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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. SANJAY ARORA & SH. N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 36/Asr/2014 Assessment Year: 2010-11
Arun Kumar Seth, vs. Dy. CIT, Maharaj Bazar, Circle-3, Srinagar Srinagar [PAN: AJBPS 4215K] (Appellant) (Respondent)
Appellant by : Sh. Tarun Bansal (Adv.) Respondent by: Sh. Charan Dass (D.R.) Date of Hearing: 02.04.2019 Date of Pronouncement: 30.05.2019
ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals), Jammu ('CIT(A)' for short) dated 29.11.2013, partly allowing the assessee’s appeal contesting his assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 11.3.2013 for the Assessment Year (AY) 2010-11.
The only issue in appeal is the sustainability in law, in the facts and circumstances of the case, of the disallowance of Rs.2 lacs (each) of the expenditure on machinery repair and fuel sustained by the ld. CIT(A) vide the impugned order.
2 ITA No. 36/Asr/2014 (AY 2010-11) Arun Kumar Seth v. Dy. CIT 3. At the outset, the ld. counsel for the assessee, Sh. Bansal, would make a prayer for admission of the additional ground, which reads as under:
‘That the ld. AO has erred in law by not rejecting the Audited books of Account and Audit Report before confirming the addition.’ The assessee, he continued, has filed amended grounds, the first two of which only survive, the others having been adjudicated while disposing the Revenue’s appeal (in ITA No. 80/Asr/2018, disposed on 29/10/2018). The same reads as under:
‘1. That the ld. CIT(A) has wrongly confirmed addition of Rs.2,00,000 on adhoc basis in machinery repair of two independent units, jointly, without appreciating the fact that there is no relevancy in machinery repair of both the units, due to different kind of working and different kind of machinery in both units. 2. That the ld. CIT(A) has wrongly confirmed addition of Rs.2,00,000 on adhoc basis in fuel expenses of two independent units, jointly, without appreciating the fact that there is no relevancy in fuel expenses of both the units, due to different kind of working and different kind of machinery in both the units.’
It was accordingly explained to Sh. Bansal that in-as-much as the assessee has raised the issue of validity of the impugned disallowances, in the facts and circumstances of the case, it was open for him to, in argument, raise any plea toward the same, including that being now sought to be urged per a legal ground, and that no separate additional ground was therefore required. Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 clearly provide for grounds of appeal to be concise and under specific heads, i.e., without any argument or narrative. The matter was accordingly proceeded with.
The brief facts of the case are that the Assessing Officer (AO), during the assessment proceedings, called upon the assessee to produce bills/vouchers in respect of machinery repair and fuel expenses, claimed in the sum of Rs. 22.61 lacs
3 ITA No. 36/Asr/2014 (AY 2010-11) Arun Kumar Seth v. Dy. CIT and Rs.37.15 lacs respectively vide order-sheet entry dated 21/6/2012. The assessee not producing the same even up to the date of the assessment order, the AO estimated the extent of the unverifiable expenditure and/or, therefore, the extent of inflation therein, at Rs. 3 lacs each, effecting thus a total disallowance of Rs.6 lacs, which stands reduced by the ld. CIT(A) in appeal to Rs. 4 lacs. Aggrieved, the assessee is in second appeal.
Before us, it was contended by Sh. Bansal that no addition could have been made by the AO as he had not rejected the assessee’s books of account. Even on merits, the same was not justified as the assessee had produced bills/vouchers before the ld. CIT(A), though, while deciding the issue, he failed to take the same into account, and toward which he would draw our attention to the assessee’s reply dated 14/8/2012, reproduced at pgs. 2 to 10 of the impugned order, which, at its’ end (pg. 10), reads as under:
‘Photocopies of the bills are separately produced.’
The assessee, he continued, had even made an application for admission of additional evidence before the appellate tribunal, adverting to a compilation containing 602 pages filed along with the paper-book (numbered as 268 to 869 of the PB). The matter, accordingly, it was submitted, be restored back to the file of the ld. CIT(A) for considering the evidence sought to be adduced before him. It is not a case of estimation of income requiring the rejection of accounts, but of the disallowance under section 37(1). Two, the non-production of bills/vouchers of the impugned expenses before the AO being admitted, the only course (of action) available with the assessee was to seek admission of the additional evidence in terms of rule 46A of the Income Tax Rules, 1962 (‘the Rules’), and which had admittedly not been followed. How could, without first admitting the same, the ld.
4 ITA No. 36/Asr/2014 (AY 2010-11) Arun Kumar Seth v. Dy. CIT CIT(A) take cognizance of the bills/vouchers produced before him? Upon this being observed by the Bench, it was explained by Sh. Bansal that the circumstances for not producing the said evidence before the AO were also stated by the assessee to the ld. CIT(A). The matter may accordingly be restored back to the file of the first appellate authority or, in the alternative, the Bench consider the assessee’s case on merits in-as-much as, on the basis of past data, no disallowance is called for.
We have heard the parties, and perused the material on record. 6.1 The plea that a part of the impugned expenditure is on manufacturing account, so that no disallowance in its respect could be made without rejecting the books of account, is without basis on facts and in law. To begin with, there is nothing on record to show that a part of the impugned expenditure is a ‘manufacturing expenditure’. The difference, even otherwise, is notional, as the expenditure is in either case allowable, i.e., in law, u/s. 37(1) of the Act, i.e., whether it falls, in whole or in part, to be categorized as a manufacturing or a P&L A/c expenditure. The disallowance effected is only for the reason of the expenditure being to that extent not verifiable and, thus, unproved. The only difference is that a manufacturing/trading expenditure forms part of the cost of goods sold and, therefore, liable to be taken into account to the extent it relates to the goods unsold as at the year-end, in valuing the closing stock to enable the correct determination of the operating results. Reference in this context may be made to the orders in Kiran Mahajan v. ITO (in ITA No. 319/Asr/2017, dated 21/07/2018) and Abdul Hafiz v. Dy. CIT (in ITA No. 465/Asr/2017, dated 19/3/2018), to cite two, also referring to the decision in CIT v. K.S. Bhatia [2004] 269 ITR 577 (P&H) and Asst. CIT v. Roopchand Thirani [2012] 249 CTR 326 (Chtt.), as well as the orders by the tribunal relied upon in the said cases.
5 ITA No. 36/Asr/2014 (AY 2010-11) Arun Kumar Seth v. Dy. CIT 6.2 The ld. CIT(A) has, vide his order, reduced the impugned disallowance of Rs.6 lacs to Rs. 4 lacs, holding as under: (pgs. 26-27 of the impugned order): ‘6.6 Ground of appeal No 4 relates to ad hoc addition of Rs 6,00,000/- (Rs.3 lacs under each head) in respect of Machinery repairs and maintenance and Fuel Expenses. The AO during the course of assessment proceedings has observed that the appellant had claimed machinery repair and maintenance amounting to Rs. 16,10,663/ in M/s. Aay Bee International and Rs. 6,49,683/- in M/s. Seth & Seth Associates. Similarly, a sum of Rs. 32,24,414/ has been claimed as an expenses on account of fuel and Rs. 4,91,320/- in M/s. Seth and Seth Associates. The AO called upon the appellant to furnish the ledger account of these expenses with supporting bills/vouchers. The AO observed that the appellant has furnished ledger but no supporting bills have been produced to support the claim of the appellant. It is observed that the appellant has also produced only copy of ledger account during the appellate proceedings and no supporting evidence could be produced by the appellant. Therefore, the action of the AO is making adhoc disallowance is justified. However, the amount of disallowance seems to be on higher side, therefore, I direct to reduce the adhoc disallowance of expenses from Rs.6,00,000/- to Rs.4,00,000/- (Rs.2,00,000/- under each head). This ground of appeal is partly allowed and a relief of Rs.2,00,000/- is allowed.’
(emphasis, supplied) It is clearly stated that no supporting evidences were produced by the assessee in the appellate proceedings. In which case, therefore, the ld. CIT(A) is perfectly justified in drawing an adverse inference (Union of India v. Rai Deb Singh Bist [1973] 88 ITR 200 (SC); Kalyani Medical Store v. CIT [2016] 386 ITR 387 (Cal)). In fact, this reduction by him, impugned per the instant appeal – inasmuch as it is total, is, in the absence of any evidence led by the assesse before him, an indulgence by the ld. CIT(A), not supported by any facts/material. The Revenue being not in appeal, the said issue would therefore arise for consideration upon considering the assessee’s appeal on merits, i.e., the reasonability of the disallowance/s as finally sustained by the first appellate authority. The first issue and, in fact, the only one argued before us, is the non- consideration of the evidence stated to be adduced by the assessee before the said authority. Both the sides, we are afraid to say, did not draw our attention to the categorical finding by the ld. CIT(A), reproduced supra, i.e., qua the non-production of any evidence by
6 ITA No. 36/Asr/2014 (AY 2010-11) Arun Kumar Seth v. Dy. CIT the assessee before him, which is very unfortunate; more so as this constitutes the principal grievance argued.
6.3 We have, at this stage, two options before us. The first is to rely on the finding by the ld. CIT(A), which stands reinforced by the surrounding facts and circumstances, viz. (a) non-application under rule 46A before the first appellate authority; (b) non-raising of any ground before us qua the non-admission of additional evidence by the first appellate authority; and (c) application for admission of additional evidence before the tribunal by the assessee. Doing so would result in the confirmation of the impugned order in-as-much as no improvement in his case has been made by the assessee before us; rather, the relief allowed by the ld. CIT(A) being, as observed earlier, sans any basis. The second course available is to, as contended, regard the assessee as stating the truth, so that materials were indeed produced before the ld. CIT(A). This is particularly so as it would be difficult to establish the truth. As explained by Sh. Bansal during hearing, voluminous record of bills/vouchers were produced before the ld. CIT(A), so that sample copies, on his asking and as desired by him, could be submitted thereto. The second reason, despite the corroborating facts being against the assessee, for allowing the assessee the benefit of doubt is that no prejudice would stand to be caused to the Revenue. We make it clear that we are not for a moment doubting the veracity of the finding by the ld. CIT(A), but have, all the same, no reason to disbelieve the assessee. If indeed the assessee has the required evidence, which could be subject to verification by the Revenue, admittedly not adduced before the AO in the assessment proceedings, he should, following the due process of law, be allowed opportunity to present his case before the ld. CIT(A).
7 ITA No. 36/Asr/2014 (AY 2010-11) Arun Kumar Seth v. Dy. CIT 6.4 We, accordingly, remit the matter back to the file of the ld. CIT(A) to allow the assessee opportunity to present his case before him, i.e., firstly, qua the admission of additional evidence under rule 46A and, further, where admitted on merits, adjudicate the issue on quantum, again, following the due process of law, including grant of opportunity to the parties. We decide accordingly.
In the result, the assessee’s appeal is allowed for statistical purposes. Order pronounced in the open court on May 30, 2019
Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 30.05.2019 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: Arun Kumar Seth Maharaj Bazar Srinagar (2) The Respondent: Dy. CIT, Circle-3, Srinagar (3) The CIT(Appeals), Jammu (4) The CIT concerned (5) The Sr. DR, I.T.A.T.