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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI SUDANSHU SRIVASTAV & DR. MITHA LAL MEENA
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA
BEFORE SHRI SUDANSHU SRIVASTAV, JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER
ITA No. 302 /Agra/2018 Assessment Year: 2015-16 M/s Pratiyogita Darpan, Vs. ACIT-Circle 1(1)(1), 2/11A, Swadeshi Bima Nagar, Agra. M.G. Raod, Agra. PAN: AADFP9354R Appellant Respondent
Appellant by: Shri Ravi Agarwal And Shri K.C. Agarwal, Advocates Respondent by: Shri Waseem Arshad, Sr. D.R
Date of hearing: 22/02/2018 Date of Pronouncement: 16/05/2019
ORDER Per, Dr. M. L. Meena, AM:
This appeal of the assessee is directed against the order dated 28.03.2018 of the Commissioner of Income Tax (Appeals), Agra [hereinafter referred to as “the CIT(A)] in respect of the assessment year 2015-16 where the assessee has raised following grounds of appeal:
Because this case was taken in the limited scrutiny only on two points viz. (1) Custom Duty mismatch and (2) Refund claimed. In the reply, assessee duly explained the custom duty mismatch and reasons of refund claim and learned AO did not adversely commented on the same, but the AO illegally extended the scope of limited scrutiny to complete scrutiny and made the heavy disallowance without any reason or defect
ITA No. 302 /Agra/2018 Assessment Year: 2015-16
in the accounts which is against the Government Circular No. DGIST VIG/HQ/SA/17-18, Government of India, Ministry of Finance New Delhi and the findings of CIT in para 7.2 confirming the AO order on this point is against the letter spirit of CBDT above circular and the entire addition made by the AO and maintained by CIT Appeal is illegal and bad in law and liable to be cancelled. 2. Because the learned AO cited in assessment order the photo copies of some of the cash memos and vouchers produced before him in respect of Generator and Diesel Expenses, Packing Expenses and Machinery and which according to him Repair on serial numbers were not given by the seller in his cash memos, but no infirmity in the cash memos have been found by the AO in these cash memos. He has wrongly disallowed 20% the expenditure of other various other heads of expenditures debited in the head Administrative other cost, selling and distribution expenses and staff cost on which no defect was found of the total expenses on adhoc basis without finding any defect in the same and the order of CIT confirmed the said disallowance and reduced it to 2% of the total expenses on adhoc basis is wholly unjustified, illegal and arbitrary and against the law.
Because disallowance sustained by the learned AO out of the expenses at 2% in para 7.5 and car depreciation at 10% in para 7.6 by CIT Appeal is wholly unjustified and illegal and may kindly be cancelled.
Briefly, the facts of the case are that the appellant firm was engaged in
the business of publication of magazine. The assessment has been
completed u/s 143 (3) of the act vide order dated 07.12.2017 assessing an
income of rupees 4,11,86,867/- as against a return income of rupees
2,96,09,160/- wherein a disallowance of the Rs. 1,13,08 ,927 /- was made on
account of unexplained expenditure on an estimated basis out of total
expenditure of Rs. 5, 65,44, 634/- claim by the appellant assessee as a
3 ITA No. 302 /Agra/2018 Assessment Year: 2015-16 deduction besides a disallowance of Rs. 2,68,780/- in respect of claim of the depreciation on the car. 3. In appeal, the Ld. CIT(A) granted part relief to the assessee vide para 7.5 and 7.6 of his order which has been discussed in the following paras. 4. Ld. Counsel submitted that the present case was selected for the purpose of limited scrutiny on the two points, (1) custom duty mismatch and (2) the refund claim; that the AO illegally extended the scope of limited scrutiny to full scrutiny without approval of CIT(Admn.) and as such completed the scrutiny without adversely commenting on the accounts. The AO affixed the photocopies of some of the cash memos and vouchers in the
assessment order which were produced before him by the assessee in respect of generator and diesel expenses, packing expenses, and machinery and repairs on which serial numbers, names & address, Dates etc were not given by the seller and most of the bills were in the form of cash memos however, he has disallowed 20% of the expenditure debited including the administrative costs, selling and distribution expenses and staff costs without pointing out specific defects/infirmity in these cash memos. He further submitted that the learned CIT(A) has approved full scrutiny, and reduced rate of disallowances of expenditure from 12% to 2% of the total expenses besides 20 to 10 % of the car depreciation without any basis is wholly
4 ITA No. 302 /Agra/2018 Assessment Year: 2015-16 unjustified, illegal and arbitrary by reiterating the submissions made before the ld. CIT(A). 5. Ld. DR placed strong reliance upon the order of the authorities below on the issue of limited scrutiny. He contended that the explanation given by the appellant assessee for the purpose of high ratio of refund to TDS that the profit of the assessee has been reduced by a considerable margin of 1% didn’t sound logical and reasonable and therefore to verify this anomaly in the explanation of the assessee itself, the AO was required to verify all the claims in respect of sales reduced and expenses increased by way of verification of sale bills and expense vouchers in the interest of revenue. As such there was no expansion of the scope of scrutiny, the scrutiny was limited only to the reasons of high ratio of the refund to TDS. The ld. CIT(A) has categorically observed vide para 7.2 of the impugned order that the issue of high refund is directly related to the profit disclosed by an assessee in a particular year; that the rise or fall in the profit, in turn, is directly linked with the seeds and expenses disclosed by the assessee; that the AO made enquiries regarding the issue of ‘high ratio of refund to TDS’ during the assessment proceedings and that it was in the course of the same, the findings of the AO regarding the partly nongenuine expenses were made in the assessment order which does
5 ITA No. 302 /Agra/2018 Assessment Year: 2015-16 not suffer from any infirmity of any kind mentioned by the assessee in ground, No. 4 adjudicated by the 1st appellate authority in the impugned order.
