2017 (12) TMI 1614 - HC - Income Tax

Disallowance expenses claimed towards the bricks, machinery repair, cartage etc. and labour expenses - Held that - Expenses for bricks, machinery repair, cartage etc., the A.O. concluded that insufficient evidence was adduced. He, therefore, disallowed 10% of the claim. This was reduced by half by the C.I.T.(Appeals). ITAT gave two reasons to set aside the findings of the A.O. C.I.T.(Appeals). Firstly, that the books of account were not rejected and secondly, that in the past, consistently such expenses were allowed in scrutiny assessments. In the case of labour cases too, identical reasons were adduced by the A.O. to bring to tax a sum of ₹ 2.2 crores. The same were set aside ultimately by the ITAT. This Court is of the opinion that the principal reasoning of the ITAT, i.e. omission to reject the books of account, in which event the adhoc disallowance could have been adjusted and also the historical treatment of such expenses, cannot be termed as unreasonable; in support of its ultimate conclusion. No substantial question of law arises.

Summary

Issues:
1. Disallowance of expenses claimed towards bricks, machinery repair, cartage, and labor expenses.
2. Assessment of the Assessee's income for the year 2010-2011.

Analysis:
1. The Revenue challenged the findings of the Commissioner of Income-Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) regarding the disallowances and additions made on two counts: expenses for bricks, machinery repair, cartage, etc. (Rs.1.1 crores) and labor expenses (Rs.2.3 crores). The Assessing Officer (A.O.) disallowed a portion of the expenses due to insufficient evidence, which was partially reduced by the C.I.T.(Appeals). However, the ITAT set aside the A.O.'s decision based on the grounds that the books of account were not rejected and past scrutiny assessments had allowed such expenses consistently. Similar reasons were cited for the disallowance of labor expenses amounting to Rs.2.2 crores, which were also ultimately set aside by the ITAT.

2. The High Court opined that the ITAT's primary reasoning, particularly the failure to reject the books of account, which could have led to an adjustment of the adhoc disallowance, and the historical treatment of such expenses, was not unreasonable. Consequently, the Court found no substantial question of law arising from the case and dismissed the Appeals.

This judgment highlights the importance of maintaining proper documentation and historical consistency in claiming expenses to avoid disallowances during assessments. The decision underscores the significance of justifying expenses with adequate evidence and adhering to established practices to support the legitimacy of claims.