Consent of assessee cannot give AO right to make additions. the consent of the assesse/authorised representative cannot be a reason to sustain the addition. This was upheld by ITAT Chennai in a recent judgment as under:
Case Details:
ITA Nos. 300 to 303/Mds/2016 Assessment Years : 2010-11 to 2013-14
M/s. SNJ Distillers Pvt. Ltd (Appellant) vs. Deputy Commissioner of Income-tax (Respondent)
Date of Judgmment/Order: 27/05/2016
Important Judgments Cited:
Ramanlal Kamdar v. CIT (108 ITR 73) Madras HC
Mariam Aysha v.Commissioner of Agricultural Income-tax (104 ITR 381)
Brief Facts of the Case:
A search was conducted in the office premises of the appellant assessee. Thereafter a notice u/s.153A was issued to the assessee company to file the return of income. Accordingly, the company filed its return of income. The Assessing Officer completed the assessment u/s 143(3) rws 153A on 30.3.2015 for the assessment years 2010-11 to 2013-14 by making disallowance/addition on four counts i.e. (i) disallowance of business promotion expenses, (ii) disallowance u/s.14A r.w. Rule 8D, (iii) addition in respect of bogus purchase and (iv) disallowance u/s.69A. The AO also rejected the objection of the company challenging the assumption of jurisdiction u/s 153A in the absence of any incriminating material seized. Aggrieved by the order of the AO, the assessee went in appeal before the CIT(Appeals), who confirmed the finding of the AO.
The company challenged the order of the CIT(A) for confirming the assessment u/s 153A and disallowance made for sales promotion expenses.
ITAT confirmed the framing the assessment u/s 153A . However with respect to disallowance of sales promotion expenses, it observed that the AO disallowed the sales promotion expenses for AYs 2010-11 to 2013-14 on the basis of consent given by the assessee to make these additions, as the assessee was unable to produce the evidence in support of the claim of these expenditure. Before CIT(A), the assessee had prayed that bills and vouchers were available and an opportunity be given to produce them. However, The CIT(Appeals) held that the assessee could not avail the opportunity, since it was an agreed addition before the AO.
Important Excerpts from ITAT Judgment:
……. the very assessment has to be made as per law. The consent given by the assessee or authorized representative cannot give the right to the AO to make addition, as held by the judgment in the case of Mariam Aysha v.Commissioner of Agricultural Income-tax (104 ITR 381), the consent cannot be a reason to sustain the addition. Before us, the ld. AR, submitted that all the evidences in support of business promotion expenses are available and the payments are made by cheque as well as cash and sought one more chance to produce the same before the AO. In our opinion, the plea of the assessee is justified. In our opinion, the assessee is having the right of appeal even it is agreed to addition before the AO……
It is to be noted that the revenue authorities have not doubted the incurring of expenditure for sales promotion. However, they doubted the quantum of expenditure incurred. The business cannot be carried on without incurring sales promotion expenditure. The ld. AR pleaded, before us, that most of these payments were passed through banking channels. In such circumstances, the disallowance of entire sales promotion expenditure is not proper. If the sale promotion expenditure are not supported by proper bills or vouchers or receipts and payments have been made only by cash, then there are chances of inflating of such cash expenditure. Even if it is so, the entire expenditure cannot be disallowed. Since, there is possibility of inflating of cash expenditure, disallowance of certain percentage of the expenditure to be made. From this point of view, if the expenditure is not fully vouched, the Assessing Officer is directed to disallow only 10% of the unsupported cash expenditure out of this and he shall not disallow 100% of such expenditure. …….
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