deposit. Purchases from the party are not covered u/s 68 of the Income Tax Act, 1961 for which the payment was made and balance as at 31/03/2012 was NIL. I agree with view of the counsel that the addition of Rs.25,57,254/ made by the AO is incorrect as these are purchases made from various parties and hence section 68 is not applicable in this case. The order has been passed by the AO without taking the cognizance of the ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 12 of 13 material available in his records. As a result, the addition of Rs. 25,57,254/- is hereby deleted and this ground of appeal is allowed.” 11. We have heard the rival submissions and have perused the relevant material on record. After hearing both the rival representatives and perusing the order of the ld. CIT(A) and material on record, we find no reason to interfere with the well-reasoned order of the ld. CIT(A). Endorsing the above decision of the ld. CIT(A), the grounds taken by the Revenue stand dismissed and we direct the Assessing Officer to delete the additions. 12. In the result, the appeal of the Revenue in ITA No. 112/DEL/2021 is dismissed. The order is pronounced in the open court on 27.03.2025. Sd/- Sd/- [MADHUMITA ROY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 27th MARCH, 2024. VL/ ITA No. 112/DEL/2021 [A.Y. 2012-13] ITO Vs. MLR Foods Page 13 of 13 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order… 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the fair Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial 11. The date on which the file goes to the Assistant Registrar for endorsement of the order 12. Date of Despatch of the Order "