U.RAVIKUMAR,CHENNAI vs. ITO NON CORPORATE WARD 7(3), CHENNAI

The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-7 dated 20.05.2018 and pertains to assessment year 2013-14.

The assessee has raised the following grounds of appeal: “ The Ld. Commissioner of Income Tax (Appeals) ought to have appreciated the fact that the Assessing Officer made

The brief facts of the case are that the assessee among more than one activity during the year ended 31/03.2013 formed two lay outs by purchasing agricultural lands in Cholavandan near Madura and at Vathalagundu at the foothills of Kodaikanal near Dindigul. Since he agricultural lands were converted into housing sites there were a lot of expenditure on development of the lands into housing sites by dumping a lot of debris in the lands for raising the level of the house sites to road level, by getting all approvals from the various Government Authorities such as Director of Town and Country Planning, Local Panchayat, etc. All these expenses were incurred in villages far away from Chennai where the assessee is carrying on his business through third parties who were influential in the concerned localities. The assessee debited the expenses of conversion of the agricultural lands into housing sites to an extent of Rs. 33,12,000. The Assessing Officer called for the evidences for the expenses incurred. The assessee fell sick when he went to Cholavandan and Vathalagundu near the time when the Assessing Officer called for the details and on account of his sickness could not produce

The Ld. AO observed that the assessee shown land development charges of Rs. 33,12,000/-. The assessee’s AR was asked to produce the relevant details. But no details were provided by the AR even after providing ample time for furnishing the details. Since, no explanation was offered by the AR, 1/3rd of the expenses of Rs. 11,04,000/- were disallowed and added to the total income of the assessee as business income of the assessee after due consideration on the nature of the assessee’s business.( 33,12,000/3 = 11,04,000).

Being aggrieved by the impugned order, the assessee preferred an appeal before the ld. CIT(A). Before the Ld. CIT(A), the assessee has reiterated its submissions made before the Ld. AO. The Ld. AO ought to have appreciated the fact that the development expenditure claimed by the assessee has been far less than the expenditure claimed by the other people for the same and the fact that the Ld. AO ought to have appreciated the fact that the disallowance of a part of the :-4-: ITA No: 2082/Chny/2018 development expenditure in an arbitrary manner at 1/3rd of the expenditure is too huge is not justified.

Further, the assessee made his submissions before the Ld. CIT(A) that “ it is submitted that the agricultural lands were converted into house sites in villages in far of Madurai and Dindigul relying upon the local big wigs and the claims made by them. The development expenses had been verified by the Auditors while doing the audit work. They had not made any comments in their audit report. The expenses were in the nature of raising the agricultural lands to the road level by dumping debris, garden soil, red soil, removal of shrubs, planting of boundary stones, laying black top roads and so many other facilities. The Assessing Officer had not properly appreciated the facts and the expenses of the development. He had disallowed 1/3rd of the expenses without rhyme or reason. He had not rejected the accounts and audit report pointing out any mistakes in the return and statements. In the following cases the courts and Tribunals had held that summary and adhoc disallowances should not be made ignoring the audit reports. 1. Gurudev Singh vs Asst CIT 2017 56 ITR (Trib) 503 CTK Trib 2. Kamal Raheja vs ITO (2017) 183 TTJ (Lucknow Trib 538) 3. Tata Ficosa Automotive Systems Limited vs Dy CIT (2017) 54 ITR (Trib) 203 (Pune ‘B’ Trib) 4. Aptech Limited vs Dy CIT (2017) 158 TR(A) 536 Mum Trib In the following case Mumbai Tribunal had held that 10% of the expenses alone can be disallowed for failure to produce evidences for the incurring of expenses for business. 1. Trade Wings Ltd vs ITO 2017 153 TR(A) Mum Tribunal”

The Ld. CIT(A) after considering the relevant submissions of the assessee held that the fact brought by the Ld. AO clearly indicate that the AO had given ample opportunity to the appellant to furnish the requisite details, which was not done. Even in appellate proceedings, no documentary evidences were put forth. The appellant is taking refuge under case laws will not come to the aid of the appellant as the same were on entirely different set of facts. The AO’s addition on adhoc basis require no interference and this proposition is buttressed by several case laws. In the case of Agfa India (P) Ltd, Mumbai vs ACIT (2015), Hon’ble Mumbai Tribunal has held that non- furnishing of documentary evidences during scrutiny proceedings as well as appellate proceedings justifies the additions made by the AO. The relevant are reproduced as under: “That the assessee has not furnished any documentary evidence for the expenses incurred, neither during the assessment proceedings nor during appellate proceedings. Even before the Tribunal, no evidence was furnished to substantiate the claim of actually incurring of expenses. We do not find any reason to interference in the action of the lower authorities disallowing the expenses made by the AO.”

At the time of hearing, none appeared for the assessee. We have heard the Ld. DR, perused the material available on record and gone through the order of the authorities below. The :-6-: ITA No: 2082/Chny/2018 solitary question that need to be answered, on what basis AO has come to a conclusion of disallowing of 1/3rd of Land Development expenses , when there is no prescribed Rule position or Section for the AO to pass such order. We think that both the Assessing officer and the CIT(A) has estimated expenditure on pure guess and suspicion. There were no dispute by the Ld. AO and Ld. CIT(A) that the assessee has incurred expenses for land development charges. The only reason AO noted is that the assessee has not produced any document or evidence in support of the expenses incurred as land development charges.

We have given our thoughtful consideration to facts of the present case and in the light of reasons given by the AO to make adhoc disallowance of expenses and we ourselves don’t agree with the reasons of the AO for making Adhoc 1/3rd of disallowance of expenses for the simple reasons that unless the AO make out specific cases of expenses, which is not supported by evidence ,he cannot make Adhoc disallowance . At the same time it is also admitted fact the Assesee also failed to produce necessary evidence .

In the result, we allow this appeal with modification of prayer made by the assessee and set aside the order of the Ld. CIT(A) and hence partly allowed.