MEELENDRA SINGH ,MUMBAI V. INCOME TAX OFFICER (IT) 4(2)(1), MUMBAI

ITA 923/MUM/2025

AI Insights

This case involves an appeal by Meelendra Singh against the final order of assessment passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, by the Income Tax Officer (IT)-4(2)(1), Mumbai. The dispute centered on the disallowance of 5% of administrative and selling expenses amounting to Rs. 1,18,26,490, which the Dispute Resolution Panel (DRP) directed based on insufficient evidence of expenses. The assessee contested that detailed evidence of these expenses was provided in the financial statements. The Tribunal found that while the DRP had reduced the disallowance from 10% to 5%, the assessee still failed to provide substantive evidence of the expenses claimed. Consequently, the Tribunal remitted the matter back to the AO for a detailed examination of the documentary evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47206 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2022-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: H.N.MOTIWALLA
• Keywords: Additional evidence; Corroborative evidences; Capital Gains; Principle of natural justice
• Section: 143(3); 37(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JM & MS PADMAVATHY S, AM I.T.A. No.923/Mum/2025 (Assessment Year: 2022-23) Meelendra Singh, 503, Pushpakumj, ‘A’ Road, Churchgate, Mumbai-400020. PAN: BFAPS5402N Vs. ITO (IT)-4(2)(1), Kautaliya Bhavan, Bandra, Mumbai-400051. Appellant) : Respondent) Appellant /Assessee by : Shri H.N. Motiwalla, AR Revenue / Respondent by : Shri Krishna Kumar- Sr. DR Date of Hearing : 03.04.2025 Date of Pronouncement : 07.04.2025 O R D E R Per Padmavathy S, AM: This appeal by the assessee is against the final order of assessment passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) by the Income Tax Officer (IT)-4(2)(1), Mumbai dated 24.12.2024 for Assessment Year(AY) 2021-22. The assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case, the learned ITO (IT) 4(2)(1), Mumbai, erred in passing the order under section 143(3) r.w.s. 144C(13) of the Income tax Act, 1961 and making the addition of Rs. 5,91,325/- as per direction of Dispute Resolution Panel. 2 ITA No. 923/Mum/2025 Meelendra Singh 2. On the facts and in the circumstances of the case, the learned Dispute Resolution Panel erred in directing the Assessing Officer to disallow 5% of Rs. 1,18,26,490/- i.e. Rs. 5,91,325/-in respect of administration and selling expenses on the ground that \"no evidence of expenses has been brought on record till date\" without appreciating that schedule 8 of the Financial statement clearly depicts details of said expenses. Therefore the said direction is without any merit.” 2. The assessee is an individual and deriving income from Profit & Gains from Business or Profession, Capital Gains and Income from Other Sources. For AY 2021-22, the assessee filed the return of income on 03.11.2022 declaring a total income of Rs. 550/-. The return was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer (AO) during the course of assessment noticed that the assessee has incurred various expenses and called on the assessee to furnish the necessary details substantiating the expenses. The AO made and addition at 10% of the expenditure amounting to Rs. 20,01,563/- stating that the assessee could not establish that the entire expenditure was incurred wholly and exclusively for the purpose of business and that no cogent evidence was submitted. The assessee has raised further objections before the Dispute Resolution Panel (DRP). Before the DRP, the assessee submitted that the amount of expenditure considered by the AO for the purpose of disallowing 10% is incorrect. The assessee further submitted that during the year under consideration as per the financial statements, the assessee has claimed expenditure towards payment to employees amounting Rs. 64,74,174/- and Administrative & Selling Expenses to the tune of Rs. 1,18,26,463/-. Accordingly, the assessee submitted that the total expenditure claimed by the assessee is Rs. 1,83,00,637/- and not the figure of Rs. 2,00,15,631/- as considered by the AO for the purpose of disallowances. The assessee also submitted before the DRP that the assessee has incurred the above expenses entirely for the purpose of business and the AO is not correct in estimating the disallowance at 10% on the ground that the assessee has not furnished the substantive evidence in 3 ITA No. 923/Mum/2025 Meelendra Singh support of the claim of expenditure. The DRP after considering the submissions of the assessee gave partial relief to the assessee by holding that – “The submission of the appellant shows that the amount of expenses incurred during the year are Rs.1,83,00,637 only, in comparison to Rs.2,00,15,630 taken for calculation of disallowance in the draft order. Further, employee payments constitute a major chunk at Rs.64,74,147. Employee expenses are subject to payroll taxes and there generally cannot be a cash element. Further, the financial statements have been duly audited and Form 3CB has been submitted. Nothing has been bought on record by the Ld. JAO to suggest that salaries have a cash element. Thus, the employee expenses are to be excluded from the disallowance calculation. That said, administrative and selling expenses amounts can be subjected to test under 37(1) of ITA 1961, as no evidence of expenses has been bought on record till date. Looking at the facts and circumstances of the case, the panel directs that the percentage of disallowance be taken at 5%. The amount of disallowance be restricted to 5% of Rs. 1,18,26,490 (Rs.1,83,00,637 - Rs.64,74,147 (employee expenses)) = Rs 5,91,325.” 3. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO pursuant to the directions of the DRP. 4. We have heard the parties and perused the material on record. We notice from the perusal of the AO’s order that the grounds for disallowing a percentage of the total expenditure is that the assessee has not discharged the onus of proving that the expenditure claimed is incurred wholly and exclusively for the purpose of business and that the assessee has not submitted any cogent evidence. The AO accordingly the AO estimated the disallowance at 10% but has considered an incorrect amount while calculating the disallowance. The DRP reduced the disallowance to 5% on the correct amount of the Administrative & Selling Expenses and gave partial relief to the assessee. However, from the findings of the DRP as extracted in the earlier part of this order, we notice that the assessee did not furnish any evidences supporting 4 ITA No. 923/Mum/2025 Meelendra Singh the claim of the expenditure before the DRP also. Even before us the assessee has not brought any additional evidence in support of the expenditure. The ld. AR during the course of hearing submitted that the entire expenditure incurred by the assessee have proper supporting evidences, and prayed that one more opportunity may be given to the assessee to submit the necessary evidences in support of the claim of the expenditure. The Ld DR did not raise any objection to the same. Accordingly, in the interest of natural justice and fair play, we are remitting the issue back to the AO for limited purpose of examining the documentary evidences in support of the administrative and selling expenses claimed by the assessee and allow the claim in accordance with law. The assessee is directed to furnish the necessary evidences in support of the claim of the expenditure and co-operate with the assessment proceedings. 5. In result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 07-04-2025. Sd/- Sd/- (PAWAN SINGH) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "