SUNDAR SINGH,VPO KHANDRAI vs. ITO WARD-1, SONIPAT

PER BRAJESH KUMAR SINGH, AM, This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi/Ld. CIT(A) dated 14.11.2023, arising out of assessment order passed u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), dated 10.03.2021 for Assessment Year 2018-19. 2. Following grounds of appeal have been raised by the assessee as under:- “1 That the Ld. CIT (Appeals) erred in confirming the ad-hoe addition of 20% to the extent of Rs. 4,19,000/- out of total disallowance of Rs. 20,95,000/- made by the Ld. AO u/s 69C by disallowing the entire Rent expenses claimed by the appellant in his Profit & Loss a/c. 2 That the Ld. CIT (Appeals) erred in confirming the ad-hoc addition of 20% to the extent of Rs. 6,29,000/- out of total disallowance of Rs.31,45,000/- made by the Ld. AO u/s 69C by disallowing the entire his Profit & Loss a/c. 3 That the Ld. CIT (Appeals) erred in confirming the total addition of Rs. 10,48,000/-, although the Ld. AO in Show Cause Notice proposed to make additions u/s 68, but make additions u/s 69C in the assessment order. 4 That the Ld. CIT (Appeals) erred in confirming the total addition of Rs. 10,48,000/-, although the Ld. AO disallowed the expenses of rent & salary debited in the Profit & Loss account, u/s 69C as unexplained expenditure, although the additions made doesn't falls within the purview of Section 69C of the I. T. Act. 5 That the Ld. CIT (Appeals) erred in confirming the total addition of Rs. 10,48,000/- and thereby calculation of tax payable u/s 115BBE, although the Ld. AO erred in invoking Section 115BBE of the Act in the Computation Sheet annexed to the assessment order without having any mention in the assessment order. Also the appellant's case doesn’t falls within the purview of Section 115BBE of the I.T. Act.” 3. Brief facts of the case:-The assessee is in the business of Retail sale of Liquor from various outlets. The Assessing Officer noted that during the year, the assessee had paid shop rent for Rs.20,95,000/-, on which TDS was not deducted. The assessee explained that liquor license was awarded by Haryana Government for 24 locations out of which 22 were functional being two were protested by the local residents and submitted the list of area/locations. It was also submitted that mostly the areas comprises of the villagers/farmers whose premises were taken on rent and such villagers/farmers did not have PAN but submitted the Aadhar of the said persons. Further, details of rent paid with name of landlord, locations of the premises, amount of rent paid in a year were also submitted by the assessee. It was also submitted that during the year sales of the assessee had increased from 7.40 cores to Rs.46.37 cores i.e. more than 6.26 times as compared to last year whereas the rent paid by the assessee in the year had just increased to 3.26 times i.e. 6.42 lakhs to 20.95 lakhs. It was further submitted that rent paid per person during the year was less than 1,80,000/- and also single payment was less than Rs.10,000/- per day. Therefore, the provisions of chapter XVIIB regarding deduction of TDS or the violation of section 40A(3) was not attracted. The Assessing Officer did not accept the same on the ground that the assessee failed to furnish the rent agreements, rent receipt vouchers to substantiate his claim of the payment of rent of Rs.20,95,000/- and the payment was also not done through banking channel and disallowed the entire amount of Rs.20,95,000/- u/s 69C of the Act. 4. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the claim of the assessee on the ground it could not be denied that the assessee did not pay the rent to shop owners but in absence of any supporting documentary evidence, he restricted the disallowance to 20% expenditure claimed for rent, which comes to Rs.4,19,000/-. The relevant finding of the ld. CIT(A) is reproduced as under:- “5.1.4. After perusal of the reply of the appellant on this issue, it is seen that the appellant has stated that the rent paid was less than Rs.1,80,000/- per person in a year and single payment of rent was also less than Rs. 10,000/- per day per person for which provisions of section 40A(3) of the I.T. Act is not applicable in the case of the appellant for the A.Y.2018-19. But, during the appellant proceedings, the relevant documentary evidences like rent agreement, rent receipts or vouchers in support of claim of rent and proof of payments made to the shop owners and other related documentary evidences are not submitted by the appellant. It is also relevant that none of rent has been paid in cheque. However, it cannot be denied that the appellant has not paid rent to shop owners, but in absence of supporting documentary evidences, the exact quantum of rent paid by the appellant cannot be ascertained. 5.1.5. Keeping in view the totality of the facts and circumstances of the case and the submission made by the appellant during appellant proceedings, it is reasonable that the disallowance of rent made by the A.O. to the tune of Rs.20,95,000/- be restricted to 20% of expenditure claimed for rent. So, the disallowance of rent is restricted to 20% of total expenditure claimed for rent of Rs.20,95,000/- which comes to Rs.4,19,000/- for the A.Y.2018-19.” 5. Aggrieved with the said order, the assessee is in appeal before us. 6. The ld. AR reiterated the submissions made before the ld. CIT(A) and submitted that the Ld. CIT(A) restricting the addition on ad hoc basis by the Ld. CIT(A) was not justified. 7. The ld. DR supported the order of the Assessing Officer. 8. We have heard the rival submissions and perused the materials available on record. On perusal of the fact before us, it is seen that the assessee had submitted the relevant details before the Assessing Officer regarding the payment of rent Rs.20,95,000/- during the year. The Assessing Officer has not made out any case that the assessee has violated the provisions of chapter XVIIB of the Act in not deducting the TDS on the rent payable where applicable and also no violation of section 40A(3) of the Act was brought on record. Further, the Assessing Officer did not make any enquiry about the genuineness or otherwise of the payment of rent claimed by the assessee despite the basic like details of owner, address of property, address of property owner, Aadhar Number and details of rent paid furnished by the assessee (page no.64-66 of the paper book and the account of rent paid on page no.9 to 23 of the paper book). Therefore, in absence of the any enquiry and no adverse facts brought by the Ld. CIT(A), the confirmation of disallowance of Rs.4,19,000/- by the ld. CIT(A) is not justified and the same is deleted. Ground no.1 of the appeal is allowed. 9. During the year, the assessee had paid salary amounting to Rs.31,45,000/- on which no TDS was deducted. The assessee submitted the paid during the year (page no.67 to 108 of the paper book and ledger accounts of salary and bonus expenses at page no.24 to 50 of the paper book). It was also submitted that mostly staff belong to the villagers/farmers family and they did not have PAN and payments were made in cash which was less than Rs.10,000/- per day and stood verified from his salary ledger account submitted to the Assessing Officer. It was also submitted that during the year sales of the assessee increased from 7.40 cores to Rs.46.37 cores i.e. more than 6.26 times compared to last year, whereas the salary of the staff paid by the assessee in the year had just increased to 2.91 times from Rs.10,80,000/- to Rs.31,45,000/-. The Assessing Officer did not accept the above explanation of the assessee and termed the explanation of the assessee that it was not liable to deduct TDS as vague. Further, the Assessing Officer also took adverse view of the fact that the details of the employees were given without PAN and proper address and no vouchers/salary register were submitted by the assessee. It was also stated that no bank statement showing the withdrawals of cash for salary payment have been submitted by the assessee. In view of these facts, the Assessing Officer disallowed the entire expenditure of Rs.31,45,000/- u/s 69C of the Act claimed under the head salary expenses. 10. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) accepted the explanation of the assessee partly and observed that though, the assessee has claimed that he operates his liquor business in rural area but considering the total turnover of the assessee more than Rs.46 cores, payment of entire salary in cash defy human probability. The ld. CIT(A) observed that however, it could not be denied that the assessee has not incurred any expenditure towards salary to staff/employees for running business at 22 locations but in absence of supporting documentary evidence, the exact quantum of salary paid to staff/employees by the assessee could not be ascertained. He, therefore, restricted the disallowance to 20% of expenditure claimed and confirmed the amount of Rs.6,29,000/-. The relevant finding of the ld. CIT(A) is reproduced hereunder:- 5.1.7. On perusal of the reply of the appellant on this issue, it is seen that the appellant has stated that the salary paid was less than Rs. 10,000/- per person in a year and single payment of salary was also less than Rs. 10,000/- per day per person for which provisions of section 40A(3) of the I.T. Act is not applicable in the case of the appellant for the A.Y.2018-19. But, during the appellant proceedings, the relevant documentary evidences like details of employees without PAN, their addresses, copies of form-16 issued to them, proof of payment of salary etc. and other related documentary evidences are not submitted by the appellant. It is also relevant that none of the staff has been paid salary in cheque. However, it cannot be denied that the appellant has not incurred any expenditure towards salary to staff/employees for running business at 22 locations, but in absence of supporting documentary evidences, the exact quantum of salary paid to staff/employees by the appellant cannot be ascertained. 5.1.8. Keeping in view the totality of the facts and circumstances of the case and the submission made by the appellant during appellant proceedings, it is reasonable that the disallowance of salary paid to staff/employees made by the A.O. to the tune of Rs.31,45,000/- be restricted to 20% of expenditure claimed by the appellant. So, the disallowance of salary to staff/employees is restricted to 20% of total expenditure claimed by the appellant for Rs.31,45,000/- which comes to Rs.6,29,000/- for the A.Y.2018-19. 10. Aggrieved with the said order, the assessee is in appeal before us. 11. The ld. Authorized representative of the assessee reiterated the submission made before the Ld. CIT(A) and submitted that restricting the addition on ad hoc basis by the ld. CIT(A) was not justified. 12. The ld. Sr. DR supported the order of the Assessing Officer. 13. We have considered the rival submissions and perused the materials available on record. On perusal of the fact before us, it is seen that the assessee had submitted the relevant details before the Assessing Officer regarding the payment of salary to staff/employees of Rs.31,45,000/- during the year as discussed in para no.9 of this order. The Assessing Officer has not made out any case that the assessee has violated the provisions of chapter XVIIB of the Act in not deducting the TDS on the salary payable where applicable and also no violation of section 40A(3) of the Act was brought on record. Further, the Assessing Officer did not make any enquiry about the genuineness or otherwise of the payment of salary claimed by the assessee despite the basic details furnished by the assessee. Therefore, in absence of the any enquiry and no adverse facts brought by the Ld. CIT(A), the confirmation of disallowance of Rs.6,29,000/- by the ld. CIT(A) is not justified and the same is deleted. Ground no.2 is allowed. 14. In view of the Ground no.1 and 2 of the appeal of the assessee being allowed, the other grounds of appeal from grounds no.3 to 5 becomes academic and hence not adjudicated. 15. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 09th May, 2025. [YOGESH KUMAR US] [BRAJESH KUMAR SINGH]
JUDICIAL MEMBER

ACCOUNTANT MEMBER
Dated 09.05.2025
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