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Facts
The Revenue appealed the CIT(A)'s order, which allowed the assessee's claim for business expenses. The AO had disallowed a significant portion of these expenses, citing insufficient evidence and lack of genuineness, despite not rejecting the assessee's books of account. The assessee had declared a business loss and provided a chart of expenses for previous years.
Held
The Tribunal held that the AO did not establish any defect in the records or reject the books of account. The AO also failed to conduct an inquiry to prove the non-genuineness of the expenses. Following the jurisdictional High Court's decision in PCIT vs. R.G. Buildwell Engineers Ltd., where similar disallowances based on insufficient evidence were rejected, the Tribunal found no reason to disturb the CIT(A)'s order.
Key Issues
Whether the disallowance of business expenses by the AO, without rejecting books of account and conducting proper inquiry, is sustainable when the CIT(A) has allowed the claim based on past practices and High Court precedent.
Sections Cited
143(3), 142(1), 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES ‘A’, NEW DELHI.
(Assessment Year: 2017-18) DCIT, Central Circle 20, vs. Bright Point India Pvt. Ltd., New Delhi. G-9, Block B-1, Mohan Cooperative Industrial Estate, Delhi – 110 044. (PAN : AAACB6414G) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ritik, CA Ms. Divya, CA REVENUE BY : Shri Jitender Singh, CIT DR Date of Hearing : 21.05.2025 Date of Order : 18.08.2025 O R D E R
PER S.RIFAUR RAHMAN,AM:
The Revenue has filed appeal against the order of the Learned Commissioner of Income-Tax (Appeals)-27, New Delhi [“Ld. CIT(A)”, for short] dated 29.03.2023 for the Assessment Year 2017-18.
Brief facts of the case are, assessee filed its return of income for AY 2017-18 on 29.11.2017 declared loss from the business at Rs.9,70,47,842/-. The case was selected for complete scrutiny under CASS. Subsequently, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee. In response, assessee furnished the relevant details as called for.
3. Assessee is engaged in the business of wholesale trading of electronics. After considering the informations provided by the assessee, not convinced with various details submitted by the assessee, AO proceeded to make the following additions :- Addition : disallowance made under section 37(1) 18,17,667 of the Act (as per para 3) Addition : disallowance made under section 37(1) 10,15,536 of the Act (as per para 4) Addition : disallowance made under section 37(1) 3,57,18,478 of the Act (as per para 5) Addition : disallowance made under section 37(1) 33,71,319 of the Act (as per para 6) Addition : disallowance made under section 37(1) 51,32,635 of the Act (as per para 7) Addition : disallowance made under section 37(1) 8,68,942 of the Act (as per para 8) Addition : disallowance made under section 37(1) 24,49,967 of the Act (as per para 9) Addition : disallowance made under section 37(1) 82,10,917 of the Act (as per para 10)
4. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-27, New Delhi and filed detailed submissions which are reproduced at pages 6 to 27 of the appellate order. After considering the detailed submissions of the assessee, ld. CIT (A) allowed the claim of the assessee by observing as under :-
“5.1 . Observations and Findings: i. The assessment order is passed u/s 143(3) of the IT Act and not u/s 114 of the Act. ii. Books of accounts have not been rejected by the ld. AO. iii. No defect has been pointed out by the ld. AO in the submissions filed, audited accounts and books of accounts. iv. No inquiry was conducted by the ld. AO to establish no genuineness of the expenses claimed. v. The assessee is claiming similar expenses over the years. It has also provided the chart for previous 5 years showing the expenses incurred by it over the years. vi. All the expenses are related to running its business. 5.2 Hon'ble Delhi High Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX-7 versus R.G. BUILDWELL ENGINEERS LTD. has held that, “1. The Revenue is aggrieved by the findings of the Commissioner of Income- Tax (Appeals) and Income Tax Appellate Tribunal (ITAT), whereby disallowances and consequent additions made on two counts, i.e. expenses claimed towards the bricks, machinery repair, cartage etc. (Rs.l.1. crores) and labour expenses (Rs.2.3crores) were set aside.
2. The Assessing Officer (A.O.) made the additions in respect of the return of the . Assessee's income of the Assessment Year 2010- 2011.
In respect of the first item, i.e. expenses/or bricks, machinery repair, cartage etc., the A.O. concluded that insufficient evidence was adduced. He therefore, disallowed 10% of the claim. This was reduced by half by the CIT (Appeals). The ITAT gave two reasons to set aside the findings of the A.O. - CIT(Appeals). Firstly, that the books of account were not rejected and secondly, that in the past, consistently such expenses were allowed in scrutiny; assessments. Likewise, in the case of labour cases too, identical reasons were adduced by the A.O. to bring to tax a sum of Rs.2.2 crores. The same were set aside ultimately by the ITAT.
This Court is of the opinion that the principal reasoning of the ITAT i.e. omission to reject the books of account, in which event the adhoc disallowance could have been adjusted and also the historical treatment of such expenses, cannot be termed as unreasonable in support of its ultimate conclusion.
5. In these circumstances, no substantial question of law arises." 5.3 The SLP filed by the Department was also dismissed by the Apex Court after hearing the case. 5.4 In view of the above discussion and respectfully following the decision of the jurisdictional High Court, the action of the ld. AO in making additions on ad-hoc basis. is not found to be sustainable.”
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
1. The Ld. CIT (A) has erred on facts and in law by allowing the appeal of the assessee by deleting the disallowance of expenses of Rs.5,85,84,551/- made in the hands of the assessee.
2. The Ld. CIT(A) has erred on facts and in law by ignoring the fact that the AO has raised the question related to entries/transactions in books of accounts and assessee failed to produce the supporting documents to explain the same.
3. The Ld. CIT(A) has erred on facts and in law by not appreciating the fact that the onus to prove genuineness of the expenses claimed lies with the assessee.
4. The Ld. CIT(A) has erred on facts and in law by not appreciating the fact that as the chart for previous 5 years provided by the assessee showing the expenses incurred by the assessee cannot be the basis to claim the expenses for A Y 2017-18 in the absence of evidence/documents viz. bills, invoices, medical reimbursements bills, Meal expenses bills etc. 5. (a) The order of the Ld. Commissioner of Income Tax (Appeals)is erroneous and not tenable in law and on facts. (b) The appellant craves to add, alter or amend any/all of the grounds of appeal
before or during the course of the hearing of the appeal.”
6. At the time of hearing, ld. DR of the Revenue brought to our notice detailed findings of the AO and further brought to our notice findings of the ld. CIT (A), he objected to the deletion of disallowances by ld. CIT(A) made by the Assessing Officer. Further, he submitted that assessee has failed to submit the relevant supporting documents and merely relying on the submissions of the assessee, ld. CIT (A) has granted the relief. He prayed that findings of the AO may be sustained.
7. On the other hand, ld. AR of the assessee heavily relied on the findings of the ld. CIT (A).
8. Considered the rival submissions and material placed on record. We observe that the AO has completed assessment u/s 143(3) of the Act and disallowed the huge expenses claimed by the assessee without pointing out any defect from the records submitted by the assessee. Further he has also not rejected the books of account maintained by the assessee and from the assessment order, it is clear that AO has not conducted any enquiry to establish non-genuineness of the expenses and it is also brought to our notice that assessee has continued to claim the similar expenditure over the years. We observe that ld. CIT (A) has relied on the decision of Hon’ble Delhi High Court in the case of PCIT vs. RG Buildwell Engineers Limited and the Hon’ble Court has rejected the similar facts on record on disallowance of various expenses because of insufficient evidences were adduced and proceeded to make adhoc disallowances. After considering the findings of the ld. CIT (A), we do not see any reason to disturb the same and accordingly, the grounds raised by the Revenue are dismissed.