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Facts
The assessee, M/s Shivansh Infraestate Pvt. Ltd., filed its ITR for A.Y. 2015-16 declaring a loss, and the case was selected for scrutiny. The Assessing Officer (AO) rejected the books of accounts under Section 145(3) due to non-production of records and made various disallowances and additions, including commission expenses, professional/technical fees, advertising, other business expenses, expenditure for a Dubai office, ROC expenses, unexplained cash deposits under Section 69A, and advances from customers under Section 68/115BBE. The CIT(A) partly allowed the appeal, upholding some additions and remanding others for verification, while affirming that additions could be made even after rejecting books of account without necessarily applying a net profit rate. The assessee then appealed to the ITAT.
Held
The ITAT acknowledged the assessee's submission of additional evidence, attributing the delay in earlier submission to the counsel's illness. Noting that the CIT(A) had already remanded several matters for verification, the Tribunal deemed it necessary to provide the AO an opportunity to re-examine all the details and explanations afresh, including the newly furnished evidence, to pass a reasoned order in accordance with law.
Key Issues
1. Whether the notice issued under Section 143(2) by an officer lacking jurisdiction was valid. 2. Whether specific additions could be made by the AO after rejecting books of accounts under Section 145(3) without estimating profit by applying a net profit rate. 3. Validity of various ad hoc disallowances of business expenses (commission, sales promotion, vehicle, printing, telephone, travelling, advertising, Dubai office, ROC, bad debts, membership). 4. Additions made for unexplained cash deposits under Section 69A and advances from customers under Section 68/115BBE. 5. Admissibility of additional evidence at the ITAT stage.
Sections Cited
250, 143(2), 143(3), 145(3), 68, 115BBE, 194J, 69A, 269T, 271D, 72, 36(2), 37(1), 44AB
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Income Tax Appellate Tribunal, LUCKNOW ‘B’ BENCH, LUCKNOW
O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. CIT(A), NFAC passed under section 250 of the Income Tax Act, 1961 on 18.01.2024 wherein the ld. CIT(A) has partly allowed the appeals of the assessee against the orders of the ld. Assessing Officer dated 30.12.2017. The grounds of appeal are as under:- “1- The Ld. CIT (A) NFAC erred on facts and in law in dismissing the Ground that Notice u/s 143(2) was issued by ITO-6(1) Lucknow on 01.04.2016 without appreciating that Jurisdiction of case lies with DCIT, Range-6, Lucknow, hence the notice issued by ITO-6(1) is without jurisdiction and invalid. Further, no notice u/s 143(2) has been issued by Jurisdictional DCIT, Range-VI, Lucknow within the period as per section 143(2) of L. T. Act. Hence the present Assessment is invalid, bad in law and liable to be quashed. 2- The Ld. C.I.T. (A) upheld the addition without appreciating that Ld. A. O. rejected the books of account and instead of estimating the Net Profit, additions were made on the basis of same books of account by disallowing expenses under different heads total Rs. 1,75,91,607/- and addition u/s 68 r. w. s. 115BBE of I. T. Act for Rs. 1,32,78,833/- which is contrary to the Provisions of Law.
1. 1. 1. 1. M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 3- The Ld. C. I. T. (A) upheld the addition of Rs. 60,84,714/- being disallowance of Commission Expenses without appreciating that due TDS was made in A. Y.-2014- 15. However, in that year this expenditure was incorporated as "Project Development Expenditure" under the head "Current Assets". During this year, the said "Commission Expenses" has been allocated in Profit and Loss Account in the ratio of per sq. ft. land sold and there is no requirement for deduction TDS again. 4- The Ld. CIT (A) upheld the ad-hoc disallowance restricting it to Rs. 8,32,144/- being 15% instead of 20% computed by Ld. A. O. on the expenses w. r. t. Sales Promotion for Rs. 13,61,930/-, Vehicle Running and Maintenance Rs. 10,76,395/-, Printing and Stationary Expenses Rs. 15,28,354/-, Telephone Expenses Rs. 9,05,299/- and Travelling and Loading Expenses Rs. 6,75,655/-. Inspite of the fact, the Ld. A. O. has rejected the books of account. Further all the expenses were verifiable and incurred solely and exclusively for the purpose of business, hence the ad-hoc disallowance of Rs. 8,32,144/- upheld should be deleted. 5- The CIT (A). upheld the disallowance of Rs. 7,54,220/- being expenditure incurred on maintenance of Office at Dubai and is allowable expenditure as per Law.
The Ld. C.I.T. (A) upheld the addition of Rs. 26,000/- being expenses incurred at ROC Office for Registration of Charges and other expenses solely and exclusively for the purpose of business without appreciating the same the Ld. C. I. T. (A) upheld the finding of Ld. A. O. being Capital Expenditure. 7- The addition upheld is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on reasons relied upon by Ld. A. Ο.”
The facts of the case are that the assessee filed a return of income for the A.Y. 2015-16 declaring a loss of Rs. 1,89,31,560/-. The case was selected for scrutiny. The ld. AO records that during the course of assessment proceedings, the assessee was given several opportunities to produce the books of accounts but that the assessee did not do so. The assessee was also asked to provide detailed working of inventories shown in the balance-sheet but could not produce the same on the grounds, that the C.A. who had prepared the inventories was not cooperating with the assessee company. However, it was submitted that the assets appearing in the balance-sheet as on 31.03.2015, were in the nature of inventory and consisted of raw land and developed land (where the provision of roads, electricity as well as drainage system had been provided). The assessee was in the business of Real Estate. The ld. AO held that the said submissions of the assessee were not acceptable as the assessee could not produce even the ledger account of M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 all expenses, bills and vouchers and therefore, the ld. AO recorded his dissatisfaction with the completeness and correctness of the books of accounts and recorded his decision to invoke the provision of section 145(3) of the Income Tax Act, 1961.
The ld. AO recorded that the assessee had claimed large amounts under project development expenses. However, the assessee had failed to submit the details of the expenses relating to commission of Rs. 60,84,714/-. As per the details submitted, the assessee had paid commission to different parties amounting to Rs. 20,69,696/- and could not explain how a sum of Rs. 60,84,714/- had been transferred from current assets to commission expenses. Therefore, the ld. AO disallowed commission expenses of Rs. 60,84,714/- and added the same back to the income of the assessee. Similarly, the assessee had claimed professional and technical expenses of Rs. 51,55,650/-. But the ld. AO observed that the total TDS deducted during the year @ 10% under section 194J was Rs. 1,85,139/- and therefore, he computed the amount of professional and technical expenses at Rs. 18,51,388/-. The above facts were also stated in the tax audit report Annexure 7. Therefore, the ld. AO only allowed expenses to the extent of Rs. 18,51,388/- and disallowed the balance amounting to Rs. 33,04,262/-. The ld. AO also noted that the assessee had claimed advertising expenses of Rs. 1,02,81,392/- but did not produce a single bill or voucher or even the ledger account of advertising expenses. The ld. AO held that there was no mechanism to verify the advertising expenses claimed by the assessee and therefore, he disallowed 50% of the above expense amounting to Rs. 51,40,700/- and added the same back to the income of the assessee. The ld. AO further noted that the assessee had claimed business/sales promotion expenses at Rs. 13,61,930/- vehicle running and maintenance expenses at Rs. 10,76,395/-, printing and stationery expenses at Rs. 15,28,354/-, telephone expenses at Rs. 9,05,299/- and travelling and loading expenses at Rs. 6,75,655/-. However, since the assessee had failed to furnish even the ledger account or any bills and vouchers relating to these expenses, the ld. AO disallowed 20% of the M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 same and added back a sum of Rs. 11,09,526/-. The ld. AO also disallowed a sum of Rs. 1,37,661/- on account of interest on TDS debited in P&L account, holding the same to be penal in nature and thus a disallowable expense.
Noting that the assessee had remitted to the United Arab Emirates total amount of Rs. 7,54,220/-, he show caused the assessee to provide a justification for the same. In response, it was submitted that the same had been remitted to Dubai for establishing an office there so as to develop its Real Estate business in Dubai. However, since the assessee had not furnished any documentary evidence in support of the said submission, the ld. AO disallowed the expenditure. The ld. AO also made disallowances of Rs. 26,000/- for ROC expenditure holding the same to be capital in nature, Rs. 2,39,002/- as, “balances written off” as no bills and vouchers and justification had been submitted for the aforesaid expense, charity and donation of Rs. 49,752 and membership expenses of Rs. 1,04,495/- as ineligible business expenditure and Rs. 6,41,745/- shown as commission and made an addition in view of his finding that the assessee had not shown the above income under the head, “other income”.
The ld. AO also received CIB information that there was cash deposit amounting to Rs. 23,77,613/- on different dates. He asked the assessee to explain the amount. The assessee explained that the same was covered from the withdrawals from ICICI Bank, Lucknow and attached copies of both bank statements for the AO’s perusal. However, the ld. AO was not convinced, as the assessee did not furnish a cash book to explain the source of cash deposit. Accordingly, the cash deposits amounting to Rs. 23,77,613/- were treated as unexplained cash and added back under section 69A of the Income Tax Act. The ld. AO also observed from the balance-sheet, that the assessee had shown advances from customers against plots and flat booking at Rs. 8,56,22,259/- and asked the assessee to give the complete postal addresses of parties from whom advances / deposits had been taken during the year. In response, the assessee submitted a list but the ld. AO observed that addresses of many persons had not been given stating M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 that they were not available. The ld. AO thereafter asked the assessee to furnish copies of ledger accounts and on perusal of the same found that in many cases, the full advance / deposit was received in cash. Since, the assessee had not finished the addresses of the persons from whom the amounts had been received in cash or any other supporting documents, the ld. AO held that neither was the identity of the persons during the advances proved nor was the genuineness of the transaction established. Accordingly, he added back a sum of Rs. 1,09,01,220/- under section 68 of the Act and brought the same to tax under section 115BBE. Finally, the ld. AO observed that the assessee had refunded deposits/advances in cash to certain persons amounting to Rs. 34,98,688/-. He held that the provisions of section 269T were applicable and he therefore, initiated penalty proceedings under section 271D of the Act.
6. The assessee was aggrieved at all these additions made by the ld. AO and accordingly filed an appeal before the NFAC. It challenged the notice issued under section 143(2) on the grounds that it had been issued by an officer not having jurisdiction over the case but the same was dismissed by the ld. CIT(A). It also challenged the covering of the entire gamut of assessment during the assessment proceedings pointing out that the case had been selected for limited scrutiny, but the ld. CIT(A) held the same to be untenable in view of the fact that it was mentioned in the assessment order that the case had been selected for complete scrutiny. The assessee also held that once the ld. AO had rejected the books of accounts, he was obliged to apply the net profit rate but he had instead made disallowances under different heads totaling to Rs. 1,75,91,607/- and made additions of Rs. 1,32,78,833/- under section 68, which was contrary to the provisions of law. The ld. CIT(A) in response to this ground asked the assessee to provide the details of working of inventories shown in the balance-sheet but on account of the failure of the assessee to produce it, he held that the provisions of section 145(3) of the Income Tax Act had been correctly invoked. The ld. CIT(A) thereafter proceeded to examine, whether after rejecting the books of accounts, M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 the ld. AO could make additions by depending on the figures given in the books of accounts or whether he was obliged to estimate the profit by applying a net profit rate. From the decisions of the Hon’ble Supreme Court in the case of M/s Kachwala Gems vs. JCIT, Jaipur 288 ITR 10 SC and various Tribunal decisions, the ld. CIT(A) held that even though the ld. AO had rejected the books of accounts, additions could be made on the same set of books of accounts instead of applying the net profit rate. He pointed out that the Hon’ble Madras High Court in the case of B Abdul Qadir vs. CIT 36 ITR 341 had held that addition under section 68 could be made after rejecting books of accounts. He also rejected the claim of the assessee for allowing set off of determined losses of earlier years of Rs. 58,76,327/- stating that it did not emanate from the assessment order which was under appeal. But he held that since it had been carried forward from an earlier year, it had to be set off against the income of the current year. He, therefore, directed the AO to verify whether the loss was a business loss and thereafter allow it to be carry forward to the subsequent year as per the provision of section 72.
On the issue of commission that had been incorporated as a project development expenditure under the head, “current assets” and allocated to profit and loss accounts in the ratio of per square feet of land sold, the ld. CIT(A) held that since the assessee could not produce details in terms of books of accounts, bills / vouchers of the remaining commission expenses at Rs. 60,84,714/-, the AO had added it and since no TDS had been deducted on these expenses, the addition proposed by the AO was deserving of being upheld. On ground no. 7 relating to disallowance of professional and technical expenses of Rs. 33,04,462/, the ld. CIT(A) held that this needed verification at the AO’s end and he directed the AO to verify whether TDS was effected on Rs. 33,04,262/- as claimed by the taxpayer (in A.Y. 2014-15). He, directed the AO to see whether the amount of Rs. 33,04,262/- had been reflected in the profit and loss account against the sale of plot of land. On the issue of advertisement expenses of Rs. 51,40,700/- that were disallowed, the ld. CIT(A) held that it was a matter for verification of the AO as to whether the TDS M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 was effected on Rs. 51,40,700/- in the A.Y. 2014-15. He therefore, directed the AO to examine whether the amount of Rs. 11,67,452/- was reflected in the profit and loss account against the sale of plot. On account of ad hoc disallowances of various expenses, the ld. CIT(A) held that no reasons had been ascribed by the assessing authority for disallowing the expenses. Therefore, considering the facts of the case and in the interest of justice, he restricted the disallowance to 15%. On the issue of remittance to Dubai through a bank for payment of outstanding liability that was added back as not having been claimed as expenditure in A.Y. 2014-15. The ld. CIT(A) directed the AO to call for remittance certificates as well as Form 15CA and Form 15CB as proof of expenditure claimed. He however, held that remittances could not be claimed as a Revenue expenditure as it was only capital expenditure and therefore, he disallowed the claim of Rs. 7,54,220/- on this account, subject to verification of Form 15CA and Form 15CB which would lay out the purpose of remitting money abroad. With regard to the disallowance of Rs. 46,000/- on account of ROC expenses and subscription paid, the ld. CIT(A) upheld the addition holding that the same were capital in nature. On the issue of disallowance of bad debts written off of Rs. 2,39,002/-, the ld. CIT(A) held that the bad debts written off could be allowed provided it had been written off under section 36(2). He, therefore, directed the AO to call for the earlier year’s records to ascertain whether this amount had been added in earlier years and give credit for the same in this year. With regard to the membership fee of Rs. 1,04,495/-, paid as per business rules of real estate development council, the ld. CIT(A) held that it was an allowable expense but he directed to taxpayer to produce the assessing authority copy of invoices or receipt of membership fee of Rs. 1,04,495/-. With regard to the addition of Rs. 6,41,55/- being commission received from M/s Parth Infrabuild Pvt. Ltd., statedly shown as income in the A.Y. 2015-16 under the head, “commission income” in note 14 of audited profit and loss account. The ld. AO was directed to call for the receipt / 26AS evidencing of income under commission and thereafter allow relief as the facts of the case may warrant. With regard to the addition of Rs. 23,77,613/- under section 69A r.w.s. 115BBE of the Income Tax Act M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 by disregarding the argument that the cash deposited was out of cash in hand shown in the cash book as business receipts, the ld. CIT(A) held that the issue needed thorough verification to meet the ends of justice. He, therefore, directed the ld. AO to call for the cash in hand immediately before the date of deposit and verify the same. Furthermore, with regard to the addition of Rs. 1,09,01,220/- under section 68 of the I.T. Act r.w.s. 115BBE, stated to be booking advances received from customers towards plot/land booking that were subsequently refunded to customers due to cancellation of booking or adjusted as against the sale where registry was done, the ld. CIT(A) held that the issue needed thorough verification to meet the ends of justice. He, therefore, directed to the AO to call for the balance-sheet / profit and loss for the earlier years i.e. A.Ys. 2013-14, 2014-15 and 2015-16 and look at the advance afresh in the light of the assessee’s explanations. Accordingly, with these comments, the ld. CIT(A) partly allowed the appeal of the assessee.
The assessee is aggrieved at this order passed by the ld. CIT(A). Sh. Shubham Rastogi, C.A. (hereinafter referred to as the ld. AR) appearing on behalf of the assessee filed a written submission in which it was submitted as under:- “(1) SUBMISSION ONREVISED GROUND OF APPEAL
NO. 3ON THE ISSUE OF DISALLOWANCE OUT OF COMMISSION EXPENSES OF RS. 60,84,714/- The Assessee is engaged in Real Estate Business. The books of accounts are duly audited u/s 44AB of L. T. Act and under the Companies Act by a Chartered Accountant. As per system of accounting, the Assessee Company has incurred Expenditure on New Project for Plotting of Residential Plots under the head "Commission expenses of Rs. 70,93,393/-" in A. Y. -2014-15 which was treated as Project Development Expenses pending Allocation in A. Y.-2014-15 under the heading "Commission expenses" and shown in the Balance Sheet of A. Y.-2014- 15 under the heading "Other Current Assets Schedule-11". Copy of Balance Sheet of A. Y. 2014-15 is at Page-9-24 of the Paper Book. The Auditors also stated in the Notes in their Audit Report in Notes of Accounts under the Heading "Accounting Policies, sub clause(vi)" which is reproduced as under :- "(vi) Due to change in the policy of the Company, expenses on advertisement, Commission, map approval, Printing and Stationary, architecture and design, Business/Sales Promotion and Professional Fees M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 which were charged to Profit and Loss Account in previous year have now been incorporated as Project development Expenses under the head Current Assets and the same have been allocated in Profit and Loss Account in the ratio of per square feet land sold by the Company in the current financial year." Accordingly as per the Accounting Policy reproduced above the expenditure on Professional and Technical Fee incurred during A. Y. 2014-15 of Rs. 7093393/- was treated as Project Development Expenses pending Allocation under the head "Current Assets" and was to be allocated in Profit and Loss Account in the Ratio of Land sold by the Company year by year. Thus this expenditure being directly related to Sales of Land and was decided to be charged to Profit and Loss Account when Revenue from the Sale of Land arises in subsequent years. Therefore in view of the above facts, the commission expenses of Rs. 7093393/-which was incurred in A. Y.-2014-15 and on which due TDS was deducted in A. Y.-2014-15 as per Rules and deposited to the Credit of Central Government. However, the said amount was transferred to Current Assets as Project Development Expenses pending Allocation as explained above. This expenditure incurred in A. Y.-2014-15 has not been debited in the Audited Profit and Loss Account of A. Y.-2014-15. In support of the above, we are submitting copy of Audited Profit and Loss Account, Relevant Schedule and Notes of account of A.Y.-2014-15. The same is at page-9-24 of the paper book. During A. Y.-2015-16, the Assessee Company has debited Rs. 8041752/- under the head "Commission expenses" in Profit and Loss Account in Note No.
17. Allocation of Project Development Expenses. Copy of Audited Profit and Loss Account, Relevant Schedule and Notes of account of A.Y.-2015-16. The same is at page-25- 49 of the paper book. Out of Rs. 8041752/- debited in Profit and Loss Account in A. Y. -2015-16, Rs.6084714/-pertains to expenditure actually incurred in A. Y.-2014-15 on which TDS has been deducted in A.Y.-2014-15 as per Rules and which has been claimed as Expenditure of A. Y.-2015-16 by debiting the same in Profit and Loss Account under the head "Commission Expenses". In support of the above, we are submitting copy of Ledger Account of Commissioner Expenses for A. Y. -2014-15 and A. Y. 2015-16, the same is at page 50 to 64 of the paper book. The relevant Transfer entry is at page 63 of the Ledger Account. Only an expenditure of Rs. 2069696_/- was actually incurred during A.Y.-2015-16, on which TDS is deducted in A. Y. 2015-16 of Rs. 206972 and this fact is mentioned in Assessment order itself. Rest Rs. 6084714/- which was incurred in A. Y.-2014- 15 and treated as Revenue Expenditure in A. Y.-2015-16. On Rs. 6084714/-TDS is deducted in A. Y. 2014-15 when it was actually incurred. In support of the same, we are submitting copy of summary of commission expenses along with copy of all the bills/invoices pertaining to commission expense. The same are at pages 65- 124 of the paper book. Copy of TDS returns in form 260 is enclosed at page 125- 143 of the paper book for all 4 quarters. This fact has been explained in the Assessment Proceeding also and all the details of Bills and invoices of commission are available before the Assessing officer. M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 It is further prayed that the Ld. A. O. disallowed the expenditure of Rs. 6084714/- being commission expenses paid in A. Y. 2014-15 on which due TDS was deducted on it in A. Y.-2014-15 and in this regard we are submitting the details of Bills of Professional and Technical Services (incurred in A. Y.-2014-15), amount of payment and amount of TDS Challan deducted in A. Y. 2014-15 which was treated as Project Development Expenses Pending Allocation in A. Y. 2014-15 (As per Accounting Policy No, vi given in Notes of Accounts of Financial statements of A. Y. -2014-15) and treated as Expenditure during A. Y. 2015-16. The details of TDS Deducted, Copy of TDS returns in form 26Q and copy of bills is enclosed at page (25-143 of the paper book. In view of the above, it is submitted that no disallowance of Rs. 6084714/-paid in A. Y. 2014-15 and TDS deduction is made in A. Y. 2014-15. Thus, total disallowance of Rs. 6084714/-should not be made as all the details were available before the LD AO. (1) SUBMISSION ON THE ISSUE OF REVISED GROUNDS OF APPEAL
NO.
4. BEING ADHOC DISALLOWANCE OF EXPENSES Rs. 8,32,144/-. It is prayed that the Ld. A. O. disallowed Rs. 11,09,526/- being 20% out of the following expenses :- (1) Business/Sale Promotion Rs. 13,61,930/-. (ii) Vehicle Running and Maintenance Rs. 10,76,395/- (iii) Printing and Stationery expenses Rs. 15,28,354/- (iv) Telephone Expenses Rs. 905299/- (v) Travelling Expenses Rs. 6,75,655/- In the course of assessment proceeding, the Assessee produced books of account and copy of Ledger account of expenses which were test checked by the Ld. A. O. The Entire Expenditure were Incurred solely and exclusively for the purpose of business. The Ld. A. O. though accepted the "Book Results" after verifying all the relevant documents as stated above and also accepted that expenditure were incurred for the purpose of business, however disallowed 20% of the above stated expenditures on estimate basis without bringing out any adverse material on record and without pointing out any specific defect. In support of the above, we are submitting copy of Ledger Account of the above expenses. The same are at page 144-213 of the Paper book. It is prayed that as per nature of expenses, expenses were Incurred solely and exclusively for the purpose of business. Further, the books of accounts were audited, no disallowance could have been made without rejecting the books of accounts. It is further prayed that Authorities below did not appreciate that expenses were Incurred in peace meals on day-to-day basis as per need of business. As per nature of small expenses, no third-party verification is possible as these are petty cash expenses. Hon'ble Supreme Court in the case of CIT Vs. Walchand and Co. Limited reported in 65. ITR 381 (SC), where in the lordships held as under :- M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 "In apply the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessmen and not of the Revenue." Similar view was taken by Hon'ble Supreme Court in the case of Travancore Titanium Products Limited Vs. C.I.T. reported in 60 ITR 227 (SC). Reliance is placed on the following judgements :- (Section 37(1) of the Income-tax Act, [2018] 99 taxmann.com 284(SC) 1961 Business F expenditure - SUPREME COURT OF INDIA in the case of Principal Commissioner of Income Allowability of (Onus to prove) - In Tax v. R.G. Buildwell Engineers Ltd.* course of assessment, assessee claimed deduction of expenses towards bricks, machinery repair, cartage, labour of expenses etc. - Assessing Officer disallowed 10 per cent II of said expenses on ground that insufficient evidence was adduced - Tribunal set aside said ad hoc disallowance on two grounds, firstly, assessee's books of account were not rejected and secondly, such expenses were allowed consistently in post in scrutiny assessments - High Court upheld order passed by Tribunal Whether SLP filed against view taken by High Court was to be dismissed - Held, yes [Para 2] [In favour of assessee) Before, The Hon'ble Members, Income As regards the other grounds of Tax Appellate Tribunal Bench- SMC, appeal, which are against x the ad hoc Lucknow, disallowance, I find that the Assessing A.Y.-2014-15 in the appeal of Shri Officer has -nowhere in the assessment Rajendra Kumar Chowdhary, Faizabad rejected the books of account and has Vs. Income Tax Officer-II, Faizabad. simply disallowed certain expenses to cover up the possible 5 leakage and irregularities. The making of ad hoc disallowances, without rejection of books of account and - without pointing out any discrepancy in the books of account, is contrary to law. The learned CIT(A) himself has deleted 50% of the ad hoc disallowances but in my view the additions itself are not sustainable in view of the decision of M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 various Benches of the Tribunal wherein it has been held that without rejection of books of account and without pointing out any discrepancy in the books of account, the ad hoc disallowance cannot be made. The Allahabad Bench of the Tribunal in the case of Shri Sanjeev Vaish vs. ACIT in vide order dated 19/12/2018 has held that no such ad hoc disallowance can be made without rejection of books of account and has held as under: "6. The facts are not disputed. It is settled law that where the taxing authorities do not point out any defect in the claim of the assessee, nor are the books of account maintained by the assessee rejected, no such ad hoc disallowance at a whimsical figure can be made and the claim of the assessee required to be accepted as such. In this regard, reference can be made to the following decisions: 1. ACIT vs. Allied Construction [2007] 106 TTJ 616 (I.T.A.T. Delhi Bench.
2. Seasons Catering Services (P) Ltd. vs. DCIT [2010] 43 DTR 397 (Ι.Τ.A.T. Delhi Bench) 3. M/s Kanha Vanaspati Ltd. vs. JCIT [2006] 7 MTC 339 (I.T.A.T. Lucknow Bench) 4. CIT vs. Subhash Chand Agarwal [2013] 58 SOT 122 (I.T.A.T. Allahabad Bench) 7. In view of the above, the grievance of the assessee is found to be justified. It is accepted as such. The additions made are, hence, deleted in their entirety.”
5. In view of the above, the ad hoc disallowances sustained by CIT(A) are deleted.
M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 Before, The Hon'ble Members, Income 4. We have heard the rival parties and Tax Appellate Tribunal, Bench- A, have gone through the material placed Lucknow, record. We find that as regards the 449&450/LKW/2018, A.Y.-2012-13 disallowance on account of ad hoc and 2013-14 in the appeal of M/s addition, the assessment was Premier Car Sales Limited, 9- completed u/s 143(3) of the Act. the Shahnajaf Road, Lucknow Vs. ACIT, Assessing Officer nowhere has Range-5, Lucknow. rejected the books of account. He simply held that most of the payments were in cash and assesse had submitted self-made vouchers therefore, he disallowed certain amounts out of the total expenditure. The Assessing Officer has not pointed out any vouchers or expenditure on which he had any doubt. The ad hoc disallowance, without pin pointing any error in the books of account, iS not justified specifically keeping in view the decision of Lucknow Bench of the Tribunal, as relied on by Learned A. R. Hon'ble Tribunal in1.T.A. No.41 vide order dated- 22/02/2018 with regard to ad hoc disallowance of expenses has held as under: "4.2 As regards the other disallowances, it is noticed that Assessing Officer had made ad hoc disallowance without pointing out any specific defect in the vouchers or pointing out any specific instance. It was submitted that the Assessing Officer has merely acted on presumption. As regards the expenses on vehicle maintenance, Learned A. R. submitted that the entire expenses were incurred for repair and maintenance and were fully vouched and therefore, the disallowance was not warranted. Similarly, in respect of ad hoc addition of Rs.30,000/- out of staff welfare, misc. expenses and travelling expenses, Learned A. R. submitted that the entire expenditure was open to verification and Assessing Officer has merely acted on presumption. In our opinion, the M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 Assessing Officer cannot make ad hoc disallowance specifically in view of the case laws relied on by Learned A. R. Hon'ble Calcutta High Court in the case of Ashok Surana vs. CIT [2016] 384 ITR 267 (Cal) has held as under: "The assessee was an individual engaged in the business of producing television serials and had offices at Calcutta, Bangalore, Delhi and Mumbai. For the assessment year 2001-02, the assessee had shown to have incurred expenses on account of telephone. The Assessing Officer disallowed 20 per cent. of the expenditure on the ground that the assessee failed to maintain A call book for monitoring calls and that a part of such calls were for personal and non- business use. The assessee also claimed expenses of the Mumbai office, part of which were supported by internal debit vouchers and claimed general expenses and expenses towards tea and tiffin, supported by debit vouchers. The Assessing Officer, disallowed 20 per cent. of expenses on the ground that they were not verifiable. The Commissioner (Appeals) confirmed this. The Tribunal restricted the disallowance. On appeal: Held, that it was not the case of the Assessing Officer that the assessee was unable to adduce satisfactory evidence that the expenditure was incurred for the purpose of his business. When appropriate evidence was adduced, it was not in the power of the Assessing Officer to arbitrarily disallow any item of expenditure on the ground that the sums were not verifiable. There was no indication as to what step was taken by the Assessing Officer to have those expenses verified. If the Assessing Officer had not taken pains to have the expenses verified, he could not M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 disallow any portion of the expenditure on the ground that it was not verifiable. The expenses were to be allowed." Similar findings have been made in other case laws relied on by Learned A. R. 4.3 In view of the above, the disallowances sustained by learned CIT(A) are not in order and therefore, we delete the ad hoc disallowance confirmed by learned CIT(A)." 