Case Law Details
Abdul Samad & Sons Vs ITO (ITAT Amritsar)
From the finding of Ld. CIT(A), it is clear that the finding is based on the premise that the assessee failed to substantiate the expenditure however the contention of the assessee is that due to flood material evidences was washed away and FIR was duly registered, further it is stated that the accounts of the assessee was duly audited and no adverse observation has been recorded by the auditors. Looking to the facts of the present case and more particularly the contention of the assessee that the record was washed away due to flood and coupled with the fact that there is no adverse inference by the auditors. I am of the considered view that it is a liberal view ought to have been adopted by the authorities below. Moreover the authorities below have not pointed out any specific absence of the vouchers hence. Therefore, considering totality of facts I hereby direct the AO to delete the addition.
ITAT deletes addition made for
Material evidences washed away due Flood – ITAT deletes addition
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
The appeal by the assessee is directed against the order dated 28.02.2018, passed by the Ld. Commissioner of Income Tax (Appeals)-2, Jalandhar (Camp office at Srinagar), pertaining to the Assessment Year 2013-14.
2. The assessee has raised the following grounds of appeal:
“1. On circumstances and facts of the case, the worthy CIT (A) has erred in sustaining a part of the addition to the extent of Rs. 2,19,785/- out of Rs. 3,29,677/- made by Ld. ITO on the ground of non-availability of vouchers etc. in support of expenses claimed in books of account.
2. The worthy CIT(A) has erred in partly upholding the action of Ld. ITO as stated in (1) above without appreciating the fact that Ld. ITO has not specifically pointed to any particular voucher or documentary evidence not made available to him.
3. On circumstances and facts of the case, the worthy CIT (A) has erred in not appreciating the fact that the additions made by Ld. ITO were made in a routine & perfunctory manner without application of mind & deserved to be deleted in toto and not in part.
4. On circumstances and facts of the case, the worthy CIT (A) has erred in not appreciating the fact that the additions made by Ld. ITO were made merely on the pretext that the net profit rate of the assessee in the under assessment had decreased in comparison to immediately preceding year. However, the assessee in the written arguments before the worthy CIT (A) has clearly demonstrated that the finding of Ld. ITO is not correct & as such deserved to be deleted in toto and not in part.
5. On circumstances and facts of the case, the worthy CIT (A) has erred in not appreciating the fact that the Ld. ITO has wrongly considered “Branch Office Expenses” for addition purposes which were not even claimed by the assessee in the year under assessment and pertain to AY 12-13. This makes it clear that the additions made by Ld. ITO were made in a routine & perfunctory manner without application of mind & deserved to be deleted in toto and not in part.
6. The worthy CIT(A) has also erred in referring to cases decided by Hon’ble ITAT Amritsar Bench in support of his judgment without quoting such cases in detail, the issues & nature of expenses involved in such cases. He has also erred to appreciate that most of the expenses targeted by Ld. ITO like travelling & tours, loading & unloading, vehicle maintenance, electricity & water expenses, freight & carriage, repairs & renewals, branch office expenses etc do not contain any personal element and cannot be subject to any disallowance on % basis. Further, TDS wherever applicable has been adequately deducted.
7. The appellant craves leave to add, alter, modify or modify the grounds of appeal.”
3. The facts giving rise to the present appeal are that the assessee is a partnership firm has been carrying out its business under the name of ‘M/s Kashmir Motors’ for the year under consideration. The assessee filed its return of income through electronic mode declaring an income of Rs.6,89,072/-. The case was selected for scrutiny assessment under the ‘CASS’, thereafter the Assessing Officer proceeded to frame assessment u/s 143(3) of the Income Tax Act, 1961. By framing the assessment, the Assessing Officer made ad-hoc disallowances in respect of vehicle maintenance, loading and unloading expenses etc. @ of 15%. Thus, the Assessing Officer made disallowance of Rs.3,29,677/- and added this into the income of the assessee.
4. Aggrieved, against this the assessee preferred an appeal before the Ld. CIT(A) who after considering the submissions and material placed before him sustained the addition to the extent of 10% of the expenses. Thus, the appeal of the assessee was partly allowed.
5. Aggrieved, against this the assessee is in appeal before this Tribunal. At the time of hearing no one attended the proceedings on behalf of the assessee, however the assessee has filed written arguments, therefore, the appeal is taken up for hearing in the absence of assessee and is being decided on the basis of material available on record.
6. The only effective ground is against sustaining the addition made on account of ad-hoc disallowance of the expenses. The assessee has filed written arguments for the sake of clarity, the written arguments of the assessee are reproduced as under:
“Written Arguments before Hon’ble ITAT in respect of
APPEAL NO. ITA 315/Asr/2018
M/S ABDUL SAMAD &SONS,H.S.H STREET, SRINAGAR KASHMIR-ASSTT.
