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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & Ms. PADMAVATHY S
Per Padmavathy S., Accountant Member
1. This appeal by the revenue is directed against the order of the CIT(Appeals). Gulbarga dated 28.2.2018 for the assessment year 2014-15 on the following revised grounds:-
The order of the learned Commissioner of Income Tax (Appeals) is opposed to law and facts of the case.
2. In the facts and circumstances of the case, the ld. CIT(A) ought to have appreciated the facts that the information furnished by the assessee on expenses and sundry creditors was incomplete, forcing the AO to make disallowances based on the prima facie inadequate information /confirmations.
In the facts and circumstances of the case, ld. CIT(A) has ignored the fact that there was last minute furnishing of information by the assessee, i.e. on 28/12/2016 forcing the AO to complete the assessment as it is getting time barred by 31.12.2016. The ld. CIT (A) ought to have given further opportunity to the AO before deletion the additions made.
Any other ground which may arise during the case.”
The assessee is an individual carrying on the business of processing and packaging of meat and vegetables under the name and style of M/s. Qura International. He filed his return of income on 24.12.2014 declaring total income of Rs.NIL after claiming deduction u/s. 80IB of the Income-tax Act, 1961 [the Act] of Rs.8,13,317. The case was taken up for scrutiny and notice issued u/s. 142(1) of the Act on 8.8.2016 to which assessee responded on 18.11.2016 requesting for transfer of his case to Gulbarga. The case was transferred to Gulbarga on 19.12.2017 and the AO completed the assessment on 30.12.2017 making the following disallowances:-
(i) Disallowance of deduction u/s. 80IB – Rs.8,13,317. (ii) Addition of Rs.10 lakhs being unexplained capital introduction. (iii) Addition of Rs.67,23,634 being unproved sundry creditors. (iv) Disallowance of other expenses of Rs.1,76,36,718 on adhoc basis. 3. Aggrieved, the assessee filed appeal before the CIT(Appeals), who upheld the disallowance and deleted the rest of the additions/disallowances made by the AO. Against this, the revenue is in appeal before the Tribunal.
4. The ld. DR submitted that the case was transferred from Pune only on 19.12.2017 and the AO was left with very little time to verify the details before completing the assessment which was getting time barred on 31.12.2017. He also submitted that the assessee furnished the details late which did not give sufficient time for verification by the AO. He further submitted that the CIT(Appeals) proceeded to give relief to the assessee without calling for a remand report from the AO to verify details submitted by the assessee. He therefore prayed that the matter ought to be remanded to the AO for his verification.
The ld. AR submitted that there is no violation of Rule 46A of the Income-tax Rules since the assessee has produced all the supporting evidence called for by the AO and the same were produced before the CIT(Appeals) also. He acknowledged the fact that though there was no sufficient time for the AO to verify the details furnished before him by the assessee with respect to each of the disallowances, however, the CIT(Appeals) has looked into these details before giving relief to the assessee and the power of the CIT(Appeals) is coterminous with that of the AO. The ld. AR therefore submitted that the order of the CIT(Appeals) is to be upheld.
We have heard the rival submissions and perused the material on record. The assessee filed the return of income before the ITO, Ward 7(2), Pune and the case later got transferred to Gulbarga on 19.12.2017. The assessee in response to the notice had filed all the details called for by the AO. The AO has acknowledged in para 4 of the assessment order that the assessee has furnished the details at the fag end of the time barring period, he could not thoroughly examine the same. He concluded the assessment after verifying the details furnished by making prima facie additions/disallowances. The assessee has furnished all the relevant details before the AO as well as the CIT(Appeals). The CIT(Appeals) after examining the evidence has passed a speaking order in giving relief to the assessee. The relevant findings of the CIT(Appeals) with regard to the each of the disallowance/addition are as follows:-
Addition of unproved creditors “The details furnished by the assessee, assessment order passed by the AO and copies of confirmation along with photo id & address proof submitted by the assessee have been perused. On perusal of the same, it is seen that the assessee has duly furnished the confirmation of sundry creditors along with photo id & address proof of each creditor. Further, the AO made the disallowances without verifying the fact & outstanding balances from the third parties. The appellant had filed before the AO forty one confirmation issued by N number of sundry creditors confirming the balance outstanding receivable by them as on 31.03.2014, these confirmations, as stated by him, were filed by the appellant on his own though the notice dated 19.12.2016 is silent and also does not specifically require the appellant to submit confirmations. There is merit in appellant's contentions. Further it may be seen that no addition has been made in assessment order for subsequent assessment year 2015-16 wherein most of the sundry creditors were also appearing. If the AO for AY 2014-15 had paucity of time to investigate, he cannot dismiss the appellant's submissions just like that by a single sentence and add sundry creditors. Once the appellant had produced 41 letters of confirmation and if he found a few of them not to his satisfaction, he could have very well asked the appellant to produce full details or produce them in person. The assessment order does not even mention names of the creditors that were added and amounts shown against them. By a simple sentence mentioning number of creditors and total amount, the AO proceeded to make the addition. This is vague and unsubstantiated addition without basis or explanation. The contentions of the appellant as well as submissions and details filed have merit in them whereas the AOs single line conclusion without even giving names of creditors and amounts is baseless. It may be further mentioned that the creditors, mostly common, have been accepted in the subsequent assessment year. Thus the addition made is vague, unsubstantiated, baseless, incomplete with no details and does not merit to be sustained in the light of the detailed discussion as above. Hence, the ground appeal filed by the assessee is hereby allowed and AO is directed to delete the addition of Rs.67,23,634/- made on this account. Unexplained capital introduction 8. In respect of ground no. 6, the assessee has filed appeal against additions made by the AO of Rs. 10,00,000/- in respect of unexplained capital introduction. The reply submitted by the assessee and assessment order passed by the AO has been carefully perused. On perusal it is noticed that the AO had made the disallowances without verifying the facts 86 circumstances of the case. The assessee had also submitted the relevant bank account statement which shows that the sufficient and required sources were there with assessee to contribute and invest in M/s.Qura International. In total, the appeal filed by the assessee on this ground is hereby allowed and the AO is directed to delete the additions made of Rs. 10,00,000/-. Adhoc Disallowance In respect of ground no. 5, the assessee has filed appeal against adhoc disallowances of Rs. 1,76,39,718/- made by the AO being 30% of the other expenditure of Rs. 5,87,99,060/-. The detailed reply submitted by the assessee and assessment order passed by the AO has been carefully perused. On perusal of the same the following facts are noticed: The AO had made the disallowances without verifying the books of accounts, bills & vouchers. The AO has made adhoc addition without pointing out any specific expenses which were incurred for non-business purposes. The admitted facts of the case are that the expenditure incurred was wholly and exclusively for the purposes of business. This fact has not been disputed by the A.O. The A.O. made the disallowance without pointing out any specific expenditure which was incurred other than for the purposes of business. Further, it is to be noted that the Assessing Officer had not pointed out any defect in the books of accounts maintained by the assessee. The books of accounts were duly audited and purchases and sales were duly recorded. The A.O has made an adhoc addition without any scientific and legal basis Further, payment made in cash does not mean that the expenditure is not genuine. The AO has not verified whether the assessee had violated the provisions of section 40A(3) & 40(a)(ia) of the IT Act. Further, reliance is placed in case of Thard Hardware Co Vs ACIT 266 ITR (AT) 61 (Guj.) wherein the Hon'ble Gujrat High Court has held that if an expenditure is to be disallowed as per law, not found being deductible u/ s 37, then adhoc estimate of such disallowance of expenditure is not justified since the precise amount to be disallowed is required to be identified. Thus, the A.O. is not justified in disallowing 30% of the aforesaid expenditure. In view of the above, the adhoc additions made by the AO is not legitimate. Hence, the appeal filed by the assessee on this account is allowed and the AO is directed to delete the additions of Rs. 1,76,39,718/-.”
We also notice that there is no violation of Rule 46A with respect to evidence furnished by the assessee before the CIT(Appeals). The contention of the ld. DR that no remand report was called for by the CIT(Appeals) before giving relief to the assessee has no merit in the facts and circumstances of this case. The powers of the CIT(Appeals) are coterminous with that of the AO and the CIT(Appeals) has done a thorough verification of the details and evidence furnished by the assessee while holding the issues in favour of the assessee.
In view of the above discussion, we see no reason to interfere with the order of the CIT(Appeals) and reject the grounds raised by the revenue.
In the result, the appeal by the revenue is dismissed.
Pronounced in the open court on this 14th day of June, 2022..