2017 (6) TMI 1296 - AT - Income Tax

Disallowance of expenses at 25% of the total expenses - addition u/s 69C being the unexplained expenditure - HELD THAT - DR supported the view point of the AR that a reasonable estimate of disallowance of expenses could be made in such peculiar circumstances when the books of account are not available and the details with the assessee cannot help in making the assessment properly. On a further query, AR submitted that this was the only year in which the assessee carried on business. This indicates that there are no comparable figures for the earlier years from which some assistance could be taken to finalise the assessment. Considering we are of the considered opinion that in such peculiar circumstances it would be just and fair if the ad hoc disallowance of expenses made by the Assessing Officer at 25% be reduced to 12.5%. - Decided in favour of assessee.

Summary

Issues:
Assessment of gross receipts and commission income, disallowance of expenses, addition of unexplained expenditure under section 69C.

Analysis:
The appeal pertains to the assessment year 2008-09 where the assessee declared gross receipts and commission income resulting in a net profit. The Assessing Officer initiated proceedings but faced continuous adjournments from the assessee's side without necessary documentation. Consequently, the Assessing Officer disallowed expenses, added profit rate on undisclosed receipts, and included unexplained expenditure, leading to a revised taxable income. The assessee contended before the CIT(A) that the Chartered Accountant maintaining the books of account was untraceable, and the books were unavailable. Additional evidence was submitted, but the books were still not produced. The CIT(A) upheld the assessment, prompting the appeal to the ITAT.

During the ITAT proceedings, it was noted that the Chartered Accountant was untraceable, and the books of account were inaccessible. The assessee's representative stated that the books could not be prepared, suggesting finalizing the assessment based on available evidence. The ITAT acknowledged the lack of complete details for a proper assessment and agreed to an ad hoc reduction of the disallowed expenses from 25% to 12.5%, considering the unique circumstances. The additions of undisclosed receipts and unexplained expenditure were upheld as justified, given the available information. The appeal was partly allowed, with the reduction in the disallowed expenses.

In conclusion, the ITAT modified the assessment by reducing the disallowed expenses percentage due to the unavailability of complete details, while upholding the additions related to undisclosed receipts and unexplained expenditure. The decision aimed to strike a balance between the lack of documentation and the necessity for a reasonable assessment, ultimately partially allowing the appeal.