DINESH PRATAP SINGH,KEONJHAR vs. ACIT, SAMBALPUR

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ITA 127/CTK/2014Status: DisposedITAT Cuttack09 August 2017AY 2008-097 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer made ad-hoc disallowances without pointing out specific defects in the bills or vouchers. Therefore, the disallowances were not sustainable in law.

What were the facts?

The assessee claimed various expenses, including stores, repairs, wood, vehicle hire, and fuel. The Assessing Officer disallowed a portion of these expenses due to cash payments and lack of proper bills/vouchers. The CIT(A) restricted the disallowances.

What were the issues?

Whether ad-hoc disallowances of expenses are permissible without specific findings regarding lack of proper documentation or personal use.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 143(2),Section 127

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CUTTACK

Before: SHRI N.S SAINI

For Appellant: Shri P.C.Sethi, AR
For Respondent: Shri D.K.Pradhan, DR

This is an appeal filed by the assessee against the order of CIT(A)-

Berhampur, Camp-Bhubaneswar, dated 29.1.2014 for the assessment

year 2008-09.

2.

Ground Nos.1 to 5 read as under:

“1. That, the learned Commissioner of Income-tax (A), Berhampur [Hereinafter referred as "the learned CIT(A)"] has committed a serious error in not quashing the order of assessment passed by the learned Assessing Officer which is illegal, arbitrary, violating the principles of natural justice and contrary to the provisions of the Income-tax Act, 1961 (Hereinafter referred as "the Act").

2.

That, the learned CIT (A) has committed a serious error in not quashing the assessment order which is based on notice issued

2 ITA No. 127/CT K/ 2014 Asse ssment Year :20 08- 09

u/s 143(2) of the Act without processing the return u/s 143(1) of the Act and for which the assessment order passed on such illegal notice is liable to be quashed and or annulled.

3.

That, the learned CIT (A) has committed serious error in not quashing the order passed by the learned Assessing Officer which has been passed on the basis of notice u/s 143(2) of the Act on an extraneous reasons without applying mind.

4.

That, the learned CIT (A) has committed a serious error in not quashing the assessment order which has been passed in clear contravention to section 127 of the Act and for which the order passed by the learned Asst. Commissioner of Income-tax, Circle- 1(2) Sambalpur is illegal and without jurisdiction.

5.

That, the learned CIT (A) has committed a serious error in not quashing the assessment order which has been served on the appellant 63 days after period of limitation and for that matter the assessment order, demand notice, penalty notice is barred by limitation.”

3.

At the time of hearing, no submissions were made by ld A.R. of the

assessee on the above grounds of appeal, hence they are dismissed for want of

prosecution.

4.

In Ground No.6 of the appeal, the grievance of the assessee is that the

CIT(A) erred in upholding the disallowance of Rs.2,00,000/- under the head total

expenses.

5.

The brief facts of the case are that the Assessing Officer observed that the

assessee has claimed the following expenses:

i) Stores and spares : Rs.12,34,560/-

ii) Repairs and maintenance : Rs.22,56,780/-

iii) Wood expenses : Rs. 3,12,560/-

iv) Vehicle hire charges : Rs. 2,12,450/-

Total : Rs.40,16,350/-

6.

The Assessing Officer observed that in most of the occasions, the

assessee has made cash payment. The assessee has not maintained proper bills

3 ITA No. 127/CT K/ 2014 Asse ssment Year :20 08- 09

and vouchers for which genuineness of expenses claimed could not be verified.

He, therefore, disallowed 10% of above expenses and made addition of

Rs.4,01,635/-

6.1 On appeal, the CIT(A) after considering the nature of business of the

assessee, turnover and expenses claimed, restricted the disallowance to 50%

which works out to Rs.2,00,000/-

7.

In Ground No.7 of the appeal, the grievance of the assessee is that the

CIT(A) erred in confirming the disallowance of Rs.3,00,000/- under the head

“fuel and lubricant”.

7.1. The Assessing Officer observed that the assessee has claimed an amount

of Rs.62,05,973/- towards expenses under the head “fuel and lubricant”.. Since

the assessee could not furnish bills & vouchers, the Assessing Officer disallowed

Rs.6,20,597/- being 10% of Rs.62,05,973/-.

7.2 On appeal, the CIT(A) restricted the disallowance to 3,00,000/- being

50% of total expenses claimed by the assessee.

8.

In Ground No.8 of the appeal, the grievance of the assessee is that the

CIT(A) erred in confirming the disallowance of Rs.5,354/- under the head

“telephone expenses”.