5.1 The ld. DR further submitted that on examining the books of account the AO noticed that there were either no vouchers or genuine vouchers or even supporting vouchers maintained by the assesses as evident from the copies of bills affixed in the assessment order. What was maintained and produced before the AO was the cash bills on which the necessary particulars such as S.No., Date, name and address and signature of the issuing party were not mentioned and further the AO has identified certain specific defects such as cash vouchers did not carry any serial number, revenue stamp and no bills or kachha bills were found attached to the cash payments. He contended that the AO has correctly pointed out that serial number in case of cash vouchers were not mentioned and that these deficiencies had neither been explained before the AO or the CIT(A) or even in the present proceedings. The assessee’s explanation that self-made watchers have been maintained in respect of expenditure like sales promotion and employee’s welfare because of compulsion is no explanation. This establishes that the appellant assessee has accepted the deficiencies pointed out by the assessing officer, and the AO has the prerogative to decide the adhoc
6 ITA No. 302 /Agra/2018 Assessment Year: 2015-16 disallowance of expenditure on estimate basis and therefore the grievance of the assessee is not justified.
5.2 As regards to the disallowances out of depreciation on the car, the ld. DR submitted that assessee’s though the assessee has objected to the car depreciation disallowance but has not produced any evidence on record of the uses of the car which can prove that it was not put to personal use by the partners of the assessee firm and therefore disallowance out of the car expenses is justified.
Heard the rival submissions and after going through the material available on record, we find that It is admitted fact on record that the case was selected for scrutiny in view of the high ratio of refund to TDS and mismatch of tax credits. However, the explanation of the assessee that reduction in the net profit of 1% as reason for ‘the high ratio of refund to TDS’ do not sound logical and reasonable and can not be acceptable. The AO was therefore required examine the extent of reduction in sales and increase in expenses by way of verification of vouchers and bills of the expenses to verify this anomaly in the explanation of the assessee, in the interest of revenue. Under the circumstances, The ld. CIT(A) has rightly observed that the issue of high refund is directly related to the profit disclosed by an assessee in a particular year; that the rise or fall in the profit, in turn, is directly linked with
7 ITA No. 302 /Agra/2018 Assessment Year: 2015-16 the sales and expenses disclosed by the assessee and that the AO made enquiries regarding the issue of ‘high ratio of refund to TDS’ during the assessment proceedings and that it was in the course of the same, the findings of the AO regarding the partly disallowance of nongenuine expenses is justified. As such there was no expansion of the scope of scrutiny, the scrutiny was limited only to the reasons of high ratio of the refund to TDS.
The Ld. CIT(A) has mentioned that the AO has correctly pointed out that serial number in the case of cash vouchers did not exist and this deficiency is not explained or replied to by the assessee in its written submission. The ld CIT(A) has further noted that from examination of the bills and vouchers of the appellant assessee, the AO has detected certain deficiencies and is right in making a disallowance out of claim of expenditure made by the assessee which has not been controverted by the ld. counsel for the assessee. However, neither the AO nor the Ld. CIT(A) CIT(A) has quantified such bogus expenditure claimed by the assessee without support of genuine bills/vouches as observed by the authorities below without support of the genuine bills and vouchers resulting into high ratio of refund of crores to TDS. Under the circumstances, we are of the considered opinion that the issue of high refund to TDS viz~viz quantification of sales and expenses is restored to the AO to be re-adjudicated by AO on merits, as per law. The AO
8 ITA No. 302 /Agra/2018 Assessment Year: 2015-16 may examine the claim of depreciation of car by the assessee by way of enquiring into the personal use by the partners of the assessee firm and ownership as per law. Needless to say, that assessee will be provided a reasonable opportunity of being heard. Assessee is also directed to fully cooperate with the AO and did not take any unnecessary adjournment.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced, in the open Court on 16/05/2019.
Sd/- Sd/- (SUDANSHU SRIVASTAV) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DOC Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR