2023 (3) TMI 1204 - AT - Income Tax

Tribunal Rules in Favor of Assessee, Rejects Unjustified Disallowances and Deletions

Sanjay Transport Agency Versus ACIT, Circle-3 (1), Asansol And ITO, Ward-3 (1), Asansol Versus Sanjay Transport Agency

The Tribunal found in favor of the assessee, setting aside the arbitrary and erroneous orders by lower authorities. The disallowances of 20% of total ... Estimation of income - Bogus purchases - CIT-A sustained the addition to the extent of 20% of the additions made by the AO - HELD THAT:- Disallowance made by the ld. CIT(A) is merely ad hoc in nature. Sales/gross receipts are not disputed at any stage and for achieving the same assessee needs to incur expenditure. It is also brought to our notice that for assessment year 2008-09 in assessee’s own case [2015 (11) TMI 1887 - ITAT KOLKATA] similar type of disallowances of the purchases and expenses were made and this Tribunal after considering the facts of the case, regularly books of account maintained by the assessee, deleted the said disallowances We find that the assessee has shown a better net profit rate during the year which is 3.03% as compared to the net profit rate of 0.5% in the immediately preceding financial year which was also subjected to scrutiny proceedings and duly assessed u/s 143(3) of the Act. Also the subsequent assessment year was also subjected to scrutiny assessment and the Assessing Officer in the assessment order u/s 143(3) has examined the books of account of the assessee and accepted the net profit percentage of 2.39%. AO was not justified in making the addition towards bogus purchase and towards bogus expenditure. We hold that ld. CIT(A) erred in sustaining the addition by making ad hoc disallowance without specifying any defect in the books of accounts and records maintained by the assessee. We thus set aside the findings of the ld. CIT(A) sustaining ad hoc disallowance and delete the total additions made by the AO. Thus, grounds of appeal raised by the assessee are allowed and that of the Revenue are dismissed. Issues Involved:1. Arbitrary and erroneous orders by lower authorities.2. Disallowance of 20% of the total claim on account of purchase of HEMM spare parts/repairing charges.3. Rejection of books of accounts without detecting any irregularity during the survey operation under section 133A.4. Disallowance of 20% of the total expenditure incurred through sub-contractors.5. Excessive and uncalled-for estimation towards disallowances of expenditure.6. Justification of the CIT(A) in reducing disallowance of repairs and maintenance expenses.7. Justification of the CIT(A) in reducing disallowance of expenses made for contracts without contract papers.Summary of Judgment:Issue 1: Arbitrary and Erroneous Orders by Lower AuthoritiesThe assessee argued that the orders passed by the lower authorities were arbitrary, erroneous, and prejudicial to their interests. The Tribunal found that the CIT(A) did not dispute the type of expenditure incurred but made an ad hoc disallowance of 20% without specifying any defects.Issue 2: Disallowance of 20% of the Total Claim on Account of Purchase of HEMM Spare Parts/Repairing ChargesThe CIT(A) sustained the addition at Rs.32,49,011/- out of the total disallowance of Rs.1,62,45,056/- made by the Assessing Officer. The Tribunal observed that the assessee provided detailed evidence of the old and costly machines requiring repairs and maintenance, which were used in tough terrains.Issue 3: Rejection of Books of Accounts Without Detecting Any Irregularity During the Survey Operation Under Section 133AThe Tribunal noted that the books of accounts were regularly maintained and audited, and the net profit percentage was higher compared to the previous year. It was also observed that similar types of additions were made in the previous assessment year but were deleted by the Tribunal.Issue 4: Disallowance of 20% of the Total Expenditure Incurred Through Sub-ContractorsThe CIT(A) sustained the addition of Rs.21,80,472/- out of the total disallowance of Rs.1,09,02,361/- made by the Assessing Officer. The Tribunal found that the assessee provided complete details of the expenditure and justification for the genuineness of the sub-contract expenses.Issue 5: Excessive and Uncalled-for Estimation Towards Disallowances of ExpenditureThe Tribunal held that the disallowance made by the CIT(A) was merely ad hoc in nature and not justified, as the sales/gross receipts were not disputed, and the assessee needed to incur expenditure to achieve the same.Issue 6: Justification of the CIT(A) in Reducing Disallowance of Repairs and Maintenance ExpensesThe Tribunal observed that the CIT(A) did not doubt the type of expenditure incurred but made an ad hoc disallowance of 20% without finding any specific defect in the details provided by the assessee.Issue 7: Justification of the CIT(A) in Reducing Disallowance of Expenses Made for Contracts Without Contract PapersThe Tribunal noted that the CIT(A) considered the submissions of the assessee and did not dispute the type of expenditure incurred. The disallowance made by the CIT(A) was ad hoc and not justified.Conclusion:The Tribunal set aside the findings of the CIT(A) sustaining ad hoc disallowance and deleted the total additions of Rs.2,69,47,417/- made by the Assessing Officer. The appeal of the assessee was allowed, and the cross-appeal of the revenue was dismissed.