2013 (9) TMI 477 - AT - Income Tax

Adhoc disallowance of Expenditure - Loading and unloading expenses - CIT disallowed expenditure @ 20% - Held that - it is a case of search assessment under section 153(A) of the Act. It is admitted fact that there is no incriminating material found pertaining to disallowance of expenses - in regular assessment additions on adhoc disallowance of 20% are not sustainable - Section 37 of the Act provides that if the assessee has laid out or expensed wholly and exclusively for the purpose of business, the expenses are allowable. In the case under consideration, there is no dispute about the fact that the expenditure was laid out and expended wholly and exclusively for the purpose of business. The A.O. did not find any contrary material to this fact. Once it is found that the expenditure has been laid out and expended wholly and exclusively for the purpose of business, such adhoc disallowance out of loading and unloading merely on the basis of presumption that the assessee has enhanced the expenses to reduce tax liability unless contrary material is available on record, such addition is not sustainable in law - Decided in favour of assessee. Addition on account of DVO s report - CIT confirmed disallowance - Held that - there were no reasons to discard the books of account merely because the same were not found during the course of survey. The AO should have verified each and every entry from the books of account of the assessee on this issue before making reference to the DVO. However, no such findings have been given and the AO merely because the assessee did not produce bills and vouchers referred the matter to the DVO for estimating cost of construction. The findings of the AO are, therefore, not justified - It, therefore, appears that the matter requires reconsideration at the level of the AO - Decided in favour of assessee. Addition of Rs.10,000/- on account of investment from undisclosed sources. - The assessee was asked to correlate the payments from books of accounts but the assessee failed to do so. When the register is found at the time of search and the assessee has failed to reconcile this entry in the register and books of account, the addition is warranted. The assessee has failed to reconcile this entry before us also and also failed to submit any material that this was accounted for in the regular books of account - Decided against Assessee.

Issues Involved:
1. Jurisdiction and validity of the assessment order under Section 153A.
2. Disallowance of loading and unloading expenses.
3. Disallowance of diesel expenses.
4. Addition based on the Departmental Valuation Officer (DVO) report.
5. Addition of advances given to employees.
6. Addition of undisclosed investment.
7. General grounds including interest and penalty.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Assessment Order under Section 153A:
The assessee challenged the legality of the assessment order under Section 153A, claiming it was without jurisdiction and invalid since it was based on regular books of accounts examined earlier and not on any search material. However, these grounds were not pressed by the assessee's representative and were thus dismissed.

2. Disallowance of Loading and Unloading Expenses:
The assessee firm engaged in Cold Storage business faced disallowance of Rs. 84,277/- out of loading and unloading expenses due to unsupported vouchers. The AO disallowed 20% of the claimed expenses, suspecting enhancement to reduce tax liability. The CIT(A) upheld this disallowance. However, the Tribunal found that such adhoc disallowance was not sustainable in law without contrary material evidence. The Tribunal deleted the addition, emphasizing that the expenditure was laid out wholly and exclusively for business purposes.

3. Disallowance of Diesel Expenses:
The AO disallowed 10% of the diesel expenses amounting to Rs. 47,268/-, citing unsupported vouchers. The Tribunal referred to a previous ITAT order in the assessee's case, which restricted such disallowance to 5%. Following this precedent, the Tribunal modified the disallowance to 5% of the expenses.

4. Addition Based on DVO Report:
The AO made an addition of Rs. 4,85,975/- based on the DVO's report, which was contested by the assessee. The Tribunal noted that the books of accounts were not rejected and no incriminating material was found during the search. Citing the Supreme Court and Rajasthan High Court judgments, the Tribunal held that without rejecting the books of accounts, the AO could not refer the matter to the DVO. The issue was sent back to the AO for reconsideration, directing him to verify the books of accounts.

5. Addition of Advances Given to Employees:
The AO added Rs. 40,500/- as undisclosed income based on advances given to employees not recorded in the books. The assessee had agreed to this addition during the assessment proceedings. The Tribunal upheld the addition, noting that the assessee had no grievance against this agreed addition.

6. Addition of Undisclosed Investment:
The AO added Rs. 10,000/- as undisclosed investment based on a register found during the search, which the assessee could not reconcile with the books of accounts. The Tribunal confirmed this addition, emphasizing the failure of the assessee to reconcile the entry.

7. General Grounds Including Interest and Penalty:
The grounds related to charging of interest under Sections 234A, 234B, and 234C, and initiation of penalty under Section 271(1)(c) were considered general and consequential. The Tribunal directed the AO accordingly.

Conclusion:
The appeal was partly allowed and partly allowed for statistical purposes. The Tribunal provided relief on the disallowance of loading and unloading expenses and modified the disallowance of diesel expenses, while confirming other additions and directing reconsideration of the addition based on the DVO report.

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