2023 (3) TMI 856 - AT - Income Tax

Difference in contract receipts as compared with Form 26AS - HELD THAT - As assessee submitted that his plea on this account is very limited that reconciliation should be done with the entries of 26AS assessee s books and the assessee should be permitted to explain the same before the AO. We agree with the above proposition and accordingly direct the AO to examine the issue of difference between Form 26AS and the books of accounts after giving assessee appropriate opportunity of being heard. Disallowance out of sub-contractor charges expense - HELD THAT - As disallowances have been done on ad hoc basis without specifying particular mistake. Such approach cannot be supported by noting that there is slight fall in the GP ratio as done by the ld. CIT (A). Accordingly, we set aside the orders of the authorities below and decide the issue in favour of the assessee.

Summary

Issues involved:
The judgment involves issues related to arbitrary additions made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) u/s 143(3) of the Income Tax Act, 1961 for the Assessment Year 2014-15. The primary issues include the difference between contract receipts as per Form 26AS and books of accounts, ad hoc disallowances on sub-contractor charges expenses, establishment expenses, and business promotion expenses.

Difference between contract receipts:
The AO added Rs. 5,76,731 to the assessee's income due to a difference between contract receipts as per Form 26AS and books of accounts. The CIT(A) directed the AO to verify the claim with Form 26AS and provide relief if already offered for taxation in earlier years. The ITAT Delhi agreed with the assessee's plea for reconciliation and directed the AO to examine the issue after giving the assessee an opportunity to explain.

Ad hoc disallowances:
The AO made ad hoc disallowances of Rs. 3,00,000 on sub-contractor charges expenses, Rs. 2,00,000 on establishment expenses, and Rs. 87,351 on business promotion expenses due to lack of adequate supporting vouchers. The CIT(A) confirmed these disallowances based on a decrease in the assessee's net profit ratio. However, the ITAT Delhi found the disallowances to be arbitrary and lacking specific reasoning, especially considering the slight fall in the gross profit ratio. Therefore, the ITAT Delhi set aside the orders of the authorities below and decided the issue in favor of the assessee.

Conclusion:
The ITAT Delhi allowed the appeal of the assessee for statistical purposes, emphasizing that the ad hoc disallowances lacked specific reasoning and were not supported by the slight decrease in the gross profit ratio. The judgment highlights the importance of providing cogent reasoning for income tax assessments and disallowances, rather than relying on arbitrary additions without proper documentation or justification.