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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI RATHOD KAMLESH JAYANTBHAI
आदेश / ORDER PER RATHOD KAMLESH JAYANTBHAI, AM: This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeal), Bilaspur (CG) [ Here in after referred as Ld. CIT(A)] for the assessment year 2010-11 dated 18.03.2016 which in turn arises from the order passed by the assessing officer passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 20.03.2013.
Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. That ld. CIT(A) erred in law as well as on facts while confirming addition of Rs. 1,72,973/- u/s 40(a)(ia) on account of interest paid to NBFC’s. 2. That Ld. CIT(A) erred in law as well as on facts while confirming addition of Rs. 75,000/- on account of adhoc addition. 3. That the Assessee craves leave to add, alter, and amend modify, substitute, delete, and/pr rescind all or any of the grounds of appeal on or before the final hearing.
The fact as culled out from the records is that the assessee is a partnership firm duly assessed to tax. The return of income has been filed on the total income of Rs. 14,71,500/- electronically on 25.09.2010. The return of income was processed u/s. 143(1) of the Income Tax Act, 1961 [ here in after referred to as Act ] by CPC Bangalore. Against tax
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liability of Rs. 4,54,694/-, tds amounting to Rs. 8,56,975/- has been made vide return of income and accordingly refund of Rs. 4,02,280/- has been claimed. Subsequently, the case was selected under scrutiny through CASS for “ Examine various Aspect of Contractors business.” The AR produced books of accounts, bills, vouchers, bank statements for verification of book results shown in the financial statements. Vide Order sheet entry dated 29.01.2013 the assessee was asked to explain as to why the interest payment of Rs. 1,72,973/- made to SREI Equipments Private Limited and Magma Finance be not disallowed under section 40(i)(ia) as not TDS has been made. In the assessment order the assessing officer is of the view that disallowance u/s. 40(i)(ia) and provision of section 201(1) of the Act are different provision and thus rejected the contention of the assessee that the claim of the assessee for non-disallowance of interest was rejected and accordingly interest amounting to Rs. 1,72,973/- disallowed.
3.1 The assessing officer has also added a sum of Rs. 75,000/- wherein he has observed as under:
“5. On scrutiny of different heads of expenses, it has been found that expenses under the heads Office Expenses, Staff Welfare & Vehicle Expenses have been
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mostly incurred in cash and supported by internal vouchers. Labour payments have also been made in cash and also not fully open to verification. As payment of labour is obvious and mandatory component of contract business therefore a sum of Rs. 50,000/- is disallowed from this head. The expenses under the other heads are tabulated as under:- Head - Amount 1. Office Expenses - Rs. 1,06,930/- 2. Staff Welfare - Rs. 2,97,600/- 3. Vehicle Expenses - Rs. 1,10,095/- Total - Rs. 5,14,625/-
Following the same corollary and with a view to tapping the possible revenue leakage as no cross verification is possible on account of cash payment, a lumpsum disallowance of Rs. 25,000/- which is almost 5% of the above sum is made. Thus total disallowance comes to Rs. 75,000/-. It is added back to the total income.”
Aggrieved from the order of the ld. AO the assessee filed an appeal before the ld. CIT(A) but remained ineffective. The tersely the finding of the ld. CIT(A) on both the issue is that the ld. AR submitted that the assessee was under bonafide belief not to make TDS as an excuse. For this the non-obstante clause mandates that the ignorance of the law cannot be termed as an excuse therefore he confirmed the disallowance of interest and also the lump sum disallowance. He further observed that the non obstante clause has taken care of such assesses who have bonafide belief by inserting the first proviso for unending period for payment of tax subject to the deduction at source by the deductor from the amount which is due to the deductee. Hence, the plea was rejected. In view of intendment of the legislature to plug the leakage of revenue
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and making the TDS provisions enforceable by the deductors and clear language of the provision supported with various rulings and the view of Hon’ble CBDT and in the view of sub-section(i) of Section 190 of I.T. Act, I hold that AO has rightly disallowed the finance charges for failure of deduction of tax at source u/s 194A of I.T. Act and added to the income of the assessee. The ground of appeal raised by the assessee was dismissed. As regards the lump sum addition ld. CIT(A)’s finding is as under : 4.2 Decision – I have considered the rival submission. There is no doubt that AO has resorted for adhoc disallowances and I had also gone through the case laws cited by the Ld. AR in case of Monark Foods Pvt. Limited Vs. ACIT 54 TTJ 405; Raj Enterprises Vs. ITO 51 TTJ 408 and Shashi Singhania, Raipur Vs. ITO-1(1), Raipur by Hon’ble Nagpur Bench of ITAT dated 19/01/2006. So far as Rs. 25,000/- is concerned. AO appears to be reasonable, hence Rs. 25,000/- is confirmed. The assessee has debited labour payment to the extent of Rs. 42,83,160/- and he had found that these are supported by handmade vouchers and paid by cash, thus no open for verification. Looking to the quantum disallowed viz-a-viz claimed by the assessee in contract A/c., I am of considered opinion after perusal of all case laws find the AO very reasonable in disallowance. Thus, Rs. 50,000/- disallowed by the AO for the reasons cited by the AO in his assessment order are hereby confirmed. Hence, this ground of appeal is dismissed.
