2017 (11) TMI 1345 - AT - Income Tax

Disallowance of labour charges - Held that - According to the AO, certain bills were not signed and the payments were made mostly in cash, therefore, he made an estimated disallowance of 10% which comes to ₹ 1,08,799/-. The Ld. CIT(A) was also not convinced with the assessee s aforesaid pleas and according to him, it was a bogus claim. We do not subscribe to such a finding for the simple reason that the AO could not make a finding that the entire claim was a bogus claim. The assessee has produced labourers who has been questioned by the AO and the AO only found fault with certain bills/vouchers and, therefore, made an estimated disallowance of ₹ 1,08,799/-. We note that the AO has not rejected the books of account and has simply made the addition based on few defects in few vouchers. The AO s justification to make estimation appears to be the expenditure is excessive, which action of the AO cannot be sustained without any material to suggest that the assessee s claim is not correct or bogus when the labourers were produced before him. The genuineness of the claim on account of labour charges cannot be discarded without any material to make an adverse finding. We do not find any such reason other than an arbitrary disallowance of 10% which cannot be sustained and, therefore, we direct deletion of the same. Amount from savings bank account of Union Bank of India - Held that - When the cash flow statement along with the statement of bank account from 01.02.2008 to 06.03.2008 stands reconciled, therefore, the assessee has been able to explain the cash deposited in the bank account and, therefore, the addition u/s. 68 of the Act was not warranted. The authorities below on surmise and conjecture have disbelieved the sales of gold as well as the money transferred from one branch to another branch of the assessee, which have been explained before us. The authorities below without conducting proper enquiries have simply disbelieved the evidence furnished before them and has made the addition which cannot be sustained in the eyes of law and, therefore, we are inclined to allow this ground of appeal of the assessee.

Summary

Issues:
1. Disallowance of labour charges
2. Addition from savings bank account

Issue 1: Disallowance of labour charges:
The appeal was filed against the disallowance of labour charges amounting to ?1,08,799 by the AO and confirmed by the CIT(A). The AO made the disallowance due to unsigned vouchers and excessive cash payments to outside labourers. However, the ITAT Kolkata noted that the AO did not reject the books of account and made the disallowance based on a few defects in vouchers. The ITAT found the disallowance arbitrary as the labourers were produced before the AO, and no evidence suggested the entire claim was bogus. The ITAT directed the deletion of the disallowed amount, emphasizing that the genuineness of the claim could not be discarded without substantial evidence.

Issue 2: Addition from savings bank account:
The dispute involved an addition of ?10,05,000 from the savings bank account of Union Bank of India, treated as undisclosed income by the AO and confirmed by the CIT(A). The ITAT observed that the cash deposits were explained by the appellant through a cash flow statement and bank account details. The appellant had raised funds through the sale of jewellery and cash transactions, which were verified through proper documentation. The ITAT found that the authorities below had disbelieved the evidence without conducting thorough inquiries and concluded that the addition under section 68 of the Act was unwarranted. Therefore, the ITAT allowed this ground of appeal by the assessee.

In conclusion, the ITAT Kolkata partially allowed the appeal of the assessee, emphasizing the importance of substantiated evidence and proper verification in tax assessments.