GRAVTON MOTORS PRIVATE LIMITED,HYDERABAD V. ITO., WARD-2(1), HYDERABAD

ITA 705/HYD/2024

AI Insights

Gravton Motors Private Limited appealed against the order of the Commissioner of Income-Tax (Appeals), which upheld the disallowance of expenses amounting to Rs. 54,94,166 by the A.O. for the assessment year 2022-23. The A.O. had disallowed these expenses based on a comparison with the previous year's expenses, allowing only a 20% increase over the last year's expenses, citing the company's consistent NIL revenue since incorporation. The Tribunal found the A.O.'s method of disallowance arbitrary and lacking a cogent basis, leading to the decision to remand the matter back to the A.O. for a detailed examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46034 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2022-2023
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Search and seizure
• Section: 143(2); 73; 37

Judgement Text

"1 आयर अपीलȣय Ûयायाͬधकरण मɅ, हैदराबाद ‘बी’ बɅच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Įी मंजूनाथ जी, माननीय लेखा सदèय एवं Įी रवीश सूद, माननीय ÛयाǓयक सदèय SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER आयकरअपीलसं./I.T.A.No.705/Hyd/2024 (िनधाŊरण वषŊ/ Assessment Year:2022-23) Gravton Motors Private Limited, Hyderabad. PAN: AAHCG7638Q VS. Income Tax Officer, Ward-2(1), Hyderabad. (अपीलाथŎ/ Appellant) (ŮȑथŎ/ Respondent) करदाता का Ůितिनिधȕ/ Assessee Represented by : Ms. CA Mrudulatha, राजˢ का Ůितिनिधȕ/ Department Represented by : Dr. Sachin Kumar, Sr.AR सुनवाई समाɑ होने की ितिथ/ Date of Conclusion of Hearing : 13.03.2025 घोषणा की तारीख/ Date of Pronouncement : 19.03.2025 O R D E R Ůित रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 27/05/2024, which in turn arises from the order passed by the A.O under Section 2 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 04/03/2024 for the assessment year 2022-23. 2. The assessee company has assailed the impugned order on the following grounds of appeal before us: “1. The order of the Additional / Joint / Deputy / Assistant Commissioner of Income Tax / Income Tax officer, National e-assessment Centre (Learned Assessing Officer) and the Learned. CIT(A) is totally contrary to the facts and evidence on record and therefore unsustainable both on facts and in law. 2. The Learned CIT(A) and the learned Assessing Officer erred in not considering the submission made by the appellant and thereby disallowing expenses to the extent of Rs. 54,94,166/-. 3. The Learned CIT(A) and the Learned Assessing Officer erred in disallowing the expenses by stating that sufficient submission was not made which is not the correct fact as the appellant had submitted the information called for. 4. The Learned CIT(A) and the Learned Assessing Officer failed to consider the facts that the appellant is in a pre-revenue stage and is incurring expenses in building the technology. 5. The Learned CIT(A) and the Learned Assessing Officer erred in arbitrarily considering an increment of 20% in expenses without providing any valid basis for this arriving at such percentage. 6. The Learned CIT(A) and the Learned Assessing Officer failed to bring out any cogent reasons for the relevant assessment year in disavowing the expenditure despite the appellant submitting all the supporting documents for the same. 7. The Learned CIT(A) and the Learned Assessing Officer erred in considering the previous years’ expenditure of the appellant as the basis to disallow expenditure for A.Y 2022- 23 when the appellant had submitted the necessary evidences for the relevant A.Y. 8. The Learned. Assessing Officer failed to clearly bring out the reasons for scrutiny whether it was complete or limited, and in doing so has gone beyond the purview of the reasons stated in the order thereby invalidating the entire assessment proceedings. 3 9. Any other ground(s) that may be urged at the time of hearing.” 3. Succinctly stated, the assessee-company had e-filed its return of income for the A.Y 2022-23 on 19/10/2022 declaring its total income at NIL. Subsequently, the case of the assessee-company was selected for scrutiny assessment under Section 143(2) of the Act. 4. During the course of the assessment proceedings, the A.O observed, that the assessee-company during the year under consideration as well as in the preceding and succeeding years, had based on high-pitched expenses disclosed substantial losses. The A.O. vide his letter dated 23/01/2024, called upon the assessee-company to furnish complete details of the expenses in excess of Rs. 50,000/- alongwith supporting documentary evidence. In compliance, the assessee-company filed with the A.O. the details of expenses in excess of Rs. 50,000/- incurred during the subject year alongwith the copies of supporting bills/vouchers. Thereafter, the A.O. vide his notice dated 13/02/2024, inter alia, observed that the assessee-company had debited certain expenses as regards which variation was proposed. In reply, the assessee-company vide its letter dated 20/02/2024, submitted that it had already with its earlier reply dated 27/01/2024 placed on record the ledger wise details of expenses incurred in excess of Rs. 50,000/- alongwith copies of supporting bills. The assessee- company also enclosed the ledger statement of the major expenses for 4 the subject year grouped under the head “office/administration expenses”. 5. The A.O. after analyzing the reply filed by the assessee-company, observed that the latter had debited huge expenses in its “Profit & Loss Account” for the subject year. Also, it was observed by him that the assessee-company since its incorporation i.e., on 02/04/2019, had consistently till the year succeeding the subject year disclosed its gross receipts/revenue from operations at Rs. NIL. Accordingly, the A.O taking cognizance of the fact that the expenses debited by the assessee- company during the subject year were substantially highly pitched as against those for the immediately preceding year i.e., A.Y 2021-22, thus allowed its claim for deduction of the said respective expenses only to the extent of 20% in excess of that it had booked in the immediately preceding year i.e., A.Y 2021-22. Accordingly, the A.O., based on his aforesaid observations declined the assessee’s claim for deduction of expenses to the tune of Rs. 54,94,166/-. For the sake of clarity, the observations of the A.O based on which he had worked out the disallowance at Rs. 54.94 lakhs (approx.) are culled out as under: “During the course of the assessment proceedings, on verification of the Profit & Loss Account and ITR, assessee has debited following huge expenses. Further, on verification of gross receipts / Revenue from operation of FY 2020-21 is NIL and in FY 2021-22 also Rs. NIL. Expenses Amount (Rs.) Amount (Rs.) 20% addition of expenses Actual expenses in A.Y 2022- Addition amount (Rs.) in 5 amount of A.Y 2021- 22 (Rs.) 23 Amount (Rs.) (3+4 A.Y 2022- 23 (2-5) 1 2 3 4 5 6 Salary and Wages 50,26,319 23,93,444 4,78,688 28,93,444 21,32,875 Advertisement 25,38.877 6,07,748 1,21,549 7,29,297 18,09,580 Office Maintenance 7,91,092 2,63,982 52,796 3,16,778 4,74,314 Travelling Expenses 7,49,422 54,741 10,948 65,689 6,83,733 Professional / Consultancy Fees / to other 9,03,426 4,16,469 93,293 5,09,762 3,93,664 Total: 54,94,166 6. Aggrieved, the assessee company carried the matter in appeal before the CIT(A). As the CIT(A) did not find any infirmity in the disallowance of expenses carried out by the A.O., therefore, he upheld the same and dismissed the appeal. 7. The assessee-company, being aggrieved by the order of the CIT(A), has carried the matter in appeal before us. 8. We have heard the learned Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record. 9. Ms. Mrudulatha, the Learned Authorized Representative (in short, “ld.AR”) for the asssessee company, at the threshold of hearing, submitted that the A.O had most arbitrarily disallowed the assessee’s claim for deduction of expenses. Elaborating on her contention, the ld. AR submitted that the assessee-company in compliance to the letter dated 23/01/2024 of the A.O., wherein it was called upon to furnish 6 the complete details of expenses in excess of Rs. 50,000/-, had filed with him the requisite details reply alongwith supporting documentary evidence, Pages 11, 12 to 73. The Ld. A.R submitted that the A.O. had thereafter neither pointed out any infirmity in the claim of expenses as was raised by the assessee-company nor directed it to furnish any further details to support the same. Carrying her contention further, the ld. AR submitted that the A.O. while drawing adverse inferences as regards the assessee’s claim of expenses, had lost sight of the material fact that the latter was in the pre-revenue stage and was incurring expenses in building the technology. The ld. AR further submitted that the method adopted by the A.O. for part-disallowing the assessee’s claim of expenses incurred in the normal course of its business, i.e., allowing the same only to the extent of 20% in excess of that it had booked in the immediately preceding year i.e. A.Y 2021-22, therein smacked of arbitrariness and was devoid and bereft of any logical reasoning. 