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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI O.P. KANT & MS. SUCHITRA KAMBLE
ORDER PER O.P. KANT, AM:
These two appeals by the Revenue and the assessee respectively, are directed against two separate orders dated 21/02/2011 (for assessment year 2007-08 ) and 01/10/2015 (for assessment year 2011-12) passed by the learned First Appellate Authority [in short ‘the Ld. CIT(A)’]. In assessment year 2007-08, the issue in dispute has been remitted back by the Hon’ble Delhi High Court for adjudicating by the Income Tax Appellate Tribunal (in short ‘the Tribunal’). ITA No. 2340/Del./2011 2. First, we take up the appeal of the Revenue in assessment year 2007-08. The grounds raised by the Revenue in assessment year 2007-08 are reproduced as under:
1. Ld. CIT(A) has erred on facts and in law in deleting addition of Rs.10,61,30,515/- on a/c of purchases from related parties; restricting disallowance out of operating expenses from 30% (Rs.8,72,60,100/- to 10% (Rs.2,90,86,700/-); deleting addition of Rs.2,45,00,000/- out of unverified expenses in ‘fixed assets’; and Rs.36,75,000/- out of depreciation.’ The assessee failed to produce books of accounts and also supporting bills/vouchers in support of its claims.
2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.
Briefly stated facts of the case are that during the year under consideration, the assessee was engaged in the business of manufacturing and trading of aerated and non-aerated beverages products. For the year under consideration, the assessee filed ₹ return of income on 27/10/2007 declaring loss of 14,92,79,440/-. The return of income filed by the assessee was selected for a scrutiny and statutory notices under Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. During assessment, the Assessing Officer observed that books of accounts were not produced before him. The Assessing Officer in assessment order passed on 30/12/2009 made following disallowances to the returned loss: Sl. No. Nature of disallowance Amount in Rs. 1. Unverified purchases from related parties 10,61,30,515/- 2. Operating expenses 8,72,60,100/- 3. Purchase of Unverified fixed assets 2,45,00,000/- 4. Depreciation claimed on unverified fixed 36,75,000/- assets 3.1 The Ld. CIT(A) deleted the disallowance of unverified purchases from related parties (Rs.10,61,30,515), disallowance of purchase of unverified fixed assets (Rs.2,45,00,000/-) and disallowance of the depreciation on unverified fixed assets ( Rs.36,75,000/-). In relation to disallowance of operating expenses, he reduced the rate of disallowance from 30%, which was made by the Assessing Officer to 10% of the total expenses. Aggrieved, both parties filed appeal before the Tribunal. The Tribunal while hearing both the appeal of the assessee (ITA No. 2427/Del./2011) as well as the Revenue (ITA No. 2340/Del./2011), in order dated 05/06/2017 set aside the order of the Ld. CIT(A) and the assessment order and restored the matter to the file of the Assessing Officer for making de-novo assessment as per law, after making further verification/enquiry/investigation etc. in accordance with law. Against the order of the Tribunal, the assessee preferred appeal before the Hon’ble Delhi High Court. The Hon’ble Delhi High Court upheld the order of the remand in respect of the disallowance of unverified purchases from related parties and operating expenses, however, set aside the order of the Tribunal on the question of unverified fixed assets and depreciation. The relevant finding of the Hon’ble High Court is reproduced as under:
“14. We find and observe that the Tribunal has not specifically considered and dealt with the contention and pleas raised by the appellant/assessee while remanding the case on the two aspects relating to addition to fixed assets and purchases of bottles etc. Observation of the Tribunal that the appellant-assessee had not produced books of accounts is seriously disputed and contested by the appellant-assessee. It is stated and claimed that they had produced books of accounts, except books of accounts relating to the manufacturing units, which could not be produced due to Telangana agitation. Invoices and details relating to purchases etc. were produced. The issue would be whether and what documents and papers in respect of the purchases were produced before the Assessing Officer as held by the Commissioner of Income Tax (Appeals) or the findings and observations of the Assessing Officer were justified.
