Choudhary Chhagan Lal & Sons , Rajsamand V. ITO, Ward-2, Rajsamand

ITA 198/JODH/2019

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7910 (ITAT-JODHPUR)
• Duration Of Justice: 4 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 29-01-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 27-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Retrospective amendment; Additional evidence; TDS; Set aside
• Section: 143(3); 142(1); 40(a)(ia); 201(1); 201; 143(2); 44AB; 194A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER & SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER I.T.A. No.198/Jodh/2019 Assessment Year: 2013-14 Choudhary Chhagan Lal & Sons Bus Stand, N.H. No. 8, Nathdwara, Rajsamand-313001. [PAN:AAEFC1964F] (Appellant) Vs . Income Tax Officer, Ward-2, Rajsamand. (Respondent) Appellant by Sh. Rajesh Deopura, C.A. Respondent by Ms. Nidhi Nair, Sr. DR Date of Hearing 30.01.2024 Date of Pronouncement 10.04.2024 ORDER Per:DR. S. Seethalakshmi, JM: This appeal filed by assessee is arising out of the order of the Learned Commissioner of Income Tax (Appeals)-1, Udaipur dated 15.02.2019 [here in after “ld.CIT(A)”] for assessment year 2013-14, which in turn arise from the order dated 28.01.2016 passed under section 143(3) of the Income Tax Act, by the ITO, Ward-2, Rajsamand. 2. In this appeal, the assessee has raised following grounds: - I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 2 “ 1. The ld. CIT(Appeals) erred in law and facts of the case and upheld the ad hoc lump sum disallowance Rs. 50,000/- out of Tanker plying expenses made by the AO, be deleted. 2. The ld. CIT(Appeals) erred in law and facts of the case and upheld the ad hoc disallowance Rs. 1,38,192/- out of total selling & distribution expenses made by the AO, be deleted. 3. The ld. CIT(Appeals) erred in law and facts of the case and upheld the disallowance of interest expenses Rs. 3,01,189/- u/s 40(a)(ia), be deleted. 4. The petitioner craves leave to add, alter any of the grounds of appeal before or at the time of hearing.” 3. Brief fact of the case is that the assessee firm e-filed its return of income on 25.09.2013 declaring total income at Rs. 6,36,570/- which was processed u/s 143(1). Thereafter, the case was selected for scrutiny through CASS (Computer Assisted Scrutiny System) and accordingly notice u/s 143(2) was issued on 03.09.2014 and duly served upon the assessee firm through registered A/D post. Thereafter, notice u/s 142(1) alongwith questionnaire was issued on 03.07.2015 seeking specific details/documents alongwith books of accounts. The assessee firm attended from time to time, furnished requisite details/documents and according thereto the case was discussed with him. 3.1 The assessee is a partnership firm and having dealership of Indian Oil Corporation. The firm is deriving income by way of sale of petrol, diesel, oil, grease and miscellaneous goods to be used for vehicles. During the year under consideration, the assessee firm has shown gross profit of Rs. 86,30,587/- on total turnover of Rs 46,37,61,197/- declaring GP rate of 1.86% which is better I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 3 than the G.P. rate of 1.69% declared for the just preceding year and the G.P. rate of 1.67% declared for the assessment year 2011-12. During the course of assessment proceedings, the assessee firm was asked to state reasons for such low gross profit on the large gross receipts. In compliance, the A.R. of the assessee firm vide his written submission dated 25.08.2015 & 25.01.2016. The reply of the assessee firm has been considered. During assessment proceedings, the assessee firm was asked to furnish necessary details and to produce complete books of accounts and other records for verification of trading results declared. 3.2 In compliance thereto the required details were furnished. Books of accounts consisting of cash book, ledger, bank books, purchase & sales vouchers, bills and vouchers for expenses, details of loans and advances etc. alongwith relevant documents were produced. The details furnished and records produced were put to test check. On scrutiny, the purchase and sales have been found vouched and Administrative, other and financial expenses have also been found vouched. In view of above facts trading results declared by the assessee firm are accepted without any further interference. On scrutiny of the case and on going through the P. & L. account of the firm for the year under consideration, it was noticed that during the year Rs. 7,05,318/- have been shown as income from Tanker. During the course of assessment proceedings, the assessee firm was asked to produce complete details of tanker income along I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 4 with bills and vouchers for expenses. In compliance, it was submitted that during the year gross hire receipts was of Rs. 39,92,332/ against which expenses of Rs. 32,87,014/- have been claimed. On going through the details of expenses, it was noticed that expenses incurred against income from Tanker were not found fully vouched. Either there were no vouchers for some of expenses or there were internal vouchers. Therefore, tanker expenses are not fully verifiable. Therefore, consider it fair and reasonable to disallow a lump sum amount of Rs. 50,000/- to plug all possible leakage on account of tanker expenses. 