KARIMNAGAR MILK PRODUCER COMPANY LIMITED,HYDERABAD V. DCIT, CIRCLE-1, KARIMNAGAR

ITA 1388/HYD/2024

AI Insights

The case involves Karimnagar Milk Producer Company Limited, which appealed against the penalty imposed under Section 270A of the Income-tax Act, 1961, for underreporting income. The company had initially declared a significantly low profit margin on a large turnover, which led to scrutiny and subsequent estimation of income by the Assessing Officer (A.O.). The CIT(A) had partly allowed the appeal by reducing the quantum addition but upheld the penalty. The company faced a delay in filing the appeal due to the personal circumstances of its Managing Director, which the CIT(A) did not condone. The Tribunal found merit in the company's reasons for the delay and set aside the CIT(A)'s decision, restoring the matter for a fresh decision on merits.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360615 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2017-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Condonation of delay; Opportunity of being heard; Depreciation

Judgement Text

"आयर अपीलीय ᭠यायािधकरण मᱶ, हैदराबाद ‘ए’ बᱶच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad ᮰ी रवीश सूद, माननीय ᭠याियक सद᭭य एवं ᮰ी मधुसूदन साविडया जी, माननीय लेखा सद᭭य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No.1388/Hyd/2024 (िनधाŊरण वषŊ/ Assessment Year: 2017-18) Karimnagar Milk Producer Company Limited, Hyderabad. PAN: AAECK7935P VS. DCIT, Circle-1, Karimnagar. (अपीलाथŎ/ Appellant) (ŮȑथŎ/ Respondent) करदाता का Ůितिनिधȕ/ Assessee Represented by : Mrs. S. Sandhya, Advocate राजˢ का Ůितिनिधȕ/ Department Represented by : T. Sunil Gowtham, Sr. AR सुनवाई समाɑ होने की ितिथ/ Date of Conclusion of Hearing : 15/05/2025 घोषणा की तारीख/ Date of Pronouncement : 22/05/2025 O R D E R Ůित रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 04/09/2024, which in turn arises from the order passed by the A.O 2 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 U/s. 270A of the Income-tax Act, 1961 (in short ‘the Act’) dated 23/03/2022 for the assessment year 2017-18. 2. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. The order of the Ld. CIT(A), dated 04/09/2024 is erroneous both on facts and in laws; 2. the Ld. CIT(A) erred in not allowing the appeal. 3. The Ld. CIT(A) ought to have condoned the delay of 36 days and admitted the appeal. 4. The Ld. CIT(A) ought to have considered the fact that the appellant was prevented by sufficient reason in not filing the appeal within the time and submitted the reasons for delay in filing the appeal. 5. The Ld. CIT(A) ought to have admitted the appeal and considered that no penalty U/s. 270A is leviable. As the addition was made only estimate basis. 6. Any other ground/grounds that may be urged at the time of hearing.” 3. Succinctly stated, the assessee company which is engaged in the business of procuring, processing and sale of milk and milk products had filed its return of income for A.Y 2017-18 on 06/11/2017, declaring an income of Rs. 18,00,490/-. Subsequently, the case of the assessee company was selected for scrutiny assessment U/s. 143(2) of the Act. 4. During the course of the assessment proceedings, it was observed by the A.O. that the assessee company in the course of its business procured milk and processed the same into milk (toned etc.), and was also into manufacturing of milk by-products such as 3 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 skimmed milk, condensed milk, skimmed milk powder, curd, paneer, ghee, doodh peda, khova, butter milk, lassi, ice cream, basundi and milk cake etc. However, it was observed by him that a perusal of the trading account and also from Column No. 35(a), (b) and (c) of “Form 3CD” of the subject year, revealed that no quantitative particulars of the principal items of goods traded or raw material as well as finished goods were therein provided. Although the assessee company was directed to submit the requisite information along with the bifurcation of closing stock and product stock register, but it failed to file the quantitative particulars, on the ground, that due to partial computerization at basic levels and also the number of products in which it was dealing the same could not be filed. 5. The A.O. based on the aforesaid facts, observed that the manufactured items, sales of the assessee company could not be correlated quantitatively with the purchases of raw materials, wastages etc. in the absence of the required details, viz., (i) day-to-day manufacturing account that was not being maintained regarding processing of milk and manufacture of milk by-products; (ii) day-to- day manufacturing account, quantitative consumption account with quantitative details of consumption in respect of processing of milk and manufacture of milk by-products were not being maintained; and (iii) stock book or register was not being maintained. Apart from that, 4 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 the A.O. observed that in view of the non-submission by the assessee company of the quantitative particulars of the items traded, its claim of having complied with Income Computing And Disclosure Standards in respect of the valuation of inventories could not be accepted. Accordingly, the explanation offered by the assessee company regarding the reason for non-submission of quantitative particulars of opening, closing, finished and consumed items dealt with by it did not find favor with the A.O. Accordingly, the A.O doubted the correctness and completeness of the books of accounts of the assessee company and rejected its books of account