During the course of hearing before us as regards the Ground no 1 the ld. AR of the assessee submitted that the assessee firm has given postdated cheque to the financer, hence deduction of TDS is not practically possible. Further the assessee has submitted that on amendment made by the Finance Act, 2012 in section 40(a)(ia) provides
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for allowance of expenditure where person responsible for deduction of tax is not treated as assessee in default subject of fulfillment of the few conditions. He further submitted that when proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies and obvious omission therein is required to be read retrospectively in operation particularly to give effect to the section as whole in strict construction leads to a result not intended to be sub served by the object of the legislation, and if another construction is possible apart from the literal in construction, the that construction should be preferred.
5.1 The ld. AR of the assessee also drawn our attention to an application filed under rule 29 which reads as under:-
“Application to permit production of additional evidence under rule 29 of ITAT Rules 1963. Hon’bles Sirs, The following submission/Documents may very kindly be taken on record to permit additional evidence for a judicious consideration and favourable decision:- 1. Your honour, the assessee is a contractor and maintaining regular books of account which is duly audited by qualified Chartered Accountant. The ld. DCIT, Circle-Korba has passed an Assessment Order u/s 143(3) of the Act, on 20.03.2013 making a disallowance of Rs. 1,72,973/- u/s 40(a)(ia) of
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I.T.Act, 1961 on account of non deduction of TDS from Non Banking Finance Company. 2. Your honour, the ld. CIT(A) Bilaspur had confirmed the above addition u/s 40(a)(ia) of Rs. 1,72,973/-. During the course of appellate proceeding before ld. CIT(A) the assessee argued that the recipient of finance charges has credited the finance charges in his Return of Income and filed Return of Income u/s 139 after proper discharging the tax liability. 3. Your honour, the assessee has preferred second appeal before your Hon’ble Bench against the appellate order passed by ld. CIT(A) Bilaspur. 4. Your honour, the assessee requests to accord kind permission for production of an additional evidence as it go to the very root of the matter and involved a substantial cause in determining the correct income and the correct tax liability of the assessee for the year under appeal. 5. Your honour, the assessee may kindly be accorded permission to adduce certificate from accountant in respect of finance charges credited by recipient Non Banking Finance Company in its books of account in Form No. 26A, which is enclosed herewith for your kind consideration. 6. Your honour, since the assessee was prevented by sufficient cause from producing this evidence before the ld. AO and before the first appellate authority because the NBFC’s has not issued certificate within time because the assessee has defaulted in payment of EMI during financial year 2015-16 due to financial problem. In the light of given facts and circumstances of case, your honour is requested kindly admit the above-mentioned additional evidence in the interest of principal of natural justice and oblige.”
Since, the assessee has moved an application under rule 29B of the ITAT Rules, 1963 praying to permit additional evidence as the assessee has to acquire it from the payee on which the tax has not been deducted by the assessee. The assessee also has to acquire the required certificate from the Chartered Accountant in the prescribed form, from the payee. The assessee further submitted that as they were defaulted in making payment of EMI, due to financial crunch, they were
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unable to obtain required certificate from the payee’s chartered accountant which is to be certified from the books of the payee NBFC in the prescribed form. This being the reason, they were prevented with sufficient cause in not submitting the certificate earlier and the Tribunal being final fact-finding authority requested to allow the additional evidence in the interest of justice which were not presented before the lower authorities to justify and claim the alternative plea of remedy available on account of default in making the TDS on payment of interest made by them to NBFC.
Based on these set of facts and plausible cause adduced by the assessee prayed in the petition to allow these additional evidence to be placed on record.