3.3 During the course of assessment proceedings, perusal of profit and loss account reveals that the assessee has claimed the following expenses during the year under consideration:- S. No. Head of Expenses Amount 1. Festival Expenses Rs. 1,63,840/- 2. Office Expenses Rs. 2,24,017/- 3. Staff Welfare Expenses Rs. 2,87,306/- 4. Vehicle Expenses Rs. 5,73,144/- 5. Depreciation on car/scooter Rs. 1,33,608/- Total Rs. 13,81,915/- During the course of assessment proceedings, it was noticed that the expenses debited on account of festival expenses, office expenses, staff welfare expenses and vehicle expenses are excessive looking to the expenses incurred during the preceding year. To verify the claim, the assessee was asked to produce all bills and vouchers in support of the above expenses. In compliance, necessary details I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 5 alongwith bills and vouchers were filed during the course of assessment proceedings. On going through the same, it was noticed that these expenses were not fully vouched. Either there were no vouchers for some of the expenses or there were internal vouchers. In the use of vehicles, personal element by the partners and their family members may not be denied. Therefore, Rs. 1,38,192/- being 10% of the above expenses on account of non verifiable nature as well as personal use are disallowed and added back to the total income of the assessee firm. 3.4 On going through the Schedule-9 (Financial expenses) annexed to the Audit Report, it was noticed that the assessee firm paid interest of Rs. 3,01,189/- to M/s Indian Oil Corporation Ltd. during the financial year relevant to the assessment year under consideration on which the assessee firm was liable to deduct tax at source as per Provisions of Section 194A of the IT. Act. However, as per information available on records, the assessee firm had not deducted tax at source on such interest payment of Rs. 3,01,189/-. During the course of assessment proceedings, the assessee firm was asked that as to why interest expenses of Rs. 3,01,189/-may not be disallowed and added to the total income of the assessee firm. In response, the A.R. of the assessee firm vide written submissions dated 30.12.2015. I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 6 3.4 The reply of the assessee firm has been considered but not found acceptable due to the following reasons:- 1. During the year under consideration, the assessee firm paid interest of Rs. 3,01,189/- to M/s Indian Oil Corporation Ltd. on which the assessee firm was liable to deduct tax at source as per Provisions of Section 194A of the IT. Act. 2. As per records, the assessee firm failed to deduct tax at source on the interest payment of Rs. 3,01,189/- to M/s Indian Oil Corporation Ltd. 3. It has been claimed by the assesssee firm that M/s IOCL has already paid taxes on such interest payment. However during the course of assessment proceedings, the assessee firm failed to brought such material on records that interest receipt has been included in the total income of M/s IOCL and due taxes have been paid. 4. The assessee firm failed to comply with the provisions of Section 194A of the IT. Act. From the above discussion, it is evident that the assessee firm failed to deduct tax at source as per Provisions of Section 194A of the Act on the interest payment of Rs. 3,01,189/- to M/s Indian Oil Corporation Ltd. Hence interest expenses amounting to Rs. 3,01,189/- is hereby disallowed as per provisions of I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 7 Section 40(a)(ia) of the Act and same is added back to the total income of the assessee firm. 4. Aggrieved from the order of the assessing officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds of the appeal so raised by the assessee, the relevant finding of the ld. CIT(A) is reiterated here in below:- “ 4.2 I have considered the assessment order, appellant's submissions and documents on record. The AO made addition of Rs.50,000/- to the total income on account of unverifiable expenses included in tanker expenses. The appellant has contested that the AO has not specified any specific expense for which disallowance is made and no proper opportunity was given to the appellant. I find that neither the AO nor the appellant have made any efforts to specify the tanker expenses incurred under various heads. From the details filed, it is seen that total hire receipts of the appellant were Rs.39,92,332/- and after claiming expenses of Rs. 32,87,014/-, the appellant returned net income of Rs. 7,05,318/- Huge expenses are claimed under following heads which are not fully veriflable: The possibility of some of the expenses being not verifiable out of the above expenses cannot be ruled out. Looking to the nature and volume of appellant's business, the addition made at Rs.50,000/- appears to be quite reasonable, the same is confirmed. This ground is dismissed. 