U/s. 145(3) of the Act. Thereafter, the A.O. proceeded to estimate the income of the assessee company. The A.O. observed that the assessee company had disclosed an income of Rs. 18,00,490/- on a turnover of Rs. 249.46 Crores (approx.) i.e. 0.07% of its turnover, which as per him was substantially low. Although it was the claim of the assessee company that it was operating its business on cooperative principles and as the primary object was not to make profits, thus, the margins were maintained only to take care of the expenditure, but the same did not find favor with the A.O. The A.O. observed that the assessee company for the last four years was disclosing its “net profit” in the range of 0.07% to 0.36%. It was observed by him that for the last three years, the profit before Depreciation, Interest and Tax (PBDIT) was in the 5 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 range of 0.14% to 0.37%. It was further observed by him that the assessee company had during the subject year disclosed PBDIT of 0.16%. Considering the above, the A.O. estimated the income of the assessee company at 1.5% of its total turnover of Rs. 249.46 Crores (supra) which worked out at Rs. 3,74,19,126/-. Since the assessee company had already disclosed an income of Rs. 18,00,490/-, the A.O. made a net addition of Rs. 3,56,18,636/- (Rs. 3,74,19,126 – Rs. 18,00,490). Also, the A.O. while culminating the assessment, initiated penalty proceedings U/s. 270A of the Act for underreporting of the income of the assessee company by the tune of Rs. 3,56,18,636/- 6. On further appeal, the CIT(A) vide his order dated 15.09.2020 scaled down the quantum addition made by the A.O to Rs. 32,12,480/- and thus, partly allowed the appeal. 7. Thereafter, the A.O. vide his order U/s. 270A of the Act, dated 23.03.2022 imposed a penalty of Rs. 7,74,504/- U/s. 270A of the Act. 8. Aggrieved, the assessee company assailed the penalty imposed by the A.O u/s 270A of the Act before the CIT(A). As the appeal filed by the assessee company involved a delay of 36 days, therefore, the assessee company had filed before him an application seeking condonation of the same. However, the CIT(A) did not find favor with the explanation of the assessee company regarding the reasons 6 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 leading to the delay in filing the appeal and dismissed the same on the said ground itself. For the sake of clarity, the observations of the CIT(A) are culled out as under: 7 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 8 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 9 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 10 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 9. The assessee company being aggrieved by the order of the CIT(A) has carried the matter in appeal before us. 10. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 11 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 11. Smt. S. Sandhya, the Learned Authorized Representative of the assessee company (in short, “ld.AR”), at the threshold of hearing, submitted that the present appeal involves a delay of 27 days. Elaborating on the reasons leading to the delay, the ld.AR submitted that the same had occasioned for the reason that during the relevant period i.e., September, 2024 the wife of the Managing Director of the assessee company, viz. Sri P. Shankar Reddy had expired. The ld.AR to buttress her aforesaid claim had drawn our attention to the “affidavit” filed by Sri P. Shankar Reddy (supra), wherein it was deposed by him that during the relevant period i.e., on 27/09/2024 his wife Smt. Muthireddy Devamma, who had remained seriously ill, had passed away. Our attention was also drawn to the “death certificate” of Smt. Muthireddy Devamma (supra). The ld.AR submitted that as the delay in filing the appeal had crept in for a bona fide reason and not on account of any lackadaisical approach of the assessee company, therefore, the same in all fairness be condoned. 12. Per contra, the Learned Departmental Representative (in short “Ld. Ld. DR”) did not seriously object to the seeking of condonation of the delay involved in the filing of the present appeal. 13. We have thoughtfully considered the explanation of the assessee company regarding the reasons leading to the delay in filing the 12 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 present appeal, and find substance in the same. As the delay in filing the present appeal before us, had occasioned, for certain compelling and unavoidable reasons and not on account of any lackadaisical approach on the part of the assessee-appellant, therefore, we have no hesitation in condoning the same. 14. Apropos the impugned order before us, we find that the CIT(A) had dismissed the appeal by declining to exercise the discretion vested him under sub-section (3) of section 249 of the Act and not condoning the delay of 36 days (sic) involved in the appeal that was filed by the assessee company before him. 15. Although, we principally concur with the CIT(A) that an assessee appellant ought to remain vigilant regarding filing the appeals before various forums within the time prescribed under the statute, but, we are unable to persuade ourselves to the declining by him to condone the delay involved in the appeal filed by the assessee company. We say so, for the reason that the assessee company had explained before the CIT(A) that there was a delay of 34 days in filing the appeal before him, for the reason that its Chartered Accountant had remained pre- occupied with the medical treatment of his ailing father. Ostensibly, the assessee company had stated before the CIT(A) that as its counsel during the relevant period for the aforesaid compelling reasons did not 13 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 regularly attend to his office, therefore, the order passed by the A.O. imposing penalty U/s. 270A of the Act, dated 23/03/2022 had escaped his attention. Further, it was stated by the assessee company that it was only when its Chartered Accountant had resumed his normal office work, that in the second week of May, 2022, he had while clearing the back-log work of his office gathered about the order passed by the A.O imposing penalty u/s 270A of Rs. 7,74,504/- on the assessee company. Elaborating further, the assessee company had stated before the CIT(A) that on learning about the penalty order it had without involving any further loss of time entrusted the matter to an advocate based at Hyderabad, and had e-filed the appeal on 26/05/2022, which by the time involved a delay of 34 days. 16. As is discernible from the record, the CIT(A) had declined to accept the aforesaid explanation of the assessee company regarding the reasons leading to the delay in filing the appeal. It was observed by him that as the assessee company had failed to place on record the details of communication or documentary evidence to support its aforesaid explanation, therefore, the same did not merit acceptance. 17. We have thoughtfully considered the observations of the CIT(A) based on which he had declined to condone the delay in filing of the appeal before him. 14 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 18. Although, we principally concur with the CIT(A) that the assessee company ought to have remained vigilant regarding filing the appeal before him within the prescribed period, but at the same time, we are of the firm conviction that the explanation of the assessee company could not have been summarily discarded by him for the reason that it had failed to provide the details of communication or documentary evidence to support its explanation regarding the delay in filing of the appeal. As the delay involved in the appeal filed before the CIT(A) is not inordinate and is further backed by justifiable reason, therefore, we are of the firm conviction that the CIT(A) instead of dismissing the same on the ground of limitation ought to have judicially exercised the discretion vested with him under sub-section (3) of section 249 of the Act, and after condoning the delay disposed of the appeal on merits. Also, we find that the CIT(A) had though observed that the explanation of the assessee company regarding the delay in filing the appeal before him was being rejected as it was not corroborated with supporting documentary evidence, but we find that there is no whisper in his order which would reveal that he had at any stage called upon the assessee company to substantiate its explanation based on supporting documentary evidence/material. Our aforesaid view that a liberal and judicious approach should be adopted while considering the application filed by an assessee- 15 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 appellant for condonation of the delay in filing of the appeal is supported by the recent judgment of the Hon'ble Supreme Court in the case of Vidya Shankar Jaiswal vs. The Income Tax Officer, Ward-2, Ambikapur in Specia Leave Petition (Civil) Nos. 26310- 26311/2024, dated 31st January, 2025. The Hon'ble Apex Court in its aforesaid order, had while setting aside the order of the Hon'ble High Court of Chhattisgarh, that had approved the declining of the condonation of delay of 166 days by the Income-Tax Appellate Tribunal, Raipur Bench, had observed, that a justice-oriented and liberal approach should be adopted while considering the application filed by an appellant seeking condonation of the delay involved in filing the appeal. 19. We thus, in terms of our aforesaid deliberations set-aside the order of the CIT(A) and restore the matter to his file with a direction to condone the delay and dispose of the appeal on the merits of the case. Needless to say, the CIT(A) shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee company. The Grounds of Appeal Nos.3 and 4 are allowed in terms of our aforesaid observations. 20. As we have restored the matter to the file of the CIT(A) for fresh adjudication, therefore, we refrain from dealing with the contentions 16 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 advanced by the Ld.AR based on which the imposition of penalty U/s. 270A of the Act has been assailed before us. The Ground of Appeal No. 5 is dismissed in terms of our aforesaid observations. 21. The Grounds of Appeal Nos. 1, 2 and 6 being general are dismissed as not pressed. 22. Resultantly, the appeal filed by the assessee company is allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the Open Court on 22nd May, 2025. Sd/-Sd/- (मधुसूदन साविडया) (MADHUSUDAN SAWDIA) लेखा सद˟/ACCOUNTANT MEMBER Sd/Sd/- (रवीश सूद) (RAVISH SOOD) Ɋाियक सद˟/JUDICIAL MEMBER Sd/- Sd Hyderabad, dated 22.05.2025. **OKK/sps आदेशकी Ůितिलिप अŤेिषत/ Copy of the order forwarded to:- 1. िनधाŊįरती/The Assessee : Karimnagar Milk Producer Company Limited, 9-9-1, Padmanagar, Karimnagar, Telangana-505002. 2. राजˢ/ The Revenue : DCIT, Circle-1, Karimnagar, Telangana. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. िवभागीयŮितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT, Hyderabad 5. The Commissioner of Income Tax 6. गाडŊफ़ाईल / Guard file 17 Karimnagar Milk Producer Company Ltd vs. DCIT ITA 1388/Hyd/2024 आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Hyderabad "