Per contra, the ld. DR has not objected to the fact but objected to the petition admitting the additional evidence on the reason that this is the responsibility of the assessee to obtain the evidence in the time provided by the lower authority. He also stated that these being the issue of verification of the exact disallowance made of Rs. 1,72,973/- and the certificate produced by the assessee by way of additional evidence is for
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an amount of Rs. 1,92,472/-. Therefore, these facts are required to be verified by the Assessing Officer.
We have heard both the parties, perused materials available on record. We aptly agree with the contentions raised by the assessee in petition filed under rule 29 of ITAT Rules, 1963 and the additional evidence is admitted for adjudication on merits. But at the same time swayed from the argument of the ld. DR that the matter is required to be restored back to the file of the Assessing Officer to decide about the admissibility of the amount of interest amount based on the CA certificate produced by the assessee firm. As the amount disallowed in the assessment order and amount reflected in the certificate of accountant under first provision to sub-section (1) of Section 201 of the Income Tax Act, 1961 for certifying the furnishing of return of income, are differing. Even based on this difference of the amount disallowed and the amount for which the assessee submitted a CA certificate in support for allowability of the interest needs verification at the end of the assessing officer. Thus, ld. Assessing Officer is directed to pass a speaking order in accordance with law after giving proper opportunity to the assessee as per the evidence placed on record within a reasonable time and allow
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the interest to that extent of evidence placed on record and the amount of interest claimed. Therefore, the ground no. 1 raised by the assessee is allowed.
As regard the Ground no. 2 raised by the assessee, the ld AR of the assessee submitted as under : “2. Your honour, in this ground it is raised that the Ld. CIT(A) has erred in confirming an addition of Rs. 75,000/- on account of Office Expenses, Staff Welfare and Vehicle Expenses on presumptive basis.
2.1 Your honour, the assessee has maintained proper books of account on the basis mercantile system of book keeping which is duly approved as per provision of I.T Act 1961. The books of account of the assessee are duly audited by qualified chartered accountant. 2.2 The above impugned adhoc disallowance made estimations and on presumptions are unsustainable on facts and in law because the declared results accepted by the AO were on the basis of audited books of account and no suppression in sales or inflation in purchases were detected much less was any serious discrepancy pointed out in the method of accounting consistently being employed by the assessee. There was no finding of fact to the effect that the method employed was such that correct profits could not be deduced there from. No evidence whatsoever was brought on record to prove that the assessee, during the relevant previous years, had earned more than that returned as per audited books of account. Unless these are conclusively proved against the assessee, any estimated enhancement to the income declared on the basis of audited books, was unsustainable on facts and in law. Since the declared NP was accepted as reasonable, it was not permissible for the AO to go back to the expenses claimed under P/L A/c. to make estimated disallowances. The quantum of exp. claimed under various heads mentioned above was reasonable and in consonance with reference to the turnover. The AO had not specified the quantum of expenses which according to him was either unverifiable or disallowable. The entire exp. claimed under various heads was wholly, exclusively and necessarily incurred for business purposes and no evidence was brought on record to prove the contrary. In order to keep a complete track and control over the incomings and outgoings, it was all the more necessary
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for the assessee - in the given facts and circumstances - to make payments and get them acknowledged on the internal vouchers prepared. There is no factual or legal prohibition for such practice adopted by the assessee particularly when it was for the assessee - considering the business interest to organize the business affairs in the manner to the best of its business interest. As already stated, the accounts are statutorily audited and the declared version on the basis of such audited accounts was virtually accepted since there was no estimation of GP or NP. In the given facts and circumstances, there was no justification for making adhoc estimated disallowances out of exp. claimed, as held in Monarch Foods Pvt. Ltd. v. ACIT (1996) 54 TTJ (AHD.) 405 and Raj Enterprises v. ITO (1995) 51 TTJ (Jaipur) 408.
2.3 Your honour, when books were not rejected and when the income was not estimated and when the income returned was accepted as correct, without disturbing the same, it is not understood as to how in a scrutiny assessment such Adhoc disallowances were permissible particularly when no evidence whatsoever was brought on record against the assessee to justify such Adhoc disallowances. Since the income returned on the basis Audit Books was accepted as correct, it is implied that the correctness and genuineness of the expenses claimed in the accounts, which were subjected to Audit, stood undisputedly accepted. The Auditors who conducted Statutory Audit had not adversely commented regarding the incomings/outgoings. Such Adhoc disallowances are also unsustainable in view of the decision of the Jurisdictional Bench of the Hon'ble ITAT, Nagpur Bench (Camp at Raipur) in its order in ITA No. 240/NAG/05 dt. 19.01.06 in Sashi Singhania, Raipur vs. ITO 1(1), Raipur wherein while dealing with the adhoc disallowance out of material purchased and out of earth transporting charges, held that since the expenses under these heads were incurred for purposes of business, respectfully following the decision of the SC in Dhakeshwari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC) it was held that such Adhoc disallowances made on the basis of guess work were not sustainable. Hence the A.O. was directed to delete such adhoc disallowances.
