Shri V.c.arunai Vadivelanpan: Bjepa6920P v. The Assistant Commissioner Of Income Tax,Non Company Circle - 11,Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 05.02.2021 CORAMTHE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MS.JUSTICE R.N.MANJULA Judgment Reserved OnJudgment Pronounced On11.01.2021 05.02.2021 T.C.A.No.612 of 2019 Shri V.C.Arunai VadivelanPAN: BJEPA6920P .. Appellant Vs. The Assistant Commissioner of Income Tax,Non Company Circle - 11,Chennai... Respondent Appeal under Section 260A of the Income Tax, 1961 againstthe order dated 22.03.2018 made in I.T.A.No.2282/Chny/2017 onthe file of the Income Tax Appellate Tribunal Bench -C-, Chennaifor the assessment year 2014-15, against the order of theCommissioner of Income Tax(Appeals)-13, Chennai dated 18.07.2017in PAN.No. for the Assessment year 2014-15 against theproceedings of the Assistant Commissioner of Income Tax, dated28.11.2016.For Appellant:Mr.A.S.Sriramanfor Mr.S.SridharFor Respondent :M/s.V.PushpaSenior Standing Counsel JUDGMENT T.S.SIVAGNANAM,J This appeal filed by the assessee under Section 260A of theIncome Tax Act, 1961 ['the Act' for brevity] is directed againstthe order dated 22.03.2018 passed by the Income Tax AppellateTribunal, 'C' Bench, Chennai ['the Tribunal' for brevity'] inI.T.A.No.2282/Chny/2017 for the assessment year 2014-15. 2.The appeal has been filed by raising the followingsubstantial questions of law:"1.Whether the respondent/the Assessing Officerhas possessed the power within the scope of section143(3) Income Tax Act, 1961 for making adhoc https://hcservices.ecourts.gov.in/hcservices/ disallowance of expenses despite the availability ofthe audited financial statements? 2.Whether the Respondent/the Assessing Officer isempowered/justified in ignoring the incurring ofexpenses through proper banking channel after complyingall statutory prescriptions on the wrong presumption ofnon production of few bills and vouchers pertaining tothe expenses incurred and disputed in completing theassessment u/s. 143(3) of the Income Tax Act, 1961? 3.Whether the Appellate Tribunal is correct inre-estimating the adhoc disallowance of expenseswithout noticing the judicial trend on the power of therespondent/the Assessing Officer in making suchadditions in the computation of taxable total incomeand further without noticing the availability ofcomplete details proving the perversity in therecording of facts?" 2.Whether the Respondent/the Assessing Officer isempowered/justified in ignoring the incurring ofexpenses through proper banking channel after complyingall statutory prescriptions on the wrong presumption ofnon production of few bills and vouchers pertaining tothe expenses incurred and disputed in completing theassessment u/s. 143(3) of the Income Tax Act, 1961? 3.Whether the Appellate Tribunal is correct inre-estimating the adhoc disallowance of expenseswithout noticing the judicial trend on the power of therespondent/the Assessing Officer in making suchadditions in the computation of taxable total incomeand further without noticing the availability ofcomplete details proving the perversity in therecording of facts?" 3.The assessee is the proprietor of M/s.Arun Steel Agenciesengaged in the trading of steel and other related items. Theassesee filed the return of income for the assessment year underconsideration, AY 2014-15 declaring a total income ofRs.1,44,52,330/-. The return was initially processed undersection 143(1), subsequently selected for scrutiny and noticeunder section 143(3) of the Act was issued. During the courseof hearing before the Assessing Officer, the assessee wasdirected to furnish the copy of the return of income along withschedules, profit and loss account, balance sheet, stock summaryledger, etc. The assessee produced the documents called for.The Assessing Officer on perusal of the profit and loss account,noted that the assessee has debited a sum of Rs.6,76,049/- onaccount of the business promotion expenses. The assessee wasdirected to submit details pertaining to the said businesspromotion expenses. According to the Assessing Officer, theassessee did not submit the details to prove the genuineness ofsuch expenses. Accordingly, 20% of the expenses debited in theprofit and loss account was disallowed and added back to thereturned income. Further, the Assessing Officer noted that theassessee has debited a sum of Rs.4,03,770/- towards expenditureon account of the weighing and unloading charges. The AssessingOfficer held that some of the vouchers were hand made and somevouchers were not available and hence 20% of the expenses wasdisallowed and added back to the returned income. Further, inthe profit and loss account, the assessee claimed expensestowards transport charges to the tune of Rs.2,93,46,961/-, forwhich bills were directed to be submitted and on verification ofthe bills, the Assessing Officer held that the vouchers wereself made/hand written and some vouchers are not produced.Therefore, 10% of the expenses claimed by the assessee wasdisallowed and added back to the returned income. Thus, the assessment was completed under section 143(3) of the Act videorder dated 28.11.2016. assessment was completed under section 143(3) of the Act videorder dated 28.11.2016. 4.Aggrieved by such, the assessee preferred appeal beforethe Commissioner of Income Tax (Appeals)-13 [CIT(A)], Chennai.As noted above, there were three issues, namely, disallowance ofbusiness promotion expenses, disallowance of weighing andunloading expenses and disallowance to the transport charges tothe extent indicated. The CIT(A) confirmed the disallowance of20% of the business promotion expenses, restricted thedisallowance of weighing and unloading expenses to 15% insteadof 20% and confirmed the disallowance of transport charges bydismissing the assessee's appeal. On the above terms, theassessee's appeal was partly allowed. Aggrieved by the same,the assessee preferred appeal before the Tribunal. The Tribunalby the impugned order while holding that the entire additionmade by the Assessing Officer and as sustained by the CIT(A) isonly on estimate, however considering the submissions of theassessee that they had genuinely incurred expenses, the Tribunalgranted relief of Rs.6,79,060/- and sustained the addition ofRs.25 lakhs. The assssee filed miscellaneous petition beforethe Tribunal under Section 254(2) of the Act stating that theyhad specifically contended that the Assessing Officer during thecourse of assessment proceedings had scrutinized the bills anddetails furnished by the assessee with reference to the books ofaccounts but no defects were noticed during the scrutiny.Further, the details and documents called for by the AssessingOfficer was furnished by the assessee which has been admitted bythe Assessing Officer. In such circumstances there was noreason for an adhoc disallowance by the Assessing Officer. Insupport of their contention that adhoc disallowance should notbe made, the assessee referred to the decision of the DelhiTribunal in the case of ACIT vs. Ganpati Enterprises Limited,I.T.A.No.6112 (Delhi) of 2012 dated 15.02.2013 and the decisionof the Lucknow Bench of the Tribunal in the case of Mukesh KumarMahawar vs. the Income Tax Officer (ITA.No.615/LKW/2014 dated16.09.2015). With these submissions, the assessee prayed fordeleting the adhoc disallowances. 5.Subsequently, another application was filed by theassessee before the Tribunal on 22.06.2018 reiterating thatadhoc disallowance in an arbitrary manner is not permissible inlaw. The Tribunal by order dated 26.06.2018 dismissed themiscellaneous petition stating that even before the Tribunal theassessee has not produced vouchers and other relevant documentsin order to establish the genuineness of the expenses incurredtowards the transport charges. However, considering thesubmissions made on behalf of the assessee partial relief wasgranted and there is nothing to be rectified in the order passed by the Tribunal. This is how the assessee is before us by wayof this appeal. 6.We have heard Mr.A.S.Sriraman, learned counsel for theappellant/assessee and Ms.V.Pushpa, learned senior standingcounsel for the respondent/revenue. by the Tribunal. This is how the assessee is before us by wayof this appeal. 6.We have heard Mr.A.S.Sriraman, learned counsel for theappellant/assessee and Ms.V.Pushpa, learned senior standingcounsel for the respondent/revenue. 7.The facts which we have noted in the preceding paragraphswould disclose that the assessee had produced the books ofaccounts, ledgers, purchase and sales registers, stockregisters, bills, vouchers for expenses claimed includingpurchase bills, freight bills as called for by the AssessingOfficer. This is admitted by the Assessing Officer in theassessment order. If such is the situation, whether theAssessing Officer could have made adhoc disallowance.Admittedly, the assessee's case was selected for scrutiny undersection 143(3) of the Act. If such is the fact situation, theAssessing Officer was bound to scrutinize the documents producedandframeanassessementbygranting/refusingeligible/ineligible deduction. We find that the AssessingOfficer has made observation that the vouchers are selfmade/hand written and some vouchers are not produced. This inour opinion appears to be a vague statement. This finding hasbeen recorded by the Assessing Officer with regard to the amountclaimed by the assessee as expenses towards transport charges.Given the nature of the industry, we can take judicial notice ofthe fact that always computer generated vouchers may not beissued by the transporters unless they are an organizationowning a large fleet. If the Assessing Officer had any doubtwith regard to the genuinity of any one of the vouchers producedhe could have drawn sample vouchers and called upon the assesseeto establish its genuineness. Without doing so, making an adhocdisallowance by not specifically assigning any reason to avoucher or bunch of vouchers is not legally tenable. 8.Before us, the learned counsel for the assessee hasproduced a tabulated statement with regard to the deductionclaim by the assessee under the head Transport Charges for theassessment year 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16.We find that for the assessment year 2012-13, 2013-14 and2015-16, there has been no disallowance and assessment has beencompleted under section 143(3) based on the documents producedby the assessee and it is only for the assessment year underconsideration, namely, 2014-15, there has been disallowance of10%. The learned counsel has also produced the copy of theservice tax ledger account for the period from 01.04.2013 to31.03.2014 evidencing payment of service tax. Thus, we findthat it is not a case where there is no record available withthe assessee to justify their claim and had the AssessingOfficer taken a little effort to examine the correctness of the vouchers, in all probabilities the assessee might have not beenbefore us by way of this appeal. Thus, we are convinced thatthe assessement requires to be re-done after a thoroughverification of all the documents which may be placed before theAssessing Officer during the denovo consideration including thedocuments already placed for consideration. 9.For all the above reasons, the tax case appeal is allowedand the substantial questions of law are answered in favour ofthe appellant/assessee and the matter is remanded to theAssessing Officer for fresh consideration in terms of theobservations made above. No costs. Sd/- Assistant Registrar (CS.III) /True Copy/ Sub Assistant Registrar To 1.The Assistant Commissioner of Income Tax, Non Company Circle - 11, Chennai.2.The Registrar Income Tax Appellate Tribunal Bench 'C', Chennai.3.The Commissioner of Income Tax(A)-13,Chennai -13. +1cc to Mr.M.Swaminathan, Advocate Sr.No.6400 AKM/10.03.21/5P-5C/ judgment made inT.C.A.No.612 of 201905.02.2021