HARI OM AGARWAL,KOLARAS vs. ITO SHIVPURI, ASHOK NAGAR

This appeal in ITA No. 91/Agr/2024 for the assessment year 2017-

18 has arisen from the appellate order dated 15.01.2024 [DIN & Order

No. ITBA/NFAC/S/250/2023-24/1059711143(1)], passed by learned

Commissioner of Income-tax (Appeals), NFAC, Delhi, which in turnhas

arisen from the assessment order dated 30.11.2019 passed by

Assessing Officer u/s. 143(3) of the Income-tax Act, 1961(Order No.

ITBA/AST/S/143(3)/2019-20/1021421636(1)).

with Income-tax Appellate Tribunal , Agra Bench, Agra (grounds number

ITA No.91/Agr/2024

1 to 6) , and also the additional grounds of appeal raised by the

assessee during proceedings before ITAT(grounds number 7 and 8) ,

reads as under :

“1 That under the facts and circumstances of the case and in law, the AO has erred in disallowed of Rs. 29,10,240/- and confirmed by Ld. CIT (Appeals) (NFAC) under the head of Discount/claim/shortage/deduction on proportionate basis in compression of last year without applied his mind but only on presumption, surmises and without any basis which is against principle of natural justice and unsustainable in law, Please be deleted. 2 That under the facts and circumstances of the case and in law, the order passed by the Ld. AO for disallowance of expenditure an amounting to Rs. 2910240/- and confirmed by Ld. CIT (Appeals) (NFAC) is arbitrary, capricious and insofar as it is prejudicial to the interest of the appellant, is bad and un-sustainable in the of law as the same is passed without considering the detail filed by the assessee under the head of discount/claim/shortage/deduction made by the purchaser out of sale bill issue by the assessee without pointed out any specific item of expenditure which is not allowable, excessive and not related to business Thus the disallowance is against the principle of natural justice please be deleted 3 That under the facts and circumstances of the case and in law, the order passed by the AO has erred in not pointed out any defect in any expenditure which is not related to the business or excessive or bogus, and Ld CIT (Appeals) (NFAC) confirmed the addition for disallowance of expenditure without taking in to consideration and verifying the assessment record of the assessee which is against the principle of natural justice, is illegal and unsustainable in law, please be deleted 4 That under the facts and circumstances of the case and in law, the Ld. AO has erred in initiating the penalty by issuing notice under section 270A of the Act 1961 without applying his mind at the time of passing the assessment order is bad and unsustainable in law 5 That for these such other grounds that may be urged at the time of hearing, the appellant prays that the appeal may be allowed and entire addition may be deleted or deemed to fit as the case may be. 6 That assessee reserved the right to crave, amend add or delete any grounds of appeal at the time of hearing. 2 | P a g e

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7.That the order passed by the National Faceless Appeal Centre is bad in law being passed not in accordance with the provisions of sub- Section (6) of Section 250 of the Income Tax Act. 8. That the AO has erred on facts and in law while making the addition by disallowing of the expenses(by estimate) out of the expenses claimed under the Head ‘general administration and selling expenses’ , claimed as per provisions of Section 37 of the Income Tax Act, no disallowance is called for being , books of accounts maintained by the assessee are duly accepted, provisions of Section 145(3) are not invoked. The addition made by the AO , sustained by the National Faceless Appeal Centre is liable to be deleted.”

for the impugned assessment year ,declaring income of Rs.7,89,970/-.

Case of the assessee was selected by Revenue for framing scrutiny

assessment under CASS. Statutory notices u/s. 143(2) and 142(1) were

issued from time to time by the Assessing Officer to the assessee during

the course of assessment proceedings. Assessing Officer made enquiry

from the bank by issuing notice u/s. 133(6) of the Act. The assessee is

engaged in the proprietary business of trading in grains, pulses

etc..During course of assessment proceedings, the AO observed that

there was an abnormal increase in cash deposits in bank account during

the demonetization period as compared to cash deposits in the bank

account during pre-demonetization period, wherein the assessee

explained that the assessee has withdrawn cash of Rs.50 lacs from his

Cash Credit(CC) account No. 9160300064325498 with Axis Bank

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Shivpuri on 07.11.2016 for making purchase from farmers through Krishi

Upaj Mandi. There was cash available of Rs. 37,79,000/- after

declaration of demonetization, which was deposited back by the

assessee in his bank account on 10.11.2016. The Assessing Officer

accepted the aforesaid contention of the assessee, and matter rested

there itself as no additions to the income was made by the AO on that

count. Further, the Assessing Officer observed that the assessee’s

turnover during the year under consideration vis-vis in the preceding year

was as well General Administration and selling expenses for the

corresponding period(s) were as under :

