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Judgment
PER SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER:
The assessee’s and Revenue’s cross-appeals ITA Nos. 421 & 422/Del/2024 in assessment years 2018-19 followed by the latter’s case ITA No. 549/Del/2024 in assessment year 2019-20, arise against Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre(for short, “CIT(A)/NFAC”), Delhi’s orders dated 07.12.2023, passed in DIN: ITBA/NFAC/S/250/2023-24/1058557485(1), ITBA/ NFAC/S/ 250/ 2023-24/ 1058557485(1), ITBA/ NFAC/ S / 250/ 2023-24/ 1058562686(1), involving proceedings u/s 143(3) of the Income Tax Act, 1961; hereinafter referred to as, “the Act”.
Heard both the parties. Case files perused. We proceed assessment wise for the sake of convenience and brevity.
ASSESSMENT YEAR: 2018-19
These assessee’s and the Revenue’s cross-appeals ITA Nos. 421 & 442/Del/2024 raise their solitary substantive ground each inter alia directed against the learned CIT(A) action upholding the former’s section 80JJA deduction disallowance of Rs. 2,96,63,277/- and reversing its travel expenses disallowance of staff and directors amounting to Rs. 7,23,86,167/-; made in the assessment order dated 18.06.2021; respectively. Learned CIT(A)/NFAC detailed discussion to the very effect reads as under:
9.Ground No. 3 pertains to disallowance of deduction u/s 80JJAA of the Act. The permissible deduction for such spending is 30% of the additional employee cost incurred during year, which is allowed to provide incentives for generating employment and the deduction can be claimed at the same rate for two subsequent years. The appellant has raised ground against the disallowance of Rs.2,96,63,277/- claimed as deduction u/s 80JJAA being 30% of additional employee cost incurred in A.Y 2016-17 placing reliance on the fact that the same deduction was allowed to the appellant in A.Y 2016-17.
9.1On perusal of the facts/details available on record, it is evident that the deduction claimed by the appellant for the year under consideration was disallowed in the A.Y 2017-18 by the AO as the number of employees was less than 10% of existing number of employees on the last day of preceding year. Accordingly, the AO added back the amount claimed to the total income of the appellant.
9.2It is apt to mention here that AO disallowed the appellant's claim of deduction u/s 80JJAA of the Act pertaining to A.Y 2016-17 on the basis that the same deduction was disallowed in that year and cannot be allowed until the appeal filed by the appellant, if any is decided upon. Further, it is also pertinent to mention that as the condition for new employees being more than 10% has been removed w.e.f. 01.04.2017, hence, deduction claimed u/s 80JJAA of the Act to the extent of Rs. 1,43,15,889/- pertaining to the AY 2018-19 has been allowed by the AO. But as the conditions laid down for availing the deduction in the Act that was in effect in A.Y 2016-17 is not fulfilled, the deduction of Rs.2,96,63,277/- pertaining to AY 2016-17 was disallowed.
9.3During the appellate proceedings, the appellant in support of this ground of appeal stated that the deduction pertaining to A.Y 2016-17 was duly allowed to the appellant in the same year and the assessment order for A.Y 2016-17 was also submitted by the appellant to substantiate its claim. However, in the assessment order of A.Y 2017-18, the AO has clearly specified the reasons for disallowing the deduction claim pertaining to A.Y 2016-17 with detailed explanation for the same in para 8.9 of the assessment order. The relevant paragraph of the assessment order of A.Y 2017-18 is extracted hereunder:-
8.9It is seen that during the A.Y. 2016-17 the effective number of regular workmen who have been employed during the previous year as per the details filed is 143. The assessee has claimed deduction of Rs. 2,96,63,276/- in the assessment year under consideration being 30% of additional wages paid to them for the A.Y. 2016-17. Since the no. of employees is less than 10% of existing number of workmen employed in such [undertaking] as on the last day of the preceding year the assessee will also not be entitled for deduction of additional wages paid to these 143 regular workman employed in the year under consideration. Hence the claim of deduction @30% u/s 80JJAA of the Act for the wages paid to new regular work men inducted in A.Y. 2016-17 claimed during the year under consideration is accordingly disallowed and the amount of Rs. 2,96,63,276/- is added back to the total income of the assessee. I am satisfied that that the assessee has under reported its income therefore penalty proceeding u/s 270A are initiated for under reporting of income.