5.2 I have considered the assessment order and submissions of the appellant. I find that the AO has disallowed Rs. 1,38,192/- being 10% of the aforesaid expenses claimed in the P&L account observing that the various expenses claimed by appellant were not properly vouched and involvement of personal element cannot be ruled out. The appellant has failed to rebut these observations of the AO during the course of appellate proceedings. Considering these facts, the disallowance made at 10% of these expenses appears to be quite reasonable therefore the addition made at Rs. 1,38,192/- is confirmed. This ground of appeal is dismissed. 6.2 I have considered the facts of the case, the AO's order and appellant's submissions. The AO disallowed the interest payment of Rs. 3,01,189/- as per the provisions of sec. 40(a)(ia) of the Act because the appellant failed to deduct the TDS on this payment. The appellant has submitted that second proviso to section 40(a)(ia) inserted by the Finance Act, 2012 w.e.f. 01.04.2013 has provided that where an assessee fails to deduct tax on the sum paid to the resident but such resident payee has furnished the I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 8 return, has taken into account such sum for computing income and has paid the tax due on this income then it will be deemed that assessee has deducted and paid the tax on such sum on the date of furnishing of return by the resident payee, interest expenses have been paid through banking channel to the renowned undertaking Indian Oil Corporation Ltd. (IOCL) which has taken into account this income and paid taxes thereon. During the course of appeal proceedings, the appellant was asked to file documentary evidence regarding filing of return for the relevant assessment year by M/s IOCL to whom the interest payment has been made. However, the Id. AR expressed his inability to produce any details in this regard. Therefore, this contention of the appellant being not supported by any documentary evidence is rejected. Considering the factual and legal position as discussed above, I hold that the AO was perfectly justified in disallowing the sum of Rs. 3,01,189/- being interest payment made during the year on which TDS was not deducted as per sec. 40(a)(ia) of the Act. The addition made at Rs. 3,01,189/- is sustained. This ground is dismissed.” 7. In the result, the appeal is dismissed. 5. As the assessee did not receive any favour from the appeal filed before ld. CIT(A). The present appeal filed against the said order of the ld. CIT(A) before this tribunal on the grounds as reiterated in para 2 above. To support the grounds so raised the ld. AR appearing on behalf of the assessee has placed reliance on the written submission which is extracted herein below:- “MAY IT PLEASE YOUR HONOURS, The appellant ,above named, respectfully submits as under:- That the appellant preferred an appeal before this Hon’ble Tribunal having appeal No. 198/JODH/2019.The brief facts thereof and appellant‘s submission are submitted herewith for necessary consideration of your honour ,please. (A)BRIEF FACTS OF THE CASE 1. That the business activities of the appellant firm have been dealership of Indian Oil Corporation Ltd. since 29.08.1966 to trade in petrol, diesel, oil, grease etc. 2. That present appeal petition has been against the order dated 28.01.2016 of Ld. AO, Ward-2, Rajsamand , whereby his goodself has made lum sum adhoc disallowance of Tanker operating expenses Rs.50,000/- and selling and administrative Exp. Rs.138192/- I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 9 without any basis. Further he also disallowed interest expenses incurred without making TDS Rs.301189/-u/s 40 (a)(ia) of the Act. On further appeal, ld. CIT (A)-1, Udaipur has arbitrary upheld the additions/disallowance made by the ld. AO. (B)OUR SUBMISSION GROUND No.1: “The ld. CIT (Appeals) erred in law and facts of the case and upheld the ad hoc lum sum disallowance Rs.50000/-out of Tanker plying expenses made by the AO, be deleted.” 1.1 It was submitted to ld. CIT (A) that income from the Tanker Lorry as per the books of accounts verified on the part of ld. A O, before and after depreciation has been as under : Particulars A.Yr.2012-13 A.Yr.2013-14 Gross Hire Receipts 2875456 3992332 Less: Operating Expenses 2651888 3287014 Income before int.& dep. (PB No.3 & 7) 223568 705318 Less: Interest on Bank loan 155772 125242 Income before Depreciation 67796 580076 Less: Depreciation 341005 585231 Income after depreciation (-)273209 (-) 5155 From the comparative details appended above it is apparent that income before depreciation has been comparatively so far better in compare to the preceding assessment year 2012-13. Increase in income before depreciation has been aroused to 12.83% from the preceding assessment year. Ignoring this fact on the part of ld. AO in passing the order of assessment and calling for lump sum addition in income by disallowing expenses Rs.50,000/- amount to be bad in law. 1.2 It is also submitted that books of accounts have been regularly under Tax Audit and no adverse comments of the auditor in regard to expenses incurred or otherwise are there. Besides it ld. AO has not in possession of any corroborative or concrete papers /evidence to held expenses false and not subject to verification as he himself stated as .......it fair and reasonable to disallow a lump sum amount of Rs.50,000/- to plug all possible leakage on account of tanker expenses. AO’s such imaginary allegation, real cannot be unreal as incurrence of expenses cannot be denied. 1.3 Sir, as per practice prevailed in transportation business, expenses starts too nominal from Rs.1/-only. Each and every expenses cannot be supported by “pucca” bills being it’s nature as business have to operate with the help ofillliterate person like drivers, cleaners, mistri etc. Further expenses in route are incurred by the drivers who being semi literate forget to collect vouchers and route expenses to facilitate inspection officials and others for passing from check post and routes vouchers not available but every one prevailed to incur these otherwise business stand to be held up. I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 10 1.4 That presumption of ld. AO......”that expenses incurred against income from Tanker were not found fully vouched. Either there were no vouchers for some of expenses or there were internal vouchers. Therefore ,tanker expenses are not fully verifiable.” This presumption of the AO stand entirety wrong for the fact that without incurring expenses , Truck/ Tanker lorry cannot be operated . This has been universal fact and even propounded by the Apex Court of India in some of decisions as “route expenses” required to be incurred discussed in above para are basically in nature “ Secret Expenses” for which vouchers are not available but incurrence of which can never be ignored. Thus looking to the nature of business and practice prevailed in this line of business some vouchers are not available as has been presumed by ld. AO and on this ground disallowance cannot be called for too in situation where comparatively results are better than the preceding assessment year. 1.5 Further ld. CIT (A) also erred and support the imagination of the AO and stated in her order that the possibility of some of the expenses being not verifiable cannot be ruled out and, arbitrarily confirm the addition. 1.6 Hon’ble , in view of the above discussion and law facts the lump sum disallowance of expenses Rs.50,000/-made by AO and further upheld by the CIT (A) without any basis is bad in law liable to be deleted. Reliance is placed on various judicial judgments pronounced by the various courts , identical in facts to impugned petition, briefed in the ground no. 2 henceforth. GROUND No.2: “The ld. CIT (Appeals) erred in law and facts of the case and upheld the ad hoc disallowance Rs.1,38,192/-out of total selling & distribution expenses made by the AO, be deleted.” 2.1 It was submitted that in the order of assessment the AO alleged that certain following expenses incurred during the year under reference are excessive looking to the expenses incurred during the preceding year . S. No. Particulars Financial year 2011-12 (Asstt. year 12-13) Financial year 2012-13 (Asstt. year 13-14) income /exp., increase /decrease upon previous year in % Income/ Exp. Amount (Rs.) item in term of % on gross revenue Income/ Exp. Amount (Rs.) item in term of % on gross revenue 01. Sales 420799465 463761197 +10.20 02. Festival exp. 130170 0.03 163840 0.03 -Nil- 03. Office exp. 199910 0.04 224017 0.04 -Nil- 04. Staff welfare 275306 0.06 287306 0.06 -Nil- 05. Vehicle exp. 413583 0.09 573144 0.12 +0.03 06. Depreciation on car/scooter 30034 = 133608 = = Total Exp. 1049003 = 1381915 = In view of the above facts it is evident that expenses are not excessive in comparison to the previous year 2011-12 as alleged by ld. AO(PB No.4 & 8). As per above sales during I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 11 the year under petition has been increased by 10.20% upon the previous year whereas impugned expenses have not been increased except vehicle exp. which increased nominal due to increase in number of vehicles as well as increase in petrol/diesel prices. Thus allegation of ld. AO expenses are excessive from previous year is arbitrary and complete imagination of the AO. Ld. AO remained failed to understand the fact that selling & administrative expenses are align to Sales and, increase and decrease in expenses are simultaneous to increase and decrease in sales. On being asked by ld. AO , necessary details alongwith bills and vouchers were filed during the course of assessment proceedings. However ld.AO again arbitrarily alleged same as in making disallowance of Rs.50000/-as per ground no.1 that ....”these expenses were not fully vouched and either there were no vouchers for some of the expenses or there were internal vouchers” 2.2 Sir, the above presumption of ld. AO is purely under imagination and arbitrary. He did not point out any instance of non-business expenditure as well as not vouched too. Under estimation ld. AO, as usual, alleged that these expenses were not fully vouched and either there were no vouchers for some of the expenses or there were internal vouchersbut these are not identified by him. As such allegation of the AO is held wrong for the fact appellant firm has kept and maintained complete Books of accounts viz. cash book, Ledger, Journal, Bank book, Stock register, Daily sales statement summary , purchase bills & registers and expenses vouchers and salary registers etc. All these have been produced during the asstt. proceeding before the AO who held vide para no. 4 of the assessment order as ........On scrutiny , the purchase and sales have been found vouched and Administrative , other and financial expenses have also been found vouched. 2.3 Further, allegation of ld.AO again stands arbitrary and baseless in view of the better results declared in the year under petition in compare to preceding previous year 2011- 12 as detailed under (PB No.2 & 6). Particulars A.Yr.2012-13 A.Yr.2013-14 Sales 420799465 463761197 Profit before Depreciation 1165534 0.27% 1576715 0.34% Less: Depreciation 491993 840145 Profit before remuneration to partner 673541 736570 From the comparative details appended above it is apparent that profit before depreciation has been comparatively so far better from the preceding assessment year 2012-13. Increase in profit before depreciation has been aroused 0.07% from the preceding previous year. Ignoring this fact on the part of ld. AO in passing the order of assessment and calling for lump sum addition Rs.138192/- in income by disallowing expenses amount to be bad in law. I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 12 2.4 It is further submitted that books of accounts of the impugned asstt. year is under tax audit and the tax audit report u/s 44AB of the Act speaks in regard to trueness of expenses incurred as there has been no adverse comments of the auditor is there. Expenses incurred have been duly accounted and existence of expenses incurred has been recognized where each expenses entry justified the cause for payment and to whom paid .Incase of doubt ld. AO should have cross examine the payee’s. These expenditures are main and very much incidental for petrol pump and Transportation business though ld. AO adversely commented on their trueness. Petrol pump business is carried out with the help of semi literate personals who do not get pucca bills for the expenses incurred being related services/ material provided by small illiterate vendors who do not have their own sale / job book to issue bill for their services but in token of evidence are habitual to provide signature on kaccha slip/vouchers. It become essential to follow the ethics and practice prevailed in the market to have done the work. Nothing has been wrong on part of appellant firm. Internal vouchers are also duly authority under law provisions. Thus allegation of ld. AO as non vouched and internal vouchers are stand bad in law as incurrence of expenses are not disputed by ld. AO. 2.5 Further ld. AO alleged that ...”in the use of vehicles , personal element by the partners and their family members may not be denied” and upon this wrong estimation his goodself also included depreciation claimed on car /scooter Rs.133608/-under total disallowance computation . Here it is to submit that depreciation is statutory allowance and it is immaterial whether vehicles maintained in the business used for business or personal. Further partner of assessee firm has also owned personal vehicles. Under the facts this allegation of ld. AO also stand wrong and arbitrary consequently disallowance of depreciation is bad in law liable to be set aside. 2.6 Hon’ble sir, appellant would like to submit here that in the next asstt. year 2014-15, ld. AO had also made disallowance of selling & administrative expenses on the same base. But in the first appeal the same appellate authority has allowed considerable relief under the disallowance of expenses , on the same facts as explained above , as per the order of appeal dated 26.02.2020 (PB No. 13 to 17) 2.7 Hon’ble sir, in view of the facts mentioned against ground no.1 & 2 above , action of ld. AO to disallow expenses on lump sum /adhoc basis and further upheld by the CIT(A) only on general observation itself justified wrong. No contradictory papers / documents have been in possession of ld. A O in support of his allegation. He made lump sum/ad- hoc disallowance without any basis whereas it is settled law that without finding any specific defects in the books of accounts maintained or bringing material on record addition/disallowance can’t be made . Reliance is placed on the following case laws: Dr. Prabhu Dayal Yadav vs. CIT (2018) 253 Taxman 191/89 (Allahabad HC) Absence of vouchers in books of account not to be held as undisclosed income if correctness of books was not doubted. D C I T vs. Surface Finishing Equipments (2003) 81 TTJ ( Jodhpur) 448 I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 13 “Business expenditure –Allowability- Ad hoc disallowance- A O disallowed Rs. 3000/- out of general expenses on the ground that it was not possible to verify such expenses – not justified – A O has not pointed out any specific item which was of disallowable nature – CIT ( A ) also has not gone into the merits of the case- disallowance of Rs. 2000/- sustained by the CIT ( A ) is deleted “ Lake palace Hotel & Motel (P) Ltd. vs. DCIT ( 2003 ) 81 TTJ ( Jodhpur) 657 “Business expenditure – Allowability- Miscellaneous expenses –AO has not given any finding in support of the disallowance made by