“On examination of the trading cum P&L account of the assessee for F.Y. 2016-17, it is observed that assessee’s turnover for these years is as under : F.Y. 2016-17 F.Y. 2015-16 Turnover/Sales 16,36,45,411/- 6,62,67,208/- The General Administration and Selling expenses claimed by the assessee for these years are as under : F.Y. 2016-17 F.Y. 2015-16 General Administration 68,92,241/- 13,74,785/- and selling expenses

3.2 The Assessing Officer observed that the sales/turnover has

increased by about 2.47 times ,while General Administration and Selling

expenses have increased by 5.01 times, which as per Assessing Officer

were highly unreasonable/disproportionate and does not reflect the

actual figure of expenses. Assessee submitted that these expenses are

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of essential nature. The assessee also submitted comparative chart of

different expenses during financial year(s) 2016-17 and 2015-16. The

Assessing Officer observed that the expenses under the head

‘Discount/claim/shortage/deduction’ are shown in the current financial

year to the tune of Rs.59,18,812/- while the same were Rs.12,18,303/- in

the immediately preceding year. The assessee explained that the same

relate to damage seed, quantity, weight reduction of the sold goods. After

considering the same, the deduction was made from the total sale

amount. The Assessing Officer observed that these expenses are

dependent on the quantum of goods sold and the proportion of these

expenses could not vary as compared to preceding year. The AO

observed that this sudden increase during the year under consideration

vis a vis preceding year is not commensurate, which led to disallowance

of excess expenses to the tune of Rs.29,10,240/- under the head

“Discount/claim/shortage/deduction” by the AO which stood added by the

Assessing Officer to the income of the assessee.

which was dismissed by ld. CIT(Appeals). During the appellate

proceedings, CIT(Appeals) issued as many as six notices and except on

one occasioni.e. on 02.03.2021 when the assessee sought extension for

preparing reply, there was no response/reply filed by the assessee and 5 | P a g e

ITA No.91/Agr/2024

no submissions were made by the assessee during the course of

appellate proceedings before learned CIT(Appeals), which led to

dismissal of appeal of the assessee by ld. CIT(A), and the Assessing

Officer’s assessment order was confirmed by ld. CIT(A).

and learned counsel for the assessee at the outset submitted that the

assessee had filed details of these expenses before the Assessing

Officer but the Assessing Officer has not made any enquiry with respect

to these expenses, but disallowed the expenses to the tune of Rs.

29,10,240/- under the head “Discount/Shortage/claim/deduction’ being

held to be excessive vis-à-vis preceding year expenses while making

comparison with the turnover achieved for the aforesaid period. The ld.

Counsel for the assesse has produced before the Bench vide letter dated

31.12.2024, copy of ledger account of the expenses incurred under the

head ‘ discount/shortage/ claim/deduction’, which were claimed to have

been filed with the Assessing Officer, which is placed on record in . It was

further submitted by the ld. Counsel for the assessee that the ld.

CIT(Appeals) has dismissed the appeal of the assessee ex parte in

limine without deciding the issue on merits mainly on the ground of non-

submission of replies/response before the ld. CIT(Appeals). The said

order is in contravention of provisions of section 250(6) of the Act. 6 | P a g e

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Prayers were made to set aside the matter back to the file of the

Assessing Officer for fresh de novo assessment.

6.2. Learned Sr. DR submitted that there was sudden increase in the

expenses under the head ‘Discount/Claim/Shortage/deduction’during the

year under consideration, but no reasons/justification for abnormal

increase in such expenses has been given by the assessee.

record. I have observed that the assessee e-filed his return of income

declaring total income of Rs.7,89,970/-. Case of the assessee was

selected by Revenue for framing scrutiny assessment under CASS.

Statutory notices u/s. 143(2) and 142(1) were issued from time to time by

the Assessing Officer during the course of assessment proceedings.

Assessee participated in the assessment proceedings and submitted

replies before the Assessing Officer. So far as abnormal increase in cash

depositsin the bank account by the assessee during the demonetization

period for which the Assessing Officer asked the assessee to explain the

same, the assessee submitted that the assessee has withdrawn cash of

Rs.50 lacs from his CC Account with Axis Bank Shivpuri on 07.11.2016

for making purchase from farmers through Krishi Upaj Mandi, and after

declaration of demonetization, balance cash of Rs.37,79,000/- was

deposited back in his bank account on 10.11.2016. This 7 | P a g e

ITA No.91/Agr/2024

contention/explanation of the assessee was accepted by the Assessing

Officer wherein no additions were made by the AO on that count, and

matter achieved finality. Assessing Officer further observed that General

Administration and Selling expenses have increased disproportionately to

Rs.68,92,241/- in financial year 2016-17 from Rs.13,74,785/- in the

immediately preceding financial year 2015-16 which is an increase of

5.01 times, whileturnover/sales have increased to Rs.16,36,45,411/- in

financial year 2016-17 from Rs.6,62,67,208/- during immediately

preceding year. Assessing Officer further observed that this abnormal

increase in expenses aremainly under the head

‘Discount/Claim/Shortage/ Deduction’, which was to the tune of

Rs.59,18,812/- during the year under consideration vis-a-vis

Rs.12,18,303/- in the immediately preceding year. Assessee submitted

that it is due to damage seed, quantity, weight reduction of the sold

goods etc. .The assessee claimed to have filed the ledger accounts

under these heads before the AO(copy is now placed on record by the ld.

