2022 (3) TMI 19 - AT - Income Tax

Disallowance of expenses - assessee has not submitted any document before tax authorities for claiming the expenses - HELD THAT - AO fully relied on the findings in the case of Ms. Anita L. Ghadge without analyzing the nature of transactions in that case. Ms. Anita L. Ghadge 2018 (11) TMI 1889 - ITAT MUMBAI was sub-contracting the agency services to others, whereas the assessee completes the services himself. Ms. Anita L. Ghadge declared the profit @10% whereas the assessee declared Gross Profit @56% after adjusting direct expenses. In our view, the assessee has declared better profit and the fact in Ms. Anita L. Ghadge cannot be applied in the case of the assessee. We observe that no doubt the assessee has not submitted proper documents, the disallowance based on Ms. Anita L. Ghadge to the extent of 30% is too high. Disallowance of 10% of the total expenses will be appropriate, considering the fact that Assessing Officer in the subsequent assessment year has disallowed only 5% of the expenses in the regular assessment u/s. 143(3) of the Act. Therefore, we direct Assessing Officer to disallow 10% of the total expenses claimed by the assessee. Accordingly, ground raised by the assessee is partly allowed.

Summary

Issues:
- Disallowance of expenses based on comparison with another case
- Reopening of assessment and penalty proceedings

Analysis:

Issue 1: Disallowance of expenses based on comparison with another case
1. The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) for the assessment year 2011-12.
2. The Assessing Officer disallowed 30% of the expenses claimed by the assessee, amounting to ?56,10,669, based on a previous case involving Anita L. Ghadge.
3. The assessee argued that the disallowance was unjustified as their profit ratio was significantly higher than Anita L. Ghadge's case.
4. The Tribunal noted that the assessee had not provided supporting documents for the expenses claimed but observed that the nature of transactions and profit ratios differed between the two cases.
5. Considering the higher profit ratio of the assessee and the fact that in a subsequent assessment year, only 5% of expenses were disallowed, the Tribunal directed the Assessing Officer to disallow 10% of the total expenses claimed by the assessee.

Issue 2: Reopening of assessment and penalty proceedings
1. The assessee raised grounds related to the reopening of assessment and initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.
2. During the hearing, the assessee did not press the ground concerning the reopening of assessment, leading to its dismissal.
3. The Tribunal considered the penalty proceedings premature and dismissed them as well.

In conclusion, the appeal was partly allowed, with the Tribunal directing the Assessing Officer to disallow 10% of the total expenses claimed by the assessee. The issues related to the reopening of assessment and penalty proceedings were dismissed.