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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: KULDIP SINGH & SHRI SHRI GAGAN GOYAL
Per : Kuldip Singh, Judicial Member:
The appellant, The Assistant Commissioner of Income Tax (hereinafter referred to as ‘the revenue’) by filing the present appeal, sought to set aside the impugned order dated 14.11.2022 passed by National Faceless Appeal Centre, Delhi/ (CIT(A), Mumbai [hereinafter referred to as the ‘ld CIT(A)’] qua the assessment year 2019-20 on the grounds inter-alia that :-
“1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in allowing the assessee's claim and directing the AO to assessee the profit of the company @ 3% of the shown receipts of Rs. 3,76,96,024/- which works out to Rs. 11,30,880/-."
2 M/s. Safal Resorts Pvt. Ltd
Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in directing the AO to verify the matter and allow further relief as same is found admissible as per provisions of Income Tax Law while giving effect to CIT(A)'s order and reduced the impugned addition from Rs. 3,71,87,629/- to Rs. 11,30,880/-.
Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was justified in allowing the assessee's claim on account of expenses being operational cost and administrative expenses (including employee benefit expenses) without appreciating the fact that after receiving the information from investigation wing, it was analyzed and after recording appropriate reason the assessment was reopened u/s. 147 of the Act. The assessee has claimed huge expenses but failed to produce basic details such as nature of expenses, ledger a/c name and address of the parties with whom the transactions were made, whether TDS has been deducted or not, copies of bills and vouchers, and no bank statement was produced reflecting that the expenses were incurred by the assessee." 2. Briefly stated facts necessary for consideration and adjudication of the issues at hand are: the assessee filed return of income declaring total income of Rs. 3,79,060/- for the year under consideration was initially processed u/s 143(1) of the Income Tax Act, 1961 (for short ‘the Act’). Thereafter, on receipt of information from Dy. Director of Income Tax (Investigation) that in an open enquiry carried out in case of the assessee. Summons u/s 131 of the Act was issued to the assessee by DDIT to furnish certain documents/ information, which the assessee has not furnished. From the profit and loss account of the year under consideration it is noticed that the assessee has incurred expenses to the tune of Rs. 3,46,23,716/- and Rs. 25,63,913/- (Rs. 3,71,87,629/-) on account of operational cost and administrative expenses respectively. On failure of the assessee to produce bank statement reflecting that the expenses were incurred by assessee, the expenses remained unexplained and 3 M/s. Safal Resorts Pvt. Ltd thereby disallowed by the AO u/s 37(1) of the Act to the tune of Rs. 3,71,87,629/-.
3. The revenue carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same for statistical purposes. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the revenue has come up before the Tribunal by way of present appeal.
The assessee has not preferred to put in appearance despite issuance of notice on 08.03.2023 and 11.04.2023 through RPAD which have not been received back served or unserved, thus, presumed to have been served upon the assessee. So the bench has decided to dispose of this appeal with the assistance of the Ld. D.R. for the Revenue on the basis of material available on record.
We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
We have perused the order passed by the ld CIT(A) who has decided the issue as to making addition of Rs. 3,71,87,629/- on account of disallowance of expenses (operational cost and administrative expenses) for want of complete documents submitted by the assessee by thrashing the facts in details by returning following findings:-
“5.1.3 All the facts and circumstances related to the impugned addition of Rs. 3,71,87,629 are duly considered. There is also no place for suspicion or guesswork for making any disallowance under the Act. The disallowances can be effected when it is proved that the expenditure is not for the purpose of business. Accordingly, it is to be held that ad-hoc 4 M/s. Safal Resorts Pvt. Ltd disallowances made by the Ld. A.O. are not in accordance with law and are unjustified. It was argued and rightly so that "Any disallowance of the expenditure has to be backed by cogent reasons." Without cogent reasoning, no disallowance on ad-hoc basis could be sustained. It was also submitted by the Ld. A/R of the appellant company and is acceptable and well settled that in many such cases, "if AO not satisfied with details submitted by assessee, they always disallow some % of the expenses by keeping in mind that the assessee generate revenue (sale) also, in our case the Ld. AO disallowed entire expenses which is not a natural Justice with the appellant." 5.1.4 Further, it was not the case of the Ld. A.O, that the expenses incurred had not been used by the appellant company for generating receipts which was duly accepted by the A.O. and not disputed by him. It was correctly argued that it is not possible for the assessee to generate income without incurring any expenses. It was also submitted that the appellant had been earning profit on a consistent basis and thus the expenses incurred were claimed to be genuine and for the business of the assessee. Net profit of the Appellant for last 4 Financial Years is as under Particulars FY 2008-09 FY 2009-10 FY 201 0- FY 2011-12 11 Total Income 1,62,28,775 55,84,694 75,90,914 3,76,96,024 Total (1,58,60,854) (53,69,583) (73,42,960) (3,76,39,618) Expenditure Net Profit 3,67,921 2,15,111 2,47,954 56,406 Net Profit Ratio 2.27% 3.85% 3.26% 0.15% (Net Profit/ Total income*100)
5.1.5 In the facts and circumstance of the case and seeing that for 3 A.YS I.e. 2010- 11, 11-12 & 12-13 the cases were reopened on the similar basis and also keeping in view the fact that the appellant company could not file any documentary documents in relation to expenses claimed as Operational Cost and other Administrative Expenses (Including Employee Benefit expenses) in spite of having been given more than one opportunities in the impugned Asst. Proceedings and also seeing that the appeals are very old(they were filed on 5 M/s. Safal Resorts Pvt. Ltd 16.12.2017 and since when more than 4 years have already passed),therefore, in the interest of Justice the books of accounts of the appellant company are to be rejected and a reasonable percentage of profit is to be assessed. It is found that the appellant itself has submitted that the net profit ratio in the year consideration was abysmally low to the extent of 0.15% where as in the earlier years from F.Y. 2008-09 to F.Y. 2010-11 it was 2.27%, 3.85% and 3.26% respectively. It will be in fitness of things and in interest of 'Justice' & ' Fair Play' the profit of the company is directed to be assessed at the rate of 3% of the shown receipts of Rs. 3,76,96,024.This is worked out to Rs. 11,30,880. 5.1.6 Since this is a matter of verification, the Ld. AO is directed to do the same and allow further relief as the same is found admissible, as per provisions of Income Tax Law, while giving effect to this appeal order and reduced the impugned addition from Rs. 3,71,87,629 to Rs, 11,30,880. Thus, Ground no.1 is partly allowed.”
Bare perusal of the aforesaid findings returned by the ld CIT(A) goes to prove that since the assessee company has merged with Exterio and Interio Pvt. Ltd by the order passed by the Hon’ble Bombay High Court order dated 23.10.2015, which was subsequently merged with Azura Projects Pvt. Ltd by NCLT order dated 13.04.2017, despite numerous opportunities the assessee company could not produce the complete evidence so the ld CIT(A) proceeded to assess the profit of the company qua the receipt in question @3% on the basis of profit earned by it in the earlier years i.e. FY 2008-09 to 2010-11, wherein, profit was @2.27%, 3.85% and 3.26% respectively, which was subject to verification by the AO. Moreover, the ld CIT(A) proceeded to estimate the percentage of profit after rejecting the books of account of the assessee.
We are of the considered view that in the given circumstances the ld CIT(A) has taken a plausible view in the interest of justice and fair play.
6 M/s. Safal Resorts Pvt. Ltd
Resultantly, we find no illegality or perversity in the impugned order passed by the ld CIT(A), hence, appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 25.05.2023.