Facts of the Case

The assessee, Daraganj Gramodyog Vikas Sansthan, a registered society, filed its return of income for Assessment Year 2016-17 declaring total income of ₹521. The case was selected for limited scrutiny under CASS to verify whether the deduction claimed against income from other sources had been correctly reported.

During assessment proceedings, notices under Sections 143(2) and 142(1) were issued. The assessee furnished various documents including:

  • Registration and renewal certificates of the society
  • Amended bye-laws and list of managing committee members
  • Registration under Section 12AA
  • Approval under Section 80G
  • Audit report
  • Balance sheet, income & expenditure account, and receipt & payment account

Subsequently, the Assessing Officer directed the assessee to produce books of account and bills/vouchers relating to expenses claimed under Section 57. The assessee failed to produce the required records.

From the return of income, the Assessing Officer noted that expenses amounting to ₹1,55,13,058 were claimed under Section 57, whereas vouchers were furnished only for ₹14,37,388. As the balance expenses of ₹1,40,75,670 remained unsubstantiated, the same were disallowed and added to income. Assessment under Section 143(3) determined total income at ₹1,40,76,190.

The assessee filed an appeal before the National Faceless Appeal Centre (NFAC), which dismissed the appeal ex-parte.

Issues Involved

  1. Whether disallowance of expenses claimed under Section 57 due to non-production of books and vouchers was justified.
  2. Whether the assessment determining income at ₹1.40 crore was legally sustainable.
  3. Whether dismissal of the appeal ex-parte by the NFAC violated principles of natural justice.
  4. Whether the assessee deserved another opportunity to substantiate its claim of expenditure.

Petitioner’s Arguments (Assessee)

  • The assessment order was incorrect both on facts and law.
  • Expenditure claimed was neither capital nor personal but incurred wholly for the objects of the society.
  • Expenses were recorded in books and supported by vouchers and audit report.
  • Adequate opportunity was not provided before making the disallowance.
  • No defects were pointed out in the books of account.
  • The addition of ₹1,40,75,670 was unjustified and excessive.
  • The assessee sought restoration of the matter to the Assessing Officer for consideration of additional evidence.

Respondent’s Arguments (Revenue)

The Revenue relied on the assessment order, submitting that:

  • The assessee failed to produce books of account and supporting vouchers despite directions.
  • Only a small portion of expenses was substantiated.
  • Therefore, disallowance of unverified expenditure was justified.

Court Order / Findings (ITAT Allahabad)

  • The assessee requested an opportunity to produce evidence supporting the claimed expenses.
  • Considering the facts, the assessee deserved one more opportunity in the interest of substantial justice.
  • Both parties agreed that the Assessing Officer would be better placed to examine the evidences.

Accordingly, the Tribunal set aside the orders of the lower authorities and restored the matter to the file of the Assessing Officer with directions to provide a fresh opportunity to the assessee to present its case along with necessary evidence.

The Tribunal further cautioned that if the assessee failed to comply with directions during set-aside proceedings, the Assessing Officer would be free to decide the matter on the basis of available records, even ex-parte.

Important Clarification

  • Ex-parte orders may be set aside where adequate opportunity has not been effectively availed but the assessee seeks to substantiate claims.
  • Restoration for fresh adjudication is guided by principles of natural justice and does not imply acceptance of the assessee’s claims.
  • The burden of proof remains on the assessee to justify deductions under Section 57 with proper documentation.

·         Final Outcome

·          Delay in filing appeal condoned
 Ex-parte appellate order effectively set aside
Matter remanded to Assessing Officer for fresh examination
Appeal allowed for statistical purposes

Link to download the order 

https://www.mytaxexpert.co.in/uploads/1771063861_DARAGANJGRAMODYOGVIKASSANSTHANALLAHABADVS.ITOEXEMPTIONALLAHABAD.pdf

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