Income Tax Appellate Tribunal - Delhi
Rajni Jain, New Delhi vs Department Of Income Tax on 17 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No. 4502/Del/2012
AY: 2009-10
ACIT, vs Rajni Jain,
Circle 33(1), Prop. Quality Marketing Group,
New Delhi. 1626/33, Nai Wala, Karol Bagh,
New Delhi-110005
(PAN: AAPPJ147A)
(Appellant) (Respondent)
Appellant by : Ms Rakhi Vimal, Sr. DR
Respondent by : Shri U.S. Aggarwal, Adv.
ORDER
PER SUDHANSHU SRIVASTAVA, JM
This appeal has been preferred by the Department against the order dated 30.05.2012 passed by the ld. CIT(A)-XXVI, New Delhi and pertains to assessment year 2009-10.
2. The assessee is an individual and proprietor of M/s Quality Marketing Group engaged in the business of trading in mattresses etc. The total income for the year was declared at Rs.22,34,720/-. The assessment was finalised u/s 143(3) of the Income Tax Act, 1961 (hereinafter called 'The Act') after making the following disallowances:-
I.T.A. No. 4502/Del/2012 Assessment year 2009-10
- Ad hoc disallowances of purchase - Rs. 84,16,016/-
- Ad hoc disallowance of expenses - Rs. 8,37,459/-
- Addition on account of payment Made u/s 40A(2)(b) of the Act - Rs. 1,80,000/- Accordingly, the assessment was completed at Rs.1,16,68,195/-.
3. The disallowance towards purchase was made @5% of the total purchase because as per the Assessing Officer, the assessee had produced purchase bills for verification for one month only. Similarly, as no bills of expenses were produced, the Assessing Officer disallowed 25% of the expenses debited in the profit/loss account excluding donation and depreciation. Regarding the disallowance of Rs.1,80,000/- u/s 40A(2)(b) of the Act, the Assessing Officer noted that the payment had been made to Shri Mohit Jain for consultancy work. Shri Mohit Jain is a student of CA final and as such was not qualified and competent to provide consultancy. The Assessing Officer also noted that the assessee had not filed any details regarding the nature of service offered by Shri Manish Jain.
4. Aggrieved, the assessee went into appeal. On the issue of ad hoc disallowance @5% on purchases, the ld. CIT(A) noted that the Assessing Officer had not identified any single bill of 2 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 purchases produced to point out any deficiencies in the purchases. He also noted that the Assessing Officer had disallowed 5% of the total purchases without disturbing the sales, meaning thereby that the Assessing Officer had accepted the gross profit as declared by the assessee. The ld. CIT(A), while allowing the assessee's appeal on this ground, observed that in absence of any material brought out by the Assessing Officer, the addition could not be sustained. On the issue of disallowance of expenditure on ad hoc basis @25%, the ld. CIT(A) has observed that the Assessing Officer did not examine the bills on record and insisted that the nature and purpose of expenses be proved. As per the ld. CIT(A), the Assessing Officer did not hold an independent inquiry to find out the genuineness of the expenses. The ld. CIT(A) also observed that the Assessing Officer did not reject the books of account on the ground that the accounts were unverifiable. However, while partly allowing the assessee's ground, the ld. CIT(A) observed that out of the various expenses debited to the profit/loss account, conveyance and travelling expenses, entertainment expenses, telephone expenses and car expenses were of such nature that the personal element could not be ruled out. He then proceeded to restrict the disallowance 3 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 to 20% but only on these four items of expenditure and the disallowance pertaining to the other heads of expenditure was deleted. On the issue of disallowance of Rs.1,80,000/- u/s 40A(2)(b) of the Act, the ld. CIT(A) noted that the Assessing Officer has not brought on record the relationship between the assessee and Shri Mohit Jain. He also noted that to determine that the payment was unreasonable or excessive, the Assessing Officer has not brought any material giving a comparable specific instance to contradict the claim of the assessee. He also noted that from the material on record, it is seen that Shri Mohit Jain has no substantial interest in the business of the assessee. The ground pertaining to this disallowance was also allowed.
5. In the present appeal before us, the Department has contested the deletion of the additions on all the three counts. Ld. DR placed strong reliance on the findings of the Assessing Officer and submitted that the ld. CIT(A) has deleted the additions without a proper appreciation of the facts of the case. He submitted that the order of the Assessing Officer should be restored.
