ACIT, NOIDA vs. M/S. M.D. OVERSEAS LTD., NEW DELHI

The facts in brief of the case are that a search and seizure action under section 132 of the Income- tax Act, 1961 (in short ‘the Act’) was conducted in the case of the assessee on 15/09/2009. A notice under section 153A of the Act was issued on 27/12/2010 for filing return of income. In response to the notice, the assessee filed return of income on 29/08/2011, declaring income of Rs.25,62,33,380/-. Notices under section 143(2) and 142(1) of the Act were issued and the assessment was completed on 30/12/2011. In the assessment, the Assessing Officer made following two disallowances:

1. 1. disallowance out of CWC-NSEZ expenses of Rs. 18, 26, 474/- 2. disallowance out of freight and forwarding expenses of Rs.18,25,262/- 2.1 On appeal, the learned Commissioner of Income-tax (Appeals) deleted both the disallowances. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 2.2 Effectively, Revenue is aggrieved with the deletion of both the disallowances made by the Assessing Officer. Hence, the present appeal by the Revenue.

The learned Commissioner of Income-tax (Appeals), has deleted the disallowance with following observations: “Regarding first addition the appellant has submitted that during the year under consideration Vaulting/Ware housing charges of Rs.58,49,384/- were clubbed with CWC-NSEZ Expenses of Rs.15,94,138/- and the total of these two being Rs.74,43,522/- were reflected in schedule 16 of the Balance Sheet. Whereas in respect of Assessment Year 2008-09 Vaulting/Ware Housing Charges of Rs.1,27,25,590/- were shown separately in Scheule-16 of the Balance Sheet. With above facts it has been claimed by the appellant that because of re-grouping of Vaulting I Ware housing charges in assessment year under consideration created confusion in the mind of the AO while verifying and comparing the figures under above heads. Taking into account the above clarification filed by the appellant I find no increase in the expenses under the head CWC-NSEZ Expenses as alleged by AO. Regarding second addition of Rs.18,25,262/- made under the head Freight and Forwarding Expenses the appellant has vehemently claimed that AO has made addition on estimate basis without specifying the basis where as they had provided every information/detail called for during the assessment proceedings. The appellant has also claimed that no opportunity was accorded to the assessee to furnish details/explanation in respect of above addition. With above submission the appellant has clarified that the increase in above expenses by Rs. 57,54,321/- were mainly on account of Octroi paid to Mumbai Municipal Corporation. With above submission the appellant has pleaded that the above two additions made by the AO be deleted. On careful consideration of submission made by the appellant, facts brought out by the AO in assessment order and relevant material available on records I find that AO has made above additions without going into the details of above expenditures appearing in the audited balance sheet filed by the assessee. The AO has simply made estimated addition on ad-hoc basis without any explanation or justification in this regard. The AO has also not deliberated the basis of arriving at the figures of disallowance under above heads. I also find that AO has failed to give show cause notice to the appellant before making above two additions which is in violation of principle of natural justice. Further, I find that the balance sheet of the appellant is duly audited and which were produced before the AO during the course of assessment proceedings and same were checked by the AO. Further, the AO did not raise any doubt about the genuineness of Balance Sheet/Books of Accounts and has also not pointed out any irregularity in reporting the expenditure under above two heads under discussion. The appellant has also claimed that the expenses under above heads were incurred through account payee cheques. In this regard the appellant has cited and relied upon the following two judgments which support the assessee's case: a. ITO Vs. Lake Palace Hotels and Motels (P) Ltd. 13 TTJ (JP) 216 b. Tript Kaur Vs. ACIT, CIR 22(1), New Delhi in ITAT, Delhi Bench "H", New Delhi Taking all the above into consideration I find no justification in AO's action of making estimated addition on ad-hoc basis under above two heads of expenses and therefore the same are deleted.”

We find that the Assessing Officer while making disallowance has not noted any deficiency in the bills or vouchers in respect of the expenses incurred and made disallowance merely on the basis that in the year under consideration, expenses under the relevant heads have increased in percentage terms on sales as compared to preceding year. The Assessing Officer has not even examined the detail of the expenses. The learned Commissioner of Income-tax(Appeals), on the other hand, examined the details of the expenses and in respect of first disallowance found that in the preceding assessment year vaulting/warehousing expenses were shown separately, whereas in the year under consideration, the said expenses are clubbed with expenses under the head ‘CWC-NSEZ’ and, therefore, the increase in expenses was found to be justified by the learned Commissioner of Income-tax (Appeals). Similarly, under the head ‘freight and forwarding expenses’, the learned Commissioner of Income-tax (Appeals) has examined expenses in detail and found that the increase was mainly on account of the of octroi paid to Municipal Corporation of Mumbai. We find that the assessee has duly explained the increase in the expenses under both the heads as compared to the preceding assessment year before the learned Commissioner of Income- tax (Appeals). Further, we do not find any strength in the ground of the Revenue that learned Commissioner of Income- tax (Appeals) has not exercised the co-terminus power of the Assessing Officer and did not examine whether the expenses were incurred wholly and exclusively for the purpose of business. In our view, the learned Commissioner of Income-tax (Appeals) has examined the details of the expenses and the increase in expenses has been found by him to be justified. In our considered opinion, no disallowance can be made merely on the estimate or ad-hoc basis, without pointing out any specific defects in the books of accounts or vouchers. In view of above facts and circumstances, we find that the order of the learned Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the order of the learned Commissioner of Income-tax (Appeals). The grounds raised