M/s. Swamini, Pune V. Income-tax Officer,

ITA 583/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2549 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SANTO SH KUMAR
• Assessee Lawyers: V L JAIN
• Keywords: Capital asset; Revenue expenditure
• Section: 133A

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.583/PN/2014 ASSESSMENT YEAR : 2005-06 M/S SWAMINI, BIZZYLAND BLDG. 776, KUMTEKAR ROAD, PUNE 411 030. PAN : ABDFS8445H . APPELLANT VS. THE INCOME TAX OFFICER, WARD 11(4), PUNE. . RESPONDENT ITA NO.584/PN/2014 ASSESSMENT YEAR : 2006-07 M/S SWAMINI, PHADTARE CHOWK, 776, KUMTEKAR ROAD, PUNE 411 030. PAN : ABDFS8445H . APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(2), PUNE. . RESPONDENT / APPELLANT BY : SHRI V. L. JAIN / RESPONDENT BY : SHRI (DR.) SANTOSH KUMAR / DATE OF HEARING : 09.03.2016 / DATE OF PRONOUNCEMENT: 23.03.2016 % / ORDER PER PRADIP KUMAR KEDIA, AM : BOTH THE CAPTIONED APPEALS PREFERRED BY THE ASSESSE E ARE AGAINST THE SEPARATE ORDERS OF CIT(A)-I, PUNE DATED 30.01.2014 RELATING TO ASSESSMENT YEARS 2005-06 AND 2006-07 PASSED UNDER SECTION 143( 3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NOS.583 & 584/PN/2014 ITA NO.583/PN/2014 (A.Y. 2005-06) : 2. FIRST, WE SHALL TAKE-UP THE APPEAL OF THE ASSESS EE IN ITA NO.583/PN/2014 RELATING TO ASSESSMENT YEAR 2005-06. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED CIT(A) HAS ERRED ON THE FACTS AND I N LAW IN CONFIRMING A DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS.16,92, 795/- BY TREATING THE SAME AS DEFERRED REVENUE EXPENDITURE. 2. THE LEARNED CIT(A) HAS FURTHER ERRED ON FACTS AN D IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.2,04,884/- BEING 25% OF THE SHOP EXPENSES, STAFF WELFARE EXPENSES AND TRAVELING EXPENSES AT RS.8,19,536/- TR EATING THE SAME AS UNVERIFIABLE. 3. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR DE LETE ANY OF THE GROUNDS OF APPEAL OR ADD TO THE SAME, IF DEEMED NECESSARY. 3. AS PER GROUND NO.1, THE ASSESSEE HAS IMPUGNED TH E ACTION OF THE CIT(A) IN CONFIRMING DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS.16,92,795/- BY TREATING THE SAME AS DEFERRED REV ENUE EXPENDITURE. 4. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN THE B USINESS OF TRADING IN SAREES. A SURVEY UNDER SECTION 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 26.10.2004. IN THE COU RSE OF SURVEY, EXCESS PHYSICAL STOCK WAS FOUND AND CONSEQUENTLY THE PARTN ERS OF THE ASSESSEE FIRM DECLARED AN ADDITIONAL INCOME OF RS.10,00,000/- OVE R AND ABOVE THE REGULAR INCOME ON ACCOUNT OF DIFFERENCE IN STOCK. SUBSEQUE NT TO SURVEY, THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 DECLARING TOTAL INCOME OF RS.3,77,290/-. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DE BITED AN AMOUNT OF RS.55,75,573/- TO THE PROFIT & LOSS ACCOUNT UNDER T HE HEAD ADVERTISEMENT EXPENSES AS AGAINST RS.34,37,465/- IN THE PRECEDIN G YEAR. WHILE EXPLAINING THE STEEP INCREASE IN THE EXPENDITURE, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE EXPENDITURE INCURRED ON ADVERTISEMENT HAS AN ENDURING EFFECT AND 50% OF EXPENDITURE INCURRED WAS BEING CLAIMED IN THE YEAR IN WHICH THE AMOUNT WAS PAID AND THE BALANCE 50% WA S TRANSFERRED TO THE DEFERRED REVENUE EXPENDITURE AND CLAIMED IN SUBSEQU ENT TWO YEARS IN EQUAL 3 ITA NOS.583 & 584/PN/2014 PROPORTION. IT WAS EXPLAINED THAT THE POLICY HAS B EEN HOWEVER CHANGED DURING THE YEAR UNDER CONSIDERATION AND THE ENTIRE EXPENDI TURE IS BEING CLAIMED IN THE YEAR OF INCURRING THE EXPENDITURE FROM THIS YEAR ON WARDS. THE DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD BEFORE THE ASSESSING OFFICER ARE AS UNDER :- SL. NO. A.Y. EXPENDITURE INCURRED EXPENDITURE CLAIMED AMOUNT TRANSFERRED TO DEFERRED REVENUE EXPENDITURE 1 2003-04 RS.37,68,201 RS.18,83,201 RS.18,85,000 (3 7,68,201 18,83,201) 2 2004-05 RS.49,89,930 RS.34,37,465 (942500 + 50% OF 4989930 RS.34,37,466 (RS.9,42,500 + 24,94,965) 3 2005-06 RS.33,85,590 RS.55,75,573 (942500 + 1247483 + 3385590) RS.12,47,482 5. THE CONTENTION OF THE ASSESSEE WAS HOWEVER NOT A CCEPTED BY THE ASSESSING OFFICER. IN THE OPINION OF THE ASSESSING OFFICER, THE ASSESSEE HAD NOT FOLLOWED THE SAME SYSTEM OF CLAIMING 50% EXPEND ITURE REGULARLY EMPLOYED EARLIER AND HAD CHANGED THE PRACTICE IN TH IS YEAR ONLY WITH A VIEW TO REDUCE ITS PROFITS AND PAY LESSER TAXES. THE ASSES SING OFFICER ALSO REMARKED THAT AS PER ACCOUNTING STANDARD-II, ANY CHANGE IN A CCOUNTING POLICY SHOULD HAVE BEEN DISCLOSED IN THE PREVIOUS YEAR IN WHICH T HE CHANGE IS ADOPTED WHICH WAS NOT DONE BY THE ASSESSEE IN THE PRESENT CASE. THEREFORE, IN ACCORDANCE WITH THE REGULAR PAST PRACTICE BEING FOLLOWED BY TH E ASSESSEE IN ALLOCATING 50% OF SUCH EXPENDITURE IN THE YEAR OF INCURRING EXPEND ITURE, THE ASSESSING OFFICER RESTRICTED THE CLAIM ONLY AT 50% OF THE EXPENDITURE INCURRED DURING THE YEAR AMOUNTING TO RS.16,92,795/- (50% OF RS.33,85,590/-) AND DISALLOWED THE BALANCE OF RS.16,92,795. 6. THE CIT(A) CONFIRMED DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN SATISFACTORILY REASONS FOR CHANGE IN THE METHOD OF ACCOUNTING. HE ALSO ALLEGED THAT THE CHANGE IS NOT BONAFIDE AND WAS ONLY INTENDED TO OFFSET THE ADDITIONAL INCOME DECLARED A T THE TIME OF SURVEY. HE ACCORDINGLY HELD THAT THE ASSESSING OFFICER WAS FUL LY JUSTIFIED IN NOT RECOGNIZING THE CHANGED METHOD OF ACCOUNTING DURING THE YEAR AND ADDITION OF 4 ITA NOS.583 & 584/PN/2014 RS.16,92,795/- MADE BY THE ASSESSING OFFICER ON THI S GROUND DOES NOT CALL FOR ANY INTERFERENCE. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 8. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE SUBMITTED THAT IT IS ADMITTED POSITION THAT THE EXPENDITURE TOWARDS ADVE RTISEMENT WERE CLAIMED @ 50% FOR THE FIRST YEAR AND THE BALANCE AMOUNT OF 50 % WERE DEFERRED FOR NEXT TWO YEARS AS PER ACCOUNTING POLICY IN EARLIER YEAR. HOWEVER, IN THIS YEAR, THE ENTIRE ADVERTISEMENT HAS BEEN CLAIMED AS REVENUE EX PENSES IN TUNE WITH THE PROVISIONS OF THE ACT. HE SUBMITTED WITH VEHEMENCE THAT THE ADVERTISEMENT EXPENDITURE DO NOT CREATE ANY TANGIBLE OR INTANGIBL E CAPITAL ASSET PER SE . THE NATURE OF THE SAID EXPENDITURE PRIMA-FACIE IS REVEN UE IN NATURE. HE SUBMITTED THAT MERELY BECAUSE THE EXPENDITURE WAS DEFERRED IN THE PAST DOES NOT DISENTITLE THE ASSESSEE TO CLAIM THE ENTIRE EXPENDITURE INCURR ED IN THE YEAR WITHOUT ANY DEFERMENT THEREOF. HE NEXT SUBMITTED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE RECOGNIZED UNDER THE PROVISION S OF THE INCOME-TAX ACT. THE INCOME IS REQUIRED TO BE COMPUTED AS PER THE PR OVISIONS OF THE ACT AND BOOK ENTRY MADE IN A PARTICULAR MANNER WOULD NOT OV ERRIDE THE PROVISIONS OF THE ACT. THE CHANGE IN THE ACCOUNTING SYSTEM DURIN G THE YEAR WHICH LED TO CLAIM OF THE ENTIRE EXPENDITURE IN THE SAME YEAR HA S BEEN FOLLOWED CONSISTENTLY IN THE SUBSEQUENT YEAR AND THEREFORE THE SAID CHANG E IS BONAFIDE PER SE . HE ACCORDINGLY PLEADED FOR REVERSAL OF THE AFORESAID D ISALLOWANCE. 9. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE, ON THE OTHER HAND, SUBMITTED THAT THE ACCOUNTING METHOD HAS BEEN CHANGED DURING THE YEAR TO CLAIM THE ENTIRE ADVERTISEMENT EXPENDITURE WITH A VIEW TO SIMPLY NULLIFY AND OFFSET THE ADDITIONAL INCOME DISCLOSED DURING THE S URVEY. THE ACTION OF THE ASSESSEE IS NOT BONAFIDE AT ALL AND THEREFORE DESER VES TO BE REJECTED. THE 5 ITA NOS.583 & 584/PN/2014 BENEFITS DERIVED FROM SUCH ADVERTISEMENT EXPENDITUR E ARE ENDURING IN NATURE AND THEREFORE THE PAST ACCOUNTING TREATMENT CANNOT BE FAULTED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE SHORT QUESTION CALLED FOR OUR EXAMINATION IS CREDIBILITY OF CLAIM OF ENTIRE ADVERTISEMENT EXPENDITURE DURING THE YEAR AS AGAINST POLICY OF DE FERMENT OVER A PERIOD OF THREE YEARS IN THE PAST. FROM THE ORDERS OF THE AU THORITIES BELOW, WE NOTE THAT THE ASSESSEE HAS CHANGED THE ACCOUNTING SYSTEM AND HAS STARTED CLAIMING THE ENTIRE ADVERTISEMENT EXPENDITURE DURING THE YEAR IT SELF IN WHICH IT IS INCURRED. THERE IS NO DISPUTE THAT THE EXPENDITURE HAS BEEN C LAIMED IN ENTIRETY IN THE SUBSEQUENT YEAR ALSO AND THEREFORE CHANGE ADOPTED D URING THE YEAR HAS BEEN CARRIED TO THE SUBSEQUENT YEAR AND FOLLOWED CONSIST ENTLY. UNDER EARLIER ACCOUNTING SYSTEM ADOPTED, THE ASSESSEE WAS ONLY CL AIMING 50% OF THE ADVERTISEMENT EXPENDITURE IN THE YEAR IN WHICH IT W AS INCURRED AND THE BALANCE WERE SPREAD OVER THE NEXT TWO YEARS AS DEFERRED RE VENUE EXPENDITURE. IN THE RELEVANT YEAR IN APPEAL, THE ASSESSEE HAS EMBARKED UPON CHANGING THE EXISTING METHOD OF ACCOUNTING AND HAS CLAIMED THE FULL EXPEN DITURE AS DEDUCTION TREATING IT AS REVENUE EXPENDITURE. WE OBSERVE THA T THE IMPUGNED ADVERTISEMENT EXPENDITURE SO INCURRED IS REVENUE