4.1 In view of the above, the issue of disallowance on ad hoc basis out of expenses is decided in favour of the assessee. The Ld. C.I.T. (A) restricted the disallowance to 15% thereby confirming an amount of Rs. 8,32,144/- It is prayed that the adhoc disallowance made by the Id. A. O. and and partly upheld by the Ld. C.LT.(A) is unjustified and liable to be deleted. (2) SUBMISSION ON REVISED GROUND OF APPEAL
NO. 5 & 6 REGARDING ADDITION OF RS. 7,54,220/- REMITTED TO DUBAI AND NOT CLAIMED AS EXPENDITURE IN A.Y. 2015-
16. It is prayed that the disallowance of Rs. 7,54,220/ includes two amounts being Rs. 4,55,832/- and Rs. 2,98,338/-. It is prayed that in Financial Year 2013-14 Relevant to A. Y. 2014-15, we have incurred Expenditure under the head Advertisement Expenses Rs. 10,42,257/-which was the Advertisement Bill of M/s Sumansa Exhibition LLC, at Dubai i.r.o. Real Estate Exhibition done in UAE on behalf of the Assessee Company. In Financial Year 2013-14, we have booked the Bill of Rs. 10,42,457/- and against the said Bill, we have released 25% amount and made payment of Rs. 2,72,192/ equivalent to $4256 on 23.11.2013. The Balance amount of Rs. 7,68,279/- was outstanding in the books of the Company and was payable to the said entity and therefore amount of Rs. 7,68,279/- was shown as outstanding amount payable as on 31.03.2014. Copy of Ledger Account of Sumansa Exhibition LLC for F.Y. -2013-14 and F. Y. -2014-15 is at page 2/4-2/of the Paper book. In F. Y. 2014-15 against the opening outstanding Liability, we made payment of Rs. 3,03,086/ on 10.04.2014 and Rs. 4,65,933/- on 20.05.2014 from our ICICI Bank Account No. 628105500454. The remittance was made in foreign currency after filing Form 15CA where in payments are made to Non-Resident Entities without deduction of TDS. Copy of Bank Statement with ICICI Bank is at page 222-224 of the Paper book. In Form 15CA the tentative amount of remittance in Indian Currency and Foreign Currency is mentioned. Accordingly, the amount disallowed by ld. A. o. is nothing but the M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 amount of remittance mentioned in the Form 15CA i.e. Rs. 298388/ mentioned in Form 15CA ack. no. 175657201100414 and Rs. 455832/- mentioned in Form 15CA issued vide acknowledgement no. 183004791190514. Copy of Form 15CA are at page 2/6-22/of the Paper book. Against the amount mentioned in Form 15CA i.e. against the Remittance amount of Rs. 2,98,388/ an amount of Rs. 303086/- was finally remitted on 10.04.2014 and against the amount of Rs. 4,55,832/- an amount of Rs. 4,65,933/- was finally remitted on 20.05.2014 which has been debited from ICICI Bank Account No. 628105500454. The remittances actually made also includes Bank Charges / Commission charged by the Bank in making foreign remittances and therefore, the amount debited in Bank Statement and in the Ledger Account is higher than the amount mentioned in Form 15CA. Thus, the Authorities below did not consider that the amount disallowed is the amount mentioned in Form 15CA and further it has not been debited during the year as an expense and the same is the payment made against the Opening Outstanding Liability payable to Sumansa Exhibition LLC. It is therefore, prayed that once the amount has not been debited as an expense the same cannot be disallowed and therefore the addition made and upheld by Ld. C.I.T.(A) is liable to be deleted. WITHOUT PREJUDICE TO ABOVE It is further prayed that the Ld. AO fails to appreciate that he has already disallowed the expenditure under the head Advertisement Expenses and again disallowed Rs. 7,54,220/- being payment of liability of the expenditure amounts to double disallowance which is factually incorrect. It is further prayed that against the addition of Advertisement Expenses of Rs. 51,40,700/-made by the Ld. A. O. in the Assessment Order at Para 4.3, the Ld. CIT (A) vide Order dated 18.01.2024 directed the A. O. to verify the Advertisement Expenses claimed by the Assessee under the head Project Development Expenses. In compliance to the Direction to the Ld. C.I.T.(A), the Ld. A. O. vide order dated 30.03.2025 verified the claim of Advertisement Expenses (which included the expenditure dated 12.10.2013 of Rs. 10,42,257/- payable to M/s Sumansa Exhibition LLC) and allowed relief to the Assessee. Copy of Ledger Account of Advertisement Expenses of A. Y.-2014-15 and Copy of Appeal effect order dated 30.03.2025 is at page 225-23 of the Paper book. Thus, once the Ld. A. O. in the verification proceeding have admitted the genuinity of the Expenditure pertaining to M/s Sumansa Exhibition LLC then the same cannot be disallowed when the payment against the liability of the expenses made during A. Y.- 2015-16. (3) SUBMISSION OF REVISED GROUND OF APPEAL
NO.
