VEN SINGH,MEHSANA vs. THE INCOME TAX OFFICER, WARD-3, MEHSANA

The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Appeals)-4, Mumbai [hereinafter referred to as “ld.CIT(A)] dated 7.2.20224 under section 250 of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2017-18.

At the outset, it is noticed that the appeal of the assessee has been filed late by 8 days. The assessee has submitted that due to some personal circumstances, there was a delay on his part in signing his appeal, which was sent across to him by his consultant; that due 2 to personal emergency in the family, he had to rush out-of-town. By the time he returned, signed the appeal form sent to him and deposited with the Registry of the ITAT, a time-gap of 8 days had occurred in filing the appeal. The above facts were all stated on oath by the assessee in a duly sworn affidavit filed before us.

The ld.DR submitted no objection to condoning the delay. Accordingly, the delay in filing the appeal before the Tribunal is condoned, which was pronounced in the Open Court itself.

We, now proceed to adjudicate the appeal before us.

It arises from the orders of the authorities below and the grounds raised before us that there are primarily two additions/disallowances made by the AO and confirmed by the ld.CIT(A) which are in challenge before us, viz.

In this regard, he first drew our attention to the fact that the disallowance of expenses made by the AO to the tune of Rs.94,600/- was in relation to the adhoc disallowance of 4% of certain expenses incurred by the assessee ,made for the reason that the AO found the said expenses not duly substantiated with documentary evidences in the absence of any submissions made by the assessee before him. The finding of the AO dealing with this disallowance contained in para-3 of the order as under:

With regard to the AO’s disallowance of PF expenses, it was pointed out that same pertained to the contribution to PF made by the assessee as employer, which the AO found exceeded the statutory limit of 27% of the salary, and hence, excess was held liable to be disallowed in terms of Rule 87 of the Income Tax Rules, 1962 resulting disallowance of Rs.4,78,966/-. Relevant portion of the AO’s order dealing with the issue at para-4 is as under:

Having stated so, the ld.counsel for the assessee pointed out that the ld.CIT(A) dismissed the assessee’s appeal for non-prosecution noting that the assessee had not responded to various notices served to it. And be that so, he did not even care to consider the submissions made by the assessee before the AO against the disallowance made by the AO.

He demonstrated the fact that the income tax expenses being Rs.1,90,355/- and not Rs.3,90,126/- as considered by the AO, by pointing out the fact that even the AO in his show cause notice reproduced in page no.2 of the assessment order had noted the fact of income tax expenses debited by the assessee being to the tune of Rs.1,90,355/-. Our attention was further drawn to the audited financial statement of the assessee, being the audited profit & loss account, placed before us at PB Page no.5 of the PB ,wherein he pointed out the fact of income tax expenses debited being Rs.1,90,355/-.

Having pointed out the anomaly in the assessment order of noting the incorrect amount of income tax expenses debited by the assessee, he thereafter drew our attention to the fact of income tax expenses being already added to the income of the assessee while computing his income to be returned to tax. In this regard, he drew our attention to the computation of income filed by the assessee for the impugned year before us, which was placed at P.B page no.2, 7 wherein he drew our attention to the figure of net profit (before tax) as per the profit & loss account, taken as Rs.12,42,611/-. He pointed out that the assessee had computed income from the business or profession taking his profits from business before the tax. He thereafter evidenced the same by taking us back to the profit & loss account of the assessee placed before us at Page no.5 of the PB, pointing out that net profit shown was Rs.10,52,256/- and to which, the income tax expenses of Rs.1,90,355/- were added to arrive at the figure of profit before tax of Rs.12,42,611/-. Thus, he demonstrated that the income tax expenses had already been added back to the profits of the assessee for the purpose of paying taxes thereon, and therefore, inclusion of the same in the expenses disallowed at the rate of 4% needed to be deleted.

The ld.DR was unable to controvert the factual contention made by the ld.counsel for the assessee as above and noting the same, we hold that with respect to the disallowance of expenses to the tune of Rs.94,600/- at the rate of 4% of the expenses totaling to Rs.23,64,809/- the component of income tax expenses included therein being Rs.3,90,126/- be excluded, which at the rate of 4% amounts to Rs.15,605/- and the addition/disallowance of expenses, therefore, be restricted to Rs.78,995/- as against Rs.94,600/- confirmed by the Ld.CIT(A).

Taking up the issue of disallowance of PF expenses, the ld.counsel for the assessee pointed out that while the AO had considered only salary paid by the assessee for the purpose of noting that the contribution to the assessee to the PF, had exceeded 27% of the salary so paid, the assessee in fact had submitted to the AO in its reply filed that the PF contribution had been made on the components 8 of both the salary and the wages paid, and that, being a labour contractor, he has deducted the PF even on labour wage components which did not exceed 27% of the salary & wages; that both the AO and the ld.CIT(A) had completely ignored the submissions of the assessee and went on to make disallowance of PF expenses on an incorrect factual premise.

The ld.DR, on the other hand, contended that since neither the AO nor the ld.CIT(A) has not taken note of the assessee’s contentions, the factual contentions of the assessee remained unverified, and therefore, the matter be restored back either to the AO or to the ld.CIT(A) for reconsideration.

Taking note of the contentions of both the sides, we find merit in the contention of the ld.counsel for the assessee that the Department should not be given second round in the matter. The assessee undoubtedly, had contended that the AO had proceeded to make the disallowance on a factually incorrect premise, and it was duty of the AO at that juncture to verify the fact as demonstrated by the assessee. This fact was there before the Ld.CIT(A) also who again chose to ignore the submissions of the assessee. The department , for no reason, having chosen not to consider the submissions made by the assessee before it and in turn therefore not verified the factual aspect of the contention made , we see no reason why the department should now be given another chance for verifying the facts argued

In view of the same, we hold that disallowance of Rs.4,78,966/- made on account of excess contribution to PF by the assessee in terms of Rule 87 of the Income Tax Rules, 1962 be deleted.

In effect, the appeal of the assessee is partly allowed in the above terms.