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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI B.R.R. KUMAR & SHRI ANUBHAV SHARMA
O R D E R PER ANUBHAV SHARMA, J. M.:
1. 1. These appeals have been preferred by the Assessee against the order dated 28.09.2020 of Ld Commissioner of Income Tax (Appeals)-26, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal Nos. 10310, 10314, 10317/19-20 before it against the order dated 31.12.2019 passed u/s 153A/ 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ld. AO, ACIT, Central Circle-16, New Delhi (hereinafter referred as the Ld. AO).
2. In these appeals common issues are involved, parties argued them together and therefore to avoid any contradictory finding and for convenience, these are disposed off by this consolidated order.
3. The facts in brief are that pursuant to the warrant of authorization, a search and seizure operation u/s 132 of the Act was conducted on 02.11.2017 and on subsequent dates on different business and residential premises of Rakesh Jain Group of cases and the case of the Assessee company was also covered and various incriminating papers/ documents were found and seized during the search. Upon which notice u/s 153A of the Act was issued and the Assessee company filed its return. The Assessee was asked to explain as to why 3% of the expenses should not be disallowed and added to the income of the Assessee company as per the statement of Shri Rakesh Jain recorded u/s 132(4) of the Act wherein, he had admitted that the cash is generated and siphoned out from the business by way of inflated expenses such as salary, travelling, conveyance, staff welfare etc. Based upon the reply of the Assessee company the following disallowances have been made:- Total disallowances Total expenditure Assessment Year Rs. 25,76,401/- 2016-17 Rs. 77292/- Rs. 20421569/- 2017-18 Rs. 612647/- Rs. 17737005/- 2018-19 Rs. 532110/-
The above total expenditure were made and added to the return income.
The ld CIT(A) had sustained the same and accordingly Assessee is in appeal raising following grounds of appeal for Assessment Year 2016- 17:- “1. That on the facts and circumstances of the present case and in law, the learned CIT (A) has failed to appreciate that the Assessing Officer had passed the Order which is bad in law and also in facts.
2. That under the facts and circumstances of the present case and in law, both the authorities below had grossly erred in law as well as on merits in making and sustaining the ad-hoc disallowance of Rs.77,292/- calculated @ 3% of all the expenses claimed in the audited books of accounts, more so when the statement on the basis of which said disallowance has been made does not pertain and relate to Appellant/Assessee.
3. That on the facts and circumstances of the present case and in law, the disallowances on various expenses debited to profit and loss account on ad-hoc basis is unsustainable in law as no defects has been pointed out by the Ld. AO in the books of accounts.
4. That on the facts and circumstances of the present case and in law, the Ld. CIT (Appeals) failed to appreciate that without rejecting the books of accounts there cannot be any ad-hoc disallowances. 5. Total Tax Effect (Approx) Rs. 34,630/- 6. That the appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”
6. On behalf of the Assessee it was submitted that the statement of Shri Rakesh Jain does not refer to the Assessee company and with regard to that specific reference was made to the statement of Shri Rakesh Jain where he referred to the business of supply of branded medicines which was a proprietary concern namely Vedent Medicine Agency. It was submitted that the statement was recorded at the premises of Shri Rakesh Jain where he resided and same cannot be considered, in regard to the Assessee company which is a separate legal entity.
7. On the other hand the ld Sr. DR submitted that as the additions have been made on the basis of own statement of Shri Rakesh Jain, there is no error in the findings of the ld CIT(A). 8. After giving thoughtful consideration to the matter on record in regard to the grounds, as raised, the expenses debited to the Profit and Loss account for the respective financial years giving rise to the present appeal is reproduced below:-
Amount (in Amount (in Expenses debited to Profit & Amount (in Rs.) Rs.) Rs.) Loss account for the FY. For AY 2016-17 For AY 2017- For AY 2018-19 2015-16 18 Salaries & Wages 1,376,500 13,051,000 10,261,978 Staff Welfare Expenses 47,910 150,542 159,380 Depreciation Expenses 91,772 40,754 18,853 Page | 3
Bank Charges 344 7,829 27,767 Bank Interest 49,464 155,480 Payments to Auditors 15,175 24,150 23,600 Conveyance & Travelling Expenses 692,000 3,452,993 2,671,075 Power & Fuel 45,663 66,550 10,700 Postal Expenses 9,224 11,361 38,989 Rent Paid 180,000 840,000 840,000 Shortage, Breakage & Deductions 33,705 Freight & Forwarding Charges 27,690 Interest Paid 2,213,561 2,862,962 Legal & Professional Charges 106,950 96,250 Freight & Forwarding Charges 149,228 147,895 Office Maintenance Expenses 19,300 33,605 136,450 Printing & Stationery 26,569 56,679 69,014 Telephone Expenses 37,204 161,863 177,218 Filing Fees 5,110 3,100 3,750 Preliminary Expenses w/off 1,940 1,940 1,940 Total- A 2,576,401 20,421,569 17,737,005 Disallowance @ 3% on (A) 77,292 612,647 532,110
Appreciating the aforesaid disallowances, it can be observed that the ld tax authorities below have proceed on a wholesome basis without going on to the head of the expenses. Expenses in the nature of (i) bank charges, (ii) payment to auditors, (iii) postal expenses, (iv) telephone expenses, (v) Bank Interest are all of all such nature which were verifiable and as such their unilateral inflation without actual expenditure or having no relationship with the business activity was not possible. The remaining expenses are also of such nature as likely to be incurred in regular course of business and there is no finding of fact based on an enquiry that they were disproportionate to the business activity of the assessee. Merely by relying on oral statement of a general nature of a Director, to disallow such expenses on adhoc basis @3% of the expenditure, cannot be justified. Reliance can be placed on Hon’ble Delhi High Court judgment in the case of PCIT Vs. Best Infrastructure Pvt, 397 ITR 82 where it was held that statement under section 132(4) in itself doesn’t constitute incriminating material. So it can be held that statement under section 132(4) of the Act, alone cannot be considered as incriminating material unless any corroborating incriminating material is relied for making an addition or disallowance.