2020 (1) TMI 915 - AT - Income Tax

Appeals dismissed on disallowance & GP addition, but allowed for A.Y. 2006-07. Lesson on evidence substantiation.

Shree Rama Multi –Tech Ltd. Versus ACIT (OSD), Circle-8, Ahmedabad, ITO Ward-8 (4), Ahmedabad, DCIT (OSD), Circle-8, Ahmedabad And ACIT (OSD), Circle-8, Ahmedabad Versus Shree Rama Multi-Tech. Ltd.

The Tribunal dismissed the appeals related to disallowance under Section 35D and upheld the rejection of books and GP addition for the earlier years. ... Disallowance u/s 35D - Disallowance in respect of Public Issue expenses - HELD THAT:- The assessee has considered the fact that the issue is covered against the assessee. As, the learned AR for the assessee has conceded for the disallowance, therefore, we do not find any reason to probe it further. Accordingly, we confirm the disallowance made by the authorities below. Hence, the grounds of appeal of the assessee are dismissed. Admission of the additional ground of appeal - HELD THAT:- It is a fact on records that all the informations related to the issue raised by the assessee in the additional grounds of appeal are available in the order of the authorities below. As such, there is no need to make any reference to any additional document -The issue raised by the assessee in the additional ground of appeal is legal in nature which can be admitted at any stage during the proceedings. In this regard, we find support and guidance from the judgment of the Hon’ble Supreme Court in the case of NTPC Ltd Vs.CIT [1996 (12) TMI 7 - SUPREME COURT]. Thus we admit the additional ground of appeal raised by the assessee and proceed to adjudicate the same. Rejection of books of accounts - AO adopting GP @40% of the turnover in place of 37% as worked out by the appellant - HELD THAT:- Reasons basing on which the AO for rejected the books of accounts are not sufficient enough and cogent to disregard the books of accounts. Books of accounts of the assessee are not liable to be rejected as per the provisions of section 145 of the Act. Accordingly, we conclude that once the books of accounts of the assessee are not liable to be rejected then its book profit should be accepted in the given facts and circumstances. Accordingly, in the backdrop of the aforesaid discussion and precedent, we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Disallowance of depreciation claim - addition on the basis of statement recorded during the survey proceeding u/s. 133A - HELD THAT:- As decided in own case [2020 (1) TMI 838 - ITAT AHMEDABAD] only on the basis of statement recorded during the survey proceeding u/s. 133A cannot be basis of addition. - Decided in favour of assessee. Issues Involved:1. Disallowance under Section 35D of the Income Tax Act.2. Rejection of books of accounts and addition of gross profit.3. Disallowance of depreciation.4. Levy of interest and initiation of penalty.Issue-wise Detailed Analysis:1. Disallowance under Section 35D of the Income Tax Act:The assessee raised a ground of appeal against the disallowance of Rs. 9,94,421/- and Rs. 9,13,861/- under Section 35D of the Act, related to public issue expenses. The Hon’ble Gujarat High Court had remanded these grounds for fresh adjudication. The assessee, a limited company engaged in manufacturing, had initially incurred public issue expenses and claimed 1/5th of these expenses. The AO disallowed a portion of these expenses, which was upheld by the CIT(A). The assessee conceded the issue, and the Tribunal confirmed the disallowance, dismissing the appeal.2. Rejection of Books of Accounts and Addition of Gross Profit:For A.Y. 2006-07, the AO rejected the books of accounts under Section 145 of the Act due to a decline in gross profit (GP) and non-response from suppliers to notices issued under Section 133(6). The AO estimated the GP at 40% instead of the declared 37%, resulting in an addition of Rs. 1,75,39,681/-. The CIT(A) confirmed the rejection of books but deleted the addition under Section 69C. The Tribunal, however, found the reasons for rejection insufficient, noting that the decline in GP was explained by the assessee and supported by evidence. It held that the books should not be rejected and directed the deletion of the addition.3. Disallowance of Depreciation:The assessee claimed depreciation on assets purchased in A.Y. 2002-03, which was disallowed by the AO due to lack of documentary evidence during a survey. The CIT(A) partly allowed the appeal, reducing the disallowance. The Tribunal, referencing a prior ITAT decision in the assessee’s favor, allowed the claim for depreciation, noting that the assessee had provided sufficient evidence of the asset purchases and the AO had not conducted a physical inspection as directed.4. Levy of Interest and Initiation of Penalty:The assessee also raised issues regarding the levy of interest under Sections 234B, 234C, and 234D, and the initiation of penalty under Section 271(1)(c). These issues were not elaborated upon in the judgment, indicating that the primary focus was on the substantive grounds of disallowance and book rejection.Conclusion:The Tribunal dismissed the appeals related to disallowance under Section 35D and upheld the rejection of books and GP addition for the earlier years. However, it allowed the appeal for A.Y. 2006-07, directing the deletion of the GP addition and allowing the depreciation claim. The appeal by the Revenue was dismissed as it was wrongly listed for hearing. The decision underscores the importance of substantiating claims with evidence and the Tribunal's discretion in admitting additional grounds of appeal.