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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap, A.M..: This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-XIX, Kolkata dated 09.06.2014 and the same is being disposed of along with the Cross Objection filed by the assessee being C.O. No. 98/KOL/2014.
In Ground No. 1 of its appeal, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.31,83,273/- made by the Assessing Officer on account of unexplained excess liability towards sundry creditor.
The assessee in the present case is an individual, who is engaged in the business of civil construction in the name and style of his proprietary concern M/s. B.P. Construction. The return of income for the year under consideration was filed by the assessee on 30.09.2011 declaring total income of Rs.25,79,730/-. In the balance-sheet filed along with the said return, a liability of Rs.57,71,953/- was shown by the assessee in the name of M/s. L.K. Builders. The enquiry conducted by the Assessing Officer during the course of assessment proceedings, however, revealed that the amount receivable from the assessee in the books of M/s. L.K. Builders was shown at Rs.25,88,860/-. Since this difference of Rs.31,83,273/- could not be explained by the assessee to the satisfaction of the Assessing Officer, the same was added by the Assessing Officer to the total income of the assessee.
The addition of Rs.31,83,273/- made by the Assessing Officer on account of unexplained excess liability was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on I.T.A. No. 1748/KOL./2014 Assessment Year : 2011-2012 & C.O. No. 98/KOL/2014 (in Assessment Year: 2011-2012 Page 3 of 9 record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 3.3 of his impugned order:- “3.3. Against the backdrop of the assessment order, I have considered the submission of the appellant filed along with the various case laws as well as supporting documents to drive home his point. On an analysis of the action of the AO and the contention of the appellant, I find that the issue revolves around the question whether the liability of the appellant vis-a-vis M/s. L.K. Builders is genuine or not. The AO has not come up with any convincing finding that the liability came under the purview of section of section 41 of the Act. The next point in this regard would be whether the transactions were genuine or not for which also the AO has not made any convincing finding with corroborative evidence Appellant has explain that the liability is genuine and recorded in the audited Books of accounts and In support of his contention submitted copy of ledger account with M/S L.K Builders since FY 2006- 2007 with copy of each and every invoice raised by M/S L.K. Builders, duly received payment voucher, Bank Statement, Tax Deduction Certificate of Income Tax (Form- 16) and Tax Deduction Certificate of Sales Tax (Form-18), Agreement copy with M/S L.K. Builders, Memorandum of Work Schedule etc and those were fully checked and verified by the ld AO in the assessment proceedings. I find that there is no adverse comment on this count by the AO at any stage with any convincing material. I also find that section 68 of the Act would not be applicable in as much as the said section refers to unexplained credit in the books of account whereas in the present case the impugned amount represented a liability of the appellant and not a credit appearing in the books of account. I also further find that the same sundry creditor was accepted as genuine by the AO in the previous AY as contended by the appellant for which also there is no adverse finding by the AO on this count. In a nutshell, when the documentary evidences lead to the finding that the said sundry creditor exists and still having financial as well as trading deals as discussed (supra), I do not find any merit in the AO taking a view, without any corroborative evidence, that the liability of the appellant was bogus or otherwise. The AO has not come up with any material fact to support his stand that the liability against the sundry creditor was a farce, but rather the appellant has adduced enough material evidence to substantiate his point (supra). The various case laws as cited (supra) also lend support to the appellant’s case. I am unable to support the action of the AO but to allow the relief as sought for by the appellant and hence the addition made by the AO on this count is hereby deleted to the extent of Rs.31,83,273/-“.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. counsel for the assessee has submitted that the difference of Rs.31,83,273/- pointed out by the Assessing Officer in the liability shown by the assessee in the name of M/s. L.K. Builders actually pertained to the earlier year, inasmuch as, the said difference was in the opening balance. He has contended that the said difference of Rs.31,83,273/- thus in no case can be treated as the income of the assessee for the year under consideration.
I.T.A. No. 1748/KOL./2014 Assessment Year : 2011-2012 & C.O. No. 98/KOL/2014 (in Assessment Year: 2011-2012 Page 4 of 9 The ld. D.R., on the other hand, has contended that this plea taken by the ld. counsel for the assessee for the first time before the Tribunal requires verification by the Assessing Officer. We find merit in this contention of the ld. D.R. and since the ld. counsel for the assessee has also not raised any objection in this regard, we restore this issue to the file of the Assessing Officer for the limited purpose of verifying as to whether the difference in question was pertaining to the earlier year and if so, no addition can be made on account of the said difference during the year under consideration. Ground No. 1 of the Revenue’s appeal is accordingly treated as allowed for statistical purposes.
