DCIT 15(3), MUMBAI vs. DEEPAK BHALLA, HUF, MUMBAI

At the outset, learned Counsels appearing for both the parties submitted before us that the tax effect on the amount disputed by the Department is below the monetary limit. As per the computation of tax on the quantum of relief granted by the learned Commissioner (Appeals) submitted before us, the total tax effect comes to ` 6,40,390. The quantum of tax being less than the monetary limit of ` 10 lakh fixed by the CBDT in Circular no.21 of 2015 dated 10th December 2015, in relation to appeal before the Income Tax Appellate Tribunal which even applies to pending appeals, the appeal filed by the Department is not maintainable.

In the result, appeal stands dismissed.

There is a delay of 115 days in filing the present appeal. In the affidavit filed by the learned Authorised Representative seeking condonation of delay, it has been stated that as the assessee for his business requirement is most of the time out of Mumbai and is staying in Haridwar, steps could not be taken for filing of the appeal since the other family members lack the professional knowledge regarding the consequence of the order passed by the learned Commissioner (Appeals).

Learned Departmental Representative opposing condonation of delay submitted, the reason shown by the assessee is neither bonafide nor sufficient, hence, the delay should not be condoned.

We have considered the submissions of the parties and perused the material available on record. It is evident from the order of the learned Commissioner (Appeals) as well as other materials on record, the assessee is mostly carrying out its business activities at Haridwar. Therefore, the contention of the learned Authorised Representative that proper step could not be taken against the order of the learned Commissioner (Appeals) due to his absence from Mumbai and also due to lack of professional knowledge of his family members, to some extent, appears to be plausible. That being the case, taking a liberal

Grounds raised in the present appeal are as follows:– “1. On the facts and in the circumstances of the case and in law, the C.I.T.(A) was not justified in applying the Provisions of section 40A(2)(a) and confirming partly the addition relating to the commission payment.

As regards rent expenses of Rs 2,20,000/- addition, the C.T.T (A) has held the same as disallowable only because they are hit by the provisions of section 40a(ia).

In ground no.1, the assessee has challenged part disallowance of commission payment by applying the provisions of section 40A(2)(a) of the Income Tax Act, 1961 (for short "the Act").

Brief facts are, the assessee HUF filed its return of income for assessment year under consideration on 2nd November 2007, declaring total income of ` 17,95,510. As alleged by the Assessing Officer, there was inadequate response on the part of the assessee to various statutory notices issued by the Assessing Officer and the assessee did not file the required information / document, therefore, the Assessing Officer issued a show cause notice to the assessee proposing disallowance of certain expenditure claimed, one amongst them being sub–commission payment of ` 13,72,500. Alleging that assessee neither responded to the said show cause notice nor furnished any evidence, the Assessing Officer disallowed the sub–commission payment of ` 13,72,500. Being aggrieved of such disallowance the assessee filed appeal before the first appellate authority.

Before the learned Commissioner (Appeals), it was submitted, sub–commission was paid to D.B. International owned by his daughter and M/s. Bhalla & Associates, belonging to the wife of Karta of HUF. Though, it was submitted by the Karta of the HUF, as he is staying in Haridwar, all the affairs in and around Mumbai was handled by his daughter. It was submitted, his daughter is not an employee, but she is rendering consultancy services / handling projects for others by employing engineers and technical staff. As far as Bhalla & Associates

Learned Authorised Representative submitted, the learned Commissioner (Appeals) without establishing on record that the payment made by the assessee is unreasonable compared to market condition has made an ad–hoc disallowance which is not in accordance with law. In support of such contention, he relied upon the following decisions:–

Learned Departmental Representative on the other hand, relying upon the observations of the learned Commissioner (Appeals) submitted, since the assessee has not produced any evidence justifying the quantum of payment, the disallowance made is justified.

We have considered the submissions of the parties and perused the material available on record. While the Assessing Officer has disallowed the entire commission payment made of ` 13,72,500 for 7 Shri Deepak Bhalla HUF want of documentary evidence furnished by the assessee, learned Commissioner (Appeals) has restricted the disallowance to 25% of the expenditure incurred on ad–hoc basis by observing that such disallowance is at arm’s length. However, as noticed by us, the learned Commissioner (Appeals) has not brought on record or relied on any material / data to establish that the expenditure incurred by the assessee is unreasonable and the quantum of expenditure allowed by him is the actual fair market price. Therefore, without establishing that the expenditure incurred is unreasonable the disallowance made merely on ad–hoc basis cannot be sustained. The decision relied upon by the learned Authorised Representative supports this view. Accordingly, we delete the addition. Ground no.1, is allowed.

