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Facts
The assessee incurred cash expenses, part of which were disallowed by the AO and confirmed by the CIT(A) due to lack of substantiation with bills and vouchers. The assessee claimed that bills and vouchers were lost due to departmental changes.
Held
The Tribunal found that while there was some credibility to the claim of misplacement of documents, the entire disallowance was not warranted. The Tribunal held that a reasonable allowance of 50% of the disputed expenses would meet the ends of justice.
Key Issues
Whether the disallowance of cash expenses due to non-production of bills/vouchers is justified, and whether the assessment order was time-barred.
Sections Cited
37, 40A(3), 143(3), 156
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI AMITABH SHUKLA
Assessment Years: 2015-16 Raymix Concrete India Private Limited, Deputy Commissioner of Income No.1/107 & 108, AGR Tower, Tax, P.H.Road, Nerkundram, Corporate Circle-5(1), Chennai- 600 107 Chennai. [PAN: AAECR6993A] (प्रत्यर्थी/Respondent) (अपीलार्थी/Appellant) अपीलार्थी की ओर से/ Assessee by : Ms.Lekha,C.A प्रत्यर्थी की ओर से /Revenue by : Ms.R.Anitha, Addl.CIT सुनवाई की तारीख/Date of Hearing : 12.06.2025 घोषणा की तारीख /Date of Pronouncement : 08.08.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M :
This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / APL / S / 250 / 2024-25 / 1068157952(1) dated 30.08.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), Chennai, for the assessment year 2015-16. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. 2.0 The first issue raised by the assessee through its grounds of appeal filed along with Form-36 is regarding an addition of Rs.3,87,87,928/- made by the Ld.AO u/s 37 and its confirmation by the Ld.CIT(A). It is the case of the appellant assessee that the impugned disallowance of its expenses is unwarranted as section 37 of the Act does not postulates any disallowance of cash expenses. It has been argued that the cash expenditure incurred by it is covered by exception circumstances provided in Rule-6DD of the Income Tax Rules. The appellant assessee also claimed that it had handed over all bills and vouchers to the assessing officer in five boxes in April-2019 which were returned back in October-2022 and that the appellant subsequently realized that it was not returned in entirety, all the bills and vouchers which it had handed over. 3.0 Considering the overall complexity of the issue at hand we deem it appropriate to briefly recapitulate the factual matrix of this case. The assessee company is engaged in the business of supply of concrete cement. Return of Income declaring income of Rs.1,82,91,300/- was filed by the assessee which was taken up for scrutiny by the Revenue. Upon consideration of financial of the assessee company the Ld.AO noted indulgence in payments involving cash transactions exceeding Rs.20,000/-. The Ld.AO queried the nature of the expenses and was informed that the same pertained to labour charges to carpenters and painters, purchase of material for construction sites, reimbursement of travelling expenses etc. In support of its contentions before the Ld.AO, the assessee merely produced ledger copies and few bills / vouchers. Page - 2 - of 11. On being asked to produce bills / vouchers in their entirety for verification, the assessee had submitted that the same is not possible given their voluminous content. Consequently, the Ld.AO, not satisfied with the genuineness of the impugned expenses proceeded to make an addition of Rs.3,87,87,928/- u/s 37 of the Act. 3.1 In appeal the assessee reiterated the same arguments, albeit with the request that one opportunity be provided for verification. The Ld.CIT(A) remitted the matter to the Ld.AO for verification and submission of a remand report. In his remand report dated 02.11.2022 the Ld.AO submitted that the appellant has been able to substantiate its claim of expenditure through bills and vouchers only for an amount of Rs.17,62,638/-. Accordingly, the Ld.CIT(A) confirmed the addition to the extent of Rs.3,70,25,290/- while giving relief for an amount of Rs.17,62,638/-. An inherent dispute seminal to the controversy is regarding some alleged misplacement of bills and vouchers of the appellant assessee by Revenue authorities. The same is evident from the contents of para 7.6 of the order of Ld.CIT(A). In this case the original appeal was filed before the then CIT(A) - 3 vide 18/A-3 on 12.04.2019 who had directed the assessee to produce bills and vouchers before the Ld.AO for verification and his remand report. As per records, vide its letter dated 30.04.2019 the assessee had submitted bills and vouchers in five carton boxes before the then AO Page - 3 - of 11 being DCIT, Corporate Circle-5(1), Chennai which subsequently merged with the office of DCIT, LTU, Circle-1, Chennai. Subsequently, the case got centralized with another AO and corresponding appeal was transferred to CIT(A)-18, Chennai. The said five carton boxes were transferred from DCIT, LTU, Circle-1, Chennai to the AO making the remand report. As the AO experienced difficulty in segregation of bills and vouchers he had asked General Manager Finance of the assessee to segregate the bills and vouchers item wise for convenient verification. Accordingly, on 12.10.2022 the said five carton boxes were handed over to the assessee. Records indicate that vide letter dated 25.10.2022 (filed in AO’s officer 27.10.2022) signed by some Director called Shri R.M.A.Rajan, assessee had informed Revenue authorities that it is in a possession of bills and vouchers amounting to Rs.17,62,638/- only. The assessee at this stage also submitted that the records being more than seven years old have also been scrapped. 