2014 (7) TMI 387 - AT - Income Tax

Justification for the ex-parte order passed u/s CIT(A) - Held that - Backward calculation in the absence of any allegation about non-maintenance of books, non-furnishing of vouchers, non-compliance of the notices, cannot be accepted as the provisions of the Act are very specific and clear - AO can only resort to estimate of income under section 145, if conditions specified there in are satisfied - Expenditure can be verified under section 37(1) and only AO finds out that expenditure is not wholly and exclusively for the purpose of business, he can disallow such expenditure - Assessee has justified the expenditure by explaining the change of business profile, Increase in Call Centre Income and also by furnishing necessary statements and vouchers before the authorities - AO and CIT(A) erred in resorting to mathematical jugglery so as to deny the expenditure claimed by the assessee. There is no basis for A.O. disallowance of the so called inflated expenditure and CIT(A) also did not apply his mind in restricting the amount on an adhoc basis - he should have examined the contentions of the assessee and proved that they are not correct - Without doing anything on record, this sort of disallowance of expenditure claimed by the assessee cannot be accepted or justified thus, the so-called disallowance of expenditure resorted by the AO is cancelled thus, the addition of ₹ 2,20,00,000 sustained by the CIT(A) is set aside Decided in favour of Assesee.

Summary

Issues Involved:
Cross appeals by assessee and Revenue against CIT(A)'s order for assessment year 2010-11 on the addition made due to inflation in expenditure claimed by the assessee.

Analysis:

1. The common issue in the cross appeals was the addition made on account of inflated expenditure claimed by the assessee. The Assessing Officer disallowed a significant amount of expenditure due to discrepancies noticed in the books of account, leading to an increased total income in the assessment year 2010-11.

2. The CIT(A) restricted the disallowance to a lesser amount compared to the Assessing Officer's decision, granting partial relief to the assessee based on a similar order in the assessee's own case for the assessment year 2005-06. The assessee and the Revenue both appealed against the CIT(A)'s decision, with the assessee seeking further relief and the Revenue contesting the relief granted.

3. The Tribunal referred to its previous decision on a similar issue for the assessment years 2005-06 and 2006-07, where it emphasized the importance of justifying expenditure and not resorting to arbitrary calculations without proper basis or examination of the assessee's contentions. The Tribunal concluded that the disallowance made by the Assessing Officer and sustained by the CIT(A) lacked proper justification and directed the allowance of the claimed expenditure.

4. Given the identical nature of the issues in the current appeals to those considered for the assessment year 2005-06, the Tribunal decided to delete even the addition sustained by the CIT(A) in the present case. Consequently, the Tribunal allowed the grounds of the assessee against the addition and rejected the Revenue's grounds challenging the relief granted.

5. As a result, the appeal of the assessee was treated as allowed, and the appeal of the Revenue was dismissed based on the Tribunal's decision to delete the addition made on account of inflated expenditure, following its previous rulings on similar matters.

This detailed analysis of the judgment highlights the progression of the case, the reasoning behind the decisions made by the authorities, and the final outcome based on the Tribunal's assessment of the issues involved.