2021 (12) TMI 540 - AT - Income Tax

Disallowance of packing expenses and loading and unloading, cartage outward, general expenses and staff welfare expenses - HELD THAT - There is no dispute that the additions confirmed by the ld. CIT(A) are on adhoc basis. It was incumbent upon the Assessing Officer/ld. CIT(A) to point out particular expenses which were not verifiable or which were not supported by bills and vouchers, which he has failed. Further, there is no dispute that the books of accounts are duly audited and no adverse remarks have been made by the auditors. The books of account have been accepted by the AO - Therefore, in our considered opinion, adhoc disallowances confirmed by the ld. CIT(A) are without merits and deserve to be deleted. We direct the Assessing Officer to delete the additions so made - Decided in favour of assessee.

Summary

Issues:
Adhoc disallowance of packing expenses, loading and unloading expenses, cartage outward, general expenses, staff welfare expenses, telephone expenses, and conveyance expenses.

Adhoc Disallowance of Packing Expenses:
The Assessing Officer disallowed packing expenses of &8377; 1,26,74,322, believing them to be job contract expenses attracting TDS under section 194C. The assessee explained the nature of expenses as wooden boxes, patti, and labor for packing, not liable for TDS. The CIT(A) restricted the disallowance to &8377; 8 lakhs, disagreeing with the application of section 194C. The ITAT found the adhoc disallowance unjustified as the expenses were petty, not specifically disallowed, and supported by audited accounts. The ITAT directed the Assessing Officer to delete the addition.

Adhoc Disallowance of Other Expenses:
The Assessing Officer made an adhoc disallowance of loading and unloading, cartage outward, general expenses, staff welfare, business promotion, printing, and stationery expenses totaling &8377; 2,18,19,181, under section 194C. The assessee claimed these were paid to petty laborers not subject to TDS. The CIT(A) restricted the disallowance to &8377; 2 lakhs. The ITAT found the adhoc disallowance baseless as specific expenses were not identified as unverifiable, unsupported, or disallowed. The ITAT directed the deletion of the addition.

Adhoc Disallowance of Telephone and Conveyance Expenses:
The Assessing Officer disallowed 10% of telephone expenses of &8377; 6,26,387 and conveyance expenses of &8377; 3,44,093, alleging personal use elements. The CIT(A) upheld the disallowance of 1/10th of these expenses. The ITAT found the disallowance arbitrary and without specific justification. Since the books were audited without adverse remarks, the ITAT deemed the adhoc disallowance unwarranted and ordered the deletion of the additions.

Conclusion:
The ITAT allowed the appeal, directing the deletion of the adhoc disallowances on packing expenses, other expenses, telephone expenses, and conveyance expenses. The ITAT emphasized the lack of specific justifications for the disallowances, the audited nature of accounts, and the absence of adverse remarks, leading to the decision in favor of the assessee.