VEN SINGH,MEHSANA V. THE INCOME TAX OFFICER, WARD-3, MEHSANA

ITA 728/AHD/2024

AI Insights

The case involves an appeal by Ven Singh Rabari against the orders of the Commissioner of Income-Tax (Appeals)-4, Mumbai, pertaining to the Assessment Year 2017-18. The primary issues in the appeal were the disallowance of expenses amounting to Rs.94,600 and the disallowance of PF contribution of Rs.4,78,966. The assessee argued that the disallowances were made without proper appreciation of facts and law. The Tribunal found that the AO had not considered the assessee's submissions during the assessment proceedings and had included incorrect figures in the disallowances. The Tribunal's decision rectified these errors and partly allowed the appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 298743 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-11-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 16-04-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KETAN GAJJAR
• Assessee Lawyers: JIMI PATEL

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘SMC’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.728/Ahd/2024 Assessment Year : 2017-18 Ven Singh Rabari Colony Opp: Torrent Pharma Ahmedabad-Mehsana Highway Chhatral 382729 Gujarat. PAN : BEWPS 6333 D Vs ITO, Ward-3 Mehsana. (Applicant) (Responent) Assessee by : Shri Jimi Patel, AR Revenue by : Shri Ketan Gajjar, Sr.DR सुनवाई क\t तारीख/Date of Hearing : 12/11/2024 घोषणा क\t तारीख /Date of Pronouncement: 19/11/2024 आदेश आदेश आदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Appeals)-4, Mumbai [hereinafter referred to as “ld.CIT(A)] dated 7.2.20224 under section 250 of the Income Tax Act, 1961 (\"the Act\" for short) pertaining to Assessment Year 2017-18. 2. At the outset, it is noticed that the appeal of the assessee has been filed late by 8 days. The assessee has submitted that due to some personal circumstances, there was a delay on his part in signing his appeal, which was sent across to him by his consultant; that due ITA No.728/Ahd/2024 2 to personal emergency in the family, he had to rush out-of-town. By the time he returned, signed the appeal form sent to him and deposited with the Registry of the ITAT, a time-gap of 8 days had occurred in filing the appeal. The above facts were all stated on oath by the assessee in a duly sworn affidavit filed before us. 3. The ld.DR submitted no objection to condoning the delay. Accordingly, the delay in filing the appeal before the Tribunal is condoned, which was pronounced in the Open Court itself. 4. We, now proceed to adjudicate the appeal before us. 5. It arises from the orders of the authorities below and the grounds raised before us that there are primarily two additions/disallowances made by the AO and confirmed by the ld.CIT(A) which are in challenge before us, viz. (i) pertaining to disallowance of expenses to the tune of Rs.94,600/- and; (ii) the other pertaining to disallowance of contribution to PF of Rs.4,78,966/- resulting in total disallowance of Rs.5,73,566/- being in challenge before us. This is evident from the grounds of appeal raised before us, which read as under: “1. Ld. CIT(A) erred in law and on facts in confirming disallowance of Rs.94,600/- being 4% percent of total expenditure of Rs.23,64,809/- as made by the assessing officer by treating them as suspicious without appreciating facts and law of the case properly. 2. Ld. CIT(A) erred in law and on facts in confirming disallowance of Rs.4,78,966/- being contribution to provident fund without appreciating facts and law of the case properly.” ITA No.728/Ahd/2024 3 6. Primary arguments of the ld.counsel for the assessee before us qua the challenge to the order of the ld.CIT(A) was to the effect that the same is not sustainable for the reason that he has dismissed the assessee’s appeal for non-prosecution without dealing with the issues raised by the assessee on merits despite the fact that the assessee had made submissions against the proposed additions/disallowance before the AO, which were part of the record before the ld.CIT(A) also. The contention of the Ld.Counsel for the assessee was that the issues now raised be decided on merits by us on the basis of the submissions made by the assessee before the AO. 7. In this regard, he first drew our attention to the fact that the disallowance of expenses made by the AO to the tune of Rs.94,600/- was in relation to the adhoc disallowance of 4% of certain expenses incurred by the assessee ,made for the reason that the AO found the said expenses not duly substantiated with documentary evidences in the absence of any submissions made by the assessee before him. The finding of the AO dealing with this disallowance contained in para-3 of the order as under: ITA No.728/Ahd/2024 4 8. With regard to the AO’s disallowance of PF expenses, it was pointed out that same pertained to the contribution to PF made by the assessee as employer, which the AO found exceeded the statutory limit of 27% of the salary, and hence, excess was held liable to be disallowed in terms of Rule 87 of the Income Tax Rules, 1962 resulting disallowance of Rs.4,78,966/-. Relevant portion of the AO’s order dealing with the issue at para-4 is as under: ITA No.728/Ahd/2024 5 9. The ld.counsel for the assessee pointed out that the assessee had submitted to the AO on both these issues in response to the show cause notice issued to it, vide reply dated 14.12.2019, copy of which was placed before us at PB No.18-19. He pointed out that the same was uploaded on the portal in the e-assessment proceedings, evidence of which was placed at PB Page No.20, being the screen-shot of the response filed by the assessee during the assessment proceedings submitted on 18.12.2019, showing therein the attachment filed including covering letters & various annexures. The ld.counsel for the assessee pointed out that despite the assessee’s submissions being made to the AO on 18.12.2019, the AO went on to pass the assessment order five days later on 23.12.2019 without acknowledging the receipt of this reply of the assessee, and noting no response filed by the assessee on the proposed disallowance by the AO. The ld.counsel for the assessee pointed out that the assessee had filed this reply in December, 2019 in response to the show cause notice itself, which fact finds mention in the reply of the assessee also. 10. Having stated so, the ld.counsel for the assessee pointed out that the ld.CIT(A) dismissed the assessee’s appeal for non-prosecution noting that the assessee had not responded to various notices served to it. And be that so, he did not even care to consider the submissions made by the assessee before the AO against the disallowance made by the AO. Having so pointed out, the manner in which the proceedings were carried out before the AO, and the ld.CIT(A), which the DR was unable to controvert before us, he went on to make his arguments on merits of the disallowances made. ITA No.728/Ahd/2024 6 11. With respect to the disallowance of 4% of expenses, he contended that his only plea was that income tax expenses to the tune of Rs.3,90,126/- considered by the AO for the purpose of disallowance of 4% of the expenses, as tabulated in para-3 of the assessment order reproduced above ,was an incorrect figure, noted by the AO and the correct figure was Rs.1,90,355/-. His contention was that income-tax expenses had already disallowed by the assessee in the computation of income filed, and therefore, an amount of Rs.3,90,126/- should not be considered for the purpose of disallowing 4% of the expenses. This was the solitary plea before us with respect to the disallowance of 4% of the expenses amounting to Rs.94,600/-. 12. He demonstrated the fact that the income tax expenses being Rs.1,90,355/- and not Rs.3,90,126/- as considered by the AO, by pointing out the fact that even the AO in his show cause notice reproduced in page no.2 of the assessment order had noted the fact of income tax expenses debited by the assessee being to the tune of Rs.1,90,355/-. Our attention was further drawn to the audited financial statement of the assessee, being the audited profit & loss account, placed before us at PB Page no.5 of the PB ,wherein he pointed out the fact of income tax expenses debited being Rs.1,90,355/-. 13. Having pointed out the anomaly in the assessment order of noting the incorrect amount of income tax expenses debited by the assessee, he thereafter drew our attention to the fact of income tax expenses being already added to the income of the assessee while computing his income to be returned to tax. In this regard, he drew our attention to the computation of income filed by the assessee for the impugned year before us, which was placed at P.B page no.2, ITA No.728/Ahd/2024 7 wherein he drew our attention to the figure of net profit (before tax) as per the profit & loss account, taken as Rs.12,42,611/-. He pointed out that the assessee had computed income from the business or profession taking his profits from business before the tax. He thereafter evidenced the same by taking us back to the profit & loss account of the assessee placed before us at Page no.5 of the PB, pointing out that net profit shown was Rs.10,52,256/- and to which, the income tax expenses of Rs.1,90,355/- were added to arrive at the figure of profit before tax of Rs.12,42,611/-. Thus, he demonstrated that the income tax expenses had already been added back to the profits of the assessee for the purpose of paying taxes thereon, and therefore, inclusion of the same in the expenses disallowed at the rate of 4% needed to be deleted. 14. The ld.DR was unable to controvert the factual contention made by the ld.counsel for the assessee as above and noting the same, we hold that with respect to the disallowance of expenses to the tune of Rs.94,600/- at the rate of 4% of the expenses totaling to Rs.23,64,809/- the component of income tax expenses included therein being Rs.3,90,126/- be excluded, which at the rate of 4% amounts to Rs.15,605/- and the addition/disallowance of expenses, therefore, be restricted to Rs.78,995/- as against Rs.94,600/- confirmed by the Ld.CIT(A). 15. Taking up the issue of disallowance of PF expenses, the ld.counsel for the assessee pointed out that while the AO had considered only salary paid by the assessee for the purpose of noting that the contribution to the assessee to the PF, had exceeded 27% of the salary so paid, the assessee in fact had submitted to the AO in its reply filed that the PF contribution had been made on the components ITA No.728/Ahd/2024 8 of both the salary and the wages paid, and that, being a labour contractor, he has deducted the PF even on labour wage components which did not exceed 27% of the salary & wages; that both the AO and the ld.CIT(A) had completely ignored the submissions of the assessee and went on to make disallowance of PF expenses on an incorrect factual premise. 16. The ld.DR, on the other hand, contended that since neither the AO nor the ld.CIT(A) has not taken note of the assessee’s contentions, the factual contentions of the assessee remained unverified, and therefore, the matter be restored back either to the AO or to the ld.CIT(A) for reconsideration. The ld.counsel for the assessee, on the other hand, countered by saying that the Department should not be given second innings for consideration of the issue that too when the Department itself is to blame for not having taken note of the assessee’s submissions in the first around and got it verified. 17. Taking note of the contentions of both the sides, we find merit in the contention of the ld.counsel for the assessee that the Department should not be given second round in the matter. The assessee undoubtedly, had contended that the AO had proceeded to make the disallowance on a factually incorrect premise, and it was duty of the AO at that juncture to verify the fact as demonstrated by the assessee. This fact was there before the Ld.CIT(A) also who again chose to ignore the submissions of the assessee. The department , for no reason, having chosen not to consider the submissions made by the assessee before it and in turn therefore not verified the factual aspect of the contention made , we see no reason why the department should now be given another chance for verifying the facts argued ITA No.728/Ahd/2024 9 before it. There is, we hold, no occasion now to give second round to the Department. 18. In view of the same, we hold that disallowance of Rs.4,78,966/- made on account of excess contribution to PF by the assessee in terms of Rule 87 of the Income Tax Rules, 1962 be deleted. 19. In effect, the appeal of the assessee is partly allowed in the above terms. Order pronounced in the Court on 19th November, 2024 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 19/11/2024 "