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Facts
The assessee, a C & F Agent, declared a total income of Rs.64,750/- for AY 2016-17. The AO disallowed 20% of expenses amounting to Rs.5,02,357/- for not providing adequate details, which was confirmed by the CIT(A).
Held
The Tribunal noted that while some expenses were not properly detailed initially, the assessee did provide subsequent clarifications and documents. The Tribunal found that a portion of the indirect expenses were verifiable and statutorily allowable. Therefore, a 10% ad-hoc disallowance was considered appropriate.
Key Issues
Whether the disallowance of expenses by the AO and confirmed by the CIT(A) was justified due to lack of proper documentation, and if not, what should be the extent of disallowance.
Sections Cited
Sec 144, Sec 32, Sec 40(b)
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC’’ JAIPUR
Before: Hon’ble SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 428/JP/2024
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC’’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ds le{k BEFORE: Hon’ble SHRI SANDEEP GOSAIN, JUDICIAL MEMBER vk;dj vihy la-@ITA No. 428/JP/2024 fu/kZkj.k o"kZ@Assessment Year : 2016-17 cuke M/s. K.S. Distributors The ITO Vs. KE-11, Behind Shah Nursing Home Ward 3(2) Kabir Marg, Bani Park, Jaipur 302 016 Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFK 3256 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri P.C. Parwal, CA jktLo dh vksj ls@Revenue by: Mrs. Monisha Choudhary, Addl. CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 16/05/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 08 /08/2024 vkns'k@ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. Addl. CIT(A), Thane dated 22-02-2024 for the assessment year 2016-17 raising following grounds of appeal. ‘’1. The ld. CIT(A) has erred on facts and in law in deciding the appeal ex-parte without providing adequate opportunity of hearing. 2. The ld.CIT(A) has erred on facts and in law in confirming the adhoc disallowance of expenses of
2 ITA428/JP/2024 M/S. K.S. DISTRIBUTORS VS ITO, WARD 3(2), JAIPUR Rs.5,02,357/- being 20% of eoxpenses of Rs.25,11,785/- claimed in the P&L A/c.
2.1 The Ground No. 1 of the assessee is general in nature which does not require any adjudication. 3.1 Apropos Ground No. 2 of the assessee, it is noticed from the assessment order that the assessee is a C & F Agent and Commission Agent of pharmaceutical companies. It filed the return on 29-07-2016, declaring total income of Rs.64,750/-. The case of the assessee was selected under CASS. Accordingly, notice u/s 243(2) dated 29-06-2017 were issued and served upon the assessee through e-mail as well as postal authorities. The AO noticed that despite providing ample opportunities, the assessee had not furnished the requisite reply/ explanation and thus he had no option except to complete the assessment proceedings on the basis of the materials available on record and merits of the case u/s 144 of the Act. Thus the AO disallowed 20% of the expenses claimed of Rs.25,11,784/- and made addition of Rs.5,02,357/- . 3.2 In first appeal, the ld. CIT(A) has confirmed the action of the AO by dismissing the appeal of the assessee. 3.3 During the course of hearing, the ld. AR submitted that the ld. CIT(A) has erred in confirming the adhoc disallowance of expenses of Rs.5,02,357/- being 20% of expenses of Rs.25,11,785/- claimed in the P&L A/c.
3 ITA428/JP/2024 M/S. K.S. DISTRIBUTORS VS ITO, WARD 3(2), JAIPUR 3.4 On the other hand, the ld.DR supported the orders of the lower authorities. 3.5 The Bench heard both the parties and perused the materials available on record including the order of the ld. CIIT(A) and AO. The Bench noticed that the assessee is a C &F Commission Agent of Pharmaceutical Companies declaring total income of Rs.64,750/-. However, during the assessment proceedings, the AO observed that despite specific requirements the assessee failed to produce the details of various expenses claimed except the details of freight and cartage expenses. Accordingly, he disallowed 20% of the expenses claimed of Rs.25,11,784/- which comes to Rs.5,02,357/-. During the course of the hearing, the ld.AR submitted that the AO with notice dt.30.07.2018 (Page 3-4) required the assessee to furnish brief note on the business activities, computation of total income, balance sheet, profit and loss a/c & bank account details and vide notice dt.21.11.2018 (Page 5-6) the ledger a/c of Freight & Cartage, other expenses, salary, VAT challan, evidence of addition to fixed asset and copy of partner's capital account. In response to these notices, assessee vides reply dt.19.11.2018 & 04.12.2018 furnished the required details and ledger account of Freight & Cartage (PB 7-17). Therefore the observation of the A.O. that assessee failed to produce the details of various expenses claimed at Rs.25,11,785/- except the details of Freight & Cartage expenses is factually incorrect. He further submitted that from the profit & loss a/c & balance sheet (Page 18-19), it may be noted that the total indirect
4 ITA428/JP/2024 M/S. K.S. DISTRIBUTORS VS ITO, WARD 3(2), JAIPUR expenses is Rs.25,11,785/- which includes expenses of Rs.13,284/- towards bank charges, Rs.32,715/- towards interest on bank overdraft, Rs.82,318/- towards depreciation, Rs.3,84,534 towards freight and cartage expenses for which details were furnished as admitted by AO in its order. Rs.2,13,061/- towards interest on partner's capital and Rs.3,22,120/- towards salary to partners. In respect of claim of depreciation assessee in its reply dt.04.12.2018 has furnished invoice of car purchased on 29.07.2015 for consideration of Rs. 4,06,613/-, the depreciation on which works out at Rs.60,991/-. Thus the indirect expenses to the extent of Rs. 10,48,032/-(13,284 +32,715+82,318+3,84,534 +2,13,061+ 3,22,120) is otherwise verifiable or statutorily allowable u/s 32/40(b) of the Act. The remaining indirect expenses is Rs.14,63,753/-. These expenses are also fully verifiable, vouched and reasonable considering the commission receipt of Rs.23,76,061/-. The Bench considered the arguments of the ld. AR of the assessee and noted the fact that indirect expenses to the extent of Rs.10,48,032/- are verifiable or statutorily allowable u/s 32/40(b) of the Act. Therefore, no disallowance ought to have been made by the AO and as far as remaining indirect expenses of Rs.14,63,743/- are concerned for which the assessee placed on record certain documents. Therefore, considering the overall facts and circumstances of the case, the Bench is of the view that 10% adhoc disallowance is to be made on the indirect expenses of
5 ITA428/JP/2024 M/S. K.S. DISTRIBUTORS VS ITO, WARD 3(2), JAIPUR Rs.14,63,753/- . Thus the AO is directed to act accordingly. Thus the appeal of the assessee is partly allowed. 4.0 In the result, the appeal of the assessee is partly allowed with no orders as to costs. Order pronounced in the open court on 08/08/2024. Sd/- ¼lanhi xkslkbZ½ (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 08 /08/2024 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- M/s. K.S. Distributors Jaipur 2. izR;FkhZ@ The Respondent- The ITO, Ward 3(2), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 428/JP/2024) vkns'kkuqlkj@ By order,
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