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2021 (10) TMI 1245 - AT - Income TaxAddition on account of lower yield of production compared to industrial average - estimation of income based on average yield across the business @ 89% - HELD THAT - Whole basis for addition on account of alleged suppression of production in SMS/Furnace division is merely relying upon the conclusion drawn by the predecessor AO in the search assessment of the assessee, which was found to be unsustainable both by the CIT(A) as well as the ITAT in earlier years. We simultaneously note of the fact that the yield percentage of 97% referred by the AO in the assessment year with which comparison has been made does not relate to SMS division as the billets have been mentioned in the table as raw material whereas billets are finished products of SMS division. It appears that AO has proceeded on misconception of facts. Thus, on this point too, the action of the AO is not justifiable. In the light of the view taken by the co-ordinate bench in the case of assessee 2019 (11) TMI 922 - ITAT RAIPUR , the issue is no longer res integra. It is evident that issue is squarely covered by the decision of the co-ordinate bench in assessee's own case for AYs. 2009-10 to 2012-13 wherein also the appeal of the Revenue was dismissed after elaborate discussion on factual and legal matrix.Revenue's appeal towards alleged lower yield of production is dismissed. Addition u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT - As the assessee has not derived any exempt income per se. It is well settled that in the absence of any exempt income, no disallowance under s. 14A of the Act is permissible in view of the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy P. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT . Alo the assessee has demonstrated sufficient net worth from which a presumption would naturally arise that investment for the purposes of earning exempt income is out of such own interest free funds available at the disposal of the assessee. A reference in this regard has been made on behalf of the assessee to the several judicial precedents including CIT vs. HDFC Bank Ltd. . 2014 (8) TMI 119 - BOMBAY HIGH COURT and SUZLON ENERGY LTD. 2013 (7) TMI 697 - GUJARAT HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Justification of CIT(A) in deleting the addition of ?15,94,08,394/- made by the AO after rejecting the books of account based on the provision of section 145(3). 2. Justification of CIT(A) in deleting the addition of ?15,94,08,394/- due to lack of satisfactory explanation on reconciliation of discrepancies found during assessment proceedings. 3. Justification of CIT(A) in deleting the addition of ?15,94,08,394/- based on estimation of income using average yield across the business @ 89%. 4. Justification of CIT(A) in deleting the disallowance of ?1,09,83,112/- made under section 14A read with Rule 8D, considering the investments were made out of loan borrowings. 5. Justification of CIT(A) in deleting the disallowance of ?1,09,83,112/- made under section 14A read with Rule 8D, ignoring the CBDT's Circular no. 14/2006 dated 28.12.2006. Issue-wise Analysis: 1. Justification of CIT(A) in deleting the addition of ?15,94,08,394/- made by the AO after rejecting the books of account based on the provision of section 145(3): The AO rejected the books of accounts of the assessee, alleging suppression of yield in the SMS/Furnace division and assumed an average industry yield of 89%. The CIT(A) observed that the AO's rejection of books was based on comparisons with unspecified parties without providing complete details or confronting the assessee with the same. The CIT(A) noted that the AO did not bring any irregularity or defect in the books of accounts for the year under consideration and relied on earlier search assessment proceedings without considering the specific facts and circumstances of the current year. The CIT(A) concluded that the AO's action lacked merit as each year's assessment is separate and must be based on cogent material. 2. Justification of CIT(A) in deleting the addition of ?15,94,08,394/- due to lack of satisfactory explanation on reconciliation of discrepancies found during assessment proceedings: The CIT(A) found that the AO did not provide any specific reasons or evidence for adopting an 89% yield and merely extended the conclusions from search assessments of earlier years. The CIT(A) highlighted that no seized material or documentary evidence indicated unaccounted production or sales. The CIT(A) emphasized that variations in GP and NP rates alone do not justify rejecting books of accounts unless specific defects are pointed out. The CIT(A) also noted that the AO's comparison with other parties was flawed as it did not account for differences in production mechanisms, technology, and scale of operations. 3. Justification of CIT(A) in deleting the addition of ?15,94,08,394/- based on estimation of income using average yield across the business @ 89%: The CIT(A) observed that the AO's estimation of yield at 89% was not supported by any cogent material or evidence. The CIT(A) referred to the assessee's compliance with excise and VAT returns and noted that the AO did not find any discrepancies in these records. The CIT(A) concluded that the AO's reliance on earlier search assessments was misplaced as those additions were deleted by the appellate authorities. The CIT(A) reiterated that each year's assessment must be based on specific facts and circumstances and cannot rely on assumptions from previous years. 4. Justification of CIT(A) in deleting the disallowance of ?1,09,83,112/- made under section 14A read with Rule 8D, considering the investments were made out of loan borrowings: The CIT(A) noted that the assessee did not earn any exempt income during the year under consideration and had sufficient non-interest bearing funds for making investments. The CIT(A) referred to judicial precedents, including the Delhi High Court's decision in PCIT vs. Oil Industries Development Board, which held that disallowance under section 14A is not permissible in the absence of exempt income. The CIT(A) also highlighted that the assessee's investments were made from cash profits and non-interest bearing funds, further justifying the deletion of the disallowance. 5. Justification of CIT(A) in deleting the disallowance of ?1,09,83,112/- made under section 14A read with Rule 8D, ignoring the CBDT's Circular no. 14/2006 dated 28.12.2006: The CIT(A) reiterated that the assessee did not earn any exempt income and had sufficient non-interest bearing funds for making investments. The CIT(A) referred to the Supreme Court's dismissal of the Department's SLP in CIT vs. Chettinad Logistics Pvt. Ltd., affirming that disallowance under section 14A is not warranted in the absence of exempt income. The CIT(A) concluded that the AO's reliance on CBDT's Circular was misplaced as the facts of the case did not support the disallowance. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the additions and disallowances made by the AO. The Tribunal found that the AO's actions were not supported by cogent material or evidence and were based on flawed assumptions and comparisons. The Tribunal emphasized that each year's assessment must be based on specific facts and circumstances and cannot rely on assumptions from previous years. The Tribunal also agreed with the CIT(A) that disallowance under section 14A is not permissible in the absence of exempt income and when the assessee has sufficient non-interest bearing funds for making investments. Consequently, the appeal of the Revenue was dismissed.
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