2018 (8) TMI 1880 - AT - Income Tax

Ad-hoc disallowance of labour and contract staff expenses - HELD THAT - Addition is wholly unjustified. AO noted that the turnover, GP and NP is better in assessment year under appeal as compared to preceding years, therefore, financial results were accepted by the AO. Thus, there were no reasons for the assessee to inflate the expenses further. No possibility of leakage of revenue as noted by AO. No such disallowance have been made in earlier and subsequent assessment years. Rule of consistency should be followed by authorities below. AO has not given any specific details and the amount for which there were no names and address or work assigned have been mentioned in the vouchers. In the absence of any details it appears to be ad-hoc addition. Further nature of business of the assessee i.e. electric contractor shows that assessee has employer labour from unorganised sector and generally cash payments are made to the labour for completion of the work, therefore, reasons given by the Assessing Officer are not satisfactory to make ad-hoc disallowance. Addition on account of commission expenses - CIT (A) empowerment to enhance an income - HELD THAT - did not made disallowance out of commission expenses. The Ld. CIT (Appeals) has taken up the issue of commission expenses suo-moto in the appellate proceedings, therefore, the issue of commission did not arises out of the assessment proceedings. It is well settled law that Ld. CIT (A) was not empowered to enhance an income which is not matter of assessment. The issue is covered by aforesaid judgments relied upon by Ld. counsel for the assessee. It is, therefore, clear that Ld. CIT(A) cannot touch upon an issue which does not arise from the order of the assessment and was outside the scope of the order of the assessment. Thus, the order of the CIT(A) cannot be sustained in law. This alone is sufficient to delete the entire addition. - Assessee appeal allowed.

Summary

Issues involved:
1. Ad-hoc disallowance of labor and contract staff expenses.
2. Addition of commission expenses by the CIT (Appeals).

Issue 1: Ad-hoc disallowance of labor and contract staff expenses:
The appellant challenged the ad-hoc disallowance of ?1,50,000 out of labor and contract staff expenses for the assessment year 2010-11. The Assessing Officer disallowed the amount due to discrepancies in vouchers, lack of verifiability, and the possibility of revenue leakages. However, the Tribunal found the addition unjustified as the financial results were accepted, and there was no reason for the appellant to inflate expenses. The Tribunal emphasized the rule of consistency, lack of specific details provided by the Assessing Officer, and the nature of the appellant's business involving cash payments to unorganized labor. Consequently, the Tribunal set aside the lower authorities' orders and deleted the addition.

Issue 2: Addition of commission expenses by the CIT (Appeals):
The appellant contested the addition of ?43,94,545 on account of commission expenses enhanced by the CIT (Appeals). The Assessing Officer had not made any addition regarding commission payments, and the CIT (Appeals) sought details which the appellant failed to provide. The CIT (Appeals) enhanced the addition due to lack of details, prompting the appellant to argue that such enhancement was beyond the CIT (Appeals)' powers. The appellant cited legal precedents to support their stance that the CIT (Appeals) cannot enhance income on issues not arising from the assessment. The Tribunal agreed with the appellant, noting that the CIT (Appeals) lacked the authority to enhance income unrelated to the assessment. The Tribunal also highlighted a similar decision in the appellant's favor in a previous assessment year. Consequently, the Tribunal set aside the CIT (Appeals)' order and deleted the addition of ?43,94,545.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the unjustified nature of the additions made by the lower authorities and the lack of legal basis for such enhancements. The Tribunal's decision was based on the principles of consistency, jurisdictional limits of the CIT (Appeals), and the absence of valid reasons for the disallowances and additions.