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Order Of ITAT Is Based On Evidence, Findings Based On Facts, Madras High Court Dismisses Tax Appeal

Upasana Sajeev
15 Jun 2022 12:30 PM GMT
[Prohibition Of Benami Transaction Act] Opportunity For Cross-Examination Need Not Be Provided At The Stage Of Show-Cause Notice: Madras HC

The Madras High Court recently dismissed a tax appeal observing that there were no substantial question of law arisen for consideration.

The bench of Justice R Mahadevan and Justice Sathya Narayana Prasad were of the opinion that the order passed by the Commissioner of Income Tax (Appeals) which was confirmed by the Income Tax Appellate Tribunal was based on the evidence adduced before the same. "Such well-considered findings of the appellate authorities do not warrant any interference at the hands of this court", it observed.

The court referred to the decision of the Delhi High Court in Alpasso Industries Pvt. Ltd. v. Income Tax Officer [(2019) 410 ITR 0212 (Delhi)], where the court had held as follows:

"A finding of a Tribunal on fact does not become perverse merely because another finding or conclusion was possible. Test and benchmark of perversity is far stringent and strict. Factual findings can be only interfered with when they are patently unreasonable, not supported by any evidence or are based upon extraneous and irrelevant material. Interference may be justified when the conclusions are based upon mere conjectures and surmises or where no person acting judicially and properly instructed under the relevant law could have come to the same decision and conclusion"


In the present case, the appellant/assessee was engaged in the business of manufacturing mild steel ingots. They filed a return for the assessment year 2014-2015 declaring a total income of Rs.14,21,370. The case was taken up for scrutiny and during the course of the assessment proceedings, the appellant was called upon to file necessary documents in support of purchase expenses of Rs.35,55,74,723/-.

Though the appellant/assessee furnished certain documents, they were unable to produce the purchase details since the relevant records for the assessment year 2014-2015 were destroyed during the 2015 Chennai floods.

The assessing officer passed the assessment order estimating disallowance at 10% on total purchases on Adhoc basis and added a sum of Rs. 3,55,57,472/- to the total income of the assessee. Aggrieved, the appellant/assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who sustained an addition of Rs.1,32,85,764/- under the purchase account, after adopting the gross profit rate at 2.5% on the sales turnover of Rs.53,14,30,550/- and deleted the balance estimated disallowance of Rs.2,22,71,708/- and accordingly, allowed the said appeal in part.

The appellant/assessee as well as the respondent/Assessing Officer challenged this order before the Income Tax Appellate Tribunal which affirmed the finding of the CIT(A).

The counsel for the appellate/assessee submitted that the assessing officer made Adhoc additions without bringing into the record any evidence to prove that the appellant/assessee has inflated purchases. The books of accounts for the assessment year in question were supported by bills and vouchers and the same were audited by an Accountant as required under Section 44AB of the Income Tax Act. As per the report of the auditor, there was no adverse comment on books of accounts as well as supporting evidence for various expenses.

The counsel for the respondent submitted that in absence of any supporting evidence, the CIT(A) ought not to have restricted the Adhoc disallowance determined by the assessing officer to 2.5%. The tribunal, being a fact finding authority, has to decide an issue only after a careful examination of evidence and material produces before it. In the instant case, the tribunal failed to do so.

The court observed that the order of the CIT(A) was passed after taking into account the fact that the appellant/assessee did not furnish the relevant materials to substantiate their claim before the authorities below as the same were washed away in 2015 floods. At the same time as per the Auditor's report submitted by assessee, there was no adverse comment on books of accounts. The court observed that when an order was passed after taking into account all this, it did not warrant any interference from the court.

Case Title: M/s Ankit Ispat Private Limited v. The Assistant Commissioner of Income Tax (OSD)

Case No: TCA No. 103 of 2022

Citation: 2022 LiveLaw (Mad) 250

Counsel for the Appellant: Mr. N.V Balaji

Counsel for the Respondent: Mr. T. Ravikumar Senior Standing Counsel

Click here to read/download the judgment

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