S.D. INDUSTRIES, C-243, SETH BHAMASHAH KRISHI MANDI, KOTA-324001,KOTA vs. ACIT, CIRCLE-1, KOTA, CIRCLE-1, KOTA

vkns'k@ ORDER PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 28.01.2019 of LD. CIT (A), Kota for the assessment year 2014-15. The assessee has raised the following grounds :-

“ 1. That on the facts and in the circumstances of the case and in view of the detailed written and oral submissions made and the evidence already available on AO’s own record and further evidences adduced by the assessee the orders of the learned Lower Authorities are against the law and facts of the case.

1.1 The LD. CIT (A) erred in confirming the order of learned Assessing Officer by passing an ex-parte order without giving sufficient opportunity of hearing to the assessee and hence order of LD. CIT (A) may be quashed.

2. That on the facts, in the circumstances of the case, the ld. Assessing Officer erred in making disallowance of Rs. 2,60,000/- i.e., 20% of Total Expenses of Rs. 13,00,059/- on presumptions of personal use, payments in cash and not supported by proper vouchers and the LD. CIT (Appeals), Kota also erred in confirming the same to the extent of Rs. 1,30,000/- without there being any basis.

3. The only issue raised in this appeal is regarding disallowance of expenditure of Rs. 1,30,000/- confirmed by the LD. CIT (A). The assessee is a partnership firm and engaged in the business of wholesale grain merchant and commission agent. The assessee filed its return of income on 26th September, 2014 declaring total income of Rs. 11,61,590/-. During the course of scrutiny assessment, the AO noted that various expenses total amounting to Rs. 13,00,059/- was claimed by the assessee in the Profit & Loss account which were not properly vouched and were incurred in cash. Therefore, the AO opined that these expenses are not subjected to verification and the telephone and car expenses incurred by the assessee firm cannot be ruled out for personal use of the partners. The AO issued a show cause notice as to why the necessary disallowance should not be made out of the above expenses. In the absence of any reply or satisfactory explanation in this regard, the AO made disallowance of 20% of these expenses which comes to Rs. 2,60,000/-. The assessee challenged the action of the AO before the LD. CIT (A). In appeal, nobody has attended before the LD. CIT (A).

However, the LD. CIT (A) while passing the impugned order has restricted the disallowance to 10% which comes to Rs. 1,30,000/-.

Accordingly, the disallowance restricted by LD. CIT (A) to 10% is proper.

“ 4. In the profit & loss account the assessee debited following expenses :- (i) Car depreciation Rs. 60,708/- (ii) Petrol expenses Rs. 1,20,044/-

(iii) Car expenses Rs. 8,093/- (iv) Freight Rs. 31,152/- (v) Car Insurance Rs. 10,224/- (vi) Shop expenses Rs. 1,90,891/- (vii) Telephone expenses Rs. 35,806/- (viii) Welfare expenses Rs. 28,600/- (ix) Hamali Rs. 8,14,541/- Total : Rs. 13,00,059/-

4.1. On examination, it is noticed that the above expenses claimed by the assessee are not properly vouched and these expenses were met through cash. Therefore, the same are not subject to verification. Also, use of telephone and car by the assessee for purposes other than assessee’s business cannot be ruled out. Therefore, the assessee was asked vide order sheet entry dated 08.12.2016 to show cause as to why necessary disallowance may not be made out of the above expenses. 4.2. The assessee has not submitted any satisfactory explanation in this regard. As stated above, the expenses claimed aforesaid are not subject to verification for want of proper vouchers coupled with cash payments. Further, use of telephone and car for other than business purposes cannot be ruled out. Considering these facts, 20% of these expenses, which comes to Rs. 2,60,000/- is disallowed and added to the total income of the assessee firm.”

It is evident from these details that all these expenses are in respect of vehicle/car expenses, freight, shop expenses, telephone expenses, welfare expenses and Hamali expenses. The AO has further observed that the expenses are not verifiable due to the reason that these are not properly vouched and incurred in cash. Therefore, once the AO has asked the assessee to show cause as to why the necessary disallowance should not be made and there is no explanation on the part of the assessee, then question arises whether these expenses are incurred wholly and exclusively for the purposes of business of the assessee or not. In those circumstances, the AO was right to make disallowance at a certain percentage of the expenses instead of the entire expenditure.

The LD. CIT (A) while passing the impugned order has restricted the disallowance to 10% as against 20% disallowed by the AO which in our view is reasonable and justified having regard to the facts and circumstances of the case. The assessee has not submitted any explanation even before the LD. CIT (A) or before us in support of the claim, therefore, we do not find any error or illegality in the impugned order of LD. CIT (A), the same is upheld.