M/s. Bhavani Energy Solution & Tech. P. Ltd., Rajkot V. The ITO, Ward-1 (1) (2), Rajkot

ITA 106/RJT/2020

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8311 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 12-02-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 21-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH KUMAR PANDEY
• Keywords: Loose papers
• Section: 2; 69C; 44AB; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o .1 0 6 /R j t /2 02 0 ( A s se ss m e nt Y e a r : 20 15- 16 ) B h a va ni E ne r g y S o l uti o n s & Te ch . Pv t. Lt d. , A - 2 0 2 , Sh ya m a l Pl a za , N r . Ra i ya C ir cl e , R ai ya R o a d , R a j k ot - 3 6 0 00 7 V s . In c o me Ta x O f f ic e r , War d- 1( 1 ) ( 2 ) , Ra j ko t [ P A N N o . AA EC B 0 8 8 4E ] (Appellant) .. (Respondent) Appellant by : Shri Kalpesh Doshi, A.R. Respondent by: Shri Ashish Kumar Pandey, Sr. DR D a t e of H ea r i ng 13.02.2024 D a t e of P r o no u n ce me nt 08.03.2024 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, (in short “Ld. CIT(A)”), Rajkot vide order dated 16.01.2020 passed for Assessment Year 2015-16. 2. The assessee has taken the following grounds of appeals:- “1. The addition made in respect of unexplained expenditure amounting to Rs. 4,73,865/- be added. Appellant craves leave to add, amend, alter or withdraw any grounds of appeals.” 3. At the outset, we observe that the appeal is time barred by 91 days. Before us, the Counsel the assessee submitted that the appeal in filing was delayed due to order and countrywide lockdown due to corona pandemic and a prayer was made that in the interest of justice since the assessee has a good ITA No.106/Rjt/2020 Bhavani Energy Solutions & Tech. Pvt. Ltd. vs. ITO Asst.Year –2015-16 - 2 - case on merits, the delay in filing of appeal may kindly be condoned. Looking into the instant facts, we are hereby condoning the delay in filing of appeal, in the interest of justice. 4. The brief facts of the care are that the assessee company, M/s. Bhavani Energy Solutions Pvt. Ltd. is engaged in the business of trading and Works Contract of Electric Items. It mainly does contract work for State Governments & PSUs. It has two directors on its board namely Shri Girishbhai N. Solanki and Shri Chandreshbhai N. Bhayani (Solanki). The company commenced its business in 2011-12. The assessee e-filed return of income on 29.09.2015 declaring total income of Rs.1,82,400/-. During the survey proceedings, back- up of computers installed in the premises of the assessee was taken in HDDs, which were impounded along with the working copy. 5. After close scrutiny of entries in various materials impound during the course of survey, the AO observed that certain entries were found unmatched / not accounted for in the books of accounts in the expense ledger of the assessee. The AO issued show cause notice to the assessee, in response to which the assessee submitted that all the expenses were already accounted in their books of account, and due to mistake of accountant, these expenditures were accounted cumulatively and not individually. However, the AO held that the assessee has not been able to match the expenses on one to one basis and in absence of a clear and satisfactory explanation, the expenses remained unexplained. Therefore, the AO added a sum of Rs.4,73,865/- being unexplained expenditure to the income of the assessee under Section 69C of the Act. ITA No.106/Rjt/2020 Bhavani Energy Solutions & Tech. Pvt. Ltd. vs. ITO Asst.Year –2015-16 - 3 - 6. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee by observing that it is an uncontroverted fact that the impugned expenses have not been accounted for in the books of accounts. Further, the explanation of the assessee that these expenses were first incurred by the employees at respective sites, which were subsequently reimbursed by the assessee to employees is also not acceptable since the assessee has not filed confirmation from the employees to whom reimbursement was made. Further, the assessee has also failed to show any entries of reimbursement in his books of accounts. Accordingly, Ld. CIT(Appeals) confirmed the addition in the hands of the assessee, with the following observations: “Brief facts of the case are that during the course of survey some diaries and loose paper file were impounded which contained entries of expenses which were not found accounted for in books of account. The Assessing Officer after analyzing the various entries impounded documents issued show cause notice contained on page-4 assessment order wherein he listed the unmatched entries. The Total amount involved in the unaccounted entries is Rs. 4,73,865/-. These expenses of assessee were not found accounted and impugned addition was made which is agitated in this appeal. During appellate proceedings the assessee has contended that these expenditure were site expenditure made by the employees and same are accounted for in books of account of M/s. Bhavani Energy Solutions & Tech. Pvt. Ltd and that the assessee follows the procedure in which the supervisor pays for the expenses and the assessee reimburses him and therefore day to day matching is not possible. Having considered facts and circumstances of the case, I find that the contentions of assessee are not tenable. It is uncontroverted that the assessee has failed to satisfactorily show that the impugned expenses have been unaccounted for in books of accounts. It is highly improbable that the employee of assessee would make the payment out his own pocket and then get the reimbursement from the assessee. Even in that case the assessee ought to have filed proper confirmation from the employee with explained source of funds in his hand. No such exercise has been carried out by assessee. The assessee has also failed to show any entries of reimbursement in his cash book. In these facts and circumstances, the contentions of assessee lack any credence or merit. The same are therefore rejected. Ground of appeal is dismissed. 