ITO, CIRCLE-33(4), KOLKATA, KOLKATA vs. SHYAMAL DEY, KOLKATA

This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XX, Kolkata dated 26.12.2011. Assessment was framed by DCIT, Circle-33, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 23.12.2010 for assessment year 2008-09.

Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing the relief of Rs,65,77,786/- which was disallowed by the AO on A.Y. 2008-09 ITO Ward-33(4), Kol. v. ShyamalDey Page 2 account of non-production of supporting evidence and necessary details in relation to various expenses.

The facts of the case are that assessee is an individual and engaged in business of civil contractor. During the year assessee has claimed the following expenses in his profit and loss account. Sl.No. Head of expenses Amount (Rs) 1 Cost of materials 1,34,60,607/- 2 Labour expenses 18,20,447/- 3 Salary, wages & bonus 12,20,447/- 4 Power & fuel 11,02,925/- 5 Staff welfare 3,91,096/- 6 Repair & maintenance 4,54,242/- 7 Tour & travelling 6,01,248/-

During the course of assessment proceedings, AO asked for bills, vouchers and books of account for verification of genuineness of the above listed expenses but assessee failed to do so. Therefore AO disallowed the above expenses on estimate basis @ 30% of all the expenses treating them as bogus and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “9 I have perused the assessment order. I have also considered the submissions made on behalf of the appellant and the judicial pronouncements relied upon. The AO has mentioned in the assessment order that there has been non-compliance on the part of the appellant. But the, he has made the assessment u/s. 143(3) without bringing any adverse material or evidence on record I find merit and substance in the argument that, even while making a best judgment assessment u/s. 144, the AO does not possess absolute arbitrary authority to assess any figure he likes. Even if the circumstances of the case called for resorting to estimating the income of the appellant, such estimation cannot be a wild one, but, should be made honestly and not arbitrarily; moreover, it should have a reasonable nexus with the material available on record. A.Y. 2008-09 ITO Ward-33(4), Kol. v. ShyamalDey Page 3 While estimating the income, the AO must not act vindictively or capriciously or with a view to punish the appellant for non-compliance. For, the AO has to be guided by the rules of justice, equity and good concise. But, in the present case, the AO has found no defects in the audited accounts of the appellant. The AO has failed to bring any material or evidence on record to justify the disallowances made by him. The AO has also failed to consider the past records of the appellant. For, there is no finding of the AO that the claim of expenses is excessive or unreasonable with reference to the preceding years. The disallowances made by the AO are arbitrary and without any basis as they are not supported by any material or evidence on record. In view of the above, and the ratio laid down by the Hon'ble Supreme Court and the jurisdictional High Court, I am of the considered opinion that the disallowances made by the AO are neither sustainable in law nor on facts. The disallowance out of various heads of expenses, namely, cost of material, labour expenses, salary, wages and bonus, power and fuel, staff welfare, repairs and maintenance, and tour and traveling are deleted. Ground no. 3 to 9 is allowed. Ground no 10 and 11 is general in nature.”

Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.

Shri V.N.Purohit, Ld. Authorized Representative appearing on behalf of assessee and Shri Uday Kr. Sarkar, Ld. Departmental Representative appearing on behalf of Revenue.

We have heard rival submissions and perused the materials available on record. The Ld. DR relied on the order of Assessing Officer. The ld. AR submitted two sets of paper books which are running pages 1 to 34 and 1 to 113 and also cited case laws. Before us the ld. AR submitted that all the expenses claimed by the assessee are duly supported with the necessary documents and incurred for the purpose of business only. Regarding the expenses of material purchase the assessee before us submitted the complete details of the parties along with addresses, description of goods and their value from whom the materials were purchased. Such detail is placed on page 35 of the paper book. The assessee also submitted the comparative chart of the material expenses incurred in the earlier year which is placed on A.Y. 2008-09 ITO Ward-33(4), Kol. v. ShyamalDey Page 4 page 36 of the paper book. The assessee claimed that in the relevant year under consideration the cost for the material expenses have come down in relation to the gross receipt of the assessee. Regarding the labour charges the ld. drew our attention to the pages of 37 to 64 of the paper book wherein the details of the labourers have been furnished. Regarding the salary & wages the ld. AR drew our attention on page 65 of the paper book where comparison chart of such expenses with earlier years have been furnished. Similarly the assessee submitted the details of the power & fuel expenses which are placed on pages 66 to 75 of the paper book. Similarly the details of the expenses towards the repair & maintenance AND tour & travels are furnished on pages 76 to 86 and 87 to 113 respectively. The ld. AR also submitted that no such adhoc disallowance was made under section 143(3) of the Act in the assessment of earlier years. In support of his claim the ld. AR submitted the assessment orders for the AYs 2006-07, 2007-08 and 2009-10 which are placed on pages 2&3, 4&5 and 11&16 of the paper book. The ld. AR relied on the order of ld, CIT(A).

Form the aforesaid discussion we find that the AO has disallowed the various expenses on adhoc basis on the ground of non-availability of the supporting documents. However we find from the submission and records that the expenses are in agreement with the earlier year expenses. No disallowance of such expenses has made in the earlier year assessment orders. The ld. AR has explained all the expenses and submitted the necessary supporting details in the form of paper book which is placed on record. The AO failed to point out the specific disallowances from the books of accounts of the assessee. We also find from the order of Hon’ble Supreme court in the case BrijBhushan Lal Parduman Kumar v. CIT (1978) 115 ITR 524 (SC) and head note reproduced below:- “Assessment – Best judgment assessment – Income estimate – Basis thereof – Necessity of reasonable nexus – Authority making a best judgment assessment must make an fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate A.Y. 2008-09 ITO Ward-33(4), Kol. v. ShyamalDey Page 5 the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case.”