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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Assessment Year: 2007-08) DCIT, Norma India Ltd., Circle-13(1), X-47, Loha Mandi, Vs. Room No.406, Naraina, C. R.Building, I.P. Estate, New Delhi New Delhi (Appellant) (Respondent) Assessee by : Sh. Ved Jain, CA Revenue by : Sh.P Dam Kanunjna, Sr. DR Date of Hearing 24.11.2015 Date of pronouncement 04 .12.2015 O R D E R PER PRASHANT MAHARISHI, A. M.
The present appeal filed by the revenue is directed against the order of learned CIT (A)-XVI, New Delhi dated 20.07.2010 passed for the assessment year 2007-08. The revenue raised the following grounds of appeal: “1 That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the additions made by the AO on account of Freight Expenses, Packing Expenses, Power & consumption Expenses, Machinery Expenses and Tools & Consumable Expenses to the tune of Rs.1,85,76,401/- by holding that the AO had not made enquiries, whether the expenses were genuine or not or whether these were of capital or revenue in nature.
2. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in appreciating the fact that the AO had specifically by questionnaire asked the assessee to file bills/vouchers for various expenditure but the assessee failed to produce the same. Secondly, as the accounts were unaudited reliance could not be placed on book entries alone without examining supporting bills/voucher.
3. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that the assessee had not justified the genuineness of expenses incurred on the above mentioned heads during the course of assessment proceedings.
4. That on the facts and circumstances of the case and in law the Ld. CTI(A) erred in ignoring the fact that the AO had made the additions 1 | P a g e Page 2 of 5 by specifically comparing the percentage increase in expenses vis- avis increase in sales.” The facts in brief of the case are that the assessee company was engaged 2. in the business of manufacturing and export iron and steel forging as the specification provided by the buyers. The assessee filed e-return declaring total income of Rs.1,19,15,710/- on 31.12.2007. The return was processed u/s 143(1) of the Income Tax-act, 1961 (in short the ‘Act’). The case was selected for scrutiny assessment and notice u/s 143(2) and 142(1) was issued. During the assessment proceeding AO enquired about the increase in freight expense, packing expenses, Power consumption expenses, Machinery expense and tools and consumable expenses. According to AO there is disproportionate increase in those expense compared with the increase in sales of the assessee. In response, for increase in freight expenses assessee submitted that there is 30 % increase in export and export freight increased on that count. For packing expenses assessee submitted same explanation. For power expenses assessee could not produce some bills of Rs 8113,559/- and further for machinery repairs assessee submitted explanation about that it is day to day maintenance expenses , for tools and consumable expenses submission of the assessee was that these expenses are for tools and dies consumed on day to day basis and also incurred for maintenance of quality of the manufacturing. Ld AO not convinced with the explanation of assessee made disallowance of expenses on adhoc basis as under :- a. Freight expenses 20 % Rs 45,86,126/- b. Packing expenses 13 % Rs 20,36,214/- c. Power and consumption expenses Rs 81,13,559/- d. Machinery expenses 20% Rs. 14,57,839/- e. Tools and Consumables 20 % Rs. 23,83,663/- 3. On Appeal, CIT (A) deleted the disallowance holding that disproportionate increase in expenses compared with sales is no ground for disallowance of expenses when complete details are furnished. Regarding power expenses CIT (A) deleted because assessee has produced the high value bill of power and also the ledger account of such expenses. Hence revenue is in appeal before us.
Page 3 of 5 Though revenue has raised four different substantive grounds but all of them 4. revolve around ad hoc disallowance of expenditure deleted by CIT (A) of Rs 1,85,76,401/-.
Ld DR submitted that when the CIT (A) has held that the assessing officer has not inquired in to the details of the expenses but only made ad hoc disallowances then CIT (A) is not correct in deleting the addition. Therefore deletion of disallowance is not correct. He relied on the order of AO submitting that there is disproportionate increase in expenses compared with sales. Ld AR of the assessee submitted that complete details were produced 6. before AO for all the expenses and submission with respect to query of AO regarding increase in expenses was also provided. However without rejecting the explanation of the assessee but after verifying the complete details of expenses AO has made ad hoc disallowance. He submitted that all high value power bills were produced before AO along with the ledger copies depicting the details of payment, but ignoring all these evidence AO has made the disallowance applying ad hoc percentages of total expenditure. He further submitted that all the expenses are supported by proper bills and voucher and also with evidence of payments depicted in ledger account and further all the expense are wholly and exclusively incurred for the purposes of the business no disallowance should have been made. He relied on several judgments of various courts supporting that ad hoc disallowance cannot be made. We have carefully considered the rival contention as well as the orders of 7. lower authorities. It is a fact that there is increase in various expenses of compared to previous year. Further there is also higher percentile increase than the increase in sales of the company. Ld AO has rightly made the queries on this front and obtained the explanation of the assessee. However after obtaining the explanation of the assessee, AO has nowhere given any reason that why the explanation submitted by the assessee is not acceptable to him. Had this explanation was not acceptable to him, he should have made a detailed inquiry, but AO adopted the easy way out. For increase in expenses assessee has submitted the copies of the accounts