him nor has pointed out specific instances to justify the said disallowance – CIT ( A ) has also given only a general observation while confirming the disallowance- said disallowance cannot be sustained “ ACIT vs B. R. OIL MILLS ( 2002)32 TAX WORLD ( Jaipur) 4 “ No disallowance out of expenses debited in P & L A/ c can be made an adhoc basis without establishing that these have not been incurred for business purpose “ Lavrids Knudsen Maskinfabrik (I)Ltd. Vs. Addl.CIT (2006) 102 TTJ ( Pune) 882 “Business expenditure –Allowability –Unverifiable expenses- A.O. made adhoc disallowances out of staff welfare expenses ,telephone expenses and misc. expenses on account of non business use and for want of verification – No cogent reasons given for making said disallowances- such disallowances being based on conjectures and surmises cannot be sustained.” National Aluminium Co. Ltd. Vs. DCIT (2006) 101 TTJ ( CTK) 948 ‘Business expenditure –Advertisement expenditure – Adhoc disallowance – AO disallowed Rs. 2 lakhs on estimate basis out of payments made towards advertisement in souvenirs on the ground that the payments in the nature of donations – Not justified – Account of the assessee ,a Govt. of India undertaking are audited – Impugned expenses are supported by proper vouchers and the transactions are fully verifiable –It could not be said that the expenses were donations- Disallowance deleted “ Upper India Publishing House (P)Ltd.vs.CIT(1979)117 ITR (Supreme Court) 569 “Unless it is determined that the expenditure was excessive or unreasonable, this section would not apply to the case “ ACIT vs Pratap Raj. Special Steel Ltd.( 2005)34 TAX WORLD 165 ( Jaipur) “Addition cannot be made without establishing the submission of the assessee as untrue.” PNC Construction Co. Ltd. vs. DCIT ,ITAT, (2013) 144 ITD 577 (Agra) Expenditure in question admittedly incurred for business purposes appearing in assessee’s books of account maintained on day-to-day basis no adhoc disallowance could be made by AO on the ground of non-production of vouchers. Fashion Suitings (P) Ltd. vs. JCIT; ITAT, (2013) 154 TTJ (Jodhpur) 1 : Commission paid by assessee to its distributors forming part of its multilevel marketing network being related to its sales, it is a genuine expenditure for business purpose and, I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 14 therefore, deductible under s. 37(1); AO was not justified in making ad hoc disallowance of Rs. 125 crores out of total commission of Rs. 159.30 crores without any basis when she has accepted the remaining commission as genuine. DCIT vs. ABC Bearing Limited ;ITAT, Mumbai ‘A’ Bench (2017) 188 TTJ 437 Business expenditure—Allowability—Disallowance on ad hoc basis—Assessee having produced complete details of expenditure, ad hoc disallowance by AO at 25 per cent as reduced by CIT(A) to 10 per cent on mere surmises without indicating any instance of non-business expenditure, could not be sustained. Sir, in the light of the facts and identical decisions of the various courts discussed in above lump sum/adhoc disallowances in question is lacking supporting evidence and entirety based on imaginations which can never convert be real from unreal therefore entire lump sum /adhoc disallowance /addition held bad in law and deserves to be deleted/set aside. GROUND No. 3: “The ld. CIT (Appeals) erred in law and facts of the case and upheld the disallowance of interest expenses Rs.3,01,189 u/s 40 (a)(ia) , be deleted. 3.1It is submitted that during the year under petition payment of interest of Rs.301189/- to M/s Indian Oil Corporation Ltd. (in short “IOCL”) without making TDS have been made by appellant . And, due to non TDS , AO arbitrarily disallowed the interest expenses. It was also submitted that such expenditure is not fall under purview of section of 194 A as well as not attracts provisions of TDS for the facts and reasons mentioned hereunder:- a) The IOCL is a central government undertaking as such TDS not required to be deducted on payments made to it. b) That whole interest expenses have been paid through banking channel to the India government’s renowned undertaking “IOCL” which is assessee of income tax. IOCL has shown the interest payments received from the appellant in their return of income and has paid the applicable income taxtheiron . Hence there is no revenue lekage on the part of the appellant and also the deductee. In the case of Jaipur Vidyut Vitran Nigam Ltd. v/s DCIT (2009) 123 TTJ 888 ;ITAT-Jaipur Bench held that –“The CBDT in circular No.5 of 2005 dated 15.07.2005 has clarified that the provisions of sec. 40 (a)(ia) is to augment compliance of TDS provision in the case of resident and curb bogus payment to them. In the present case the payment is not in dispute and on the issue whether tax is to be deducted at source on such payment is not free from doubt.” c) For the sake of convenience , now if assessee made TDS on the interest payments already fully paid , would be only a formal compliance of provisions of section 194 A r.w.s. 40(a)(ia) of the Act. As whatever TDS shall made ultimately refunded by the deductee to appellant after getting the same refund from the Income Tax Department. Because ,TDS