2022 (9) TMI 1484 - AT - Income Tax

Tribunal allows appeal, corrects revenue's expense disallowance error, deletes ad-hoc disallowance of Rs. 7,49,623

Divine Infracon Pvt. Ltd. Versus ACIT Central Circle-17 New Delhi

The Tribunal allowed the appeal filed by the assessee, holding that the revenue authorities erred in disallowing the expenses claimed. The ad-hoc ... Disallow 10% of the expenses excluding the commission expenses - HELD THAT:- CIT(A) is of the opinion that no disallowance out of commission expenses on ad-hoc basis is called for. Further, in so far as, other expenses concerned, which are incurred partly in cash, therefore, the same are not fully verifiable. Accordingly, the Ld.CIT(A) has directed to disallow 10% of the expenses excluding the commission expenses. Neither the A.O nor the CIT(A) have discussed the details of the expenses and how the assessee has failed to prove the genuineness of the expenses, but proceeded to disallow the expenses without pointing out the defects in the accounts of the assessee. Therefore, in our opinion, the entire approaches of the Lower Authorities are erroneous. Accordingly, the disallowance sustained by the CIT(A) is hereby deleted. Decided in favour of assessee. Issues:Ad-hoc disallowance of expenses by the Commissioner of Income Tax (Appeals) and the Assessing Officer.Analysis:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2016-17. The assessee, engaged in the hotel and shopping complex business, filed a 'NIL' taxable income after adjusting the loss. The Assessing Officer added 10% of various expenses to the total income due to incomplete details provided by the assessee. The Commissioner of Income Tax (Appeals) deleted the addition for Employees' Contribution but partly upheld the disallowance of Rs. 16,48,955. The Commissioner directed to disallow 10% of the expenses, including commission expenses, which were incurred through banking channels. The assessee appealed against this decision, arguing that the entire addition should be deleted. The assessee cited various judgments to support their case.During the proceedings, the Assessing Officer and the Commissioner of Income Tax (Appeals) did not discuss the details of the expenses or how the genuineness of the expenses was not proven by the assessee. The Tribunal found the approach of the lower authorities erroneous. Referring to the judgment of the Hon'ble Supreme Court in the case of State of Orissa vs. Maharaj B.P. Singh Deo, it was emphasized that assessments based on best judgment must have a basis in relevant material and cannot be arbitrary. The Tribunal also cited the case of Asst. CIT vs. Ganpati Enterprises Ltd. where the Tribunal emphasized that the Assessing Officer must point out defects in the accounts before making disallowances.By considering the judicial pronouncements and the facts of the case, the Tribunal held that the revenue authorities erred in disallowing the expenses claimed by the assessee. The ad-hoc disallowance of Rs. 7,49,623 was deleted, and the grounds of appeal were allowed. Consequently, the appeal filed by the assessee was allowed, and the order was pronounced on 30/09/2022.