10. Per contra, the Learned Departmental Representative (in short “Ld. DR”) relied on the orders of the lower authorities. 11. We have heard the learned Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record. 7 12. Controversy involved in the present appeal lies in a narrow compass, i.e. sustainability of the disallowance by the A.O. of the assessee’s claim for deduction of expenses for the subject year which thereafter had been approved by the CIT(A). 13. Admittedly, it is a matter of fact discernible from the record that the A.O vide his letter dated 23/01/2024, Page 11 of the APB, had called upon the assessee-company to furnish the complete details of expenses that it had incurred during the subject year in excess of Rs. 50,000/-. As observed by us herein above, the assessee-company had, vide its reply, furnished the complete details of the expenses in excess of Rs. 50,000/- alongwith copies of supporting bills/vouchers, Pages 12 to 73 of the APB. Also, we find that the A.O had thereafter vide his “Show-cause” notice (in short, “SCN”) dated 13/02/2024, observing that the assesee’s claim for expenses debited in the “Profit & loss Account” were found to be substantial, inter aila, proposed a variation of the same. In reply, the assessee-company vide its letter dated 20/02/2024, had submitted that it had already furnished the requisite details vide its reply dated 27/01/2024. Apart from that, the assessee- company had enclosed the ledger statements of the major expenses for the subject year grouped under the head “Office/administration expenses”. 8 14. We have thoughtfully considered the methodology adopted by the A.O. for disallowing the assessee’s claim of expenses to the tune of Rs. 54.94 lacs (supra). We are unable to persuade ourselves to concur with the manner the A.O. had worked out the part disallowance of the expenses in the hands of the assessee-company. Although the A.O had adopted the assessee’s claim for expenses for the immediately preceding year i.e., A.Y 2021-22 as a yardstick, but had without giving any cogent basis nor pointing out any infirmity in its book results for the subject year circumscribed its claim of expenses to the extent of 20% in excess of what it had booked in the immediately preceding year i.e. A.Y 2021-22. We are unable to fathom that as to how the claim for deduction of expenses by the assessee-company could have been circumscribed and consequentially disallowed based on the aforesaid methodology so adopted by the A.O. As there is nothing discernible from the orders of the lower authorities which would reveal that the assessee’s claim for deduction of expenses was not as per the mandate of section 37 of the Act, we are afraid that the same cannot be subscribed on our part. 15. At the same time, holding a firm conviction that the issue as regards the allowability of the assessee’s claim of expenses requires to be looked into and verified by the A.O., we, thus, set-aside the matter to his file with a direction to re-adjudicate the same as per the mandate of law. Needless to say, the A.O. shall, in the course of the set-aside 9 proceedings, afford a reasonable opportunity of being heard to the assessee-company which shall remain at liberty to substantiate its claim for deduction of expenses based on fresh documentary evidence, if any. 16. Resultantly, the appeal filed by the assessee-company is allowed for statistical purposes in terms of our aforesaid observations. 19th माच[, 2025 को खुलȣ अदालत मɅ सुनाया गया आदेश। Order pronounced in the Open Court on 19th March, 2025. Sd/-/- (मंजूनाथ जी) (MANJUNATHA G.) लेखा सद˟/ACCOUNTANT MEMBER Sd/- Sd/- (Įी रवीश सूद) (RAVISH SOOD) Ɋाियक सद˟/JUDICIAL MEMBER Sd/- Sd Hyderabad, dated 19.03.2025. ***OKK/sps आदेशकी Ůितिलिप अŤेिषत/ Copy of the order forwarded to:- 1. िनधाŊįरती/The Assessee : Gravton Motors Private Limited, Plot / Shed No. 27, Phase-1, IDA Cherlapally, Hyderabad, Telangana-500051. 2. राजˢ/ The Revenue : Income Tax Officer, Ward-2(1), Hyderabad, Telangana. 3. The Principal Commissioner of Income Tax, Hyderabad 4. िवभागीयŮितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT, Hyderabad 5. The Commissioner of Income Tax 6. गाडŊफ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Hyderabad "