2017 (7) TMI 1163 - AT - Income Tax

Disallowance on account of consumable expenses - addition made by the AO to the extent of 19% of the job charges earned by the assessee by mainly relying on the two comparable cases where the consumable expenses claimed were relatively on the lower side - Held that - As rightly contended by the the assessee it appears that the Assessing Officer however brushed aside all these submissions made by the assessee to justify the consumable expenses of 69% claimed by it and disallowed the same to the extent of 19% point. CIT(A) however appreciated all these relevant aspects of the case in the right perspective and also considered the past result of the assessee s case for the immediately succeeding two years wherein the consumable expenses claimed by the assessee were 67.63% and 67.75% as against the consumable expenses of 69.98% claimed by the assessee for the year under consideration. He accordingly found that the claim of the assessee for the consumable expenses as made in the year under consideration was slightly higher by 2% than that of the immediately preceding two years and accordingly restricted the disallowance of 19% made by the AO to the extent of 2% of the job charges earned. Having regard to all the facts of the case we find no infirmity in the impugned order of the Ld. CIT (JA) restricting the disallowance of 19% made by the AO to the extent of 2% and upholding the same we dismiss the appeal filed by the revenue.

Summary

Issues:
- Disallowance of expenses on consumable stores by the Assessing Officer.
- Appeal by the revenue against the order of Learned CIT (Appeals) concerning the deletion of disallowance made by the AO.

Analysis:
1. The assessee, a partnership firm engaged in galvanizing iron goods on a labor job basis, filed a return declaring income of ?9,62,727 with consumable stores expenses of ?3,15,44,707. The AO disallowed ?85,77,008 (19% of job charges) due to high consumable expenses compared to comparable cases.

2. The AO's disallowance was challenged before the Ld. CIT (A), who reduced it to ?9,02,843. Ld. CIT (A) emphasized the lack of fault in the books, absence of bogus claims, and high disallowance without proper enquiry. He sustained a 2% disallowance based on net profit percentage, deleting the balance.

3. The revenue appealed to the Tribunal, arguing the disallowance was excessive. The assessee maintained that accounts were not rejected, expenses were consistent, and comparisons with other cases were unfair. The Tribunal noted discrepancies in comparable cases and upheld Ld. CIT (A)'s decision to restrict the disallowance to 2% of job charges.

4. The Tribunal found the Ld. CIT (A) correctly considered all aspects, including past expenses, justifying the slight increase in expenses for the year under review. Consequently, the appeal of the revenue was dismissed, affirming the 2% disallowance.

In conclusion, the Tribunal upheld the Ld. CIT (A)'s decision to restrict the disallowance of consumable expenses to 2% of job charges, considering the justifications provided by the assessee and the lack of substantial discrepancies. The appeal by the revenue was dismissed, affirming the reduced disallowance amount.