Case Law Details
ITO Vs Hemant Kr. Das (ITAT Kolkata)
ITAT Kolkata held that reduction of adhoc disallowance of miscellaneous expenditure from 15% to 5% justified as 1st Appellate Authority has exercised discretion in working out the adhoc disallowance.
Facts- Assessing Officer has noticed miscellaneous expenditures under eight heads. These are in the nature of telephone expenses, travelling expenses, loading and unloading expenses, etc. According to the ld. Assessing Officer, the assessee was unable to file complete supporting details, therefore, he disallowed 15% of such expenses on adhoc basis. The ld. 1st Appellate Authority has restricted this disallowance to 5%. Being aggrieved, the present appeal is preferred by the revenue.
Conclusion- We do not find any merit in this ground of appeal raised by the Revenue, because ld. Assessing Officer has himself worked out the disallowance on guess work basis, which was re-appreciated by the ld. 1st Appellate Authority. Two estimated opinions ought not to be substituted with the third opinion. The ld. 1st Appellate Authority has exercised discretion in working out the adhoc disallowance. Therefore, this ground is rejected.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The Revenue and assessee are in cross appeals against the order of ld. Commissioner of Income Tax (Appeals), Patna-2 dated 18.09.2020 passed for assessment year 2011-12.
2. First we take the appeal of the Revenue. The Revenue has taken five grounds of appeal, which revolve around two issues, namely-
(i) CIT(Appeals) has erred in deleting the addition of Rs.2,13,00,666/-;
(ii) CIT(Appeals) has erred in restricting the disallowance out of miscellaneous expenses claimed by the assessee at 5% instead of 15% made by the ld. Assessing Officer.
3. Brief facts of the case are that the assessee has filed its return of income electronically on 27.06.2012 showing total income at ‘NIL’. He was running a proprietorship in the name and style of M/s. Interface industrial System having dealership of D.G. Set. The case of the assessee was selected for scrutiny assessment and an assessment order was passed on 28.03.2014 under section 143(3). The ld. Assessing Officer has made various additions. One of the additions made by the ld. Assessing Officer is of Rs.2,13,00,666/-. With regard to this addition, finding of the ld. Assessing Officer is available on page 2. The ld. Assessing Officer has observed that the assessee has shown advances from customers. The ld. Assessing Officer directed the assessee to file concern details, however, according to him, the assesese failed to file those details and he made the addition.
4. On appeal, the assessee filed submissions. The ld. 1st Appellate Authority called for a remand report. The copy of the remand report is available on pages no. 160 to 162 of the paper book. According to the ld. CIT(Appeals), the ld. Assessing Officer has accepted the genuineness of sundry credits and relying upon the finding of the ld. Assessing Officer in the remand report, the ld. CIT(Appeals) deleted the addition by observing as under:-
“Addition regarding of Rs. 2,13,00,666/- as addition on account of advance from customers by the A.O during assessment proceedings, I find that the appellant produced detail of all customers, purchase order from the party , copy of cheque/DD and delivery challan of Genset with complete description etc. before the A.O during remand proceedings. After verification of the same AO admitted in his remand report that the received advance of Rs. 2,13,00,666/- as advance from customers in order to deliver generator set seems to be true and genuine.
In the result, I hold that the addition is not tenable and is therefore deleted”.
5. Before us, the ld. CIT(DR) submitted that the ld. CIT(Appeals) has erred in blindly accepted the remand report. He has a co-terminus power with that of the ld. Assessing Officer and, therefore, ought to have critically examined this aspect. On the other hand, ld. Counsel for the assessee relied upon the remand report.
6. We have duly considered the rival submissions and gone through the record carefully. Since the remand report will be relevant for other issues also agitated in the appeal of the assessee, therefore, we deem it appropriate to take note of this report, which reads as under:-
7. A perusal of this report would indicate that the ld. Assessing Officer has observed that the claim of the assessee for receipt of advances from customers is true and genuine. The ld. CIT(Appeals) relied upon this observation of the ld. Assessing Officer. It is pertinent to note that scope in the appeal of Revenue, vis-a-vis that of assessee are different. It is to be appreciated that in the Scheme of Income Tax Act, no appeal is provided at the end of the revenue against an assessment order. In other words, stand of the ld. Assessing Officer is not open for challenge in an Appellate Forum by the Revenue itself. If some error has been committed by the ld. Assessing Officer, then there are remedial measures either by way of reopening under section 147 or revision under section 263. Efforts at the end of the ld. CIT(DR) are that issue be remitted back to the Assessing officer for further investigation because ld. CIT(Appeals) has committed an error in blindly following the finding of the ld. Assessing Officer in a remand proceeding. It is true in a given circumstances, this aspect can be explored but before us, no specific material has been placed by the Revenue exhibiting the patent error committed by the ld. CIT(A) in following the finding of the ld. Assessing Officer. There should be an affidavit at the end of the revenue challenging this factual finding coupled with other material exhibiting the patent error in acceptance of claim of the assessee that amount shown under the head “advance from customers” was factually incorrect claim. No such efforts were made by the Revenue. Therefore, we do not find any merit in this ground of appeal. It is rejected.
