SHRI VIJAY KUMAR ROHDA,RAIPUR vs. INCOME TAX OFFICER, WARD-1(4), RAIPUR

आयकर अऩीऱीय अधधकरण, रायऩुर न्यायऩीठ, रायऩुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश सूद, न्याययक सदस्य एवं श्री अरुण खोड़वऩया, ऱेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अऩीऱ सं./ITA No.54/RPR/2018 (ननधाारण वषा / Assessment Year : 2013-2014) Shri Vijay Rohra, Vs ITO, Ward-1(4), Raipur Prop. M/s Laxmi Finance, Shop No.15, Dharam Market, Station Road, Raipur PAN No. : ACMPR 6057 J (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) ..

ननधााररती की ओर से /Assessee by : Shri R.B.Doshi, CA राजस्व की ओर से /Revenue by : Shri G.N.Singh, Sr. DR सुनिाई की तारीख / Date of Hearing : 27/07/2022 घोषणा की तारीख/Date of Pronouncement : 17/10/2022 आदेश / O R D E R Per Arun Khodpia, AM : This appeal is filed by the assessee against the order passed by the CIT(A)-I, Raipur, dated 27.02.2018, on the following sole ground :- 1. On the facts & circumstances of the case, The CIT (A) has erred in confirming the addition of Rs. 7,00,674/- made by Assessing Officer being difference of gross receipts in the 26 AS & P&L Account by ignoring submission of case law relied on by the assessee. 2. On the facts & circumstances of the case, The CIT (A) has erred in confirming the Addition of the Household expenses of Rs. 30,000/- made by assessing officer. 3. The Appellant craves leave, to add, urge, alter, modify or withdraw any grounds before or at the time of hearing. 2. Brief facts of the case are that the assessee derives income from brokerage and commission, filed his return of income on 10.12.2013 declaring total income at Rs.6,98,600/-, which was processed u/s.143(1) of the Act with a refund of Rs.8,65,290/-. Thereafter the case of the assessee was selected for scrutiny through CASS and upon issuance of

2 ITA No.54/RPR/2018 statutory notices, the assessee filed his reply and relevant vouchers and documents, which were verified by the AO. However, the AO during the course of assessment proceedings did not accept the explanation of the assessee regarding various claims as the same are not being upto the mark of satisfaction or does not even justify the claims of the assessee. Accordingly, the AO completed the assessment after making certain additions. 3. Against the said additions made by the AO in the assessment order, the assessee preferred appeal before the CIT(A) and the CIT(A) partly allowed the appeal of the assessee. 4. Now, the assessee is in further appeal before the Tribunal, challenging the additions made by the AO and sustained by the Ld CIT(A). 5. Ld. AR before us filed his written brief submissions which read as under:- Ground no. 1 AO : Page no. 1, para no. 3 Commission receipts reflected in 26AS at Rs. 82,62,106/-. In the P & L a/c, commission disclosed is Rs. 75,61,432/-. Difference of Rs. 7,00,674/- added as concealed income. Assessee explained that Rs. 7,86,520/- was commission received from Bajaj Finance which was credited in the accounts of subsequent year. CIT(A): Page no. 3, para no. 2,3 Since TDS on the income received from Bajaj Finance was claimed in this year, income should also be included in this year. Submission of assesse

3 ITA No.54/RPR/2018 1. Difference between income credited in profit and loss a/c and that reflected in 26AS was not on account of commission from Bajaj Finance but due to: i) Accounting of commission income, net of service tax. ii) Commission income from Bajaj Finance of Rs. 78.098/- accounted in subsequent year. iii) Service tax paid not claimed as deduction. 2. Assessee liable for service tax. NBFCs do not pay service tax to the assesse. Assesse raised commission bill inclusive of service tax. 3. When the amount is received, amount of commission (net of service tax) credited to commission account and amount equivalent to service tax liability credited to separate service tax payable account. Thus, entire amount of bill/receipt from NBFC properly credited in books. 4. Amount paid on account of service tax debited to such account. Account at PN 17 to 24 of PB 5. Service tax payment is a deductible expenditure. If gross amount of commission is considered, deduction of Rs. 6,22,585/- being the service tax paid during the year, will be deductible. 6. Commission of Rs. 78,098/- from Bajaj Finance accounted in the next year. 7. Thus, total deduction of Rs. 7,00,674/- [Rs. 6,22,585/- (+) Rs. 78,098/-] will be admissible as deduction. Ground no, 2 AO : Second page, para no. 4(e) Total withdrawal of the family, for household expenses, at Rs. 1,85,560/-. AO estimated household expenses at Rs. 2,40,000/- and added Rs. 54,440/-, Rs. 30,000/- in the hand of assessee & Rs. 24,440/- in the hands of assessee’s wife.. CIT(A): Page no. 5, para no. 4,3 Submission of assessee 1. Addition made on presumption and estimated basis. Not justified. 2. No basis given by the AO for estimating household expenses at Rs. 2,40,000/-. No material brought on record.

4 ITA No.54/RPR/2018 6. Ld AR also submitted a paper book containing 28 pages consisting of documents submitted before Ld AO and Ld CIT(A). 7. Ld AR, at the outset has reiterated its submission before the Ld CIT(A) on both the issues challenged by this appeal, which reads as under: This appeal relating to the AY13-14 is preferred against the order u/sl43(3) dt.29-2-16, passed by the ITO-l(4), Raipur, by assessing total income at Rs. 15,49,274 as against the returned income (i.e., ROI filed on 10-12-2013) at Rs.6,98,600 shown by the assessee- Co. Thus, the Id AO has made total additions of Rs.8,50,674 on various count. Against these additions, various grounds of appeal has been raised and in this matter, ground wise submission made here-under, may kindly be taken on record for your Honor's judicious consideration & adjudication, on the matter: Gr.No.1: regarding addition of Rs.7,00,674 being difference of gross receipts in Form No.26AS and in P&L account: The assessee is engaged in business of providing finance under his proprietary concern 'M/s.Laxmi Finance', from which he earns commission income and during the year under consideration, he has also earned interest and other income. The total receipts as per 26AS are at Rs.83,10,962 which consist of commission income at Rs.82,62,106 and interest of Rs.48,856 from Shahara India. On perusal of P&L account it was noticed that the assessee has shown total receipt of Rs.76,54,476 which includes 'commission received' at Rs.75,61,432 and interest and other income at Rs.93,044. The Id AO made addition of Rs.7,00,674 (i.e., Rs.82,62,106 receipts as per 26AS minus Rs.75,61,432 receipts shown in P&L account) by stating that the assessee has understated the income and has concealed income. In respect to the addition of Rs.7,00,674, it is respectfully submitted that the assessee has shown net commission receipts excluding service tax in the P&L account. The assessee is liable to pay service tax and he receives commission without charging service tax separately in the invoice, which is evident from the certificate given by the tax deductors and also from the bank statements where the cheques are exclusive of the service tax amount. Further, it stated that the service tax is paid by the assesses, on the commission by assuming that commission is inclusive of service tax. In other word the representation of commission receipts (i.e., Rs.75,61,432) are shown net of service tax i.e. Rs.6,33,098 and if gross commission (i.e., Rs.82,62,106) would have been shown than the service tax amount of Rs.6,33,098 would be claimed as expenses in the P&L account. Hence, the presentation of the

