2015 (5) TMI 120 - HC - Income Tax

Tribunal upholds deletions, voids assessment order, dismisses penalty, and sustains excessive commission payment

The Tribunal dismissed all appeals, upholding the deletion of additions on account of suppression of production, the voiding of the assessment order under ... Suppression of production by showing excess scrap - ITAT deleted the addition - Held that:- When the Assessing Officer did not reject the books of accounts and / or did not point out any defects in the books of accounts regularly maintained by the assessee and when considering the fact that the Excise Department also fully verified and checked the records for the raw materials and the finished goods, the learned Tribunal has rightly deleted the additions made by the Assessing Officer on scrap generation at the rate of 15%. We are in complete agreement with the view taken by the learned Tribunal in so far as deleting the additions made by the Assessing Officer for the respective Assessment Years i.e. 1999-00, 2000-01 and 2001-02 on scrap generation at the rate of 15%. - Decided in favour of the assessee. Validity of assessment order under Section 143(3) - ITAT held the assessment as void ab initio by observing that notice under Section 143(2) of the Act was issued beyond the period of limitation i.e. beyond the period of 12 months - Held that:- It is required to be noted that the return was filed by the assessee on 31/12/1999 and notice under Section 143(2) of the Act was served upon the assessee on 25/08/2001. Under the circumstances, when notice under Section 143(2) of the Act was issued beyond the period of one year considering the decision of the Hon’ble Supreme Court in the case of Assistant Commissioner of Income Tax and Anr. Vs. Hotel Blue Moon reported in [2010 (2) TMI 1 - SUPREME COURT OF INDIA] question is held against the revenue - Decided in favour of the assessee. Penalty under Section 271(1)(c) - ITAT deleted penalty - Held that:- Tribunal has correctly observed that since the addition made by the Assessing Officer of the scrap generation at the rate of 15% has been deleted, there is no question of imposition of penalty arising - Decided in favour of assessee. Disallowance of interest expenses claimed under Section 36(1)(iii) - ITAT allowed claim - Held that:- Tribunal has observed that the assessee was having interest free funds available with it. Also that the advances were given by the assessee to various parties to the extent of ₹ 2,62,48,341/- during the Financial Year 1996-97. Even the assessee was having interest free funds to the extent of ₹ 3,93,65,572/- as on 31/03/2002. It is required to be noted that in the earlier preceding year no disallowance was made out of the interest claimed by the assessee. Considering the aforesaid facts and circumstances of the case, the learned Tribunal has rightly deleted the disallowance on interest expenses - Decided in favour of assessee. Addition under Section 40A(2)(b) - addition sustained is 1/3rd by CIT(A) & ITAT - Held that:- We are in complete agreement with the view taken by the learned CIT(A) confirmed by the learned Tribunal. As such, taking into account the larger business benefits accruing to the assessee and the connectivity between the assessee and the recipient, the learned CIT(A) has held that commission of ₹ 1 per kg would be reasonable and balance 0.5 per kg is considered as excessive withing the meaning of Section 40A(2)(b) of the Act.No substantial question of law arises so far as deleting the addition under Section 40A(2)(b) of the Act to the extent of 2/3rd of ₹ 10,78,930/- is concerned. - Decided in favour of assessee. Issues Involved:1. Deletion of addition on account of suppression of production by showing excess scrap.2. Validity of assessment order under Section 143(3) due to notice under Section 143(2) being issued beyond the prescribed limitation period.3. Deletion of disallowance of telephone expenses for personal use by the Director.4. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act.5. Deletion of disallowance of interest expenses under Section 36(1)(iii) of the Act.6. Deletion of addition under Section 40A(2)(b) for excessive commission payment.Detailed Analysis:1. Deletion of Addition on Account of Suppression of Production by Showing Excess Scrap:The Tribunal deleted the addition made by the Assessing Officer (AO) on the basis of scrap generation at the rate of 15% for the Assessment Years 1999-2000, 2000-01, and 2001-02. The Tribunal held that additions made in the block assessment cannot be the basis for making additions in the regular assessment. The AO did not reject the books of accounts or point out any defects. The Tribunal also noted that the Excise Department had verified the records and found no evidence of evasion. Thus, the Tribunal concluded that the addition was made without any evidence or material and could not be sustained.2. Validity of Assessment Order Under Section 143(3):The Tribunal held the assessment order under Section 143(3) as void ab initio because the notice under Section 143(2) was issued beyond the prescribed limitation period of 12 months from the end of the month in which the return was filed. The return was filed on 31/12/1999, and the notice was served on 25/08/2001. This decision was in line with the Supreme Court's ruling in Assistant Commissioner of Income Tax and Anr. Vs. Hotel Blue Moon.3. Deletion of Disallowance of Telephone Expenses:The AO disallowed Rs. 3,10,000/- on account of personal use of the telephone by the Director, which was restricted by the CIT(A) to Rs. 1.7 lacs. The Tribunal deleted the entire disallowance. However, due to the small amount involved, the question of law on this issue was dismissed.4. Deletion of Penalty Imposed Under Section 271(1)(c):The Tribunal deleted the penalty imposed under Section 271(1)(c) of the Act for the Assessment Year 2000-01. Since the addition made by the AO on scrap generation at the rate of 15% was deleted, there was no basis for the penalty. The Tribunal's decision to delete the penalty was upheld.5. Deletion of Disallowance of Interest Expenses Under Section 36(1)(iii):For the Assessment Years 2002-03 and 2003-04, the Tribunal deleted the disallowance of interest expenses claimed under Section 36(1)(iii). The Tribunal found that the assessee had sufficient interest-free funds available and that no disallowance was made in the preceding years. The Tribunal's decision to delete the disallowance was upheld.6. Deletion of Addition Under Section 40A(2)(b) for Excessive Commission Payment:The AO disallowed the entire commission of Rs. 10,78,930/- paid to M/s. Maitri Metals Pvt. Ltd. under Section 40A(2)(b) as being unreasonable. The CIT(A) held that a commission of Rs. 1 per kg was reasonable and that the balance of Rs. 0.50 per kg was excessive. The Tribunal upheld the CIT(A)'s decision, and the deletion of 2/3rd of the addition was confirmed. The Tribunal's decision was upheld, and no substantial question of law arose on this issue.Conclusion:All the appeals were dismissed, and the Tribunal's decisions on the respective issues were upheld. No order as to costs.