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Facts
The assessee, a partnership firm engaged in the liquor business, had its lodging facility closed for renovation. The AO observed lower profits and non-disclosure of income from lodging, while salary expenses were claimed. The AO added ₹9,00,000 to the total income.
Held
The Tribunal found that the lower authorities' basis for addition was not appropriate, as there was no material to show the closure of business was wrong. The revenue also failed to prove the claimed expenses were not genuine.
Key Issues
Whether the addition made by the AO and confirmed by CIT(A) was justified when the assessee claimed closure of business for renovation and continued to incur staff expenses.
Sections Cited
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI NARENDER KUMAR CHODHRY & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi vide order dated 11/04/2025 in DIN No.ITBA/NFAC/S/250/2025-26/1075596488(1) for the assessment year 2018-19.
The only issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of ₹9,00,000 on wrong assumptions of fact.
The assessee is a partnership firm engaged in the business of liquor. The AO during assessment observed that: • The assessee has shown a lower amount of profit in the return of income.
• The assessee has not shown income from room rent and service charges, though in the earlier year income of ₹8,37,000 was disclosed from such activity.
On being questioned, the assessee submitted that it had closed down its lodging facility and therefore no income from room rent or service charges was offered this year.
However, the AO found that the assessee had claimed higher amount of salary paid to staff and the manager, while at the same time claiming that it had stopped the lodging activity. According to the AO, no prudent businessman would incur such expenses after closure of the lodging section. He therefore made an addition of ₹9,00,000 to the total income of the assessee.
On appeal, the learned CIT(A) confirmed the order of the AO and upheld the addition.
The learned AR submitted that the addition was made and confirmed on a wrong assumption of facts. The lower authorities wrongly held that no prudent businessman would close down the lodging facility. The ld. AR argued that the lodging activity was stopped because renovation was under progress. During renovation, staff and the . manager were still required. The ld. AR further submitted that some disallowance could be made on an ad-hoc basis but not the full addition.
The learned DR supported the orders of the lower authorities and submitted that the addition was rightly made and confirmed.
We have heard both sides and examined the materials available on record. From the preceding discussion, we note that the basis adopted by the lower authorities is not appropriate. There is no material to show that the assessee’s claim of closure of business is wrong. It is the assessee who has to manage its affairs, and the revenue cannot guide the assessee whether to hire staff and a manager or not. The revenue has also failed to point out that the impugned expenses claimed are not genuine.
9.1 Nevertheless, in order to put an end to the ongoing dispute, and in the interest of justice, we restrict the addition to 50% of the sum sustained by the authorities below.
In the result, the appeal of the assessee is partly allowed in the above terms.
Order pronounced in court on 9th day of October, 2025