IN NATURE AND IS NOT INCURRED IN CAPITAL FIELD. THE REVENUE HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE. WE OBSERVE THAT THE ASSESSING OFFICER HAS DISCARDED FULL CLAIM ONLY BECAUSE IT SUSPECTED THAT THE OBJECTIVE OF SUC H CLAIM BY ASSESSEE IS TO NEGATE THE ADDITIONAL INCOME DECLARED DURING THE SU RVEY AND THEREFORE THE PURPORTED ACTION IS NOT BONAFIDE. IN OUR VIEW, THE ACTION OF THE REVENUE IS NOT WELL FOUNDED. WE ARE OF THE CONSIDERED VIEW THAT O NCE THE EXPENDITURE IS CONSIDERED GENUINE AND EXPENDITURE IS OTHERWISE REV ENUE EXPENDITURE, THE ASSESSEE CANNOT BE PREVENTED FROM CLAIMING THE ENTI RE EXPENDITURE IN THE YEAR IN WHICH IT HAS BEEN INCURRED IRRESPECTIVE OF THE A CCOUNTING TREATMENT GIVEN IN THIS REGARD. MERE ENTRY IN THE BOOKS OF ACCOUNT CA NNOT DISENTITLE A LEGITIMATE CLAIM OF DEDUCTION WHICH THE ASSESSEE IS ENTITLED T O, AS PER THE PROVISIONS OF THE INCOME-TAX ACT. MERELY BECAUSE THE NEW METHOD ADOP TED BY THE ASSESSEE 6 ITA NOS.583 & 584/PN/2014 DURING THE YEAR WAS FOUND TO BE DETRIMENTAL TO THE REVENUE ON ACCOUNT OF ADDITIONAL INCOME DETECTED DURING SURVEY, THIS BY I TSELF IS NOT SUFFICIENT TO ALLEGE LACK OF BONAFIDE PARTICULARLY WHEN THE NEW M ETHOD FOR CLAIMING THE EXPENDITURE IS NOT OPPOSED TO THE PROVISIONS OF THE ACT. WE HAVE TAKEN A SIMILAR VIEW WITH REGARD TO ALLOWABILITY OF DEFERR ED REVENUE EXPENDITURE IN THE CASE OF ACIT VS. M/S HINDUSTAN ANTIBIOTICS LTD. IN ITA NO.751/PN/2008, ORDER DATED 10.03.2016. IN THE AFORESAID VIEW OF T HE MATTER, WE FIND CONSIDERABLE MERIT IN THE CASE OF THE ASSESSEE. AC CORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE. TH US, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 11. AS PER THE GROUND NO.2 OF APPEAL OF THE ASSESSE E, THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF RS.2,04,884/- ESTIMATE D AT 25% OF THE SHOP EXPENSES, STAFF WELFARE EXPENSES AND TRAVELLING EXP ENSES CLAIMED. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER FOUND THAT THE EXPENSES CLAIMED UNDER THE FOLLOWING HEADS ARE ON A HIGHER SIDE AND THE ASSESSEE WAS ASKED TO SUBMIT THE COMPARATIV E FIGURES OF LAST TWO YEARS. THE DETAILS AS FURNISHED BY THE ASSESSEE IN THIS RE SPECT ARE AS FOLLOWS :- SL. NO. NATURE OF EXPENDITURE AMOUNT CLAIMED PERCENTAGE INCREASE OVER A.Y. 2003-04 PERCENTAGE INCREASE OVER A.Y. 2004-05 A.Y. 2003-04 A.Y. 2004-05 A.Y. 2005-06 1 SHOP EXPENSES RS.1,38,975.75 RS.1,72,652.50 RS.4,08,825.75 194.17 % 57.77% 2 STAFF WELFARE EXPENSES RS.95,848.00 RS.86,710.00 RS.2,24,454.00 134.18% 15 8.86% 3 TRAVELLING EXPENSES RS.39,282.00 RS.1,54,524.00 RS.1,86,257.00 374.15% 20.54% 4 SALARY RS.6,81,730.75 RS.10,57,967.80 RS.14,12,56 9.00 107.15% 33.49% 13. REFERRING TO THE ABOVE CHART, THE ASSESSING OFF ICER NOTED THAT THE INCREASE OF THE EXPENDITURE IN THIS YEAR IS DISPROP ORTIONATE AS COMPARED TO THE EXPENDITURE SHOWN IN THE LAST TWO YEARS. WHEN THE APPELLANT WAS ASKED TO EXPLAIN THE REASONS FOR SUCH ABNORMAL INCREASE IN T HE EXPENDITURE FOR THIS YEAR, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THERE WAS INCREASE IN 7 ITA NOS.583 & 584/PN/2014 THE NUMBER OF EMPLOYEES ALONG WITH THEIR SALARY PAY MENTS AND IN CASE OF OTHER EXPENSES, THE SAME ARE DULY SUPPORTED BY VOUCHERS, BILLS ETC.. THE CLAIM OF THE APPELLANT IN CASE OF SALARY EXPENDITURE WAS ACCEPTE D BY THE ASSESSING OFFICER. HOWEVER, IN CASE OF OTHER THREE ITEMS OF EXPENDITUR E, ON VERIFICATION OF THE BILLS AND VOUCHERS, THE ASSESSING OFFICER OBSERVED THAT EXPENDITURE INCURRED WAS SUPPORTED BY ONLY SELF MADE VOUCHERS; SMALL CHI TS ETC. THAT GIVES AN IMPRESSION THE ASSESSEE HAD INFLATED THE EXPENSES T O REDUCE THE PROFITS OF THIS YEAR. OBSERVING THAT THE GENUINENESS OF EXPENSES I NCURRED COULD NOT BE VERIFIED DUE TO SELF MADE VOUCHERS, THE ASSESSING O FFICER RESORTED TO DISALLOWANCE ESTIMATED AT 25% OF THE EXPENDITURE IN CASE OF STAFF WELFARE EXPENSES (RS.2,24,454/-), SHOP EXPENSES (RS.4,08,82 5/-) AND TRAVELLING EXPENSES (RS.1,86,257/-) AGGREGATING TO RS.2,04,884 /- (25% OF RS.8,19,536/-) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AFTER TREATING THE SAME AS UNVERIFIABLE EXPENSES. 14. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER ON THE GROUND THAT ASSESSEE FAILED TO ADDUCE SUFFICIENT EVIDENCE TO DEMONSTRATE THAT THE ENTIRE EXPENSES WAS INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF THE BUSINESS OF THE ASSESSEE. THE RELEVANT EXTRACTS FROM THE OR DER OF THE CIT(A) IN THIS REGARD ARE REPRODUCED HEREUNDER :- 5.3 THE CONTENTIONS PUT FORTH BY THE APPELLANT ARE CAREFULLY CONSIDERED WITH REFERENCE TO THE NATURE OF EXPENDITURE AND THE MATE RIAL PLACED ON RECORD. THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER AT 2 5% OF THE EXPENDITURE CLAIMED IN CASE OF STAFF WELFARE EXPENSES (RS.2,24,454/-), SHOP EXPENSES (RS.4,08,825/-) AND TRAVELLING EXPENSES (RS.1,86,257/-) AGGREGATING TO RS.2,04,884/- ON THE GROUND THAT SOME OF THE EXPENSES WERE SUPPORTED BY ONLY SELF MA DE VOUCHERS. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE APPELLANT HAS N OT MAINTAINED SUFFICIENT EVIDENCE TO SHOW THAT THE ENTIRE EXPENDITURE WAS INCURRED SOLEL Y AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IN THE ABSENCE O F COMPLETE EVIDENCE FOR THESE EXPENSES, THE CLAIM OF THE APPELLANT THAT THE ENTIR E EXPENDITURE HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CANNOT BE V ERIFIED. FURTHER, THE ASSESSING OFFICER DEMONSTRATED THAT THERE WAS ABNORMAL INCREA SE IN THE EXPENDITURE UNDER THE ABOVE HEADS AS COMPARED TO THE EXPENDITURE CLAIMED IN THE LAST TWO YEARS. IT IS ALSO IMPORTANT TO NOTE THAT THE TURNOVER REMAINED STATIC AT RS. 5 CRORES IN THIS YEAR AND IN THE LAST YEAR, BUT THE EXPENDITURE HAS GONE UP EXPO NENTIALLY IN THIS YEAR AS COMPARED TO THE LAST YEAR. IN SUCH CIRCUMSTANCES, IT IS ALL THE MORE