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Income Tax Appellate Tribunal, PATNA BENCH
Before: SHRI MANISH BORAD & SHRI SONJOY SARMA
PER MANISH BORAD, AM.
The present appeal has been preferred by the assessee against the order dated 18-02-2019 of the Ld. Commissioner of Income-tax, Appeal, [hereinafter referred to as ‘CIT(A)’] Patna-2 passed u/s. 250 of the Income-tax Act, 1961 hereinafter referred to as ‘the Act’. 2. Brief facts as culled out from records are that the assessee is a partnership firm and engaged in the business of civil construction. It filed return of income on 29.08.2014. The case was selected for scrutiny followed by serving of notices u/s. 143(2) and 142(1) of the Act. Assessment
ITA No.137/Pat/19 AY 2013-14 M/s. Prakash Construction Patna Page 2 completed on 19-03-2016 after making various additions/disallowances of expenses, assessing income at Rs. 4,37,10,361/-.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and partly succeeded.
Now, the Revenue is in appeal before this Tribunal raising following grounds of appeal:- 1. The Ld. CIT{A) has erred in allowing relief of Rs. 2,33,22,131/- to the assessee by deleting addition made by the A.O. in respect of disallowance of expenses and others, without appreciating the fact that the assessee had failed to substantiate the claim of expenditures before the A.O. despite being provided several opportunities.
The Ld. ClT(A) has erred in allowing relief of Rs. 4,50,000/- on account of disallowance made by A.O. in respect of Business Promotion expenses without appreciating the fact that the assessee failed to substantiate the claim of expenditure before A.O. despite provided several opportunities. 3. The Ld. CIT(A) has erred in allowing relief by admitting new evidence produced by the assessee in violation of rule 46A of the I.T. Rules, 1962. 4. Any other ground taken at the time of hearing.
The Ld. Departmental Representative vehemently argued supporting the order of the ld. AO.
Per contra, the Ld. Counsel for the assessee has heavily relied on the finding of the Ld. CIT(A) and also stated that the alleged disallowances are ad hoc in nature. The Ld. Counsel also stated that the assessee has declared the net profit at approximately 8%. 7. We have heard rival contentions and perused the records placed before us. The revenue’s grievance in ground no. 1 is against the relief granted by the Ld. CIT(A) deleting the disallowance of Rs. 2,33,22,131/-, which was made by the ld.AO @ 10% of the expenses including the materials cost. We find that the ld. CIT(A) deleted the alleged disallowance observing as follows:-
ITA No.137/Pat/19 AY 2013-14 M/s. Prakash Construction Patna Page 3
“I have considered the submission of the appellant. I have also carefully considered the assessment order and other material on record.
A plain reading of the assessment order indicates that AO has examined the books of a/cs and. vouchers in great detail. He has examined copies of ledgers and vouchers related to different type and sub heads of expenses viz. Material Consumed, Freight Inward Charge, Labour Charges, Power & Fuels, Office Expenses, Printing & Stationary, Misc. Expenses & Vehicle Running & Maintenance amounting to Rs. 22,83,98,3 10/- debited in the profit and loss A/c. The A.O has also given sweeping generalizations by saying that this examination done by him is itself enough to doubt the genuineness and veracity of the expenses and has proceeded to make a huge ad-hoc disallowance of 10% amounting to Rs. 2,28,39,831/- ,
However, the Assessing Officer has to make estimated disallowance based on material available on record and in his possession, if any, and not on his whims and fancies. Even in the best judgment assessment, the AO does not get absolute and unbridled powers to estimate profits he wants and the assessment cannot be framed as per his sweet will.
I have also examined the details available. I find that the amount of Rs. 22,83,98,3101/- debited as expenses claimed in Profit & Loss Account includes different sub heads as is also clear from chart inserted in the assessment order itself. These sub heads include payments for Material Consumed, Freight Inward Charge, Labour Charges, Power & Fuels, Office Expenses, Printing & Stationary, Misc. Expenses & Vehicle Running & Maintenance and other payments.
By no stretch of imagination, generalization on accounting principle can it be concluded that all these different categories of payments are to be subjected to equal ad hoc disallowance. In any case, when the vouchers and books are available to the AO then the right manner of making an addition to income by disallowing expenses is to examine the veracity, genuineness and correctness of the same by enquiry, summon and other means of examination and not by simply examining the number and amount by vouchers and subjecting the same to an ad hoc disallowance.
I find that the law is very clear. Various courts and tribunal have held that ad-hoc disallowances out of expenses based on vague observation that some expenses were not verifiable, or without any specific material
ITA No.137/Pat/19 AY 2013-14 M/s. Prakash Construction Patna Page 4 being brought on record or without any specific defect being pointed out is not justified. Reliance is placed on the judgement of the Hon'ble Supreme Court in the case of CIT Vs Dhanraj Giri Nara Singirji (1973) 91 ITR 544, Hon'ble Rajasthan High Court in the case of Jaipur Electro Pvt. Ltd. Vs CIT (1996) 134 CTR, Hon'ble ITAT Lucknow in the case of Kanha Vanaspati Ltd. Vs Joint CIT, Range-IT (2006) (7) MTC 339.
The wholesale disallowance of 10% as given above out of the expenses without mentioning any specific instances is not tenable especially when the assessment order categoricaIIy records that the books of accounts were produced.
However looking into the nature of the expenses the disallowances is restricted to 1% of expenses of Rs. 22,83,98,3101- claimed and not disallowance & addition of 10% amounting to Rs. 2,28,39,831/- as done by the A.O and the appellant gets relief to this extant.”
From perusal of the above finding of the ld. CIT(A) as well as observation of the ld.AO, we find that the ld.AO made an ad hoc disallowance @ 10% of Rs. 22,83,98,310/-. The ld. AO has even included the cost of materials consumed for computing the disallowance @ 10&. No specific instance has been mentioned in the assessment order, which could show that the assessee has not maintained books of account properly. The ld. AO has not rejected the book result. Therefore, the books of account of the assessee stands accepted, which are duly audited. Under these given facts and circumstances of the case, we find no infirmity in the impugned order of the ld. CIT(A). Accordingly, ground no. 1 of revenue’s appeal is dismissed.
Ground no. 2 is regarding the disallowance of business promotion expenses of Rs. 4,50,000/-.
We observe that correct figure of alleged disallowance is of Rs. 4,25,000/- and there is an apparent mistake in ground no. 2 of the revenue’s appeal, wherein amount of disallowance is mentioned Rs. 4,50,000/-. This disallowance of Rs. 4,25,000/- is made by the ld. AO for want of evidence/document not produced by the assessee in the course of
ITA No.137/Pat/19 AY 2013-14 M/s. Prakash Construction Patna Page 5 assessment proceedings. The ld. CIT(A) treated it as an ad hoc disallowance and restricted it at 1% of the alleged amount. We are of the considered view that since the assessee has declared its profit at approximate @ 8% (as stated by the ld. Counsel for the assessee as an officer of court) and the assessee is said to have filed all evidences before the ld. CIT(A) vide submissions dt. 26-02-2016 and the disallowance being merely adhoc in nature, we fail to file any infirmity in the finding of the ld. CIT(A). Thus, ground no. 2 of revenue’s appeal is dismissed.
Ground no.3 is regarding the additional evidence filed in violation of Rule 46A of the IT Rules, 1962, we find no merit in this ground, since the ld. Counsel for the assessee as an officer of the Court stated at the bar/bench that all the details placed before the ld. CIT(A) stands submitted before ld.AO. Considering the fact that ld. CIT(A) have co-terminus power to that and ld. AO, and all details placed before first appellate authority were placed before ld.AO also, we dismiss ground no.3 raised by the revenue.
Ground no. 4 is general in nature, which requires no adjudication.
In the result, the appeal of the revenue is dismissed.
Order pronounced in open court on 08-07-2022
Sd/- Sd/-
(SONJOY SARMA) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated 08-07-2022 Kolkata/ कोलकाता **PP/Sr.PS �दनांकः-08/07/2022
ITA No.137/Pat/19 AY 2013-14 M/s. Prakash Construction Patna Page 6 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant- ACIT, Circle-4, Patna Lok Nayak Jai Prakash Bhawan, Dak Bunglow Road, Patna 2. ��यथ�/Respondent-M/s.Prakash Construction, Chandra Prakash, NC-5 Gayatri Mandir Road, Kankarbagh, Patna-20 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Patna 6. गाड� फाइल / Guard file. /True Copy/ By order/आदेश से, सहायक पंजीकार आयकर अपील�य अ�धकरण,कोलकाता ।