Case Law Details
Amarlal Thakurdas Bathija Vs ACIT (ITAT Kolkata)
Income Tax Appellate Tribunal (ITAT) Kolkata partly allowed the appeal of Amarlal Thakurdas Bathija against an order of the Commissioner of Income Tax (Appeals) [CIT(A)]. Bathija’s appeal challenged additions made by the Assessing Officer (AO) for Assessment Year 2017-18, specifically ₹1.7 crore deemed unexplained credit and ₹49.52 lakh disallowed business expenses. The AO had passed an assessment order under Section 144 (best judgment assessment) due to Bathija’s alleged non-participation in the assessment proceedings.
Regarding the ₹1.7 crore addition, the AO stated it was deposited into Bathija’s bank account during the demonetization period and, as no explanation was provided, was being added to his income under Section 69A. Bathija’s counsel argued this amount was already declared under the Income Declaration Scheme (IDS) and presented documentation, including Form No. 1. The ITAT, noting the AO’s brief findings, remanded this issue back to the AO for verification against the IDS declaration and re-assessment of the bank account to determine if any unexplained funds remained.
Concerning the ₹49.52 lakh disallowance, the AO had compared the Profit & Loss accounts for the financial years ending March 31, 2016, and March 31, 2017. Observing an 8.63% increase in turnover for AY 2017-18, the AO applied this same percentage to allowable expenses, disallowing any expenditure exceeding this growth rate. The ITAT deemed this methodology improper. It emphasized that expenses cannot be arbitrarily restricted based on a fixed percentage increase in turnover without considering the actual business needs justifying the higher expenditure. The tribunal illustrated this with an example of Business Promotion Expenses, where a 29.64% increase was restricted to 8.63% by the AO. The ITAT ruled that the AO should have rejected the book results and estimated profits under Section 144 instead of selectively disallowing individual expense items. This disallowance was thus deemed unsustainable and deleted.
The ITAT also addressed a ₹27,072 addition, noting Bathija’s submission that he had already added back this expenditure, making the AO’s addition redundant. This matter was also remanded to the AO for verification and correction if a double addition had occurred. In conclusion, the ITAT partly allowed Bathija’s appeal, remanding the unexplained credit issue for re-assessment and deleting the disallowance of business expenses. The decision underscores the need for reasoned assessments based on evidence rather than arbitrary application of percentage increases and highlights the importance of considering explanations provided by the assessee.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 15.01.2024 passed for A.Y. 2017-18.
2. The assessee has taken six grounds of appeal, out of which Grounds No. 1, 2, 5 & 6 are general grounds, which do not call for recording of any specific finding.
3. In rest of two grounds, the grievance of the assessee is that the ld. CIT(Appeals) has erred in confirming the additions of
(a) Rs.1,70,00,000/- (on account of unexplained credit);
(b) Rs. 49,52,712/- (disallowance out of business expenses).
4. With the assistance of ld. Representatives, we have gone through the record carefully. It emerges out from the record that the assessee has filed his return of income on 27.10.2017 declaring total income of Rs.52,76,560/-. The case of the assessee was selected for scrutiny assessment and notices under section 143(2)/142(1) were issued and served upon the assessee. According to the ld. Assessing Officer, the assessee did not participate in the assessment proceeding and hence, he has passed an assessment order under section 144 of the Income Tax Act, which authorizes him to pass an assessment order according to his best judgment.
5. The ld. Assessing Officer has made three additions, namely-
(a) Rs.1,70,00,000/-;
(b) Rs.27,072/-, &
(c) Rs.49,52,712/-.
6. Appeal to the ld. CIT(Appeals) did not bring any relief to the assessee. It was dismissed ex-parte for want of prosecution.
7. On due consideration of the facts and circumstances, we find that as far as the expenditure of Rs.27,072/- added by the ld. Assessing Officer is concerned, the assessee has submitted that he has himself added back this expenditure and did not claim deduction. Therefore, ld. Assessing Officer has added this amount twice. This aspect is remitted back to the ld. Assessing Officer for verification and if the amount has been added twice, then, one disallowance is to be deleted.
8. With regard to the addition of Rs.1,70,00,000/- is concerned, the ld. Assessing Officer has recorded a very brief finding on this issue, which reads as under:-
“Unexplained Cash Credit:- It is evident from the Income Tax System (ITS) Information that the assessee had deposited Rs.1,70,00,000/- in his Bank account during the demonetization period. The assessee was show caused as to why the entire amount should not be added back to the entire income u/s 69A of the Income Tax Act, 1961. But the assessee did not file any reply in response to the above show cause. In absence of any valid explanation the entire amount of Rs.1,70,00,000/- is added to the total income of the assessee.
[Addition: Rs.1,70,00,000/-]”.
9. The ld. Counsel for the assessee has submitted that ld. Assessing Officer has misread the accounts. In this connection, the assessee has already declared this amount under Income Declaration Scheme (IDS) and, therefore, it should not be added again by the ld. Assessing Officer. He placed on record copy of Form No. 1 and other documents.
10. On due consideration of these documents with the help of ld. R., we are of the view that this issue deserves to be remitted back to the file of ld. Assessing Officer for cross verification and re-adjudication. The ld. Assessing Officer shall go into the IDS declaration made by the assessee and thereafter reappreciate the Bank account and determine whether any unexplained money is available in the account or not. This ground is allowed for statistical purposes.
11. The next issue in dispute relates to the addition of Rs.49,52,712/-. A perusal of the assessment order would reveal that the ld. Assessing Officer has made a comparative analysis of Profit & Loss Account ended as on 31st March, 2016 as well as on 31st March, 2017. He observed that the turnover in A.Y. 2017-18 increased by 8.63% of the turnover in the immediately preceding year. The ld. Assessing Officer has restricted the allowance of expenditure in the same ratio as was claimed in the immediately preceding years. The ld. Assessing Officer was of the view that expenditure is to be allowed in the same ratio in which turnover has increased, namely turnover has increased at 8.63% from the last year’s turnover, then, according to him, the expenditure claimed in the last year, and vis-à-vis this year should also be allowed by enhancing 8.63% of the expenditure. If any expenditure has been incurred over and above that ratio is to be disallowed without actually verified anything. We find that this method is not permissible. The expenditure cannot be restricted by applying a thumb rule without appreciating what is the actual necessity for claiming higher expenditure. For example- Business Promotion Expenses were claimed at Rs.58,145/- in the accounts ending on 31.03.2016, whereas these were claimed at Rs.75,380/- in the accounts as on 31.03.2017. The percentage was increased by 29.64%, whereas ld. Assessing Officer was of the view that this increase in the percentage of expenditure should not be 8.63%. By applying the threshold limit of 8.63%, he worked out excess expenditure of Rs.12,583/-, which he disallowed. To our mind, this type of logic is not at all applicable. The ld. Assessing Officer should have rejected the book result, then, estimated the profit in his assessment under section 144. He cannot select individual item of expenditure and then, make a disallowance in this arbitrary manner. Therefore, this disallowance is not sustainable and we delete it accordingly.
12. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 07/06/2024.
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