2019 (3) TMI 1064 - AT - Income Tax

ITAT decision: Reopening upheld, disallowance deleted, suppressed production addition overturned

M/s. Regent Steel Ltd. Versus Assistant Commissioner of Income Tax, Circle 7 (2), Mumbai. And Assistant Commissioner of Income Tax 8 (1) (1), Mumbai Versus M/s. Regent Steel Ltd.

M/s. Regent Steel Ltd. Versus Assistant Commissioner of Income Tax, Circle 7 (2), Mumbai. And Assistant Commissioner of Income Tax 8 (1) (1), Mumbai ... Issues Involved:1. Legality of reopening the assessment under Section 148 of the Income Tax Act.2. Disallowance under Section 40A(3) of Rs. 19,50,580/-.3. Addition of Rs. 12,39,57,666/- as suppressed production.Issue-wise Detailed Analysis:1. Legality of Reopening the Assessment under Section 148:The assessee contended that the reopening of the assessment was bad in law as the notice under Section 148 was issued beyond the period of four years from the end of the relevant assessment year, based merely on presumption without any material evidence of income escaping assessment due to the assessee's failure to disclose all material facts. The CIT(A) upheld the reopening based on information received from the Central Excise and Customs Department, but the assessee argued that the Assessing Officer did not independently verify or investigate the information. However, the assessee did not press this issue before the ITAT, and it was decided against the assessee.2. Disallowance under Section 40A(3) of Rs. 19,50,580/-:The assessee challenged the disallowance of payments made to transporters in cash exceeding Rs. 20,000/- under Section 40A(3). The CIT(A) upheld the disallowance, but the assessee argued that the provisions were not applicable as the payments were below the ceiling limits per Rule 6DD prevailing during the relevant year. The ITAT noted that the amendment to Section 40A(3) by the Finance Act 2008, which applied from A.Y. 2009-10, was not applicable to the A.Y. 2005-06. The ITAT relied on the Karnataka High Court's decision in A.N. Swarna Prasad and the ITAT Hyderabad's decision in Sonali Castings (P.) Ltd., which held that the CBDT Circular No.5 of 2010 was not applicable retrospectively. Consequently, the ITAT deleted the addition of Rs. 90,48,181/- related to aggregate payments to a single party in a single day.3. Addition of Rs. 12,39,57,666/- as Suppressed Production:The revenue appealed against the deletion of the addition of Rs. 12,39,57,666/- as suppressed production. The addition was based on information from the Central Excise and Customs Department, which alleged suppression of production and clandestine removal of finished products without payment of excise duty. The CIT(A) deleted the addition, relying on the decision of the Custom Excise and Service Tax Appellate Tribunal (CESTAT), which had cancelled the adjudication order of the Commissioner of Central Excise, Aurangabad. The ITAT upheld the CIT(A)'s decision, noting that similar issues had been decided in favor of the assessee in previous cases like SRJ Petty Steels Pvt. Ltd. and Bhaghyalakshmi Steel Alloys Pvt. Ltd. The ITAT found that the CIT(A) had judiciously and correctly decided the matter, and the deletion of the addition was upheld.Conclusion:The ITAT partly allowed the assessee's appeals and dismissed the revenue's appeals. The reopening of the assessment was upheld, but the disallowance under Section 40A(3) related to aggregate payments was deleted. The addition of Rs. 12,39,57,666/- as suppressed production was also deleted, affirming the CIT(A)'s decision based on the CESTAT's ruling. The ITAT's order was pronounced on 30.01.2019.