6. Ld. AR, in response, while supporting the order of the ld. CIT(A), submitted that the Assessing Officer had made the 4 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 addition on surmises and guesses without pointing out any defect in the books of account. He submitted that the sales, purchases, gross profit and net profit figures had been progressive over the previous years and he submitted a chart in support of his contention. On a specific query from the Bench, he fairly submitted that the earlier assessments had been made u/s 143(1) of the Act. He also submitted that the Assessing Officer could have asked for the books of account and bills for other months if it was so desired, instead of proceeding with the disallowance and making it appear as if the assessee was at fault. He submitted that in the absence of any specific defect being pointed out in the books of account, there can be no justification for making the addition. Similarly, on the issue of ad hoc disallowance of expenses, he submitted that the books of account of the assessee were duly audited and the Assessing Officer has not given any material or cogent reason for making the disallowance. On the issue of disallowance u/s 40(A)(2)(b) of the Act, the Ld. AR submitted that the disallowance under this section can be made only to the extent the payment of services is excessive or unreasonable vis-a-vis the market price of such 5 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 services. The Ld. AR argued that the order of the Ld. CIT(A) should be upheld.
7. We have heard the rival submissions and carefully perused the relevant material placed on record. As far as the issue of 5% of disallowance on the total purchases is concerned, the Ld. CIT(A) has given a categorical finding that he had requisitioned the assessment records also wherein although the assessment proceedings were initiated on 25.8.2010 but the first hearing was recorded on 13.10.2011. The Ld. CIT(A) has observed that in the intervening period, the case was not pursued and no efforts were made by the Assessing Officer to ensure the assessee's attendance. It was only in the last leg of the limitation period that the assessment proceedings were pursued with fervour. The Ld. CIT(A) has also noted that the assessee had made purchases mainly and only from two parties, M/s Sheela Foam (P) Ltd. and M/s Karna Associates. On going through the assessment records, the Ld. CIT(A) has also observed that the assessee had submitted the account statements of the entire year which duly reflected bill numbers and cheque payments to the above parties from whom the purchases were made. The Ld. CIT(A) has given a finding that the Assessing Officer has not examined the copy 6 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 of statement and co-related the same to the purchase bills produced by the assessee. The Ld. CIT(A) has also noted that as per the records, the Assessing Officer did not insist for the production of complete set of bills. These observations of the Ld. CIT(A) were not disputed in the appeal before us. Therefore, in the overall view of the facts of the case and the observations of the Ld. CIT(A), we are of the considered opinion that the impugned action of the Ld. CIT(A) on the issue does not call for any interference. We, accordingly, confirm the order of the Ld. CIT(A) on this issue and hence this ground of appeal is dismissed.
8. On the issue of disallowance of expenses, the Ld. CIT(A) has again given a categorical finding that the Assessing Officer has only excluded depreciation and donation for the purpose of calculating the quantum of disallowance. Thus, in effect, disallowance has been made on payments like Audit Fee, Bank charges and interest, insurance, legal charges etc. As per the Ld. CIT(A), the Assessing Officer did not reject the books of account and the only reason for disallowance was that the expenditure was unverifiable. The Ld. CIT(A) also noted that the Assessing Officer did not segregate expenditure incidental to business and 7 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 the expenditure that could have some personal element. Thereafter, the Ld. CIT(A) has observed that out of the various expenses debited in profit/loss account, conveyance and travelling, entertainment, telephone and car related expenses were of such a nature where personal element could not be ruled out. He accordingly restricted the disallowance to 20% only on these four items of expenditure and deleted the rest of the addition. Therefore, in the overall view of the facts, we are of the opinion that the Ld. CIT(A) has passed a reasoned order. Moreover, the Department also could not bring anything on record which could controvert the findings of the Ld. CIT(A). Hence, we are of the opinion that on this issue also, we are not inclined to interfere. Hence this ground of the appeal is also dismissed.
9. On the issue of the disallowance u/s 40A(2)(b), it is an admitted fact that the person to whom the payment has been made i.e. Shri Mohit Jain was a student of CA final and he has been stated to have rendered management/consultancy services to the assessee. However, the Assessing Officer has only objected that the said person was not qualified to render the service claimed. He has not brought on record as to how the payment made 8 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 was excessive. The scheme of section 40A(2) stipulates that the expenditure can be disallowed in the following situations:-
i) The payment is in respect of any expenditure;
ii) The payment has been made or is made to a relative;
iii) The payment is considered excessive or unreasonable having regard to the fair market value of the goods, services of facilities or the legitimate business needs of the assessee or the benefit derived by or accruing to the assessee from the payment.
10. The Assessing Officer has not denied that the payment was genuine. However, the Assessing Officer has not brought anything on record to demonstrate as to how the payment was excessive. The Assessing Officer has also not established that Shri Mohit Jain was related to the assessee. Thus, the onus was on the Assessing Officer to prove that the payment was unreasonable or excessive which he has failed to discharge. Hence, on this issue also, we decline to interfere and dismiss the ground of appeal.
11. In the result, the appeal filed by the Department is dismissed.
9 I.T.A. No. 4502/Del/2012 Assessment year 2009-10 Order pronounced in the open court on 17th of February, 2016.
Sd/- Sd/-
( G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA)
VICE PRESIDENT JUDICIAL MEMBER
DT. 17th FEBRUARY, 2016
'GS'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT 4.CIT(A)
4. DR
By Order
Asstt. Registrar
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