SHRI MUKESH GUPTA vs. THE DEPUTY COMMISSIONER OF INCOME TAX

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ITA/343/2019HC KarnatakaKAHC01038082201905 December 2022Bench: P.S.DINESH KUMAR,T.G. SHIVASHANKARE GOWDA8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court found that the ITAT's finding of no business income was contrary to the assessment order which showed business income. The court also noted that the ad-hoc disallowance of expenditure was made without rejecting the assessee's books of accounts, similar to a Supreme Court precedent.

What were the facts?

The assessee appealed against the ITAT's order disallowing business income and making an ad-hoc disallowance of 10% of expenditure. The assessee argued that business income was declared and creditors were offered to tax, and that the expenditure was incurred in the regular course of profession.

What were the issues?

Whether the ITAT was justified in holding there was no business income and in upholding an ad-hoc disallowance of expenditure without rejecting the assessee's books.

Which sections of the Income-tax Act were involved?

Section 260-A

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Income Tax Appellate Tribunal, 2 [2018] 99 taxmann.com 284 (SC

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 5TH DAY OF DECEMBER, 2022 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G.SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 343 OF 2019 C/W INCOME TAX APPEAL NO. 342 OF 2019

IN I.T.A NO. 343 OF 2019

BETWEEN:

SHRI MUKESH GUPTA NO.32, ASHAGEET SHESHADRI ROAD HOTEL SUPRABHAT COMPLEX SHESHADRI IYEDR ROAD ANANDRAO CIRCLE BENGALURU-560 009. PAN:AANPG1383P …APPELLANT

(BY SHRI. ANNAMALAI, ADVOCATE FOR SHRI. S.V.RAVI SHANKAR, ADVOCATE)

AND:

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(2), BMTC BUILDING 6TH BLOCK, KORAMANGALA BENGALURU-560 095. …RESPONDENT

(BY SHRI. M.DILIP, ADVOCATE FOR SHRI. K.V.ARAVIND, SENIOR STANDING COUNSEL)

Digitally signed by YASHODHA N Location: High Court Of Karnataka

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20.07.2018 PASSED IN ITA NO.1453/BANG/2018, FOR THE ASSESSMENT YEAR:2012- 2013, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED THEREIN AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT AND ETC.,

IN I.T.A NO. 342 OF 2019

BETWEEN:

SHRI. MUKESH GUPTA NO.32. "ASHAGEET" SHESHADRI ROAD HOTEL SUPRABHAT COMPLEX SHESHADRI IYER ROAD ANANDRAO CIRCLE BENGALURU-560 009. PAN: AANPG1383P …APPELLANT

(BY SHRI. ANNAMALAI, ADVOCATE FOR SHRI. S.V.RAVI SHANKAR, ADVOCATE)

AND:

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(2), BMTC BUILDING 6TH BLOCK KORAMANGALA BENGALURU-560 095. …RESPONDENT

(BY SHRI. M.DILIP, ADVOCATE FOR SHRI. K.V.ARAVIND, SENIOR STANDING COUNSEL)

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 25.01.2019 PASSED IN MP NO.3/BANG/2019 IN ITA NO.1453/BANG/2018, FOR THE ASSESSMENT YEAR: 2012-2013, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED THEREIN AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT AND ETC.,

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

THESE ITAs, COMING ON FOR FINAL HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING:

JUDGMENT

These two appeals by the assessee have been filed to consider the following questions of law: "1. Whether the Tribunal was justified in holding that there was no business income for the AY 2012-13 without appreciating that the appellant had returned professional income and also offered creditors to tax, arrived at a perverse finding on the facts and circumstances of the case. 2. Whether the Tribunal was justified in upholding the adhoc disallowance of 10% of the expenditure without appreciating that the expenditure incurred were in the regular course of profession of the appellant on the facts and circumstances of the case." 2. ITA No.343/2019 is filed against order dated July 20, 2018 in ITA No.1453/Bang/2018 for the A.Y. 2012-13 and ITA No.342/2019 is filed against order dated January 25, 2019 in M.P.No.3/Bang/2019 in ITA No.1453/Bang/2018. We have considered ITA No.343/2019 at the outset.

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

3.

Heard Shri Annamalai, learned advocate for the assessee and Shri M.Dilip, learned standing counsel for the Revenue. 4. Shri Annamalai for the assessee, adverting to Para 11 of the order passed by ITAT1, submitted that ITAT has arbitrarily held that there was no business income by the assessee without recording any cogent reasons. 5. With regard to the second question of law namely, disallowance of 10%, Shri Annamalai submitted that the Assessing Officer has arbitrarily disallowed 10% of the expenditure claimed by the assessee. He submitted that the books of accounts have not been rejected. Therefore, arbitrary disallowance is contrary to the law laid down in Principal Commissioner of Income Tax vs. R.G.Buildwell Engineers Ltd2.

1 Income Tax Appellate Tribunal 2 [2018] 99 taxmann.com 284 (SC)

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

6.

Shri Dilip for the Revenue supporting the impugned orders submitted as follows; • that with regard to the first question that there was no business income for the A.Y.2012-13, he submitted that the assessee had not declared any business income and the income declared was by profession. Therefore, ITAT has rightly recorded the above finding; and • Adverting to Para 6 of the Assessment order, he submitted that since authorized representative of the assessee was not able to establish bills and vouchers, Assessing Officer has disallowed 10% of the expenditure.

7.

We have carefully considered rival contentions and perused the records. 8. First question is with regard to the finding recorded by the ITAT in Para 11 of its order. ITAT has

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

noted that as per its observations, there was no business income in the present year. Therefore, expenditure could not have been allowed in that year. 9. Shri Annamalai has made available a copy of assessment order for A.Y. 2012-13. In the statement of income, the income chargeable under the head "Business and profession" is mentioned as Rs.14,16,985/-. Therefore, in our view, the finding recorded by the ITAT is contrary to record and hence, perverse.

So far as the deduction of 10% of expenditure is concerned, Assessing Officer has recorded that authorized representative of the assessee was not able to establish all bills and vouchers. Accordingly, he has made adhoc deduction of 10% of the expenditure. 10. In R.G.Buildwell Engineers Ltd case, the Hon'ble Supreme Court of India has dismissed revenue's SLP filed against the judgment of the Delhi High Court in ITAs No.1183 & 1187 of 2017. Delhi High Court in identical circumstances, has held thus,

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

"3. In respect of the first item, i.e. expenses for bricks, machinery repair, cartage etc., the A.O. concluded that insufficient evidence was adduced. He, therefore, disallowed 10% of the claim. This was reduced by half by the C.I.T.(Appeals). The ITAT gave two reasons to set aside the findings of the A.O. - C.I.T.(Appeals). Firstly, that the books of account were not rejected and secondly, that in the past, consistently such expenses were allowed in scrutiny assessments. Likewise, in the case of labour cases too, identical reasons were adduced by the A.O. to bring to tax a sum of Rs.2.2 crores. The same were set aside ultimately by the ITAT."

(Emphasis supplied)

11.

In the instant case also, the assessee's books of accounts have not been rejected and the deduction is made on adhoc basis. 12. In view of the above, these appeals merit consideration and hence, the following; ORDER (i) Both appeals are allowed;

(ii) Order dated 20.07.2018 in ITA No.1453/Bang/2018 and order dated

ITA No. 343 of 2019 C/W ITA No. 342 of 2019

25.01.2019 in M.P.No.3/Bang/2019 in ITA No.1453/Bang/2018 are set-aside; and

(iii) Questions of law is answered in favour of the assessee and against the Revenue.

No costs.

Sd/- JUDGE

Sd/- JUDGE

AV List No.: 1 Sl No.: 55

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