8. As far as the 2nd fold of challenge is concerned, we find that the ld. Assessing Officer has noticed miscellaneous expenditures under eight heads. These are in the nature of telephone expenses, travelling expenses, loading and unloading expenses, etc. According to the ld. Assessing Officer, the assessee was unable to file complete supporting details, therefore, he disallowed 15% of such expenses on adhoc basis. The ld. 1st Appellate Authority has restricted this disallowance to 5%.
9. On due consideration of the facts and circumstances, we do not find any merit in this ground of appeal raised by the Revenue, because ld. Assessing Officer has himself worked out the disallowance on guess work basis, which was re-appreciated by the ld. 1st Appellate Authority. Two estimated opinions ought not to be substituted with the third opinion. The ld. 1st Appellate Authority has exercised discretion in working out the adhoc disallowance. Therefore, this ground is rejected.
10. Now we take the appeal of the assessee. The assesese has taken six grounds of appeal, out of which grounds no. 4, 5 & 6 are general grounds of appeal, which do not call for recording of any specific finding.
11. Grounds No. 1, 2 & 3 contains two-fold of grievances, namely-
(i) the ld. CIT(Appeals) has erred in confirming the disallowance of Rs.50,1 1,003/-, which was disallowed with the aid of section 43B;
(ii) the ld. CIT(Appeals) has erred in confirming the addition of Rs.62,14,944/- and Rs.3,84,271/-, which was added by the ld. Assessing Officer on account of a failure of the assessee to explain the source of capital introduced by him.
12. First we take second-fold of grievance. During the course of assessment proceedings, the ld. Assessing Officer found that the assessee has introduced a sum of Rs.65,99,215/- in his Capital Account. The ld. Assessing Officer made the addition of this amount, which contains two components as submitted in the grounds of appeal.
13. On appeal, the assessee has submitted additional evidence and submission. The ld. CIT called for a remand report, which we have reproduced while deciding the appeal of the revenue. In paragraph no. 5 of the remand report extracted supra, the ld. Assessing Officer has dealt with this issue.
14. A perusal of this remand report would reveal that there is no categorical or specific finding. He even did not make a specific mention of the name showing identity of the person, who has contributed as a loan to the assessee. This finding is totally vague. Therefore, we deem it appropriate to set aside the findings of the revenue authorities and remit this issue back to the file of the ld. Assessing Officer for fresh adjudication. The assessee will be at liberty to submit complete details, if any, of the persons from whom loan was taken with supporting evidence.
15. In the second-fold of grievance, the assessee has pleaded that a disallowance of Rs.50,11,003/- has been made with the help of section 43B. It emerges out from the record that the assessee has certain statutory liabilities under VAT, BST, CST, TDS. The ld. Assessing Officer was of the view that claim of these liabilities can only be allowed, if they are actually discharged by the assessee. Since the assessee failed to prove actual payment of these dues, the ld. Assessing Officer disallowed the claim. The stand of the assessee is that certain issues were under litigation and did not attain finality. Therefore, he could not make the payments. There is no specific information available on the record about the nature of dispute with the Sales Tax Authority or any other statutory authorities. It is also yet to be found out whether these have been settled or not. Therefore, considering the brief finding of the ld. Assessing Officer in the assessment order, which does not exhibit specific dispute raised by the assessee, we set aside this issue also to the file of the ld. Assessing Officer for re-verification and re-adjudication.
16. As far as charging of interest under section 234B is concerned, it is consequential in nature.
17. In view of the above discussion, the appeal of the Revenue is dismissed, whereas the appeal of the assessee is partly allowed for statistical purposes.
18. In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 28/09/2022.
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