Case Law Details
ITO Vs Roshan Lal Sharma (ITAT Delhi)
Introduction: In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Delhi addressed the case of ITO vs. Roshan Lal Sharma, pertaining to Assessment Years (AY) 2011-12 and 2012-13. The central issue involved a significant disallowance and addition made by the Assessing Officer, contested by the taxpayer and eventually decided by the Commissioner of Income Tax (Appeals) (CIT(A)). The ITAT upheld the CIT(A)’s decision, emphasizing a clerical error in the taxpayer’s Income Tax Return (ITR).
Background: Roshan Lal Sharma, an individual engaged in the business of manufacturing and exporting garments under the name M/s. P6 Design, faced scrutiny for AY 2011-12 and 2012-13. The Assessing Officer (AO) made substantial disallowances and additions, leading to an ex-parte assessment due to non-compliance.
Grounds of Appeal: The Revenue, dissatisfied with the CIT(A)’s order, raised several grounds of appeal for both AYs. These included disallowance of expenses, admission of additional evidence, and disallowance of deductions under section 80C.
CIT(A)’s Decision: The CIT(A), considering the additional evidence filed by the taxpayer under Rule 46A of the Income Tax Rules, 1962, accepted the explanation for non-compliance during assessment proceedings. Admitting the evidence, the CIT(A) proceeded to address the key disallowances and additions.
Ad-hoc Disallowance: The AO had disallowed 40% of the total direct/indirect expenses claimed by the taxpayer. The CIT(A), after examining relevant documents, including tax audit reports and financial statements, found the ad-hoc disallowances unwarranted. The ITAT upheld the CIT(A)’s decision, emphasizing the lack of evidence substantiating the AO’s disallowances.
Section 80C Disallowance: The AO disallowed the taxpayer’s claim under section 80C for want of proof. The CIT(A), upon submission of evidence regarding LIC premium payment and tuition fees, deleted the disallowance. The ITAT upheld this decision, emphasizing the evidentiary support provided by the taxpayer.
Opening Stock Discrepancy: A significant addition pertained to the difference in opening stock figures between the current year and the closing stock of the previous year. The CIT(A) accepted the taxpayer’s explanation of a clerical mistake in the ITR filing. The ITAT concurred, rejecting the Revenue’s challenge and upholding the deletion of the addition.
Conclusion: The ITAT’s affirmation of the CIT(A)’s order in the case of ITO vs. Roshan Lal Sharma signifies a meticulous scrutiny of the grounds raised by the Revenue. The decision underscores the importance of providing substantive evidence and adhering to procedural rules during assessments. Taxpayers are encouraged to present a clear case, supported by documentation, to counter ad-hoc disallowances. The acknowledgment of clerical errors as a valid explanation reinforces the principle of fairness in tax proceedings. This ruling serves as a precedent for cases where inadvertent mistakes in ITR filings lead to discrepancies, emphasizing a balanced approach in resolving tax disputes.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeals filed by the Revenue are directed against the consolidated order of the Ld. Commissioner of Income Tax (Appeals)-35, New Delhi (“CIT(A)”) dated 01.03.2019 pertaining to Assessment Year (“AY”) 2011-12 and 2012-13.
2. The Revenue has raised the following grounds of appeal:-
AY 2011-12
“1. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 1,73,33,666/- on account of disallowance of 40% of total direct/indirect expenses.
2. On the facts and circumstances of the case, Ld. CIT(A) erred in admitting the fresh/additional evidence under Rule 46A of the I.T. Rules, 1962 despite the fact that the A. O. had vide his remand report requested that assessee may not be allowed to submit fresh evidence, as it does not qualify for the same in view of the explicit provisions laid down under Rule 46A of the I.T. Rules, 1962.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 51,653/- on account of disallowance of assessee’s claim u/s 80C of the IT Act.”
AY 2012-13
“1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,75,71,490/- on account of disallowance of 40% of total direct/indirect expenses.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 76,09,453/- on account of difference in the opening stock figure of current year with closing stock figure of previous year.
3. On the facts and circumstances of the case, Ld. CIT(A) erred in admitting the fresh/additional evidence under Rule 46A of the I.T. Rules, 1962 despite the fact that the A.O. had vide his remand report requested that assessee may not be allowed to submit fresh evidence, as it does not qualify for the same in view of the explicit provisions laid down under Rule 46A of the I.T. Rules, 1962.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 51,653/- on account of disallowance of assessee’s claim u/s 80C of the IT Act.”