7. REGARDING DISALLOWING OF RS. 26,000/- WHICH INCLUDES ROC EXPENSES RS. 16,000/-AND RS. 10,000/- PAID AS ANNUAL SUBSCRIPTION TO BUSINESS COUNCILS. It is prayed that Rs. 16,000/- were incurred for Annual ROC Filing Fee which is allowable Expenditure u/s 37(1) of I. T. Act. Copy of ledger account of ROC Exp. At page 243 at the paper book.
M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 Rs. 10,000/- is paid through cheque to National Real Estate Development Council and the same is an allowable expenditure u/s 37(1) of I. T. Act. In support of the above, we are submitting copy of Ledger and Voucher. Same is enclosed at page 243 of the Paper book.”
He also filed a petition for the admission of additional evidence as per Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 in which it was submitted that the copy of details of commission expenses alongwith copies of all the bills and invoices and copy of TDS returns for all four quarters in Form 26Q could not be filed before the lower authorities as the senior counsel for the assessee Sh. K.R. Rastogi, had undergone knee replacement surgery and was confined to bed. Therefore, it was submitted that there was a reasonable cause that was beyond the control of the assessee that prevented the assessee from filing the documents before the lower authority and it was accordingly prayed that these details may kindly be admitted as additional evidence. It was submitted that since the AO had not had occasion to examine these documents, the matter of disallowance, the disallowance of commission expenses incorporated within project development expenditure may kindly be restored to the file of the AO for fresh examination. On the ad hoc disallowances made by the ld. CIT(A), it was submitted that all the expenses were verifiable. They were incurred solely and exclusively for the purposes of business and therefore, the ad hoc disallowances of Rs. 8,32,144/- that had been upheld should be deleted. With regard to the disallowance of Rs. 7,54,222/- on maintenance of office of Dubai, it was reiterated that since the expenditure pertained to a previous year and had not been debited during the year as an expense, no disallowance could be made. Regarding disallowance of expenses at ROC office also it was also prayed that in view of the evidences furnished, the expenditure should be allowed. As regards the other additions made by the AO, it was submitted that since the matter had already been restored to the file of the AO by the ld. CIT(A), the assessee was not raising any specific grounds in this regard. With regard to ground nos. 1 and 2, the ld. AR submitted that the same were not being pressed.
M/s Shivansh Infrestate Pvt. Ltd. A.Y. 2015-16 9. On other hand, Sh. Neeraj Kumar, CIT DR submitted that the assessee had been given more than adequate opportunity to present the additional evidences. He submitted that for making adhoc disallowances, a rejection of the books was not required. With regard to the UAE expenses, the ld. CIT DR pointed out that the CIT had quite clearly brought on record the fact that since it was a capital expenditure, it was not allowable. Furthermore, with regard to the expenditure made at the office of the ROC, the ld. CIT DR relied upon the findings of the ld. CIT(A) and he prayed that the disallowance may be confirmed.
We have duly considered the facts and circumstances of the case, we notice from the assessment order that the AO has recorded that the assessee was given several opportunities to produce the books of accounts alongwith cash book, bills and vouchers and other supporting documents through notices under section 142(1) of the Act and order-sheet entries made on different dates, but the assessee had always sought adjournment and did not produce the books of accounts till the end. The entire assessment order keeps on recording omissions on the part of the assessee to furnish the relevant details before the AO. We noticed that the ld. CIT(A) has restored certain matters back to the file of the AO on account of the fact that thorough verification was required of the claims made by the assessee before him. In the present appeal, the assessee has himself admitted that the details of commission expenses alongwith bills and invoices and copies of the TDS returns to all four quarters could not be submitted before the lower authorities due to the illness of the counsel. It is therefore, necessary in our opinion that the AO should have an opportunity to examine all these details that have now been furnished before us or had been furnished before the ld. CIT(A) in order to consider whether the assessee had justified explanations with regard to the various additions that he had made in his assessment order for want of compliance, at the time. We, therefore, restore these matters to the file of the AO with a direction to the assessee to produce the necessary evidences before the AO so that the AO may have occasion to verify the various materials that have been subsequent produced