Mukesh Gupta Vs DCIT (Karnataka High Court)
The assessee filed two appeals before the Karnataka High Court raising two questions of law: (i) whetherher the Income Tax Appellate Tribunal (ITAT) was justified in holding that there was no business income for Assessment Year (AY) 2012-13 despite the assessee having returned professional income and offered creditors to tax, and (ii) whether the ITAT was justified in upholding an ad hoc disallowance of 10% of expenditure.
Read SC Judgment in this case: SC Grants Leave in Tax Appeal Over Business Income and Ad Hoc Disallowance
The assessee contended that the ITAT had arbitrarily held that there was no business income without recording cogent reasons. Regarding the expenditure disallowance, it was argued that the Assessing Officer (AO) had arbitrarily disallowed 10% of the expenditure even though the books of account had not been rejected. Reliance was placed on the decision in R.G. Buildwell Engineers Ltd.
The Revenue argued that the assessee had not declared any business income and had only declared professional income. It further submitted that the AO had disallowed 10% of the expenditure because the assessee’s authorized representative was unable to establish all bills and vouchers.
The High Court examined the record and noted that the ITAT had observed that there was no business income during the relevant year and, therefore, expenditure could not be allowed. However, the Court referred to the assessment order for AY 2012-13 and found that the statement of income disclosed income chargeable under the head “Business and profession” amounting to Rs.14,16,985.
