2015 (6) TMI 1231 - AT - Income Tax

Disallowance on account of labour charges, sundry creditors and transport charges - Non rejection of books of accounts - HELD THAT - Disallowances have been made out of the profit and loss account on adhoc basis. But the AO has not rejected the books of account. Without invoking the provisions of section 145(3) of the Act and without pointing out any defect in the labour charges, purchases and transport charges claimed, the AO cannot make any addition on adhoc basis. CIT(A) has also not taken care of this aspect. Without invoking the provisions of section 145(3) of the Act and without pointing out any defect in the books of account, no estimation of profit and no disallowance on account of expenses can be made and accordingly addition made by the AO are directed to be deleted. Accordingly the order of the ld. CIT(A) is also reversed to the extent of the additions so sustained. Grounds of assessee s appeal are allowed

Summary

Issues Involved:
1. Disallowance of labor charges
2. Disallowance of sundry creditors
3. Disallowance of transport charges

Analysis:

1. Disallowance of Labor Charges:
The appellant contested the disallowance of Rs. 1,40,461 calculated at 5% of total labor charges debited. The Assessing Officer (AO) made this adhoc disallowance without rejecting the books of account or pointing out any defects. The Commissioner of Income Tax (Appeals) [CIT(A)] sustained this disallowance. However, the ITAT Kolkata noted that without invoking section 145(3) of the Income Tax Act and without identifying any defects in the labor charges claimed, such adhoc disallowances cannot be justified. Therefore, the ITAT directed the deletion of the disallowance, reversing the CIT(A)'s decision.

2. Disallowance of Sundry Creditors:
A disallowance of Rs. 2,60,025 out of sundry creditors was made by the AO, despite confirmation provided by the assessee. The CIT(A) upheld this disallowance. The ITAT Kolkata observed that the AO did not reject the books of account or identify any specific issues with the creditors. As a result, the ITAT held that without invoking section 145(3) and without pinpointing any defects, such disallowances cannot be sustained. Consequently, the ITAT reversed the CIT(A)'s decision regarding this disallowance.

3. Disallowance of Transport Charges:
The AO disallowed Rs. 34,848 on an adhoc basis from the claimed transport charges. The CIT(A) affirmed this disallowance. However, the ITAT Kolkata reiterated that without invoking section 145(3) and without demonstrating any deficiencies in the transport charges claimed, such adhoc disallowances are unjustified. Therefore, the ITAT ordered the deletion of this disallowance, reversing the CIT(A)'s decision.

In conclusion, the ITAT Kolkata allowed all the grounds of the appellant's appeal, directing the deletion of the disallowances on labor charges, sundry creditors, and transport charges. The ITAT emphasized the necessity of invoking section 145(3) and identifying specific defects before making any adhoc disallowances. As a result, the appeal of the assessee was allowed, and the order was pronounced in open court on 01.06.2015.