2014 (6) TMI 105 - AT - Income Tax

Restriction of various expenses - Disallowance of expenses - 25% of labour wage and 20% of direct expenses Held that - Following Sh. Sandeep S. Nanvati 2014 (5) TMI 919 - ITAT AHMEDABAD - The CIT(A) restricted the disallowance on the ground that the AO rejected the books of account on the ground that evidences regarding rendering of services and co-relation of expenses with volume of work done has not been established by the assessee without asking the assessee to carry out such exercise and therefore drawing adverse conclusion was not correct - expenses have been incurred in cash and that in the statement of facts, the assessee does mention that all bills and vouchers were not possible to be produced since these had been destroyed after the floods - many of the vouchers are self-made - there was likelihood that some portion of the expenditure could not be justified and it would be reasonable if disallowance of Rs 3,00,000/- was made out of the claim of labour charges and other expenses Decided against Revenue. Deletion of unaccounted purchases Held that - CIT(A) was of the view that the notices issued by the AO were served on the concerned parties which establishes identity of the parties - The assessee produced ledger accounts, bills and payment details before the AO which establish the genuineness of the transaction - the assessee could not be held responsible for non-receipt of replies from the parties when the assessee provided all the related evidences - in any case, the confirmations were received though belated and copy was submitted which takes care of the reason for disallowance - the disallowance was made by the AO on a wrong footing revenue could not produce any material to show further steps taken by the AO to verify the genuineness of purchases even when no reply was received from the suppliers though no summons or notices were duly served upon them it cannot be inferred that the purchases were bogus the order of the CIT(A) is upheld Decided against Revenue. Restriction of disallowance of business expenses Telephone and vehicle expenses Held that - The disallowance was made by the AO because of inability of the assessee to produce vouchers in respect of above expenses - no material was brought on record by the Revenue to show the basis on which the AO made the disallowance at the rate of 20% - the assessee could not bring any material to show that the expenses claimed under these heads were reasonable when compared to the past accepted position and volume of the business secured during the year thus, there is no reason to interfere in the order of the CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Restriction of addition on account of various expenses.
2. Addition on account of unaccounted purchases.
3. Disallowance of business expenses and telephone and vehicle expenses.

Issue-wise Detailed Analysis:

1. Restriction of Addition on Account of Various Expenses:
The primary issue revolves around the CIT(A)'s decision to restrict the addition made by the Assessing Officer (AO) from Rs 33,73,566/- to Rs 3,00,000/-. The AO had disallowed 25% of labour wage expenses and 20% of other direct expenses due to lack of supporting evidence. The assessee provided various documents like bills, vouchers, and confirmations but the AO deemed them insufficient, leading to the disallowance. The CIT(A) observed that the rejection of the books of accounts by the AO was not justified as the assessee was not asked to correlate the expenses with the volume of work done. The CIT(A) noted that some expenses were incurred in cash and many vouchers were self-made, thus justifying a partial disallowance of Rs 3,00,000/-. The Tribunal, considering a similar case in the subsequent assessment year where such disallowances were deleted, decided to delete the addition of Rs 3,00,000/- sustained by the CIT(A).

2. Addition on Account of Unaccounted Purchases:
The AO made an addition of Rs 1,52,252/- by disallowing 25% of the purchases totaling Rs 6,09,008/- from certain parties due to non-receipt of confirmations/replies to notices issued under section 133(6). The CIT(A) deleted this disallowance, noting that the identity of the parties was established as the notices were served, and the assessee had provided ledger accounts, bills, and payment details. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not take further steps to verify the genuineness of the purchases and that the disallowance was made on a wrong footing.

3. Disallowance of Business Expenses and Telephone and Vehicle Expenses:
The AO disallowed 20% of office expenses, petrol expenses, travelling expenses, and telephone and vehicle expenses, totaling Rs 53,586/-, due to the assessee's inability to produce vouchers. The CIT(A) reduced this disallowance to 10%, allowing partial relief. Both the Revenue and the assessee appealed against this decision. The Tribunal found no good reason to interfere with the CIT(A)'s order, as neither party could provide material evidence to justify a different rate of disallowance. Consequently, the Tribunal confirmed the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, providing a detailed rationale for each issue based on the evidence and legal principles presented. The order was pronounced on May 16, 2014, at Ahmedabad.