4.0 We have heard rival submissions in the light of material available on records. It is the case of the assessee that it has provided all bills and vouchers in five carton to the department and that somewhere down the line because of intra-departmental jurisdictional changes, they were partly lost. It is vehemently argued that the blame of non-production cannot therefore be shouldered upon the assessee. Whereas the arguments taken by the assessee cannot be altogether brushed aside Page - 4 - of 11 since there exists a human probability of some records being unintentionally misplaced in the transit between intra-departmental jurisdictional changes, however the same cannot be accepted as wholly true fact. The appellant assessee has not been able to place on record any list of documents comprising bills and vouchers, along with accompanying acknowledgements, which it had handed over to the Revenue in the file carton boxes. There is nothing on record to further indicate as to what was handed back to the assessee by the revenue. Thus in this case, there is neither any documented evidence of what was handed over nor of what was received back. Consequently, the theory propounded by the appellant assessee has to be only accepted with a pinch of salt. The Ld DR has argued that credit has been given to all the bills and vouchers which were produced before them thereby pushing forth the theory of no record loss at their end. The truth apparently lies somewhere in between. 5.0 Another argument taken by the assessee is regarding the invocation of section 37 of the Act. It has been argued that the AO had made the addition on the premise of expenses incurred in cash and hence rightfully in addition ought to have been made u/s 40A(3). It has been argued that therefore the addition u/s 37 is ipso facto unwarranted. The Ld.DR placed reliance upon the order of lower authorities. It has been noted that the Ld.CIT(A) has extensively discussed the issue in Page - 5 - of 11 para 7.9 to 7.10 on page 13 of his order. The invocation of section 40A(3) comes in force when an assessee makes payments for any expenses in cash exceeding Rs.20,000/- as evident from its books of accounts. The present disallowance undoubtedly triggered because the payments were made in cash. However, non-availability of requisite bills and vouchers led the Ld.AO to draw the conclusion regarding genuineness per se of the impugned expenses. Consequently, invocation of u/s 37 has been found to be in order and the conclusion of the Ld. CIT(A) is correct. Further, the principal issue in this case is that the expenses claimed to have been incurred by the assessee have not been found to be genuine by the Ld.AO since there were no supporting bills and vouchers produced by the assessee when demanded for verification by the Revenue authorities. The argument of the assessee is therefore cannot be accepted. 6.0 The next issue raised by the appellant, during the present proceedings, is regarding the nullity of the assessment order u/s 143 dated 30.12.2017. It has been contended that the assessment order u/s. 143(3) was passed on 30.12.2017 whereas the demand notice u/s. 156 dated 29.12.2017 was issued prior to the passing the said assessment order. Thus the impugned order u/s 143 dated 30.12.2017 has been stated to be time barred and hence nullity. Reliance has been placed in the judicial precedents dated 21.02.2023 of Hon’ble Madras High Court in Page - 6 - of 11 the case of K J K Poly diamond International Private Limited. The Ld. DR has opposed the proposition of the assessee qua reliance upon the decision of Hon’ble Madras High Court arguing that the facts of the relied upon case are different. It has been argued by the Ld.DR that the impugned case law considered a situation where no assessment order was passed. It was also argued that the said case pertains to application of liability under CST and TN VAT Act of 2006. 7.0 The issue which the appellant assessee has raised is that as the Income Tax demand notice u/s 156 was issued by the AO on 29.12.2017 the corresponding assessment order u/s. 143(3) dated 30.12.2017 got time barred. The arguments of the assessee have been considered and found to be far from convincing. At this stage, we deem it necessary to examine the statutory provision of section 143(3) which are as under: “…..(3) 11[On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall 12, by an order in writing, make an assessment of the total income or loss of the assessee, and 12determine the sum payable by him or refund of any amount due to him on the basis of such assessment….”
