M/S.ankit Ispat Private Limited v. The Assistant Commissioner Of Income Tax (Osd),Corporate Range 1,Chennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRASORDERS RESERVED ON : 18.04.2022 DATED : 08.06.2022 CORAM THE HON'BLE MR. JUSTICE R.MAHADEVANANDTHE HON'BLE MR. JUSTICE J.SATHYA NARAYANA PRASAD T.C.A.NO.103 OF 2022 M/s.Ankit Ispat Private Limited,No.9, AML Towers, 6[th] Street,Gopalapuram,Chennai – 600 089. ...Appellant Versus The Assistant Commissioner of Income Tax (OSD),Corporate Range 1,Chennai – 600 034. ...Respondent Tax Case Appeal filed under Section 260 (A) of the IncomeTax Act, 1961 against the order passed by the Income TaxAppellate Tribunal Madras “D” Bench in I.T.A.No.2792/Chny/2019dated 11.11.2021. Appeal against the order passed by the office of theAssistant Commissioner of Income Tax (OSD), Corporate Range 1,Room No.603, 6th floor, Wanaparthy Block, 121, Aayakar Bhavan,Mahatma Gandhi Road, Chennai - 34, made in PAN.No.AAFCA3639Edated 30.11.2016 Assessment Year 2014-2015. Appeal against the order passed by the Office of theCommissioner of Income Tax (Appeals)-4(i/c), 121, MahatmaGandhi Road, Chennai - 34, made in ITA.No.470/16-17/CTI(A)-4/A4-2014-2015 date of order 15.07.2019 Assessment Year 2014-2015. For Appellant :Mr.N.V.BalajiFor Respondent :Mr.T.Ravikumar,Senior Standing Counsel JUDGMENT R.MAHADEVAN, J. The present Tax Case Appeal has been preferred by theappellant / assessee against the order dated 11.11.2021, passedby the Income Tax Appellate Tribunal, Madras 'D' Bench, inI.T.A.No.2792/Chny/2019, relating to the assessment year, 2014-15, by raising the following substantial question of law: “Whether under the facts and circumstances of thecase the Income Tax Appellate Tribunal was right inupholding the order of the commissioner of income tax(appeals) sustaining the addition to the extent ofRs.1,32,85,764/-, merely by relying on the rate ofgross profit earned in the earlier year?” 2.The appellant/assessee is engaged in the business ofmanufacturing mild steel ingots. For the assessment year 2014-15, they filed its return on 29.11.2014 declaring the totalincome of Rs.14,21,370/-. Subsequently, the case was taken upfor scrutiny and during the course of assessment proceedings,the appellant was called upon to file necessary documents insupport of purchase expenses of Rs.35,55,74,723/-. In responseto the same, they furnished certain documents, however, wereunable to produce the purchase details, since the relevantrecords for the assessment year 2014-15 were destroyed during2015 Chennai flood. Therefore, the assessing officer passed theassessment order dated 30.11.2016, thereby estimatingdisallowance at 10% on total purchases on adhoc basis and addeda sum of Rs.3,55,57,472/- to the total income of the assessee. 3.Aggrieved over the assessment order passed by therespondent/Assessing Officer, the appellant/assessee preferredan appeal before the Commissioner of Income Tax (Appeals), who,vide order dated 15.07.2019, sustained addition ofRs.1,32,85,764/- under the purchase account, after adopting thegross profit rate at 2.5% on the sales turnover ofRs.53,14,30,550/- and deleted the balance estimated disallowanceof Rs.2,22,71,708/- and accordingly, allowed the said appeal inpart. Challenging the same, the appellant/assessee as well asthe respondent/Assessing Officer preferred separate appealsbefore the ITAT. By order dated 11.11.2021, the ITAT affirmedthe findings of the CIT(A) and rejected the appeals filed by theappellant / assessee as well as the respondent / Revenue.Therefore, this tax case appeal by the appellant /assesseebefore this court. 4.Mr.N.V.Balaji, learned counsel for the appellant /assessee submitted that books of accounts maintained by the https://hcservices.ecourts.gov.in/hcservices/ 4.Mr.N.V.Balaji, learned counsel for the appellant /assessee submitted that books of accounts maintained by the https://hcservices.ecourts.gov.in/hcservices/ appellant/assessee for the assessment year in question, weresupported by necessary bills and vouchers and the same wereaudited by an Accountant as required under section 44AB of theIncome Tax Act; and as per the report of the auditor, there isno adverse comment on books of accounts as well as supportingevidence for various expenses including purchases debited intoprofit and loss account. Further, the relevant records for theassessment year in question were washed away in 2005 flood andhence, the appellant/ assessee could not gather all theinformation relating to purchase details. However, the assessingofficer as well as the CIT(A) made adhoc additions, withoutbringing on record any evidence to prove that the appellant /assessee has inflated purchases. Therefore, the learned counselsought to allow this appeal by setting aside the orders passedby the authorities below. 