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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER
PER RAVISH SOOD, JM :
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 21.08.2017, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (for short ‘the Act’) dated 26.12.2016 for assessment year 2014-15. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. That the order of the Ld. CIT(A) is bad in law as well as on facts.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining the following additions/disallowances made by the Ld. AO: Rs.3,00,000/- out of claim sampling expenses of Rs.25,15,902/- Rs.1,50,000/- out of claim of travelling expenses of Rs.15,30,110/- Rs.50,000/- out of vehicle running expenses of Rs.4,56,974/- Rs.75,000/- out of general expenses of Rs.5,19,795/- Rs.40,000/- out of repair and maintenance of Rs.3,83,256/- Rs.85,000/- out of claim of communication expenses of Rs.8,59,831/- Rs.60,000/- out of claim of depreciation of vehicles covered by Rs.3,55,605/- not adjudicated. Rs.70,000/- out of sales promotion exp. And printing and stationery Exp.
3. That any other relief/deduction which the Hon’ble Tribunal may deem fit be granted to your appellant.
4. That the appellant craves leave to urge, add, amend, alter, enlarge, modify, substitute, delete any of the ground or grounds and to adduce fresh evidence at the time of the hearing of the appeal.
5. That suitable cost be allowed to your appellant.”
3 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2)
Succinctly stated, the assessee company which is engaged in the business of financing, tea broking and real estate business had e-filed its return of income for the assessment year 2014-15 on 25.09.2014, disclosing an income of Rs.1,95,080/-. Return of income filed by the assessee company was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment through CASS for the following reasons: “Low income compared to large commission receipt, “Higher turnover reported in service tax return compared to ITR, “Large value sale of consideration of property in ITR is less than sales, consideration of property reported in TDS returns u/s.194IA, “Mismatch in sales turnover reported in Audit report and ITR and “Mismatch in amount paid to related persons u/s.40A(2)(b) reported in Audit report and ITR.”
Assessment was thereafter framed by the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 26.12.2016, wherein after making certain ad-hoc disallowances of expenses aggregating to Rs.8,30,000/- the income of the assessee was determined at Rs.10,25,080/-.
Aggrieved, the assessee assailed the assessment order before the CIT(Appeals) but without any success.
4 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2)
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
At the very outset of hearing of the appeal, the Ld. Authorized Representative (for short ‘AR’) for the assessee, submitted, that the Assessing Officer had grossly erred in law and on facts of the case in disallowing expenses on an ad-hoc basis. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that the Assessing Officer while disallowing certain expenses on an ad-hoc basis had failed to point out any basis which could justify the respective disallowance so made by him. Our attention was drawn by the Ld. AR to the observations of the Assessing Officer recorded in the assessment order. It was stated by the Ld. AR that though it was alleged by the Assessing Officer that certain expenses booked by the assessee under the various heads of expenses were either not fully verifiable, or, were not supported by proper bills and vouchers, but he had not referred to any such unverifiable claim of expenditure in the body of the assessment order. Backed by his aforesaid contention, it was 5 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2)
submitted by the Ld. AR that disallowance of expenses on an ad-hoc basis had been carried out by the Assessing Officer on an absolutely whimsical and arbitrary basis which have no legs to stand upon. In the backdrop of his aforesaid averments, it was submitted by the Ld. AR that the ad-hoc disallowance of expenses so made by the Assessing Officer being devoid and bereft of any basis could not be sustained and was liable to be vacated.
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the assessee had failed to substantiate his claim of expenses, therefore, the Assessing Officer had in all fairness adopted a reasonable approach and disallowed a miniscule part of the assessee’s claim for deduction of certain expenses.
We have heard the Ld. Authorized Representatives of both the parties, perused the material available on record and the orders of the lower authorities. As is discernible from the assessment order, we find, that as stated by the Ld. AR, and rightly so, the disallowance of certain
6 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2) expenses on an ad-hoc basis by the Assessing Officer is merely backed by general observations and not on the basis of any material which would support the same. Admittedly, an assessee remains under a statutory obligation to substantiate that his claim for deduction of expenses falls within the four corners of Sec. 37(1) of the Act. As such, any expenditure which does satisfy the mandate of Sec. 37(1) of the Act can justifiably be disallowed by the A.O. But then, an A.O cannot carry out disallowance of expenses on an arbitrary basis, and is obligated to support the same on the basis irrefutable observations a/w corroborative material which would substantiate to the hilt that the assessee’s claim for deduction of the expenditure does not fall within the parameters contemplated u/s.37(1) of the Act, viz. (i). the expenditure in question had not been incurred wholly and exclusively for the purpose of business; or (ii). the expenditure is in the nature of a capital expenditure or personal expenditure of the assessee; or (iii). the expenditure incurred by the assessee is for any purpose which is an offence or prohibited by law. Now, in the case before us, the Assessing Officer had carried out disallowance of the aforementioned
7 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2) expenses in question on an ad-hoc basis. On a perusal of the assessment order, we find that there is no whisper as regards any such material and/or basis which would justify the disallowance of the expenses so carried out by the A.O. As observed by us hereinabove, the ad-hoc disallowance of expenses by the A.O is not backed by any supporting material but is merely guided by general observations on his part. We are unable to comprehend as to on what basis part of the expenses had been disallowed by the A.O, while for the remaining part has been allowed. Apart from that, we find there is no whisper in the body of the assessment order about any such specific expenses which as per the Assessing Officer could not be verified, or, were not supported by bills or vouchers. In our considered view, such disallowance of expenses on an ad-hoc basis, i.e, de hors any supporting material can by no means be permitted. In the backdrop of the aforesaid facts, we find substantial force in the claim of the ld. A.R that devoid of any specific infirmity qua the assessee’s claim for deduction of the aforesaid expenditure by the lower authorities, the disallowance of a part of the same in a most arbitrary and a whimsical
8 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2) manner, i.e, on an ad- hoc basis could by no means be held to be justified. Our aforesaid view is fortified by the order of the ITAT, Kolkata in the case of Animesh Sadhu Vs. ACIT, Circle-1, Hoogly, dated 12.11.2014 and that of the ITAT, Delhi in the case of ACIT, New Delhi Vs. M/s Modi Rubber Ltd. ITA No. 1952/Del/2014, dated 15.05.2018. Accordingly, in the totality of the facts involved in the case before us, we are unable to concur with the disallowance of the expenses in question on an ad hoc basis by the A.O. We, thus, not finding favor with the view taken by the lower authorities set-aside the order of the CIT(A), and vacate the disallowance of Rs.8,30,000/- made by the A.O. The Ground of appeal No. 2 raised by the assessee is allowed in terms of our aforesaid observations.
8. Ground No.1, Ground No.(s) 3 to 5 being general in nature are dismissed as not pressed.
9 M/s. Sunita Finlease Limited Vs. ITO, Ward-2(2)
In the result, appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in open court on 30th day of March, 2022.
Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 30th March, 2022 SB आदेश की �ितिलिप अ�ेिषत / Copy of the Order forwarded to :
1. 1. अपीलाथ� / The Appellant. 2. ��थ� / The Respondent.