Shivam Tractor Vs ITO (ITAT Raipur)
ITAT Raipur held that ad-hoc disallowance of expenditure without specifying expenditure which was either not incurred for the purpose of business or was not substantiated by documentary evidence/material is unsustainable in law.
Facts- The assessee company, which is engaged in the business of trading tractors, trolleys, and spare parts, had filed its return of income for A.Y. 2013-14, declaring an income of Rs. 4,93,500/-. The case of the assessee was, thereafter, selected for scrutiny assessment u/s. 143(2) of the Act. AO vide his order passed u/s. 143(3) assessed the income at Rs. 27,39,900/- after making various additions/disallowances.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that the A.O. had, without placing on record any material, summarily observed that the assessee firm had sold the gyrovator out of its unaccounted purchases. In my considered view, if the purchase of the gyrovator was accounted for in the books of accounts of the assessee firm, then addition in its case was liable to be restricted only to the extent of profit which it would be made by carrying out the sale of the same outside its books of account. However, as the aforesaid fact would require verification, therefore, in all fairness, the matter is restored to the file of the A.O. with a direction to re-adjudicate the same after carrying out necessary verification as regards the authenticity of the claim of the assessee firm.
Held that, as the assessee firm, on the basis of documentary evidence, had duly discharged the primary onus that was cast upon it for substantiating the nature and source of the cash credits in its books of account, the onus, thereafter, was shifted upon the A.O who was obligated to place on record material/evidence to dislodge the veracity of the aforesaid claim of the assessee firm before drawing any adverse inferences as regards the same. Thus, in order to arrive at the true state of affairs as regards the aforesaid transactions under consideration, the matter in all fairness requires to be restored to the file of the A.O with a direction to re-adjudicate the same.
Held that the A.O had worked out an ad-hoc disallowance i.e @10% of the total expenses. Although I concur with the 1/10th disallowance of telephone expenses and vehicles and car expenses, petrol and repair & maintenance expenses as incurring part of the said expenses for personnel usage cannot be ruled out, but I am unable to comprehend on what basis the A.O had worked ad-hoc disallowance out of the remaining expenses. As stated by the Ld. AR and, rightly so, as the A.O. had failed to point out any such specific expenditure which was either not incurred for the purpose of business or was not substantiated by documentary evidence/material; therefore, no part of such disallowance can be sustained.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 08.09.2022, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 07.12.2017 for the assessment year 2015-16. The assessee has assailed the impugned order on the following grounds of appeal:
“1. Ld. CIT(A) erred in confirming addition of Rs. 1,06,000/- made by the AO on account of alleged unexplained investment u/s 69. The addition made by the AO and sustained by Id. CIT(A) is illegal & is not justified.
2. CIT(A) erred in confirming addition of Rs. 18,30,000/- made by the AO on account cash credit treating it to be unexplained cash credit u/s 68. The addition made by the AO and sustained by Id. CIT(A) is not justified.
3. CIT(A) erred in confirming disallowance of Rs. 3,10,400/- made by the AO, being 1/10th of various expenses. The addition made by the AO and sustained by ld. CIT(A) is not justified.
4. The appellant reserves the right to add, amend or modify any of the ground/s of appeal.
2. Succinctly stated, the assessee company, which is engaged in the business of trading of tractors, trolleys, and spare parts, had filed its return of income for A.Y 2013-14 on 08.03.2016, declaring an income of Rs.4,93,500/-. The case of the assessee was, thereafter, selected for scrutiny assessment u/s. 143(2) of the Act.
3. Assessment was thereafter, framed by the A.O vide his order passed u/s.143(3) of the Act dated 07.12.2017, wherein its income was assessed at Rs.27,39,900/- after making the following additions/disallowances:
