2022 (10) TMI 842 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - As from the orders of the authorities below it nowhere appears that the Assessee has duly produced the stock records as claimed by the Assessee. It is a fact that in Item no. 35 of form no. 3CD, the Assessee instead of providing quantitative details of goods traded and raw-material etc. simply stated that Item no. 35 of Form 3CD is not applicable. Assessee failed to demonstrate before the authorities below as to how the Assessee was not required to provide quantitative details of goods traded and raw-material etc. in Item no. 35 of Form no. 3CD before the authorities below. Find no material and/or reason to controvert the findings of the authorities below. We further observe that for the ends of justice the ld. Commissioner has given substantial relief to the Assessee by reducing the disallowance from 20% to 10%. Hence in cumulative effects, no interference is warranted. Consequently, the decision of the learned Commissioner in affirming the disallowance @ 10% of the consumption on foods and beverages is affirmed. Nature of expenses - Disallowance of expenses incurred on repairs by treating the said expenditure as capital in nature - HELD THAT - AO specifically held that the Assessee has incurred the expenses on purchase of Air Conditioners outdoor units which were stolen, pipes, cables and accessories, compressor, miscellaneous accessories, dryer, PVC Cable, wooden crate boat, kitchen equipments etc. which provides enduring benefits and not confined to the use of one year only and also not of the recurring nature . Commissioner though affirmed the addition on these items, however allowed the depreciation on the said expenditure before computing the income. We have given thoughtful consideration to the determination made by the Ld. Commissioner and the AO and do not find any infirmity in determination made by the Ld. Commissioner on the issue in hand. Even otherwise also we do not find any material/reason to controvert the findings of the ld. Commissioner. Hence, addition under challenge does not require any interference. Consequently ground nos. 5 6 are also dismissed.

Issues Involved:

1. Disallowance of service tax claimed in the P&L account.
2. Addition on account of rejection of consumption of foods & beverages.
3. Disallowance of certain expenses claimed as revenue.
4. Penalty for concealment of income and furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Disallowance of Service Tax Claimed in the P&L Account:

The judgment does not provide specific details on the disallowance of service tax claimed in the P&L account. Therefore, this issue is not elaborated upon in the judgment.

2. Addition on Account of Rejection of Consumption of Foods & Beverages:

The Assessing Officer (AO) made an addition of Rs. 4,07,09,028/- by disallowing 20% of the consumption on foods and beverages, citing the absence of quantitative details, stock registers, and item-wise trading results. The Assessee argued that stock registers and purchase details were provided, but the AO rejected the books of account due to insufficient evidence to verify the purchases with sales quantitatively and qualitatively.

The Commissioner of Income-tax (Appeals) [CIT(A)] reduced the disallowance to 10%, providing relief of Rs. 2,03,54,514/-, but affirmed the remaining disallowance. The ITAT upheld the CIT(A)'s decision, noting that the Assessee failed to demonstrate the necessity of not providing quantitative details and found no reason to interfere with the CIT(A)'s findings. Consequently, the disallowance of 10% of the consumption on foods and beverages was affirmed, and the Assessee's grounds of appeal were dismissed.

3. Disallowance of Certain Expenses Claimed as Revenue:

The AO disallowed Rs. 22,27,702/- claimed by the Assessee for repairs and maintenance, treating it as capital expenditure. The AO noted that the expenses were for extensive renovations and replacements, which provided enduring benefits and were not of a recurring nature.

The CIT(A) upheld the disallowance, stating that the expenses incurred on items like air conditioners, kitchen equipment, and other accessories were capital in nature. However, the CIT(A) allowed depreciation on these expenditures before computing the income. The ITAT agreed with the CIT(A)'s determination, finding no infirmity in the decision and dismissing the Assessee's grounds of appeal related to this issue.

4. Penalty for Concealment of Income and Furnishing Inaccurate Particulars of Income:

The AO levied a penalty of Rs. 7,26,800/- under Section 271(1)(c) of the Income Tax Act for concealment of income and furnishing inaccurate particulars, based on the disallowance of Rs. 2,03,54,514/- and Rs. 22,27,702/-. The CIT(A) deleted the penalty, observing that the penalty proceedings are independent of assessment proceedings and the disallowance was based on estimation.

The CIT(A) noted that the Assessee had disclosed all material facts and the disallowance was due to the inability to explain purchases satisfactorily. The CIT(A) relied on various judgments, including CIT vs. Reliance Petroproducts Pvt. Ltd., to conclude that making an incorrect claim does not amount to furnishing inaccurate particulars. The ITAT upheld the CIT(A)'s decision, finding that the AO was unclear under which limb the penalty was levied, rendering the penalty order void-ab-initio. The ITAT also agreed with the CIT(A) that no inaccurate particulars were furnished, and the penalty was not justified.

Conclusion:

Both the appeals filed by the Assessee and the Revenue were dismissed. The ITAT affirmed the disallowance of 10% of the consumption on foods and beverages and the treatment of certain expenses as capital in nature while allowing depreciation. The penalty imposed by the AO was deleted, as the disallowance was based on estimation and no inaccurate particulars were furnished by the Assessee.

← Previous Next →