2016 (12) TMI 112 - AT - Income Tax

Adhoc disallowance out of expenses - Held that - Perusal of the order passed by the learned CIT(A) in A.Y. 2008-09 would show that the assessee has filed details of expenses as additional evidence under Rule 46A and the same was forwarded to the Assessing Officer by the learned CIT(A). Since the Assessing Officer did not comment upon the additional evidence, the learned CIT(A) deleted entire additional made by the Assessing Officer. We noticed that the learned CIT(A) has not recorded such kind of facts in the impugned order, meaning thereby assessee did not file details of expenses before the learned CIT(A) during the year under consideration. Accordingly, we are of the view that the addition of part of expenses claimed by the assessee is justified. However, considering the nature of business carried on by the assessee, we are of the view that the addition of 5% of the expenses, which approximately works out to ₹ 1.80 lakhs is on the higher side. Accordingly, we modify the order passed by the learned CIT(A) and direct the Assessing Officer to restrict the addition to ₹ 1 lakh only. We order accordingly. Assessment of advance received against sale of asset - Held that - The amount of ₹ 3 lakhs received by the assessee was advance amount received against sale of property. The assessee has furnished evidence to show that the above said advance amount of ₹ 3 lakhs has been returned back to the party in the subsequent period. Manner of treatment of advance money received is prescribed u/s. 51 of the Act as per which, advance money shall be reduced from the cost of the asset, if the same had been forfeited. In the instant case, it is not the case of the tax authorities that the assessee had retained the advance amount of ₹ 3 lakhs. On the contrary the assessee has proved that the above said amount had been returned back to the buyer in the subsequent period. Hence, we are of the view that there was no scope for assessing advance amount of ₹ 3 lakhs as income of the assessee during the year under consideration. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition of ₹ 3 lakhs that was confirmed by the learned CIT(A).

Summary

Issues involved:
1. Delay in filing the appeal and condonation of delay.
2. Adhoc disallowance of expenses.
3. Assessment of advance of ?3 lakhs received against the sale of property.

Issue 1: Delay in filing the appeal and condonation of delay:
The appeal was filed 302 days beyond the limitation period due to the assessee's relocation and business closure. The chartered accountant received the order from the CIT(A) late, leading to the delay. The Tribunal acknowledged a reasonable cause for the delay but imposed a cost of ?5,000 on the assessee, which was paid, and thus, the delay was condoned.

Issue 2: Adhoc disallowance of expenses:
The assessee claimed an expenditure of ?36,66,955, with the Assessing Officer making an adhoc disallowance of 10%, later reduced to 5% by the CIT(A). The Tribunal noted that the assessee failed to provide evidence of the expenses claimed and did not appear before the Assessing Officer. While the CIT(A) had fully deleted a similar disallowance in the previous year, the Tribunal found that the addition of 5% of expenses, around ?1.80 lakhs, was excessive. Thus, the Tribunal directed the Assessing Officer to restrict the addition to ?1 lakh only.

Issue 3: Assessment of advance of ?3 lakhs received against the sale of property:
The assessee received ?3 lakhs as an advance against the sale of a property, which was later returned to the buyer due to the non-approval of a bank loan. The Assessing Officer assessed the entire sale amount as income, but the CIT(A) directed the assessment of only the advance amount. The Tribunal observed that the advance was returned and not retained by the assessee, following which the addition of ?3 lakhs was deemed unjustified. Consequently, the Tribunal instructed the Assessing Officer to delete the addition.

In conclusion, the appeal was partly allowed, with the Tribunal condoning the delay, modifying the adhoc disallowance of expenses, and directing the deletion of the addition related to the advance received against the sale of property.

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