SEEMA DECOLIGHT,AHMEDABAD vs. THE ITO, WARD-1(1)(3), AHMEDABAD

The brief facts of the case are that the assessee is a partnership firm engaged in the business of trading in fancy home-lighting items. It filed its return of income for A.Y. 2017-18 on 07.11.2017 declaring a total loss of (-) Rs. 7,78,439/-. The case Asst. Year: 2017-18 was selected for scrutiny and notice under section 143(2) of the Act was issued on 14.09.2018. During the course of assessment proceedings, the Assessing Officer issued several notices u/s 142(1) of the Act. However, there was no compliance on the part of the assessee. According to the assessee, all notices were sent electronically to its tax advocate, Shri M. N. Vyas, but due to lapse on the part of his office staff, the notices were neither downloaded nor brought to the notice of the assessee. As a result, the Assessing Officer proceeded to complete the assessment ex- parte u/s 144 of the Act vide order dated 19.12.2019. The Assessing Officer made the following additions/disallowances: a. Disallowance of 25% of indirect expenses amounting to Rs. 8,28,281/- (out of total indirect expenses of Rs. 33,13,127/-); b. Disallowance of 25% of purchases amounting to Rs. 38,74,881/- (out of total purchases of Rs. 1,54,99,525/-); c. Addition of Rs. 1,00,000/- under section 68 of the Act towards unexplained unsecured loan. Accordingly, the total income of the assessee was assessed at Rs. 40,24,723/-. 4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) noted that despite sufficient opportunities, the assessee failed to file proper details and evidence to substantiate its claims. Holding that the assessee had not discharged the onus cast upon it, the Ld. CIT(A) confirmed all the aforesaid additions made by the Assessing Officer. 5. Before us, the Ld. AR submitted that the assessment was completed ex-parte and the additions were made purely on ad-hoc basis without pointing out any specific defects in the books of account. It was contended that the assessee had maintained regular books of account and vouchers, and that during the survey conducted on 19.09.2019, no incriminating material pertaining to the relevant assessment year was found. The Ld. AR further submitted that disallowance of expenses or purchases on an ad-hoc percentage basis is unsustainable in law, particularly when no specific instance of non-genuineness has been identified. With regard to the unsecured loan, Asst. Year: 2017-18 it was submitted that the amount was received through banking channel and was repaid during the year, and therefore addition under section 68 was unjustified. 6. The Ld. DR, on the other hand, relied upon the orders of the lower authorities. 7. We have heard the rival contentions and perused the material available on record.

Keeping in view the turnover which is very low, the business of the assessee which is retail sale of lamps and the reasons for not attending before the Assessing Officer and the specific adjudication of the Ld. CIT(A), the type of ad-hoc addition made by the Revenue, and the absence of proper opportunity by the Revenue Authorities, , keeping in view of the rights of the Revenue and of the assessee, for the accomplishment of the tenets of ‘Easy Justice and Speedy Justice’, we proceed to adjudicate the matter on merits.

We find that the Assessing Officer disallowed 25% on ad-hoc basis of the indirect expenses solely for the reason that the same could not be verified due to non- compliance by the assessee. No specific instance of non-business expenditure or inflation of expenses has been brought on record. At the same time, it is also a fact that the assessee did not fully cooperate during the assessment proceedings, which prevented proper verification, the Ld. Counsel prayed that disallowance of 25% is quite excessive and pleaded for restriction of the disallowance of indirect expenses to 10% of total indirect expenses which we find reasonable, hence, we direct the Assessing Officer to recompute the disallowance accordingly. This ground is partly allowed. 10. Regarding disallowance of purchases, the Assessing Officer disallowed a sum of Rs. 38,74,000/-out of total purchases of Rs. 1.54 crore, on an ad-hoc basis, without rejecting the books of account under section 145 of the Act and without bringing on record any material to establish that the purchases were bogus or non-genuine. Considering the nature of business of the assessee, the turnover involved, purchase and sales declared and the overall facts and circumstances of the case, we are of the considered view that ad-hoc disallowance on the purchases, without bringing any Asst. Year: 2017-18 corroborative material, cannot be resorted to. This ground of appeal of the assessee is thus allowed. 11. Regarding addition u/s 68 of the Act on account of unsecured loan, it is an admitted fact that the unsecured loan of Rs. 1,00,000/- was received through banking channel and was repaid during the same financial year. No material has been brought on record by the Revenue to show that the said amount represents unexplained income of the assessee. In view of these facts, the addition made u/s 68 of the Act is not sustainable and is hereby deleted. This ground of appeal is allowed. 12. In the result, the appeal of the assessee is partly allowed. The order is pronounced in the open Court on 16.12.2025 (T.R. SENTHIL KUMAR) VICE-PRESIDENT

अपीलाथ / The Appellant 2.  थ / The Respondent. 3. संबंिधतआयकरआयु / Concerned CIT 4. आयकरआयु(अपील) / The CIT(A)- 5. िवभागीयितिनिध, आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad 6. गाड फाईल/ Guard file.