now, shall be deposited by appellant from his own money, as TDS applicable payments has already been fully made to payee’s IOC. Therefore I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 15 deduction of tax at source on the payments already made will be a case of double taxation and which is against the natural law and justice. Reliance is placed on the decision of the apex and other court as under: Hindustan Coca Cola Beverage (P) Ltd. v/s CIT (2007) 293 ITR 226(S C) TDS- Assessee in default-Tax already paid by recipient of income-Payee has already paid taxes due on the payments received by it from the assessee-Therefore ,tax could not be recovered once again from the deductor assessee- This issue stands clarified by circular No.275/201/95-IT(B), dt. 29.01.1997. Ved Prakash Samariya vs. ACIT, Circle-5, Jaipur (ITA116/JP/2015) dt.11.3.16 (TW Vol.55 /65) “That in view of factual and legal position unless the assessee appellant is declared defaulter u/s 201(1A) of the Act ,disallowance of expenses done without making TDS u/s 40(a)(ia) of the Act ,could not be made . Therefore disallowance to be deleted.” “Further various hon’ble ITAT and High courts held that the new second proviso added in section 40(a)(ia) and first proviso in sec. 201(1) of the Act since 2012 were of curative nature and are applicable from retrospective effect from 1st April,2005.” 3.2 Sir, further in justification of our contention that payee’s IOCL furnished it’s return of income and payment of taxes etc. , a certificate dated 11.07.2019 issued by the accountant (CA Lokesh Sharma & Associates, FRN-026127C,Jaipur) under first proviso to sub section (1) of section 201 of the Income Tax Act ,1961 is attached as additional evidence (PB No.9 to 12). This evidence could not obtained earlier simultaneously could not be submitted during the assessment as well as appellate proceeding. However it is submitted before this Hon’ble bench vide letter dated 09.12.2023. 3.3 Hon’ble sir, here also appellant would like to submit that in the next asstt. year 2014-15, ld. AO had also made disallowance of interest expenses on the same base. But in the first appeal the same appellate authority has deleted the disallowance , on the same facts considering the additional evidence certificate of the accountant u/s 201(1) of the Act as explained above , as per the order of appeal dated 26.02.2020 (PB No. 18 to 22) Hon’ble in view of the above facts and circumstances and in the light of law provisions and various decisions cited as well as Additional Evidence , provisions of section 40(a)(ia) and 194 A of the IT Act, 1961 are not applicable hence interest claimed in the P & L Account Rs.301189/- is allowable as per law and disallowance made by the AO and upheld by the CIT (A) deserves to be deleted.” I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 16 PRAYER : As per the facts pointed out in above and the decisions cited , it is justified that lump sum /adhoc disallowance made out of expenses claimed as well as disallowance of interest expense paid to IOC is arbitrary and bad in law not sustainable . We therefore humbly request your honour kindly favour the natural justice and set aside/delete disallowance of expenses made by ld. AO and subsequently upheld by the CIT (A) and oblige us. 6. The ld. AR of the assessee also filed additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 which is reproduced is as under:- “With reference to the above appellant is hereby submitting additional evidence for the facts and reasons mentioned hereunder:- 1. That appellant acknowledged Annexure-A (certificate of accountant under first proviso to sub section (1) of section 201 of the Income Tax Act, 1961 for certifying the furnishing of return of income, payment of tax etc. by the payee) from the recipient of interest income by M/s Indian Oil Corporation Limited without tax deduction at source. 2. That above stated certificate Annexure could not be obtained from the Indian Oil Corporation Limited earlier and could not be produced before the lower authorities during the assessment as well as appeal proceedings. However certificate UDIN No. 19416885AAAAAD5453 dated 11.07.2019 issued by M/s Lokesh Sharma & Associates (FRN:026127C), Chartered Accountants, Jaipur is acknowledged and attached in original. 3. In view of the above facts the enclosed certificate annexure is relevant evidence to the ground of appeal taken. Hence it is humbly request to entertain the same as additional evidence and oblige us.” 7. The ld. AR of the assessee in addition to the written submission relied upon the fact that when the books of account are audited, the lump sump addition is not permitted as regards interest payment to IOC. He has submitted that IOC is subjected to tax and therefore, there is not liability of deducting I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 17 interest and as regards other disallowance of various expenses. He has submitted that the same are fully supported by the books of accounts and vouchers, therefore disallowance is not sustained. 8. Per contra, the ld. DR relied upon the orders of the lower authorities and finding of the ld. CIT(A). 