AO cannot Work Out Disallowance of Miscellaneous Expenditure on Guess Work Basis: ITAT [Read Order]

AO - Disallowance of Miscellaneous Expenditure - Disallowance - Miscellaneous Expenditure - ITAT - taxscan

The Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has recently in an appeal filed before it, held that the AO cannot work out disallowance of miscellaneous expenditure on guess work basis.

The aforesaid observation was made by the Kokalta ITAT, when cross appeals were filed before it by the Revenue as well as the assessee, as against the order of the Commissioner of Income Tax (Appeals) Patna, dated 18.09.2020, passed for the assessment year 2011-12.

The brief facts of the case were that the assessee was running a proprietorship in the name and style of M/s. Interface industrial System, having a dealership of D.G. Set.  The assessee had filed its return of income electronically on 27.06.2012, showing the total income at ‘NIL’, and the case of the assessee was selected for scrutiny assessment. This was followed by an assessment order passed on 28.03.2014 under section 143(3), wherein the  Assessing Officer ( AO) had made various additions,  one of the which was of Rs.2,13,00,666/.

It was observed by the Assessing Officer (AO), that the assessee had shown advances from customers, based on which he directed the assessee to file concerned details, which according to him, the assesese had failed to file, prompting the AO to make the aforesaid additions.

On appeal, the assessee filed submissions, wherein the CIT(A), the  first Appellate Authority ,called for a remand report, according to whom the Assessing Officer (AO) had accepted the genuineness of sundry credits.

Thus, relying upon the finding of the  Assessing Officer (AO) in the remand report, the  CIT(Appeals) deleted the addition , thereby observing that the appellant had produced details of all customers, purchase order from the party , copy of cheque/DD and delivery challan of Genset with complete description etc. before the A.O during remand proceedings, and further that after verification of the same,  the AO had admitted in his remand report that the received advance of Rs. 2,13,00,666/- as advance from customers, in order to deliver generator set, seems to be true and genuine. And it is against the same that the Revenue has preferred the instant appeal before the Kolkata ITAT.

With Shri Sanjay Mukherjee, the CIT(DR) on behalf on the Revenue , submitting that the CIT(Appeals) had erred in blindly accepting the remand report, he added that the CIT(A) has a co-terminus power with that of the  Assessing Officer (AO) and therefore that the CIT(A) ought to have critically examined this aspect.

 On the other hand, with Shri A.K. Rastogi,  and Shri Rakesh Kumar, the Advocates on behalf of the Assessee ,reling upon the remand report, the ITAT Bench comprising of Rajesh Kumar, the Accountant Member, along with Rajpal Yadav, the Vice-President (KZ),observed:

 “On due consideration of the facts and circumstances, we do not find any merit in this ground of appeal raised by the Revenue, because ld. Assessing Officer has himself worked out the disallowance on guess work basis, which was re-appreciated by the ld. 1st Appellate Authority. Two estimated opinions ought not to be substituted with the third opinion.”

“In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed for statistical purposes”, the Kolkata  ITAT Bench held.

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Income Tax Officer vs Hemant Kr. Das

Counsel for Appellant:   Shri Sanjay Mukherjee

Counsel for Respondent:   Shri A.K. Rastogi, Shri Rakesh Kumar


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