2019 (2) TMI 1193 - AT - Income Tax

Disallowance of expenses - assessee did not produce adequate/supporting bills/vouchers - specific defect in maintenance of books of accounts - HELD THAT - The assessee has filed paper book in which all bills/vouchers along with replies have been filed which were filed before A.O, which indicated that assessee filed complete details before assessing officer. AO, in the assessment order, did not mention anything if the books of accounts were not produced before him. Whatever information was called for, have been filed before assessing officer, which is also noted in the assessment order. The assessing officer merely by noting that assessee did not produce adequate/supporting bills/vouchers, made adhoc additions by disallowing the above expenses. The assessing officer has not pointed-out as to which supporting bill or voucher of a particular amount have not been produced before him - no adhoc addition could be made by disallowing the expenses. Further, the profit rate of assessee in assessment year under appeal is higher as compared to earlier years and in case, the disallowances are considered, it would enhance the profit rate of the assessee exorbitantly. Thus, there was no reason for assessee to inflate the expenses. The assessing officer has not pointed-out any specific defect in maintenance of books of accounts by the assessee - Decided in favour of assessee

Summary

Issues:
Challenge against addition of expenses on different grounds for assessment year 2015-2016.

Analysis:
The appeal was directed against the order of Ld. CIT(A)-20, New Delhi, challenging the addition of expenses totaling ?12 lacs, ?6 lacs, and ?1,45,136/- on various grounds for the assessment year 2015-2016. The assessing officer disallowed adhoc expenses of ?12 lacs related to work cost expenses for lack of adequate supporting bills/vouchers. Similarly, expenses of ?6 lacs attributed to labor and wages were disallowed, along with ?1,45,136/- for repairing and maintenance expenses due to insufficient documentation. The Ld. CIT(A) confirmed the assessing officer's order after the assessee failed to substantiate expenses adequately.

The assessee argued that detailed replies with documentary evidence were submitted before the assessing officer and that no adhoc additions should be made as the books of accounts were not rejected. The net profit rate for the year was declared at 2.15%, higher than the preceding years, and any disallowances would significantly inflate the profit rate. The assessee relied on a Delhi High Court decision confirmed by the Supreme Court to support their claim that the additions were unjustified.

Upon review, the Judicial Member found all additions to be unjustified. The assessee had submitted a paper book with all bills/vouchers and replies filed before the assessing officer, indicating full disclosure of details. The assessing officer did not specify any missing supporting bills or vouchers in the assessment order. It was emphasized that no adhoc additions could be made without proper justification, and the profit rate for the year was higher compared to previous years. The Judicial Member concluded that the additions were inappropriate and unjustified, setting aside the orders of the authorities below and deleting all three additions.

In conclusion, the appeal of the assessee was allowed, and the orders of the lower authorities were overturned based on the lack of justification for the disallowed expenses and the higher profit rate for the year under appeal.