2016 (8) TMI 607 - AT - Income Tax

ITAT Decision: Upheld disallowance of expenses, reversed enhancements, and gave specific directions to AO.

The ITAT upheld the disallowance of Rs. 52,201 under 'Subscription & Donation' and partially upheld the disallowance under 'Carriage Outward', ... Disallowance of expenses incurred under the head ‘subscription & donation’- Held that:- Disallowance was made by the Authorities Below due to non-production of evidence in support the expenditure claimed. The ld. AR has also not brought anything even before us in support of the aforesaid expenditure. Considering the facts and circumstances of the case, we find no reason to interfere in the order of Ld .CIT(A). - Decided against assessee Disallowance on account of carriage outward - Held that:- In the absence of supporting vouchers, we need to look other factors before making any disallowance like nature of business, history of the expense claimed in earlier years, audited financial year statement etc. In the instant case, assessee has produced all the documentary evidence in support of its expenditure except the aforesaid amount of ₹1,80,719/- which is just 1.18% of the total turnover of assessee business. At the same time, we cannot ignore that similar expenses were claimed in the earlier AY and this year, the expense claimed by assessee are in commensuration with earlier year expense. We find force in the argument raised by L’d AR that there was a slightly increase in the aforesaid expense and that too mainly increase in the fuel cost and other escalated cost. However, it is also important to note that the documentary evidence was not placed before the lower authorities. Now, in the interest of natural justice and fair play, we after considering the totality of the facts of the case as discussed above, not interested in sending back the matter to the AO to avoid further litigation. Therefore, in the interest of justice and fair play, we restrict the disallowance to the extent of ₹50,000/- for the year under consideration, as all the vouchers were not produced for verification during the appellate proceedings.Ground No. 2 is decided in favour of assessee in part. Addition made under head “Home Biri Labour” expenses - Held that:- There were many factors which have been ignored by L’d CIT(A) before enhancing the total income of assessee by disallowing the aforesaid expenses. We also further find that this expense has been claimed by assessee consistently for the last several years and no such disallowance was made by the Authorities Below. Considering the totality of the facts and circumstances, we are inclined to reverse the orders of Authorities Below. AO is directed accordingly. - Decided in favour of assessee Issues Involved:1. Disallowance of Rs. 52,201 under the head 'Subscription & Donation'.2. Disallowance of Rs. 1,80,719 under the head 'Carriage Outward'.3. Enhancement of addition of Rs. 3,15,026 under the head 'Home Biri Labour'.4. Enhancement of addition on estimate @ 5% of total expenditure of Rs. 6,07,49,596 under the head 'Home Biri Labour'.5. Enhancement of addition under the head 'Home Biri Labour' amounting to Rs. 30,37,480.Detailed Analysis:1. Disallowance of Rs. 52,201 under the head 'Subscription & Donation':The assessee, a partnership firm engaged in Bidi manufacturing and matchbox trading, claimed an expense of Rs. 63,203 towards donation and subscription charges. The Assessing Officer (AO) disallowed Rs. 52,201 due to the assessee's failure to produce supporting evidence, deeming it ineligible for deduction under Section 80G of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this disallowance. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, citing the assessee's continued failure to provide evidence.2. Disallowance of Rs. 1,80,719 under the head 'Carriage Outward':The assessee claimed Rs. 29,67,915 under 'Carriage Outward', but could not produce supporting evidence for Rs. 1,80,719, leading to its disallowance by the AO. The CIT(A) upheld this disallowance, and the ITAT partially agreed. While recognizing the absence of vouchers, ITAT noted the consistency of such expenses with previous years and the minor increase due to fuel costs. Therefore, ITAT restricted the disallowance to Rs. 50,000, considering the overall business context and historical expense patterns.3. Enhancement of addition of Rs. 3,15,026 under the head 'Home Biri Labour':The AO disallowed Rs. 3,15,026 out of Rs. 6,07,49,596 claimed under 'Home Biri Labour' due to non-verifiable expenses. The CIT(A) issued a show cause notice and enhanced the disallowance to 5% of the total expenditure, amounting to Rs. 30,37,480, citing lack of supporting evidence. The ITAT found that the CIT(A) failed to consider the assessee's detailed submissions, such as payments supported by PF contributions, excise duty payments, and historical consistency of such expenses. ITAT concluded that the CIT(A)'s enhancement was based on estimates without concrete evidence, thus reversing the disallowance and directing the AO accordingly.4. Enhancement of addition on estimate @ 5% of total expenditure of Rs. 6,07,49,596 under the head 'Home Biri Labour':The CIT(A) enhanced the addition by estimating 5% of the total 'Home Biri Labour' expenses as non-genuine due to the lack of supporting vouchers. The ITAT noted that the CIT(A) did not adequately consider the assessee's explanations and historical consistency of such expenses. ITAT referenced the Supreme Court's judgment in Dhakeswari Cotton Mills Ltd. v. CIT, emphasizing that estimates should not be based on mere suspicion without evidence. Consequently, ITAT reversed the CIT(A)'s enhancement.5. Enhancement of addition under the head 'Home Biri Labour' amounting to Rs. 30,37,480:The CIT(A) enhanced the disallowance to Rs. 30,37,480, treating 5% of 'Home Biri Labour' expenses as non-genuine. The ITAT found that the CIT(A) ignored several critical factors, such as the tripartite agreement for wage determination, historical expense patterns, and compliance with excise duty payments. ITAT ruled that the CIT(A)'s enhancement was unjustified and based on estimates without solid evidence, thus reversing the disallowance.Conclusion:The ITAT upheld the disallowance of Rs. 52,201 under 'Subscription & Donation' and partially upheld the disallowance under 'Carriage Outward', reducing it to Rs. 50,000. However, it reversed the CIT(A)'s enhancements related to 'Home Biri Labour' expenses, finding them to be based on estimates without sufficient evidence. The appeal was partly allowed, with specific directions to the AO.