2014 (1) TMI 347 - AT - Income Tax

Disallowance of labour charges Held that - Held that - The assessee s turnover is more than statutory limit which necessitates its accounts to be statutorily audited - The assessee has filed the audited accounts before the Assessing Officer and explained that due to shifting of his office and residence it is not possible for the assessee to produce all the material in support of its claim of expenditure - The Assessing Officer has not doubted the authenticity of the accounts maintained by the assessee - when an assessee makes a claim, it is for the assessee to substantiate the claim with necessary evidence to the satisfaction of the Assessing Officer - the assessee has not been able to substantiate its claim in its entirety along with necessary evidence before the Assessing Officer or before the CIT(A) - the activity involves engagement of large number of both skilled and unskilled labour and that the assessee may not be able to get independent evidence/vouchers in respect of engagement of unskilled labour Thus, the disallowance of labour charges restricted to 10% of the total labour expenses claimed by the assessee. Disallowance of cost of materials Disallowance u/s 40(a)(ia) of the Act - Held that - There may be certain miscellaneous items, for which the assessee may not be able to obtain the bills or vouchers while it also cannot be ruled out that the assessee might have inflated the expenses - some disallowance is justified but disallowance of 50% of the expenses is excessive thus, the disallowance restricted to 15% of the unsubstantiated cost of materials. Verification of claim - Machinery and vehicles hire charges Held that - The CIT(A) has no power to remand the issue to the Assessing Officer for verification thus, the matter remitted to the AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues:
Cross-appeals for assessment year 2008-2009 against CIT(A) Order dated 17.01.2012.

Analysis:
1. The assessee, engaged in Event Management, filed income tax return for the relevant year but faced challenges in providing all necessary information during assessment due to various reasons. The Assessing Officer disallowed certain expenses and added them to the income, resulting in a revised total income assessment.

2. The assessee appealed to the CIT(A) regarding the disallowances. The CIT(A) confirmed some additions but provided relief on certain aspects. The Revenue appealed against the relief granted, while the assessee appealed against the confirmed additions and directions under section 40(a)(ia).

3. During the ITAT hearing, the assessee's representative argued that the business nature required certain expenses to be incurred without proper vouchers. The Revenue supported the lower authorities' decisions on disallowances.

4. ITAT considered both parties' arguments and the evidence on record. While acknowledging the challenges faced by the assessee in providing complete evidence, ITAT emphasized the need for substantiating claims to the Assessing Officer's satisfaction. Despite this, considering the nature of the business involving a large workforce, ITAT reduced the disallowance of labor charges to 10% of the total claimed.

5. Regarding the disallowed cost of materials, ITAT recognized the possibility of some expenses being unverifiable but found the 50% disallowance excessive. Hence, ITAT restricted the disallowance to 15% of the unsubstantiated cost of materials.

6. ITAT disagreed with the CIT(A)'s direction to verify machinery and vehicle hire charges, stating that the CIT(A) should have sought a remand report instead. As necessary details were lacking for a decision, ITAT remanded the issue to the Assessing Officer for verification.

7. Ultimately, ITAT dismissed the Revenue's appeal and partially allowed the assessee's appeal for statistical purposes, thereby concluding the judgment on 24.5.2013.