M/s. R C Heights Pvt. Ltd., Rajkot V. The ITO/ADIT NFAC Delhi, Delhi

ITA 90/RJT/2023

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M/s. R.C. Heights Pvt. Ltd., a private limited company engaged in construction and civil contracting, filed an appeal against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad. The appeal arose from an assessment order under section 143(3) read with section 144B of the Income Tax Act, 1961, for the Assessment Year 2018-19. The Assessing Officer had made an ad-hoc disallowance of 20% on certain business expenses, citing that they were paid in cash and lacked proper documentation. The CIT(A) upheld this disallowance, leading the assessee to appeal before the Tribunal. The Tribunal, after reviewing the evidence, found that the majority of the payments were made through bank transactions and that the expenses were genuine and necessary for the business.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138245 (ITAT-RAJKOT)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 09-04-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Principle of natural justice
• Section: 37; 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) Before: Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member M/s. R.C. Heights Private Ltd. Shree Umiya Krupa, 65- Silver Stone, Opp-Big Bazar, Rajkot, Gujarat-360005 PAN No: AAGCR6485D (Appellant) Vs The ITO/ADIT NFAC Delhi, Delhi (Respondent) Assessee Represented: Shri R.B. Shah, A.R. Revenue Represented: Shri B.D. Gupta, Sr.D.R. Date of hearing : 04-07-2023 Date of pronouncement : 07-07-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the Appellate order dated 15.03.2023 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad arising out of the assessment order passed under section 143(3) r.w.s. 144B of the Income Tax Act, ITA No. 90/Rjt/2023 Assessment Year: 2018-19 I.T.A No. 90/Rjt/2023 A.Y. 2018-119 Page No M/s. R.C. Heights Pvt. Ltd. vs. ITO/ADIT NFAC 2 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2018-19. 2. The brief facts of the case is that the assessee is a Private Limited Company and engaged in the business of Construction and Civil Contractor. For the Assessment Year 2018-19, the assessee filed its Return of Income on 18-08-2018 declaring total income of Rs. 8,57,900/-. The assessee’s case was taken up for scrutiny assessment on the ground that the assessee has shown very low profit in comparison to total revenue/other income and has claimed large amount of refund. 2.1. On verification of the Profit and Loss account and Ledgers and Vouchers during the faceless assessment u/s. 144B, the Assessing Officer found that Shuttering expenses of Rs. 8,63,810/- and Office Salary expenses of Rs. 12,20,000/- are 100% made in cash payments and certain vouchers are self-made vouchers, thus the genuineness of these expenses could not be ascertained. Therefore the A.O. made ad-hoc disallowance at 20% of Rs. 20,83,810/- namely Rs. 4,16,762/- and added as the total income of the assessee. 3. Aggrieved against the same, the assessee filed an appeal before Commissioner of Income Tax (Appeals). The assessee submitted that Shuttering expenses of Rs. 8,63,810/- are incurred have direct and inextricable link with the construction business of the assessee. The payments were made to M/s. Metro Timbers & Plywood, M/s. Giriraj Agency and M/s. Raj Timbers for purchase of I.T.A No. 90/Rjt/2023 A.Y. 2018-119 Page No M/s. R.C. Heights Pvt. Ltd. vs. ITO/ADIT NFAC 3 wooden shutter to shutter/board up RCC slab by wooden shutter. It is utmost necessary in this line of construction business engages to cover up RCC Slab by wooden shutter. Without these expenses/wooden shutter, RCC Slab construction work could not be done. Hence this expenditure is incurred wholly and exclusively for the business purpose and allowable u/s. 37 of the Act. 3.1. Similarly, the salary expenses is paid to office staff members, incurred in the course of providing services by the employees to the assessee company. However the above explanation of the assessee was rejected by the Ld. CIT(A) on the ground that A.O. had given more than adequate opportunity for filing of complete supporting evidence in support of its claim by issuing seven notices u/s. 142(1) of the Act. However the assessee has not produced the details and thereby Ld. CIT(A) confirm the disallowance made by the Assessing Officer and thereby dismissed the appeal filed by the assessee. 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: 1. (a) That the Ld. CIT (Appeals)-11, Ahmedabad, has erred in law and on facts by sustaining the ad hoc addition of Rs. 4,16,762/-made by the Assessing Officer on account of disallowance u/s 37(1) of 20% out of the following Business Expenses. The addition is bad in law and needs to be deleted in toto. Particulars of the Business Exp. Amount of the Exp. (in Rs.) Shuttering Exp. 8,68,810/- Office Salary Exp. 12,20,000/- Total 20,83,810/- (b) That the disallowance of @20% is excessive and unjustified, considering that the expenditures are genuine, necessary, and wholly and exclusively incurred for the business purpose. I.T.A No. 90/Rjt/2023 A.Y. 2018-119 Page No M/s. R.C. Heights Pvt. Ltd. vs. ITO/ADIT NFAC 4 (c) The CIT(A) has erred in upholding the order of the AO without considering the evidence and submissions made by the Appellant. (d) The CIT has failed to appreciate the evidence on record, which clearly demonstrates that the expenses were incurred for the business purpose and were supported by proper documentation. 2. That the order of the Ld. CIT (Appeals)-11, Ahmedabad is insupportable in law and on facts and is also contrary to the principles of natural justice and equity. Your appellant reserves right to add, alter, amend or withdraw any of all ground(s) of appeal. 5. Heard rival parties and perused the Paper Book filed by the assessee. It is seen from Page No. 30 of the Paper Book that payment of Rs. 1,39,970/- was paid to Giriraj Agency for supply of Shuttering materials through Kotak Mahindra Bank Account of the assessee on 05-01-2018. Similarly, in the case of Raj Timbers, at Page No. 33 of the Paper Book payments were made through two cheques of Kotak Mahindra Bank Account of the assessee. Thus the allegation of the Ld. A.O. that the expenses were made by cash payments are not found to be not correct. Therefore the ad-hoc disallowance on account of Shuttering expenses made by the Assessing officer is not justifiable. The expenses are directly relatable to the business of the assessee and allowable u/s.37 of the Act and therefore the ad-hoc disallowance made by the A.O. is hereby deleted. 5.1. Similarly, in the case of the salary paid to various employees, wherein major portion of the salary was paid by cheque, namely in the case of Mr. Anjuben Bharatbhai Makadia as against the annual salary of Rs. 2,00,000/-, Rs. 1,60,000/- was paid on 13-03-2018 I.T.A No. 90/Rjt/2023 A.Y. 2018-119 Page No M/s. R.C. Heights Pvt. Ltd. vs. ITO/ADIT NFAC 5 through Kotak Mahindra Bank Account; however, the remaining Rs. 40,000/- was paid by cash on different dates which was less than Rs. 10,000/-. Similarly in the case of Mr. Hetal Sanjay Panchani as against annual salary of Rs. 2,40,000/-, Rs. 2,00,000/- was paid by cheque payments on 12-03-2018 and the remaining salary payments were paid by cash on different dates which were less than Rs. 10,000/-. Thus the assessee placed on record, various employees salary payment details from Page Nos. 36 to 42 of the Paper Book. Thus the allegation of the Assessing Officer, cash payment of exceeding Rs. 20,000/- made by the assessee to its employees is not correct. Therefore the ad-hoc disallowance made on this account is hereby deleted. Thus the grounds raised by the assessee are hereby allowed. 6. In the result, the appeal filed by the Assessee is hereby allowed. Order pronounced in the open court on 07 -07-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 07/07/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, राजकोट