Ram Ratna Electricals Ltd, Baroda V. ACIT, Circle-2(1)(2), Ahmedabad

ITA 794/AHD/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7799 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 02-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Earning of tax free income; Tangible material; TDS; Rule 8D
• Section: 40A(3); 143(3); 14A; 13; 22; 37; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND MS . MADHUMITA ROY , JUDICIAL MEMBER ./ ITA NO. 794 /AHD/2018 / ASSTT. YEAR: 2014 - 2015 RAM RATNA ELECTRICALS LTD. , 305A , WINDSOR PLAZA, R.C. DUTT ROAD , ALKAPURI , BARODA - 390007 PAN : AAACK8143R VS. A.C.I.T. , CIRCLE - 2(1 )(2 ) , BARODA . (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI SUNIL TALATI , A.R REVENUE BY : SHRI L.P. JAIN , SR. D R / DATE OF HEARING : 22 / 01 / 2021 / DATE OF PRONOUNCEMENT: 23 / 03 /2021 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE A GAINST THE ORDER OF THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) - 2, VADODARA , DATED 16/01/2018 ARISING IN THE MATTER OF ASSESSM ENT OR DER PASSED UNDER S. 143(3) THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2014 - 20 15 . ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 2 2. THE ASSESSEE RAIS ED FOLLOWING GROUND OF APPEAL; YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) - 2, VADODARA, PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS. 1. THE LEARNED CIT(A) HAS ERRED ON LAW AND ON FACTS IN CONFIRMING THE PART DISALLOWANCE IN RESECT OF ADMINISTRATIVE AND OTHER EXPENDITURE INCURRED OUT OF TOTAL DISALLOWANCE MADE BY LD AO U/S 14A READ WITH RULE 8D. IT IS SUBMITTED BEFORE LOWER AUTHORITIES THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME BY THE APPELLANT AND FURTHER APPELLANT COMPANY WAS HAVING INTEREST - FREE FUNDS LYING WITH IT IN FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS AS WELL AS INTEREST FREE UNSECURED LOANS. THEREFORE THE PART ADDITION CONFIRMED BY LD CIT(A) IS TOTALLY INCORRECT AND UNJUSTIFIABLE AND THE SAME BE DELETED IN THE INTEREST OF JUSTICE. 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS 51,711/ - MADE BY AO TOWARDS LATE PAYMENT OF PF AND ESI. IT IS SUBMITTED THAT THE APPELLANT COMPANY HAD APPLIED FOR THE REGISTRATION OF PF AND ESI DURING THE YEAR CONSIDERATION AND THUS FOR THE INITIAL 2 - 3 MONTHS THE CONTRIBUTION DEPOSITED LATE DUE TO NON AVAILABILITY OF REGISTRATION NUMBER. IT IS THEREFORE SUBMITTED THAT THE DELAY IN DEPOSITING THE CONTRIBUTION IS DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE ONLY. UNDER THE CIRCUMSTANCES, IT IS PRAYED BEFORE YOUR HONOUR THAT THE IMPUGNED ADDITION MADE OF RS 51,711/ - ON ACCOUNT OF LATE DEPOSIT OF PF AND ESI BE DELETED. 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY A.O. OF RS. 15,00,000/ - ON ACCOUNT OF VARIOUS EXPENSES INCURRED. IT IS SUBMITTED THAT ALL THESE EXPENSE INCURRED ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY AND THE SA ME ARE DULY SUPPORTED WITH EVIDENCES AND LEDGER COPIES PRODUCED LOWER AUTHORITIES. IT IS FURTHER SUBMITTED THAT ALL THE EXPENSES ARE FULLY VOUCHED AND VERIFIED BY THE AUDITOR AS WELL. THUS HUGE ADDITION MADE AND CONFIRMED BY LOWER AUTHORITIES OF RS 15,00,0 00/ - PURELY ON AD - HOC BASIS, WITHOUT POINTING OUT ANY SPECIFIC DEFECT OR BRINGING INTO ANY MATERIAL 7 EVIDENCE TO THE CONTRARY IS COMPLETELY INCORRECT, UNLAWFUL AND UNJUSTIFIABLE. UNDER THE CIRCUMSTANCES, IT IS SUBMITTED THAT THE AD - HOC ADDITION OF RS.15,0 0,000/ - MADE WITHOUT APPRECIATING FACTS AND EVIDENCES AVAILABLE ON RECORD BE DELETED. IT MAY HELD SO NOW. 4. THE ORDER PASSED BY THE LEARNED CIT (APPEALS) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME HELD SO NO W. 5. YOUR APPELLANT CRAVES ITS LEAVE TO ADD, ALTER AND/OR TO AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN SUSTAINING THE PART ADDITION IN RESPECT OF ADMINISTRATIVE EXPENSES MADE UNDER SECTION 14A OF THE ACT. 4. DURING THE ASSESSMENT PROCEEDING IT WAS OBSERVED THAT THE ASSESSEE HAS CLAIMED EXEMPT INCOME OF RS. 3,75,000/ - BEING DIVIDEND ON SHARES. HOWEVER NO CORRESPONDING DISALLOWANCES OF EXPENDITURE W AS MADE UNDER THE PROVISION OF ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 3 SECTION 14A R.W.R . 8D OF INCOME TAX RULE. IN THIS REGARD THE ASSESSEE CLAIMED THAT THE INVESTMENT IN SHARE S IS VERY OLD AND NO BORROWED FUND WAS USED FOR INVESTMENT PURPOSE. THEREFORE THE PROVISION OF SECTION 14A IS NOT APPLICABLE IN ITS CASE. 4.1 HOWEVER THE AO REJECTED THE CLAIM OF THE ASSESSEE AND HELD THAT THERE WERE NO SPECIFIC SUBMISSION MADE BY THE ASSESSEE THAT WHY DISALLOWANCES SHOULD NOT BE MADE. ACCORDINGLY THE AO CALCULATED THE AMOUNT OF THE DISALLOWANCES TO THE TUNE OF RS. 7,21,937 AS P ER THE PROVISION OF RULE 8D R.W.S . 14A OF THE ACT BEING RS. 6,61,936/ - ON ACCOUNT OF INTEREST EXPENSES AND RS. 60,000 FOR ADMINISTRATIVE EXPENSES. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT - A . THE ASSESSEE BEFORE THE LEARNED CIT (A) MADE SI MILAR CONTENTION AS MADE DURING THE ASSESSMENT PROCEEDING. THE ASSESSEE DISPUTED THE VALUE OF AVERAGE INVESTMENT TAKEN BY THE AO FOR THE PURPOSE OF CALCULATING DISALLOWANCES. T HE ASSESSEE CLAIMED THAT THE AVERAGE VALUE OF INVESTMENT I S ONLY OF RS. 25,00,00 0/ - WHEREAS THE AO HAS TAKE N THE SAME AS AT RS. 1,20,00,000/ - ONLY . 6. THE LEARNED CIT (A) AFTER CONSIDERING THE FACTS IN TOTALITY DELETED THE DISALLOWANCES MADE FOR THE INTEREST EXPENSES AND CONFIRMED THE ADDITION FOR ADMINISTRATIVE EXPENSES BY OBSERVING AS UNDER: HOWEVER, SINCE TIME AND ENERGY OF THE MANAGEMENT AND RESOURCES OF THE COMPANY ARE UTILIZED FOR EARNING EXEMPT INCOME, A DISALLOWANCE AT 0.5% OF AVERAGE VALUE O F INVESTMENT IS JUSTIFIED AND ACCORDINGLY THE SAME IS CONFIRMED SUBJECT TO VERIFICATION. HOWEVER, THE AO IS DIRECTED TO VERIFY THE FIGURE OF ACTUAL INVESTMENT SINCE SHE HAS MENTIONED AVERAGE VALUE OF INVESTMENT AT RS.1,20,00,000/ - . THUS APPELLANT SUCCEEDS PARTLY IN RESPECT OF GROUND NO.1. 7. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 67 AND SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED A NY EXPENSE TOWARDS THE ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 4 ADMINISTRATIVE EXPENSES. ACCORDINGLY THE QUESTION OF DISALLOWING THE ADMINISTRATIVE EXPENSES UNDER SECTION 14A READ WITH RULE 8D DOES NOT ARISE. 9. ON THE OTHER HAND THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS EARNED EXEMPTED INCOME. THEREFORE, THE EXPENSES INCURRED BY THE ASSESSEE IN REL ATION TO SUCH EXEMPTED INCOME NEEDS TO BE DISALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. HOWEVER, THE ASSESSEE HAS NOT MA DE ANY DISALLOWANCE IN THE COMPU T A TION OF INCOME. ACCORDINGLY, IN THE ABSENCE OF ANY DISALLOWANCE BY THE ASSESSEE, THE AO I NVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AND MADE THE DISALLOWANCE TOWARDS THE ADMINISTRATIVE EXPENSES AMOUNTING TO 60,000 ONLY. THE PRIMARY ONUS LIES UPON THE ASSESSEE TO JUSTIFY , BASED ON THE DOCUMENTARY EVIDENCE , THAT IT HAS NOT INCURRED ANY EXPENSE AGAINST THE EXEMPTED INCOME. BUT THE ASSESSEE BEFORE US FAILED TO DISCHARGE THE ONUS IMPOSED UPON HIM EXCEPT CONTENDING THAT IT HAS NOT INCURRED ANY EXPENSES. THUS, THE AO, IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE ASSESSEE IN SUP PORT OF H IS CONTENTION, HAD NO ALTERNAT E EXCEPT TO MAKE THE DISALLOWANCE AS PER THE METHOD PRESCRIBED UNDER RULE 8D OF INCOME TAX RULE. EVEN AT THE TIME OF HEARING BEFORE US, THE LEARNED AR APPEARING ON BEHALF OF THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL E VIDENCE EXCEPT MAKING BALD STATEMENT THAT IT HAS NOT INCURRED ANY EXPENSE. A CCORDINGLY , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE AUTHORITIES BELOW. HENCE WE UPHOLD THE SAME. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 11. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN NOT CONSIDERING ITS SUBMISSION AND CONFIRMING THE ADDITION OF RS. 51,711/ - ON ACCOUNT OF LATE PAYMENT OF PF AND ESI. ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 5 12. THE AO FROM THE TAX AUDIT REPORT I.E. FORM 3CD OBSERVED THAT THE ASSESSEE FOR THE MONTH OF APRIL TO JUNE HAS DEPOSITED EMPLOYEE CONTRIBUTION TOWARD PF AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RESPECTIVE ACT. THUS THE AO PURPOSED TO MAKE THE ADDITION OF THE SAME UNDER THE PROVISION OF SECTION 36(1)(VA) R. W.S . 2(24)(X) OF THE ACT. 12.1 THE ASSESSEE SUBMITTED THAT THE IMPUGNED AMOUNT WERE DEPOSITED LATE ONLY IN BEGINNING OF THE YEAR FOR THE REASON THAT THE EPF AND ESI REGISTRATION NUMBER WERE NOT ALLOTTED TILL THE MONTH OF AUGUST. THEREFORE ADDITION SHOULD NOT BE MADE FOR FAILURE WHICH WAS BEYOND ITS CONTROL. 12.2 HOWEVER THE AO REJECTED THE SUBMISSION OF THE ASSESSEE AND MADE THE ADDITION FOR RS. 51,711/ - BEING LATE PAYMENT OF EPF AND ESI IN VIEW THE PROVISION OF THE A CT AND THE JUDGMENT OF HON BLE GUJAR AT HIGH COURT IN CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORP. REPORTED IN 366 ITR 170 WHICH SUBSEQUENTLY CAME TO BE CONFIRMED BY THE LEARNED CIT (A) BY ORDER DATED 16 - 01 - 2018. 13. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 14 . THE LEARN ED AR BEFORE US AGREED FOR THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 15 . AT THE OUTSET, WE NOTE THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE HON BLE GUJ ARAT HIGH COURT IN THE CASE OF CIT VS. GSTRC REPORTED IN 41 TAXMANN.COM 100 WHERE IN IT WAS HELD AS UNDER: IN VIEW OF THE ABOVE AND CONSIDERING SECTION 36(1)(VA), READ WITH SUB - CLAUSE (X) OF CLAUSE (24) OF SECTION 2, IT IS TO BE HELD THAT WITH RESPECT TO TH E SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH PROVISIONS OF SUB - CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLIES, THE ASSESSEE SHALL BE ENTITLED TO DEDUCTION IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 WITH RESPECT TO SUCH SUM CREDI TED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE 'DUE DATE' MENTIONED IN EXPLANATION TO SECTION 36(1)(VA ). CONSEQUENTLY, IT IS HELD THAT THE TRIBUNAL HAS ERRED IN DELETING RESPECTIVE DISALLOWANCES BEING EMPLOYEES' CONTRIBUTION TO PF ACCOUNT/ESI ACCOUNT MADE BY THE ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 6 ASSESSING OFFICER AS, AS SUCH, SUCH SUMS WERE NOT CREDITED BY THE RESPECTIVE ASSESSEE TO THE EM PLOYEES 'ACCOUNTS IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE AS PER THE EXPLANATION TO SECTION 36(1)(VA) OF THE ACT I.E. DATE BY WHICH THE CONCERNED ASSESSEE WAS REQUIRED AS AN EMPLOYER TO CREDIT EMPLOYEES' CONTRIBUTION TO THE EMPLOYEES ACCOUN T IN THE PROVIDENT FUND UNDER THE PROVIDENT FUND ACT AND/OR IN THE ESI FUND UNDER THE ESI ACT. 15 .1 THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT WE DISMISS THE GROUND OF APPEAL OF THE ASSESSEE. 16 . THE LAST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE AD - HOC DISALLOWANCES OF THE EXPENSES FOR RS. 15,00,000/ - BEING NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. 17 . THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND TH AT THERE WAS INCREASE IN SALES AND CORRESPONDING GP RATIO IN COMPARISON TO THE EARLIER ASSESSMENT YEAR BUT THERE WAS THE NEGATIVE NET PROFIT DECLARED BY THE ASSESSEE. ON VERIFICATION, THE AO FOUND THAT THE INDIRECT EXPENSES HAS INCREASED MANY FOLDS IN COMP ARISON TO THE EARLIER ASSESSMENT YEAR. THE NECESSARY DETAILS OF SUCH EXPENSES STAND AS UNDER: ITEM/PARTICULARS 2013 - 14 2012 - 13 PERCENTAGE INCREASE REVENUE FROM OPERATIONS 251562563 203957358 23.34 FINANCE COSTS 7495836 2128472 252.2 OTHER EXPENSES 31318912 11601781 169.94 EMPLOYEE BENEFIT EXPENSES 18909103 20,61,558 917.2 TRAVELLING EXPENSES 5479,791 744571 6.35 SELLING AND DISTRIBUTION EXPENSES 17035709 3520946 383.8 17 .1 THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS JUSTIFIED THE INCREASE IN EXPENSES BY CONTENDING THAT IT HAS ADDED NEW PRODUCTS IN ITS BUSINESS AND TURNOVER OF THE OLD PRODUCT WAS DECLINED. IN ORDER TO BOOST THE SALE OF NEW PRODUCTS, IT HAS INCURRED EXPENSE S ON THE ADVERTISEMENTS. FURTHERMORE, IT HAS OPENED NEW BRANCHES VIZ A VIZ HAS OBTAINED NEW FINANCES. LIKEWISE, IT HAS INCURRED EXPENSES UNDER THE HEAD SELLING EXPENSES WHICH INCLUDES THE COMMISSION, DISCOUNTS TO THE PARTIES, FREE ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 7 DISTRIBUTION OF SAMPLES. SIMILARLY, THE EMPLOYEE COST AND TRAVELLING COST WAS ALSO ENHANCED IN THE YEAR UNDER CONSIDERATION. 17 .2 IT WAS ALSO CONTENDED BY THE ASSESSEE THAT MAJOR EXPENSES WERE INCURRED THROUGH THE BANKING CHANNEL WHICH WERE SUPPORTED BASED ON VOUCHERS, BILLS ETC . ACCORDINGLY, THE ASSESSEE CLAIMED TO HAVE INCURRED ALL THE EXPENSES FOR THE PURPOSE OF THE BUSINESS AND ELIGIBLE FOR DEDUCTION. 