Nidhish Gupta vs ITO Ward 3

PER SHRI M BALAGANESH, ACCOUNTANT MEMBER:

The appeal in ITA No.6107/Del/2026 for AY 2018-19, arises out of the order of the Id National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as 'Id. CIT(A)', in short] dated 24.03.2026 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 06.04.2021 by the Assessing Officer, National e-Assessment Centre, Deli (hereinafter referred to as 'Id. AO').

The Ground Nos. 1 and 4 raised by the assessee are general in nature.

Ground Nos. 2 and 3 raised by the assessee are challenging the confirmation of disallowance of 50% of expenses on account of salary to staff, business promotion expenses, office rent and packing expenses.

I have heard the rival submissions and perused the materials available on record. The assessee is an individual engaged in the business of trading of garments and other related items and had filed his return of income on 14.10.2018 for AY 2018-19 declaring income of Rs. 4,33,750/-. During the course of assessment proceedings, the assessee was asked to furnish and substantiate with evidence the expenses claimed by the assessee in its profit and loss account. The ld AO noted that assessee did not submit any details with regard to salary to staff of Rs. 5,92,500; business promotion expenses of Rs. 91,437; office rent of Rs. 96,250 and packing expenses of Rs 1,19,697 and accordingly disallowed the in the total sum of Rs. 8,96,884 in the assessment.

During the appellate proceedings, the assessee submitted that failure to produce the documents before the ld AO was not intentional but due to severe constraints and lock down imposed nationwide due to Covid 19 pandemic. It was submitted that assessee is running e-commerce garment business which inherently require maintaining an operating premises on rent, hiring manpower to process orders to whom salary is to be paid, purchasing materials to ship goods for which packing materials expenses are to be incurred and advertising on portals for which business promotion expenses are to be incurred. The assessee submitted the ledger account of office rent for the whole FY 2017-18 of Rs. 8750/per month which was actually paid totaling to Rs 96,250/-which is enclosed in page 8 of paper book. The assessee submitted the ledger account of salary paid to tune of Rs 5,92,500 which are enclosed in pages 9 to 10 of the paper book. On perusal of the aforesaid two ledger accounts, it was found that all the payments are made through regular banking channels by the assessee. The ledger of business promotion expenses totaling to Rs. 91,437 is enclosed in page 11 of the paper book, on perusal of which, it is noticed that expenses have been incurred only through Indiamart (portal for e advertisement) after duly suffering GST thereon and payment for the same made through regular banking channels. The ledger account of packing material expenses for the whole financial year to the tune of Rs 1,16,697 and the relevant suppliers are enclosed in pages 13 to 16 of the paper book and payment to those suppliers are made through regular banking channels and purchases thereon are duly subjected to GST, wherever applicable. The assessee has furnished the complete tax audit report and bank statements for the whole financial year in the paper book.

In view of the aforesaid documents, I am of the considered opinion that the following expenses should be allowed in its entirety:-Office rent 96250 Salary to staff 592500

With regard to business promotion expenses and packing material expenses, even though the same had duly suffered GST and payments were made through regular banking channels, the assessee could not produce the relevant invoices before the lower authorities. Hence, to take care of such deficiency, an adhoc disallowance of 10% of packing material and business promotion expenses is hereby made. This would meet the ends of justice in my considered opinion. Accordingly, the Ground Nos. 2 and 3 are partly allowed.

In the result, the appeal of the assessee is partly allowed.