2.4 Your honour the jurisdictional hon'ble ITAT Bench of Raipur, in Assistant CIT Vs. Ind Synergy Ltd. (2016) 20 ITJ 108 it was held that the impugned adhoc disallowances on ground that even on verification of bills and vouchers, no specific instance was mentioned by the AO in support of the said disallowances the disallowances are deleted.
2.5 Your honour the jurisdictional hon'ble ITAT Bench of Raipur, in Assistant CIT Vs. Shri Sai Vihar (2016) 28 ITJ 158 it was held that the it is settled law that the Adhoc disallowance without specifying any specific defects the addition cannot be made on
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the basis of surmises and conjectures. The Hon'ble ITAT has upheld the order of CIT (A) and justified the deletion made by CIT (A). 2.6 Your honour, the jurisdictional Hon’ble ITAT Bench of Raipur, in Assistant Commissioner of Income Tax Raipur vs. M/s Mangilal Pagaria Raipur vide ITA No. 54/BLPR/2011 dated 16.12.2014 it was held that the assessee firm had furnished Books of Account and Audited Statement of Accounts and the AO was not able to pinpoint the defects in the books of account. We are of the opinion that the tax liability cannot be fastened to the assessee by the AO without bringing some positive evidence against the assessee on record. In the case under consideration, the AO has made a lump sum disallowance, but the same is not backed by any evidence, hence the First Appellate Authority has correctly deleted the adhoc disallowances.
2.7 Your honour, the Hon’ble Jurisdictional Income Tax Appellate Tribunal Raipur Bench in M/s D.C. Construction vs. Dy. CIT, Bilaspur vide ITA No. 176/RPR/2016 dated 17.05.2019 it was held that that in the case under consideration, the AO has made a lump sum disallowance without pointing out any concrete evidence against the assessee. Hence the lump sum disallowances made by the AO are deleted. We allow the Ground no. 2 raised in appeal by the assessee.
2.8 Your honour, the Hon’ble Jurisdictional Income Tax Appellate Tribunal Raipur Bench in DCIT 2(1) Raipur vs. Shri Santosh Jain vide ITA No. 177/RPR/2014 dated 11.05.2017 it was held that the book result of the assessee was accepted and no specific defects were pointed out therefore, no adhoc disallowances are warranted.”
In the light of given facts and circumstances of case and considering the judicial pronouncements, the impugned Adhoc disallowance of Rs. 75,000/- are being without any merit, may very kindly be deleted and justice rendered.
The ld. AR of the assessee relying on the written submission stated that once books of account audited and produce before the assessing officer and he has not pointed out any single defect in the books produced the lumpsum disallowance is not sustainable and he has relied on the various decision.
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Out of the decision relied upon by the ld. AR of the assessee he has heavily relied upon the decision of the co ordinate bench of this bench in the case of M/s D.C. Construction vs. Dy. CIT, Bilaspur vide ITA No. 176/RPR/2016 dated 17.05.2019 where in the co-ordinate bench held that the AO has made a lump sum disallowance without pointing out any concrete evidence against the assessee and lump sum disallowances made by the AO was deleted.
Per contra on this issue the ld. DR has relied upon the finding of the lower authorities and reiterated that the based on the findings of the AO the addition should sustained and has not filed any contrary decision against the submission made by the ld. AR of the assessee.
Based on the argument of both the side and submission and case law relied upon by the ld. AR of the assessee we respectfully following the Co-ordinate Bench decision relied upon the ld. AR of the assessee and the fact being identical we considered the plea of the assessee. Therefore, the ratio laid down by the Co-ordinate Bench and the following judicial precedent the addition of Rs. 75,000/- made by the Assessing Officer is hereby deleted as the Assessing Officer and ld.
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CIT(A) could not find any defect or various claims made by the assessee, ad-hoc disallowance without pointing out any specific defect not sustainable. Therefore, the addition made by the lower authorities deleted and this Ground No. 2 raised by the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in open court on 8th June, 2022.
Sd/- Sd/- RAVISH SOOD RATHOD KAMLESH JAYANTBHAI JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 8th June, 2022 Ganesh Kumar आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER,
�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
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Date 1 Draft dictated on Sr.PS/PS 2 Draft placed before author Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order