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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
ORDER PER S. RIFAUR RAHMAN, A.M. The present appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-45, Mumbai [in short ‘CIT(A)’] for the assessment year 2016-17 dated 24.10.2019 and arises out of assessment completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act).
Brief facts of the case are, the assessee filed his return of income for the assessment year 2016-17 on 31.03.2017 declaring total income at Rs.1,20,53,610/-. The case was taken up for compulsory manual scrutiny and Shri Ramesh Ravilal Faria 2 notice u/s 143(2) and 142(1) were issued and served on the assessee. The AR of the assessee attended and furnished the information as called for.
The assessee is a proprietor engaged in the business of manufacturing of ladies readymade garments in the name and style of M/s Devka Arts. A survey was conducted in office premises as well as at the factory premises of the assessee on 23.09.2016. During the assessment proceedings, it was informed to the Assessing Officer that the accounts of the assessee were not finalized on the date of survey and audit of the accounts was pending. It was also informed that there were many expenses yet to be entered into system. The Assessing Officer observed from the details submitted that other expenses which are incurred by the assessee in cash and not supported by any details. The details of expenses are as under :
Particular Survey Final Difference Remarks Packing Expenses 9608072 9671862 63790 No bills Purchase Tax free 44182782 44863421 508639 Bills submitted to the extent of Rs.172316 only out of 680639 Purchase Tax Free Vapi 166616948 166968580 351632 No proof /cash expenses Business Promotion 1254620 1402501 147831 No proof / cash expanses Conveyance - 702451 702451 No proof/ cash expenses Diwali Exp. 94564 415704 321140 No proof/ cash expenses General Exp. 352744 458055 105311 No proof/ cash expenses Motor Car Expenses 574095 639500 65405 No proof/ cash expenses Postage & Courier Exp. 1344603 1544232 199629 No proof/ cash expenses Staff Welfare Expenses - 368990 368990 No proof/ cash expenses Net Prof it 2834868 3. Since the assessee could not furnish supporting evidence proof of the above expenses, the Assessing Officer disallowed the above expenses u/s 69C of the Act.
Shri Ramesh Ravilal Faria 3 ITA No. 320/M/2020
Aggrieved with the above order, the assessee preferred an appeal before the CIT(A) and Ld. CIT(A) considering the submissions of the assessee remanded the matter to the Assessing Officer. During the remand proceeding, the assessee submitted sample bills of the above expenses claimed. The Assessing officer issued notice u/s 133(6) on the addresses mentioned on the bills randomly and notices were duly served on the parties. The Assessing Officer after verifying the documents and evidences produced before him. He split the amount into two parts (i) relating to packaging expenses, purchase tax free and other relevant expenses to the extent of Rs.11,89,095/- and (ii) expenses relating to business promotion, conveyance expenses, Diwali expenses, general expenses and staff welfare expenses amounting to Rs.16,45,773/-. The Assessing Officer submitted that packaging expenses and other expenses are found to be acceptable and relating to second category of expenses, the Assessing Officer opined that the considering the turnover of the assessee being Rs.53.12 crores and expenses incurred by the assessee is Rs.16,45,773/- which amounts to approx. 0.30% of the turnover and which is not grossly excessive.
After considering the remand report submitted by the Assessing Officer and rejoinder filed by the assessee, the Ld. CIT(A) sustained the 50% of the second category of expenses with the observation that these expenses were incurred in cash and without proper and acceptable evidence that the same were incurred wholly and exclusively for the purpose of business. 6. Aggrieved with the above order, the assessee is in appeal before us raising following grounds of appeal :
Shri Ramesh Ravilal Faria 4 ITA No. 320/M/2020
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming 50% expenses on account of business promotion expenses, conveyance expenses, Diwali expenses, General expenses and staff welfare expenses of Rs.16,45,773/- amounting to Rs.8,22,887/- on ad-hoc basis as not incurred for business purposes: 2. (a) the evidences provided during remand proceedings and 3. The satisfaction of the Deputy Commissioner of Income Tax-33(3) in the remand report favouring the assessee. 4. The Ld. CIT(A) erred in confirming the charging of interest u/s 234A, 234B, 234C and 234D of the Income Tax Act, 1961. 5. The Ld. CIT(A) erred in confirming the initiation of the penalty proceeding u/s 274 r.w.s. 271(1)(c) of the Income Tax Act, 1961. 7. Considered the rival submissions and material on record. We noticed that the assessee is in the business of manufacturing ladies readymade garments and assessee has incurred expenses like business promotion, conveyance expenses, Diwali expenses and staff welfare expenses to the extent of Rs.16,45,773/-. In order to run a manufacturing unit, the assessee may have to incur certain expenditure and invariably it may have to incur in cash and recording the same in petty cash system. Considering the turnover, the assessee himself in remand proceeding observed that the expenses incurred by the assessee is only 0.30% of the turnover. Considering the nature of business and the AO has found the quantum of expenses not grossly excessive. We are inclined to reduce the ad-hoc disallowance to the extent of 10% of the expenses incurred by the assessee. Therefore, the ground No. 1 & 2 raised by the assessee are partly allowed.