Case Law Details
Babusona Mondal Vs DCIT (ITAT Kolkata)
Introduction: In a recent case, the Income Tax Appellate Tribunal (ITAT) Kolkata addressed an appeal filed by Babusona Mondal against the Assessing Officer’s (AO) addition under Section 69B of the Income Tax Act. The appeal centered on two main issues – unexplained investments and disallowed publicity expenses. This article provides a comprehensive analysis of the case and the ITAT’s ruling.
Detailed Analysis:
1. Background of the Case: Babusona Mondal’s appeal challenges the order of the Commissioner of Income-tax (Appeals)-NFAC, Delhi (CIT(A)) for the Assessment Year 2015-16. The appeal raised two key grounds: a. The addition of Rs. 14,66,622 related to unexplained investments under Section 69B of the Act. b. The addition of Rs. 11,00,120 due to disallowed publicity expenses not accounted for in the receipts.
2. Unexplained Investments – Section 69B: The AO noticed discrepancies in the sales bills and sale ledger, suggesting improper accounting of sales. However, there was no instance of non-recording of sales by the assessee. The AO estimated the suppressed value in stocks at Rs. 29,33,243 and added 50% of this value, totaling Rs. 14,66,622, to the assessee’s income. The CIT(A) upheld the AO’s order.
3. ITAT’s Ruling on Unexplained Investments: The ITAT found that the AO’s addition was speculative and lacked proper justification. The assessee maintained meticulous records, including a stock register and an excise register, for the liquor business. The AO’s calculation of the understatement of closing stock was based on conjecture, as the AO failed to consider the evidence provided by the assessee, such as purchase bills and stock registers. The ITAT concluded that the addition was unjustified and ordered its deletion.
4. Disallowed Publicity Expenses: The AO disallowed publicity expenses of Rs. 11,00,120, claiming that the assessee failed to prove they were exclusively for the business. The expenses were incurred based on the suppliers’ instructions and were subsequently reimbursed by the suppliers. The CIT(A) upheld the disallowance.
5. ITAT’s Ruling on Publicity Expenses: The ITAT examined the evidence related to publicity expenses and reimbursements. The publicity expenses were part of recurring schemes by liquor manufacturers, and the suppliers reimbursed the expenses directly to the assessee. The AO’s disallowance, based on a lack of exclusive business purpose, did not align with the nature of the business or the reimbursement process. Consequently, the ITAT ordered the AO to delete the disallowed amount.
Conclusion: The ITAT Kolkata’s decision in Babusona Mondal vs. DCIT emphasizes the importance of substantiated additions in income tax assessments. In this case, the ITAT ruled in favor of the appellant, rejecting both the AO’s addition under Section 69B for unexplained investments and the disallowed publicity expenses. The decision underscores the significance of proper justification and evidence when making income tax assessments. Assessing officers should base their conclusions on facts and evidence rather than conjectures and surmises. This case serves as a reminder of the need for a rigorous and substantiated approach to taxation assessments.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of Learned Commissioner of Income-tax (Appeals)-NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 14.07.2023 for the Assessment Year (in short ‘AY’) 20 15-16.
2. The assessee has raised the following ground of appeal:
“1. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition made by the AO of Rs. 14,66,622/- on account of unexplained investments u/s 69B of the Act is contrary to the material evidences of record and the addition is arbitrary, excessive and illegal.
2. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition made by the AO of Rs. 11,00,120/- on account of publicity expenses not accounted for in the receipt sides of the books is contrary to the material evidences of record and the addition is arbitrary, excessive and illegal.
3. That the order of the Ld. CIT(A) confirming the action of the A. O. is arbitrary, excessive and illegal.
4. That the above grounds of appeal will be argued in details at the time of hearing and the appellant craves leaves to submit additional grounds of appeal if any and or alter, vary, modify or rectify the statement of facts and grounds of appeal at or before the time of hearing.
3. The issue raised in ground no. 1 is against the confirmation of addition of Rs. 14,66,622/- by Ld. CIT(A) as made by the Assessing Officer (in short ld. ‘AO’) on account of unexplained investment U/s 69B of the Act.
4. The facts in brief are that the assessee is engaged in the business of liquor trading and during the year filed the return of income on 29.09.20 15 declaring total income of Rs. 17,34,910/-. The case of the assessee was selected for scrutiny under CASS and statutory notices were duly issued and served upon the assessee. The AO during the course of assessment proceedings observed from the sale bills and sale ledger that sales were not properly accounted for. In para ‘3.2’ the AO noted that some sales were accounted for on earlier dates whereas the earlier dates were accounted for on the subsequent dates however there was no instance of non-recording of sales by the assessee. Thereafter the AO has calculated the supressed value in the stocks by taking a few items at Rs. 29,33,243/- on the basis of information furnished by the assessee and estimated the suppression in the value of stock at 50% of the total supressed value of stocks at Rs. 14,66,622/- and added the same to the income of the assessee. In the appellate proceedings Ld. CIT(A) simply affirmed the order of the AO on the same reasoning.
5. After hearing the rival contentions and perusing the material on record, we find that the assessee is dealing in liquor which is an excisable item and passes through various checks and scrutinies by the Excise Department. We note that the assessee has maintained stock register recording therein opening stocks, purchases, sales and closing stocks including item-wise identification of each brand. Similarly, the assessee has maintained the excise register also. Both these were produced before us and were test checked by us. We observe from the assessment order that the AO while taking a few items out of the total items calculated the suppression in the value of stock at Rs. 29,33,243/- and calculated the understatement of closing stock at 50% of the suppressed stock value without any basis and without any reasoning. In our opinion, the addition made by the AO is purely based upon conjectures and surmises as the AO has failed to taken note of the evidences filed by the assessee before the AO in the form of purchase bills, stock register etc. and also the fact that the wastage and breakage sustained by the assessee in the ordinary course of business. Under these circumstances, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Thus, ground no. 1 raised by the assessee is allowed.
6. The issue in ground no. 2 is against the confirmation of addition of Rs. 11,00,120/- by Ld. CIT(A) as made by the AO on account of publicity expenses.
7. The facts in brief are that the AO perused from profit and loss account of the assessee that the assessee has credited a sum of Rs. 11,00,120/- under the head publicity on the income side with corresponding debit in the profit and loss account stated to be expenses of publicity reimbursed by the suppliers. It was explained before the AO that publicity expenses incurred as per instructions of the suppliers and reimbursement is claimed which are remitted to the assessee directly in the bank account. According to the AO since the assessee has not submitted any evidences of these expenses having been incurred for the purpose of business of the assessee and therefore, the same was added to the income of the assessee which was confirmed by Ld. CIT(A).
8. We have heard the rival contentions and perused the material on record including evidences filed by the assessee in respect of these expenses and re-imbursements received from the suppliers. We note that these are the recurring schemes of publicity floated by manufacturers of liquor under which the assessee is allowed to incur the publicity expenses which were duly reimbursed to the assessee. The AO has cited the only reason for disallowance that the assessee has failed to prove that these are only and exclusively for the purpose of business of the assessee whereas on the other hand the assessee is in the business of liquor trading and has received the reimbursement of publicity expenses from the suppliers of liquor after the same were incurred by the assessee. Therefore, to say that these expenses were not exclusively incurred for the purpose of business of the assessee would be contrary to the facts of the case. In our opinion, the AO has wrongly made the addition which has also been sustained by Ld. CIT(A). Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition.
9. In the result, the appeal filed by the assessee is allowed.
