Income Tax Addition cannot be made Merely Based on Assumption and Presumption: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Jaipur Bench, has recently, in an appeal filed before it, held that income tax addition cannot be made merely based on assumption and presumption.

The aforesaid observation was made by the Jaipur ITAT, when an appeal was preferred before it by the revenue, as directed against the order of the CIT(A), National Faceless Appeal Centre, Delhi [(NFAC)], dated 25.07.2022 for the AY 2013-14.

The grounds of the revenue’s appeal being as to whether under the facts and the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 53,742/- made by disallowing Computer Gift Expenses of Rs. 24,900/- and other gift expenses of Rs. 28,842/, debited in the assessee’s P & L A/s under the head sales promotion expenses, and also as to whether under the facts and the circumstances the case, the CIT(A) has erred in deleting the addition of Rs. 1,51,61,950/-, made by disallowing various expenses incurred by the assessee, on account of sales promotion and business promotion debited in the P&L a/c, the fact as culled out from the records, was that the assessee company M/s Curosis Healthcare Pvt. Ltd., had filed its return of income for the year under consideration declaring total income of Rs. 49,81,330/-, on 29.09.2013.

The reasons recorded for issuing notice under section 148 of the Income Tax Act having been provided on 18.08.2018, a notice u/s. 142(1) of the Act annexing questionnaire had also been issued on 18.08.2018, fixing the date for furnishing details on 27.08.2018.

Thereafter, the AR of the assessee filed an objection against reasons recorded for re-opening the case on 05.09.2018. And accordingly, the order against the objections to the issuance of notice u/s. 148 of the Act, had been passed on 13.09.2018. And, since the assessee did not file any submission, a notice u/s. 142(1) of the Income Tax Act, annexing reminder letter had been issued on 13.09.2018, fixing the date for furnishing submission on 18.09.2018.

With the AR of the assessee has filed the submission dated 03.12.2018, from the details so submitted by the assessee, it was so found by the AO that the assessee had claimed sales promotion expenses of Rs. 1,58,54,254/- and debited the same in profit & loss account, and that in most of the case, the assessee could not produce bills/ vouchers of the sales promotion expenses so debited in profit & loss account.

The AO further observed that if the assessee had gifted the items as an incentive, then TDS should have been made thereon u/s. 194H of the Income Tax Act, but that the assessee failed to make TDS thereon. And based on this observation, the AO concluded that the assessee gifted the chin, Kada, Gold & silver jewellery to various doctors or touts for soliciting admission to Nursing Home or Hospital, which is completely prohibited as per CBDT’s circular no. 05/2012 dated 01.08.2012 and also as per provision of section 37 of the Income Tax Act.

 Thus, based on these observations, the AO made an addition of Rs. 53,742/, being the amount of computer gift and other gifts, and Rs. 1,51,61,950/, out of various expenses claimed by the assessee on account of sales promotion and business promotion, debited to the profit and loss account.

Being aggrieved by the same, the assessee carried the matter in appeal before the CIT/NFAC, who in his relevant findings while deleting the addition of Rs. 1,51,61,950/, observed that there was no evidence on record showing that this expenditure was incurred for giving gifts to medical practitioners. Likewise, he deleted the addition of Rs. 53,742/- too, as it was based on guesswork.

With Shri S. L. Poddar (Adv.), the  AR of the assessee in addition to the written submission, having submitted that the allegation made by the revenue is without any basis and the averments made are general in nature, he added that there is no specific finding even though the details of the payee is submitted and that the same is also admitted in the status report of the AO submitted before the bench.

He added that none of the payee or beneficiaries is on the list of parties to whom the freebies in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, were provided or proved by the assessing officer and that since there is no violation of board circular and no finding recorded in the status report, the claim of the assessee is thus, fully supported by bills and vouchers.

He further submitted that nothing adverse has been found by the lower authorities and hence the claim of the assessee, is squarely covered under section 37(1) of the Income Tax Act, thereby pointing out that both the grounds raised by the revenue have no merits and are therefore are required to be dismissed.

However, on the other hand, Smt. Runi Pal (Addl. CIT), the DR of the Revenue, relied on the findings of the assessing officer, thereby submitting the comments of the AO as submitted vide his letter dated 09.01.2023.

It was submitted by the DR  that there is a disallowance of sales promotion wherein, a huge expenditure has been claimed, while the details as was called for, had not been submitted.  He added that the assessee has not submitted details of the person who had stayed in the hotel, and added that no details of the gold coin given and bills, were of the jewellery items.

Per contra, in the rejoinder, the  AR of the assessee submitted that, in the report of the AO, he has not uttered a single word regarding the items that have been given to doctors, and that his denial of claim of expenditure, was purely on the CBDT circular. He added that since there is no contrary finding by the AO, no disallowance can be made, as there is no contravention of the provision of section 37(1) of the expenditure, as is rightly deleted by the CIT(A).

Hearing the opposing contentions of either side and perusing the materials available on record, the ITAT noted:

“Considering the facts of the case we are of the considered view that the primary condition to make the addition is not fulfilled, as here in this case the assessee has incurred the expenditure and has offered the explanation about the source of such expenditure the reasoning given by the ld. AO is against the provision of the law. As in this case the ld. AO has not doubted the source of the expenditure the applicability of section 69C is not in accordance with the law. The ld. CIT(A) after considering the board circular and provision of law took a considered view that the ld. AO has placed no material on record to hold that the expenditure was not incurred and the source of the said expenditure is not explained by the assessee.”

“Even in the report of the ld. AO before us, he has stated that computer gift expenses and other gift expenses of Rs. 53,742/-, as per assessment order the assessee, did not provide any ledger account, bills and vouchers of purchase of these gifts and details of persons to whom these gifts were given. Whereas the ld. AR of the assessee on this issue submitted that these expenses are claimed in the profit and loss account and the provisions of section 69C is not applicable in the present case. The payment for this expenditure has been made by crossed account payee cheque and this fact is not disputed by the revenue. Thus, merely based on assumption and presumption no addition can be made”, the ITAT Panel comprising of Rathod Kamlesh Jayantbhai, the Accountant Member, along with Dr S. Seethalakshmi, the Judicial Member added.

Thus, dismissing the Revenue’s appeal, the Jaipur ITAT held:

“Even based on these facts, the ld. CIT(A) has also considered the claim of the assessee accordingly. Thus, we see no fault in the detailed finding of the ld. CIT(A), while allowing the claim of the assessee for an amount of Rs. 53,742/- as the revenue has not been placed on contrary evidence or facts expressly demonstrating why the claim is disallowable. Based on that observations we are of the considered view that the ground raised by the revenue fails and thus is dismissed.”

To Read the full text of the Order CLICK HERE

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