VS FERROUS ENTERPRISES PRIVATE LIMITED,HYDERABAD V. ACIT, CENTRAL CIRCLE - 7, DELHI

ITA 388/DEL/2024

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The case involves Ferrous Enterprises Pvt. Ltd., a manufacturer of iron and steel products, which did not carry out any manufacturing activity during the assessment year 2017-18. The company declared NIL income in its return, which was processed under section 143(1) of the Income Tax Act, 1961. However, during scrutiny, substantial amounts were added as unexplained credits under section 68 of the Act, leading to an enhanced income assessment. The company appealed against these additions, which were upheld by the Commissioner of Income Tax (Appeals). The Tribunal's decision to remand the case was based on the admission of additional evidence that could substantiate the company's claims.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312943 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2017-2018
• Other Referred Cases: Keshav Mills Co. Ltd. vs CIT, Ahmedabad, Anaikar Trade and Estates (P) Ltd (No.2) vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUJIT KUMAR
• Assessee Lawyers: P. MURALI MOHAN RAO; LAKSHMI KANT RATHI
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Unexplained cash credit; Principle of natural justice; Competent authority; Recovery proceedings
• Section: 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.388/Del/2024 [Assessment Year : 2017-18] VS Ferrous Enterprises Pvt.Ltd., C/o-P.Murali & Co., Chartered Accountants, 6-3-655/2/3, Somajiguda, Hyderabad, Telangana-500082. PAN-AAFCV4997D vs ACIT, Central Circle-7, Delhi. APPELLANT RESPONDENT Appellant by Shri P.Murali Mohan Rao, CA & Shri Lakshmi Kant Rathi, CA Respondent by Shri Sujit Kumar, CIT DR Date of Hearing 30.04.2025 Date of Pronouncement 30.04.2025 O R D E R PER MANISH AGARWAL, AM: This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-24, New Delhi [Ld. CIT(A), in short], dated 30.11.2023 in appeal No. CIT(A), Delhi-24/10416/2016-17 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2017- 18. 2. Brief facts of the case are that the assessee is a company and is a manufacturer of iron & steel products. During the year under appeal, no manufacturing activity was carried out. The assessee e-filed its return of income on 26.03.2018 declaring NIL income, which was processed u/s 143(1) of the I.T Act, 1961. Subsequently, the case was selected for scrutiny through CASS by way of issue of notice u/s 143(2) of the Act on 07.09.20218. A reference was made to JS-FT & TR-II to Singapore Competent Authority vide Ref: No. 504/355/2019-FT& TR-IV-2/4336 dated 27.12,2019 and the information was awaited from the Singapore Competent Authority till the time of passing of assessment order. The AO found that during the year under ITA No.388/Del/2024 VS Ferrous Enterprises Pvt. Ltd. vs ACIT Page | 2 appeal, the assessee had received share capital/premium of Rs. 44,54,26,497/- besides advance of Rs.43,00,000/- was also received from customers. Thus, the AO asked the assessee to establish the Identity, creditworthiness of the share applicants and customers and further asked to prove the genuineness of the transactions. The assessee furnished details regarding advances received from customers, and stated that 99% of share capital was subscribed by its holding company namely M/s Fernmount Asia Metal Pte Ltd however, no confirmation etc. were filed. The Assessing Officer observed that although the assessee stated the names and address of the share applicant but failed to discharge the onus as required u/s 68 of the Act. Accordingly, the Assessing Officer made the addition of Rs. 44,54,26,497/- towards share capital and premium and further addition of Rs. 43,00,000/- was made towards creditors by holding the same as unexplained credit u/s 68 of the Act. 3. Against such order, assessee filed appeal before ld. CIT(A) who vide impugned order had dismissed the appeal of the assessee and further made enhancement to the total income by Rs. 9,77,64,353/- by observing total amount received from M/s. Fernmount Asia Metal Pte Ltd. was of Rs. 54,31,90,850/- out of which Rs. 44,54,26,497/- was added by AO u/s 68 of Income Tax Act. He thus enhanced the income of the assessee by the balance amount of Rs. 9,77,64,353/- received from M/s Fernmount Asia Metal Pte Ltd u/s 68 r.w.s 115BBE of Income Tax Act. 4. Aggrieved by the said order, assessee preferred the present appeal before the Tribunal on the strength of following grounds of appeal: 1. The order passed by the Ld. CIT(A) is erroneous both on facts and in law to the extent the order is prejudicial to the interest of the appellant. 2. On the facts and circumstances of the case, the Ld. CIT(A) ought to have considered that the extended time limit for completion of assessment under explanation 1(x) of Section 153 of the Act was 26-12-2020 as the reference under FT & TR Division of CBDT was made on 27-12-2019 to the Singapore competent authority and, further, the time limit was extended to 31st day of March 2021 from ITA No.388/Del/2024 VS Ferrous Enterprises Pvt. Ltd. vs ACIT Page | 3 31-12-2020 by the Notification No. 35/2020 and thus there was no extension of time limit from 27-12-2020 to 31-12-2020 and so on, did not stand to the legality of the case as the assessment has to be completed within 26-12-2020 according to the Explanation 1(x) of Section 153 of the Act. 3. The Ld. CIT(A) ought to have considered that the assessment could have been completed before 26-12-2020 within the time allowed under Explanation 1(x) of Section 153 of the Act, whereas calculating the one-year period as per Explanation 1(x) of Section 153 of the Act from 31-12-2019 and after taking Extension of time from 31-12-2020 to 30-09-2021 is illegal and is bad in law, which is barred by limitation and deserves to cancelled. 4. The Ld. CIT(A) ought to have appreciated the fact that AO erred in not considering the reply already filed in respect of the credit of Rs. 44,54,26,497/- vide assessee's reply dt. 10.12.2019 during the assessment proceedings. 5. The Ld. CIT(A) erred in confirming the addition of Rs. 44,54,26,497/- as income in terms of Section 68 of the IT Act without considering that the appellant submitted the three ingredients as applicable u/s 68 of the Act and has discharged his onus in proving the genuineness of the credits. 6. The Ld. CIT(A) erred in enhancing the addition by an amount of Rs. 9,77,64,353/- u/s 68 r.w.s 115BBE of the IT Act which is unjustified and bad in law. 7. The Ld.CIT(A) erred in not considering the fact that the AO has passed the order without actually considering the facts of the case and submissions made by the assessee which is against the provisions of law and principles of natural justice. 8. The Ld. CIT(A) ought to have appreciated the fact that the AO erred in making an addition of Rs. 43,00,000/- towards advance received from customers even though the appellant has provided confirmation letters from the parties, which is unjustified and against the provisions of law. 9. The assessee may add, alter, or modify or substitute any other points to the grounds of appeal at any time before or at the time of hearing of the appeal. 5. Before us, the ld.AR filed additional evidence containing 52 pages which are as under: ITA No.388/Del/2024 VS Ferrous Enterprises Pvt. Ltd. vs ACIT Page | 4 6. It is submitted by ld. AR that addition was made by the AO u/s 68 r.w.s. 115BBE of the Act and further enhancement was made by ld. CIT(A) on account of share capital and premium. Besides this, addition was also made towards creditors by holding them as unexplained credits. Ld. AR stated that all these additions were made as the assessee was failed to discharge the burden of proving any of the three ingredients of section 68 by providing documentary evidences like confirmation from the party, Balance Sheet and P & L account of the party, bank account of the party from which said amounts have been transferred and also the sources from which the amounts have been transferred by the said party. Ld. AR submitted that as the project could not be ITA No.388/Del/2024 VS Ferrous Enterprises Pvt. Ltd. vs ACIT Page | 5 taken up, the collection of the relevant documents from the foreign entity was not possible earlier. Under these circumstances, they could not be submitted before the AO or before the CIT(A) however, the same are now collected and since they are crucial and go to the root of the matter. The ld. AR submitted that the appellant was prevented by sufficient cause and he could not produce required evidence before the Assessing Officer or CIT (A) and requested to admit additional evidence filed by the assessee and delete the additions. 7. Per contra, ld. CIT DR objected to the admission of the additional evidences and submitted that assessee was provided multiple opportunity by the AO and by ld. CIT(A) however, the assessee without any sufficient reason has failed to file the same. He, therefore, requested to confirm the orders of the lower authorities. 8. On careful consideration of the facts of the case, we find that the AO has made reference to JS-FT & TR-II to Singapore Competent Authority vide Ref: No. 504/355/2019-FT& TR-IV-2/4336 dated 27.12.2019 and the information was not received from the Singapore Competent Authority till the time of passing of assessment order. Even today, such information is not yet received. Assessee by making effort on its part has been able to get the necessary documents to establish all the three ingredients of section 68 to prove the credits. The assessee would not gain anything by not filing these details before the lower authorities. If the explanation does not smack of mala fide or it is not put-forth as a part of dilatory strategy, the Courts must utmost consideration to such litigant. As per the provisions contained in Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal. The provisions contained in the said rule are pari materia with the Order 41 Rule 27 of the Code of Civil Procedure, 1908, which also does not allow the party to the appeal to adduce any additional evidence unless and until such exceptional circumstances are set out. Therefore, the new evidence now furnished as additional evidence shall be admitted by keeping in view the ITA No.388/Del/2024 VS Ferrous Enterprises Pvt. Ltd. vs ACIT Page | 6 principles of natural justice, but at the same time, opportunity is to be given for rebuttal to another party. 10. The Hon'ble Supreme Court in the case of Keshav Mills Co. Ltd. vs CIT, Ahmedabad (1965) 56 ITR (SC) 365 had observed that the proceedings taken for the recovery of tax under the provisions of the Act, are naturally intended to be over without unnecessary delay and so, it is the duty of the parties, both the department and the assessee, to lead all evidences at the stage when the matter is in charge of the ITO meaning thereby during the assessment proceedings. 11. The Hon’ble Madras High Court in the case of Anaikar Trade and Estates (P) Ltd (No.2) vs. CIT, 186 ITR 313 has held as under: “The Tribunal has discretion to allow the production of additional evidence under Rule 29 of the ITAT Rules, 1963 if the Tribunal requires any document to be produced or affidavit to be filed to enable it to pass orders or for any other substantial cause, it may allow the document to be produced or the affidavits to be filed. Even if there was a failure to produce the documents before the ITO and the A.A.C, the Tribunal has the jurisdiction in the interests of justice to allow the production of such vital documents.” 12. In the present case also, the documents furnished by the assessee are vital which go to the root of the present controversy, so these are to be admitted in the interest of natural justice but these documents are required to be examined and considered at the level of the AO. We, therefore, set aside the impugned order and remand the present issue back to the file of the AO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 13. As the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 30.04.2025. ITA No.388/Del/2024 VS Ferrous Enterprises Pvt. Ltd. vs ACIT Page | 7 Sd/- Sd/- [MAHAVIR SINGH] [MANISH AGARWAL] VICE PRESIDENT ACCOUNTANT MEMBER Dated: 09.05.2025 *Amit Kumar, Sr.PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "