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Judgment
PER AMITABH SHUKLA, AM
This cross appeals filed by the Assessee and by the Revenue is directed against the order of Ld. Commissioner of Income Tax (Appeals)-30, New Delhi, dated 15.01.2026 arising out of assessment order dated 30.09.2021 passed by the ACIT, Central Circle-32, New Delhi, under section u/s 143(3) of the Act for the Assessment Year 2019-20. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
At the outset, the Registry has identified the delay of 55 days in filing the appeal before the Tribunal. For the reasons stated in the Revenue’s condonation petition attributing delay for 55 days to the circumstances beyond its control, we quote Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC) to condone the delay.
The assessee has raised following grounds in its appeal in ITA No.2359/Del/2026.:-
1.On the basis of facts and circumstances of the case, order passed by the learned Commissioner of Income Tax (Appeals), [CIT(A)] is bad in the eye of law and on facts
2.On the facts and circumstances of the case, notice issued u/s 143(2) of the Act and the consequent assessment passed by the AO are invalid, illegal, non-est and liable to be quashed since the notice u/s 143(2) of the Act has been issued without following the procedure prescribed under CBT Instruction F.No.225/157/2017/ITA-Il dated 23.06.2017.
3.(i) On the facts and circumstances of the case, the learned CIT(A), has erred has both on facts and in law, in restricting the disallowance to Rs. 3,60,00,000/- on estimation basis on account of selling expenses claimed by the assessee.
(ii)That the abovesaid disallowance has been confirmed on ad-hoc estimation of @20% which is arbitrary, unjustifiable and unsustainable.
(iii)That the abovesaid disallowance has been confirmed despite the fact that the selling expenses have been incurred wholly and exclusively for the purpose of business and hence is allowable expenditure as per Income Tax Act, 1961.
4.On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the disallowance despite the fact that the books of accounts of the assessee are audited as per law and no defect has been pointed out by the AO in the same.
5.On the facts and circumstances of the case, the learned CIT(A) has erred both on the facts and in law in confirming the disallowance without there been any adverse inference made by him in respect of documents filed by the assessee, hence the disallowance made by the AO is invalid, arbitrary and unsustainable.
6.On the facts and circumstances of the case, the learned CIT(A), has erred both on facts and in law in confirming the abovesaid disallowance despite the fact that the same has been made by the AO by indulging in surmises without bringing on any direct evidence against the assessee, only on the basis of presumptions and assumptions.
The Revenue has raised following grounds of appeal in ITA No.6883/Del/2026:-
1.Ld. CIT(A) erred in not considering that the estimation of valuation @ Rs. 7500/- per sq. feet for construction and furnishing cost was identified during survey proceedings and assessee himself has admitted of disclosure by estimating the valuation @ Rs. 7500 against which escapement of income comes at Rs. 65,54,954/- by taking into consideration the constructed area of 20,357 sq. feet instead of 29,000 sq. feet as identified during survey proceedings.
2.Ld. CIT(A) has erred in not considering that main director of the assessee company himself admitted of some funds were invested in construction and furnishing work not accounted properly in books of accounts and admitted and surrendered Rs. 8,38,25,275/-[29000*(7500-4691)] against unaccounted investment in office construction.
3.The Ld. CIT(A) has erred in restricting the disallowance to 20% instead of entire amount of Rs. 18 crores citing possible inflation or unverifiable component while at same time avoiding unjust and disproportionate addition.
4.The Ld. CIT(A) has erred in not considering the provisions created of Rs. 18 crores in ‘Selling Expenses’ as on 19.02.2019 during survey proceedings are not allowable as per Income-tax Act and submission of Selling expenses during appellate proceedings are after thought submission.
5.Ld. CIT(A) erred in not considering the fact that many of the sample parties were not verified during appellate proceedings while submission of the remand report which shows that non genuine claim of Selling expenses against provisions created of Rs. 18 crores.
6.The relief granted is therefore unsustainable in eyes of law.
7.The order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law.
8.The grounds of appeal are without prejudice to each other.
The Revenue is contesting the restriction of addition made by the ld. Assessing Officer of Rs.18 Crores to 20% thereof and deletion of addition of Rs.8,38,25,275/- by ld. CIT(A). The appellant through cross appeal is contesting the confirmation of addition by ld. CIT(A) to Rs.3,60,00,000/- being 20% of the original addition. We would take the Cross appeal of the appellant assessee first.
ITA No.2359/Del/2026 (Assessee’s Appeal)
Brief facts of the case are that the original return in this case was e-filed by the assessee on 28.03.2020 declaring total income of Rs.70,86,68,090/-. A survey operation was carried out at the business premises of the assessee on 18.02.2019. At the time of survey, various documents, books of accounts, etc were found and statements of various persons were recorded. Consequent to survey action, notice u/s 143(2) of the Act was issued on 28.09.2020. A detailed questionnaire dated 29.07.2021 and 24.09.2021 along with notice u/s 142(1) was issued to the assessee by the ld. Assessing Officer. After considering the reply of the assessee, the ld. Assessing Officer proceeded to add an amount of Rs.18 Crores, Rs.8,38,25,275/- and Rs.14 Crores to the total income of the assessee. In appeal, the ld. CIT(A) after considering additional evidences filed by the appellant assessee during appellate proceedings, remand reports furnished by the ld. Assessing Officer, proceeded to restrict the disallowance at an ad hoc estimated disallowance of 20% and thus sustained addition to the extent of Rs.3,60,00,000/-. The assessee is contesting the impugned ad hoc estimation of 20% made by the ld. CIT(A). The ld. CIT(A) has made following observation:-
“..13. Ground no.6: Alleged Provision for Selling Expenses - This ground pertains to the disallowance of Rs. 18,00,00,000/- made by the Assessing Officer by treating part of the selling expenses as a mere provision. The AO alleged that out of total selling expenses of Rs. 58,08,81,319/-, a sum of Rs. 18,00,00,000/- represented provision and not actual expenditure incurred during the year, primarily relying upon the statement recorded during survey proceedings.
13.11.I have carefully considered the assessment order, the submissions of the appellant, the additional evidences filed under Rule 46A, and the remand reports dated 10.05.2023 and 19.12.2024 along with the rejoinders thereto. It is noted that the appellant has consistently contended that no provision for selling expenses was created and that the impugned amount represents actual expenses such as discounts, incentives and cartage charges, duly recorded in the audited books of account.
13.2.The appellant has filed extensive documentary evidences, including ledger accounts, party-wise break-up of selling expenses, confirmations from customers and other relevant parties, and supporting bills and vouchers. These evidences were forwarded to the Assessing Officer for verification during the remand proceedings. In the first remand report, the Assessing Officer issued notices under section 133(6) of the Act to 19 parties and stated that replies were received from 10 parties. In the second remand report, the Assessing Officer objected to the admission of the additional evidences on the ground that the appellant had sufficient opportunity to file such details during the course of assessment proceedings and alleged that the voluminous submissions filed during the appellate proceedings, particularly in respect of discounts claimed, were in the nature of a colourable device to evade tax. Relevant part of second report dated 19.12.2024 is reproduce as under:-
2. Submission Made during appeal proceeding:
2.1.The assessee approached the CIT(A) against the addition made by the Assessing Officer during the appeal proceedings the assessee filed the detailed submission which contains voluminous documents of around 15000 pages. The copy of submission has been forwarded to this office by the ld. CIT(A) and report was sought.
The documents filed by the assessee has been perused and it is noted that the “selling expenses” and other addition made in the assessment order.
2.2.It is to be noted here that the documents submitted before the Ld. CIT(A) and never been furnished before the AO and nor the assessee had provided any explanation regarding his submission with any documentary support. This is clear violation of Rule 46A(1) of the Income Tax Rules, 1962.
2.3.Considering the fact that the assessee had been provided ample time and opportunity to file the submissions and explanation, but he failed to submit it during the assessment proceedings. Now the bulky submission filed during appeal proceedings which was not filed during the assessment proceedings cannot be treated as a valid submission. The “selling expenses” in the form of document as mentioned by the assessee is nothing but is colourable device to evade the tax. The submission filed by the assessee is manipulated and afterthought in order to counter the addition made by the Assessing Officer.
2.4.It is to be noted here that the assessee company is a well-established company with a high turnover and has been regularly maintaining proper books of accounts. It is very strange that despite many opportunities during the assessment proceedings, the assessee had not submitted the explanation with documentary evidences, even though that documents must be readily available with such a big company. This is a contention that the AO had not provided enough opportunity is baseless and the submissions filed before the ld. CIT(A) are manipulated accordingly.
2.5The section 46A(1) of the Income Tax Rules, 1962, clearly states that no such documents should be admissible before the CIT(A) which we are not produced before the Assessing Officer during the assessment proceedings. Also, the case of the assessee does not fulfill any of the exceptional circumstances mentioned in the rule 46A(1) as the assessee had been provided with the enough time and opportunities to file the submission during the assessment proceedings. The assess was never prevented or denied from filing any submission during the assessment proceedings.
In view of the above, it is requested that appropriate order as per Rule 46A(2) may be passed to this office to offer comments on merits about the 15000 odd pages of additional evidences submitted by the assessee during the appeal proceedings.
However. it is pertinent to note that in both the remand reports, this Assessing Officer has not pointed out any specific discrepancy, mismatch or inflation in the selling expenses with reference to any particular party or transaction. No adverse material has been brought on record to controver the documentary evidences filed by the appellant or to establish that the expenses claimed are either non-genuine or excessive.
13.3At the same time, it is observed that the volume of selling expenses is substantial and includes items such as incentives, discounts and cartage, which by their very nature involve estimates, negotiations and post-sale adjustments. Although the appellant has largely substantiated the claim, complete one-to-one correlation of every expense with contemporaneous documentary evidence, particularly in respect of discounts and incentives, could not be demonstrated with absolute precision for the entire amount.
13.4In such circumstances, while the blanket disallowance of Rs.18,00,00,000/- made by the AO is found to be excessive, arbitrary and unsupported by evidence, it would also not be appropriate to allow the entire claim in full. Considering the nature of expenses, the scale of operations, and the possibility of minor unverifiable elements embedded in such expenditure, a reasonable estimation is warranted to meet the ends of justice.
13.5Accordingly, I am of the considered view that a disallowance restricted to 20% of the alleged amount of Rs. 18,00,00;000/- would adequately take care of any possible inflation or unverifiable component, while at the same time avoiding an unjust and disproportionate addition.
13.6The AO is therefore directed to restrict the disallowance to 20% of Rs. 18,00,00,000/-, i.e. Rs.3,60,00,000/-, and delete the balance addition of Rs. 14,40,00,000/- Accordingly, Ground No. 6 is partly allowed…”
It is the case of ld. Counsel for the assessee that the ld. CIT(A) has estimated his addition without any basis. It has been submitted that during appellate proceedings, the appellant had provided additional evidences to the ld. CIT(A) which were got examined by the ld. Assessing Officer. The ld. Assessing Officer, thereafter, issued notices u/s 133(6) and conducted his independent enquiries. It was submitted that no specific discrepancies were identified by the ld. Assessing Officer and that out of total 19 parties to whom 133(6) notices issued, 18 were responded. It was stated that Assessing Officer’s plea of conducted limited verification given the humongous volume of records cannot be a ground for sustaining any addition in its case. The ld. Counsel argued that based upon these enquiries, the ld. CIT(A) proceeded to delete additions of Rs.8,38,25,275/-on account of unexplained investment and Rs.14 lakhs on account of inflated purchases. The latter not being even contested by Revenue in its appeal. The ld. Counsel argued that the ld. CIT(A) while making the impugned estimation has not brought out on record any specific basis of his estimation. It was submitted that the ld. Assessing Officer in his remand report has also not brought out any basis on which the said estimation could be rested. It was argued that the said estimation, in the absence of demonstrative documentary evidence, is untenable and hence deserves to be deleted.
The ld. CIT-DR placed reliance upon the order of ld. Assessing Officer.
We have heard rival submissions in the light of material placed on records. We have noted from the order of ld. CIT(A) extracted (supra) that he has made the impugned ad hoc estimation purely on the basis of conjectures and surmises. In para-13.4 of his order, he has clearly observed that the disallowance of Rs.18 Crores by the Assessing Officer is excessive, arbitrary and unsupported by any evidence. It has been noted that in spite of the same, he has proceeded to restrict the addition to 20% on hypothesis of nature of expenses, scale of operations and the possibility of minor unverifiability of the impugned expenses. We have noted that the conclusion drawn by the ld. First Appellate Authority are purely subjective and cannot be sustained. Accordingly, in the absence of any scientific and reasoned basis for the impugned ad hoc estimation, the order of the ld. CIT(A) is set aside and we direct the ld. Assessing Officer to delete the impugned addition of Rs.3,60,00,000/- sustained by the ld. CIT(A). The grounds of appeal raised by the assessee are therefore allowed.
In the result, the cross appeal of the assessee in ITA No.2359/Del/2026 is allowed.
ITA No.6883/Del/2026 (Revenue’s appeal)
The grounds of appeal no.3 to 5 raised by the Revenue are regarding the action of ld. CIT(A) in restricting the addition to 20% of the original addition of Rs.18 Crores. Apropos to the discussion on the cross appeal of the assessee contesting the impugned action of ld. CIT(A), we have concluded that the disallowance by the ld. CIT(A) is not based upon any scientific parameters and hence have been deleted. As we have allowed the cross appeal of the assessee and deleted the additions sustained by the ld. CIT(A), the contest raised by the appellant revenue has become untenable. Consequently, the grounds of appeal no.3 to 5 of the Revenue’ appeal are therefore dismissed.
The grounds of appeal no.1 and 2 of the Revenue are regarding the action of the ld. CIT(A) in deleting addition of Rs.8,38,25,275/-. /-. The ld. Assessing Officer had made the impugned addition of Rs.8,38,25,275/- by relying upon the statement of the main director of the assessee company during survey admitting that books of accounts were not properly vouched and had himself surrender the impugned amount of Rs. 8,38,25,275/-. It was observed that the price of Rs.7500 Sq. Ft. was admitted by the assessee himself. The addition was deleted by ld. CIT(A) after considering additional evidences, remand reports, etc.
The ld. Counsel for the assessee reiterated arguments taken before the ld. Cit(A) and vehemently argued that the impugned rate of Rs.7500 Sq. Ft. adopted by the survey team was an arbitrary price based upon visual assessment. It was submitted that the correct price certified by statutory authority comes to 7178 per Sq. Ft. The ld. Counsel argued that it is undisputed that the actual constructed are is 20357 Sq. Ft. and total cost of construction/renovation in the books comes to Rs.14,61,20,388/-. The ld. Counsel argued that consequently the actual price comes to Rs.7178 per Sq. ft. rightly adopted by the ld. CIT(A). It was urged that Revenue has not brought on record any evidence to suggest incurring of any expenditure over and above the book value of Rs.14,61,20,388/-.
The ld. DR place reliance upon the order of ld. Assessing Officer.
We have heard rival submissions in the light of material placed on records. We have noted that there is no dispute raised by the Revenue about the correctness of amount of Rs.14,61,20,388/- recorded by the appellant assessee in its books for the project. Neither is there any dispute on the area of 20,357 sq. ft. which has been certified by the Noida Authority. Thus, considering the total amount and the area, the cost per sq. ft. comes to 7178 per Sq. ft. We have also that the Revenue has not been able to place on record any demonstrative evidence in furtherance of its case for adopting 7500 per sq.ft as the rate except the statement of the director at the time of survey. Accordingly, we are of the considered opinion that the order of the ld. CIT(A) is based upon correct understand and interpretation of the facts of the case and does not require any interference at this stage. The grounds of appeal no.1 and 2 raised by the Revenue are dismissed.
All other grounds raised by the Revenue have been found to be general in nature and hence the same are dismissed as in-fructuous.
In the result, the appeal of the Revenue is dismissed.
Finally, the appeal of the assessee is allowed and appeal of the Revenue is dismissed.