17 .3 HOWEVER, THE AO DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING ACTIVITY AND THERE WAS NO CHANGE IN SUCH ACTIVITY EVEN AFTER INTRODUCTION OF NEW PRODUCTS. IN OTHER WORDS, THE ASSESSEE EVEN AFTER INTRODUCTION OF NEW PRODUCTS, WAS CARRYING OUT ONLY TRADING ACTIVITIES. ACCORDINGLY, THERE WAS NO CHANGE IN THE A CTIVITY OF THE BUSINESS OF THE ASSESSEE REQUIRING TO INCUR SUCH HUGE COST. 17 .4 THE AO ALSO FOUND THAT MOST OF THE EXPENSES WERE INCURRED THROUGH CASH WHICH WAS SUPPORTED ON SELF - MADE VOUCHERS. THEREFORE, THE ELEMENT OF PERSONAL EXPENSES OUT OF THE ENHAN CED EXPENSES INCURRED BY THE ASSESSEE CANNOT BE RULED OUT. ACCORDINGLY THE AO, IN ORDER TO PREVENT ANY LEAKAGE IN THE REVENUE, MADE THE DISALLOWANCE ON AD - HOC BASIS FOR 15 LAKHS ON THE REASONING THAT ALL THE BILLS AND VOUCHERS WERE NOT VERIFIABLE. THUS, T HE SUM OF 15 LAKHS WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 18 . AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 19 . THE ASSESSEE BEFORE THE LEARNED CIT (A) BESIDES REITERATING CONTENTIONS AS MADE BEFORE THE LEARNED AO, SUBMITTED T HAT IT IS BEING A BODY CORPORATE, THERE CANNOT BE ANY POSSIBILITY OF PERSONAL EXPENSES. 19 .1 THE ASSESSEE FURTHER CONTENDED THAT 99% OF SUCH EXPENSES WERE INCURRED THROUGH THE BANKING CHANNEL AND AFTER DEDUCTING THE T AXES WHEREVER THE PROVISIONS ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 8 OF TDS W ERE APPLICABLE. FURTHERMORE, THE SELF - MADE VOUCHERS WERE SUPPORTED BASED ON THE BILLS. 20 . HOWEVER, T HE LEARNED CIT (A) CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 4.3 GROUND NO.3 PERTAINS TO DISALLOWANCE OF RS. 15,00,000 / - OUT OF VARIOUS EXPENSES. UNDISPUTEDLY, THE EXPENSES CLAIMED BY THE APPELLANT HAVE INCREASED MANIFOLD AS COMPARED TO IMMEDIATELY PRECEDING ASSESSMENT YEAR. THIS IS ALSO REFLECTED IN THE NET PROFIT RATE. THE NET PROFIT IN THIS YEAR IS ( - ) 3.32% AS COMPARE D TO 2.27% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IN PARA 5.4 OF THE ASSESSMENT ORDER, THE AO HAS VERY CLEARLY MENTIONED THAT MAJORITY OF EXPENSES WERE INCURRED IN CASH AND ONLY SELF MADE INTERNAL VOUCHERS WERE MAINTAINED BY THE ASSESSEE. THEREFORE, CROSS VERIFICATION OF THE EXPENSES WAS NOT POSSIBLE. SINCE THERE WAS A SHARP FALL IN THE NET PROFIT DUE TO UNEXPLAINED AND ABNORMAL INCREASE IN THE EXPENSES, IN MY CONSIDERED VIEW, VERY HEAVY BURDEN IS CAST UPON THE APPELLANT WHICH REMAINED TO BE DISCHARG ED. HOWEVER, I FIND THAT THE APPELLANT HAS FURNISHED ONLY A GENERAL EXPLANATION. THE AO HAS MADE A DISALLOWANCE OF RS.15,00,000/ - OUT OF VARIOUS EXPENSES KEEPING IN VIEW THE RATIO LAID DOWN IN VARIOUS CASES. THE LD.AR HAS NOT CONTROVERTED THE FINDINGS OF T HE AO. UNDER THESE CIRCUMSTANCES, I AM OF THE CONSIDERED VIEW THAT THE AO HAS RIGHTLY DISALLOWED A SUM OF RS.15,00,000/ - OUT OF VARIOUS EXPENSES AND HENCE THE DISALLOWANCE MADE IS CONFIRMED AND GROUND NO.3 IS DISMISSED. 21 . BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 22 . THE LEARNED AR BEFORE US CONTENDED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED AND NO ADVERSE REMARK WAS POINTED OUT BY THE AUDITOR THERE IN . THE LEARNED AR FURTHER SUBMITTED T HAT THERE WAS CHANGE IN THE ACTIVITY OF THE ASSESSEE WHICH RESULTED INCREASE IN THE EXPENSES. AS SUCH THE ASSESSEE HAS INTRODUCED FEW MORE PRODUCTS IN THE LINE OF ITS BUSINESS. 23 . ON THE OTHER HAND THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AU THORITIES BELOW. 24 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE INDIRECT EXPENSES INCURRED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAVE INCREASED MANIFOLDS IN COMPARISON ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 9 T O THE EARLIER ASSESSMENT YEAR. ACCORDINGLY, THE AO MADE THE DISALLOWANCE ON AD - HOC BASIS. FIRST OF ALL, WE NOTE THAT THERE IS NO PROVISION UNDER THE ACT TO MAKE THE DISALLOWANCE ON AD - HOC BASIS. THE AO HAS TO SEE WHETHER THE EXPENSES CLAIMED BY THE ASSESSE E WERE TO BE DISALLOWED UNDER THE PROVISIONS OF LAW. BUT THE AO HAS NOT MADE REFERENCE TO ANY SPECIFIC PROVISION WHICH WAS VIOLATED BY THE ASSESSEE. 24.1 ADMITTEDLY, THE EXPENSES INCURRED IN CASH AND FURTHER MORE SUPPORTED ON THE BASIS OF SELF - MADE VOUCHERS, MIGHT CREATE DOUBT ABOUT THE GENUINENESS OF THE EXPENSES TO ENSURE WHETHER SUCH EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BU SINESS. IN OTHER WORDS, THERE IS NO DENIAL UNDER THE ACT TO INCUR THE EXPENSES IN CASH EXCEPT AS PROVIDED UNDER SECTION 40A(3) READ WITH RULE 6DD OF INCOME TAX RULE. BUT THERE WAS NO INVOCATION OF SUCH SECTION. THUS, THE EXPENSES CLAIMED FOR THE PURPOSE OF THE BUSINESS CANNOT BE DISALLOWED MERELY ON THE REASONING THAT THESE EXPENSES WERE INCURRED IN CASH AND WERE SUPPORTED ON THE SELF - MADE VOUCHERS. THERE ARE MANY OCCASIONS/SITUATIONS WHERE THE SUPPORTING DETAILS ARE NOT AVAILABLE FOR THE EXPENSES INCURRED BY THE ASSESSEE. THUS, IN SUCH A SITUATION ONLY SELF - MADE VOUCHERS CAN BE PREPARED IN SUPPORT OF THE EXPENSES INCURRED BY THE ASSESSEE. 24 .2 FURTHERMORE, THE ASSESSEE HAS CONTENDED THAT IT HAS OPENED MORE BRANCHES, HIRED MORE EMPLOYEES AND OBTAINED MORE FINANCES WHICH WILL UNDOUBTEDLY INCREASE THE EXPENDITURE. IT IS ALSO A FACT ON RECORD THAT THE ASSESSEE HAS ADDED SOME NEW ITEMS IN ITS BUSINESS LINE. IN A SCENARIO WHERE THERE IS CUT THROAT COMPETITION, THE ASSESSEE HAS CERTAINLY TO INCUR MORE EXPENSES BY EXTENDING MORE DISCOUNT, FREE DISTRIBUTION SAMPLES TO THE PROSPECTIVE CUSTOMERS. THIS CONTENTION OF THE ASSESSEE HAS NOT BEEN DOUBTED BY THE AUTHORITIES BELOW. ACCORDINGLY, THE ONUS WAS SHIFTED FROM THE ASSESSEE TO THE REVENUE AND THE REVENUE WAS TO PROVE WRONG TO THE ASSESSEE BASED ON THE MATERIALS AVAILABLE ON RECORD. BUT TO OUR MIND, THE REVENUE HAS NOT BROUGHT ANY TANGIBLE MATERIAL TO DRAW AN INFERENCE THAT THE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF THE BUSINESS. IN OTHER WORDS, THE AO HAS DOUBT ED ON THE REASONAB LENESS OF EXPENSES BUT AS SUCH HE HA S NOT POINTED OUT THAT THESE ITA NO. 794 /AHD/2018 ASSTT. YEAR 2014 - 15 10 EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF THE BUSINESS WHICH WAS THE PRECONDITION FOR INVOKING THE PROVISIONS OF SECTION 37 OF THE ACT. ACCORDINGLY, WE ARE OF THE VIEW T HAT NO DISALLOWANCE OF THE EXPENSES IS WARRANTED. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE COURT ON 23 /03 / 2021 AT AHMEDABAD. SD/ - SD/ - (MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 23 / 03 /2021 M ANISH