M/S MERLINS,KOLKATA vs. A.C.I.T.,CILCLE-31, KOLKATA

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ITA 108/KOL/2019Status: DisposedITAT Kolkata22 November 2019AY 2012-133 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer cannot make ad hoc disallowances on estimation without rejecting the books of accounts and passing an order under Section 144 of the Act. Disallowances should be item-wise and based on lack of nexus or supporting vouchers.

What were the facts?

The assessee's appeal pertains to the assessment year 2012-13. The Assessing Officer made ad hoc disallowances on various expenses without rejecting the assessee's books of accounts. The CIT(A) confirmed these disallowances.

What were the issues?

Whether ad hoc disallowances of expenses are permissible without rejecting the assessee's books of accounts and without following the procedure for best judgment assessment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 145(3),Section 144

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B”, BENCH KOLKATA

Before: SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM

For Respondent: Smt. Ranu Biswas, Addl. CIT
Hearing: 31/10/2019Pronounced: 22/11/2019

आदेश / O R D E R Per Bench:

1.

The captioned appeal filed by the assessee , pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income Tax (Appeal)-9, Kolkata in appeal no. 71/CIT(A)-9/Cir-31/2015-16/Kol, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 19/03/2015.

2.

At the time of hearing none appeared on behalf of assessee in spite of issuance of notice for hearing more than one occasion and Ld. Departmental Representative(DR), was present for the appellant Revenue. In the absence of any appearance by the assessee, the appeal is being disposed of ex parte qua the assessee, after hearing Ld. DR for the Revenue on merits in terms of Rule 24 of the Income Tax Appellate, Tribunal, Rules, 1963.

M/s Merlins Assessment Year:2012-13 3. The grounds of appeal raised by the assessee are as follows:

1. That in the facts and circumstances of the case the ld. CIT(A) erred in confirming the disallowances made by the ld. Assessing Officer on estimate a sum of Rs. 50,000/- in respect of maintenance of computer which is bad in law and on facts.

2. That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming the disallowance made by the ld. Assessing Officer of 100% of consultancy charges on estimate amounting to Rs. 2,50,000/- which is bad in law. 3. That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming the disallowance made by the ld. Assessing Officer on estimate on lump sum amount of Rs. 3,00,000/- in respect of conveyance charges, miscellaneous charges and salary which is bad in law and on facts. 4. That in the facts and circumstances of the case, the appellant craves leave to add, alter, modify and /or submit further or more ground(s) of appeal either before or at any time during the hearing of the appeal.

4. We note that the Assessing Officer has made the disallowance on various heads on ad hoc basis which is not allowed under the Act as the assessee has submitted the details and documents during the assessment stage. Moreover, the assessment was framed by Assessing Officer u/s 143(3) of the Act. We note that the AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 of the Act. Here in this case, the AO has not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than going for ad hoc disallowance of percentage basis of the expenses claimed by the assessee which action of the AO is arbitrary in nature and cannot be sustained.

M/s Merlins Assessment Year:2012-13 5. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 22.11.2019

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