2012 (2) TMI 326 - AT - Income Tax

Sales Promotion, Staff food expense, Advertisement expenses - Business OR Personal Expense - AO Self made vouchers and bogus claim - Held That - AO has not given any basis for making disallowance of these expenses and even CIT(A) has not given any basis for restricting the disallowance at 10,000/- in each of the expenses. Decided in favour of assessee. Assessee engaged in job contract - payment to transporter - AO made additions on account of non-deduction of tax under 194C - Work Sub-contracted thus liable to tax deduction - Held That - In view of ACIT Vs Smt. Keya Seth (2011 - TMI - 209123 - ITAT KOLKATA), decided in favour of assessee. AO disallowed claim of Sundry Creditor related to labour charge - Station wise break up provided - Held That - Total labour charges outstanding are on account of sundry creditors, which remains payable as on 31.03.2006 and these are particularly on account of payments for the month of February and March, 2006. Similar liability for AY 2004-05 and 2005-06 was accepted by revenue while framing assessment u/s. 143(3) of the Act for the reason that this is normal practice in this line of business that this type of payment remains outstanding as on the year ending i.e. in the month of March. Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on truck.
2. Disallowance of expenses on sales promotion, staff fooding, and advertisement.
3. Addition of transport charges as bogus expenses and non-deduction of TDS.
4. Disallowance of labor charges as bogus expenditure.
5. Disallowance of sundry creditors related to labor charges.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Truck:
The first issue raised by the assessee was regarding the disallowance of Rs. 1008/- on account of depreciation on a truck. The assessee's counsel stated that they had instructions not to contest this ground, and thus, it was withdrawn. Consequently, this ground of appeal was dismissed as withdrawn.

2. Disallowance of Expenses on Sales Promotion, Staff Fooding, and Advertisement:
The assessee contested the disallowance of Rs. 10,000/- each on account of sales promotion, staff fooding, and advertisement expenses. The Assessing Officer (AO) had disallowed these expenses due to lack of proper vouchers and deemed them as not for business purposes. The CIT(A) reduced these disallowances to Rs. 10,000/- each. However, the Tribunal found that both the AO and CIT(A) did not provide any basis for these disallowances, which were made on mere estimates without finding any fault. Consequently, the Tribunal deleted these disallowances, allowing the assessee's appeal on these grounds.

3. Addition of Transport Charges as Bogus Expenses and Non-Deduction of TDS:
The AO added Rs. 56,86,701/- as transport charges, bifurcating it into Rs. 11,37,340/- as bogus expenses and Rs. 45,49,361/- under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) restricted these disallowances to Rs. 5,68,670/- and Rs. 31,67,438/- respectively. The Tribunal noted that the assessee, being an individual, was not liable to deduct TDS under Section 194C(1) for the relevant assessment year, as supported by the decision in the case of ACIT Vs Smt. Keya Seth. Thus, the Tribunal allowed the assessee's appeal on this issue and dismissed the revenue's appeal.

4. Disallowance of Labor Charges as Bogus Expenditure:
The AO disallowed 20% of labor charges amounting to Rs. 28,43,879/- due to unverifiable vouchers, which was restricted to 5% by the CIT(A). The Tribunal found that the AO made disallowances on surmises without proper enquiry, and the expenses were genuine and related to business. Thus, the Tribunal deleted the disallowance and allowed the assessee's appeal on this ground, dismissing the revenue's appeal.

5. Disallowance of Sundry Creditors Related to Labor Charges:
The AO disallowed Rs. 23,52,340/- claimed as labor charges payable, which was confirmed by the CIT(A). The Tribunal found that similar liabilities were accepted by the revenue in previous years, and the practice of outstanding labor charges at year-end was normal in this business. Hence, the Tribunal deleted the disallowance, allowing the assessee's appeal on this issue.

Conclusion:
The Tribunal allowed the appeal of the assessee on most grounds, including the deletion of disallowances related to sales promotion, staff fooding, advertisement expenses, transport charges, labor charges, and sundry creditors. The revenue's appeal was dismissed in its entirety. The judgment emphasized the need for proper basis and evidence for disallowances and upheld the principle that the assessee's business practices should be respected unless proven otherwise.