2014 (5) TMI 919 - AT - Income Tax

Disallowance of labour and cash expenses Held that - The books of the assessee are audited and no adverse remark has been made by the Chartered Accountant with respect to the accounts - CIT (A) was of the view that the assessee was not asked to correlate the rendering of service and expenses by the AO, the assessee had provided detailed evidences of the expenses incurred for labour - The allegation of the AO that the attendance registers have been written in one instance and the thumb impressions seems to be of a single person is not borne out by evidences produced before CIT (A) - CIT (A) has also upheld the disallowance only for the reason that some of the expenses have been incurred in cash and therefore there is likelihood of some portion is not justified - CIT(A) has also not pointed out any specific instance of cash expenditure which is an unjustified expense - the disallowance of Rs.4 lac of the labour expenses is uncalled for Decided against Revenue. Disallowance of travelling and office expenses Held that - In the absence of complete details AO disallowed 20% of expenses which was scaled-down to Rs.25,000 - the assessee maintains several vehicles such as JCB Machines, Jeep, tractor-trailer for the purpose of business and it has office at Surat and Baroda and has business transactions with Companies stationed outside Surat, the CIT (A) was justified in restricting the disallowance to Rs.25,000 thus, there was no reason to interfere in the order of CIT (A) thus, the order of the CIT(A) is upheld Decided against Revenue. Accrual of interest on Bank FD Held that - The method of accounting followed by the assessee is stated to be mercantile - There is no mention of different method of accounting being employed for accounting of interest income- CIT(A) was of the view that the Fixed deposits on which the assessee has earned interest are business assets and the income earned therefrom is business income - the assessee has claimed the credit of TDS on the interest income but has not offered the interest income to tax - CIT (A) was right in confirming the action of AO there was no reason to interference in the order of the CIT(A) Decided against revenue.

Summary

Issues:
1. Disallowance of labour and cash expenses
2. Disallowance on account of travelling and office expenses
3. Addition of interest income on Bank F.D.

Issue 1: Disallowance of labour and cash expenses:
The case involved the disallowance of labour and cash expenses claimed by the individual taxpayer, a civil contractor. The Assessing Officer (A.O.) disallowed a portion of the expenses due to lack of proper vouchers and records. The Commissioner of Income Tax (CIT) partially upheld the disallowance. The Revenue appealed against the deletion of the disallowance, while the taxpayer objected to the upheld portion. The Appellate Tribunal noted that the taxpayer provided detailed evidence of expenses incurred for labour and that the A.O.'s rejection of the books of accounts was not justified. Ultimately, the Tribunal directed the deletion of the disallowance, ruling in favor of the taxpayer.

Issue 2: Disallowance on account of travelling and office expenses:
The A.O. disallowed a portion of the travelling and office expenses incurred by the taxpayer, citing lack of relevant vouchers and evidence. The CIT restricted the disallowance to a lower amount. The Revenue challenged the deletion of the disallowance, while the taxpayer contested the upheld disallowance. The Tribunal observed that considering the nature of the taxpayer's business involving multiple vehicles and transactions with companies outside the area, the CIT's decision to restrict the disallowance was reasonable. Consequently, the Tribunal upheld the CIT's order, dismissing the Revenue's appeal and the taxpayer's objection.

Issue 3: Addition of interest income on Bank F.D.:
The A.O. added interest income earned on fixed deposits maintained by the taxpayer with a bank to the total income, as it was not offered for tax despite being credited by the bank. The CIT upheld the addition, noting that the interest income was related to the taxpayer's business assets and should have been offered for tax as the taxpayer claimed TDS credit on it. The taxpayer challenged this decision in the Cross Objection. The Tribunal found that the taxpayer followed a mercantile method of accounting and had not offered the interest income for tax despite claiming TDS credit. Therefore, the Tribunal upheld the CIT's decision, rejecting the taxpayer's objection and affirming the addition to the income.

In conclusion, the Appellate Tribunal's judgment addressed various issues related to the disallowance of expenses and addition of income, providing detailed analysis and rulings on each matter, ultimately resulting in the dismissal of the Revenue's appeal and partial allowance of the taxpayer's Cross Objection.