Grand Mumtaz Resorts Vs ITO (ITAT Amritsar)
Introduction: The recent case of Grand Mumtaz Resorts vs. ITO, decided by ITAT Amritsar, revolves around the ad-hoc disallowance of expenses worth Rs.1,02,350. The dispute arose due to the Assessing Officer’s sweeping statement on insufficiently vouched expenses. The assessee contended that the lack of specificity in pointing out particular vouchers rendered the disallowance unjustifiable.
Detailed Analysis: During the assessment proceedings, the assessee was asked to produce vouchers to substantiate various expenses, including miscellaneous, petrol, staff welfare, etc. The Assessing Officer (AO) made a 5% ad-hoc disallowance, claiming incomplete voucher verification. The crucial point raised by the assessee was that the AO failed to specify the missing vouchers, leading to a sweeping disallowance.
The appellant argued that petty vouchers, like taxi receipts, miscellaneous expenses, and uniform cleaning, are usually unavailable in informal sectors but are legitimate business expenditures. Citing precedent cases such as Pearl Farben Chem (ITA No.1122/Mum/2010) and DCIT v. M/s EPCOT Securities (P) Ltd. (ITA No. 395/Mum/2009), the assessee challenged the ad-hoc disallowance.
The ITAT, acknowledging the absence of specific findings on missing vouchers, directed the Assessing Officer to delete the ad-hoc disallowance of Rs.1,02,350.
Conclusion: The ITAT’s decision to quash the ad-hoc disallowance underscores the importance of specific findings in voucher verification. Without pinpointing the missing vouchers, sweeping disallowances are deemed unjustifiable. This case sets a precedent for meticulous scrutiny in such assessments, ensuring fairness and precision in expense disallowances.
it is contended on behalf of the assessee that during the course of assessment proceedings, the assessee was required to produce vouchers to substantiate the expenses from the vouchers so produced. It was observed that the expenses were not completely vouched and were not fully verifiable. It was contended that the AO has made a sweeping statement without specifying the vouchers that were not available. The reliance was placed on the decision of the Tribunal in the case of Pearl Farben Chem (P) Ltd. (ITA No. 1122/Mum/2010) and DCIT v. M/s EPCOT Securities (P) Ltd. (ITA No. 395/Mum/2009). There is no dispute with regard to the fact that the disallowances made by the Assessing Officer are purely ad-hoc and has not specified the vouchers that were not available. Hence, in the absence of such findings, I am of the considered view that the Ld. CIT(A) was not justified in confirming the addition. Therefore, the Assessing Officer is directed to delete the addition of Rs.1,02,350/-.
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
The appeal by the assessee is directed against the order dated 09.03.2018, passed by the Ld. Commissioner of Income Tax (Appeals)-2, Amritsar (Camp at Jammu), pertaining to the Assessment Year 2012-13.
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 the addition to the extent of Rs. 1,02,350/- made by Ld. ITO on the ground of non-availability of vouchers etc. in support of expenses claimed in books of account. The worthy CIT(A) has erred in upholding the action of Ld. ITO as stated above without appreciating the fact that Ld. ITO has not specifically pointed to any particular voucher or documentary evidence not made available to him.
2. 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 freight & carriage, petrol & lubricant, staff welfare expenses, travelling expenses, vehicle running & maintenance expenses, uniform etc do not contain any personal element and cannot be subject to any disallowance on % basis. Further, TDS wherever applicable has been adequately deducted.
3. On circumstances and facts of the case, the worthy CIT (A) was not justified in upholding Ld. ITO’s view that replacement of existing worn out wooden flooring by fresh wooden flooring was a capital expenditure keeping in view the nature of business, cold weather and other condition in which the assessee carries on business. As such the addition of Rs. 4,76,068/- (Rs. 5,05,523/- less depreciation of Rs. 29,455/-) made by Ld. ITO deserved to be deleted in toto.
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 in a routine & perfunctory manner without application of mind & deserved to be deleted in toto.
5. 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 and has filed its return of income through electronic mode declaring an income of Rs.13,98,726/- on 30.09.2012. The case of the assessee was picked up for scrutiny assessment and the assessment was framed vide order dated 26.03.2015 whereby the Assessing Officer made on ad-hoc disallowance out of various expenses of Rs. 1,02,350/-. Further, it was observed by the Assessing Officer that the assessee claimed an amount of Rs.20,91,883/- under the head of ‘Building Repairs and Renovations’ while verifying the details. The AO was of the view that the expenditure incurred on wooden flooring was of enduring nature hence it was capital expenditure. He, therefore, disallowed the sum of Rs. 4,76,068/- allowed depreciation of Rs. 29,455/-. Further, the Assessing Officer also noticed that the additions were made into the plant and machinery at Rs. 29,91,833/-. He noticed that the assessee claimed excessive depreciation of amount of Rs.67,500/- and same was added into the income of the assessee. Lastly the Assessing Officer made addition of Rs. 8,714/- being the difference between the purchase price. Thus, the Assessing Officer assessed income of Rs.20,53,403/-against the returned income of Rs. 13,98,726/-.
4. Aggrieved, against this the assessee preferred an appeal before the Ld. CIT(A) who after considering the submissions partly allowed the appeal thereby the Ld. CIT(A) confirmed the disallowance of expenditure of Rs.1,02,350/-, disallowance of Rs. 4,76,068/- and deleted the addition of Rs. 8,714/-, thus, the Ld. CIT(A) partly allowed the appeal of the assessee.
5. Now, the assessee is in appeal before this Tribunal. At the time of hearing no one attended the proceedings on behalf of the assessee, however written submissions have been filed on behalf of the assessee.
6. For the sake of clarity, the submissions filed by the assessee are reproduced as under:
“This is an appeal against the order of the worthy CIT(A),Jammu dated 09-03-2018for Asstt. Year 2012-13
THE FACTS OF THE CASE:
The appellant assessee is a partnership firm running a hotel at world famous tourist spot, Gulmarg. For Asstt. Year 2012-13, the Ld. ITO completed the assessment under section 143(3) of IT Act.Following additions made to his returned income of Rs.13,98,726/-& upheld by worthy CIT(A)
a) Addition of 1,02,350/- towards disallowance of 5% of expenses under various heads like misc. expenses, petrol & lubricants, staff welfare etc. etc. for want of sufficient vouchers etc.
b) Expenditure of Rs. 4,76,068/- (Original expenditure Rs. 5,05,523/-Minus imaginary depreciation of Rs. 29,455/- allowed by Ld. ITO) incurred on repairs & maintenance of hotel treated as capital expenditure
NOW THE ARGUMENTS
GROUND NOS. 1 & 2
Your Honour- As is a common knowledge, various expenses have to be incurred to run the business of hotel. During the year the assessee incurred following expenditures.
