Uttamchand Ostwal, Surat vs Department Of Income Tax

The Asstt. Commissioner Shri Uttamchand Ostwal, of Income-tax, Circle-7, Prop. M/s. Uttam Gems & Surat Vs M/s Anamika Gems, 304 (Appellant) Sumangal Apartment, Jadakhadi Mahidharpura, Surat PAN: AABP06553H (Respondent)

Revenue by: Smt Sonia Kumar, Sr. D.R. Assessee by: Shri R.N. Vepari, A.R.

Date of heari ng : 15-06-2015 Date of pronouncement : 24-06-2015

आदेश /ORDER

PER : RAJPAL YADAV, JUDICIAL MEMBER:-

The revenue is in appeal before us against the order of Ld. Commissioner of Income Tax (Appeals) dated 15th March, 2011 passed for Assessment Year 2007-08.

I.T.A No. 1731/Ahd/2011 A.Y. 2007-08 Page No 2 ACIT vs. Uttamchand Ostwal, Prop. M/s. Uttam Gems & M/s. Anamika Gems

2. The ground no. 1 & 3 are inter-connected with each other, therefore we take both these grounds of appeal together. The grievance of the revenue in these grounds of appeal is that ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 35,36,426/- and Rs. 4,04,937/- which were added by the Assessing Officer out of labour charges and assortment charges paid by the assessee. Without providing an opportunity to the Assessing Officer, these additions have been deleted by the Commissioner of Income Tax (Appeals) by entertaining additional evidence in violation of Rule 46(A) of the Income Tax Act.

3. The brief facts of the case are that assessee is an individual and running two proprietorship, namely M/s. Uttam Gems and M/s. Anamika. He has filed his return of income on 24-10-2007 declaring total income of Rs. 23,68,180/-. The case of the assesse was selected for scrutiny assessment and a notice u/s. 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has incurred an expenditure of Rs. 1,76,81,231/- for job work and debited amounts in the accounts of M/s. Uttam Gems and M/s Anamika Gems. Ld. Assessing Officer has called for the details of expenditure and to whom these were paid. The asssessee has furnished all the details. Somehow, the Assessing Officer was not satisfied with the explanation of the assessee and he made an adhoc disallowance of 20% of the total charges paid by the assessee. Similarly, assessee had incurred a sum of Rs. 8,50,673/- and Rs. 11,74,010/- towards assortment charges in the accounts of M/s. Uttam Gems and M/s Anamika Gems respectively. Ld. Assessing Officer has disallowed 20% out of these I.T.A No. 1731/Ahd/2011 A.Y. 2007-08 Page No 3 ACIT vs. Uttamchand Ostwal, Prop. M/s. Uttam Gems & M/s. Anamika Gems

expenditures. The brief finding recorded by the Assessing Officer on both these issues read as under:

5.2 On verification of vouchers / bills produced by the assessee, it is seen that proper vouchers / receipts are not available with the assessee in substantial number of cases. The assessee could only provide name and addresses of the labour contractors. This does not discharge the onus of the assessee. The expenses debited under these heads are not fully verifiable as the complete addresses of the recipients are not available.

5.3 The details filed by the assessee have been verified. However the genuineness of such expenditures has not been established with supporting evidences. Keeping in view the above facts, an amount of Rs.

35,36,2467- being 20% of Labour Job work is being disallowed and added back to the total income.

x x x x x x x x x x x x

7.2 Keeping in view the above facts and circumstances, amounts of

Rs 1,70,1357- Rs. 2,34,802/- being 20% of total Assortment Charges are being disallowed in the cases of M/s Uttam Gem and M/s Anamica Gems respectively and are added back to the total income. The total disallowance come to Rs 4,04,937/-."

4. On appeal, Ld. First Appellate Authority has deleted the addition on the ground that labour charges were paid by the assessee @ 250 per carat. This payment is consistent for the last 3 years. The yield is also better in this year compared to earlier years. The Assessing Officer failed to point out any defect in the books of accounts. The assessee had deducted TDS on the labour payment. Similar finding is being recorded by CIT while deleting the disallowance out of assortment charges.

