RAMKARAN R KARWA,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX 17(3)(NOW DCIT-19(3)), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ (निर्धारण वर्ा / Assessment Year: 2011-12) Ramkaran R. Karwa बिधम/ ACIT-17(3) 206, 2nd Floor, Anand Estate, (Now DCIT-19(3), Vs. 189-A Sane Guruji Marg, 206, Matru Mandir, Tardeo Mumbai-400011. Road, Mumbai-400007. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : (अपीलाथी /Appellant) (प्रत्यथी / Respondent) .. Assessee by: Shri Bhupendra Karkhanis Revenue by: Shri S. K. Mitra सुनवाई की तारीख / Date of Hearing: 06/05/2019 घोषणा की तारीख /Date of Pronouncement: 22/05/2019 आदेश / O R D E R PER AMARJIT SINGH, JM:

The assessee has filed the present appeal against the order dated 20.02.2018 passed by the Commissioner of Income Tax (Appeals) -32, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12. 2. The assessee has raised the following grounds: - “

1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) (The Ld. CIT(A) erred in confirming the adhoc disallowance made by the Ld. AO of Rs.2,28,225/- being 15% of the following expenses: Sr. Head of Expenditure Expenses debited in Disallowance 15% No. Profit in Loss of expenses account amount A.Y.2011-12 (Rs.) amount (Rs.) 1 Travelling expenses 7,12,495 1,06,874 2 Telephone Expesnes 77,831 11,675 3 Conveyance charges 6,55,055 98,258 4 Staff Welfare Expenses 76,119 11,418 Total 12,21,500 2,28,225 By holding that the estimation made by AO @ 15% of above mentioned expenses was fair and reasonable without providing the basis of such estimation and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made there under.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the adhoc-disallowance made by the AO of Rs.66,963/- being 10% of Sales Promotion Expenses of Rs.6,69,628/- by holding that estimation made by AO @ 10% was fair and reasonable without providing the basis of such estimation and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the I.T. Act, 1961 and the Rules made there under.

3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the adhoc-disallowance made by the AO ignoring the fact that the similar adhoc disallowances were deleted by CIT(A) for Assessment year 2012-13 and also by Hon’ble Mumbai ITAT in appellant’s own case for A.Y. 2004-05 even though the said decisions were referred to in the submissions and pointed out by the appellant.”

3. The brief facts of the case are that the assessee filed his return of income on 30.09.2011 declaring total income to the tune of Rs.1,20,85,150/-. The assessee has also revised return of income on 04.12.2012 declaring total income to the tune of Rs.1,02,30,000/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee claimed the Travelling 2 A.Y.2011-12 Expenses, Telephone Expenses, Conveyance Charges, Sales Promotion Expenses & Staff Welfare. The AO disallowed the 15% of the claim of the Travelling Expenses, Telephone Expenses, Conveyance Charges, Sales Promotion Expenses & Staff Welfare on the basis of non-production of evidences and on the basis of this fact that the self-made vouchers could not be verified and personal element of expenses could not be ruled out. The promotion expenses was also disallowed to the extent of 10% being the vouchers were self-made and genuineness of the claim could not be verifiable. The total income of the assessee was assessed to the tune of Rs.1,05,25,188/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the order of the AO, therefore, the assessee has filed the present appeal before us.

ISSUE Nos. 1 to 3 4. Under these issues the assessee has challenged the confirmation of the disallowance to the extent of 15% of the claim of the Travelling Expenses, Telephone Expenses, Conveyance Charges, Sales Promotion Expenses & Staff Welfare. The Ld. Representative of the assessee has argued that the Hon’ble ITAT in the assessee’s own case for the A.Y.2004- 05 has deleted the such type of addition, therefore, the claim of the assessee is liable to be allowed accordingly. However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-

“5 The appellant raised these grounds against the AO's action in making adhoc disallowances of various expenses as under:

3 A.Y.2011-12 Travelling Expenses: Rs.1,06,874/-(being 15% Rs.7,12,495) on account of cash payments and self-made vouchers. a) Travelling Expenses: Rs.1,06,874/-(being 15% Rs.7,12,495) on account of cash payments and self-made vouchers. b) Telephone expenses: Rs.11,675/-(being 15% of Rs.77,831) on account of personal use. C) Conveyance Charges: Rs.98,258/-(being 15% of Rs.6,55,055/ -)on account of cash payments and personal use. d) Sales Promotion Expenses: Rs.66,963/ (being 10% of Rs.6,69,628/- on account of cash payments. e) Staff Welfare: Rs.11,418/-(being 15% of Rs.76,119) on account of cash payments. 5.1 The AO has during the assessment proceedings, observed that the payments for above said expenses were made in cash, some of them were supported only by self-made vouchers and also held that personal element cannot be ruled out. Having considered this to be a fit case as excessive claim of expenses, the AO has to make a proper and fair estimation of unreasonable portion of the expenditure claimed. In his best judgment the Id AO on the basis of material available on record, estimated the excess © 15% and 10% as above. Accordingly, the excessive part was thus disallowed. Once the AO considers it to make an estimation, it is needless to say that it is the sole discretion of the AO how to compute income of the assessee. But the question arises here is that whether the AO has fairly and correctly exercised such discretion or not. In the instant case, it is observed that the Id AO has estimated disallowance at @ 15% and 10%. It is considered that the estimation made by the AO to be very fair and reasonable. As the AO had exercised his discretion and made best judgment and also taking into consideration of the facts and circumstances of the case, I do not find any reason to delete the same. I therefore uphold the additions made by the AO and hence these grounds raised by the appellant are dismissed.”