RAM GOPAL VARMA PENUMATSA,HYDERABAD vs. ITO, WARD- 14(1), HYDERABAD

Brief facts of the case are that the assessee, an individual, filed his return of income for the AY 2017-18 on 29/10/2017 declaring a total income of Rs. 18,73,510/-. The case was selected for scru�ny through CASS and accordingly, no�ce U/s. 143(2) of the Income Tax Act, 1961 (“the Act”) was issued on 13/08/2018 and the same was served on the assessee. In response, the assessee filed copy of computa�on of income, copy of financials, copy of Form 3CEB report. Therea�er, no�ces U/s. 142(1) of the Act were issued to the assessee on 08/07/2019 and 01/08/2019. In response, since the assessee has submi�ed the informa�on partly, a show cause no�ce with respect to cash deposits during the demone�za�on was issued on 28/11/2019. In reply, the assessee furnished the cash book for the FY 2016-17. On perusal of the informa�on submi�ed by the assessee and on verifica�on of the assessee’s books of account, the learned AO no�ced that the assessee has made cash deposits of Rs. 22,50,000/- and Rs. 54,00,000/- in his bank accounts with Axis Bank Limited, Andheri (West), Mumbai and ICICI Bank, Andheri (West), Mumbai respec�vely. Accordingly, the assessee was show caused as to why the said cash deposits aggrega�ng to Rs. 76,50,000/- should not be added to the total income of the assessee U/s. 69A of the Act. In response, the assessee furnished his cash book. On verifica�on of the cash book submi�ed by the assessee, the learned AO observed that the assessee has cash balance of Rs. 1,26,000/- in old currency notes as on 31/12/2016 and therefore, the learned AO treated the said sum of Rs. 1,26,000/- as unexplained money U/s. 69A of the Act and added the same to the total income of the assessee. Further, on verifica�on of the Profit & Loss Account of the assessee, the learned AO observed that the assessee has claimed Rs. 28,00,000/- and Rs. 15,68,792/- towards rent and sales promo�on expenses including publicity. Since the assessee failed to furnish any cogent evidence to substan�ate his claim, the learned AO disallowed Rs. 4,36,879/- ie., 10% of the total expenditure incurred towards rent and sales promo�on. Further, the learned AO also made

Page 2 of 5 addi�on of Rs. 9,49,012/- towards interest paid to others as the assessee failed to substan�ate his claim by producing the evidence. Thus, the learned AO determined the total income of the assessee at Rs. 33,85,401/- and passed the assessment order U/s 143(3) of the Act, dated 30/12/2019. While passing the assessment order, the learned AO also ini�ated the penalty proceedings U/s. 271AAC and U/s. 270A of the Act. Aggrieved by the order of the learned AO, the assessee preferred an appeal before the learned CIT(A).

On appeal, before the learned CIT(A), the assessee made various submissions. A�er considering the submissions made by the assessee, the learned CIT(A) partly allowed the appeal of the assessee and sustained the disallowance of Rs. 4,36,879/- made by the learned AO as 10% of the expenditure incurred towards sales promo�on and rent. While sustaining the addi�on made by the learned AO, the learned CIT(A) has observed as under: “5.2.6. In view of the above, I am of the considered view that the disallowance made by the Assessing Officer on es�mated basis @ 10% of the said expenses U/s. 37 of the Act is fair and accordingly, the addi�on made by the Assessing Officer to the tune of Rs. 4,36,879/- on the above issue is sustained. Hence, the ground of appeal

filed by the appellant on this issue is dismissed.” Aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal.

On the other hand, learned Departmental Representa�ve (“learned DR”) vehemently opposed to the submissions of the learned AR and submi�ed that the onus is on the assessee to substan�ate his claim along with corrobora�ve documentary evidence like rental agreement entered into by the assessee and the landlords. Further, the learned DR submi�ed that submission of hotel bills along will not absolve the responsibility of the assessee in order to claim the expenditure as the same was incurred wholly and exclusively for the purpose of business. Therefore, the learned DR submi�ed that the order of the learned CIT(A) needs no interference.

We have heard both the sides and perused the orders of the learned Revenue Authori�es as well as the material available on record. It is a fact that during the assessment proceedings, before the learned AO, the assessee has furnished his books of account, computa�on of total income, copy of financials and copy of Form 3CEB report. Further, with respect to expenditure incurred towards rent and sales promo�on also, the assessee has furnished the bills and vouchers. However, the learned AO did not consider the same and disallowed the expenditure @ 10% of the total expenditure towards rent and sales promo�on which worked out to Rs. 4,36,879/- on ad-hoc basis. Even on appeal, the learned CIT(A) also, neither rejected the assessee’s books of account nor find out any discrepancies therein. Under these circumstances, in our considered view, the learned AO / learned CIT(A) ought to have rejected the assessee’s books of account, before resor�ng to made the disallowance on ad- hoc basis, which is not done in the instant case. Therefore, considering the fact that before the learned CIT(A) the assessee has made various submissions and furnished substan�al documentary evidence in support of his claim and since, neither the learned AO nor the learned CIT(A) did not reject the books of account furnished by the assessee, the disallowance made on ad-hoc basis by Page 4 of 5 the learned AO and sustained by the learned CIT(A) in the case of the assessee is unsustainable law. Accordingly, we hereby set-aside the orders passed by the learned AO and the learned CIT(A) and delete the addi�on of Rs.4,36,879/-. It is ordered accordingly.

In result, appeal of the assessee is allowed. Order pronounced in the open court on this the 04th December, 2024.