ACIT, New Delhi V. Smt. Harish Mohini Kathuria, New Delhi

ITA 6387/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97573 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: SHALENDER K BAJAJ
• Keywords: Business income; Question of law; Commercial expediency

Judgement Text

1 ITA NO. 63 87/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO. 6387/DEL/2013 (ASSESSMENT YEAR-2007- 08) ACIT, CIRCLE 26(1), NEW DELHI. VS HARISH MOHINI KATHURIA, 191, NANGIL SAKARWATI, NAJAFGARH, NEW DELHI. AAJPK5044M APPELLANT BY SHRI S.K. JAIN, SR. DR RESPONDENT BY SHRI SHALENDER K. BAJAJ, CA ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THE PRESENT APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE LD. CIT(A)-XVII, VIDE ORDER DATED 21/ 08/2013 FOR A.Y. 2007-08 ON THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN: 1. DELETING THE DISALLOWANCE, MADE BY THE ASSESSING OFFICER, IGNORING THE FACT THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT COMMENSURATE WITH THE DECLINE IN SALES AND THE ASSESSEE FAILED TO OFFER A SATISFACTORY EXP LANATION DATE OF HEARING 20.10.2015 DATE OF PRONOUNCEMENT 21.10.2015 2 ITA NO. 63 87/DEL/2013 IN THIS REGARD DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. IGNORING THE FACTS THAT THE ASSESSEE HAD HIMSELF AD MITTED ELEMENT OF PERSONAL USE IN RESPECT OF CONVEYANCE EX PENSES AND ALSO OFFERED NO SATISFACTORY EXPLANATION BEFORE THE ASSESSING OFFICER REGARDING DISPROPORTIONATE TREND IN CONVEYANCE EXPENSE VIS--VIS TOTAL SALES. 3. THE APPELLANT CRAVES THE RIGHT TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL. 2. BRIEF FACTS OF THE CASE AS OBSERVED BY THE ASSES SING OFFICER ARE AS UNDER: THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING T OTAL INCOME AT RS. 43,05,474/- ON 31/10/2007. NOTICE U/S 143(2) WAS S ERVED ON THE ASSESSEE. IN RESPONSE TO THE NOTICE THE ASSESSEE A PPEARED AND FILED DOCUMENTS AND OTHER SUPPORTING MATERIALS WHICH WERE EXAMINED BY THE LD. ASSESSING OFFICER. DURING THE ASSESSMENT P ROCEEDINGS, THE LD. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF READYMADE FASHION GARM ENTS. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED P&L ACCOUNT WHICH HAS BEEN SUMMARIZED AS UNDER: 31.03.2007 31.03.2006 EXPORT SALE 22,63,44,716 32,74,83,770 DOMESTIC SALE 72,38,472 57,42,127 TOTAL SALE 22,35,83,188 33,32,25,897 NET PROFIT 43,05,957 2,18,97,281 4. THE LD. ASSESSING OFFICER OBSERVED THAT THE NET PROFIT HAS COME DOWN FROM RS. 2,18,97,281/- (A.Y. 2006-07) TO RS. 4 3,05,957/- (A.Y. 2007-08). THE ASSESSEE WAS ASKED TO EXPLAIN WHY THERE IS AN INCREMENT IN THE EXPENDITURES IN SPITE OF THE FACT THAT THE TOTAL SALES AND NET PROFIT HAS COME DOWN DRASTICALLY. THE LD. ASSESSING OFFICER 3 ITA NO. 63 87/DEL/2013 CALLED FOR A JUSTIFICATION AS TO HOW THE TOTAL EXPE NSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED OUT BY THE ASSESSEE IN RESPECT OF CONVEYANCE, DOCUM ENTATION EXPENSES, COURIER EXPENSES, GENERAL MISCELLANEOUS E XPENSES, PROFESSIONAL EXPENSES. THE LD. ASSESSING OFFICER C ONCLUDED THE ASSESSMENT PROCEEDINGS BY MAKING AN ADHOC DISALLOWA NCES IN RESPECT OF THE ABOVE REFERRED EXPENSES. 5. AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFI CER THE ASSESSEE WENT INTO APPEAL BEFORE THE LD. CIT(A). THE LD. CI T(A) PURSUANT TO HIS FINDINGS FROM PARA 5 TO 11 DELETED THE ADHOC EX PENSES MADE BY THE LD. ASSESSING OFFICER. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A). THE R EVENUE IS IN APPEAL BEFORE US. 7. THE LD. DR RELIES UPON THE ORDER OF THE LD. ASSE SSING OFFICER. 8. THE LD. AR SUBMITTED THAT THE ENTIRE ADDITIONS M ADE BY THE LD. ASSESSING OFFICER ARE ARBITRARY, AND ON ADHOC BASIS . THE DISALLOWANCES HAD BEEN MADE WITHOUT BRINGING ON REC ORD ANY SPECIFIC MATERIAL EVEN THOUGH, COMPLETE DETAILS WER E FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ENTIRE ADDIT IONS HAVE BEEN MADE ON SURMISES AND CONJECTURES, TREATED TO BE UNR EASONABLE, SOLELY ON THE BASIS OF COMPARING WITH PREVIOUS YEAR FIGURES AND SALES. THE LD. AR FURTHER SUBMITTED THAT THE EXPEN DITURES DISALLOWED ARE INDIRECT EXPENSES AND ARE NOT PRIMAR ILY RELATED TO SALES, FURTHER, PREVIOUS YEAR CANNOT BE ANY BASIS F OR ADJUDICATING THE SAME AS REASONABLE OR UNREASONABLE. THE LD. AR SUBMITS THAT ALL THE DETAILS CALLED FOR BY THE LD. ASSESSING OFF ICER DURING THE 4 ITA NO. 63 87/DEL/2013 ASSESSMENT PROCEEDINGS WERE FURNISHED, AND AFTER TH E EXPLANATIONS AND SUBMISSIONS THAT WERE FILED DURING THE ASSESSME NT PROCEEDINGS, THE LD. ASSESSING OFFICER DID NOT ASK FOR ANY FURTHER INFORMATION IN THE RECORDS. IT HAS BEEN SUBMITTED BY THE THE LD.AR THAT, THE LD. ASSESSING OFFICER HAS NOWHERE DISPUTE D THE EXPENSES SO CLAIMED BY THE ASSESSEE. THE LD. CIT(A) HAS OBS ERVED THAT, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS FILED ALL THE NECESSARY BILLS RELATING TO THE EXPENDITURE CLAIMED IN THE RETURNS. 9. THE LD. CIT(A) IN HIS ORDER HAS RECORDED THAT, I N ASSESSEES OWN CASE FOR AY 2003-04, THE ASSESSING OFFICER HAD MADE ADHOC DISALLOWANCE TREATING THE EXPENSES TO BE UNREASONAB LE AND EXCESSIVE COMPARED TO EARLIER YEARS WHICH HAS BEEN DELETED VIDE THE ORDER DATED 1.12.2006, PASSED BY LD.CIT(A) ( COPY OF THE ORDER ENCLOSED AT 17 TO 27 OF PAPER BOOK). 10. SIMILARLY FOR AY 2006-07 DISALLOWANCES OF EXPEN SES WERE MADE BY THE ASSESSING OFFICER SINCE THE EXPENSES INCURRE D WERE HIGHER THAN THE PREVIOUS YEARS. THE THEN CIT(A) DELETED T HE ENTIRE ADDITIONS, THE DEPARTMENT HAD CHALLENGED THE ORDER OF THE LD. CIT(A) FOR AY 2006-07 BEFORE THE HONBLE ITAT. THE HONBL E ITAT IN ITA NO. 1872/DEL/2010, VIDE ITS ORDER DATED 26/08/2010 DISMISSED THE APPEAL OF THE DEPARTMENT (COPY OF THE ORDER IS AT P AGE 10 TO 16 OF THE PB) THE RELEVANT EXTRACT IS AS UNDER: 10. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED TH E RECORD. WE FIND THAT IN THIS CASE THE SOLE REASON GIVEN BY THE ASSESSING OFFICER TO MAKE THE ADHOC DISALLOWANCE IS THAT THERE HAS BEEN INCREASE IN THE EXPENSES IN TERMS OF PERCENTAGE AS COMPARED TO PREVIOUS YEAR. IN OUR CONSIDERED OPINION THIS ALON E 5 ITA NO. 63 87/DEL/2013 CANNOT CONSTITUTE REASON FOR MAKING ESTIMATED DISALLOWANCE. ASSESSING OFFICER HAS NOT POINTED OU T ANY SPECIFIC DEFECT IN THE VOUCHERS. THERE IS ALSO NO FINDING THAT ANY EXPENDITURE WAS FOUND TO BE NOT GENUINE OR NOT RELATED TO THE BUSINESS. THUS, THE DISALLOWANCES A RE PURELY ON ADHOC BASIS. IT IS A SETTLED LAW THAT AD DITION BASED ON SURMISES CANNOT BE SUSTAINED. 11. THE LD. AR HAS PRODUCED AT PAGE 28 OF THE PAPER BOOK, THE JUDGMENT PASSED BY THE HONBLE DELHI HIGH COURT IN THE ASSESSEES OWN CASE IN ITA NO. 679/2011, FOR ASSESSMENT YEAR 2 006-07, VIDE ORDER DATED 28/04/2011. THE HONBLE HIGH COURT HEL D AS UNDER: AFTER GOING THROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE ARE OF THE OPINION THAT THE TRIBUNAL RIGHTLY OBS ERVED THAT THE DISALLOWANCE OF A PART OF EXPENDITURE ON A CCOUNT OF WAGES AS WELL AS CONSUMABLE GOODS WAS ON ADHOC BASIS AND THERE WAS NO RATIONAL BEHIND THE SAME. THE TRIBUNAL ALSO RIGHTLY RECORDED THAT THE ASSESS ING OFFICER HAD NOT POINTED OUT ANY SPECIFIC DEFECT IN THE VOUCHERS AND THERE WAS NO FINDING THAT ANY EXPENDIT URE WAS NOT FOUND TO BE GENUINE OR NOT RELATING TO THE BUSINESS. ON THIS GROUND, THE DISALLOWANCE WAS RIGHTLY HELD. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERA TION. THE PRESENT APPEAL IS, ACCORDINGLY, DISMISSED. WE HAVE PERUSED THE RECORDS PRODUCED BEFORE US AND THE ORDER PASSED BY THE AUTHORITIES BELOW. 10. WE ARE OF THE CONSIDERED OPINION THAT IN THIS C ASE THE SOLE REASON GIVEN BY THE ASSESSING OFFICER TO MAKE THE A DHOC DISALLOWANCES IS THAT THERE HAS BEEN INCREASE IN TH E EXPENSES IN TERMS OF PERCENTAGE AS COMPARED TO THE PREVIOUS YEA R. IN OUR CONSIDERED VIEW THIS ALONE CANNOT BE CONSTITUTE REA SON FOR MAKING 6 ITA NO. 63 87/DEL/2013 ESTIMATED DISALLOWANCE. THE LD. ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE VOUCHERS/BILLS. THE RE IS ALSO NO FINDING THAT ANY EXPENDITURE WAS NOT FOUND TO BE GE NUINE OR NOT RELATED TO THE BUSINESS. THUS, DISALLOWANCE IS PUR ELY ON ADHOC BASIS. IT IS A SETTLED LAW THAT ADDITION BASED UPO N SURMISES AND CONJECTURES CANNOT BE SUSTAINED. 11. IN THIS REGARD WE PLACED RELIANCE UPON THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT (BOM.) VS. WALCHAND & COMPANY PVT. LIMITED IN 65 ITR 381, WHEREIN IT WAS HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETE RMINING WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR BUSIN ESS, THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VI EW OF THE BUSINESSMAN AND NOT OF REVENUE. THUS, WE FIND THAT ASSESSING OFFICER HAS MADE THE DISALLOWANCE PURELY ON GUESS W ORK AND WITHOUT COGENT REASONING. UNDER THESE CIRCUMSTANCE S, ADHOC DISALLOWANCE CANNOT BE SUSTAINED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COM MISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD. ACCORDINGLY WE CONFI RM THE SAME. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21/10/ 2015 SD/- SD/- (N.K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21/10/2015 *KAVITA, P.S. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 7 ITA NO. 63 87/DEL/2013 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 20.10.2015 2. DRAFT PLACED BEFORE AUTHOR 20.10.2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 20.10.2015 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 20.10.2015 5. APPROVED DRAFT COMES TO THE SR.PS/PS 21.10.2015 6. KEPT FOR PRONOUNCEMENT ON 21.10.2015 7. FILE SENT TO THE BENCH CLERK 26.10.2015 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.