2023 (1) TMI 174 - HC - Income Tax

Income chargeable under the head Business and profession - ITAT noted that as per its observations, there was no business income in the present year, therefore, expenditure could not have been allowed in that year - HELD THAT - In our view, the finding recorded by the ITAT is contrary to record and hence, perverse. So far as the deduction of 10% of expenditure is concerned, AO has recorded that authorized representative of the assessee was not able to establish all bills and vouchers. Accordingly, he has made adhoc deduction of 10% of the expenditure. The assessee's books of accounts have not been rejected and the deduction is made on adhoc basis. Questions of law is answered in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was justified in holding that there was no business income for the AY 2012-13 without appreciating the appellant's professional income and adhoc disallowance of expenditure.
2. Whether the Tribunal was justified in upholding the 10% adhoc disallowance of expenditure without considering it was part of the regular course of the appellant's profession.

Analysis:

Issue 1:
The appellant challenged the ITAT's finding that there was no business income for the AY 2012-13. The appellant contended that the ITAT arbitrarily concluded without sufficient reasons. The Revenue argued that the appellant did not declare any business income but professional income. The Assessing Officer disallowed 10% of the expenditure as the authorized representative failed to provide bills and vouchers. The High Court examined the assessment order, which showed business income declared by the appellant. The court found the ITAT's finding contrary to the record and termed it as perverse.

Issue 2:
The second question revolved around the adhoc disallowance of 10% of the expenditure. The appellant argued that the Assessing Officer's disallowance was arbitrary as the books of accounts were not rejected. Citing a Supreme Court case, the appellant contended that such adhoc disallowance is not valid when books of accounts are maintained. The Revenue supported the disallowance, stating that the authorized representative failed to establish bills and vouchers. The High Court noted that similar to the Supreme Court case, the appellant's books were not rejected, and the deduction was made on an adhoc basis. Consequently, the High Court allowed both appeals, set aside the previous orders, and ruled in favor of the assessee against the Revenue.

This comprehensive analysis highlights the key arguments, legal precedents, and the High Court's reasoning leading to the judgment in favor of the assessee.