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TMI Blog2019 (10) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT(A) of sustaining the disallowance on ad-hoc basis is not justified. In the facts and circumstances of the case, we feel it appropriate to restore the matter back to the file of the Assessing Officer for deciding afresh with the direction to the assessee to produce all the necessary documents in support of its claim including books of accounts and bills and voucher in relation to other expenses and additions to assets for justifying the claim of the depreciation. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. Accordingly, the grounds raised by both the parties are allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in providing management activities. In the case of the assessee, a search and seizure operation under section 132 of the Income-tax Act, 1961 (in short 'the Act') was carried out on 27/03/2012 and incriminating material was seized. Consequent to the search proceedings, the assessee surrendered amount of ₹ 5 crore against discrepancy in the seized/impounded material. A notice under section 142 (1) of the Act was issued asking the assessee to file the return of income. In response, the assessee filed return of income on 17.06.2013, declaring loss of ₹ 11,69,00,806/- under normal provisions of the Act and book profit of ₹ 6,08,39,186/- under section 115JB of the Act. The assessee paid taxes of ₹ 1,12,55,249/- on the book profit. Subsequently, statutory notice under section 143(2) of the Act was issued for commencing scrutiny proceeding. During the assessment proceeding, the Assessing Officer on 14.02.2014 noticed that the assessee retracted the surrender made of ₹ 5 crore as a result of search proceeding. In view of the retraction of the surrender, the Assessing Officer asked the assessee to reconcile the incriminating material seized during the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat ad-hoc addition made by the Assessing Officer needs to be deleted. 6. On the contrary, the learned DR submitted that before the Assessing Officer no bills and vouchers of the other expenses were submitted and, therefore, the Ld. CIT(A) was required to examine the documents of the assessee in detail in accordance with the provisions of the Act and then decide the disallowance rather than restricting the disallowance on ad-hoc basis. The learned DR accordingly submitted that the matter may be restored back to the file of the Assessing Officer for deciding afresh. The learned counsel of the assessee has also not objected to this proposition of the learned DR. 7. We have heard the rival submissions and perused the relevant material on record. We find that the Assessing Officer made ad-hoc disallowance on the reasoning that books of accounts and bills and voucher in respect of the other expenses as well as addition to the assets were not produced before him. The Ld. CIT(A) adjudicated the issue of disallowance of other expenses observing as under: "4.1.14 I have considered the submission of the AR and the assessment order. The AO has made an ad-hoc addition of a huge amount by d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to suppress the profit. The assessee had not furnished any details of expenditures. In this background the expenses claimed by the assessee on account of other expenses cannot be accepted and accordingly an ad-hoc disallowance of 50% is being made on account of bogus expenses which comes to ₹ 18,42,70,000/- and will be added to the income of the assessee. 4.1.17 In the background of the observation of the A.O, it is necessary to examine Q.No.43 of the questionnaire dt. 23.10.13. The relevant Q.no.43 is reproduced below for ready reference: 43) Details of major expenses debited to P&L Account and justification via-a-vis revenue of the company, such as freight, forwarding and distribution expenses, Misc. Expenses, processing, commissioner, brokerage, and other expenses rent and repairs and replacement, advertising, publicity and sales promotion. (Please produce the documentary evidences for verification during the course of hearing.) Also give complete names and add of all the debtors, creditors, persons from whom any loan and advance is taken or given, also give names and add of all the parties Head wise whose A/c has been debited / credit in the P/L A/c and the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 5 crore) made by it during the search and seizure action - that too after a very long gap of almost two years (as per assessment order the appellant retracted from the surrender by its letter dated 14/2/2014). The appellant had surrendered ₹ 5 crore towards 'discrepancy in seized/ impounded Annexures and others'. But the same has been completely retracted after a gap of almost two years. It is noted here that the scheme of the act does recognize the act of surrender of any undisclosed income at the time of search. Such surrender is one of the significant events of in any search and post search proceedings and it greatly influenced the post search investigation. By surrendering the undisclosed income the appellant stops the investigating wing from continuing with investigation on that issue on the principle that a fact accepted by the other party need not be proved. Here the surrender was on account of discrepancy in the seized and impounded documents. After a gap of two years, it is very easy to say that there are no discrepancies in the documents. The party has got ample time to set right the weaknesses, if any, in his affairs and also to take care of any deficiencies th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled upon the appellant to provide the details of fixed assets along with supporting evidences. Below the said question he has also inserted a table in which he has also asked certain more details. The relevant question no. 37 of AO's Questionnaire dated 23.10.2013 is reproduced below for ready reference:- 37) Details of fixed assets as per schedule of companies Act. Details of additions to fixed assets along with the supporting evidences. Particulars of assets Date of purchase installation put to use Purchase from Purchase amount Which depr. Block the asset belong to. Utility of the assets via a vis the business activity of the company. 4.2.8 I have perused the relevant assessment folder. There is no reply given by the assessee on the said question no. 37. Written submission and Paper Book also does not show that the appellant furnished the details and replied to the said Q.No.37. It has been submitted by the AR that the assessing officer had denied to take cognizance of the supporting evidences due to them being bulky. This averment is not found to be factually correct. This averment of the AR has no substance as the details required by Q. No 37 had not been subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption from substantiating his claim of depreciation. Further, the details in Form 3CD report are insufficient to cover the requirements sought by the AO. They do not give details of parties from whom the same was acquired and the utility of the asset (required for the AO to assess in his own mind the reliability of the claim and to decide the line of investigation if required). They do not give the actual date of purchase of asset, they provide the date of 'put to use'. AO wanted the date of purchase. The facts show that the appellant has not given any reply to question no. 37 of the said questionnaire. In the background of search findings relating to bogus booking of expenditure by the appellant group and retraction of surrender, this non-substantiation of depreciation claim and non-furnishing of vital details assume greater significance. The AO had sought details which were vital to determine the allowability of depreciation. The details like names and addresses of parties, date of purchase, the utility of the asset etc. and supporting bill & vouchers would have helped him make proper assessment after deciding whether should doubt any of the purchases and take up third part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though appellant has failed to substantiate (whose onus it was to do so) the depreciation claim to the extent of ₹ 14.53 crores, the AO's action of disallowing 50% of the same does not appear reasonable. The same appears to be excessive. It cannot be said that the appellant ran its business without the help of such huge value of assets (more than ₹ 85 crore). It is clarified here that the onus to substantiate its claim of depreciation was on the appellant and AO had nothing to do with that. The onus could be discharged only when it leads evidences and furnishes the necessary details such as details of the parties from whom the assets have been acquired etc. Appellant has failed in the preliminary stage itself. 4.2.16 It is once again noted that the appellant has retracted from the surrender of undisclosed income (of ₹ 5 crore) made by it during the search and seizure action - that too after a very long gap of almost two years (as per assessment order the appellant retracted from the surrender by its letter dated 14/2/2014). The appellant had surrendered ₹ 5 crore towards 'discrepancy in seized/ impounded Annexures and others'. But the same has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly. The ground is partly allowed." 9. The learned CIT(A) noticed that the assessee has not filed detail of expenses before the Assessing Officer, still he restricted the disallowance for other expenses to 10% of the total expenses without any justification and only on the basis of the magnitude of the disallowance. The learned CIT(A) should have examined the books of accounts along with bills and vouchers to decide the issue of disallowance of other expenses and depreciation. The action of the learned CIT(A) of sustaining the disallowance on ad-hoc basis is not justified. In the facts and circumstances of the case, we feel it appropriate to restore the matter back to the file of the Assessing Officer for deciding afresh with the direction to the assessee to produce all the necessary documents in support of its claim including books of accounts and bills and voucher in relation to other expenses and additions to assets for justifying the claim of the depreciation. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. Accordingly, the grounds raised by both the parties are allowed for statistical purposes. 10. In the result, both c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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