7. For statistical purpose, the appeal of the assessee is to be treated as dismissed.” ITA No.106/Rjt/2020 Bhavani Energy Solutions & Tech. Pvt. Ltd. vs. ITO Asst.Year –2015-16 - 4 - 7. The assessee is an appeal before us against the said additions confirmed by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that the assessee has maintained regular books of accounts and relevant documents for the year under consideration. The books of the accounts of the assessee have been duly audited under Section 44AB of the Act, and no defects have been found in the books of accounts of the assessee. With regards to the additions made by the AO, the assessee submitted that the expenses have been incurred by the employees of the company as site expenses viz. cement, expenses, labour, expenses, chemical expenses, pipe, fitting expenses, etc. In the books of accounts, the same have been debited in the profit and loss account as “site, labour wages” under the head “employee benefit expenses”. It was submitted that the practice of the assessee is that the employees of the company pay for expenses at site and later on the company reimburses the amount of expenses to it’s employees. The counsel for the assessee submitted that the expenses shown in the loose papers are duly accounted for, however, since the expenses are merged with other expenses and therefore the direct expenses could not be tallied in the books of accounts. Further, it was submitted that the turnover of the company has also increased substantially during the year under consideration and the assessee is showing reasonable income during the year under consideration. The counsel for the assessee also submitted that looking into the instant facts, a reasonable disallowance may be made in the hands of the assessee. 8. In response, DR submitted that the assessee has not been able to give any plausible explanation why expenses like cement, expenses, labour, expenses, chemical expenses, pipe, fitting expenses, etc have all been incurred by the employees at their site and later reimbursed by the assessee company. ITA No.106/Rjt/2020 Bhavani Energy Solutions & Tech. Pvt. Ltd. vs. ITO Asst.Year –2015-16 - 5 - As per the DR, this is not the normal practice being followed in this line of business. Further, the DR are also placed reliance on the observations made by Ld. CIT(Appeals) which are to the effect that the assessee has also not been able to file any confirmation by the employees to show that they had incurred the expenses, which were later reimbursed by the assessee company. Further, DR also submitted that the assessee he has also failed to show entries of reimbursement in his cashbook as well. Accordingly, it was submitted that the CIT has correctly confirmed the additions, looking into the instant facts. 9. We have heard the rival contentions and perused the material on record. In the case of Yadu hari Dalmia4 Taxman 525 (Delhi), the High Court held that even though Section 69C came into force with effect from 01.04.1976, the provision is merely clarificatory and embodies a rule of evidence which is even otherwise quite clear. When there is direct and clear evidence of expenditure not recorded in the books, the ITO would be entitled to treat the amount of expenditure or unexplained part of it as income from undisclosed sources, as the case of proven expenditure is in principle no different from that of a cash credit. In the case of Srinivasa Ferro Alloys Ltd. 51 taxmann.com 512 (Andhra Pradesh), the High Court held that as regards objection relating to disallowance of expenses, the Tribunal found that each of the amounts which are added by invoking Section 69C, did not form part of the books of account and that there was no proper explanation or supporting material, as to their source, in spite of opportunity was given to the appellant by the Assessing Officer. Section 69C would take in its sweep, not only of the expenditure which was reflected in the books of account but also the other items of expenditure regarding which no proper explanation is forthcoming from the assessee, once they were discovered in the course of search and seizure. To ITA No.106/Rjt/2020 Bhavani Energy Solutions & Tech. Pvt. Ltd. vs. ITO Asst.Year –2015-16 - 6 - give any other meaning to the Section would defeat the very purpose, for which it has been incorporated in the statute. 10. In the instant facts, we observe that the assessee has not been able to give any plausible explanation for the aforesaid expenses i.e. why they were not accounted for in the books of accounts, the assessee has not been able to file any confirmation of employee’s to whom such expenses were reimbursed, and the assessee has also failed to show entries of reimbursement in his cashbook as well. The assessee has only relied on the fact that books of accounts were audited and turnover of the assessee has increased during the year. However, looking into the instant facts and the plea of the Ld. Counsel for the assessee that a reasonable disallowance may be made, in the interests of justice, the disallowance of restricted to 25% of disallowance made by the Ld. Assessing Officer. 11. In the result, the appeal of the assessee is partly allowed. This Order pronounced in Open Court on 08/03/2024 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 08/03/2024 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/ Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot