2016 (11) TMI 1232 - AT - Income Tax

Disallowance of stitching and washing charges - genuity of expenditure - Held that - AO disallowed the amounts which were paid to the M/s. Sticher Co. without considering the fact the TDS on such amount was deposited with Government proof of which a certificate to that effect was furnished before the AO, inspite of which making disallowance is unwarranted. Therefore, it shows the transactions are genuine and reliable to the fact, that, as per the submissions of the Ld.AR that they are all skilled workers and cause effect job works entrusted to them are being performed at their residential premises and all are from moffusil areas, if that is the case, we noticed that most of the parties are conducting their business under the name and style as M/s. Sticher Co, M/s Hollywood Bolywood and M/s Nisha Laundry etc.., therefore, we are of the opinion the identity of the parties are very much available before the AO and with regard to genuineness of business transaction also proved to be correct in the context of the business activity of the assesse and in connection thereto the job works performed by the parties therein mentioned in page-2 of order of AO and the AO could not bring on record any evidence contrary to the evidence produced by the Assessee. Therefore, we are of the opinion, that the disallowance ought not to have made by the AO - Decided in favour of assessee

Summary

Issues: Disallowance of stitching and washing charges

Analysis:
1. The appeal concerns the disallowance of stitching and washing charges by the Assessing Officer (AO) for the assessment year 2007-08.
2. The main issue revolves around whether the Commissioner of Income-tax (Appeals) (CIT-A) was justified in confirming the disallowance made by the AO on account of stitching and washing charges.
3. The assessee, a firm engaged in manufacturing and trading of readymade garments, declared a total income of ?1,76,007/- and faced scrutiny under sections 143(2) and 142(1) of the Income Tax Act.
4. The AO observed that the assessee debited significant amounts under stitching and washing charges, which were paid in cash without proper verification of recipients.
5. The AO disallowed the entire amount of ?9,30,325/-, including ?3,25,000/- to M/s. Sticher Co., for lack of verification and TDS issues.
6. In the first appeal, the assessee contended that the charges were legitimate business expenses incurred for manufacturing garments and provided details of job workers in various districts.
7. The CIT-A allowed the claim for M/s. Sticher Co. as TDS was deducted and deposited, citing relevant legal precedents regarding TDS compliance.
8. The CIT-A upheld the disallowance for other unverified payments due to lack of evidence and inflated expenses, despite business purpose claims.
9. The tribunal found that the disallowance by the AO was unwarranted as the transactions were genuine, workers were skilled, and identities of parties were known, leading to the deletion of the disallowance.
10. Consequently, the tribunal allowed the appeal, overturning the CIT-A's decision and deleting the disallowance of ?6,05,325/-.

In conclusion, the tribunal ruled in favor of the assessee, overturning the disallowance of stitching and washing charges based on the genuineness of transactions, compliance with TDS requirements, and the nature of business operations.