2018 (11) TMI 114 - AT - Income Tax

Ad hoc disallowance with respect to conveyance expenses, vehicle running and maintenance expenses and business promotion expenses - Held that - It is evident from the past assessment records that no similar disallowance had been made by the department in assessment years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 in respect of conveyance expenses although the assessment was completed u/s 153A r/w section 153(3) of the Act. With respect to vehicle running and maintenance expenses and business promotion expenses, no disallowance had been made in assessment years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 and it is further noted that the basis of disallowance in the impugned year is a mere estimation on the part of Assessing Officer wherein he has disallowed 1/5th of the expenses without assigning any reason for such disallowance. Assessing Officer has not pointed out any specific defects in the books of accounts/details produced before him with regard to these expenses. It is also undisputed that the books of accounts of the assessee were duly audited and they were produced before the Assessing Officer. It is settled law that in absence of any corroborative finding, ad hoc disallowance cannot be upheld. - Decided in favour of assessee Addition on account of undisclosed cash transaction - CIT(A) has assumed that 50% of the seized Annexure A-1 was a duplication - Held that - Commissioner of Income Tax (A) has not specifically recorded a reason as to how he assumed a figure of 50% to be of duplication, therefore, on this count alone, the department succeeds and we deem it expedient in the interest of justice to restore ground no. 1 to the file of the CIT(A) to be adjudicated de novo after giving due opportunity to the assessee to present its case. - Ground of department s appeal stands allowed for statistical purposes. Addition on short and excess recoveries by the assessee - Held that - Commissioner of Income Tax (A) held the debit of the impugned amount as reasonable. On the facts of the case, we find no reason to interfere with the finding of the Ld. Commissioner of Income Tax (A) on the issue as the Ld. Commissioner of Income Tax (A) has adjudicated the issue after duly considering the quantum of turnover of the assessee as well the details submitted before him. The Ld. CIT DR also could not point out any factual error in the findings of the Ld. Commissioner of Income Tax (A) in this regard - decided against revenue Addition with respect to liquidated damages - Held that - Commissioner of Income Tax (A) has noted that in view of the nature of business being conducted by the assessee on a large scale which entails making supplies to various agencies including government agencies, such claims were bound to arise. We also note that the Assessing Officer has disallowed the entire amount of expenditure claimed as liquidated damages without pointing out any specific instance where such claim was not allowable. This is not legally tenable and even the Ld. CIT DR was unable to point out any legal or factual inaccuracy in the order of the Ld. Commissioner of Income Tax (A). - decided against revenue

Summary

Issues Involved:
1. Ad hoc disallowance of conveyance expenses.
2. Disallowance of vehicle running and maintenance expenses.
3. Disallowance of business promotion expenses.
4. Adjustment of cash found and seized during search towards payment of advance tax liability.
5. Deletion of addition on account of undisclosed cash transactions.
6. Deletion of disallowance on account of short and excess recoveries.
7. Deletion of addition on account of liquidated damage charges.

Detailed Analysis:

1. Ad hoc Disallowance of Conveyance Expenses:
The assessee challenged the ad hoc disallowance of ?22,78,951/- made by the Assessing Officer (AO) for conveyance expenses. The ITAT noted that no similar disallowance had been made in previous assessment years (2005-06 to 2009-10) and that the AO had not pointed out any specific defects in the books of accounts. The ITAT concluded that ad hoc disallowance without specific identification of defects is unsustainable. Thus, the ITAT allowed the assessee’s appeal on this ground and directed the AO to delete the addition.

2. Disallowance of Vehicle Running and Maintenance Expenses:
The assessee also contested the disallowance of ?10,00,000/- out of vehicle running and maintenance expenses. The ITAT observed that similar expenses had been accepted in previous years without disallowance and that the AO had made the disallowance on an estimated basis without specific reasons. Therefore, the ITAT allowed the assessee’s appeal on this ground and directed the AO to delete the addition.

3. Disallowance of Business Promotion Expenses:
The assessee challenged the disallowance of ?15,74,205/- for business promotion expenses. The ITAT noted that the AO had made the disallowance on an ad hoc basis without pointing out specific defects in the books of accounts. Given the lack of specific identification of defects and the acceptance of similar expenses in previous years, the ITAT allowed the assessee’s appeal on this ground and directed the AO to delete the addition.

4. Adjustment of Cash Found and Seized During Search Towards Payment of Advance Tax Liability:
The assessee argued that the Ld. Commissioner of Income Tax (A) had not adjudicated the issue of adjusting ?52,00,000/- of cash found and seized during the search towards payment of advance tax liability. The ITAT agreed and restored this ground to the file of the Ld. Commissioner of Income Tax (A) for adjudication by passing a speaking order after giving due opportunity to the assessee.

5. Deletion of Addition on Account of Undisclosed Cash Transactions:
The department appealed against the deletion of ?1,05,04,160/- added for undisclosed cash transactions. The ITAT noted that the Ld. Commissioner of Income Tax (A) had assumed a 50% duplication of entries in the seized documents without specific reasons. Therefore, the ITAT restored this ground to the file of the Ld. Commissioner of Income Tax (A) for de novo adjudication after giving due opportunity to the assessee.

6. Deletion of Disallowance on Account of Short and Excess Recoveries:
The department challenged the deletion of ?1,79,257/- claimed as short and excess recoveries. The ITAT found that the Ld. Commissioner of Income Tax (A) had duly considered the quantum of turnover and the details submitted before him. Since no factual error was pointed out by the department, the ITAT upheld the deletion and dismissed this ground.

7. Deletion of Addition on Account of Liquidated Damage Charges:
The department contested the deletion of ?5,05,972/- for liquidated damage charges. The ITAT noted that the Ld. Commissioner of Income Tax (A) had allowed the expenses as they were incurred in the normal course of business and were fully allowable. The ITAT observed that the AO had disallowed the entire amount without pointing out any specific instance of non-allowable claims. Therefore, the ITAT upheld the deletion and dismissed this ground.

Conclusion:
The ITAT partly allowed the assessee’s appeal by deleting the ad hoc disallowances and restoring the issue of cash adjustment to the Ld. Commissioner of Income Tax (A). The department’s appeal was partly allowed for statistical purposes by restoring the issue of undisclosed cash transactions to the Ld. Commissioner of Income Tax (A) for de novo adjudication. Other grounds raised by the department were dismissed.