Keeping in view the aforesaid position and as the issue and the contention raised by the appellant-assessee has not been specifically dealt with and examined by the Tribunal, we set aside the impugned direction of remit on the third/fourth aspect to the Assessing Officer and would require the Tribunal to examine the said contention afresh. While examining the said question, the papers and documents produced on record by the appellant- assessee before the Assessing Officer would be examined and considered. We make it clear that in case the Tribunal feels and concludes that they cannot decide the question and issue in absence of details and particulars, an order of remand may be passed. Our aforesaid decision would equally apply to the question of claim of depreciation on bottles and tetra packs, which were disallowed by the Assessing Officer.
In view of the aforesaid discussion, the question of law is partly answered in favour of the appellant-assessee and partly answered in favour of the respondent-Revenue. We uphold the order of remand passed by the Tribunal in respect of disallowance of unverified purchases from related parties. We, however, set aside the order of the Tribunal remanding the matter to the Assessing Officer on the question of unverified fixed assets and depreciation. The said issue/question would be examined afresh and in case and only if the Tribunal finds that the said question cannot be answered on the basis of papers and documents filed before the Assessing Officer, an order of remand may be passed.”
We find that the Hon’ble High Court has directed the Tribunal to examine the contention of the assessee regarding disallowance on purchase of unverified fixed assets and depreciation thereon. It is undisputed that no books of accounts were produced by the assessee before either the Assessing Officer or before the learned CIT(A). Regarding the disallowance of unverified fixed assets and depreciation thereon, the Ld. Assessing Officer observed that purchase of bottles and Tetra packs of Rs.605,53,607/- were made during the relevant assessment year. The Learned Assessing Officer vide his notice dated 10/12/2009 asked the assessee to furnish details of Visicoolers/bottles/tetra pack etc. The assessee filed letter dated 21/12/2009 and submitted that Visicoolers were kept with the retailers/dealers shops for keeping assessee’s products cool in all seasons. The assessee provided detail of the distributors/dealers and provided purchase bills of visicollers on sample basis. In view of the submission of the assessee, the Assessing Officer made remark in the assessment order that no detail of Visicoolers, bottles and Tetra packs was provided. He concluded that since books of accounts along with bills and vouchers in respect of the addition to the assets were not furnished before him, so he made disallowance of ₹ 2,45,00,000/- out of the fixed assets on account of being unverified expenses and also disallowed depreciation claimed at the rate of the 15% on said amount of unverified fixed asset, which was worked out to ₹ 36,75,000/-. The Ld. CIT(A), however, in view of the submission of the assessee before him deleted the disallowance for unverified fixed assets and depreciation thereon. According to the Ld. CIT(A), the assessee has provided specific list of the additions made to the fixed assets that duly signed by the Tax Auditor along with sample copy of the invoices and name and address of the parties from whom assets above ₹ 10 lakhs were purchased. The Ld. CIT(A) is of the view that exhaustive and detailed list of the individual asset added during the year under consideration were submitted before the Assessing Officer, however, no specific assets had been identified and characterised as unexplained investment by the Assessing Officer and therefore addition being on ad hoc manner, he deleted the same.
Before us, both the parties appeared through videoconferencing facility. The assessee filed a paper-book and another documents electronically. 6. First of all, the learned counsel of the assessee referred to the assessment order dated 17/06/2019, available on page 38 and 39 of the paper-book, which is passed by the Assessing Officer under section 254/143(3) of the Act in compliance to the direction of the Tribunal in order dated 05/06/2017. He submitted that the Assessing Officer in the said order has referred to the order of the Hon’ble High Court (supra) and also considered the issue of unverified fixed assets and depreciation thereon in favour of the assessee and therefore now, there is no need to adjudicate this issue by the Tribunal.
Alternatively, the learned counsel of the assessee referred to paper-book and submitted that on page 185, list of Visicoollers added during the year is available and on page 192 list of bottles and shells added during the year is available. He referred to one sample bill of visicooler available on page 50 of the paper-book. He submitted that entire details of list of the fixed assets available in report of Tax Auditor (in form No.3CD) was made available to the Assessing Officer and, therefore, the Ld. CIT(A) is justified in deleting the addition in dispute.
The learned DR, on the other hand, submitted that no bills and vouchers were produced before the Assessing Officer in view of the admitted position that no books of accounts were produced before him. He submitted that for verification of the fixed assets added during the year under consideration, each entry of addition of fixed assets provided in form No. 3CD need verification with the respective bill of purchase and voucher. The learned DR submitted that matter in dispute for verification may be restored back to the file of the Assessing Officer.
