SREEDHARALA JOGARAO & SONS,VISAKHAPATNAM vs. THE ASSISTANT COMMISSIONR OF INCOME TAX, CIRCLE-1(1), VISAKHAPATNAM

PER S. BALAKRISHNAN, Accountant Member :

This appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)-NFAC] in DIN & Order No. ITBA/NFAC/S/250/2022-23/1050512950(1), dated 8/3/2023

2 arising out of the order passed U/s. 154 r.w.s. 143(3) of the

Income Tax Act, 1961 [the Act] for the AY 2016-17.

partnership firm deriving income from trading in Rice, Dal, Oil,

Sugar and other commodities on wholesale basis. The assessee

filed its return of income on 25/09/2016 admitting a total

income of Rs. 56,73,270/- for the AY 2016-17. The scrutiny

assessment U/s. 143(3) of the Act was completed by the Ld.AO on

23/12/2018 wherein the Ld. AO disallowed certain expenses

amounting to Rs.10,91,105/- on ad-hoc basis. Thereafter, the

Ld. AO by invoking the provisions of section 154 of the Act

passed a rectification order U/s. 154 r.w.s 143(3) of the Act on

13/1/2022 by determining the total income at Rs. 71,42,057/-

thereby making an addition of Rs. 2,94,503/- towards

disallowance of freight charges U/s. 40A(3) of the Act and Rs.

83,184/- towards disallowance of prior period expenses.

Aggrieved by the above additions, the assessee filed an appeal

before the Ld. CIT(A)-NFAC.

made by the assessee, upheld the order of the Ld. AO by

dismissing the appeal of the assessee. Aggrieved by the order of

the Ld. CIT(A)-NFAC, the assessee is in appeal before us by

raising the following grounds:

“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case. 2. The Ld. CIT(A) ought to have held that the addition of Rs. 2,94,503/- made towards disallowance of freight charges U/s. 40A(3) of the Act and addition of Rs. 83,184/- made towards disallowance of prior period expenses are outside the scope of rectification U/s. 154 of the Act. 3. The Ld. CIT(A) ought to have held that the above additions of Rs. 2,94,503/- and Rs. 83,184/- are not justified even on merits. Any other grounds may be urged at the time of hearing.” 4.

they need no adjudication.

U/s. 40A(3) and disallowance of prior period expenses wherein

the scope of rectification U/s. 154 of the Act was challenged by

the assessee. Before us, the Ld. AR argued that the Ld. AO has

made a suo motto order U/s. 154 of the Act. The Ld. AR referred

to para 5.1 of the original assessment order wherein the Ld. AO

has referred to the expenses incurred in cash and supported by

self-made vouchers. The Ld. AO considered the expenses

incurred towards freight charges Rs. 90,87,953/- and labour

charges Rs. 18,23,096/- aggregating to Rs. 1,09,11,049/- and

4 has made an ad-hoc disallowance of 10% amounting to Rs.

10,91,105/- citing that these expenses are unverifiable in nature

and could not be substantiated by the assessee. The Ld. AR

therefore pleaded that when the ad-hoc disallowance of 10% of

the total expenses claimed by the assessee has been disallowed

by the Ld. AO, which was not disputed by the assessee, no

further specific disallowance can be made against any other

provisions of the Act. The Ld. AR therefore pleaded that the Ld.

AO ought to have considered the disallowances arising out of

section 40A(3) and prior period expenses and therefore prayed

that the rectification order of the Ld. AO be set-aside.

the order of the Ld. Revenue Authorities and argued in support of

their decision.

available on record as well as the orders of the Ld. Revenue

Authorities. Admittedly, the Ld. AO in his original assessment

order dated 23/12/2018 passed U/s. 143(3) of the Act has

disallowed a sum of Rs. 10,91,105/- on an ad-hoc basis

considering that the assessee has mostly incurred these expenses

in cash and has produced only self-made vouchers. Further, we

5 find that the Ld. AO, on examining the Tax Audit Report filed by

the assessee, made further disallowance of Rs. 3,77,687/- by

considering the amount of Rs.2,94,503/- as disallowance U/s.

40A(3) and Rs. 83,184/- as disallowance of prior period

expenses. The contention of the Ld. AR is that these expenses

incurred by way of cash and prior period expenses have already

been produced before the Ld. AO wherein it is deemed that the

Ld. AO after considering the same has made an ad-hoc

disallowance of 10% on the total expenses claimed by the

assessee. We are of the opinion that when an ad-hoc

disallowance of 10% has been made by the Ld. AO, no further

specific disallowance can be made under any other provisions

of the Act. We therefore find merit in the argument of the Ld. AR

on this issue of disallowance U/s. 40A(3) and prior period

expenses are beyond the scope of rectification U/s. 154 of the Act

when the Ld.AO has thoughtfully considered these expenses and

has made an ad-hoc disallowance of 10% while framing the

original assessment. We therefore direct the Ld. AO to delete the

additions made in the rectification order passed U/s. 154 of the

Act. Thus, all the grounds raised by the assessee are allowed.

Pronounced in the open Court on 10th January, 2024.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated :10/01/2024 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Sreedharala Jogarao & Sons, D.No. 26-1- 1. 86, Sreedharala Complex, Bowdara Road, Visakhapatnam, Andhra Pradesh – 530001. राज�व/The Revenue – The Asst. Commissioner of Income Tax, 2. Circle-1(1), Income Tax Office, Pratyakshakar Bhavan, MVP Double Road, Visakhapatnam, Andhra Pradesh – 530017. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam