Income Tax Appellate Tribunal - Jodhpur
Sanghi Brothers, Jodhpur vs Income Tax Officer, Jodhpur on 19 March, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER &
SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER
I.T.A. No.88/Jodh/2023
Assessment Year: 2015-16
Sanghi Brothers Vs. Income Tax Officer
Railway Station Road, Jodhpur.
Jodhpur (Respondent)
[PAN:AAFFM1341M]
(Appellant)
Appellant by None
Respondent by Ms. Nidhi Nair, Sr. DR
Date of Hearing 01.02.2024
Date of Pronouncement 19.03.2024
ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by assessee is arising out of the order of the ld. CIT(A), National Faceless Appeal Centre, Delhi dated 31.01.2023 [here in after "ld.CIT(A)(NFAC)"] for assessment year 2015-16, which in turn arise from the order dated 12.09.2017 passed under section 143(3) of I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 2 the Income Tax Act,1961 ( here in after "Act") by the ITO, Ward-1(4), Jodhpur.
2. In this appeal, the assessee has raised following grounds: -
" 1.On the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the addition of Rs. 52,700/- made by the ld. AO towards personal nature of the expenditure.
2. On the facts and circumstances of the case the ld. CIT(A) has erred in upholding the addition of Rs. 60,000/- out of direct expenses without any sound basis mere on estimation basis."
3. Nobody appeared on behalf of the assessee in spite of giving the opportunity, therefore, the Bench decided to dispose off the appeal after considering the contention of the Ld. Departmental Representative and the material placed on record.
4. Brief fact of the case is that the assessee firm filed his e-return declaring income of Rs. 43,780/- on 29.09.2015. Thereafter the case was selected for scrutiny under CASS. Notice u/s 143(2) was issued on 01.08.2016 that was duly served upon the assessee on 06.08.2016. In compliance thereto the ld. AR of the assessee, attended the proceedings and produced computerized books of accounts consisting of cash book, ledger, journal, Sales and purchase books, bank statement, etc., which were test checked. Case discussed with him. The I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 3 assessee firm have three partners Svs. Sh. Akshay Kumar Sanghi, Mukund Sanghi and Rachna Sanghi and derives income from running a petrol pump under the name of M/s Sanghi Brothers. Jodhpur. Besides the above they are also running a theatre at Udaipur under the name of Picture Palace as well as trading in purchase sale of old cars with the name of M/s Sanghi Brothers (MFC). During the year under consideration the assessec firm has declared total turnover of Rs.24 Cr. approx and 3.40% GP as against 3.40% GP rate declared in the immediately preceding year. The assessee was asked to explain the reason for decreasing side of GP. In compliance the assessee firm stated that due to throat cut competition in petrol pump and sale of second-hand cars there is slight down fall in the GP rate. The assessee's reply is in general nature and no specific or comparative reasons were given. however, considering the general phenomena of competition, a lumpsum trading addition of Rs.1,00,000/- made and added to the total income of the assessee firm.During the course of assessment proceedings the assessec firm was also asked to produce complete bills/vouchers of various expenses debited to consolidated P&L. account such as entertainment expenses Rs.59,463/-, general expenses Rs.99,845/ office expenses Rs.84,510/, telephone & telex Rs.77,339/- & 3038/, travelling expenses Rs.55,666/- & Rs.89,018/, I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 4 general expenses Rs.24,175/-, conveyance expenses Rs.33,978/- totaling to Rs.5,27,032/-. Considering the nature of business and high volume of business the personal use of above expenses by the partners. their family members and employees cannot be ruled out. Hence, ld. AO disallow 10% of above total expenses which comes to Rs.52,700/- and added to the total income of the assessee firm. On going through the details of direct expenses of Rs.9,29,723/- the assessee submitted that these are the expenses incurred on car repairs to make the second- hand cars saleable. Considering the incomplete vouchers a disallowance of Rs.60,000/- was made.
5. Aggrieved from the order of the assessing officer, assessee preferred an appeal before the ld. CIT(A). Out of three addition made by the ld. AO, the ld. CIT(A) deleted that addition of Rs. 1,00,000/- considering the decision of the apex court in the in the case of Dhakeswari Cotton Mills Ltd. 26 ITR 775(SC) and sustained the two addition apropos the grounds so sustained, the relevant finding of the ld. CIT(A) is reiterated here in below:-
"5.2 Vide the ground of Appeal No. 2, the appellant has challenged the action of the AO in making a disallowance of Rs. 52,700/- being 10% of the total expenses under various heads of Rs. 5,27,032/- debited in the P & L account on ground of an element of personal use in the following expenses:
S. No. Nature of Exp. Amount
I.T.A. No.88/Jodh/2023
Sanghi Brother vs. ITO 5
(i) Entertainment Exp. 59463.00
(ii) General Exp. 99845.00
(Iii) Office Exp. 84510.00
(iv) Telephone & Telex 80377.00
(v) Travelling exps 144684.00
(vi) General Exps. 24175.00
(vii) Conveyance Exp. 527032.00
5.2.1 The reasoning given by the AO is that considering the nature of business and high volume of business, the personal use by the partners and their family members and employees cannot be ruled out. On the other hand, the contention of the appellant is that the above expenses were incurred wholly, necessarily and exclusively for the purpose of business of the appellant firm and the nature of the expenditure is such that no personal element can be attributed to such expenditure. The appellant has also contended that AO has computed addition of Rs. 52,700/- only on estimation and surmises and no scientific method has been adopted for arriving at the personal element attributed to the above expenses.
5.2.2 Having considered the contention of the appellant, I find that the nature and quantum of expenses is such that an element of personal use by the partners and their family in them can not be ruled out and there can not be any scientific method to quantify the same. In the absence of any evidence like the assessee's partners or their family members possessing and maintaining assets like vehicles and phones etc in their personal capacities and log books showing no personal use by partners and their families adduced by assessee firm, the Reasonable estimation method is the only method available to make disallowance. The AO has made a disallowance of Rs.52,700/- being 10% of the total expenses under various heads of Rs. 5,27,032/-debited in the P&L Account. I am of the considered view that the action of AO in making disallowance of Rs.53,700/- @ 10% of total expenses of Rs.5,27,032/- on ground of an element of personal use being very reasonable is sustained.
Hence, the ground of appeal no.2 is Dismissed.
5.3 Vide the Ground of appeal No.3, the appellant has challenged the action of the AO in making a disallowance of Rs.60,000/- on account of disallowances of direct expenses under the head Profits and gains of Business.
5.3.1 The assessee is also engaged in purchase and sale of used cars. The used cars are purchased from individual car owners and after refurbishing and renovating the same, they are sold to the interested buyers. During the period under consideration, the appellant had incurred a sum of Rs.9.29,723/- towards direct expenses for refurbishing and repairs of the old cars. This includes denting, panting, repairs and labour expenses. The AO has made addition of Rs. 60,000/- on estimated basis as the assessee had failed to produce complete bills and vouchers to substantiate its claim of expenses of Rs.9.29,723/-. On the other hand, it is the contention of the appellant that during the course of assessment proceeding, the appellant had produced I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 6 complete details in respect of direct expenses incurred by the assessee and the AO had not pointed out any specific item of expenditure which was not verifiable from the voucher.
5.3.2 Having considered the facts and circumstances of the case, I find that the AO has made an addition of Rs. 60,000/- on estimated basis as the assessee had failed to produce complete bills and vouchers to substantiate its claim of expenses of Rs.9,29,723/-. The appellant while making the above contentions has not furnished or uploaded the details of bills and vouchers during the appellate proceedings for verification which only vindicates the contention of the AO that the assessee had failed to produce complete bills and vouchers to substantiate its claim of expenses of Rs.9,29,723/-. Under the circumstances, the AO was left with the only option of estimation of expenses for disallowance. I am of the considered view that the action of AO in making disallowance of Rs.60,000/- out of total expenses of Rs.9,29,723/- on account of failure on the part of the assessee to produce complete bills and vouchers to substantiate its claim of expenses of Rs.9,29,723/- being very reasonable and therefore, sustained.
Hence, the ground of appeal no.3 is Dismissed."
6. The assessee has preferred the present appeal challenging the finding of the ld. CIT(A) on the grounds as stated herein above.
7. The ld. DR is heard who relied upon the finding recorded in the orders of the ld. AO and the ld. CIT(A) and prayed to sustain the addition.
8. We have heard the ld. DR and perused the material placed on record. The bench noted that the in this case the turnover of the assessee is 24 crore. The assessee is partnership firm and has claimed the various expenses such as entertainment expenses Rs.59,463/-, general expenses Rs.99,845/ office expenses Rs.84,510/, telephone I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 7 &telex Rs.77,339/- & 3038/, travelling expenses Rs.55,666/- & Rs.89,018/, general expenses Rs.24,175/-, conveyance expenses Rs.33,978/- totalling to Rs.5,27,032/- and the ld. AO merely on the assumption and presumption hold a view that the assessee firm not been able to complete bills/vouchers of various expenses debited to consolidated P&L. account. The observation is general and without pointing out any defects in the records maintained by the assessee, supported by bills and vouchers which are audited by an independent chartered accountant the lump sum disallowance cannot be sustained. The ld. CIT(A) has already considered the plea of the assessee while dealing with the lump sum addition of Rs. 1,00,000/- wherein the ld. CIT(A) by following the decision of the Hon'ble court in the case of Dhakeshwari Cotton Mills Ltd. Vs. CIT [ 26 ITR 775 ]directed to delete the addition of Rs. 1,00,000/- however he sustained the lumpsum addition of Rs.52,700/- by observing that considering the nature and quantum of expenses is such that an element of personal use by the partners and their family in them cannot be ruled out and there cannot be any scientific method to quantify the same. In the absence of any evidence like the assessee's partners or their family members possessing and maintaining assets like vehicles and phones etc in their personal capacities and log books showing no personal use by partners I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 8 and their families adduced by assessee firm, the Reasonable estimation method is the only method available to make disallowance. The AO has made a disallowance of Rs.52,700/- being 10% of the total expenses under various heads of Rs. 5,27,032/-debited in the P&L Account which ld. CIT(A) considered that the action of AO in making disallowance of Rs.53,700/- @ 10% of total expenses of Rs.5,27,032/- on the ground of personal use being very reasonable is sustained. We do not agree with the finding of the ld. AO and that of the ld. CIT(A) making the addition at lumpsum and that too all the expenditure listed which are related to the business of the assessee considering the nature of business and turnover of the assessee we do not see any reason to sustain the disallowance and therefore, we direct the ld. AO delete the lump addition @ 10 % of various expenses for an amount of Rs. 52,700/-. In terms of this observation the ground no. 1 raised by the assessee is allowed.
9. As regards the ground no. 2 raised by the assessee the bench noted that the assessee has claimed a sum of Rs. 9,29,723/- under the head direct expenses for repairs enable the assessee to sale those reusable cars. Considering the nature of the expenses claimed by the assessee making the disallowance of lump sum of Rs. 60,000/- by the ld. AO and sustaining the same is not correct based on the same I.T.A. No.88/Jodh/2023 Sanghi Brother vs. ITO 9 judgment relied upon by the ld. CIT(A) on the decision of apex court in Dhakeshwari Cotton Mills Ltd. Vs. CIT [ 26 ITR 775 ]as the basis of disallowance which is deleted by the ld. CIT(A) is same we direct the ld. AO to delete the disallowance of Rs. 60,000/-. In terms of this observation the ground no. 2 raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/-
(Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai)
Judicial Member Accountant Member
Dated 19/03/2024
Santosh
(On Tour)
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
True Copy
By order