In Ground No. 2, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.1,07,706/- made by the Assessing Officer on account of donation & subscription.
In the Profit & Loss Account filed along with the return of income, a sum of Rs.1,07,706/- was debited by the assessee on account of donation and subscription. During the course of assessment proceedings, it was explained by the assessee that he had to pay several donations at local places for various pujas and social functions in order to ensure smooth running of his business. This explanation of the assessee, however, was not found acceptable by the Assessing Officer. According to him, the expenses on donation and subscription were personal in nature and there was no evidence to show that the same qualified for deduction under section 80G. He accordingly disallowed the expenses claimed by the assessee on account of donation and subscription.
The disallowance made by the Assessing Officer on account of donation and subscription was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee and the material available on record, the ld.
I.T.A. No. 1748/KOL./2014 Assessment Year : 2011-2012 & C.O. No. 98/KOL/2014 (in Assessment Year: 2011-2012 Page 5 of 9 CIT(Appeals) deleted the said disallowance for the following reasons given in paragraph no. 4.2 of his impugned order:- “4.2. I have carefully considered the action of the AO as well as the submission of the appellant in arriving at a decision on the issue involved, The only limited question on the issue is whether the payments made to local clubs and organizations would qualify for deduction as u/s 37(1) of the Ad or not The AO is of the opinion that these expenses were of personal in nature for which no evidence was filed by the assessee in support of his stand that the expenses in this regard were covered u/s 80G of the Act. I find that the AO is totally off mark on the issue since the appellant did never claim deduction u/s 80G of the Act for claiming the impugned deduction. The claim was made u/s 37(1) of the Act as business expense and in such a situation, it was for the AO to prove that the impugned expenditure was not incurred on account of business expediency for which there is no finding by the AO in this regard. The appellant has adduced much material by way of case laws (supra) in support of his stand that the payments were necessitated out of business expediency. In the case of Commissioner of Income Tax –vs.- Bata India. Limited [1993] 201 ITR 884 (CAL), the jurisdictional Kolkata High Court held that contribution to local puja and festival committees or organization are expenditure incidental to the business and is allowable as business expenditure. Considering the facts and circumstances of the issue against the backdrop of the court decisions (supra), I do not find any reason to endorse tile action of the AO in disallowing the payment of Rs.1,07,706/- made u/s 37(1) of the Act and therefore, the addition made by the AO in this regard is hereby deleted”.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the ld. D.R. has made an attempt to contend that no evidence was filed by the assessee in support of his claim for donation and subscription as pointed out by the Assessing Officer in the assessment order, it is observed that the lack of evidence as mentioned in the assessment order was in respect of qualifying the amount of donation and subscription for deduction under section 80G of the Act. It is also observed that a similar issue has been decided by the Hon’ble Calcutta High Court in the case of CIT –vs.- Bata India Limited (supra) relied upon by the ld. CIT(Appeals) in his impugned order, wherein it was held that contributions to local Puja and Festival Committees or Organization are deductible being expenditure incidental to the business. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of donation and subscription and I.T.A. No. 1748/KOL./2014 Assessment Year : 2011-2012 & C.O. No. 98/KOL/2014 (in Assessment Year: 2011-2012 Page 6 of 9 upholding his impugned order on this issue, we dismiss Ground No. 2 of the Revenue’s appeal.
In Ground No. 3, the revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.2,01,042/- made by the Assessing Officer on account of disallowance out of various expenses.
During the course of assessment proceedings, the claim of the assessee for deduction on account of Coolie Charges amounting to Rs.2,60,059/-, Site expenses amounting to Rs.7,25,603/-, Consumables amounting to Rs.5,16,288/- and Labour Hutment amounting to Rs.5,08,092/- was examined by the Assessing Officer. On such examination, he found that some of the payments had been made through self-made vouchers without complete names and addresses of the recipients. He, therefore, disallowed a sum of Rs.2,01,042/- being 10% of the said expenses claimed by the assessee.
