I.T.O. Vs Bhagchand Jain (ITAT Jaipur)
Disallowance of depreciation on vehicles is also not warranted with the facts and merits of the case as depreciation being a statutory allowance and hence cannot be restricted on the basis of personal use as has been held by Coordinate Bench of this Tribunal in ITA no. 373/JP/2002 in case of Triveni Pharma (2006) 35 T.W. 64 (Jp) and also in Kailash Chand Gupta v/s DCIT 35 Tax World 36 (Jp). Considering the totality of the facts and circumstances as well as case laws relied upon by the ld. AR, we found merit in the contentions raised by the assessee, therefore, we direct to delete the additions confirmed by the ld. CIT(A) with regard to various expenses.
Expense cannot be disallowed on ad hoc basis, simply on mere suspicion, surmises and conjectures
We found that, as per the the assessee has maintained complete Books of account and other subsidiary record and all the expenses are fully supported by vouchers. A bare reading of the order of lower authority shall reveal that in almost all the cases the disallowances have been made on ad hoc basis, simply on mere suspicion, surmises and conjectures. No specific instance of any nature whatsoever has been given by the AO in the impugned order to support his contention with the documentary evidence that the expenditures were incurred for non-business purposes, element of personal user was there. An allegation remains a mere allegation unless proved. Suspicion can-not take the place of reality, are the settled principles as has been held by the Hon’ble Supreme Court in the case of Dhakeshwari cotton Mills 26 ITR 775 (SC). All the expenses were fully supported by vouchers which were even produced before the AO during the remand proceeding and the same were admitted by him [refer Pg-10 of ld. CIT(A)]. The Freight, Telephone expenses, Petrol & Diesel Expenses and Vehicle Expenses were dully supported by Bills and vouchers etc. In these expenses there was no possibility of personal user. It is a settled law that a businessman is the best judge to take care of its own interest & to take decisions and the AO is not supposed to intervene therein nor he can replace the assessee. Here, whatever decisions were taken by the assessee, has to be understood as taken out of commercial expediency. In this regard, we rely on the decisions in the case of T.T. (P) Ltd. v/s CIT (1980) 121 ITR 551 (Kar), CIT v/s Udhoji Shrikrishnadas (1983) 139 ITR 827 (MP) and JK Woolen Manufacturers 72 ITR 612 (SC).
It was submitted by the ld. AR that looking to a huge turnover of more than Rs.9.40crores (approx.), claim of expenditure is otherwise very meager. Thus such a meager claim to achieve such a huge turnover is not at all unjustified. All these expenses were incurred exclusively for businesses purpose and are under the provisions of the Act. We found merit in the contentions raised by the assessee, therefore, we direct to delete the additions confirmed by the ld. CIT(A) with regard to various expenses.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The appeal filed by the revenue and the cross objection filed by the assessee arise against the order of the ld. CIT(A), Ajmer dated 20/09/2018 for the A.Y. 2014-15. The grounds taken in the revenue’s appeal and assessee’s C.O. are as under:
“Grounds of Revenue’s appeal:
1. The Ld.CIT(A) grossly erred in law, by invoking the provisions of section 145(3) of the I.T. Act, 1961 on his own during appeal proceedings while the section unambiguously mandates that only the AO can invoke the provisions of section 145(3). Thus, the Ld.CIT(A) acted beyond jurisdiction and perversely allowed relief of Rs. 2,23,42,465/- (2,43,03,809 – 19,61,344);
1.1 Ld.CIT(A) erred in deleting the addition of Rs. 2,23,42,465/- made on account of suppressed sale and unexplained investment in purchase including expenses, without appreciating that the assessee failed to reconcile the figures of opening stock, purchase and sales, freight as shown in VAT returns with return of income & audit report, specially when the Ld.CIT(A) himself accepted that there is no explanation with regard to the difference in figures of sales and freight as appearing in the VAT returns and in the audited books of accounts;
1.2 Ld.CIT(A) erred in deleting the addition of Rs. 2,23,42,465/- by considering that the AO cannot pick and choose some figures (sales) from the VAT return and some figures (opening stock, purchase and freight) from the audited books of accounts, to assess the income of the assessee whereas the AO took the value of sales, purchases and freight expenses from audit report & ITR and compared the same with the figures of VAT returns, for making the additions;
2. The Ld. CIT(A) erred in restricting the disallowance out of various expenses from Rs. 2,31,962/- to Rs. 1,15,981/-, without appreciating that the assessee failed to produce bill/vouchers for verification before the AO;
3. The appellant craves to add, amend, alter, delete or modify the above ground of appeal before or at the time of hearing.
“Grounds of assessee’s C.O.:
1. That the learned Commissioner of Income-Tax (Appeals) Ajmer erred in maintaining the addition of Rs. 1961344/- by Considering the G.P. rate 4% on the estimated turnover of Rs. 10 Cross without appreciating the full facts & circumstances of the Case. The Vat returns can never be based for considering the actual sales as per audited books of accounts maintained regularly as per eternal purchase & sales Vouchers.