YEAR 2013-14
Your Honour,
This is an appeal against the order of the worthy CIT(A),Jammu dated 28-02-2018for Asstt. Year 2013-14
FACTS OF THE CASE
The assessment in this case was framed by Ld. ITO u/s 143(3),has made an addition of Rs. 3,29,677/- on account of disallowance of 15% of below mentioned expenses to the returned income of the appellant assessee for asstt. year 13-14:
| S. No. | Particulars | Amount |
| 1 | Travelling & Tours | 209,275.00 |
| 2 | Loading and Unloading | 301,318.00 |
| 3 | Vehicle Maintenance | 396,108.00 |
| 4 | Misc. expenses | 23,359.00 |
| 5 | Shop expenses | 190,874.00 |
| 6 | Telephone Expenses | 81,834.00 |
| 7 | Staff Welfare Expenses | 53,345.00 |
| 8 | Electricity & water exp | 31,223.00 |
| 9 | Discount allowed | 99,903.00 |
| 10 | Repair & Renewals (Bldg) | 145,656.00 |
| 11 | Freight and carriage Outwards | 364,673.00 |
| 12 | Branch office expenses | 300,280.00 |
| Total | 2,197,848.00 | |
| Addition to income @ 15% | 329,677.20 | |
The Ld. ITO had made the above addition on the grounds that the assessee was not able to substantiate and justify the decrease in Net Profit to 0.18% for AY 13-14 as compared to the rate of 0.37% in the preceding assessment year and produce necessary documentary evidences in respect of the above expenses.
In the first appeal, the appellant assessee was successful in getting the addition on Branch office expenses deleted because those expenses pertained to Asstt. Year 20122013 & had erroneously been picked up by the Ld. ITO. In case of rest of expenses amounting to Rs.18,97,568/- (21,97,848/- less 3,00,280/-),the worthy CIT(A) restricted the addition to 10% which in absolute figures amount to 1, 89,757/-. It is against this addition sustained by worty CIT(A) that the appellant assessee is in appeal before your honors.
NOW THE ARGUMENTS
The Ld. ITO made the addition on two reasons:
a) That net profit ratio of the assessee has fallen to 0.18% in impugned assessment year compared to from 0.37% in the immediately preceeding assessment year(page 3 line 8 counting from below of Asstt. Order)
b) That all vouchers/documentary supports are not available.
As far as first reason is concerned, The Ld. ITO as well as CIT(A) was apprised that the comparison resorted to by Ld. ITO is not reliable because net profit for AY 12-13 includes, a one-off transaction in the form of profit from sale of land amounting to Rs. 9,24,635/& he should take it out from net profit of Asstt. Year 2012-13 to arrive at the comparable figures. Your honor,it is an a fact that comparison should be made between two comparable figures. As such while making comparison of net profit rates for AY12-13 & AY 13-14, the above profit from sale of land should have been excluded to reflect a true and fair view of the affairs of business. A genuine comparison of figures reproduced below reveals that instead of decrease in net profit, the assessee has actually declared a higher rate of net profit from .07% to 0.19% in impugned assessment year.
| Particulars | A.Y. 12-13 | A.Y. 13-14 |
| Net Profit | 11,49,580.39 | 6,89,071.98 |
| Less Profit on Sale of Land | 9,24,635.00 | – |
| Net profit excluding profit on sale of land | 2,24,945.39 | 6,89,071.98 |
| Sales | 30,32,85,503.40 | 36,96,14,635.18 |
| Net profit %age including profit on sale of land | 0.38% | 0.19% |
| Net profit %age excluding profit on sale of land | 0.07% | 0.19% |
However, without giving adequate consideration to this vital piece information, the worthy CIT(A) proceeded to sustain addition to the extent stated above.
In respect of vouchers etc. the assessee accepts that due to devastating floods of 2014, a major part of the appellant assessee’s records got washed away. He produced FIR copy as well as CBDT instruction No.FNO.225/303/2014/IT/A.11 dated 28-11-2014( Please refer page 4 of CIT(A) order) to adopt a soft attitude in case of flood victims but unfortunately, both the authorities below ignored his pleas & proceeded with their decisions.The assessee also proved his case by comparing the expenses of Asstt. Year 2007-08, assessment whereof was completed u/s 143(3) with those of the impugned asstt. Year. The tabulated results are given below:
| S. No. | Particulars | AY 13-14 | AY 07-08 | %age change | Remarks | ||
| Expenditure | %age of Sales |
Expenditure | %age of Sales |
||||
| 1 | Travelling & Tours |
209,275.00 | 0.06% | 118,915.00 | 0.04% | 0.02% | Slight increase due to increase in cost |
| 2 | Loading and Unloading |
301,318.00 | 0.08% | 175,406.47 | 0.07% | 0.01% | Slight increase due to increase in cost |
| 3 | Vehicle Maintenance | 396,108.00 | 0.11% | 326,000.00 | 0.08% | 0.03% | Slight increase due to increase in cost |
| 4 | Misc. expenses |
23,359.00 | 0.01% | 55,663.00 | 0.02% | –
0.01% |
In fact expenses have Reduced |
| 5 | Shop expenses |
190,874.00 | 0.05% | 112,910.00 | 0.04% | 0.01% | Slight increase due to increase in cost |
| 6 | Telephone Expenses |
81,834.00 | 0.02% | 120,917.00 | 0.05% | –
0.03% |
In fact expenses have Reduced |
| 7 | Staff Welfare Expenses |
53,345.00 | 0.01% | 152,913.00 | 0.06% | –
0.05% |
In fact expenses have Reduced |
| 8 | Electricity & water exp | 31,223.00 | 0.01% | 18,246.00 | 0.01% | 0.00% | No Change |
| 9 | Discount allowed |
99,903.00 | 0.03% | 533,668.00 | 0.20% | –
0.17% |
In fact expenses have Reduced |
| 10 | Repair & Renewals (Bldg) |
145,656.00 | 0.04% | – | 0.00% | 0.04% | Remained constant |
| 11 | Freight and carriage Outwards |
364,673.00 | 0.10% | 441,670.00 | 0.16% | –
0.06% |
In fact expenses have Reduced |
| 12 | Branch office expenses |
300,280.00 | 0.08% | – | – | – | No branch office expense in AY 13-14. The worthy CIT(A) deleted the addition |
| Total Sales | 369,614,635 | 268,412,828 | |||||
a) It also needs to be mentioned here that the accounts of the appellant assessee stand audited u/s 44AB of Income Tax Act & no adverse observation has been drawn by the auditors in their audit report. Also, the above mentioned expenses have been incurred wholly & solely for business purposes and TDS wherever applicable on the above expenses has been deducted by the assessee in accordance with the provisions of the Income Tax Act.
In view of above arguments, I beg your honor to quash the additions sustained by worthy CIT(A)& restore the income as returned by the assessee.
It is requested that the appeal may be concluded on the basis of above arguments
Submitted by
(Abdul Majid Zargar)
Counsel for Appellant”
7. On the contrary, the Ld. Sr. Departmental Representative opposed the submission and submitted that the disallowance was made on account of non furnishing of the vouchers and bills. Therefore, the Ld. CIT(A) was justified on confirming the addition.
8. I have heard the Ld. DR and perused the material available on record. We find that the Ld. CIT(A) has partly allowed the appeal by observing as under:
“4.2 I have perused the assessment order as well as submissions made by the appellant and find that a disallowance of Rs. 3,29,677 has been made by the AO at the rate of 15% of the total expenses claimed under the heads- Travelling and tours, loading and unloading, vehicle maintenance, miscellaneous expenses, discount allowed, staff welfare, freight and carriage, electricity and water expenses. The addition has been made by the AO on the ground that some of the expenses claimed were not supported with bills/ vouchers, most of them have been paid in cash and element of personal usage cannot be ruled out. The disallowance has been made at the rate of 15% of the total expenses claimed.
4.3. The appellant has stated that the expenses have been incurred for the business purposes only, hence disallowances made on the basis of estimation is on higher side. AO has not pointed out any specific defect in the bills and vouchers. The appellant has stated that books of account have been duly maintained which are audited.
4.4 Having considered the submissions made, I find that appellant has not been able to produce evidence to contradict the findings of the AO. The appellant has only made bald submissions without any supporting evidence. Further, I find that Hon’ble ITAT Amritsar Bench has in a number of cases upheld the disallowance made by the AO to the extent of 10% of the expenses. In view of these facts, I hold that it would be appropriate to restrict the disallowance made by the AO to 10% of the total expenses claimed under this head.”
From the above finding of the Ld. CIT(A), it is clear that the finding is based on the premise that the assessee failed to substantiate the expenditure however the contention of the assessee is that due to flood material evidences was washed away and FIR was duly registered, further it is stated that the accounts of the assessee was duly audited and no adverse observation has been recorded by the auditors. Looking to the facts of the present case and more particularly the contention of the assessee that the record was washed away due to flood and coupled with the fact that there is no adverse inference by the auditors. I am of the considered view that it is a liberal view ought to have been adopted by the authorities below. Moreover the authorities below have not pointed out any specific absence of the vouchers hence. Therefore, considering totality of facts I hereby direct the AO to delete the addition. The Ground of appeal is allowed.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 16.06.2022