The disallowance made by the Assessing Officer out of various expenses was disputed by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee and the material available on record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 5.2 of his impugned:- “5.2. In the light of the action of the AO, the submission of the AR of the appellant has been duly considered based on the material facts on record and supported by the various case laws as cited. On perusal of the assessment order, I find that the basis of making the ad hoc or lump sum disallowances on account of (a) coolie & cartage (b) site expenses (c) labour hutment and (d) consumable stores was due to the finding of the AO that some of these expenses were self vouched without any complete names and addresses of the recipients. On facts, I find that the case of the appellant was subjected to audit by a Chartered Accountant whereby there was no adverse comments or qualification in the Tax Audit Report and the books of account were also produced and thoroughly checked by the AO for which there was not a single occasion on which the AO pointed out any defects or shortcomings with regard to either expenses or receipts. I find that this is not a matter of dispute by the AO. The AO has not rejected the books of account u/s 145 of the Act nor has he completed the I.T.A. No. 1748/KOL./2014 Assessment Year : 2011-2012 & C.O. No. 98/KOL/2014 (in Assessment Year: 2011-2012 Page 7 of 9 assessment u/s 144 of the Act but completed the assessment u/s 143(3) of the Act which means that he has done the assessment based on the claims of the assessee for which there was no adverse finding recorded except that some names and addresses of the recipients were not there in some of the vouchers. In this case, the AO has not brought on record any finding to the effect that the claims of the assessee were not acceptable based on any cogent material or corroborative evidences, whereas the appellant has maintained ledger accounts which are supported by the bills and vouchers relating to such expenses. It is not a case that the AO has not brought on record any material facts that these expenses were not incurred for the purpose of business of the appellant. As held by various courts, no ad hoc disallowance can be made by the AO without any basis. In the case of MONARCH FOODS P LTD -VS- A.C.I. T. (1996) 54 TTJ (AHD) 405 it was found that there is no justification for sustaining any ad hoc or lump sum disallowance out of miscellaneous expenses where the accounts are audited and the Assessing Officer has not pointed out a single instance of any such expenses which is not supported by a voucher. In the case of Smt. Ruby Biswas Vs. Income-tax Officer, VV'd-41(3), Kolkata, I.T.A Nos. 1666 & 1667/KOL/2012 Assessment Years: 2005-06 & 2006-07, ITAT, Kolkata Bench A decided on 14.05.2013 as follows:
"We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has merely made ad hoc disallowance of 5% or 10% of the above expenses without any basis. Similarly, CIT(A) also confirmed the same. We find that there is no basis for making disallowances i.e. ad hoc disallowances by the AO. In our view, no such aa hoc disallowances can be made by AO, without any basis. Going through the facts and circumstances of the case, we delete the same in both years. "
I also find that the case of Jamshedpur Accessories Stores vs. CIT [1974] 95, Taxman 664 (Pat.) is relevant on the issue in this ground of appeal wherein it was ruled that "Unless there is a limitation put by the law on the amount of expenditure, a lesser amount than the amount expended cannot be allowed merely because the assessing authority thinks that the assessee could have managed by paying a lesser amount as a prudent businessman."
In the case of CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC), it was ruled that – “lt is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best."
Going by both facts and law, I find that the additions made by the AO under the four heads of expenditure as discussed (supra), totalling Rs.2,01,042/-, stands to no merit and hence the same is directed to be deleted”.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly observed by the ld. CIT(Appeals) in his impugned order, not a single instance was pointed out by the Assessing Officer to show specifically
I.T.A. No. 1748/KOL./2014 Assessment Year : 2011-2012 & C.O. No. 98/KOL/2014 (in Assessment Year: 2011-2012 Page 8 of 9 that the relevant expenses claimed by the assessee involved any unverifiable element. As rightly noted by him, the books of account of the assessee were duly audited and in the Tax Audit Report, there was no adverse comments or qualification made by the auditor. Moreover, the disallowance of 10% of the relevant expenses was made by the Assessing Officer on ad hoc basis without giving any justifiable reason to support and substantiate the same. Keeping in view all these facts of the case, we find no infirmity in the impugned order of the ld. CIT(Appeals) deleting the ad hoc disallowance of 10% made by the Assessing Officer out of the relevant expenses and upholding his impugned order on this issue, we dismiss Ground No 3 of the revenue’s appeal.
As regards the Cross Objection filed by the assessee, the ld. counsel for the assessee has submitted that the same is only supporting the order of the ld. CIT(Appeals) on the issues raised in the Revenue’s appeal. Since we have already upheld the impugned order of the ld. CIT(Appeals) giving relief to the assessee on all the issues involved in the appeal of the Revenue, the Cross Objection filed by the assessee has become infructuous and the same is dismissed accordingly.
In the result, the appeal of the Revenue and the Cross Objection of the assessee both are dismissed.
Order pronounced in the open Court on July 12, 2017.