2. That as admitted the AO Cannot pick & Choose same figures (Sales) from the Vat return & same figures (Op-Stock purchases & freight) from the audited books of accounts to asses the actual income & specially when profit ascertained as per audited results & Vat returns both are same.
3. That as per true facts on records, the AO failed to prove any purchases recorded in books tallied with audited accounts found either bogus or inflated & there is no such finding in assessment order against the assessee in this regard.
4. That as admitted the AO has not found any adverse Comments either from tax Auditors or in his investigation for such difference in sales as per VAT returns & as per books. The books figures always accepted till not found wrong &/or false from tills. As per books all turnover as per sale bills found duly recorded & nothing was found wrong & out of the books. The reasons for difference was due to bonafide mistake of accountant & for which no show Cause notice was given for explanation &/or reply the rejection of books of accents u/s 145 (3) the addition could have been made as per GP rate of past records &/or immediate previous years which was 2.84% only as per submissions.
5. That as decided in series of judgements of higher court the post history is the best judge for estimation of profit in Case of rejection of books of accounts u/s 145(3). There was no adverse Comments of Tax Auditers as per his Audit report & past history of the Case.
6. That similarly the CIT (Appeals) also erred in maintaining the adhere disallowances of expressions @ 50% of Rs. 231962/- i.e. Rs.115981/- which is quite wrong & unjustified in view of quantum of empresses & found with external Vouchers & also showing without specific defect in vouchers.
7. That all above additions maintained were against the law & written submission provided in detail with covered & binding judgements. The he maintained the additions against the law.
8. That the assessee reserves his rights to add amend or alter any of the grounds on a before the hearing of cross objections or at the lime of haring of Appeal.
2. The hearing of the appeal and C.O. were concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. The brief facts of the case are that the assessee is engaged in the business of trading of old irom material. The assessee e-filed his return of income on 26/11/2014 declaring total income of Rs. 5,59,530/-. The case was selected for scrutiny under CASS and notices were issued to the assessee. The A.O. after discussing all the facts and circumstances as well as the documents placed before him passed assessment order U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) determining total income of assessee at Rs. 2,48,63,340/- by making various additions.
4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties as well as material placed before him, given part relief to the assessee. Against the order of the ld. CIT(A), the revenue is in appeal challenging the order of the ld. CIT(A) and the assessee is in cross objection challenging the order of the ld. CIT(A) for giving part relief to the assessee.
5. Ground No. 1 to 1.2 of the revenue’s appeal and grounds Nos. 1 to 5 of the assessee’s cross objection are interrelated and interconnected and relates to challenging the order of the ld. CIT(A) in giving relief of Rs. 2,23,42,465/- to the assessee and the assesssee’s grievance relates to challenging the order of the ld. CIT(A) in confirming the addition of Rs. 19,61,344/- by considering the GP rate of 4% on the estimated turnover of Rs. 10 crores.
6. The ld. D.R. appearing on behalf of the Revenue has relied on the order of the A.O. and submitted that the impugned order passed by the ld. CIT(A) is not proper and passed without application of mind.
7. On the other hand, the ld. AR appearing on behalf of the assesse has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the ld. CIT(A) as well as before us. The contentions made in the written submissions are reproduced as under:
“1. Firstly, we strongly rely our written submissions filed before the ld. CIT(A) on 11.05.2017 (PB 35-36). The relevant extract of the same are reproduced hereunder for the sake of convenience (reproduced at Pg-12 & 13 of the ld.CIT(A)):
The figures of purchases and sales recorded in books of accounts are duly supported by proper bills. The same are produced before your Honour for verification. Further, we may submit that out of total purchases of Rs. 11,63,26,383/-, 63.21% of purchases i.e. Rs. 7,35,35,597/-are being made from railways whose genuineness cannot be doubted at all. Further. All the purchases including purchases from railways or other parties are duly recorded in books of accounts and are supported by proper bills/other supporting evidences which are being produced herewith. It is requested to get the same verified from the Assessing Office, if your goodself find it appropriate.
3. Likewise, the amount of Sales of Rs. 9,40,65,836/- also is supported with the invoices issued by the assessee. Copy of the ledger account alongwith the invoices copy are being produced herewith.
4. The figure of opening stock is same as the figure of closing stock of last year(PB 1 & 4). Since, both the figures are duly vouched, verified and certified by the Tax Auditor, the genuineness of the same cannot be doubted. Also, the figures of-direct expenses incurred by the appellant as recorded in books of accounts were duly vouched, verified and certified by the Tax Auditor and no discrepancy therein was noticed by him. Further, there was no discrepancy in the figures of closing stock as per VAT return(PB 56) as per Tax Audit Report (PB 4).
A chart showing trading account of the appellant as appearing in Tax Audit Report and appellant’s specific comment against each of those items appearing in Tax Audit Report is enclosed herewith for your Honour’s ready reference. Also, as stated above all the bills of purchases and sales recorded by the appellant in its books of accounts are hereby produced for verification.
The assesse further submitted as under:
