YERROWDA INVESTMENTS LIMITED,MUMBAI vs. DEPUTY/ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-8(1), MUMBAI

Brief facts relevant for adjudication of the instant appeal are that the AO, vide assessment order dated 29.09.2021 passed u/s 143(3) of the Act, made an addition of Rs.98,68,720/- by disallowing the expenses claimed u/s 57(iii) of the Act, principally on the ground that the Assessee failed to substantiate the claim with documentary evidence.

The Assessee challenged the aforesaid disallowance before the Ld. Commissioner, who affirmed the action of the AO, inter alia, observing that an inadvertent claim does not automatically entitle the Assessee to deduction unless the same is otherwise allowable in accordance with law. The Ld. Commissioner further observed that the Assessee failed to controvert the findings of the AO regarding absence of nexus and non-satisfaction of the conditions prescribed for allowance of the claim u/s 57(iii).

Before us, the Ld. Counsel filed certain additional evidence, inter alia, comprising ledger extracts of the DFPCL advance account and DFPCL reinvestment account, sundry balance ledger, general expenses ledger, Profit and Loss Account extracts and common vendor ledger in the books of DFPCL reflecting payment of property tax by DFPCL.

The Ld. Counsel submitted that the alleged discrepancy between the reinvestment amount reflected in the audited financial statements and the amount stated during the assessment proceedings arose merely on account of certain inter-company adjustments. According to the Assessee, there is no actual mismatch in the books and the issue is essentially one of reconciliation.

The Ld. DR on the contrary supported the orders passed by the authorities below.

We have heard the parties, perused the material available on record and given thoughtful consideration to their rival claims. Admittedly, the aforesaid documents were not available before the authorities below and the disallowance of Rs.98,68,720/- u/s 57(iii) was made and sustained principally for want of supporting material.

The additional evidence now produced before us prima facie appears relevant for proper adjudication of the issue and for examining the alleged discrepancy and nexus of the expenditure. Accordingly, the additional evidence is admitted under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.

Considering the peculiar facts and circumstances, the case is remanded to the file of the Ld. Commissioner for decision afresh, suffice to say, by affording a reasonable opportunity of being heard to the Assessee and considering the additional evidence as well as the material and submissions placed/to be placed on record. The Ld. Commissioner shall examine the reconciliation and the allowability of the expenditure u/s 57(iii) in accordance with law and pass a speaking order.

The Assessee shall cooperate with the proceedings and shall not seek unnecessary adjournment. We further clarify that, in case of any further default, the Assessee shall not be entitled to any leniency.

In the result, the Assessee’s appeal is allowed for statistical purposes.