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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI N. K. SAINI & MS SUCHITRA KAMBLE
This appeal has been filed by the Revenue against the order dated 20/1/2016 passed by CIT(A)-Dehradun Assessment Year 2011-12.
The grounds of appeal are as under:-
“1. The Ld.CIT(A), Dehradun has erred in law and on the facts in deleting the disallowance of Rs.75,16,013/- de by the A.O out of “Project Monitoring Expenses” and “Erection and Commissioning Charges” ignoring the fact that the assessee has failed before the A.O to specify the reason of less profit this year although turnover went up substantially as compare to last year.
2. That the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored.
The assessee filed income tax return on 28/9/2011 at a total income of Rs.1,81,18,370/-. The case of the assessee was selected for scrutiny and statutory notice u/s 143(2) of the Income Tax Act was issued on 26/9/2012 and was duly served on the assessee. The authorized representative of the assessee appeared from time to time and filed detailed reply along with books of accounts cash book ledger and other documents. The same was placed on record. During the course of assessment proceedings the Assessing Officer noted that the turnover of the assessee has gone up from Rs.22,84,22,128/- in the previous year to Rs.26,01,09,470/- in this year, but the net profit had come down from Rs.2,52,05,645/-. Thus, the Assessing Officer observed that even while the turnover has gone up the profit had declined and the decreasing profit was mainly due to abnormal increase in two expenses i.e. the profit monitoring expenses which has gone from Rs.31,65,768/- to Rs.84,21,250/- and Erection and Commissioning charges which has gone up from Rs.4,65,768/- to Rs.66,10,810/- and the net profit had decrease due to substantial increase in these expenses. The assessee was asked to justify this abnormal increase in two expenses. Thus, the assessee submitted that most of the project were in this year was carried in different occasions of India such as Bangalore, Chennai, Mumbai & Pune. Therefore, these expenses went up. The Assessing Officer did not accept the assessee’s reason and held that the turnover had gone up but the profit in absolute term had come down from Rs.2,52,05,645/- to Rs.1,71,98,445/- and opined that no prudent man would increase his business so as to get less profit. Therefore, the explanation of the assessee was rejected and half of the above expenses we have heard both the parties and perused the material available on record disallowed. Thus, over all a sum of Rs.75,16,013/- was disallowed from the expenses and was added to the total income of the assessee.
Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). The CIT(A) held that the Assessing Officer made estimated disallowances because of some expenses which had gone up, however, the Assessing Officer had not brought on record a single instance of expenses not being vouched properly, any instance of any of these expense being artificially inflated or being of a bogus nature. The CIT(A) further held that there was no allegation that the expenditure occurred out of any other activity and Assessing Officer did not bring on record any instance of the expenditure being used for purposes of the other business. Thus, the addition made in routine manner and on an ad-hoc basis was deleted by the CIT(A).
The Ld. DR submitted that the Assessing Officer has rightly disallowed the expenses to the extent of 50%, as to increase business no one will get a less profit. Thus, the Ld. DR submitted that the CIT(A) failed to see this aspect and the order may be set aside.
We have heard both the parties and perused the material available on record. Despite sending the notice no one has appeared for the hearing. We have perused all the records and gone through the order of the CIT(A) wherein the CIT(A) has rightly deleted the addition as the Assessing Officer made the estimated addition or ad-hoc addition without assigning any reason to that effect. Merely, on the basis of surmises, the Assessing Officer cannot make an addition when the assessee has given all the details about the expenses and the same was never doubted by the Assessing Officer at any point of time. The CIT(A) held in Para 6,7,8 & 9 are as under:-
“I have duly considered the facts and circumstances of the case. The A.O has made estimated disallowances because some of the expenses have gone up. However, he had not brought on record a single instance of expenses not being vouched properly, any instance of any of these expenditures being artificially inflated or being of a bogus nature. There is no allegation that the expenditure has occurred out of any other activity.
He has not brought on record any instance of the expenditures being used for purposes other than business. He has not specified in any cogent manner why the explanation cited by the assessee for the increase in expenditures i.e. the fact that in the current year the most of the project work were done in different location of India which resulted in the increase, were not acceptable. He has not brought any instance on record that any of these expenditures were inadmissible to be deducted and he has also not explained why a particular percentage of the expenditure merits disallowance. Thus it appears that the addition has simply been made on a suspicion of leakage. No suspicion can be the basis of a sustainable addition. In the absence of any specific reference to any expenditure that the AO had found to not be incurred or to be incurred for a purpose other than business or incurred in a manner that made them eligible for deduction, an estimated disallowance only on account of the fact that an expenditure may have increased in comparison to the previous year is not justified.
In the circumstances there does not appear to be any reason to make the disallowance of expenditure without bringing specific material on record to justify the disallowance. Thus, the addition has been made in a routine manner and on an adhoc basis. The Hon’ble ITAT in the following decisions has held that adhoc disallowances cannot be made i. M/S. Ganesh Foundry vs. ACIT 78 TTJ It was held that disallowance made without pinpointing out any item of disallowable nature cannot be sustained. ii. ACIT vs. Govind Ram Kakwani 90 TTJ (Jabalpur) 1981 It was held that any adhoc disallowance made without pinpointing particular item of disallowance and based on vague observations was rightly deleted by CIT (Appeals) iii. Trimurti Salt Co. vs. ITO 12 TTJ 485 It was held that there is no justification for disallowing expenses in a Routine manner and on adhoc basis. iv Raj Enterprises vs. ITO 51 TTJ 408 It was held that the ad-hoc disallowance made without cogent reasons are unsustainable.
In view of the aforesaid facts and the position of law as laid down in the aforesaid judgments, the addition of Rs.75,16,013/- is deleted.
In the result, the appeal is allowed.”
In our opinion, the CIT(A) rightly held that the Assessing Officer made estimated disallowances because of some expenses which had gone up, however, the Assessing Officer had not brought on record a single instance of expenses not being vouched properly or any of these expense being artificially inflated or being of a bogus nature, the CIT(A) further held that there was no allegation that the expenditure occurred out of any other activity and Assessing Officer did not bring on record any instance of the expenditure being used for purposes of the other business. The addition made by the AO was rightly deleted by the CIT(A). Thus, there is no need to interfere with the findings given by the CIT(A).
In result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 08th December, 2017.