This article explores ITA No. 1890/DEL/2020, involving ZME Global India LLP, New Delhi, and the Principal Commissioner of Income Tax (Pr.CIT)-12, New Delhi. The case concerns the Assessment Year (AY) 2015-16, was filed on November 20, 2020, and the final order was pronounced on September 7, 2021. The core issue revolves around the disallowance of various expenses and the adequacy of the Assessing Officer’s (AO) enquiries during the assessment process.
ZME Global India LLP is engaged in exporting and trading aluminum foil and providing services to foreign clients in China for exporting bulk drugs to customers in India. The LLP filed its return of income on August 27, 2015, declaring a total income of Rs. 17,09,730/-. The case was assessed under Section 143(3) of the Income Tax Act, making disallowances of 40% of Diwali expenses and interest on the late deposit of service tax.
The Principal Commissioner of Income Tax (Pr.CIT)-12 reviewed the case under Section 263, questioning the AO’s lack of enquiry into several expense claims, including China Tax, Diwali expenses, exhibition expenses, business promotion expenses, commission payments, and salary expenses.
The Pr.CIT raised the following concerns:
In response to the Pr.CIT’s notice dated February 7, 2020, the LLP provided explanations and documentation for each expense claim:
The ITAT, comprising Dr. B. R. R. Kumar, Accountant Member, and Sh. Kul Bharat, Judicial Member, reviewed the case. The tribunal noted that the AO had conducted adequate enquiries and verification during the assessment process. The AO had not accepted the expense claims without scrutiny, and the disallowances were made where deemed necessary.
The ITAT observed that the Pr.CIT’s order under Section 263 was based on the presumption that the AO had not conducted proper enquiries. However, the tribunal found that the AO had indeed made appropriate enquiries and obtained necessary explanations and documentation from the assessee.
The ITAT concluded that the Pr.CIT’s invocation of Section 263 was not justified, as the AO had applied his mind and conducted proper enquiries. The tribunal set aside the Pr.CIT’s order and restored the AO’s original assessment order.
The ITAT’s decision underscores the importance of proper enquiry and verification in the assessment process. It highlights that the AO’s actions should be based on thorough scrutiny and supported by appropriate documentation.
The final order, pronounced on September 7, 2021, reads:
In the result, the appeal of the assessee is allowed.
Signed by:
Kul Bharat, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
This judgment emphasizes the necessity for detailed enquiry and verification in the assessment process, ensuring that all claims are scrutinized and justified appropriately.
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform