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TMI Blog2015 (3) TMI 1364X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)'s confirming the stand taken by the A.O. in respect of addition of Rs. 33,01,961/- by estimating the raw material consumption @ 53% as against 55.22% as per books of account and records. 3. Briefly stated, the relevant material facts are like this. The assessee is engaged in the business of, inter alia, retreading of tyres. During the course of scrutiny assessment proceedings, the A.O. noticed that the gross profit rate shown by the assessee has gone down vis-à-vis earlier years. When the matter was examined further, he found that the cost of consumption of raw material was shown in the current year at 55.22 % of the total turnover whereas in the immediately preceding year the consumption of raw material was only 50.14% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. was not impressed with any of the explanations given by the assessee. He was of the view that in the present case there is no mechanism to verify the correctness of the consumption except to compare the fact of the consumption in retreading of one tyre with consumption in another tyre of the same size. On this test, noted the A.O., the figures given by the assessee inspire no confidence. Accordingly, the A.O. proceeded to reject the consumption figures as shown by the assessee and adopt the same at 53%. While doing so, he observed as follows:- "Assessee's submission on application of section 145(3) is rejected as the assessee's reply on the subject is general and also that the assessee has said nothing on rubber consumption exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) but without any success. 6. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. We have noted that the basic reason in rejecting the consumption of material as shown by the assessee is the variation in consumption of material in respect of two tyres of the same size. This approach, however, proceeds on the fallacious assumption that the consumption of material in retreading tyres of the same size will be exactly the same irrespective of the condition of tyre which is sought to be retreaded. It is elementary that the consumption of material in the process of retreading of tyre would depend upon the condition in which tyres are to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance. The ld. CIT(A) has also not dealt with any of these aspects but has proceeded with his seemingly erudite discussion on the legal position though without properly establishing the fundamental facts. In view of these discussions and bearing in mind the entirety of the case, we are of the considered view that the authorities below was in error so far as their stand on disallowance of Rs. 33,01,961/- on raw material consumption is concerned. We, therefore, direct the Assessing Officer to delete the impugned disallowance. The assessee gets the relief accordingly. Ground no.1 is thus allowed. 7. In the second ground of appeal, the assessee is aggrieved by the ld. CIT(A)'s confirming the order of A.O. disallowing bad debs of Rs. 2,10,95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 6,41,735/-, Puja Expenses at Rs. 1,19,455/-, Liquidated Damages at Rs. 4,32,692/-, Travelling expenses at Rs. 31,90,265/- (including Rs. 4,61,186/- for directors), Conveyance at Rs. 2,94,237/-, Vehicle Running Expenses at Rs. 4,17,921/-, General Expenses at Rs. 1,22,769/-, Recruitment Expenses at Rs. 1,13,906/-, total of which comes to Rs. 53,32,980/-. The above expenses by nature are not verifiable. As these are very small expenses and looking to the nature of the payment, it has been made in cash through self made vouchers, even full identity of recipient is not kept. In the circumstances, an adhoc addition of Rs. 3,00,000/- is made out of these expenses, and the same is disallowed and added in the income of the assessee. (Addition: Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich, many are made from self made vouchers. In the circumstances, disallowance of 10% of wages amount of Rs. 30,74,421/-, worked out at Rs. 3,07,442/- is made and added in the income of the assessee. (Addition: Rs. 3,07,442/-) 17. When the matter was carried before the ld. CIT(A), the ld. CIT(A) upheld the disallowance in principle but restricted the quantum of disallowance to 5% of expenditure. The assessee is not satisfied and is in further appeal before us. 18. Having heard the rival contentions and perused the material on record, we find that the disallowance is made purely on the basis of surmises and conjectures and without pointing out any specific defects in the vouchers in support of these expenses. We are unable to see any leg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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