Case Law Details
Ramku Raningbhai Patgir Vs DCIT (ITAT Ahmedabad)
Introduction: In a recent landmark decision, the Income Tax Appellate Tribunal (ITAT) Ahmedabad delivered a verdict in the case of Ramku Raningbhai Patgir vs. Deputy Commissioner of Income Tax (DCIT). The ITAT’s decision revolved around the partial acceptance of expenses claimed by the assessee, implying that these expenses were related to the business activities of the assessee. The result? The ITAT ruled in favor of the assessee, deleting the disallowance on vehicle, telephone, and salary expenses. This article provides an in-depth analysis of the case, highlighting the grounds of appeal, the assessment proceedings, and the reasoning behind the ITAT’s decision.
Detailed Analysis:
1. Background of the Case: The case pertains to the Assessment Year 2014-15, where the assessee filed an e-return of income, declaring a total income of Rs. 23,21,380/-. The case came under scrutiny due to differences between the sale consideration of a property in the Income Tax Return (ITR) and that reported in the Annual Information Return (AIR).
2. Grounds of Appeal: The assessee raised two key grounds of appeal. Firstly, the appeal challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] confirming the addition of Rs. 3,00,620/-. Secondly, it contested the CIT(A)’s decision to confirm the disallowance of Rs. 3,00,620/-, representing 1/3rd of expenses related to vehicle, telephone, and salary.
3. Assessment Proceedings: During the assessment proceedings, it was observed that the assessee earned income from various sources, including business and house property. Notably, the assessee had sold a non-agricultural land for Rs. 90,00,000/-. The Assessing Officer identified this profit as “Business Income” as the assessee was involved in land trading and real estate investment. This profit was declared under Section 44AD of the Income Tax Act.
4. Disallowance of Expenses: The Assessing Officer disallowed expenses related to petrol (Rs. 3,79,500/-), telephone (Rs. 42,360/-), and salary & bonus (Rs. 4,80,000/-).
5. Appeal to CIT(A): The assessee filed an appeal before the CIT(A) against the penalty order. However, the CIT(A) dismissed the appeal.
6. Delay Condonation: There was a delay of 148 days in filing the present appeal. The assessee filed a delay condonation application, explaining that they had not received the CIT(A)’s order via mail. The delay was condoned.
7. Assessee’s Arguments: The Ld. Authorized Representative (AR) for the assessee argued that all relevant details were provided during the assessment proceedings. Given the nature of the assessee’s business activities (land trading and investment), the income from the property sale was correctly classified as business income. Consequently, the expenses claimed were genuine business expenses and should have been allowed by the Assessing Officer. The Ld. AR further contended that the CIT(A) passed an ex-parte order without considering the details submitted before the Assessing Officer.
8. ITAT’s Decision: After considering the arguments and reviewing the records, the ITAT found that the Assessing Officer’s disallowance of expenses was incorrect. The ITAT highlighted that the Assessing Officer had already accepted 2/3rd of the expenses as business-related, implicitly acknowledging their connection to the assessee’s business activities. Therefore, the ITAT deleted the disallowance, emphasizing that the expenses were indeed incurred for business purposes.
Conclusion: In a significant victory for the assessee, the ITAT Ahmedabad ruled that the partial acceptance of expenses claimed implied a direct connection to the assessee’s business activities. Consequently, the disallowance of expenses related to vehicle, telephone, and salary was overturned, providing substantial relief to the assessee in this tax matter.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against order dated 26.08.2022 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2014-15.
2. The Assessee has raised the following grounds of appeal :-
“1. Ld. CIT(A) has erred in passing an order under section 250 of the Act ex-parte confirming the order of the Ld. AO of making an addition of Rs.3,00,620/-
2. Ld. CIT(A) has erred in confirming the action of the Ld. AO that Rs.3,00,620/- is disallowable being 1/3rd expenses out of Vehicle, Telephone and Salary expenses as personal in nature”.
3. The assessee filed its e-return of income on 31.03.2015 declaring total income at Rs.23,21 ,380/-. The case was selected for scrutiny for the reason the sale consideration of the property in ITR is less than the sale consideration of property reported in AIR. Statutory notice under Section 143(2) of the Income Tax Act, 1961 was issued on 28.08.2015 and duly served upon the assessee. In response to the notices, the Ld. AR of the assessee attended the assessment proceedings and furnished the details. The Assessing Officer observed that the assessee derives income from business, house property and other sources. During the year under consideration, the assessee sold a non-agricultural land for a consideration of Rs.90,00,000/-. On perusal of the computation of income furnished during the assessment proceedings the Assessing Officer observed that the assessee has shown the profit arising out of the sale of the said land under the head “Business Income”. The assessee claimed that the assessee is negated in land trading and investment in Real Estate and thus this profit is nothing but his business income. This income has been reflected under Section 44AD of the Act since he is a non-corporate assessee wherein provisions of Section 44AB is not applicable as per the observation of the Assessing Officer. The Assessing Officer made disallowance on account of petrol expenses amounting to Rs.3,79,500/-, Telephone expenses amounting to Rs.42,360/- and Salary & Bonus expenses amounting to Rs.4,80,000/-.
4. Being aggrieved by the Penalty Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. There is a delay of 148 days in filing the present appeal for which the assessee has filed delay condonation application alongwith affidavit thereby stating that the assessee had not received the order of the CIT(A) on his mail and, therefore, the appeal was filed belatedly. The delay appears to be genuine and, therefore, the delay in filing the present appeal is condoned.
6. The Ld. AR submitted that the assessee has filed all the details during the assessment proceedings and since the assessee is engaged into land trading and investment the consideration sale of Rs.90,00,000/- was considered as his business income. Since the assessee is having business income the expenses claimed by the assessee are genuine expenses and the same should have been allowed by the Assessing Officer. The Ld. AR further submitted that the CIT(A) has not given opportunity to the assessee and passed ex-parte order without taking cognisance of the details filed before the Assessing Officer. From the perusal of records, it can be seen that the assessee has incurred expenses relating to Vehicles, Telephone and Salary expenses which is in respect of business income itself. The evidences submitted by the assessee before the Assessing Officer was in respect of sale consideration of the property as the case was selected for scrutiny for the said reason but the assessee has filed the income tax return declaring a total income at Rs,23,21 ,380/- and the treatment given by the Assessing Officer that the disallowance cannot be made in the case of income under Section 44AD appears to be contrary when the Assessing Officer himself has disallowed 1/3rd expenses which was actually stating that the expenses are related to the business activities of the assessee.
7. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
8. Heard both the parties and perused all the relevant material available on record. The observation made by the Assessing Officer that there is no documentary proof in support of expenses relating to salary and bonus paid to the employees, petrol expenses and usage of vehicles for personal and business purpose as well as expenses relating to telephone appears to be incorrect as the assessee has given the details of expenses made by the assessee during the course of conducting the business. In fact, the Assessing Officer has disallowed 1/3rd of the said expenses and accepted the remaining expenses and, therefore, the Assessing Officer partially admitted that the assessee has incurred expenses for its own business. Therefore, the Assessing Officer as well as the CIT(A) was not justified in making the disallowance for the expenses which were claimed by the assessee. Thus, appeal of the assessee is allowed.
9. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open Court on this 8th September, 2023.