9. We have heard the rival contentions, perused the material placed on record. The Bench noted that ground No. 1 raised by the assessee is in relation to lump sum addition of Rs. 50,000/- made in the hand of the assessee firm on account of the fact that the assessee has earned income of Rs. 39,92,332/- as against tanker oil receipts against these receipts the assessee has claimed Rs. 32,87,014/- as expenditure. The ld. AO without referring to any defect in the books of account and record produced by the assesseemade a lump sum addition of Rs. 50,000/- without considering the fact that the books of account of the assessee are audited and are supported by the bills and vouchers and therefore, the action of the Assessing Officer is in addition adding a sum of Rs. 50,000/- that too lumb sum without pointing any defect is not sustainable. The Bench noted that even the ld. CIT(A) has also merely stated that the “possibility of some expenses being not verifiable” and therefore, he confirmed the addition. The Bench noted that the assessee is running a petrol pump having dealership of Indian Oil Corporation as argued by the ld. AR of the assessee that these receipts are on account of running of tanker to transport petrol and diesel. And I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 18 therefore the expenditure of driver and repairing and maintenance and its fuel expenses cannot be incurred every time by an account payee cheque. Therefore considering that aspect of the matter and even the ld. AO stated that the expenditure are incurred in cash but has not commented about the genuineness of expenditure incurred and therefore, considering that aspect of the matter the addition made by the ld. AO and sustained by the ld. CIT(A) by an amounting of Rs. 50,000/- is deleted. In terms of these observation in ground No. 1 raised by the assessee is allowed. 9.1 As regards ground No. 2 raised by the assessee, the relevant fact emerges from the assessment order is that the assessee has incurred following expenses during the year under consideration:- S. No. Head of Expenses Amount 1. Festival Expenses Rs. 1,63,840/- 2. Office Expenses Rs. 2,24,017/- 3. Staff Welfare Expenses Rs. 2,87,306/- 4. Vehicle Expenses Rs. 5,73,144/- 5. Depreciation on care/scooter Rs. 1,33,608/- Total Rs. 13,81,915/- As regards the above expenditure claimed by the assessee, we note that the ld. AO has simply added 10% of the above expenditure as non verifiable and I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 19 personal use. He has not pinpointed in error in any of the expenditure as to why and how the same is not allowable. Even the ld. CIT(A) has simply stated that the claim of the assessee was not properly vouched and involved other personal element and therefore, he has confirmed the addition @ 10% made by the ld. AO. Before us, the ld. AR of the assessee submitted that the assessee is running an Indian Oil Pump where the employees and customers are regularly involved without any leave as they have to run as they are coming into essential commodities. Staff welfare and festival expenditure and office expenditure, vehicle expenses are directly related to the employees of the firm of the customers. As regards expenditure ld. AO as well as ld. CIT(A) has not pin pointed any error as regards to the claim expenditure which are supported by bills and vouchers not only same are duly reflected in the audited books of account which are audited by an independent Chartered Accountant. Therefore, considering over all aspects of the fact, we do not see any justifiable reason to sustain the addition and thus the same is directed to deleted. Based on these observations ground No. 2 raised by the assessee is allowed. 9.2 As regards ground No. 3 raised by the assessee which is related to disallowance of interest of Rs. 3,01,189/- made u/s 40(a)(ia) of the Act. In support of these ground raised by the ld. AR of the assessee submitted additional evidence under rule 29 of the Income Tax Rules, 1963 vide his letter dated 08.12.2023. The ld. AR of the assessee relying that the application for I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 20 additional evidence submitted that the assessee obtained Annexure-A being certificate of accountant in term of section 201 of Sub-section 1 of the Act and therefore, he submitted that since the India Oil has already filed that tax return the interest paid is allowable. We admitted the additional evidence and direct the ld. AO to examine the additional evidences and contention raised as to the allowability of the interest expenditure claimed by the assessee if the assessee submit the complete form No. 26A in accordance with law then the AO should admit that additional evidence and gran the relief in accordance with the law. In terms of these observations ground No. 3 is allowed for statistical purposes. In the result, the appeal of the assessee is partly allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (Rathod Kamlesh Jayantbhai) (DR. S. Seethalakshmi) Accountant Member Judicial Member Dated 10/04/02024 *Santosh (On Tour) Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) I.T.A. No.198/Jodh/2019 Choudhary Chhagan Lal & Sons 21 (5) The DR, I.T.A.T. True Copy By order