In ground no.2, the assessee has challenged part disallowance out of expenditure incurred on account of rent. As stated earlier, the Assessing Officer during the assessment proceedings, disallowed certain expenditures claimed by the assessee alleging non–furnishing of required details one amongst them being expenditure incurred towards rent of ` 2,20,000. The assessee challenged the disallowance before the learned Commissioner (Appeals).

The learned Commissioner (Appeals), on the basis of submissions made before him, called for remand report from the Assessing Officer.

We have considered the submissions of the parties and perused the material on record. As far as genuineness of the expenditure is concerned, the same cannot be called into question now as the Assessing Officer in the remand report has expressed that the disallowance of the expenditure has to be made under section 40(a(ia) of the Act. Whereas, learned Commissioner (Appeals) has restricted the disallowance to 30%. In our view, if the quantum of rent payment is accepted, then there is no reason to disallow 30% of the total expenditure claimed since the genuineness of such expenditure has been accepted by the Revenue. Moreover, the learned Commissioner (Appeals) has not assigned any reason for making the ad–hoc disallowance of 30%. There being no basis for such ad–hoc disallowance made by the learned Commissioner (Appeals), we delete

In ground no.3, the assessee has challenged part disallowance from various expenditures such as conveyance and travelling, taxi hire charges, business development expenditure, telephone and electricity expenses, generator expenses, etc.

We have considered the submissions of the parties and perused the material available on record. It is evident on record that while the Assessing Officer disallowed 50% out of total expenditure claimed alleging lack of evidence, the learned Commissioner (Appeals) restricted the disallowance to 30% of the amount claimed. We have observed, before the first appellate authority and in the course of remand proceeding before the Assessing Officer, the assessee had produced certain evidence to justify its claim. However, as it appears, the expenditures claimed are not fully supported by bills and vouchers. Therefore, the learned Commissioner (Appeals) restricted the disallowance to 30%. However, considering the nature of expenditure, we are of the view that disallowance @ 10% out of these expenditure claimed by the assessee would be reasonable and will serve the interest of justice considering the fact that to some extent, the 10 Shri Deepak Bhalla HUF assessee might have inflated the expenditure and they were not fully supported by bills and vouchers. This ground is partly allowed.

In ground no.4, assessee challenged part disallowance out of salary expenditure.

The Assessing Officer while completing the assessment, disallowed the entire salary expenditure alleging non–furnishing of required details.

The learned Commissioner (Appeals), after considering the submissions of the assessee and remand report of the Assessing Officer restricted the disallowance to 25% of the total expenditure claimed.

We have considered the submissions of the parties and perused the material available on record. As could be seen before the first appellate authority the assessee had furnished the details of the persons with their address to whom salary was paid. In the remand report also, the Assessing Officer has accepted this fact. We have further noted that the learned Commissioner (Appeals) has observed, the Assessing Officer has not questioned the genuineness of the expenditure. That being the case, in our view, 25% disallowance out of expenditure claimed cannot be made. Therefore, we delete the 11 Shri Deepak Bhalla HUF addition sustained by the learned Commissioner (Appeals). This ground is allowed.

In ground no.5, the assessee has challenged the disallowance of miscellaneous and sundry expenditures.

During the assessment proceedings, the Assessing Officer disallowance 50% out of total expenditure claimed on account of misc. and sundry expenditure. The learned Commissioner (Appeals) also sustained the disallow alleging absence of necessary supporting documents.

Learned Authorised Representative submitted, the disallowance made on ad–hoc basis without bringing any material on record to disprove assessee’s claim is not justified.

Learned Departmental Representative on the other hand submitted, the assessee having not furnished necessary evidence the entire expenditure could not have been allowed.

We have considered the submissions of the parties and perused the material available on record. We have noted, 50% disallowance out of total expenditure claimed by the assessee under the head, “Misc. and Sundry Expenses” is due to the fact that the assessee has not submitted necessary evidence to justify its claim. As could be 12 Shri Deepak Bhalla HUF seen, the assessee has claimed expenditure under different heads, however, the misc. and sundry expenditures could be on account of small and petty expenditure required to be made on day–to–day basis for running the business activity. It is not always possible to maintain supporting evidence in respect of such expenditure, therefore, disallowance of 50% out of total expenditure claimed appears to be on a higher side. However, considering the fact that the expenditure claimed under this head might have been inflated to some extent, we restrict the disallowance to 10% of the total expenditure claimed by the assessee. Ground no.5, is allowed.

Insofar as ground no.6 is concerned, the learned Counsel for the assessee submitted before us that she does not wish to press this ground. Consequently, ground no.6 is dismissed as “not pressed”.

In the result, assessee’s appeal stands partly allowed.

To sum up, Revenue’s appeal is dismissed and assessee’s appeal is partly allowed. Order pronounced in the open Court on 23.09.2016