SHREE SHANKER GAURI AGRO PRODUCT PVT. LTD., BUNDI V. ASSISTANT COMMISSIONER OF INCOME TAX, SAWAI MADHOPUR

ITA 367/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0345 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 19-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Assessee Lawyers: B V MAHESHWARI
• Keywords: Depreciation; Business expenditure
• Section: 40A(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC H A JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 367/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2014-15 SHREE SHANKER GAURI AGRO PRODUCT PVT. LTD., NAINWA ROAD, BUNDI CUKE VS. THE ACIT, SAWAI MADHOPUR (RAJ.) LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAICS9124L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI B. V. MAHESHWARI (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 27/08/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: /09/2019 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), KOTA DATED 08.01.2018 WHEREIN ASSESSEE HAS TAKEN TH E FOLLOWING TWO GROUNDS OF APPEAL. 1. THAT THE LD. AO GROSSLY ERRED ON LAW AND FACTS IN MAKING DISALLOWANCE ON ADHOC BASIS OUT OF CERTAIN TRADING & MANUFACTURING EXPENSES @ 5% OUT OF THIS THE LD. CIT(A) ALLOWED RS . 32,06,63.00/- AND GROSSLY ERRED IN SUSTAINING DISALLOWANCE TO THE EXT ENT OF RS. 100,000/- ON LUM SUM BASIS. 2. THAT THE LD. AO GROSSLY ERRED ON LAW AND FACTS I N MAKING DISALLOWANCE OUT OF VARIOUS EXPENSES PARTICULARLY M ISCELLANEOUS EXPENSES FURTHER THE LD. CIT (A) ALSO ERRED IN SUSTAINING TH E DISALLOWANCE OUT OF THAT RS. 43,325.00/-. ITA NO. 367/JP/2018 SHREE SHANKER GAURI AGRO PRODUCT PVT. LTD., BUNDI V S. ACIT, SAWAI MADHOPUR 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND TRADING OF FLOUR & RICE MILL PRODUCTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, O N PERUSAL OF MANUFACTURING AND TRADING ACCOUNT OBSERVED THAT MOST OF THE EXPEN SES ARE NOT PROPERLY VOUCHED AND WERE MET BY CASH PAYMENTS. THEREFORE, T HESE EXPENSES ARE NOT SUBJECT TO VERIFICATION. IN ABSENCE OF ANY SATISFAC TORY EXPLANATION SUBMITTED BY THE ASSESSEE, GIVEN THAT MOST OF THE EXPENSES ARE N OT SUBJECT TO VERIFICATION FOR WANT OF PROPER VOUCHERS COUPLED WITH CASH PAYMENTS, TO PLUG ANY LEAKAGE OF REVENUE, 5% OF THE TOTAL EXPENSES OF RS. 84,13,267/ - AMOUNTING TO RS. 4,20,663/- WERE DISALLOWED AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. 3. ON APPEAL, THE LD. CIT(A) HELD THAT THOUGH IT I S ACCEPTABLE THAT THERE MAY BE A POSSIBILITY OF CERTAIN OVERLAP OF NON BUSI NESS ELEMENT IN THE VARIOUS EXPENSES CATEGORIZED IN THIS DISALLOWANCE DUE TO NO T HAVING THE FULL SUPPORT IN THE FORM OF DOCUMENTARY EVIDENCES. IT IS ALSO TRUE THAT THE DISALLOWANCE HINGES ON GENERAL OBSERVATION RATHER THAN SPECIFIC FINDING S. TO STRIKE A REASONABLE BALANCE BETWEEN BOTH THE VIEWS, HE UPHOLD THE DISAL LOWANCE TO THE EXTENT OF RS. 1,00,000/- AND THE BALANCE DISALLOWANCE OF RS. 3,20,663/- WAS DELETED. AGAINST THE DISALLOWANCE OF RS 1,00,000 SO SUSTAINE D BY THE LD CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 4. FURTHER, IN RESPECT OF VARIOUS EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT NAMELY CAR DEPRECIATION, CAR INSURANCE, CAR EXPENSES, TELEPHONE EXPENDITURE AND MISCELLANEOUS EXPENSES TOTALLING TO RS. 15,66,877/-, THE ASSESSING OFFICER HELD THAT IN ABSENCE OF ANY SATIS FACTORY EXPLANATION SUBMITTED BY THE ASSESSEE, MOST OF THE EXPENSES ARE NOT SUBJE CT TO VERIFICATION FOR WANT OF PROPER VOUCHERS COUPLED WITH CASH PAYMENT. ALSO, USE OF CAR AND TELEPHONE FOR PURPOSES OTHER THAN BUSINESS CANNOT BE DENIED. THEREFORE, TO PLUG ANY LEAKAGE OF REVENUE 10% OF THE TOTAL EXPENSES WERE D ISALLOWED AMOUNTING TO ITA NO. 367/JP/2018 SHREE SHANKER GAURI AGRO PRODUCT PVT. LTD., BUNDI V S. ACIT, SAWAI MADHOPUR 3 RS. 15,66,88/-. ON APPEAL, LD. CIT(A) HELD THAT HE IS NOT CONVINCED WITH THE DISALLOWANCE MADE IN RESPECT OF VEHICLES AND TELEPH ONE @ 10%. THE SAME WERE DELETED. HOWEVER, IN RESPECT OF MISCELLANEOUS EXPENSES, HE RESTRICTED THE DISALLOWANCE TO 5% WHICH COMES TO RS. 43,325/-. AGA INST THE SAID SUSTENANCE OF EXPENSES OF RS 43,325, THE ASSESSEE IS IN APPEAL BEFORE US. 5. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME DISCLOSING TOTAL INCOME OF RS.70,30,540/- AND HAS DISCLOSED GROSS PROFIT RATE OF 7% WHICH WAS ACCEPTE D BY THE ASSESSING OFFICER AND NO ADVERSE COMMENT HAS BEEN MADE IN THAT REGARD . HOWEVER, AT THE SAME TIME, CERTAIN ADHOC ADDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER WHICH HAVE BEEN PARTIALLY SUSTAINED BY THE LD. CIT(A). IT WAS SUBMITTED THAT THE OBSERVATIONS OF THE ASSESSING OFFICER THAT THE EXPE NSES ARE NOT PROPERLY VOUCHED AND MADE MOST BY CASH PAYMENTS IS NOT FACTU ALLY CORRECT. IT WAS SUBMITTED THAT EVERY EXPENSE IS SUPPORTED BY THE VO UCHERS AND CASH PAYMENT WHERE REQUIRED AS PER BUSINESS NECESSITY WERE MADE, HOWEVER WITHIN THE PRESCRIBED LIMIT OF RS. 20,000/- OF SECTION 40(A)(3 ) OF THE ACT AND ALL OTHER PAYMENTS HAVE BEEN MADE BY THE CHEQUE. IT WAS SUBMI TTED THAT THE AO HAS DISALLOWED THE EXPENSES ON LUMP SUM BASIS AND ON TH E SURMISES & CONJUNCTURES, HE HAS NOT CITED EVEN A SINGLE EXAMPL E OF NON BUSINESS EXPENSES. FURTHER IT WAS FURTHER SUBMITTED THAT EVE N LD. CIT(A) HAS NOT APPRECIATED THE MATTER IN THE RIGHT PERSPECTIVE AND HAS CONFIRMED THE DISALLOWANCE HOLDING THE SAME AS REASONABLE WHICH C ANNOT BE JUSTIFIED. 6. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDING S OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, WE FIND THAT IT IS A CLEAR CASE OF ADHOC DISALLOWANCE OF EXPENSES WHEREIN THE ASSESSING OFFICER HAS DISALLOW ED 5% OF THE ITA NO. 367/JP/2018 SHREE SHANKER GAURI AGRO PRODUCT PVT. LTD., BUNDI V S. ACIT, SAWAI MADHOPUR 4 MANUFACTURING EXPENSES, BUILDING REPAIR, HAMALI EXP ENSES, MACHINERY EXPENSES AND TRANSPORTATION EXPENSES. FURTHER, 10% OF CAR RU NNING, INSURANCE AND DEPRECIATIONS CLAIM AS WELL AS TELEPHONE AND MISCEL LANEOUS EXPENSES HAVE ALSO BEEN DISALLOWED. THERE IS NO SPECIFIC FINDING RECOR DED BY THE ASSESSING OFFICER IN TERMS OF ANY OF THESE EXPENSES HAVING NOT BEEN I NCURRED FOR THE PURPOSE OF BUSINESS OR BOGUS IN NATURE. THE DISALLOWANCE OF EX PENSES HAVE THUS BEEN MADE IN THE ROUTINE MANNER WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE VOUCHERS OR THE FACT THAT WHERE THE PAYMENTS HAVE B EEN MADE IN CASH, SUCH EXPENSES ARE NOT INCURRED FOR THE PURPOSES OF BUSIN ESS. MERE INCURRENCE OF EXPENDITURE IN CASH BY ITSELF CANNOT BE A GROUND FO R DENIAL OF GENUINE CLAIM OF THE ASSESSEE. THERE ARE BUSINESS NECESSITIES WHICH WARRANT THE ASSESSEE TO INCUR THE EXPENDITURE IN CASH, A FACT WHICH HAS BEE N RECOGNIZED BY THE LEGISLATURE AND ADEQUATE SAFEGUARDS HAVE BEEN PUT I N PLACE BY WAY OF SECTION 40A(3) OF THE ACT. THOUGH LATELY THERE IS A POLICY SHIFT TOWARDS DIGITAL AND CASHLESS TRANSACTIONS WHICH NO DOUBT IS A WELCOME S TEP IN THE RIGHT DIRECTION, AT THE SAME TIME, THERE ARE CERTAIN BUSINESS EXIGENCIE S WHICH WARRANT CASH PAYMENTS. THEREFORE, MERELY BECAUSE CASH PAYMENT H AS BEEN MADE IS NOT AN INDICATOR THAT THE TRANSACTION IS NON-GENUINE OR BO GUS OR THE CASH PAYMENT HAS NOT BEEN MADE FOR PURPOSES OF BUSINESS. WHERE IN P ARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER IS OF THE VIEW THAT THERE ARE SUSPICIOUS CASH PAYMENTS, IN SUCH A SITUATION, HE S HOULD CARRY OUT FURTHER EXAMINATION AND INVESTIGATION IN THE MATTER AND SHO ULD COME OUT WITH SPECIFIC AND CONCLUSIVE FINDINGS. HOWEVER, IN THE INSTANT C ASE, WE DONOT SEE ANY SPECIFIC FINDING RECORDED BY THE ASSESSING OFFICER. FURTHER, ON PERUSAL OF THE LEDGER ACCOUNTS PRODUCED BY THE LD. AR, IT IS OBSER VED THAT THOUGH THERE ARE CASH PAYMENTS, AT THE SAME TIME, THERE ARE ALSO PAY MENTS MADE BY CHEQUE AND ENTRIES TOWARDS EXPENSES WHICH HAVE BEEN CLAIME D AS SUBSEQUENTLY PAID BY CHEQUE. THEREFORE, OBSERVATION OF THE AO THAT PA YMENTS HAVE BEEN MADE IN CASH DOESNT APPLY AS FAR AS THESE TRANSACTIONS ARE CONCERNED. WE THEREFORE ITA NO. 367/JP/2018 SHREE SHANKER GAURI AGRO PRODUCT PVT. LTD., BUNDI V S. ACIT, SAWAI MADHOPUR 5 FIND THAT IN ABSENCE OF ANY SPECIFIC FINDINGS BY TH E ASSESSING OFFICER, THERE IS NO BASIS FOR DISALLOWANCE OF EXPENSES ON AN ADHOC BASI S WHICH CANNOT BE SUSTAINED IN THE EYES OF LAW. HENCE, THE DISALLOWAN CE SO CONFIRMED BY THE LD. CIT(A) IS HEREBY DIRECTED TO BE DELETED. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/09/2019. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 02/09/2019 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHREE SHANKER GAURI AGRO PRODUCT PVT . LTD., BUNDI 2. IZR;FKHZ@ THE RESPONDENT- ACIT CIRCLE, SAWAI MADHOPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 367/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. 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