Counsel for the assessee), in which details of various parties are

mentioned in the ledger account along with the amount debited towards

expenses under the aforesaid head. The said ledger account is placed

on record in file. I have observed that the Assessing Officer has not

made any enquiry with respect to these expenses claimed by the 8 | P a g e

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assessee and merely on the ground that expenses have increased 4.85

times in the year under consideration vis-à-vis preceding year, while the

sales have increased 2.47 times in the corresponding , the excess

expenditure to the tune of Rs.29,10,240/- were disallowed by the

Assessing Officer. In my considered view the Assessing Officer ought to

have made proper enquiries with the aforesaid parties to unravel truth

instead of making the additions based upon the expenses incurred in the

preceding year vis-à-vis corresponding turnover during these relevant

period. Once the facts are brought on record by the assessee detailing

these expenses along with the parties to whom these expenses were

paid or pertained and/or incurred, the assessee has discharged its

primary onus, and now it is for the AO to have made further enquiries

with these parties as well wrt to claim for these expenses by the

assessee, to unravel truth . The AO did not made any enquiry in the

instant case nor pointed out any defect/deficiencies in these expenses

claimed to have been incurred by the assessee. Assessee filed first

appeal with ld. CIT(Appeals) and in the statement of facts, the assessee

has submitted that the assessee is deriving income from trading of

grains, pulses etc. The assessee has submitted that the details were

submitted before the Assessing Officer, but without pointing out any

defect in the details, the Assessing Officer disallowed expenses on 9 | P a g e

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presumption, assumptions and conjectures without pointing out specific

item of expenditure which is not incurred for the business purposes. Ld.

CIT(Appeals) while adjudicating first appeal has dismissed appeal of the

assessee on the ground of non-submission of replies. Ld. CIT(Appeals),

no doubt, has issued as many as six notices, and it is stated that except

on one occasion, the assessee did not participated in the appellate

proceedings ,and on 02.03.2021 when the assessee entered appearance

before ld. CIT(A), the assessee sought extension for preparing the

details. I have further observed that the ld. CIT(Appeals) has not

adjudicated the issue(s) arising in appeal on merits ,and simply

dismissed the appeal for non-prosecutionwherein the assessment order

of the AO was upheld. The learned CIT(Appeals) is obligated u/s. 250(6)

to specify points for determination, decision thereon and reasoning for

such decision. Ld. CIT(Appeals) has not even made any enquiry as to

the claim of expenses with respect to

shortage/discount/claims/deductions etc.as well no enquiries were made

with the parties to whom these expenses were claimed to have been paid

or incurred or stood credited , and ld. CIT(A) simply upheld the

assessment order passed by the Assessing Officer. CIT(Appeals) even

did not call for assessment record nor any directions were issued by ld.

CIT(A) to the AO make enquiries and to submit remand report. The 10 | P a g e

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assessee is also equally responsible for its woes, as the assessee did

not filed response/replies during appellate proceedings before the ld.

CIT(A). In my considered view, appellate order passed by the ld.

CIT(Appeals) is not sustainable in the eyes of law, as this is an order

passed exparte in limine without deciding the issues arising in appeal on

merits, which is in contravention of Section 250(6). Assessing Officer’s

order is also not sustainable, as the Assessing Officer has made

additions based only on the reference to the percentage of expenses vis

a vis turnover by comparing the current year with the preceding year of

the turnover/sales with these corresponding expenses, without making

any enquries to unravel truth. No specific defectsare pointed out by the

AO with respect to claim of these expenses by the assessee. Assessing

Officer has not made any enquiry with the parties with respect to whom

these expenses were claimed to be have been incurred or paid and/or

stood credited by the assessee to arrive at the finding that these

expenses were not incurred wholly and exclusively for the purpose of

business. Thus, in the facts and circumstances of the case, both the

orders of the Assessing Officer as well as CIT(Appeals) are set aside and

the matter is restored back to the file of Assessing Officer for de novo

assessment after giving proper opportunity of hearing to the assessee.

Assessee is also directed to cooperate and furnish all the details during 11 | P a g e

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de novo assessment proceedings. I clarify that I have not commented on

the merits of the issues arising in appeal. I order accordingly.

purposes.

Order pronounced in the open court on 17.01.2025.

Sd/- (RAMIT KOCHAR) ACCOUNTANT MEMBER Dated: 17.01.2025 *aks/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, Agra

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