8.1 The Assessing Officer observed that the assessee has claimed deduction of

Rs.53,540/- under the head “telephone expenses”. The Assessing Officer

disallowed Rs.13,385/- being 25% of the total claim of Rs.53,540/- on the

ground of personal use by the assessee as well as his staff members.

4 ITA No. 127/CT K/ 2014 Asse ssment Year :20 08- 09

8.2 On appeal, the CIT(A) restricted the disallowance to 5354/- being 10% of

total claim of the assessee towards non-business use of telephone.

9.

In Ground No.9 of the appeal, the grievance of the assessee is that the

CIT(A) erred in confirming the disallowance of Rs.15,000/- under the head

“general expenses and traveling and conveyance”.

9.1 The Assessing Officer observed that the assessee has claimed expenses of

Rs.80,152/- and Rs.68,780/- totaling to Rs.1,48,932/- under the head “general

expenses” and “traveling & conveyance”. On verification of ledger accounts, the

Assessing Officer found that most of the payments have been made in cash. He

also observed that the assessee has not maintained proper bills and vouchers.

In view of above, he disallowed 20% of the expenses of Rs.1,48,932/-, which

works out to Rs.29,786/-.

9.2 On appeal, the CIT(A) after considering the nature of business of the

assessee, turnover and expenses claimed, restricted the disallowance to 50%

which works out to Rs.15,000/-.

10.

In respect of Ground Nos.6, 7, 8 & 9 of the appeal, ld A.R. of the

assessee submitted that the Assessing Officer has made general remarks that

the expenses are paid in cash and proper bills and vouchers are not maintained

by the assessee. He submitted that the Assessing Officer did not point out which

specific vouchers are not maintained by the assessee and, therefore, the adhoc

5 ITA No. 127/CT K/ 2014 Asse ssment Year :20 08- 09

disallowance of genuine business expenditure of the assessee cannot be

sustained in law.

11.

Ld D.R. relied on the order of the CIT(A).

12.

I have heard the rival submissions, perused the orders of lower

authorities and materials available on record. In the instant case, the

assessee has claimed deduction for expenses under four heads totalling to

Rs.40,16,350/-. The Assessing Officer observed that expense are paid in

cash and proper bills and vouchers are not maintained by the assessee

and hence disallowed 10% of the expenses making addition of

Rs.4,01,635/-. Similarly, the assessee has claimed deduction of

Rs.62,05,973/- under the head “fuel and lubricants” . The Assessing

Officer disallowed 10% of the same amounting to Rs.6,20,597/- and same

was restricted to Rs.3,00,000/- in appeal by the CIT(A). In respect of

claim of telephones expenses of Rs.53,540/-, the Assessing Officer

disallowed 25% being Rs.13,385/- on the ground of personal use and in

appeal, the same was restricted to 10% by the CIT(A), which woks out to

Rs.5354/-. Similarly, in respect of claim of travelling & conveyance, the

assessee has claimed Rs.1,48,932/- and in the absence of proper bills and

vouchers, the Assessing Officer disallowed 20% of the same amounting to

Rs.29,786/- and the disallowance was restricted to 15,000/- in appeal by

the CIT(A).

13.

Ld A.R. has argued that the Assessing Officer has not pointed out

for which specific expenses, the assessee has not maintained vouchers.

6 ITA No. 127/CT K/ 2014 Asse ssment Year :20 08- 09

The Assessing Officer has made adhoc disallowance out of genuine

business expenditure of the assessee which is not permissible in law. I

find force in the above arguments of ld A.R. of the assessee that before

making the addition to the income of the assessee, the Assessing Officer

has to give reasons for addition. In the instant case, no specific defect in

the vouchers or books of account maintained by the assessee has been

pointed out by the Assessing Officer. Therefore, the disallowance made is

not sustainable in law. In regard to restriction of telephone expenses, I

find force in the submission of ld A.R. of the assessee that no specific

instance of personal user of telephone has been brought on record by

the Assessing officer. In the absence of any specific finding about

personal use of telephone such ad hoc disallowance is not called for.

In view of above discussion, I set aside the orders of lower authorities

and delete the disallowance of expenses sustained by the CIT(A)

Hence, Ground Nos.6, 7 8 & 9 are allowed.

14.

In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 09/08/2017. Sd/- (N.S Saini) ACCOUNTANT MEMBER

Cuttack; Dated 09 /08/2017 B.K.Parida, SPS

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Copy of the Order forwarded to : 1. The appellant : Sri Dinesh Pratap Singh, S/O. Surendra Pratap Singh, Near NAC Check Gate, Hudi Sahi, Joda, Keonjhar. 2. The Respondent. ACIT, Circle-1(2), Sambalpur 3. The CIT(A) Berhampur. 4. Pr.CIT, Bhubaneswar 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack

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