2017 (9) TMI 1028 - AT - Income Tax

Disallowance of labour wages expenses, embroidery charges, fabrication expenses, and power and fuel expenses - assessment u/s 144 - AO has made the disallowances at the rate of 50% of all the expenditure - Held that - In view of the fact that assessee is shown a receipt of ₹ 25 Lacs and out of which all these expenditures have been incurred by the assessee. Had the assessing officer has any doubt about the payment in cash, then such doubtful expenditure should have been disallowed and not ad hoc expenditure should be disallowed. It was also not pointed out by the Ld. assessing officer that whether there was any violation of the provisions of section 40A (3) of the income tax act, then also only such expenditure are disallowable which are hit by that provision otherwise the case payments are not prohibited as per the income tax act if they are below the limit specified therein. Further, the assessee has provided the details addresses of those service providers as appearing on the printed copy of the bills received by the assessee from those embroiderers and fabricators. There confirmation was also submitted at the time of original assessment. It was also not informed to the assessee that such persons were issued any notices and they have not remained present. It is also required to look that the nature of the business of the assessee, which is in the nature of a very small scale, and the assessee is getting work done through these small workmen who do not have any permanent place of residence. In view of this, we do not find any reason to disallow ad hoc expenditure by the Ld. assessing officer. - Decided against revenue. Unexplained cash credit - Held that - As assessee has failed to discharge its initial onus with respect to credit of these parties were not trade creditors but lenders to the assessee for payment of sums to the other labourers, in absence of any confirmation, the addition has been correctly made by the Ld. assessing officer under section 68 of the income tax act - Decided against revenue.

Summary

Issues Involved:
Appeal against order of CIT(A) for Assessment Year 1997-98 on disallowance of expenses including Labour and Wages, Embroidery charges, Fabrication expenses, Fuel and Power expenses, and treatment of Sundry Creditors as fictitious liability.

Detailed Analysis:

Ground 2, 3, 4, and 5 - Disallowance of Expenses:
The assessing officer disallowed 50% of various expenses due to non-confirmation of transactions and assumed hypothetical figures. The CIT(A) upheld these disallowances. However, the appellant argued that the disallowances were arbitrary and not supported by law. The appellant demonstrated that expenses were genuine by providing books of accounts, bills, and vouchers. It was noted that the appellant had ceased operations before the assessment year. The disallowances were made without proper verification and at an ad hoc rate of 50%, which was deemed unacceptable. The appellant's compliance with tax laws and provision of details of service providers were highlighted. The Tribunal found no valid reason for the ad hoc disallowances and allowed the grounds in favor of the appellant.

Ground 6 - Treatment of Sundry Creditors:
The assessing officer treated Sundry Creditors as fictitious liabilities and added them to the appellant's taxable income. The CIT(A) affirmed this addition due to the lack of information provided by the appellant regarding these creditors. The appellant failed to discharge the initial burden of proof, leading to the addition under section 68 of the Income Tax Act. The Tribunal upheld this addition as the appellant did not provide sufficient clarification or confirmation regarding the nature of these creditors. Ground 6 of the appeal was dismissed.

General Ground - Ground 1:
The first ground of the appeal was of a general nature and was dismissed by the Tribunal without detailed analysis.

Conclusion:
The Tribunal partly allowed the appeal, overturning the disallowances of expenses made by the assessing officer but upholding the addition related to Sundry Creditors. The judgment highlighted the importance of proper verification and compliance with tax laws in determining the legitimacy of expenses and liabilities for tax purposes.