5.Mr.T.Ravikumar, learned Senior Standing Counsel appearingfor the respondent submitted that when there was no supportingevidence, the CIT(A) ought not to have restricted the adhocdisallowance determined by the respondent / assessing officer to2.5% of the total turnover and sustained the disallowance ofRs.1,32,85,764/- and deleted the balance addition ofRs.2,22,71,708/-. Stating so, the respondent preferred appeal,which was dismissed by the Tribunal, by the order impugnedherein. The learned counsel further submitted that the Tribunalbeing a fact finding authority, has to decide the issue, onlyafter a careful examination of evidence and material producedbefore it, whereas in the instant case, the Tribunal failed todo so. Therefore, the learned counsel prayed for appropriateorder in this tax case appeal. 6.Heard the learned counsel appearing for both sides andalso perused the materials available on record. 7.In the present case, the assessing officer, whilecompleting the assessment for the assessment year 2014-15, madedisallowance of 10% on purchases on adhoc basis. On appeal, thesaid disallowance was restricted to 2.5% of the total turnover,by the CIT(A) on estimate basis and the same was also affirmedby the Tribunal, by order dated 11.11.2021, which is impugnedherein. 8.For effective adjudication of the issue involved herein,the findings of the appellate authorities are quoted below forready reference: Commissioner of Income Tax (Appeals): “....For want of the books of accounts or otherdetails in support of the income returned, the Assessing Officer was not able to verify thecorrectness of the income. The assessment was taken upfor scrutiny only because the profit was very lesswhen compared to the turnover. The profit before taxRs.16,71,741/- on the turnover of Rs.53.14 cr. The netprofit ratio works out to 0.30% which is very low.Even as per the appellant, the gross profit rate hascome down to 23.27% against 25.77% shown in theearlier year. In the absence of any details furnishedby the AO, the assessing officer was handicapped withdetermining the correct income of the appellant.Considering the financial results and the low grossand net profit, I estimate the gross profit at 25.77%as in last year against 23.27% shown in this year. Thefall in gross profit rate works out to 2.50%. Adoptingthis rate on the sales turnover of Rs.53,14,30,550/-,the addition to the gross profit works out toRs.1,32,85,764/-. I therefore sustain an addition ofRs.1,32,85,764/- made by the assessing officer underpurchases account and delete the balance estimateddisallowance of Rs.2,22,71,708/- and allow the groundspartly.” Income Tax Appellate Tribunal: Income Tax Appellate Tribunal: “7....Facts borne out from records clearly indicatethat the assessee could not substantiate purchasesdebited into P&L account with necessary supportingbills and vouchers. It is also an admitted fact thatthe assessee has expressed its inability to filenecessary bills and vouchers to justify purchasesdebited into P&L account. Although, the assesseeclaims that relevant records for impugned assessmentyear was washed away in floods, but said claim is notsubstantiated by any evidences. Therefore, we are ofthe considered view that when the assessee is unableto justify various expenses including purchases withsupporting evidences, then the AO is having everyright to dispute expenses debited into P&L account. Atthe same time, the AO had made adhoc disallowance onpurchases without recording any adverse comments onbooks of accounts maintained by the assessee for therelevant assessment year. Further, the AO has notdisputed pleading of the assessee that the auditor hasgiven clean chit to the books of accounts maintainedby the assessee and has not made any adverse commentson purchases debited into P&L account. Under thesecircumstances, we are unable to subscribe to thereasons given by the AO to make adhoc disallowance onpurchases. The Ld CIT(A), after considering relevant facts and also taken note of fact that there is adecline in gross profit declared by the assessee forthe impugned assessment year compared to earlierfinancial year, has directed the AO to restrict thedisallowance on purchases to the extent of 2.5%, fallin rate of gross profit on total turnover for theyear. The said findings recorded by the Ld. CIT(A)appears to be logical and on the basis of estimationof gross profit. Therefore, we are of the consideredview that there is no error in the reasons given bythe Ld. CIT(A) to sustain additions made by the AOtowards disallowance on purchases on the basis of fallin gross profit rate declared by the assessee on totalturnover. Hence, we are inclined to uphold thefindings of the Ld. CIT(A) and reject the appeal filedby the assessee as well as the Revenue”. 