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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals), Gandhinagar, (‘CIT(A)’ in short), dated 17.02.2014 arising in the assessment order dated 18.01.2013 passed by the Assessing Officer (AO) under s. 144 of the Income Tax Act, 1961 (the Act) concerning AY 2010- 11. with CO No.233/Ahd/2014 [Roshanben Y. Parmar] A.Y. 2010-11 - 2 -
The assessee has also filed cross objection in the Revenue’s appeal as captioned above.
The substantive grounds of appeal raised by Revenue read as under:-
“1. The learned CIT(Appeals) has erred in law and on facts in deleting Rs.4422511/- being disallowance of 15% of expenses claimed in trading account and P&L Account despite the fact that more than 3° % of the total expenses claimed were incurred in cash and remained unverified due to non-compliance by assesses both in assessment proceedings and in remand proceedings.
2. The learned CIT(Appeals) has erred in law and on facts of the case in deleting addition of Rs.730730/- on account of unexplained capita u/s,68 of the Act.
3. The learned CIT(Appeals) has erred in law and on facts of the case in deleting addition of Rs.1000000/- on account of unexplained unsecured loans.
4. The learned CIT(Appeals) has erred in law and on facts of the case in deleting addition of Rs.365531/- made on account of depreciation.
5. The ld. CIT(A) has erred in law and on facts in deleting the entire addition despite the fact that the assessee had not produced books of Accounts/vouchers or any satisfactory explanation and evidences during the course of both assessment proceedings and remand proceedings.”
Ground No.1 concerns disallowance of 15% of the expenses amounting to Rs.44,22,511/- in aggregate out of trading account and P&L account.
4.1 When the matter was called for hearing, the learned DR for the Revenue relied upon the order of the AO and submitted that the AO was justified in making estimated disallowance as he failed to get cooperation of the assessee in the course of the assessment proceedings and was left with no choice in this regard.
4.2 The learned AR for the assessee, on the other hand, submitted that explanation for non-compliance of notice before AO was provided to the CIT(A). The CIT(A) was convinced therewith and admitted the submissions and the paper books filed before him by way of additional evidences and remand report were obtained from the AO in this regard. The learned AR submitted that on consideration of the remand report the CIT(A) agreed with the plea of the assessee for non-maintainability of such with CO No.233/Ahd/2014 [Roshanben Y. Parmar] A.Y. 2010-11 - 3 - ad hoc disallowances in the facts of the case. This apart, the learned AR for the assessee also pointed out that such ad hoc disallowance is not warranted where TDS has been deducted on payments and the assessee is engaged in executing government contracts.
4.3 We have carefully considered the rival submissions on the issue. We note that the AO has disallowed estimated 15% of the expenditure claimed in trading and P&L account. The CIT(A) has obtained remand report in support of the evidences furnished in respect of trading and P&L account. The CIT(A) has also called for rejoinder of the assessee to the remand report as noted in para 5.2 of its order. After taking note of the submissions, the remand report and rejoinder thereof, the CIT(A) found merit in the claim of the assessee. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“5.3 The observations of the AO in the assessment order and in the remand report, facts of the case and submissions and evidences of the appellant are carefully considered. It is a matter of fact that the appellant in the course of appellate and remand proceedings has furnished complete details with respect to the expenditure incurred and claimed in the Trading and Profit & Loss A/c. along with narration of each entry. It is also a matter of fact that the appellant has filed complete details of the creditors for expenses along with their PAN, address and details of IDS returns, etc. It appears that there was a communication gap between the AO and the appellant during the course of assessment proceeding which led to assessment u/s 144 of the Act. However, during the course of appellate proceedings the appellant has furnished voluminous paper books which contain Audited Accounts and the details of Direct & Indirect expenses with ledger accounts of particular heads of expenses and cash book. The said details have been seen by A.O. as noted by him and mentioned in the remand report. It is a matter of fact that the AO has not brought on record any defect in details furnished by the appellant during the remand proceedings. The objection of AO is with regard to handmade vouchers and payment of cash. During the course of appellate proceedings Appellant has explained the reason for fall in GP and reason for making payment in cash, which is found to be acceptable. The AO has not brought out any instances of non-payment of TDS on aforesaid expenditure or any violation of Section 40A(3), etc. Further, keeping in view the nature of business and the turnover of the appellant as well as considering the fact that the appellant is engaged in executing government contracts, the expenditure incurred in cash necessitated by the very nature of expenses also appears to be reasonable. with CO No.233/Ahd/2014 [Roshanben Y. Parmar] A.Y. 2010-11 - 4 -
On perusal of the details and particulars of expenses, I find that in absence of any contrary or adverse finding supported by material evidence brought on record by the AO to establish that the expenses are for either non-business purpose or are unreasonable or excessive, ad hoc disallowance of 15% of expenditure claimed is excessive. As contended by the appellant, the nature of business of the appellant is bound to be made the payments in cash and handmade vouchers. Therefore, without establishing the details in such handmade vouchers for cash payment, the adhoc addition made by the AO cannot be justified. Therefore, the AO is directed to delete the lumpsum disallowance of Rs.44,22,511/-, The ground is decided in favour of the appellant.
4.4 As observed by the CIT(A) that AO has failed to bring on record any defect in details furnished by the assessee remand proceedings, the explanation of the assessee deserves to be accepted in the light of facts and evidences placed on record. We do not see any irrationality in the approach adopted by the CIT(A) while adjudicating the issue. We thus decline to interfere with the order of the CIT(A).
Ground No.1 of the Revenue’s appeal is dismissed.
Ground No.2 concerns addition of Rs.7,30,730/- under s.68 of the Act towards addition to capital.
