DCIT, CIR-12(1), KOLKATA, KOLKATA vs. M/S IFB INDUSTRIES LTD., KOLKATA

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ITA 1414/KOL/2016Status: DisposedITAT Kolkata05 January 2018AY 2007-084 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that an estimated addition cannot be made without rejecting the books of accounts after identifying defects. Since no defects were found in the assessee's books, the deletion of the ad hoc disallowance by the CIT(A) was upheld.

What were the facts?

The Assessing Officer (AO) disallowed 20% of 'other sundry expenses' amounting to Rs. 60,79,000/- on an ad hoc, estimated basis, citing a lack of full evidence. The assessee provided a detailed breakup of these expenses, which the Commissioner of Income Tax (Appeals) deleted the disallowance.

What were the issues?

Whether the CIT(A) was justified in deleting the ad hoc addition made by the AO on account of operating and administrative expenses without rejecting the books of accounts.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA

Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]

Hearing: 26.12.2017Pronounced: 05.01.2018

ORDER Per M.Balaganesh, AM

1.

This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-9, Kolkata [in short the ld CIT(A)] in Appeal No.728/CIT(A)- 9/Cir-12/2014-15/Kol dated 18.03.2016 against the order passed by the DCIT, Circle- 12(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 24.12.2009 for the Assessment Year 2007-08.

2.

The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the addition of Rs. 60,79,000/- made on account of operating and administrative expenses on an ad hoc basis, in the facts and circumstances of the case.

3.

The brief facts of this issue is that the assessee is engaged in the business of manufacturing of fine blank components, tools, home appliances and trading. The M/s IFB Industries Ltd. A.Yr. 2007-08 assessee company had filed its return of income on 29.10.2007 for the assessment year 2007-08 showing NIL income after set off brought forward losses. The Ld. AO observed that the assessee company had debited Rs. 3,03,95,000/- in its profit and loss account on account of ‘other sundry expenses’ under the head ‘operating and administrative expenses’. The Ld. AO observed that the assessee failed to produce full evidences in support of this expenditure and accordingly proceeded to disallow 20% of the same amounting to Rs. 60,79,000/- on an estimated basis in the assessment. The assessee filed the details of other sundry expenses to the tune of Rs. 3,03,95,000/- which is reproduced as under: Breakup of “Other Sundry Expenses” Financial year 2006-07 Assessment Year 2007-08

Sl. No. Description Amount(Rs.) 1. License Fees 1,60,500 2 Membership and Subscription 1,75,000 3 Miscellaneous Expenses for Garden Maintenance 10,25,600 4 Warranty Expenses for the free Delivery of Spares and 1,81,26,332 Parts for the Home Appliances 5 Entry Tax 6,72,200 6 Legal Expenses 11,25,800 7 Guest House Expenses 40,85,068 8 Audit Fee and other Expenses 22,59,000 9 Internal Audit Fees 27,65,500 Total 3,03,95,000 The Ld. CIT(A) deleted this disallowance on the ground that books of accounts have not been rejected by the Ld. AO and no defects were found thereon by the Ld. AO and M/s IFB Industries Ltd. A.Yr. 2007-08 accordingly, there is no case for making any estimated addition. Aggrieved, the revenue is in appeal before us on the following grounds:

1. That on the facts and circumstances of the case the Ld. CIT(A) has erred by deleting the addition of Rs. 60,79,000/- made by AO on account of “Operating and Administrative Expenses.”

2. That on the facts and circumstances of the case the Ld. CIT(A) has erred in allowing the appeal of the assessee relying upon the documentary evidences of the other sundry expenses produced before him which was not produced by the assessee before the AO and no remand report has been called for by the Ld. CIT(A) in contravention to the provision under Rule 46A of the I.T.Rule.

4.

We have heard the rival submissions. The Ld. DR vehemently relied on the order of the Ld. AO. In response to this, the Ld. AR vehemently relied on the order of the Ld. CIT(A) and argued that the addition was made only on an estimated basis by the Ld. AO. We find that no defects were found in the books of accounts produced by the assessee before the Ld. AO and without rejecting the books of accounts after pointing out certain defects thereon, there cannot be any estimated addition. We also find lot of force in the reliance placed by the Ld. AR on the decision of Delhi Tribunal in the case of DCIT vs. Gymkhana Club reported in [2010] 6 ITR (Trib)808 (ITAT)(Del) dated 17.09.2010 wherein it was held as under:

“25. We have considered the submissions of the learned Departmental representative for the Revenue and have gone through the orders of the authorities below. We find that ad hoc disallowance was made by the Assessing Officer on estimated basis without bringing any adverse material on record. As per the Assessing Officer, use of telephone for personal purposes of employees, cannot be ruled out. This aspect is now covered in favour of the assessee by the judgment of the Hon’ble High Court of Gujrat rendered in the case of Sayaji Iron and Engg. Co. Vs. CIT as reported in [2002] 253 ITR 749. By respectfully following this judgment of the Hon’ble High Court of Gujrat (supra), we confirm the order of the learned Commissioner of Income Tax (Appeals) on this issue. Ground no. 4 of the Revenue’s appeal stands rejected.”

M/s IFB Industries Ltd. A.Yr. 2007-08 In view of the facts and respectfully following the decision of Delhi Tribunal we find no infirmity in the order of Ld. CIT(A). Accordingly the grounds raised by the Revenue are dismissed.

5.

In the result, the appeal of the revenue is dismissed.

Order pronounced in the Court on 05.01.2018

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