BHAAVICK SOCIETY ,HARYANA PANCHKULA vs. CIT(A)NFAC , FARIDABAD

Common dispute in all these appeals relates to ad hoc disallowance of expenses in all the assessment years under dispute.

Briefly, the facts in all these appeals are, the assessee is a society and stated to be running an educational institution. For the assessment years under dispute, the assessee filed its returns of income in regular course declaring nil income after claiming exemption under Section 10(23)(iiiad) of the Income-Tax Act,1961. While verifying the returns of income filed by the assessee with reference to Form 26AS, the Assessing Officer observed that the assessee had consultancy receipts from Sikkim Manipal University of Health Medical and Tea on which tax has been deducted at source under Section 194J of the Act. Thus, from the nature of receipts, the Assessing Officer concluded that they are legal/professional receipts, hence, not covered under Section 10(23)(iiiad) of the Act. Thus, he formed an opinion that surplus income of various amounts claimed to be exempt under Section 10(23)(iiiad) of the Act in various assessment years are not allowable, hence, income to that extent has escaped assessment. Accordingly, he reopened the assessments under Section 147 of the Act. In response to notices issued under Section 148 of the Act, the assessee filed returns of income withdrawing its claim of explanation under Section 10(23)(iiiad) and offered the surplus income to tax.

In course of assessment proceedings, the Assessing Officer called upon the assessee to produce its books of accounts and other details in support of the expenses claimed. After verifying the books of account and other details, the Assessing Officer observed that complete set of supporting documents, bills and vouchers in support of expenses could not be produced by the assessee. Accordingly, on estimate basis, he disallowed part of the expenses claimed in all assessment years under dispute as under:

Before me, learned counsel appearing for the assessee submitted that part of the expenses have been disallowed by the Assessing Officer on purely ad hoc basis without any valid reasoning. She submitted, considering the fact that the income of the assessee in all assessment years under dispute is within the range of Rs.20,00,000 to Rs.25,00,000, there is no reason for the assessee to inflate its expenses. Thus, she submitted, the ad hoc disallowances made may be deleted.

Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).

I have considered rival submissions and perused the material available on record.

Undoubtedly, issue in dispute in all these appeals before me is ad hoc disallowance of expenses made by the Assessing Officer.

On perusal of the assessment orders, it is observed, in course of assessment proceedings, the assessee furnished its books of accounts, ledger and copies of bills/invoices. However, since, original bills and vouchers were not produced, the Assessing Officer disallowed part of expenses on purely ad hoc basis. It is observed, while doing so, the Assessing Officer has observed that in absence of supporting bills and vouchers, certain expenses have to be restricted to a limit but he has not discussed the nature and quantum of such expenses. In sum and substance, the decision of the Assessing Officer in disallowing a part of the expenses is bereft of valid reasoning. In any case, if the assessee had not maintained proper bills and vouchers in respect of certain expenses, the disallowance could have been restricted to those expenses and not across the board. Since, the Assessing Officer has not given any valid reasoning while disallowing a part of expenses on purely ad hoc basis, I am inclined to delete the disallowances made by the Assessing Officer in each of the assessment years under dispute in the present appeals. Thus, the Assessing Officer is directed to delete the disputed additions.

Accordingly, ground no.7 in all these appeals is allowed.

In the result, the appeals are allowed to the extent indicated above Order pronounced in the open court on 31stMarch, 2023.