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Facts
The assessee's case was selected for scrutiny assessment under section 143(3). The Assessing Officer (AO) made additions for unexplained income related to TDS, income from house property (godown rent), and an ad-hoc disallowance of business expenses. The CIT(A) upheld these additions, leading to the appeal before the ITAT.
Held
The Tribunal partly allowed the appeal, providing relief on the unexplained income addition by identifying certain entries. The addition for godown rent was deleted, as the net income was considered offered for taxation. The ad-hoc disallowance on business expenses was reduced from 25% to 10%.
Key Issues
Whether the additions made by the AO for unexplained income, house property income, and business expenses were justified and if the ad-hoc disallowance was reasonable.
Sections Cited
143(3), 234B, 234D
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM:
This appeal is filed by the assessee, directed against the order of Addl/JCIT(A)-1, Vadodara [for short “ld. CIT(A)”] dated 08.08.2025 for the AY 2014-15, arises from the order passed under section 143(3) of the Income Tax Act, 1961 (the Act) dated 28.11.2016 by the ACIT, Circle-(1), Thane. The grounds of appeal raised by the assessee are as under:
Mahesh Nathalal Thakkar “1 The learned CIT(A) erred in confirming the addition of INR 5,06,569 made by the Assessing Officer on the basis of an entry of TDS in Form 26AS 2 The learned CIT(A) erred in confirming the addition of INR 1,68,000 as income from house property. The learned CIT(A) erred in not appreciating the said amount was recovered as reimbursement of expenses by the appellant from its client and the same was netted off from the rental expenses debited in the profit and loss account 3 The learned CIT(A) erred in not deleting an ad-hoc disallowance of INR 6,48,275 being 25% of certain business expenses aggregating to INR 25,93,101 made by the Assessing Officer.
4. The learned CIT(A) erred in not directing the Assessing Officer to deleted interest charged under Sections 234B and 234D of the Income tax Act
5 Each one of the above grounds of appeal is without prejudice to the above.”
Brief facts of the case are that, the assessee had filed its return of income on 1.09.2014 declaring total income of Rs. 22,64,700/-. Subsequently the case was selected for scrutiny under CASS, wherein the assessment, after discussing the response of assessee, was completed with following additions:
(i) Addition of Rs. 5,06,569/- on account of unexplained income, as the TDS as per 26AS by M/s Arvind Laboratories was Rs.65,750/-, whereas the assessee’s corresponding claim of TDS was of Rs. 60,684/-, thus the short claim of TDS for Rs. 5,066/- has given rise to the question of unexplained income in the hands of assessee.
(ii) Addition of Rs. 1,68,000/-, being receipt of godown rent from M/s Desai Brothers Ltd. @ 20,000/- per month has been envisaged to be not shown by assessee as Income from House Property in the computation of total income.
Mahesh Nathalal Thakkar (iii) Addition of Rs. 6,48,275/- on account of ad hoc disallowance on various expenditure @ 25%. 3. In terms of aforesaid additions, the assessed income of assessee has been enhanced and determined at Rs. 35,87,544/-.
Aggrieved with the aforesaid additions, the assessee preferred an appeal before the ld. CIT(A), wherein submissions made by the assessee are found untenable by the ld. CIT(A), therefore all the aforesaid additions are affirmed and the appeal of assessee has been rendered as dismissed.
To challenge the aforesaid decision of ld. CIT(A), the assessee preferred an appeal before the ITAT, which is under our consideration.
The ground-wise submission towards the aforesaid addition/disallowance by ld. AR and ld. DR are considered and our adjudication would be as under:
Ground No.1 regarding addition of Rs. 5,06,569/- for unexplained income
With regard to aforesaid addition, ld. AR of the assessee had submitted that the assessee is a Clearing and Forwarding (C&F) Agent, working for various clients. The assessee is supposed to make certain payments on behalf of his clients, which the clients are reimbursing by through cheques including C&F service charges. It is explained that, from M/s Arvind Laboratories, the assessee has received an amount of Rs. 6,06,744/- towards the commission/remuneration for C&F services and remaining amounts are towards 3 Mahesh Nathalal Thakkar the reimbursement of expenses on actual basis. The ld. AR placed before us copy of ledger a/c of Arvind Laboratories, the details of total Rs. 35,39,408/- received from M/s Arvind Laboratories are furnished before us. It is further submitted that the additional entries of TDS in updated 26AS are taken into consideration and offered for tax in the return of income, therefore no further addition is required on this account.
Per contra, the ld. Sr. DR representing the revenue submitted that the assessee was unable to identify the entries of reimbursement before the revenue authorities and even unbale to reconcile the same before ITAT, therefore, the addition made by the AO was justified and confirmation of same by ld. CIT(A) deserves to be upheld.
We have considered the rival submissions and perused the material available on record. On verification of the facts from the records available before us, we found that the entries regarding “window display”, which were claimed by assessee, as reimbursement received from M/s Arvind Laboratories for the payments made on their behalf are found in the ledger a/c of M/s Arvind Laboratories in the books of assessee, however the remaining entries could not be identified by the assessee, therefore the remaining amount of Rs. 1,67,693/- (28,108+1,39,585) would remain continue to be unexplained income in the hands of assessee, whereas a relief of Rs. 3,38,875/- (91,080+
Accordingly, Ground No.1 of the assessee is partly allowed, in terms of our aforesaid observations.
Ground No.2 regarding addition of Rs. 1,68,000/- as Income from House Property.
It was the submission by ld. AR that, a space in Godown was provided to M/s Desai Brothers under C&F agreement for storing their goods. As per the agreement with M/s Desai Brothers, a rent of Rs. 20,000/- per month was received by the assessee. The ld. AR further submitted that the assessee being a C&F Agent has entered into a clearing and forwarding agent agreement with M/s Desai Brothers, according to which certain services to be provided by the C&F Agent are obtained from outside parties and the client would reimburse such amount to C&F Agent. In this context, it is submitted that the assessee has taken various Godown spaces on rent (copies of sample rent agreements are also furnished before us at page nos. 142 to 151 of the Paper Book), the assessee used to pay rent to various Godown owners and had shown such expenses after netting of rent collected from various principle /clients as part of reimbursement under C&F agreement. On perusal of the ledger a/c of M/s Desai Brothers, it is apparent that the assessee has charged Godown rent for Rs. Mahesh Nathalal Thakkar 20,000/- per month from M/s Desai Brothers and such rents were paid to respective Godown owners. Copy of ledger a/c of such ‘Godown Rent Income’ as well as ‘Godown Rent Paid’, including Godown rent received from M/s Desai Brothers, which is included by the assessee as Business Income in the P&L A/c, therefore no further addition on this account is called for.
Per contra, ld. Sr. DR submitted that the assessee was unable to substantiate, before the ld. AO as well as ld. CIT(A), which is apparent from the observation of ld. CIT(A) that the assessee had not furnished any documentary evidences in support to justify the income / expense on Godown rents. Ld. Sr. DR drew our attention to the observation of ld. CIT(A) at page no. 25 of the impugned order according to which the assessee was failed to furnish requisite evidence, despite adequate opportunities provided to him, therefore the burden of proof lies on the assessee to establish the genuineness of his claim, which could not be discharged, the addition therefore qualify to be sustained.
We have considered the rival submissions perused the material available on record. After going through the ledger a/c’s of the assessee for Godown rent income received and Godown rent paid out of which the net amount of Rs. 2,88,920/- (Rs. 12,12,560/- – 9,23,640/-) has been shown as Godown rent paid expenditure in the the P&L A/c, thus impliedly the income from Godown rent is offered for taxation, being the net profit emerging from P&L A/c was incorporated in the computation of total income. We, therefore, find merits in 6 Mahesh Nathalal Thakkar the submission of ld. AR that the income from Godown rent after netting of with expenditure has already been incorporated in the income offered for taxation. Consequently, no further addition on this account would be required. Ground No.2 of appeal of assessee, thus, stands allowed.
Ground No.3 regarding ad hoc addition of Rs. 6,48,275/-.
To address the aforesaid issue, the ld. AR of the assessee argued that, the assessee has submitted ledger a/c of the expenses incurred, from where it is observed by the AO that these expenses are booked on the basis of self-made vouchers, the business promotion expenses were made through City Bank Credit Card on verification of which it is noticed that majority of expenses are personal in nature. Which such observations an ad hoc disallowance of 25% of following expenses was made.
Sl.No. Name Amt. 1 Unloading Charges 10,44,665/- 2. Loading Charges 9,46,737/- 3 Mobile Expenses 2,42,177/- 4 Telephone Expenses 1,22,794/- 5 Business Promotion 2,36,731/- Total 25,93,101/-
To explain the nature and genuineness of aforesaid expenditure, it is submitted by ld. AR that ad hoc disallowance made by the AO are unjustified, as similar expenses incurred by the assessee in earlier AY were allowed by the revenue. The expenses are in accordance with the nature of assessee’s business 7 Mahesh Nathalal Thakkar which demands incurrence of such expenses. The ld. AR submitted that the net profit ratio of the assessee’s business in FY 2011-12, 2012-13 and FY 2013-14 was 3.96%, 3.95% and 4.79%, therefore the profit offered by the assessee for FY 2013-14 (relevant to AY 2014-15 under consideration) was highest in the last 3 years year. Looking to all over facts and circumstances, it was the submission that, the estimated disallowance @ 25% of subject expenses was unjustified and liable to be deleted.
Per contra, ld. Sr. DR representing the revenue submitted that the assessee was unable to furnish requisite evidence, the vouchers are self-made, bills are without name, payments are through Credit Card and personal in nature etc., looking to all such circumstances, the assessee’s subject expenditure would definitely have certain ratio of personal expenses, which are not allowable being not for the business of assessee, thus, the addition made by ld. AO was justified and deserves to be sustained.
We have considered the rival submissions, perused the material available on record and findings of AO as well as ld. CIT(A). Admittedly the expenses incurred by the assessee on various Heads could not be substantiated with proper evidences. Although it is a case, wherein the profit declared by the assessee is higher than the profit offered by him in earlier years, which was accepted by the Revenue. Thus, on consideration of overall factum of the issue, after giving a thoughtful consideration, we find it 8 Mahesh Nathalal Thakkar appropriate to scale down the estimated disallowances to a reasonable ratio of 10%, the remaining addition / disallowance of 15% is therefore directed to be deleted.
In result, Ground No. 3 of the appeal is partly allowed in terms of our aforesaid observations.
Resultantly the appeal of assessee is partly allowed, in terms of our aforesaid observations. Order pronounced in the open court on 08-01-2026.