2015 (9) TMI 699 - AT - Income Tax

Reopening of assessment - disallowance of expenditure - Held that - As can be seen from the facts and materials on record, the entire expenditure of ₹ 2,79,48,884 was supported by bills and vouchers, except an amount of ₹ 97,224. In fact, in para 8.3 of the order, ld. CIT(A) has observed that except only one voucher of ₹ 97,224 all other vouchers are available. Therefore, when all the expenditure were supported by bills and vouchers, it is highly improbable that the assessee without incurring the expenditure has claimed the amount of ₹ 97,224. When assessee has meticulously maintained bills and vouchers for almost the entire expenditure incurred absence of one bill would not lead to the conclusion that assessee has not incurred the expenditure. So far as the amount of ₹ 49,38,363 is concerned, it is not in dispute that the expenditure incurred is towards labour charges. Only because the expenditures were supported by self-made vouchers a part of the expenditure cannot be disallowed unless it is proved that the expenditure incurred is unreasonable or excessive compared to the turnover of assessee. It is quite evident that ld. CIT(A) does not dispute the fact that assessee has incurred the expenditure towards labour charges. He is only disputing the quantum of expenditure. Therefore, considering the nature of expenditure and keeping in view the turnover of assessee we hold that disallowance of a part of the expenditure claimed is not justified. As we have deleted the addition sustained by ld. CIT(A), the issue relating to validity of proceeding u/s 147 is reduced to mere academic interest. - Decided in favour of assessee.

Summary

Issues:
Validity of proceeding initiated u/s 147 of the Act and the consequent order passed u/s 144 read with section 147 of the Act, Merits of the addition sustained by ld. CIT(A) out of adhoc disallowance made by AO.

Validity of proceeding initiated u/s 147:
The appeal challenged the validity of the proceeding initiated u/s 147 of the Act. The ld. CIT(A) upheld the reopening of the assessment, stating that there was a prima facie reason to believe that income had escaped assessment due to discrepancies in the firm's financial statements. The reassessment proceeding was deemed valid by the CIT(A). The appellant contested this decision, leading to the appeal.

Merits of the additions:
The ld. CIT(A) deleted the additions of &8377; 4,16,783 for self-assessment tax and &8377; 42,16,457 for undisclosed assets but sustained an adhoc disallowance of &8377; 13,31,815 out of the total expenditure claimed by the assessee. The appellant challenged the disallowance, arguing that the expenditure was reasonable and supported by vouchers. The ld. AR contended that the disallowance was not part of the reasons recorded and should not have been sustained. The DR supported the additions made by the ld. CIT(A).

The Tribunal reviewed the submissions and evidence, finding that most of the expenditure was supported by bills and vouchers, except for a small amount. The Tribunal held that the disallowance was unjustified, as the expenditure was towards reasonable labor charges. The Tribunal concluded that the intent of section 147 was not for adhoc disallowances, thus deleting the addition of &8377; 13,31,815. Consequently, the issue regarding the validity of the proceeding u/s 147 became academic and was not further adjudicated.

The Tribunal partially allowed the appeal, pronouncing the decision on 21/11/2014.