8.0 A perusal of the statutory provision above indicates that the law mandates that the assessing officer shall by an order in writing make assessment of total income and determine the sum payable. The overall timeline for passing of an assessment order are given in section 153 in Chapter-XIV of the Act. A similar issue was a matter of Page - 7 - of 11 consideration before the Hon’ble Apex Court in the case of kalyan kumar Ray as at 191 ITR 634. In the impugned case it was discussed as to what is an order and precedence of tax calculation sheets over other orders . It was held that :- “…….The statute does not, however, require that both the computations (i.e. , of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is super scribed "assessment order". It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If,there fore, the Income-tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it,either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialled by the Income-tax Officer that the process described in section143(3) will be complete. In this context, one may take notice of the fact that, initially, rule 15(2) of the Income-tax Rules prescribedForm No. 8, a sheet containing the computation of the tax, though there was no form prescribed for theassessment of the income. This sub-rule was dropped in 1964. Thereafter, the matter has been governed by departmental instructions. Under these, two forms are in vogue. One is the form of what is described as the"assessment order" (I.T. 30 or I.T.N.S. 65). The other is what is described as the "Income-tax ComputationForm" or "Form for Assessment of Tax/Refund" (I.T.N.S. 150). The practice is that, after the "assessment order"is made by the Income-tax Officer, the tax is calculated and the necessary columns of I.T.N.S. 150 are filled up showing the net amount payable in respect of the assessment year. This form is generally prepared by the staff but it is checked and signed or initialled by the Income-tax Officer and the notice of demand follows thereafter.The statute does not, in terms, require the service of the assessment order or the other form on the assessee and contemplates only the service of a notice of demand. It seems that while the "assessment order" used to b egenerally sent to the assessee, the other form was retained on file and a copy occasionally sent to the assessee.I.T.N.S. 150 is also a form for determination of tax payable and when it is signed or initialled by the Income-tax Officer, it is certainly an order in writing by the Income-tax Officer, determining the tax payable, within the meaning of section 143(3). It may be, as stated in CIT v. Himalaya Drug Co. [1982] 135 ITR 368 (All), only atax calculation form for departmental purposes as it also contains columns and code numbers to facilitate computerisation of the particulars contained therein for statistical purposes but this does not detract from its being considered as an order in writing determining the sum payable by the assessee. We are unable to see why this document, which is also in writing and which has received the imprimatur of the Income-tax Officer,should not be treated as part of the assessment order in the wider sense in which the expression has to Page - 8 - of 11 be understood in the context of section 143(3). There is no dispute in the present case that the Income-tax Officer has signed the Form I.T.N.S.
We, therefore, think that the statutory provision has been duly complied with and that the assessment order was not, in any manner, vitiated. A brief reference may be made to the decisions on the issue. In Sushil Chandra Ghose v. ITO [1959] 35 ITR379 (Cal), the assessee was served, apart from the assessment order, with a copy of the form known as I.T.N.S.150 which was not signed by the Income-tax Officer but the court upheld the assessment because the original thereof had been duly signed. In S. Mubarik Shah Naqshbandi v. CIT [1977] 110 ITR 217 (J & K), the"assessment order" did not determine the tax payable and there was no other paper or form containing the computation except the notice of demand. In R. Gopal Ram narayan v. Third ITO [1980] 126 ITR 369 (Kar), theTribunal had annulled an assessment because the tax calculations had been made on a separate sheet of paper but the Department could not raise this issue before the High Court because it had not challenged the Tribunal's order in appropriate proceedings. The Karnataka High Court, however, did have occasion later to consider thequestion directly and upheld an assessment made in similar circumstances in CIT v. R. Giridhar [1984] 145 ITR246 (Kar), even though the separate sheet containing the tax computations had not been signed by the Income-tax Officer. The Punjab and Haryana High Court has also taken the same view Karuna Rani Jain v. CIT [1989]178 ITR 321. In CIT v. Krishwanti Punjabi [1983] 139 ITR 703 (Cal), Form No. I.T. 30 served on the assessee was not signed and the court remitted the matter back to find out if any determination of tax had been made before the expiry of the period of limitation prescribed under the Act for the completion of an assessment. All these decisions emphasise that all that is needed is that there must be some writing initialled or signed by the Income-tax Officer before the period of limitation prescribed for completion of the assessment has expired in which the tax payable is determined and not that the form usually styled as the "assessment order" should itself contain the computation of tax as well….”
8.1 We have noted that Hon’ble Apex court has concluded that all that is needed is that there must be some order in writing initialed or signed by the Income-tax Officer before the period of limitation prescribed for completion of the assessment has expired in which the tax payable is determined and not that the form usually styled as the "assessment order" should itself contain the computation of tax as well. Relying upon the said judicial precedent we can safely conclude that the controversy
Page - 9 - of 11 raised is unnecessary as both the computation sheet dated 29.12.2017 and the assessment dated 30.12.2017 were passed well before the expiry of limitation period. The argument of the assessee regarding the assessment order being barred by limitation therefore cannot be accepted. 9.0 Upon consideration of varied facts of the facts we have noted that the argument of the assessee qua wrong invocation of section 37 as well as the assessment order being barred by limitation cannot be accepted. We though find an element of credibility in the argument of the assessee qua misplacement of its bills and vouchers. We have noted that the assessee is said to have incurred expenditure of Rs.3,87,87,928/- in cash. Based upon bills and vouchers available the Ld.CIT(A) has given relief of Rs.17,62,638/-. Though there can be an element of claim of ingenuine expenses, their quantum cannot be very high enough to deny entire claim of expense. The assessee is doing a running business and its turnover etc have been accepted by the Revenue. Expenses of the type referred in this controversy are integral to running of a business and cannot altogether be said to be non- existence. Be that as it may be we are of the view that ends of justice would be met if 50% of the expenses are allowed to the assessee, which will mean an amount of Rs.1,93,93,964/-. The assessee has already been allowed credit of Rs.17,62,638/-. The orders of lower authorities is Page - 10 - of 11 Ld.AO is directed to allow further benefit of Rs.1,76,31,326/- i.e (1,93,93,964 – 17,62,638/-) to the assessee. All the grounds of appeal raised by the assessee is therefore partly allowed. 10.0 In the result, the appeal of the assessee is partly allowed. Order pronounced on 8th , Aug-2025 at Chennai.