NECESSARY FOR THE APPELLANT TO PROVE WITH CREDIBLE EVIDENCE THAT THE ENTIRE EXP ENDITURE IS GENUINE AND WAS INCURRED FOR BUSINESS PURPOSES. BUT, THE APPELLANT EXCEPT STATING THAT THE EXPENDITURE IS DULY SUPPORTED BY VOUCHERS, BILLS ETC. HAS NOT E XPLAINED WITH COGENT EVIDENCE AS TO 8 ITA NOS.583 & 584/PN/2014 WHY THERE WAS SUCH A STEEP INCREASE IN THE EXPENDIT URE AS COMPARED TO EARLIER YEARS. EVEN IN THE PRESENT PROCEEDINGS, EXCEPT POINTING IT OUT THAT THE ASSESSING OFFICER HAS NOT CITED SINGLE INSTANCE OF OR NON-GENUINE EXPENDI TURE THE APPELLANT HAS NOT COME FORWARD WITH RELIABLE EVIDENCE TO JUSTIFY SUCH ABNO RMAL INCREASE IN THE EXPENDITURE. ON THE FACE OF IT, IT WOULD APPEAR THAT THE EXPENDI TURE UNDER THESE HEADS WAS INFLATED TO OFFSET THE ADDITIONAL INCOME OF RS.10,0 0,000/- DECLARED DURING THE SURVEY OPERATION. THE DECISION OF PUNE BENCH IN THE CASE O F VIJAY C. BALDOTA AND THE DECISION OF ITAT MUMBAI IN THE CASE OF C. B. THADAN I RELIED UPON BY THE APPELLANT CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE FOR THE REASON THAT IN THE INSTANT CASE, THE INCREASE IN TH E EXPENDITURE IS PHENOMENAL CONSIDERING THE FACT THAT THE TURNOVER IS CONSTANT IN THE LAST TWO YEARS AND THE APPELLANT FAILED TO JUSTIFY SUCH A STEEP RISE IN TH E EXPENDITURE WITH CONCRETE EVIDENCE. KEEPING ALL THESE FACTUAL ASPECTS IN MIND , I AM OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER IS JUSTIFIED IN DISALLOWING E XPENDITURE TO THE EXTENT OF 25% OF TOTAL EXPENDITURE CLAIMED BY THE APPELLANT UNDER TH ESE THREE HEADS. ACCORDINGLY, THE DISALLOWANCE OF RS.2,04,884/- MADE BY THE ASSESSING OFFICER ON THIS GROUND IS SUSTAINED. 15. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN FURTHER APPEAL BEFORE US. 16. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE REITERATED THE CONTENTIONS RAISED BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT NO SPECIFIC DEFECTS WERE POINTED OUT TO ALLEGE INFLATION IN THE EXPENDITURE INCURRED AND THEREFORE AD-HOC DISALLOWANCE IS NOT WARRANTED ON T HE FACTS OF THE CASE. 17. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BEL OW. 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE SHORT ISSUE IN THIS GROUND IS THE CORRECTNESS OF THE ACTION OF THE ASSESSING OFFICER IN RESORTING TO AD-HOC DISALLOWANCE OUT OF CERTAIN EXP ENDITURE. ON FACTS, WE FIND THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) CO NCURRENTLY OBSERVED THAT THE IMPUGNED AGGREGATE CLAIM OF EXPENDITURE OF RS.8,19, 536/- TOWARDS SHOP EXPENSES, STAFF WELFARE AND TRAVELLING EXPENSES IS SUPPORTED ONLY BY SELF MADE VOUCHERS. NO COGENT EVIDENCES WERE PLACED TO OBJEC TIVELY JUSTIFY THE BONA- FIDES FOR WHICH THE PRIMARY ONUS VESTS ON THE ASSES SEE. HENCE, WE FIND THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE PRIMARY ONUS W HICH LAY UPON IT. ON THE OTHER HAND, THE ASSESSING OFFICER HAS COMPARED THE SIMILAR EXPENSES INCURRED 9 ITA NOS.583 & 584/PN/2014 IN THE PAST QUA THE TURNOVER OF THE ASSESSEE AND FOUND THAT THERE I S STEEP RISE IN THE CLAIM OF SUCH EXPENDITURE WITHOUT ANY CORRESPON DING INCREASED IN REVENUE. THE ASSESSEE HAS NOT CITED ANY JUSTIFIABLE REASON T OWARDS SUCH ABNORMAL RISE. COUPLED WITH THIS, SURVEY ACTION HAS REVEALED ADDIT IONAL INCOME IN THE HANDS OF THE ASSESSEE. THERE CAN BE NO DENIAL TO THE FAC T THAT THE ALLEGED INFLATION IN THE EXPENDITURE WHICH IS WITHOUT ANY COGENT EVIDENC E HAS RESULTED IN OFFSETTING SUCH ADDITIONAL INCOME TO SOME EXTENT. THEREFORE, BALANCE OF PROBABILITY IN THE INSTANT CASE IS WEIGHED AGAINST THE ASSESSEE. WE ALSO NOTICE THE INCREASE IN THE EXPENDITURE INCURRED IS QUITE STEEP AND DISPROP ORTIONATE. HOWEVER, HAVING REGARD TO THE TOTALITY OF CIRCUMSTANCES AND WITH A VIEW TO BALANCE EQUITY AND TO MEET ENDS OF JUSTICE, WE RESTRICT THE ESTIMATION OF SUCH DISALLOWANCE TO 20% INSTEAD OF 25% ESTIMATED BY THE ASSESSING OFFICER. ACCORDINGLY, THE GROUND NO.2 IS DISPOSED OF AS PER AFORESAID TERMS. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.583/PN/2014 RELATING TO ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. ITA NO.584/PN/2014 (A.Y. 2006-07) : 20. IN THIS APPEAL RELEVANT TO ASSESSMENT YEAR 2006 -07, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN ENHANCING THE ASSESSMENT WITHOUT GIVING NOTICE IN WRITING TO THE APPELLANT. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( A) ERRED IN LAW AND ON FACTS IN MAKING A DISALLOWANCE OF 50% OF THE ADVERTISEMEN T EXPENSES OF RS.18,68,889/- INCURRED DURING THE YEAR, TREATING THE SAME AS DEFE RRED REVENUE EXPENDITURE. 3. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR DE LETE ANY OF THE GROUNDS OF APPEAL OR ADD TO THE SAME, IF DEEMED NECESSARY. 21. THE ASSESSING OFFICER IN THE COURSE OF ASSESSME NT PROCEEDINGS OBSERVED THAT AN AMOUNT OF RS.12,47,482/- WAS AMORTIZED DURI NG THE YEAR OUT OF DEFERRED REVENUE EXPENDITURE. IN RESPONSE TO A QUERY OF THE ASSESSING OFFICER, THE ASSESSEE EXPLAINED THAT SUCH EXPENDITURE IS OF REVE NUE IN NATURE AND ENTIRE 10 ITA NOS.583 & 584/PN/2014 EXPENDITURE NEEDS TO BE ALLOWED IN THE YEAR IN WHIC H IT WAS INCURRED. HOWEVER, THE ASSESSING OFFICER NOTED THAT THOUGH TH E ASSESSEE HAD CLAIMED ENTIRE EXPENDITURE INCURRED ON ADVERTISEMENT IN ASS ESSMENT YEAR 2005-06, 50% THEREOF AMOUNTING TO RS.16,92,795/- WAS DISALLOWED TREATING IT AS DEFERRED REVENUE EXPENDITURE CONSISTENT WITH PAST ACCOUNTING PRACTICES ON PROTECTIVE BASIS. IN THE YEAR UNDER CONSIDERATION, THE ASSESS ING OFFICER DISALLOWED THE DEDUCTION OF RS.12,47,482/- ON PROTECTIVE BASIS SUB JECT TO RECTIFICATION WHEN THE MATTER REACHES FINALLY. IT IS THE CASE OF THE ASSESSEE BEFORE CIT(A) THAT THIS SUM OF RS.12,47,482/- IS THE DEFERRED REVENUE EXPEN DITURE BROUGHT FORWARD FROM ASSESSMENT YEARS 2003-04 AND 2004-05. 22. THE CIT(A) GRANTED RELIEF TO THE ASSESSEE ADMIT TING THE AFORESAID PLEA OF THE ASSESSEE. THUS, THE ISSUE REACHED FINALITY. H OWEVER, IT WAS SIMULTANEOUSLY FOUND BY THE CIT(A) THAT ADVERTISEMENT EXPENDITURE OF RS.37,37,777/- INCURRED DURING THE YEAR BY THE ASSESSEE WAS ALLOWED AS DEDU CTION IN ENTIRETY IN THIS ASSESSMENT YEAR 2006-07 AS AGAINST CORRECT ALLOWABI LITY OF 50% OF SUCH EXPENDITURE AS ADOPTED IN ASSESSMENT YEAR 2005-06. HE ACCORDINGLY DISALLOWED A SUM OF RS.18,68,889/- BEING 50% OF THE ADVERTISEMENT EXPENDITURE OF RS.37,37,777/- INCURRED RELEVANT TO ASSESSMENT YEAR 2006-07 ON THE PARITY OF REASONING AS PER CIT(A) ORDER FOR THE ASSESSMENT YEAR 2005-06. 23. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE IS IN FURTHER APPEAL BEFORE US. 24. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE REITERATED ITS SUBMISSIONS IN LINE WITH THE ASSESSMENT YEAR 2005-0 6 AND FURTHER ADDED THAT THE IMPUGNED DISALLOWANCE OF RS.18,68,889/- OUT OF ADVERTISEMENT EXPENSES TREATING THE SAME AS DEFERRED REVENUE EXPENDITURE B Y THE CIT(A) AMOUNTS TO ENHANCEMENT OF THE ASSESSMENT FOR WHICH NO NOTICE U NDER SECTION 251(2) WAS SERVED UPON THE ASSESSEE AND THEREFORE THE ACTION O F THE CIT(A) IS BAD IN LAW. 11 ITA NOS.583 & 584/PN/2014 ON MERITS, IT WAS CONTENDED THAT THE ASSESSEE IS EN TITLED TO CLAIM ENTIRE ADVERTISEMENT EXPENDITURE AS SUBMITTED FOR ASSESSME NT YEAR 2005-06. 25. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE, ON THE OTHER HAND, SUBMITTED THAT THE ISSUE CONCERNING ASSESSMEN T YEAR 2006-07 IS CONSEQUENTIAL IN LINE WITH ASSESSMENT YEAR 2005-06. 26. WE FIND THAT THE ISSUE OF DISALLOWANCE OF ADVER TISEMENT EXPENDITURE BY TREATING THE SAME AS DEFERRED REVENUE EXPENDITURE I S CONSEQUENTIAL IN NATURE. FOR THE PARITY OF REASONING FOR THE ASSESSMENT YEAR 2005-06, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM ENTIRE ADVERTISEMENT EXPENDITURE IN THE SAME YEAR IN WHICH IT IS INCURRED. ACCORDINGLY, THE ENHANCEM ENT ACTION OF THE CIT(A) IS REVERSED. THE ASSESSING OFFICER IS DIRECTED TO ALL OW THE ADVERTISEMENT EXPENSES IN PARITY WITH BASIS ADOPTED IN ASSESSMENT YEAR 2005-06. WE ALSO FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT I T IS NOT PERMISSIBLE IN LAW FOR THE CIT(A) TO INDULGE IN ENHANCEMENT OF AN INCOME I N THE COURSE OF THE APPELLATE PROCEEDINGS WITHOUT OBSERVING THE PROCEDU RE LAID DOWN UNDER SECTION 251(2) OF THE ACT. THEREFORE, GROUND RAISED BY THE ASSESSEE DESERVES TO BE ALLOWED. 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.584/PN/2014 RELATING TO ASSESSMENT YEAR 2006-07 IS ALLOWED. 28. RESULTANTLY, THE APPEAL OF THE ASSESSEE IN ITA NO.583/PN/2014 IS PARTLY ALLOWED AND THE APPEAL OF THE ASSESSEE IN ITA NO.58 4/PN/2014 IS ALLOWED. ORDER PRONOUNCED ON THIS 23 RD DAY OF MARCH, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 23 RD MARCH, 2016. 12 ITA NOS.583 & 584/PN/2014 % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE