NIGHTINGALE FINVEST PRIVATE LIMITED,GUWAHATI vs. ITO WARD 12(4), KOLKATA, KOLKATA

Shri Anil Kumar Agarwala, Advocate appeared on behalf of the assessee and Shri Prabhakar Prakash Ranjan, Addl. CIT appeared on behalf of the revenue.

It was submitted by the Ld. AR that there was a mistake in Form No. 36 in respect of the mentioning of the Assessment Year which was shown as AY 2014-18. Corrigendum has also been filed which specifies that the Assessment Year is AY 2017-18. The corrected Form No. 36 is taken on record.

It was submitted by the Ld. AR that there are three issues raised in the assessee’s appeal. The first issue was in respect of an addition of Rs.1,55,710/- confirmed by the Ld. CIT(A) in respect of the disallowance of cash expenses. The second issue was against the addition of Rs.3,63,45,650/- representing cash deposit during demonetization period. The third issue was legal issue wherein the assessee has challenged the cash deposits in the bank account of the assessee can be treated as disallowable by invoking the provisions of section 68 of the Act.

At the time of hearing, the Ld. AR withdrew his legal ground. Consequently, the legal ground i.e. ground no. 3 of the assessee’s appeal stands dismissed as withdrawn.

Coming to the first issue being the addition of Rs.1,55,710/-, it was submitted by the Ld. AR that the Assessing Officer in the course of assessment proceedings had disallowed 50% of the cash expenses relating to the canteen operated by the assessee the disallowance was Rs.3,11,418/-. It was the submission that on appeal, the Ld. CIT(A) held that the expenses were incurred for the purpose of business and the Assessing Officer could not comment about the verifiability of the same and consequently restricted the disallowance to 25% resulting in an amount of Rs.155,710/- as confirmed. It was a submission that the said expenses were not disallowable in so far as the assessee was a company and all the vouchers were maintained. It was the submission that the ad-hoc disallowance was uncalled for.

In reply, the Ld. Sr. DR submitted that the expenses were unverifiable in so far as the expenses were incurred in cash. It was the submission that the Ld. CIT(A) has been extremely reasonable in restricting the disallowance to 25%.

We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer after bringing out the details of the expenditure took the stand that the expenses incurred were bogus expenses. On appeal, the Ld. CIT(A) shifted the issue from the claim of the Assessing Officer that it was bogus expenses to non-verifiable expenses. Admittedly, no specific expenses have been disallowed as either bogus or non-verifiable. The details of each and every voucher has been extracted by the Assessing Officer in his assessment order. What has been disallowed by the Assessing Officer and partly confirmed by the ld. CIT(A) is nothing but ad hoc disallowance, which is not permissible under the Indian Income Tax Act, 1961. If there are any specific items that called for any disallowance then the Assessing Officer and the Ld. CIT(A) ought to have made a specific identified disallowance, and as this has not been done, the disallowance of Rs.1,55,710/- as confirmed by the Ld. CIT(A) stands deleted.

In regard to the addition of Rs.3,63,45,650/- made by the Assessing Officer in respect of the cash deposit by the assessee in its bank account, it was submitted by the ld. AR that these were monthly and bimonthly collections made by the assessee in the course of its business. It was a submission that the assessee is an NBFC approved by the Reserve Bank of India. It was the submission that the assessee gives loans to various persons and the recovery is on a monthly/bimonthly basis. It was a submission that the figure of Rs.3,63,45,650/- as adopted by the Assessing Officer was not the actual figure from the books of the assessee but was same figure arrived at by the Assessing Officer by doing some arithmetic jugglery. It was a submission that the disallowance was done not in respect of demonetized currency, which was deposited by the assessee in its bank account and the same was already accepted by the Assessing Officer. These were cash deposited in the various bank accounts of the assessee during the period of demonetization. It was the submission that though the Assessing Officer had asked for the details, due to the voluminous nature of the details it was not produced but some sample were produced. It was submitted that the Assessing Officer disallowed the entire cash deposit treating the same as unexplained cash credit in the books of the assessee. It was the submission that each of the deposit has a corresponding entry in the books of account of the assessee and it relates directly to the various clients of the assessee from the business who have taken loan from the assessee. It was the submission that each of these loan amounts have also been repaid. It was the submission that the Assessing Officer and the ld. CIT(A) has erred in making and confirming the addition.

In reply, the Ld. Sr. DR submitted that no details had been produced by the assessee and to substantiate this claim of the cash deposited being monthly/bimonthly, claims made from the creditors who had taken loan needed verification. It was the submission that though multiple opportunities had been granted, the assessee failed to provide the details. It was the submission that the addition is liable to be confirmed.

We have considered the rival submissions. A perusal of the facts in the present case on issue shows that admittedly the assessee has been granted opportunity. The assessee on the ground that the documents would be voluminous did not provide the same. When an authority under the statute asked for certain details, it is normally expected by the assessee to provide the details and substantiate its claim. Just because there is voluminous detail does not mean that the process of assessment can be short circuited by not providing the details. This being so, and in the interests of justice, one more opportunity is being provided to the assessee to produce the details before the Assessing Officer. Hence, this issue is restored to the file of the AO for re-adjudication. The Assessing Officer shall adjudicate the issue after granting the assessee adequate opportunity to substantiate its case. The assessee shall cooperate in the set aside proceedings.

In the result, the appeal of the assessee is partly allowed for statistical purpose with the directions given above.