ITO WD 21(1)(3), MUMBAI vs. MAHENDRAKUMAR D PALEJA, MUMBAI

None appeared for and on behalf of the assessee-respondent when the appeal was called out for hearing, nor any adjournment application stands received. Even on (A.Y. 2006-07) ITO vs. Mahendrakumar D. Paleja an earlier occasion (08.7.2015), there had been no appearance on the assessee’s behalf, even as the assessee has appointed a counsel to represent him (letter of authority on record). The appeal is outstanding since long. It was under these circumstances considered fit and proper to proceed with the hearing and decide the appeal after hearing the party before us and considering the material on record.

The principal issue, agitated per its Grounds 1 to 4 by the Revenue, is toward the restriction of the disallowance on account of expenditure claimed by the assessee in the computation of his business income for the year, from 50% to 10% thereof, i.e., from Rs.172.15 lacs to Rs.1,63,486/-.

We have heard the party before us, and perused the material on record. We find that while the Assessing Officer (A.O.) has made a disallowance at 50% of the expenditure claimed, in the absence of the assessee furnishing any explanation – in fact making no representation before him in the assessment proceedings, resulting in his framing the assessment u/s. 144, the ld. CIT(A) has, in arriving at his estimate, considered the past history of the case as well as the materials/evidences adduced by the assessee in the remand proceedings – the assessment being an ex parte assessment. The assessee, as stated by the ld. CIT(A), had reported an enhanced earning (in terms of gross profit), i.e., at 5.08% as against 4.15% for the immediately preceding year, despite an increase in the turnover by 300% vis-à-vis the said year. No disallowance on account of purchases was, accordingly, warranted in the facts and circumstances of the case. With regard to the miscellaneous administrative expenditure, viz. brokerage, transportation, selling and administrative, totaling to Rs.16.35 lacs, he restricted the disallowance to 10% of the expenses, i.e., at Rs.1,63,486/-, noting a justification for a substantial increase therein with reference to the preceding years on account of a quantum jump in the turnover. Even in the case of a best judgment assessment, as in the instant case, the assessee authority is required to make an objective assessment, taking into account all the relevant fact and circumstances. Further, some guess work, (A.Y. 2006-07) ITO vs. Mahendrakumar D. Paleja it may be appreciated, is intrinsic to assessment. What, therefore, is to be seen is the reasonability, in the given facts and circumstances, of the estimate being impugned. The same, in the present case, has been replenished by the material adduced in the remand proceedings. No case for higher disallowance has been made before us. We, under the circumstances, have no hesitation to decline interference. The reliance by the Revenue on the decision in Vijay Proteins Ltd. vs. Asst. CIT [1996] 58 ITD 428 (Ahd.); the matter being factual, would be of no assistance to the assessee. We decide accordingly.

The second issue, raised per Ground # 5, agitates the deletion of an addition qua cash deposits (at Rs.10,51,500) in the assessee’s savings bank account during the year. The same was explained in the appellate proceedings to be out of the sale proceeds (Rs.274.77 lacs), also furnishing a cash flow statement, which found acceptance by the ld. CIT(A), further noting that the said issue, also remanded back, had not been adversely commented upon by the A.O., even as the assessee’s books were before him (refer para 3.5 of the impugned order). Aggrieved, the Revenue is in appeal.