TMI Blog2015 (5) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector of the assessee accepted that scrap generation was being entered into RG1 register on an estimate basis, and the addition was confirmed by the CIT(A)? (B) Whether the Appellate Tribunal is right in law and on facts in holding that as the notice under Section 143(2) was not issued within the prescribed limitation period, the assessment order passed under Section 143(3) was void ab initio? (C) Whether the Appellate Tribunal is right in law and on facts in deleting the entire disallowance made in respect of telephone expenses on account of personal use of the telephone by the Director of the assessee? [2.1] Tax Appeal No.917/2008 has been preferred by the revenue challenging the impugned judgment and order passed by the learned Tribunal in ITA No.3492/Ahd/2003 for the Assessment Year 2000-01 to consider the following substantial question of law; (A) Whether the Appellate Tribunal is right in law and on facts in deleting the addition made on account of suppression of production by showing excess scrap, when in the statement recorded under Section 132(4) the Director of the assessee accepted that scrap generation was being entered into RG1 register on an estimate bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts in upholding the order of the CIT(A) wherein he has deleted 2/3rd of the addition of ₹ 10,78,930/- made by the Assessing Officer under Section 40(A)(2)(b), being excessive commission payment to M/s. Maitri Metals Pvt. Ltd.? [3.0] For the sake of convenience Tax Appeal No.961/2008 is considered as the lead matter and the facts of Tax Appeal No.961/2008 are narrated and considered. [4.0] The assessee Company is engaged in the business of manufacturing aluminium strips / foils. The assessee filed the return of income for the Assessment Year 1999-2000 declaring the total income as NIL . The income of the assessee was declared at 30% of the book profit under Section 115 JA of the Act. A notice under Section 143(2) of the Act was served on the assessee on 25/08/2001 and subsequently a detailed notice under Section 142(1) of the Act was issued and served upon the assessee on 02/01/2002. During the previous year, the assessee-Company was subjected to search under Section 132 of the Act on 09/09/1998. During the search action, various evidences regarding mis-reporting of scrap generation were found. The said issue was dealt with by the Assessing Officer in the block a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.3760/Ahd/2002. One additional ground was made before the learned Tribunal i.e. the issuance of the notice under Section 143(2) of the Act was beyond the period of limitation i.e. beyond the period of 12 months from the end of the month in which the return was filed under Section 139 of the Act. [4.4] By the impugned judgment and order, the learned Tribunal has allowed the appeal preferred by the assessee and has deleted the addition of ₹ 18,77,727/- made by the Assessing Officer on scrap generation at the rate of 15% for all the three Assessment Years. The learned Tribunal also held that the assessment order passed under Section 143(3) of the Act was void ab initio as notice under Section 143(2) of the Act was barred by limitation as it was not issued within 12 months from the end of the month in which the return was filed under Section 129 of the Act. [4.5] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal in holding the assessment under Section 143(3) of the Act void ab initio as well as deleting the addition of ₹ 18,77,727/- made by the Assessing Officer on scrap generation at the rate of 15%, the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer. [5.0] We have heard Ms. Mauna Bhatt, learned advocate appearing on behalf of the revenue at length. Now so far as the common substantial question of law that arises in Tax Appeal Nos.961/2008, 917/2008 and 916/2008 with respect to deletion of the additions made by the Assessing Officer on scrap generation at the rate of 15% is concerned, while deleting such an addition in paras 13.1 to 14, the learned Tribunal has observed and held as under; 13.1. The additions made in the block assessment even if confirmed by the Tribunal, cannot be the basis for making addition in the regular assessment. In the block assessment the additions are made on the basis of material found during the course of search and which relates to the undisclosed income. The regular assessment is entirely different from the block assessment. We are therefore of the view that the finding given or estimate made in the block assessment is not at all relevant evidence for making addition in the regular assessment. In the absence of any material or evidence being brought to our knowledge for the estimation of scrap generation @ 15%, we do not agree fro the basis of addition made by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise duty. Thus, we are of the view that the addition has been made without any evidence or material in the possession of the AO and the addition so made can not be sustained. We have also noted that the assessee is regularly maintaining the books of account on mercantile system of accounting. The books were duly audited Tax Audit under Section 44AB has been carried out. The assessee has duly produced the books of account which were verified by the AO. The Excise Department has also duly verified and checked the excise records for the raw material and finished goods. The AO has not pointed out any defects in the books of account regularly maintained by the assessee. Even no finding has been given that the AO is not satisfied about the correctness or completeness of the books of account of the assessee. No contravention in respect of provisions of Section 143(2) has been pointed out by the AO. The gross profit of the assessee has also not been disputed by the A.O. Rather the gross profit ratio has increased during the year though the sales have increased by 83% as compared to Assessment Year 1998-99. The AO has not rejected the books of account. In our opinion, without rejecting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and keeping the question of law, if any, open solely on the ground that the amount involved is a small amount, question no.(C) in Tax Appeal No.961/2008 also stands dismissed. [7.0] Now so far as Tax Appeal No.962/2008 arising out of ITA No.1317/Ahd/2006 by which the learned Tribunal has deleted the penalty under Section 271(1)(c) of the Act is concerned, on considering the impugned judgment and order passed by the learned Tribunal, the learned Tribunal has observed that since the addition made by the Assessing Officer of the scrap generation at the rate of 15% has been deleted, the learned Tribunal has rightly observed and held that there is no question of imposition of penalty arising. Considering the above, Tax Appeal No.962/2008 stands dismissed as it cannot be said that the learned Tribunal has committed any error in deleting the penalty under Section 271(1)(c) of the Act. [8.0] Now so far as Tax Appeal No.963/2008 for the Assessment Year 2002-03 and Tax Appeal No.964/2008 for the Assessment year 2003-04 with respect to disallowance of interest expenses claimed under Section 36(1)(iii) of the Act is concerned, the learned Tribunal has observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned judgment and order, the learned Tribunal has dismissed the appeal preferred by the assessee on the aforesaid issue and consequently the learned Tribunal dismissed the appeal preferred by the revenue i.e. ITA No.1111/Ahd/1007 confirming the order passed by the learned CIT(A) deleting the disallowance to the extent of ₹ 10,78,930/-. From the reasoning given by the learned CIT(A) deleting the disallowance of 2/3rd of ₹ 10,78,930/- under Section 40A(2)(b) of the Act i.e. with respect to the commission paid to M/s. Maitree Metals Pvt. Ltd. is concerned, the learned CIT(A) in paragraph 3.2 has observed as under; 3.2 I have carefully considered the submissions of the appellant and also perused the relevant portion of the assessment order. The fact remains that the increase in commission was 3 times but there was no commensurate increase in profit. No doubt, as per the agreement between the consignor (appellant) and the consignee, over all business benefits have to be taken into account, though however, the increase in commission payment to an interested party in the light of Section 40A(2)(b) will have to be examined with reference to the benefit derived by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X
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