5. With the assistance of ld. representatives, we have gone through the record carefully. If an assessee had incurred an expenditure wholly and exclusively for the purpose of the business, then, expenditure is an allowable deduction to the assessee. In the present case, Assessing Officer has expressed his apprehension that assessee failed to establish I.T.A No. 1731/Ahd/2011 A.Y. 2007-08 Page No 4 ACIT vs. Uttamchand Ostwal, Prop. M/s. Uttam Gems & M/s. Anamika Gems

the genuineness of the expenditure with supporting evidence. But to our mind, the finding of the Assessing Officer is totally vague, the assessee has filed a paper book containing 472 pages, except, 15 pages which were submissions before the ld. Commissioner of Income Tax (Appeals), all other pages were submitted before the Assessing Officer. Ld. Assessing Officer has nowhere pointed out which voucher is unverifiable. He simply observed that some of the expenditures are not verifiable but to our mind he should have pin pointed certain items even for example same from the record. This finding is based on assumption basis and not on the basis of material available on record. The Ld. First Appellate Authority has re- appreciated the material and thereafter deleted the disallowance. As far as the pleading of the revenue is concerned, that such additions have been deleted by entertaining additional evidence, we are of the view that no application for permission to lead additional evidence was filed nor any fresh material submitted before the Commissioner of Income Tax (Appeals). Ld. Departmental Representative was unable to pin point such material during the course of hearing. As far as assortment charges are concerned, the assessee has submitted complete details. The list along with the complete address is available on page 115. The payment was made in the case of M/s. Anamika Gems to 24 parties, whose PAN no. with income tax return along with their address were given to the Assessing Officer. Taking into consideration the material available on record coupled with the finding of ld. Commissioner of Income Tax (Appeals), we do not find any error in the order of Commissioner of Income Tax (Appeals). Both these grounds of appeal are rejected.

6. Ground no. 2 and 4 are interconnected to each other. In these grounds of appeal, the grievance of the revenue is that ld. Commissioner I.T.A No. 1731/Ahd/2011 A.Y. 2007-08 Page No 5 ACIT vs. Uttamchand Ostwal, Prop. M/s. Uttam Gems & M/s. Anamika Gems

of Income Tax (Appeals) has erred in restricting the disallowance out of foreign travel expenses and office expenses at 5% of the total expenses claimed by the assessee as against disallowed at 20% by the Assessing Officer.

7. As observed earlier, assessee was running proprietorship concerns namely; M/s. Uttam Gems and M/s Anamika Gems. He has debited a sum of Rs. 6,61,643/- and Rs. 6,61,032/- in both these concerns respectively, "under the head, "travel expenses", Ld. Assessing Officer has disallowed 20% of this expenditure. On appeal, Ld. First Appellate Authority has deleted the disallowance except 5% of the total expenses. The assessee has claimed a sum of Rs. 1,41,277/- and Rs. 1,53,816/- as office expenses in M/s. Uttam Gems and M/s. Anamika Gems respectively. Ld. Assessing Officer has disallowed 20% of these expenditures. On appeal, ld. Commissioner of Income Tax (Appeals) restricted the disallowance to 5%.

8. With the assistance of ld. representatives, we have gone through the record carefully. We find that assessee has given complete details of the expenditures. The Assessing Officer has not pointed out any particular circumstance which can indicate that element of personal nature is involved in the expenditure. He simply disallowed 20% of the expenditure on the ground that possibility of incurring the expenditure for personal purposes cannot be ruled out. The Ld. First Appellate Authority has re- appreciated the facts and circumstances and restricted the disallowance to 5%. In our opinion, it is not justifiable for the second appellate authority to replace the estimation of disallowance by further estimation, because, wherever any disallowance is being made on an adhoc basis the element of guess is always involved. Once, the Ld. First Appellate Authority has I.T.A No. 1731/Ahd/2011 A.Y. 2007-08 Page No 6 ACIT vs. Uttamchand Ostwal, Prop. M/s. Uttam Gems & M/s. Anamika Gems

exercised its discretion for estimating the disallowance then, unless it is established that such discretion was exercised on the basis of extraneous reason the estimated opinion ought not to be disturbed. Therefore, we do not find any merit in these grounds of appeal, these are rejected. Other grounds of appeal are general in nature, hence rejected.

9. In the result, the appeal of the revenue is rejected.

Order pronounced in the open court on 24-06-2015

Sd/- Sd/- (G.D. AGRAWAL) (RAJPAL YADAV) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 24/06/2015 ak आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.

By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद