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Income Tax Appellate Tribunal, ‘B‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 07/08/2023 passed by NFAC Delhi for the quantum of assessment passed u/s.143(3) for the A.Y.2010-11. 2. In the grounds of appeal, assessee has raised the following grounds:-
M/s. Business Combine Ltd.
In the facts and circumstances of the case and in law the Hon'ble CIT (Appeal) erred in: (i) giving directions for partly upholding the adhoc and arbitrary disallowance of Rs. 3,91,12,594/- to Rs. 65,18,766/- (ie, restricting "adhoc" disallowance from 30% to 5%) on the basis of surmises, conjectures, presumptions and assumptions and without considering the submissions made and the information and details provided to him during the appellate proceedings which were earlier submitted to Ld. Assessing Officer during assessment proceedings. (ii) In partly upholding disallowing of Rs. 65,18,766/- being 5% of total expenses of Rs. 13,03,75,313/- in an adhoc and arbitrary manner though he was provided all details and information which in any case would have enabled him to determine the taxable income as per the provisions of the Act. (iii) in not following the Judicial Precedent which were submitted during the appellate proceedings wherein it has been held that adhoc and arbitrary disallowance cannot be made in cases where books of accounts are audited and auditors have not made any comments and in cases where books of accounts have not been rejected.
Thus, the entire issue revolves of the adhoc disallowance of various expenses made by the ld. AO @30% which has been reduced to 5% of the ld. CIT(A).
The brief facts are that Assessee Company is engaged in the business of manufacturing of ‘castings’ and making of ‘auto parts’ for other job work basis. Assessee in the profit and loss account has debited expenses under the following heads for sum aggregating to Rs.13,03,75,313/-.
M/s. Business Combine Ltd. Sr. Particulars Amount (In Rs.) No. 1 Workman and Staff Welfare 36,48,064 Expenses 2 Power and Fuel 3,43,88,990 3 Repair and Maintenance- 13,72,913 Machinery 4 Legal and Professional Fees 40,39,409 5 Miscellaneous Expenses 17,43,602 6 Freight, Transport and Delivery 42,78,173 Charges 7 Business Promotion Expenses 2,61,157 8 Purchase and Purchase 8,06,43,005 Expenses (*) Total 13,03,75,313
The ld. AO has made disallowance @30% on adhoc basis on all the expenses holding that assessee has not discharged the primary onus to substantiate the claim of expenses by producing the bills and vouchers, ledger accounts under respective heads of expenses.
Before the ld. CIT(A) assessee pointed out that all the details were filed before the ld. AO during the course of assessment proceedings by various letters and replies filed before him, the details of which has been elaborated at page 3-6 of the appellate order. The ld. CIT(A) held that the expenses debited by the assessee are quiet reasonable considering the huge turnover of M/s. Business Combine Ltd. the assessee company and after verifying the various expenses, he held that same were meant for business purpose which is having from the business submitted before the ld. AO on various occasions. The relevant finding reads as under:- “5.1 I have carefully considered the submission made by the appellant and have gone through the assessment order. The issue involved here is in respect of various disallowances made under Section 37 (1) of the IT. Act. I find that these expenditures are quite reasonable considering the huge turnover of the appellant company. On verification of various expenses, it is seen that all the expenses were meant for business purpose which is quite evident from the details submitted before the Assessing Officer on various occasions during the course of assessment proceedings, viz. vehicle running & maintenance expenses, copies of Purchase Bills for the month of March 2010, canteen expenses along with copies of sample supporting vouchers, Repairs to Plant & Machinery along with sample copies of supporting bills, copy of bill for Legal and Professional Charges, copies of bills for Freight, Transport and Delivery Charges, copy of bill for Business Promotion Expenses, etc. Besides this, the books of accounts have been subjected to Tax Audit and Auditor has not made any adverse remarks in this regards. The Ld. AO has also not pointed out any specific instances of non-business purpose warranting disallowance. Therefore, I find that disallowance @30% is very excessive and arbitrary. Therefore, to meet the ends of justice after taking a holistic view of the matter, I am inclined to retain the disallowance to the tune of Rs 65,18,766/- @5% out of said expenses (i.e. Rs. 13,03,75,313/-) which can be considered as reasonable and fair considering the quantum of expenses incurred by the appellant. Therefore, disallowance of Rs.65,18,766/- is hereby sustained out of total disallowance of Rs.3.91,12,594/- by giving a relief of Rs.3,25,93,828/- (Rs.3,91,12,594 Rs.65,18,766). Hence, this ground of appeal is partly allowed.”
7. After hearing both the parties and on perusal of the material placed before us, we find that the AO has made adhoc disallowance stating that assessee has not furnished any details M/s. Business Combine Ltd. or documentary evidences. This fact has been found to be incorrect by the ld. CIT (A). Before us all these details alongwith ledger accounts, bills, memos etc., were shown. From the perusal of the expenses debited, we find that the major amount relates to purchase expenses of Rs. 8,06,43,005/-. These purchases pertain to raw material purchased by the assessee from various parties for its manufacturing and nowhere, the ld. AO has pointed out that these purchases are unverifiable and have not been used for the manufacturing. If he has accepted the sales and the trading and manufacturing account, then we do not find any reason to disallow 30% of the purchases, or even as a matter of fact adhoc disallowance of 5% upheld by the ld. CIT(A) is alo not justified for purchases. Thus, on purchase no adhoc disallowance can be made till it is found that purchases are not verifiable.
8. Secondly, we find that another huge expense pertain to power and fuel which from the perusal of records, it is seen that these are electricity bills which are fully verifiable by the bills issued by the electricity department. Thus, there cannot be any element of adhoc disallowance of power and fuel. Similarly, with regard to legal and professional fees, it is seen that Rs.38.02 lakhs pertains to professional fees paid to various professionals and legal expenses and legal charges and some retainership fees. The details of these professional fees and legal expenses have been filed before the ld. AO and ld. CIT(A) and also before us which were purely legal expenses, fees given to the professionals during the course of business and nothing can be said to be M/s. Business Combine Ltd. unverifiable and accordingly, on this head also no disallowance can be made. Similarly, with regard to freight, transport and delivery charges also assessee has given detailed account of transportation to various transporters for ferrying the purchase of raw material and also TDS have been deducted by the assessee, the details of which are appearing from pages 19-32 filed before us. Thus, none of these expenses can be said to be for non-business purpose so as to warrant any kind of adhoc disallowance. Similarly, the repair and maintenance –machinery also, the entire details have been given. It cannot be said that these are either inflated or not for the business purposes. Other miscellaneous items also, all the details have been submitted and therefore, we do not find any adhoc estimate from any adhoc disallowance of expenses can be made in such a case. The adhoc disallowance of 5% sustained by the ld. CIT(A) is deleted.
In the result, appeal of the assessee is allowed.
Order pronounced on 29th Dec, 2023.