6.1 The learned AR pointed out that the aforesaid amount comprises of receipts by way of income tax refund and profit on sale of land. The leaned AR pointed out that income tax refund of Rs.3,36,830/- is not taxable. It was also pointed out that profit on sale of land amounting to Rs.3,90,900/- was offered for taxation by filing revised return in this regard. The AR thus contended that no sustainable ground remains to support the action of AO for such additions.
6.2 The CIT(A) has dealt with the issue as under:
“6.3 I have considered the facts of the case assessment order, submission filed by the Appellant along with the Remand Report and also rejoinder filed by the appellant. It is observed that in capital account of Appellant, two credit entries being income-tax refund and profit on sale of land were credited and same were taxed as income by AO. On careful consideration it is observed that income tax refund cannot be taxed as income and Appellant has submitted necessary evidence to support her claim that amount of Rs.3,36,830/- represents income tax refund. Further, Appellant has already offered Short Term Capital Gains in Return of with CO No.233/Ahd/2014 [Roshanben Y. Parmar] A.Y. 2010-11 - 5 -
Income hence, addition of Rs.3,93,900/- cannot be made. Considering these facts, entire addition of Rs.7,30,730/- is hereby directed to be / deleted. This ground is decided in favour of the appellant.”
6.3 We do not see any infirmity in the process of reasoning adopted by the CIT(A) while adjudicating the issue. We thus decline to interfere.
Ground No.2 of the Revenue’s appeal is dismissed.
Ground No.3 concerns addition of Rs.10 Lakhs on account of unexplained credits under s. 68 of the Act. It was pointed out on behalf of the assessee that the loan of Rs.10 Lakhs relates to only one party which is being carried forward from earlier years. The income tax return confirmation of the parties for last three years were placed before the CIT(A).
8.1 The CIT(A) has dealt with the issue as under:
“7.3 I have considered the facts of the case, assessment order, Remand Report of the AO as well as the submission filed by the Appellant. It is observed that appellant has not taken loan of Rs.10,00,000/- in the current year but same is carried forward from earlier year, hence, this amount cannot be subject matter of addition u/s 68 of current year. The provisions of section 68 clearly states that "where any sum is found credited in the books of an assesses maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year". Thus, addition u/s 68 can be made only for credit received during year under consideration and not in earlier year. The Hon'ble Mumbai ITAT in the case of ITO Vs. Nasir Khan J. Mahadik 134 ITD 166 has held that Addition could not be made under section 68 in respect of loan taken by assessee in preceding assessment years, Even appellant has submitted confirmation of depositor along with copies of Income tax returns for last three assessment years which were not found to be bogus by AO but he has proceeded to give remand only on the basis that said party was not found at the given address. The appellant has discharged his primary onus casted u/s 68 of the Act coupled with the fact that amount of Rs. 10,00,000/- is opening balance, hence, entire addition made by AO is hereby directed to be deleted. This ground is allowed in favour of the appellant.”
8.2 The CIT(A) has observed that the assessee has discharged the primary onus which lay upon it under s.68 of the Act. Couple with this, the loan relates to earlier years and therefore Section 68 of the Act has no with CO No.233/Ahd/2014 [Roshanben Y. Parmar] A.Y. 2010-11 - 6 - application in the present case. We thus see no reason to interfere with the order of the CIT(A) in absence of any infirmity.
Ground No.3 of the Revenue’s appeal is dismissed.
Ground No.4 concerns addition of Rs.3,65,531/- made on account of depreciation. The disallowance was made by the AO in the absence of relevant bills in support of additions to fixed assets. The AO however has vetted the bonafides of purchase and addition to fixed assets in the remand report.
10.1 The CIT(A) has concluded the issue in favour of the assessee based on such evidence. The relevant para of the order of the CIT(A) is reproduced hereunder:
“8.2 I have considered the facts of the case and the submissions made in this regard. The Appellant has furnished the bills and other documents in paper book in support of the addition to fixed assets during the year. The AO in the remand report has not made any adverse observations and given the finding that the said issue stands verified by him on the basis of bills and vouchers furnished in support of the addition to assets. Considering the fact that the addition to fixed assets is supported by bills and no adverse remark is given by the AO in the Remand Report, the addition of Rs.3,65,531/- on account of disallowance on depreciation on fixed assets acquired during the year is hereby directed to be deleted. This ground of appeal is allowed.”
10.2 The conclusion drawn by the CIT(A) in favour of the assessee has rational basis and thus does not call for any interference.
Ground No.4 of the Revenue’s appeal is dismissed.
Ground No.5 of the Revenue’s appeal is general in nature. In the absence of any specific findings in the remand report for non-production of books of accounts etc. and in the absence of any representation in this regard on behalf of the Revenue at the time of hearing, we are not inclined to entertain the objection.
Ground No.5 of the Revenue’s appeal is dismissed. with CO No.233/Ahd/2014 [Roshanben Y. Parmar] A.Y. 2010-11 - 7 -
In the result, appeal of the Revenue is dismissed.
CO No. 233/Ahd/2014
The Ld.AR for the assessee seeks permission orally at the time of hearing to withdraw the captioned Cross Objection of the assessee filed in the Revenue’s appeal(supra). The ld. DR for the Revenue does not raise any objection. Accordingly, the prayer for withdrawal of the Cross Objection filed by the assessee stands accepted. Thus, we dismiss the Cross Objection of the assessee as having been ‘withdrawn’.
In the result, the Cross Objection of the assessee is dismissed as ‘withdrawn’.
In the combined result, the appeal of the Revenue and cross objection of the assessee both are dismissed.
This Order pronounced in Open Court on 02/08/2019
Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 02/08/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।