We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record keeping in view the direction of the Hon’ble High Court. The issue in dispute in the instant case is verification of the fixed assets added during the year under consideration. As regard to first contention of the learned Counsel that the Assessing Officer in order dated 17/06/2019 has already given effect to the order of the Hon’ble High Court is not found to be correct. We have perused the said order of the Assessing Officer and found that keeping in view of the order of the Hon’ble High Court , he has adjudicated only on direction of the Tribunal on the issues, which have been confirmed by the Hon’ble High Court. The relevant finding of the Assessing Officer is reproduced as under: “Keeping in view of the above and circumstances of the case, on examination of books of account relevant to operating expenses and purchases, no adverse inference has been found. Hence, assessed accordingly.” 9.1 In the facts of the case, it is undisputed that books of accounts and bills/vouchers were not produced before either the Assessing Officer or the Ld. CIT(A). The assessee has only produced Tax Auditor Report in Form No. 3CD which contains a list of the items of fixed asset added during the year alongwith the amount, that too in respect of Visicoolers and bolltes only. Before us, also the assessee has only referred to few sample copies of the invoices for purchase of the fixed assets and no complete invoices have been produced. In absence of bills/invoices or vouchers for the purchase of the fixed assets, purchase of those assets cannot be verified. For proper verification, it is required that each entry of fixed assets added need to be seen along with the relevant bill/invoice of purchase, installation, delivery note etc. In absence of any such details produced before us, we are not in position to verify purchase of the fixed assets as directed by the Hon’ble High Court. In the circumstances, we feel it appropriate to restore this issue to the file of the Assessing Officer for examining and verifying in view of our observation above.
Accordingly, the ground No. 1 of the appeal to the extent of disallowance of unverified fixed assets and disallowance of the depreciation thereon is allowed for statistical purposes. ./2015 11. Now, we take up the appeal of the assessee for assessment year 2011-12. The grounds of the appeal are reproduced as under:
1. 1. That the CIT(A) has erred on facts and in law in upholding the order dated February 28, 2014 of the assessing officer assessing loss at Rs.504,100,040/- as against loss of Rs.634,86,288/- returned by the Appellant.
2. That on the facts and circumstances of the case, the CIT(A) merely relying on the order of his predessor, has erred in upholding the ad-hoc disallowance of Rs.12,121,000/- being ten percent of the total operating expenditure of Rs.1,201,2410,000/- made by the Assessing Officer alleging that the same to be unreasonable and excessive without bringing anything on record in support thereof, 3. That on the facts and the circumstances of the case and in law the CIT(A), while confirming the disallowance has failed to appreciate that the Appellant had duly produced books of account/ledger in support of expenditure incurred under the head operating expenses amounting to Rs.12,121,000/-.
At the outset, the learned DR submitted that identical issue of disallowance of operating expenditure has been restored back to the Assessing Officer by the Tribunal in AY 2007-08 as upheld by the Hon’ble jurisdictional High Court, and therefore issue in dispute in this year also may be restored back to the file of the Assessing Officer for deciding after verification.
The learned Counsel of the assessee, however submitted that in the year under consideration facts are different. He submitted that in the assessment year 2007-08 it is admitted position that books of accounts and bills and vouchers were not produced before the Assessing Officer, however in the year under consideration books of accounts in respect of operating expenses were duly produced and examined by the Assessing Officer and therefore, the Assessing Officer is not justified in disallowing 10% of the expenses as unverified on ad hoc basis without pointing out any discrepancy in the books of accounts. He submitted that the Ld. CIT(A) has upheld the disallowance in view of the preceding years only where no books of accounts were produced before the Assessing Officer. In view of the above, the Ld. Counsel of the assessee submitted that no disallowance should be sustained on ad hoc basis in the instant assessment year. 14. We have heard both the parties through Videoconferencing facility and perused the relevant material on record. We find that the Assessing Officer in the year under consideration has verified the books of accounts particularly in respect of operating expenses. The relevant part of the assessment order is reproduced as under: “3. During the course of assessment proceedings assessee was specifically asked to explain why should not “Bottles and Shells” be treated as plant & machinery, in which block of assets “Crates” were shown in the depreciation chart, rate of depreciation claimed thereon alongwith justification thereof. Also assessee was required to produce bills of operating expenses alongwith ledger copies for verification. Assessee was further required to produce complete books of account, bills and vouchers for verification vide order sheet entry dated 21.02.2014. Books of account in respect of operating expenses were produced on 26.02.2014 and were examined.”