3. The facts in brief are that the assessee individual is in the business of manufacturing and export of garments in the name and style of M/s. P6 Design. He filed his return for AY 2011-12 on 29.11.2011 and for AY 201213 on 29.03.2013 declaring income of Rs. 11,27,066/- and Rs. 13,80,340/-respectively. Both the returns were processed under section 143(1) of the Income Tax Act, 1961 (the “Act”). Both the cases were selected for scrutiny through CASS. The reason given for selection in AY 2012-13 is “difference in the opening stock figure of current year with the closing stock figure of the previous year”. In response to statutory notice(s) for AY 2011-12 one appearance on 18.10.2013 was made and brief details of some expenses were filed by the assessee. Thereafter the assessee did not respond to notices leading to ex-parte order passed by the Ld. Assessing Officer (“AO”) on 04.03.2014 on total income of Rs. 1,85,12,385/- including therein disallowance of Rs. 1,73,33,666/- being 40% of total direct/indirect expenses claimed at Rs. 4,33,34,166/- and disallowance of deduction of Rs. 51,653/- claimed under section 80C of the Act. For AY 2012-13 also statutory notices were not complied with resulting in ex-parte assessment framed on 26.03.2015 under section 144 of the Act on total income of Rs. 2,66,12,936/- including therein disallowance of Rs. 1,75,71,490/- being 40% of direct/indirect expenses claimed at Rs. 4,39,28,726/-; addition of Rs. 76,09,453/- being difference between opening stock of AY 2012-13 and closing stock of the preceding AY 2011-12 and disallowance of Rs. 51,653/-claimed under section 80C of the Act.
4. Aggrieved, the assessee filed appeals in both the years before the Ld. CIT(A) challenging the disallowances and addition made by the Ld. AO.
5. During appellate proceedings, the assessee filed additional evidence under Rule 46A of Income Tax Rules, 1962 (“the Rules”). The Ld. CIT(A) obtained remand report from the Ld. AO who objected to admittance of additional evidence on grounds of non-compliance of notices issued during assessment proceedings. Before the Ld. CIT(A) the assessee explained that his mother was critically ill and he was staying in his hometown in Jammu. Further, the assessee was involved in dispute with other communities in the period and his entire family was living in great fear and tension. Accepting the assessee’s explanation and relying on the decision of Hon’ble Delhi High Court in CIT vs. Virgin Securities & Credits (P) Ltd. 332 ITR 396 (Del), the Ld. CIT(A) admitted the additional evidence furnished before him for adjudication of issues involved.
5.1 On the issue of disallowance of Rs. 1,73,33,666/- and Rs. 1,75,71,490/- being 40% of direct and indirect expenses out of Rs. 4,33,34,166/- and Rs. 4,39,28,726/- in AY 2011-12 and 2012-13 respectively, the Ld. CIT(A) observed in para 4.5.4.4 of the appellate order that the assessee filed all the relevant documents like tax Audit Report, Balance sheet, P&L account, copies of sales, purchase and expenses bills, copy of ledger accounts, confirmation from parties etc. during the appellate proceedings which have been admitted. Therefore, ad-hoc disallowances in both the AY(s) made by the Ld. AO in the absence of documents substantiating the books of account are deleted.
5.2 As regards the disallowance of Rs. 51,653/- claimed under section 80C in AY 2011-12 and 2012-13 made by the Ld. AO for want of proof, evidence was submitted before the Ld. CIT(A) regarding payment of LIC premium of Rs. 40,958/- (Rs. 25,000/- to Aviva Life Insurance & Rs. 15,958/- to LIC) and Tuition Fee of Rs. 10,695/-. The Ld. CIT(A) therefore deleted the impugned disallowance of Rs. 51,653/- under section 80C in both the AY(s).
5.3 Regarding difference of Rs. 76,09,453/- in opening /closing stock in AY 2012-13 added by the Ld. AO, the Ld. CIT(A) observed and recorded the following findings in para 4.5.4.7:
“4.5.4.7. The AR has stated that the difference is nothing but due to clerical mistake in filing the ITR. Due to this even assessment year 2013-14 was under scrutiny and this difference was explained to AO and there was no addition made by the AO on this issue in A.Y. 201314 (Copy of the Assessment Order for assessment year 2013-14 filed during appellate proceedings). The AR has submitted the full details on the issue which the appellant has stated is due to clerical mistake and the same is reproduced below:
|
Particulars |
As Per Balance Sheet | As per ITR Filed | Difference | |
| Balance Sheet | Profit & Loss | |||
| F.Y 2010-11 | ||||
| Opening Stock |
55,14,934.00 | – | 55,14,93
4,00 |
|
| Closing Stock |
76,09,453.00 | 76,09,453.00 | 76,09,45 3.00 |
|
| F.Y 2011-12 | ||||
| Opening Stock |
76,09,453.00 | – | 0.00 | 76,09,453.0 |
| Closing Stock |
1,25,99,480.00 | 1,25,99,480.00 | 49,90,02 7.00 | –
76,09,453.00 |
| F.Y 2012-13 | ||||
| Opening Stock | 1,25,99,480.00 | – | 1,25,99,480.00 | |
| Closing Stock |
2,37,71,210.00 | 2,37,71,210.00 | 2,37,71,210.00 | |
The AR has submitted that the above details were also given at the time of assessment of assessment year 2013-14 before the respective AO and the same was accepted. The AR has stated that there was a clerical mistake made by the Article/staff at the time of filling the ITR Form for FY 2011-12, where ne inadvertently and wrongly filled ‘0’ (at point No. 6 of Part A of P&L A/c of the said return of Income) in place of 76,09,453.00 in the opening stock column and accordingly shown the difference (1,25,99,480.00 minus 76,09,453.00 = 49,90,027.00) in the closing stock column of Profit & Loss Account, whereas he himself mentioned the right figure of closing stock in the Balance Sheet I.e. Rs. 1,25,99,480.00 (at point No. 3 of Application of Fund of Part A of BS of the said return of Income). Therefore, the AR of the appellant has argued that there was a mistake due to carelessness but there was no mala-fide intension on the part of the appellant. “
5.3.1 On consideration of the above submissions of the assessee and accepting the explanation the Ld. CIT(A) deleted the impugned addition.
6. It is against the aforesaid deletion of disallowances/addition by the Ld. CIT(A) that the Revenue is in appeal before the Tribunal in AY 2011-12 and 2012-13.
7. We have heard the Ld. Representative of the parties and perused the records. It is not in dispute that the assessment in AY 2011-12 and 2012-13 has been made ex-parte under section 144 of the Act for non-compliance of notice(s) of hearing. Before the Ld. CIT(A) the assessee furnished explanation for not responding to various notice(s) issued by the Ld. AO which has been accepted. Nothing adverse has been placed on record before us by the Ld. DR to doubt the veracity of explanation offered by the assessee.
7.1 It is observed that due to constraints the assessee could not produce evidence in support of the claims made by him in the return of both the AY(s). He therefore, urged the Ld. CIT(A) to admit additional evidence under Rule 46A of the Rules. The Ld. CIT(A) afforded opportunity to the Ld. AO and asked for remand report from him. The Ld. AO in his remand report only objected to admittance of additional evidence by the Ld. CIT(A). If he wanted, he could have examined the contents of the additional evidence furnished by the assessee during the course of remand proceedings but the Ld. AO did not do anything of the sort. On these facts, we are of the view that in the interest of justice and backed by the decision of Hon’ble Delhi High Court in Virgin Securities & Credits (P) Ltd. (supra) the Ld. CIT(A) was perfectly justified in admitting the additional evidence and adjudicating the issues raised before him by the assessee.
8. The common ground of the Revenue in AY 2011-12 and 2012-13 relates to ad-hoc 40% disallowance out of direct/indirect expenses claimed by the assessee and disallowance of claim under section 80C. On the basis of evidence produced by the assessee and admittance thereof under Rule 46A of the Rules, the Ld. CIT(A) has deleted the above disallowances. Nothing has been brought on record by the Revenue to enable us to take a view different from that of the Ld. CIT(A). Accordingly, we reject the grounds related to deletion of these disallowances by the Ld. CIT(A) in both the AY(s).
9. As regards the addition on account of difference in opening stock of the current year and closing stock of the preceding year, the Ld. CIT(A) has accepted the explanation offered by the assessee before him and deleted the addition. The explanation furnished by the assessee before the Ld. CIT(A) could not be faulted before us by the Revenue. We, therefore, reject this ground of the Revenue raised in AY 2012-13.
10. In the result, both the appeals of the Revenue for AY 2011-12 and 2012-13 are dismissed.
Order pronounced in the open court on 21st September, 2023.
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