9.Thus, it is evident from the aforesaid findings of theappellate authorities that the appellant / assessee did notfurnish the relevant materials to substantiate their claimbefore the authorities below and they themselves admitted thatthey were unable to produce the supporting evidence forpurchases, since the relevant records pertaining to theassessment year in question, were washed away in 2015 flood.However, the appellant / assessee filed the auditor's report, asper which, there was no adverse comment on books of accountsmaintained by the appellant / assessee and the purchases debitedinto P&L account, which fact was not disputed by the assessingofficer. In such circumstances, the CIT(A), taking note of thefact that there was a decline in gross profit declared by theassessee for the assessment year in question compared to earlierfinancial year, directed the assessing officer to restrict thedisallowance on purchases to the extent of 2.5% of the totalturnover. The said finding of the CIT(A) was also affirmed bythe Tribunal, based on the evidence adduced before the same.Such well considered findings of the appellate authorities donot warrant any interference at the hands of this court. 10.At this juncture, it is pertinent to refer to thedecision of Delhi High Court in Alpasso Industries Pvt. Ltd. v.Income Tax Officer [(2019) 410 ITR 0212 (Delhi)], in which, itwas observed as follows: 10.At this juncture, it is pertinent to refer to thedecision of Delhi High Court in Alpasso Industries Pvt. Ltd. v.Income Tax Officer [(2019) 410 ITR 0212 (Delhi)], in which, itwas observed as follows: “8. A decision of question of fact depends uponappreciation of evidence and material placed before theauthorities, i.e. the Tribunal. The Tribunal, as afinal fact finding authority, has to determine anddecide question of fact in dispute by examination ofevidence and material produced. Inference andconclusion based upon appreciation of fact does not give rise to a question of law. In this context thatthe appellant claims and asserts that the decision ofthe Tribunal was perverse, and therefore substantialquestion of law arises from the impugned order. Afinding of a Tribunal on fact does not become perversemerely because another finding or conclusion waspossible. Test and benchmark of perversity is farstringent and strict. Factual findings can be onlyinterfered with when they are patently unreasonable,not supported by any evidence or are based uponextraneous and irrelevant material. Interference may bejustified when the conclusions are based upon mereconjectures and surmises or where no person actingjudicially and properly instructed under the relevantlaw could have come to the same decision andconclusion. In the current factual matrix, having notedthe evidence and material before the Tribunal, thefinal conclusion arrived at, it cannot be said, thatTribunal’s conclusion was based upon no evidence tosupport or was rationally not possible or entirelyunreasonable. The conclusion is also not contradictory. 9. For the aforesaid reasons, we do not think anysubstantial question of law arises in the presentappeal and the same is dismissed, without any order asto costs.” 11.Therefore, in the opinion of this court, there is nosubstantial question of law arisen for consideration.Accordingly, this tax case appeal stands dismissed against theappellant / assessee. However, there shall be no order as tocosts. Sd/- Assistant Registrar //True Copy// mrr Sub Assistant Registrar To 1. Income Tax Appellate Tribunal “D” Bench, Chennai. Chennai. 2. The Assistant Commissioner of Income Tax (OSD), Corporate Range – 1, Chennai – 600 034.3. The Commissioner of Income-Tax (Appeals)-4(i/c), Chennai-34. +1cc to Mr.T.Ravikumar, Advocate, S.R.No.33384+1cc to Mr.N.V.Balaji, Advocate, S.R.No.34065 T.C.A.No.103 of 2022 SRII(CO)PM/15/06/2022