2021 (2) TMI 794 - AT - Income Tax

Addition of various expenses - non rejection of books of accounts - HELD THAT - Admittedly. the assessee has maintained regular books of accounts in the course of its business activities and the same has not been rejected and no other additions have been made by the AO barring this disallowance - no addition or disallowance out of expenses under this head has ever been made in any of the assessment years by the AO. Assessment order for the assessment year 2013-14 was framed u/s 143(3) and the AO has accepted expenses of ₹ 27,29,602/- on the total revenue receipts of ₹ 3,38,59,706/- which is 8.06% of the expenses. For the impugned assessment year, the total expenses so claimed comes to ₹ 9,28,094/- on a total revenue receipts of ₹ 1,98,05,868/- which comes to 4.66% of the total expenses. Therefore, find merit in the arguments of the Ld. Counsel for the assessee the expenses so debited in the profit and loss account as reasonable. Coordinate Bench of the Tribunal under identical circumstances in one of the sister concerns namely Nagesh Knitwears Pvt. Ltd. has deleted such disallowance of expenses. Since the books of accounts of the assessee has been accepted by the AO and no other disallowance except these expenses has been made and considering the fact that the expenses so claimed by the assessee appears to be reasonable, as compared to such expenses in the preceding assessment year which has under gone scrutiny by the AO and the order passed u/s 143(3) as no addition has been made - No reason on the part of the lower authorities to make such huge addition by disallowing the expenses. - Decided in favour of assessee.

Summary

Issues:
Disallowance of expenses by AO and confirmation by CIT(A).

Analysis:

Issue 1: Disallowance of Expenses
The appeal was against the addition of ?7,52,062 towards various expenses disallowed by the Assessing Officer (AO) for the assessment year 2014-15. The AO observed that the assessee could produce bills only up to ?1,76,842 out of total expenses claimed. Consequently, the AO made an addition of ?7,52,062. The CIT(A) confirmed this addition.

Analysis: The appellant challenged the disallowance, arguing that their method of maintaining accounts had remained consistent for decades, and the expenses were reasonable compared to previous years. The appellant highlighted that no disallowances were made in prior years, and the expenses were in line with business turnover. The appellant also presented comparative figures from preceding years to support their claim.

Issue 2: Tribunal's Decision
The Tribunal considered the arguments of both parties, reviewed the orders of the AO and CIT(A), and examined the paper book filed by the assessee. The Tribunal noted that the AO disallowed ?7,52,062 out of total expenses of ?9,28,094, citing lack of bills and vouchers. However, the Tribunal found merit in the appellant's arguments. It noted that the appellant maintained regular books of accounts, and the expenses were accepted in previous assessments. The Tribunal also compared the expenses to revenue receipts, finding them reasonable. Additionally, the Tribunal referenced a similar case where disallowances were deleted. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition.

Conclusion: The Tribunal ruled in favor of the assessee, concluding that the disallowance of expenses was unjustified. The Tribunal emphasized the reasonableness of the expenses, the consistency in maintaining accounts, and the lack of previous disallowances. The Tribunal's decision highlighted the importance of considering past practices and the proportionality of expenses to revenue receipts in such cases.

The judgment by the ITAT Delhi in this case overturned the addition of expenses made by the AO and confirmed by the CIT(A), emphasizing the reasonableness and consistency of the appellant's expenses.