SHRI MAHESH CHANDRA CHAHAR,JHUNJHUNU vs. ASSISTANT COMMISSIONER OF INCOME TAX, JHUNJHUNU

Common grievance of the assessee in both the years relate to ad hoc addition on account of service charges receipts and ad hoc disallowance of vehicle and telephone expenses on estimated basis without giving any reasonable justification for the same.

Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of motor and spare parts. During the A.Y. 2012-13, the A.O. has made addition of Rs. 6.00 lacs on account of service receipts. The A.O. observed that out of total service receipts of Rs. 10,69,715/-, the assessee has claimed free service charges amounting to Rs.10,29,044/-, if the amount of free service charges are excluded from the total service receipts declared than only an amount of Rs. 40,670/- remains for the paid service charges. The assessee is an authorized dealer of Hero Honda Motor Cycle at district headquarter and the majority of motor bikes are of the Hero Honda company then there would have been considerable charges on account of paid services. Not accepting the assessee’s contention, the A.O. estimated additional income of Rs. 6.00 lacs on account of service charges. By the 3 ITA 960/JP/2017 &155/JP/2018 Mahesh Chandra Chahar Vs. ACIT impugned order, the ld. CIT(A) has confirmed the action of the A.O. after observing as under:

“4.3 I have carefully considered the material before me. I find that the assessee is sole dealer of Hero Honda Company in the city of Jhunjhunu and most of the owners of the vehicles are availing paid service from this dealer only. The contention of the assessee that people are availing the services from unorganized sector is not at all fully justified because most of the owners are approaching to the authorized dealers for paid services after their free services. Furthermore, the assessee is also carrying out repairing of engine works at dealer workshop for which huge amount is paid by the vehicle owners. Moreover, the assessee has not counted for the engine oil for which money is paid by the owners even during the free services of the vehicles. The worthy CIT(A) vide his order dated 24/12/2012 in Appeal No.965/JPR/11-12 in the assessee's own case for A.Y.2009-10 has sustained the addition made for this count. Therefore the paid service charged receipts during the year under consideration are estimated on consummative basis at Rs.6,00,000/- and the same is added to the total income of the assessee.

It was further argued by the ld AR that the ld. authorities below had however attempted to justify such addition on the basis of the addition of Rs.3,56,000/- allegedly made and confirmed by the AO & CIT (A) in the assessment year 2009-10. On careful study of the said appeal order it is noted that initially such addition was deleted by the ld. CIT (A) vide para 5.3 at page no.8 of the appeal order which is being reproduced hereunder for ready reference: "However, this cannot be a basis for making such addition in as much as there is nothing on record which may indicate that the assessee has suppressed any receipts. In fact, during the 6 ITA 960/JP/2017 &155/JP/2018 Mahesh Chandra Chahar Vs. ACIT assessment proceedings even before the AO the assessee has filed explanation as to why such receipts have decreased. In this back-ground such addition of Rs.3,56,000/- by the AO was simply on presumption basis that with the increased in the turn-over the services charges receipt should also increase. Keeping in view these facts such addition of Rs.3,56,000/- is found without any basis and therefore the same is deleted."

On the other hand, the ld DR has relied on the orders of the authorities below.

I have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that no basis has been given by any of the lower authorities for making ad hoc addition on account of service charges income. Even during the course of scrutiny assessment, no defect was pointed out by the A.O. in the books of account nor the same were rejected. In absence of any specific defect or discrepancy, no valid addition can be made. In the present case, the Authorities Below have failed to point out any specific instance of suppression of service income, or any discrepancy or mistake in any manner. Under these circumstances, no such addition was legally maintainable. For this purpose, reliance can 8 ITA 960/JP/2017 &155/JP/2018 Mahesh Chandra Chahar Vs. ACIT be placed on the decision of Hon’ble Madras High Court in the case of M/s Mysore Fertiliser Co. Vs CIT (1966) 59 ITR 268 and the decision of the ITAT, Jaipur Bench in the case of Raj Enterprises Vs ITO (1995) 51 TTJ 408 (JP).

Even the order of the ld. CIT(A) for the A.Y. 2009-10 clearly indicates that the addition was made by the A.O. on presumption without pointing out any defect. Even the rectification order passed by the ld CIT(A) U/s 154 of the Act reversing his earlier findings, appears to be not legally sustainable in so far as there was no apparent mistake in his earlier order which could be rectified in garb of Section 154 of the Act. However, without commenting on the order passed by the ld. CIT(A) U/s 154 for the A.Y. 2009-10 reversing his earlier order passed, I do not find any merit in the ad hoc addition made during the years under consideration. Accordingly, the A.O. is directed to delete the addition of Rs. 6.00 lacs in the A.Y. 2012-13 and similar addition of Rs. 3.00 lacs made in the A.Y. 2013-14. 9. In the A.Y. 2012-13, the A.O. has also made ad hoc disallowance of Rs. 60,000/- on account of vehicle expenses and Rs. 8,000/- on account of telephone expenses, which was restricted by the ld. CIT(A) to the extent of Rs. 50,000/- on account of vehicle expenses and Rs. 5,000 on account of telephone expenses. I found that the disallowance has been 9 ITA 960/JP/2017 &155/JP/2018 Mahesh Chandra Chahar Vs. ACIT made by the lower authorities on estimate basis and without pointing out any specific mistake or instance of disallowable nature of expenditure. Keeping in view the totality of facts and circumstances of the case, I restrict the disallowance on account of vehicle expenses to the extent of Rs. 25,000/- and Rs. 2,500/- on account of telephone expenses.

In the A.Y. 2013-14, the A.O. had made addition of Rs. 1,50,000/- out of petrol expenses and Rs. 10,000/- out of telephone expenses, which had been restricted by the ld. CIT(A) to the extent of Rs. 1,00,000/- on account of petrol expenses and Rs. 7,500/- on account of telephone expenses respectively. Following the reasoning given hereinabove, I direct the A.O. to restrict disallowance on account of petrol expenses to the extent of Rs. 50,000/- and Rs. 3,000/- on account of telephone expenses. I direct accordingly.

In the result, both the appeals of the assessee are allowed in part, in terms indicated hereinabove.