[Addition of Rs. 2,96,63,276/-]
9.4I have considered the facts of the case and evidence placed on record during appellate proceedings and observed that the claim made by the appellant in A.Y 2018-19 pertaining to deduction u/s 80JJAA for additional employee expenditure incurred in A.Y 2016-17 is not maintainable. The appellant could not produce any evidence to establish that the deduction u/s 80JJAA of the Act was claimed at all during A.Y 2016-17 or all the provisions laid down in section 80JJAA of the Act were fulfilled in the preceding year so that the same can be availed in the subsequent years. It is also clear from the assessment order of A.Y 2017-18 extracted supra that the appellant could not bring on record any detailed document to contravene the facts put forth by the AO in its assessment order resulting in disallowance of the appellant's claim. Further, in the course of assessment proceedings for A.Y 2018-19, the appellant did not file any evidence to substantiate that the other conditions required to avail such deduction are fulfilled such as if the employees had worked for minimum 240 days, whether the employees were participating in recognized provident fund etc. for the year under review. During the appellate proceedings, also, the appellant could not submit all the necessary documents to refute the findings of the AO. Therefore, in view of the prevailing circumstances, the appellant's ground of appeal is not justified and hence, the same is dismissed.
10.Ground no. 4 and 5 is related to the ad hoc disallowance of 20% of travelling expense of Directors and Staff out of total traveling expenses debited to profit & loss account at Rs. 580953973/-. The appellant, during the assessment proceedings, furnished the details asked for by the AO to in support of the expenses made for travelling in the interest of business. However, the evidence put forth were not to the satisfaction of the AO as the appellant could not justify the huge difference in the claim of the expenses for the staff in the second half of the year as compared to the first half; and with regard to the matter of tour expenses of Directors, expenses claimed for journeys by chartered planes between Delhi and Hoshiarpur for site inspection seemed unreasonable to AO as six out of eleven key persons are based at Hoshiarpur. Therefore, the AO made ad hoc disallowance of 20% out of travelling expenses claimed for both staff and directors.
11.1In this instant case, the appellant is a corporate entity and is one of the largest producers of tractors and agricultural equipment and both employees and Directors travel frequently to carry out business development activities. The appellant stated that during the assessment proceedings, all the documentary evidence/vouchers/bills in support of its claim were produced before AO but the AO made ad hoc disallowances without pointing to defects in the vouchers/bills furnished by the assessee. The ad hoc addition made had no cogent reasoning and AO failed to highlight the exact nature of the mistake subjecting the appellant to such disallowance.
11.2As per the details filed by the appellant , it is observed that total travelling expenses of 58.09 crores is 1.26% of the total revenue from operations and is in range of annual past and future pattern as per the chart below:-
Particulars 31/03/19 31/03/18 31/03/17 31/03/16 Revenue from domestic operation 4142.82 3736.03 3185.91 2729.24 Revenue from foreign operations 1171.65 848.68 885.48 804.50 Total Revenue from operations 5314.47 4584.71 4071.39 3533.74 Increase in Revenue in % 15.91% 12.6% 15.21% 12.60% Tour and travelling cost debited to the P/L 71.11 58.09 55.17 40.59 Tour and travelling cost in relation to total revenue from operations 1.33% 1.26% 1.35% 1.14% 11.3The appellant has also contended that all payments were through regular banking channels. The assessee is a company, which is distinct assemble entity therefore the question of any personal expense does not arise in the hands of the company. The auditors of the company have not qualified the audit report or made any adverse remark therein with reference to travelling. Further, 30.36% of the shareholding of the company is held by non-family shareholders. No third-party shareholder would approve of any expense which is not in relation to the company's business operations.
11.4.I agree with the contention raised by the appellant and it is pertinent to mention that the AO has not disputed, the correctness of accounts and records the assessee which are audited under the provisions of section 44AB of the Act also. The AO has also not rejected the books of the assessee.
In the case of Katira Construction Ltd v ACIT, ITAT, [2020] 119 Taxmann.com 489 (Rajkot – Trib) dated 30/7/2020 held that “where books of account of assessee have not been rejected, onus is on Assessing Officer to point out specific expenses which were not incurred in connection with business and thereafter, he can make disallowance under provisions of Section 37 and there is no provisions provided under Act empowering Assessing Officer to make disallowance on adhoc basis despite fact that assessee consents for such disallowance during assessment proceedings.”
11.5The Assessing officer has objected to the tour expenses of Directors, expenses claimed for journeys by chartered planes between Delhi and Hoshiarpur for site inspection. According to Ao it was found to unreasonable as six out of eleven key persons are based at Hoshiarpur. I do not concur with the view of the Assessing officer. The Income-tax Act nowhere states or confirms the mode of travel to be undertaken for business purposes. What need to be ascertained whether the said expenditure has been laid wholly and exclusively for the purpose of the business of the not. As laid down in CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381(SC), in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the income-tax department. The assessing officer nowhere prove and recorded his satisfaction that the said expenditure was personal in nature.
11.6The above disallowances has been purely made on adhoc basis without finding any fault in the audited books submitted before the Assessing officer during course of assessment proceedings. Disallowance of expenditure is possible only on identification of such disallowable expense.
11.6.1The Delhi ITAT, in the case Today Retail Network Pvt. Ltd. Vs ITO (ITA No.9127/DEL/2019, A.Y- 2012-13), held that “ad hoc disallowance of any expenditure is not permissible and the Assessing Officer has to give specific findings as to the effect that either the expenditure is not supported with bill/vouchers or not recorded in the books of account or it is bogus and excess claim of expenditure in question is barred by provisions of the Act. The Id. CIT(A) further observed that it is the duty of the Assessing Officer to pin point which particular expenditure was not substantiated, or was not for business exigencies while making the disallowance.”
11.6.2Similarly, in the case of Dynamix India Drill-Con Co Vs. ACIT (ITA No.6110/Del/2018, A.Y 2014-15) dealing with the same issue also held that disallowances made on ad hoc basis without specifying particular mistakes cannot be supported and decided the issue in favour of the appellant.
11.7In the light of the above facts and placing reliance on the above case laws, the ad hoc disallowance made by the AO is not justified and I find no infirmity in the ground raised by the appellant and are hereby sustained. Therefore, Ground No. 4 and 5 are allowed.
This is what leaves both the parties aggrieved who have filed their instant cross-appeals before the tribunal.
It is in this factual backdrop that we advert to the assessee’s solitary substantive ground seeking to reverse both the learned lower authorities’ assessments and lower appellate findings disallowing its section 80JJA deduction claim of Rs. 2,96,63,277/- herein.
The Revenue vehemently argues that this is very much a recurring issue as per the learned CIT(A)/NFAC detailed discussion going by the Assessing Officer’s assessment order passed in the assessment year 2016-17. The assessee, at this stage, takes us to the assessment order dated 28.12.2018 complied at pages 806 to 817 of the paper book wherein no such deduction had been disallowed in the said “initial assessment year” as per the computation therein. This clinching factual position has gone unrebutted from the Revenue side. We conclude in this factual backdrop that the impugned section 80JJAA deduction disallowance made in the assessee’s case does not deserve to be concurred with. Deleted in very terms therefore. This assessee’s appeal ITA No. 421/Del/2024 succeeds therefore.
We now advert to the Revenue’s cross appeal ITA No. 442/Del/2024 raising its sole substantive ground seeking to revive the assessee’s travelling expenses of staff and directors of Rs. 7,23,86,167/- made in the assessment order and deleted in the lower appellate discussion. Suffice to say, there could hardly be any dispute that the learned Assessing Officer had invoked 20% ad hoc disallowance thereof. And that the learned CIT(A)/NFAC holds that such an action could not be upheld for want of rejection of books and specific defects in the assessee’s claim and explanation. We are of the considered view that there is hardly any reason for us to interfere with the learned CIT(A)/NFAC findings in principle. The fact, however remains that possibility of some reconciliation and verification of the corresponding bills and vouchers viz-a-viz the specific business purposes could not be altogether ruled out as well. We deem it appropriate in this factual backdrop that a lumpsump disallowance of Rs. 10 lakhs only in the assessee’s hands would be just and proper with a rider that the same shall not treated as precedent. Learned CIT(A) detailed discussion is hereby upheld to the extent of Rs. 7,13,86,167/- in other words. Necessary computation shall follow. This Revenue’s cross appeal ITA No. 442/Del/2024 is partly allowed.
We next notice with the able assistance coming from both the parties that the Revenue’s latter appeal ITA No. 549/Del2024 in assessment year 2020-21 is stated to be involving tax effect of Rs. 45,54,484/- i.e., less than the prescribed tax effect of Rs. 60 lakhs in the CBDT’s landmark circular no. 09/2024. This is further coupled with the fact that it seeks to disallow the assessee’s section 80JJAA deduction claim which already stands accepted in assessment year 2018-19 in our preceding detailed discussion. Rejected in the very twin terms therefore.
No other ground or argument has been pressed.
To sum up, this assessee’s appeal ITA No. 421/Del/2024 is allowed and the Revenue’s cross appeal ITA No. 442/Del/2024 is partly allowed. The Revenue’s latter appeal ITA No. 549/Del/2024 is dismissed. A copy of this common order be placed in the respective case files.