2015 (7) TMI 401 - AT - Income Tax

Disallowance of labour expenses - Held that - No specific error in the order of the CIT(A) could be pointed out by the AR of the assessee. The AR of the assessee could not explain the discrepancy pointed out by the CIT(A) in the confirmation and statement of Shri Ajitbhai and Shri Harishbhai. No material was brought before us by the AR to show how much labour charge expenses was accepted in the case of the assessee in earlier years. In the circumstances, we do not find any good reason to interfere with the order of the CIT(A) - Decided against assessee. Addition on account of the difference in the value of closing stock - Held that - Assessee maintained day-to-day stock register and after examination of the same no mistake could be pointed out by the Revenue in the same. The auditor of the assessee has also not made any adverse observation in respect of stock disclosed by the assessee in its books of accounts. In our considered view, the book result reflected by regularly maintained books of accounts cannot be rejected by the Revenue without pointing out any specific error in the entries in the books of accounts, merely on the basis of a statement made by the assessee to a third party. Possibility of mistake in the stock statement furnished to the bank cannot be ruled out. No material was brought before us by the Revenue to show that the statement furnished by the assessee himself to the bank was sacrosanct and the statement furnished by the very same assessee in the return of income was incorrect. In the above circumstances, in view of the decision of Hon ble Madras High Court in the case of CIT Vs. N. Swamy (1998 (9) TMI 27 - MADRAS High Court) the addition made by the Revenue is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of labor expenses
2. Addition on account of difference in the value of closing stock

Issue 1: Disallowance of Labor Expenses
The appeal involved the disallowance of Rs. 2,82,689 out of labor expenses by the CIT(A). The AO disallowed 20% of labor charges, alleging inflated expenses due to lack of signed vouchers. The CIT(A) observed discrepancies in statements and confirmations of laborers, restricting the disallowance to 10% of cash payments. The ITAT upheld the CIT(A) decision, dismissing the appeal due to lack of evidence to challenge the CIT(A)'s findings.

Issue 2: Addition on Account of Difference in Closing Stock
The AO disallowed Rs. 5,81,631 due to a difference in closing stock valuation reported to the bank and in the profit & loss account. The CIT(A) confirmed the addition based on discrepancies in gold stock quantity and rates. The ITAT, however, noted that the assessee maintained accurate stock records, and without evidence of errors, rejected the AO's addition. Citing the decision in CIT Vs. N. Swamy, the ITAT deleted the addition, emphasizing the importance of accurate bookkeeping over discrepancies in statements to third parties.

In conclusion, the ITAT upheld the CIT(A)'s decision on labor expenses but ruled in favor of the assessee regarding the addition on the difference in closing stock valuation. The appeal was partly allowed, emphasizing the significance of accurate bookkeeping practices and the burden of proof on the Revenue in tax matters.