5 ITA No.54/RPR/2018 receipts has been changed and there is no by the assessee. During the assessment proceedings, the then counsel explain the above facts and resultantly, the Id AO made addition of Rs.7.00,674/- assessee has understated the receipts as against the receipts reflecting in Form No 26AS. The assessee has not understated any commission receipt but in fact. he has show in the P&L account net of service tax. For this contention of the assessee, copy of return for the FY 12-13, copy of confirmation that payments were made service tax by the tax deductors, Service tax challans, Form No.26AS and copy of PAL account are enclosed for your honor's kind verification. Considering the above facts, it is kindly requested to delete the addition of Rs.7,00,674 as the assessee has not understated any receipt as alleged by the Id AO. 2. Gr.No.2 & 3: regarding adhoc disallowance of Rs.50,000 out of salary expenses and Rs.30,000 out of household expenses: The Id AO has made adhoc disallowance of Rs.50,000 out of salary expenses claimed at Rs. 17,34,740 and disallowed Rs.30,000 out of household expenses claimed at Rs. 1,02,060. When the book results are rejected, very often, a lump sum addition is made to the returned. Such addition may be based on (i) an estimate of turnover and profit rate or (ii) disallowance of claims, of expenditure, shortage, wastage and the like; but, as pointed out in the case of KY Pilliah & Sons (1967) (SC), it should be based on some material and cannot be arbitrary. For disallowing any expenses on lump sum/ adhoc basis, out of the expenses claimed by the assessee, the AO is required to reject the books of account produced by the assessee & examined by him, and for doing this exercise, the AO is required to specify/ mention pin point specific defects/ discrepancies/ irregularities/ inconsistencies found in maintenance of the books o account. In this case, the Id AO has duly examined the books of account and he has not found any specific defect in the books and consequently, he has not mentioned in the assessment order framed by him, any such defects/ discrepancies/ irregularities/ inconsistencies found in the maintenance of the books of account of the assessee-Co, and for this reason Only, he has not rejected the books of account of the assessee-Co, examined by him. Thus, in the absence of such rejection of books of account of the assessee, the AO is not empowered or precluded to make any addition on the count of any lump sum addition or any lump sum disallowance of expenditure on adhoc basis out of the expenses claimed by the assessee.

6 ITA No.54/RPR/2018 2.1. It is submitted that once the books of account of the assessee are produced before the AO and if there is certain discrepancy, the AO was free to make addition to that extent of discrepancies noticed by the AO but he is precluded in rejecting the books Of account of the assessee. In such circumstances, in this case, rejection of books of account of the assessee, is not permissible, as per law and accordingly, in the instant case, the alleged 'adhoc disallowance' cannot be made in the absence Of rejection of books of account of the assessee- Bharat Dana Bera (2015)(Mum-Trib). 2.2. The books of account Could not have been rejected 'casually'. The Tribunal in para5 has held that rejection of books of account was not itself correct. It was not done by giving proper opportunity to the assessee. The rejection is high handed. The Tribunal has termed the approach of AO as unfortunate. It is termed as arbitrary, high handed and cannot be Sustained. Without examining the basic parameters for rejection of the books of account, the revenue goes in appeal before the Tribunal, this is what is faulted by the Tribunal. Not only did the AO fail to record the requisite satisfaction in terms of sec.145(3), but proceeded to make addition and that was estimate, which was also not sound- Teletronics Dealing Systems (P) Ltd (2015) (Bom HC). Without rejecting the books of account, the expenses and the stocks and purchases cannot be disturbed or rejected- shakti industries (2013) (Guj). 2.3. No defect has been pointed out therein by AO, except that the assessee has not maintained these details project-wise. Facts and figures of the case mentioned and compared by the AO, have not been disclosed. In past also, the books have been maintained in the same fashion and have been accepted- Das's Friends Builders (P) Ltd (2013) (Ail HC). 2.4. The AO had not rejected the books of account maintained by the assessee, and in the absence of any contrary material brought on record by the revenue against the finding of the CIT(A) and also keeping in view that the AO had given no basis for making such adhoc addition, it was to be held that the AO was not justified in making such adhoc addition and, hence, the order of the CIT(A) in deleting the said addition was to be upheld- Staubli A G India (2010) (Mum-Trib). 2.5. In the case of Goodyear India Ltd (2000) 246 ITR 116 (Delhi), the fact was that for the AY87-88, the assessee filed its ROI. Several amounts were claimed on the following heads as expenditure: canteen exps at Rs.33,37,000; sports activity exps at Rs.66,15,000; sales and misc. exps at Rs. 15,78,000; office exps at Rs.35,41,000; incidental exps at Rs.22,68,000; total expenditure claimed at Rs. 173.39 lakhs; disallowed by the Tribunal (5.76%) Rs.10 lakhs. The CIT(A) went to the extent of asking the assessee as to whether it would be in a position to produce relevant details

7 ITA No.54/RPR/2018 and vouchers before the AO in case a 'remand' was made. There also it was categorically admitted that the vouchers and details cannot produced before the AO. Obviously the authorities were left with no option except to disallow portion of the claim. We find that considering the magnitude of turnover and extent of expenses claimed, the disallowance cannot be said to be unreasonable. The disallowance originally made by the AO was to the tune of Rs. 17 lakhs which was reduced in appeal to Rs.10 lakhs by the Tribunal. We do not think it desirable to enter into arena of factual adjudication which is foreign to the scope of an appeal u/s260A. The other que which was highlighted is that once there was a tax audit u/s44AB, the ITO should not insist upon for production of the records or vouchers or details. Such a broad proposition cannot be laid down. No doubt sanctity (holiness, purity) is to be attached to the audit report given by a qualified CA. Merely because an audit report is available there is no fetter on the power of the ITO to require the assessee to justify its claim with reference to records, materials and evidence. Such a power is inherent in an AO in the scheme. 2.6. In the case of Agility Logistics P Ltd (2012) 19 taxman.com 159 (Mum-Trib), the fact was that the assessee had incurred cash expenditure of Rs.5.43 crores out of total operational cost of Rs.297.76 crores- AO noted that most of cash expenses were petty expenses involving amounts less than Rs.500, many of which were not supported by invoices/ bills. Since exact amount of those expenditures in respect of which invoices were missing was not available and amount involved was considerably high, AO made addition of Rs.20 lakhs (3.68% of Rs.543 lakhs) on ad hoc basis in order to prevent leakage of revenue- Whether merely because total cash expenditure was only 1.62% of total operational cost it could not be a ground for accepting whole of expenses as genuine- Held, yes. Whether since AO had given a categorical finding that petty cash expense vouchers were either not supported with proper bills or were missing, addition made by it were to be upheld- Held, yes. Whether, however, disallowance of Rs.20 lakhs, being on higher side, in interest of justice, disallowance had to be restricted to Rs.10 lakhs (1.84% of Rs.543 lakhs) only-Held, yes. In the case of Niko Resources Ltd (2009) 123 TTJ (Ahd) 310, it was held that when the assessee had claimed deduction, the onus heavily lies on him to substantiate its claim by producing necessary evidence in respect of such expenditure. Where the vouchers relating to certain expenses were found to be kept in a very disorderly manner and it was found extremely difficult to hold that a particular expenditure, and the purpose for which such expenditure was incurred, was for business purposes, in such circumstances, the deduction in full could not be allowed and the authorities below were justified in making partial disallowance out of such expenses. 2.7. Atherton v. British Insulated & Helsby Cables Ltd (1925) 10 TC 155,191 (HL) (SC): The SC formulated the following principle: "It is enough to show that the money was expended 'not

8 ITA No.54/RPR/2018 of necessity' and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business." 2.8. Walchand & Co Pvt Ltd (1967) 65 ITR 381 (SC) and reiterated that in commercial expediency for determining whether an expenditure was wholly and exclusively for the purpose of business, the reasonableness of the expenditure has to be adjudged from die pods of view of the business and not of the revenue as held in JK Steel & Industries Ltd (1978) 112 ITR 215 (Cal). The above disallowance was made on adhoc basis without there being any material to justify such disallowance and no specific instance of expenditure had been pointed out which might disentitle the assessee's claim for expense. No disallowance on adhoc basis is permissible in the impugned scrutiny assessment because the accounts were audited by the statutory auditor who had not adversely commented in this regard. That the adhoc disallowance made by the Id AO is arbitrary, unjustified and unwarranted, which is not permissible as per law, and hence, the adhoc disallowance may kindly be deleted. Considering the above submissions and from perusal of the facts and circumstances of the case, the impugned additions, may kindly be deleted/ restricted and justice rendered. 8. On the other hand, ld. Sr DR relied on the orders of the authorities below and requested to sustain the orders of CIT(A). 9. We have heard rival submissions, perused the record carefully and considered the case laws referred by the Ld AR. On perusal of records and submissions of the assessee before the authorities below, it has been revealed that the total commission received by the assessee during the impugned assessment year was subject to service tax. Though, the fact regarding service tax liability could not be mentioned nor was duly explained by the counsel of the assessee during the assessment proceedings before the AO, but the same was appropriately submitted before the Ld CIT(A) and meticulously explained along with supporting

9 ITA No.54/RPR/2018 evidences like service tax payment challan etc. The explanation of the assessee was mentioned by the Ld CIT(A) in his order, but no consideration to this fact was afforded and thus in conclusion findings of the AO were reiterated and sustained. On this issue the facts of the case are explicitly clear and elucidated that the gross receipt of the assessee were subject to / liable to service tax, undoubtedly, the same was paid by the assessee as verifiable from the copies of challan of the service tax produced before Ld CIT(A) and are now submitted before us as part of the paper book at page 25-28. In support to this contention, Ld AR also submitted, copies of P&L Account, Summary of Commission received, reconciliation of Commission receipts in books of the assessee vis-a-vis 26AS and Ledger account of the service tax. On a careful perusal of these documents and the factual matrix of the case, which is utterly supporting the arguments of the assessee, we hold that the findings of the Ld CIT(A) are grossly erroneous. This is pertinent to mention, based on set principle of law that powers of CIT(A) are co-terminus with that of AO and this is amply clear from section 251(1)(a) and (b) and Explanation to section 251(2), which requires CIT(A) to apply his mind to all the issues which arise from impugned order before him, Accordingly, CIT(A) was not empowered to dismiss the appeal without examining and giving proper importance to all the substantial facts of the case. Thus, CIT(A) has erred in passing a order on this issue without considering the facts / documents duly submitted by the assessee before him. We therefore are of the considered view that decision of the ld CIT(A) on ground 1 deserves to be

10 ITA No.54/RPR/2018 quashed. Thus, ground no 1 of the appeal is allowed in favour of the assessee, in terms of our aforesaid observations. 10. Regarding ground no. 2, with reference to the submission of the assessee reproduced herein above, on perusal of the orders of the revenue authorities it is observed that the disallowance of Rs. 30,000/- on account of household expenses was made on the basis that the withdrawal from the account of assessee and his wife’s account were considered in adequate. . It is also observed by the authorities that the assessee is a taxpayers, having school going children, so the amount withdrawn cannot be considered as sufficient. Against this observation of the revenue authorities, the appellant has submitted that such addition is not permissible in the law when the same was made without indicating any specific instance of expenditure, it was on adhoc basis without any material to justify such disallowance specially when the books of the assessee were duly audited and no adverse comment on this account were made by the Auditor. Thus, any disallowance on adhoc basis is unwarranted, unjustified and needs to be deleted. 11. We have carefully observed the submissions of the assessee and orders of revenue authorities, the addition was made on adhoc basis after forming an opinion that the assessee and his wife had not withdrawn adequate amount during the year to meet there household expenses. Based on various judicial pronouncements as referred herein before, we find force in the contentions of the assessee and therefore are of the view that any addition made under the Income Tax Proceedings should be well

11 ITA No.54/RPR/2018 explained and based on substantial material evidences, Lump sum or adhoc addition without any basis are unjustifiable. Thus, the addition sustained by the order of the Ld CIT(A) on this issue deserves to be deleted. Therefore, Ground No 2 of the appeal stands allowed in favour of the assessee. 12. Ground No 3, since is general, no separate adjudication is required, thus dismissed. 13. In the result appeal of the assessee allowed. Order pronounced in pursuance to Rule 34(4) of ITAT Rules, 1963 on 17/10/ 2022. Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रायऩुर/Raipur; ददनाांक Dated 17/10/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- 1. प्रत्यथी / The Respondent- 2. 3. आयकर आयुक्त(अऩीऱ) / The CIT(A), आयकर आयुक्त / CIT 4. विभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रायऩुर/ DR, ITAT, 5. Raipur गार्ड पाईऱ / Guard file. 6. आदेशानुसार/ BY ORDER, सत्यावऩत प्रयत //True Copy// (Assistant Registrar) आयकर अऩीऱीय अधधकरण, रायऩुर/ITAT, Raipur