ASWIN ENTERPRISES,HYDERABAD vs. INCOME TAX OFFICER, WARD-4(1), HYDERABAD

The Ld. AO while rejecting the books of account, failed to apply the best judgement analysis and instead considered the entire Income ignoring the corresponding expenses which are essential for earning the income.

Aswin Enterprises vs. ITO were filed by the assessee firm. As the assessee firm failed to furnish the reply to the remaining queries, the AO issued notices under section 142(1) of the Act, dated 27/01/2021, 08/03/2021 and 25/03/2021, pursuant whereto, the assessee firm filed its response vide submission, dated 30/03/2021. Thereafter, the AO issued a show cause notice (SCN), dated 12/04/2021, wherein it was called upon to explain that as to why certain additions/disallowances may not be made in its case. In reply, it was submitted by the partner of the assessee firm that as all his three family members during the pandemic situation were suffering from certain medical issues, therefore, the reply to the queries could only be filed to the extent possible. The AO, taking cognizance of the fact that the assessee firm, despite having been given sufficient opportunities, had failed to substantiate/justify its claim of expenditure based on supporting documentary evidence, thus proceeded to frame the assessment based on the material available on record. Thereafter, the AO observed that the assessee firm had claimed deduction of expenses of Rs. 97,71,329/-. On being queried, the assessee firm had submitted the full list of commission payments along with TDS certificates. Also, it was brought to the notice of the AO that all the commission payments were made through banking channels to the agents who had duly disclosed the same as their income in their respective returns of income. However, the AO observed that the assessee had failed to submit certain material details to substantiate its claim for deduction of Aswin Enterprises vs. ITO expenditure, viz., (i) copy of agreement made with the persons to whom the commission was paid; (ii) details regarding the rate of commission payment, services rendered, places where services were rendered (party wise) and paper trails (evidences like email, correspondence etc.) in support its claim that services were rendered by the parties for which commission was paid to them; (iii) ledger account of commission expenses along with copy of one bill for each party; and (iv) copy of ledger accounts regarding the commission payment. Accordingly, the AO holding a conviction that the assessee firm had failed to substantiate its claim of having incurred commission expenditure, disallowed the entire amount of commission expenses of Rs. 97,71,329/-.

Aswin Enterprises vs. ITO with the supporting evidences, viz., copy of the invoices, ledgers, confirmation, bank account statements, copy of return of income, confirmation and bank statement of the partners to justify its claim for deduction of expenses, thus disallowed the total expenses of Rs.51,46,442/-, viz., (i) salary and wages: Rs.24,46,699/-; (ii) travelling expenses: Rs.3,51,246/-; (iii) remuneration of partners: Rs.16,00,000/-; and (iv) other expenses: Rs.7,48,497/-. Accordingly, the AO, vide his order passed under section 143(3) r.w.s. 144B of the Act, dated 19/04/2021, determined the total income of the assessee firm at Rs.1,75,08,200/-.

5. Aggrieved, the assessee firm carried the matter in appeal before the CIT(A). As the assessee firm despite having been put to notice of the hearing of the appeal vide three notices, dated 15/12/2021, 08/04/2024 and 19/04/2024, had not effectively prosecuted the matter, therefore, the CIT(A) after referring to the observations of the AO upheld the same primarily for the reason that the assessee firm had failed to furnish any explanation/evidence to dislodge the respective additions/disallowances made by him.

6. The assessee firm, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

Aswin Enterprises vs. ITO 6. We have heard the Learned Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record.

7. Shri Pavan Kumar Gorti, CA, Learned Authorized Representative for the assessee firm (for short, “Ld.AR”) at the threshold of hearing of the appeal, submitted that the assessee firm could not effectively pursue the assessment proceedings for the reason that the family members of its partner during the COVID Pandemic were taken medically unwell and thus, the requisite details were called for by the AO could not be fully collated and filed before him. Coming to the CIT(A) order, the Ld. AR submitted that though the assessee firm had filed the appeal before the CIT(A) way back on 30/05/2021, but the same was disposed of by him after a period of more than 4 years vide his order dated 13/06/2025. The Ld. AR vehemently submitted that though the assessee firm had failed to participate in the proceedings before the CIT(A), but the latter except for referring to the observations of the AO had failed to advert to the specific “grounds of appeal

” based on which the impugned assessment order was assailed before him, and had disposed of the appeal by merely approving the view taken by the AO. The Ld. AR to buttress his aforesaid contention had taken us through Para No.6.1 of the CIT(A) order. The Ld. AR submitted that as the assessee had suffered the dismissal of his appeal vide a non- speaking order, therefore, the same, in all fairness, be set aside to the 7.

Aswin Enterprises vs. ITO file of the CIT(A) with a direction to re-adjudicate the same after affording a reasonable opportunity of being heard.

8. Per contra, Shri Aves Madhukar, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) submitted that as the assessee firm had neither effectively participated in the assessment proceedings and furnished the details that were subsequently called for by the AO nor prosecuted the matter before the CIT(A), therefore, its lackadaisical approach qua the Income Tax proceedings can safely be gathered. Elaborating further on his contention, the Ld. DR submitted that, considering the past record in the case of the assessee firm for the subject year, there was no justification for him to seek setting aside of the appellate order and affording of a new inning.

Aswin Enterprises vs. ITO that he along with all the three of his family members during the COVID Pandemic were taken unwell with medical issues, therefore, the complete details could not be collated, and to the extent available had been filed. However, we find that the assessee firm had, thereafter, in the course of the proceedings before the CIT(A), failed to respond to the first two notices, dated 15/12/2021 and 18/04/2024. Although we find that the assessee had in response to notice, dated 19/04/2024, requested for an adjournment, but there is nothing discernible from the record which would reveal that as to what course of action it had resorted to after the said date. Although, the lackadaisical and casual approach of the assessee firm regarding its income tax proceedings cannot be put under the carpet and summarily brushed aside, but at the same time, cannot loose sight of the fact that the additions/disallowances made by the AO, wherein he had disallowed its entire claim of deduction of certain expenses, viz., (i) salary and wages: Rs.24,46,699/-; (ii) travelling expenses: Rs.3,51,246/-; (iii) remuneration of partners: Rs.16,00,000/-; and (iv) other expenses: Rs.7,48,497/- also does not inspire any confidence. It is difficult to comprehend that the assessee firm, which had not been shown to be a bogus/sham concern, would not have incurred any expenditure in the course of its business. However, without expressing any view on the observations of the AO, we are of a firm conviction that considering the totality of the facts involved in the present case, the matter, in all fairness and in the Aswin Enterprises vs. ITO interest of justice, requires to be set aside to the file of the AO for fresh adjudication. Accordingly, we herein set aside the matter to the file of the AO with a direction to frame the assessment afresh after affording a reasonable opportunity of being heard to the assessee firm.