2017 (5) TMI 899 - AT - Income Tax

Disallowance of Job work charges paid - Held that - It is not in dispute that bills from respective firms who have done the work are available on record. The payments have been made to them and TDS deducted. There is no law that a person cannot do business in four different business concerns. Regarding the scope of work, adverse inference cannot be drawn that the same is not registered. There is no law which requires that unless there is a registered scope of work, the payment made there-under will not be allowed. Another adverse inference that the proprietor and one of his concern were in the list of suspicious dealers cannot be a reason to disallow expenditure incurred unless a finding has been given that the bills submitted in the present case are suspicious. Again adverse inference has been drawn that notices u/s 133(6) have returned unserved. This again cannot be a reason to reject the assessee s claim without further verification. The inference drawn by the AO and the learned CIT(Appeals) is merely based upon suspicion and surmises. It is settled law that any addition based on suspicion and surmises is not sustainable - Decided in favour of assessee. Addition being 10% of administrative expenses - addition has been made solely on the ground that the expenses are paid in cash and self made vouchers were produced - Held that - No specific details of the expenditure which were to be disallowed on account of these facts have been brought on record. While the AO has mentioned that the expenditure were supported by self made vouchers, learned CIT(Appeals) observed that even the same were not maintained. We find that this action of a disallowance is based on surmises and conjecture without bringing on record cogent reasons for disallowance. Hence we set aside the orders of authorities below and delete the addition.- Decided in favour of assessee.

Summary

Issues: Disallowance of job work charges and administrative expenses

Issue 1: Disallowance of job work charges
The appellant, engaged in marketing and servicing of Industrial Products, claimed job work charges of ?29.14 Lakhs, out of which ?20,29,338/- was paid to four entities. The Assessing Officer (AO) observed common PAN for all parties and undelivered notices issued to them. The AO relied on a list of suspicious dealers by Sales Tax Department, questioning the genuineness of the payments. The appellant submitted a Bank Certificate and MOU with one party, but no evidence of work done was provided. The AO disallowed the entire expenditure. The CIT(A) upheld the disallowance, emphasizing lack of evidence on work execution. The ITAT found bills from the firms available, payments made, and TDS deducted. It held that suspicion alone cannot justify disallowance, citing the Supreme Court's decision. The ITAT concluded that the addition lacked a legal basis and deleted it.

Issue 2: Disallowance of administrative expenses
The AO disallowed 10% of administrative expenses due to majority cash payments and self-made vouchers. The CIT(A) affirmed the disallowance, noting the lack of maintained vouchers. The ITAT found the disallowance arbitrary, lacking specific details for disallowance. It concluded that the action was based on conjecture and set aside the disallowance. The ITAT allowed the appeal, deleting the addition.