15. After verification of the books of accounts in respect of the operating expenses, the Assessing Officer made a observation that during the entire year only 22999024 cases have been sold and expenses of ₹ 120,12,10,000/- had been debited in the books of accounts and therefore operating expenses came to ₹ 52.23/- per case. In view of this observation, he asked the assessee as why the 10% of the operating expenses should not be disallowed. While making the disallowance, the Assessing Officer has followed the finding of the Assessing Officer in assessment year 2009-10. He has not pointed out any other discrepancy in the books of accounts or the vouchers . Before the Assessing Officer the assessee provided detailed explanation in respect of the expenses covered under the operating expenses , however , the Ld. CIT(A) following the finding of his predecessors upheld the disallowance observing as under: “Decision: i have carefully considered the submission of the appellant, observation of the Assessing Officer and the decision taken in earlier years A.Y. by the CIT(A). It is seen that identical issue was involved in the appeal of A.Y. 2007-08 and the Assessing Officer had made disallowances of the operating expenses to the extent of 30%. The CIT(A) in her order dated 21.02.2011 in Appeal No. 251/09-10 para 5 had adjudicated the issue after considering the submission made by the appellant and observations of the Assessing Officer. The operating part of her decision is reproduced hereunder: “5.4 However, the finding of the A.O. that the assessee's operation is limited to Andhra and during the year only 51,08,482 cases have been sold, and the operating expenses which works out to Rs.56.93 per case is excessive cannot be overlooked. As none of the operating expenses have been subjected to verification because of non production of books of accounts, the A.O. was correct in making the disallowance, but I find the disallowance of 30% of the operating expenses to be excessive. In the immediately succeeding year, the same A.O. after examining the books of accounts on sample basis has limited the addition to 10% of operating expenses where the operating expenses was worked out to Rs.54.54/- per case. After consideration of the case in its entirety and the rival submissions, it would be fair and reasonable to limit the disallowance to 10% of the operating expenses. Accordingly, addition to that extent is upheld and the appellant partly succeeds in this ground.”
Such disallowances have also been confirmed in A.Y. 2008-09 and 2009-10 by the CIT(A)-V. During this year also, the expenses per case is Rs.52.23 per case which is excessive and unreasonable, therefore, I see no reason to deviate from the findings given by CIT(A) in A.Y. 2007-08, 2008-09 and 2009-10 and accordingly, the disallowance of 10% of operating expenses is confirmed as same are unreasonable and excessive.”
16. While deciding the appeal having ITA No. 2340/Del./2011 for assessment year 2007-08, we have already observed that no books of accounts and vouchers were produced before the Assessing Officer and in those facts and circumstances the Tribunal restored this issue back to the file of the Assessing Officer. Whereas in the present assessment year, the Assessing Officer has duly examined the books of accounts produced and particularly examined the operating expenses (which is the issue- in-dispute before us). After verification of operating expenses, he has not pointed out any discrepancy in the expenses claimed or in the vouchers in support of bills of expenses. Without pointing out any such defect in the books of account or vouchers relating to operating expenses, the action of the Assessing Officer in disallowing 10% of the expenses on ad-hoc basis by way of following earlier years and simply mentioning that expenses being of unverified, unreasonable and excessive, is not justified. The action of the Ld. CIT(A) in simply upholding the finding of the Assessing Officer following the finding of his predecessor in earlier years, without noticing the change in facts and circumstances in the year under consideration, is also not justified. In view of the above discussion, we are of the opinion that without pointing out any defects in the bills and vouchers of operating expenses, the ad-hoc disallowance at the rate of the 10% out of the operating expenses cannot be sustained. We also note that in assessment year 2007-08, the Assessing Officer while verifying the operating expenses in compliance to the direction of the Tribunal, has not made any disallowance and accepted the claim of the assessee of the operating expenses. Accordingly, the ground of the appeal of the assessee is allowed.
In the result, the appeal of the Revenue for assessment year 2007-08 is allowed for statistical purposes, whereas the appeal of the assessee for assessment year 2011-12 is allowed. Order pronounced in the open court on 23rd December, 2020.