VENKATA SUBBA REDDY METTUPALLI,SECUNDERABAD vs. ITO., WARD-15(2), HYDERABAD

Succinctly stated, the assessee had filed his return of income for A.Y. 2017-18 on 23.03.2018 declaring an income of Rs.14,39,830/-. Subsequently, the case of the assessee was selected for scrutiny assessment under CASS for verifying the cash deposits made by him in his bank accounts during the demonetization period.

During the course of assessment proceedings, the A.O. observed that the assessee, as per ITS data had during the demonetization period made cash deposits of Rs.95,62,059/- in his bank account. Although, notices u/s 142(1) of the Act were issued to the assessee but the same remained uncompiled. As the requisite details/information was not forthcoming from the assessee, therefore, the A.O. gathered the details from the banks u/s 133(6) of the Act.

As the assessee had failed to furnish requisite details, the A.O. was constrained to proceed with and frame the assessment to the best of his judgment u/s 144 of the Act. On a perusal of the financial statements of the assessee, viz. Trading Account, Profit and Loss Account, and Balance-Sheet as were available with the 4 Venkata Subba Reddy Mettupalli A.O. both for the year under consideration and that for the immediately preceding year F.Y. 2015-16, it was observed by him that the sales of the assessee had increased from Rs.7.4 crores to Rs.7.9 crores. However, the A.O. observed that the assessee had, in his Profit and Loss account during the subject year, debited salaries of Rs.40,02,000/- as against Rs.28,84,500/- claimed in the immediately preceding year i.e. F.Y. 2015-16. Observing, that the assessee had failed to substantiate the increase in the salary expenditure, the A.O. disallowed the same to the extent of Rs.11,17,500/- (Rs.40,02,000/- - Rs.28,84,500/-) i.e. the difference in the increase in salaries as in comparison to the preceding year. Apart from that, the A.O. observed that though the assessee, during the subject year, had debited an amount of Rs.4,59,000/- in his Profit and Loss account as “Godown Rent”, but no deduction of tax at source on the said payment was discernible from the record. Accordingly, the A.O disallowed u/s 40(a)(ia) the ground rent of Rs. 1,37,700/- (30% of Rs. 4,59,000/- ). Apart from that, the A.O. observed that the assessee had in his Profit and Loss account debited “Unloading Charges” of 5 Venkata Subba Reddy Mettupalli Rs.5,63,000/-. As the assessee had failed to lead any evidence/material to substantiate his aforesaid claim of expenditure, therefore, the A.O. disallowed the same.

The assessee, being aggrieved with the order of CIT(A) has carried the matter in appeal before us.

Shri T. Chaitanya Kumar, Advocate, the learned Authorized Representative (for short “LD.AR”) of the assessee, at the threshold of hearing of the appeal, submitted that the A.O. had grossly erred in law and on facts of the case in disallowing the assessee’s claim for deduction of expenses which, having been incurred in the normal course of his business were allowable u/s 37 of the Act. The ld.AR submitted that the assessee is engaged in the business 6 Venkata Subba Reddy Mettupalli of running BPCL Gas Agency and the subject expenses were incurred by him in the normal course of his business activities. The ld. AR submitted that as the assessee had failed to substantiate his claim for deduction of the subject expenses before the lower authorities, therefore, the matter, in all fairness, be restored to the file of A.O. with a direction to re-adjudicate the same after affording a reasonable opportunity of being heard to the assessee.

Per contra, Ms. Vishnu Priya, the learned senior Departmental Representative (for short “Ld. DR”) relied upon the orders of lower authorities. The Ld. DR submitted that as the assessee despite having been afforded sufficient opportunities, had failed to participate in the proceedings before the A.O and CIT(A), therefore, in the absence of any supporting material/evidence they were constrained to make the subject additions/disallowance

We have heard the learned Authorized Representatives of both parties and perused the material available on record.

We are of the view that as the assessee had failed to participate in the proceedings before the A.O., therefore, he was constrained 7 Venkata Subba Reddy Mettupalli to frame the assessment to the best of his judgment u/s 144 of the Act. Although the assessee ought to have remained vigilant and participated in the proceedings before the lower authorities, but at the same time, we find substance in the Ld. AR’s claim that as the subject expenses were incurred in the normal course of the assessee’s business of running a BPCL gas agency, therefore, they were entitled for deduction u/s 37 of the Act. We are prima facie of the view that as the assessee is engaged in the business of running a Gas Agency, therefore, incurring of the subject expenses viz. salaries, godown rent and unloading charges could safely be related to the said line of business. Also, we are unable to concur with the manner in which the assessee’s claim for deduction of salaries of Rs.11,17,500/- has been disallowed by the A.O. i.e. by disallowing the increase in salaries as in comparison to that claimed in the preceding year. Considering the totality of the facts involved in the case before us, we are of the firm conviction that the matter, in all fairness, to deduce the true income of the assessee, requires to be restored to the file of the A.O. We thus, in terms of our aforesaid deliberations, set aside the matter to the file 8 Venkata Subba Reddy Mettupalli of A.O. for re-adjudicating the aforesaid additions/disallowances made by him while framing the assessment. Needless to say, the A.O. shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee.

Resultantly, the appeal filed by the assessee is allowed for statistical purposes.