2022 (9) TMI 1144 - AT - Income Tax

Tribunal reduces disallowances for various expenses, emphasizes fair estimation and detailed analysis

The Tribunal partly allowed the assessee's appeals for assessment years 2015-16 to 2017-18, reducing disallowances related to site and conveyance ... Unexplained expenses u/s 69C - Cash Expenses incurred by the assessee - only grievance of the Revenue is that they are not backed by supporting documentary evidences - HELD THAT:- It is a fact on record that assessee firm is maintaining vouchers which are lying in godown which are voluminous in nature. Considering the deficiencies in the said vouchers not being backed with supporting documents thereon for all the cases, AO had proceeded to estimate the disallowance of expenses thereon @50% which was reduced to 35% by the CIT(A). We find that ultimately entire disallowance of expenses were made only to offset the deficiencies in maintaining of records by the assessee and also by placing reliance on the statement recorded on oath at the time of search from Mr. Pratap Purohit, partner of the assessee. A fair estimation of disallowance of cash expenses needs to be done in this case. Accordingly, we hold that disallowance of expenses @20% in respect of site and conveyance expenses would meet the ends of justice in the instant case for A.Yrs.2015-16, 2016-17 and 2017-18. Accordingly, the grounds raised by the assessee for A.Yrs.2015-16 to 2017-18 and ground raised by the Revenue for A.Y.2016-17 are disposed of in the aforesaid manner. Disallowance made on account of unverifiable purchases - HELD THAT:- Information was received from Sales Tax department that ten parties from whom the assessee had made purchases wherein it was held that those ten parties had indulged in providing accommodation entries and moreover notices u/s.133(6) of the Act could not be served on those parties. In these facts and circumstances, the ld. CIT(A) upheld the addition of profit element of 15% on the value of such disputed purchases which was brought down to 2% by this Tribunal. As said earlier, the assessee had not made any purchases from the suppliers whose names were reflected as tainted dealers in the website of Sales Tax department, Government of Maharashtra during the years under consideration. Hence, in our considered opinion, the decision rendered by this Tribunal for A.Y.2011-12 is factually distinguishable and need not be relied upon for the years under consideration - As during the course of search, certain deficiencies were indeed found in the documentation maintained by the assessee, considering this fact, we hold that disallowance of 2% of the value of purchases made from those six parties alone is required to be disallowed Disallowance of labour contract payments - HELD THAT:- Considering the fact that the labour contractors / Mukadam / labourers would be mobile and would be migrating from one location to another location for the purpose of their work and also considering the fact that during the course of search, certain deficiencies were indeed found in the documentation maintained by the assessee, we hold that disallowance of 2% of specific labour contract disallowances made by the ld AO needs to be sustained, just to take care of the deficiencies. This, in our considered opinion, would meet the ends of justice. Payments made to labour sansthas - AO had identified 14 parties there and issued notices u/s.133(6) - One party responded before the AO by furnishing requisite details. In respect of remaining 13 parties, the assessee furnished all the requisite details that were called for notices u/s.133(6) of the Act even though the said notices were not served on those parties. Hence, the details were called for by the ld. AO were before him either directly received from the parties or received from the assessee, as the case may be. Merely because, the summons issued by the ld. AO to 13 parties thereon were returned unserved, no adverse inference could be drawn on the assessee. Obviously, the summons were issued after 2-3 years from the date of payment of labour charges to those labour sansthas and assessee cannot be expected to have control over all those labour sansthas once the contract work is executed at the relevant site. In any case, nothing defective is found in the details submitted by the assessee in response to notice u/s 133(6) by the revenue. Hence, in our considered opinion, no adverse inference could be drawn on the assessee in respect of payments made to 14 labour sansthas. Accordingly, we specifically direct the ld. AO to delete the addition made u/s.69C. Issues Involved:1. Disallowance of site and conveyance expenses.2. Disallowance of purchases as unexplained expenditures.3. Disallowance of labour contract payments.4. Validity of assessment framed under Section 153C of the Income Tax Act.5. Penalty under Section 271(1)(c).Issue-wise Detailed Analysis:1. Disallowance of Site and Conveyance Expenses:The Assessing Officer (AO) observed that the assessee incurred cash expenses on site and conveyance, typically ranging from Rs.10,000 to less than Rs.20,000 per day, without adequate supporting documents. The AO disallowed 50% of these expenses as not meant for business purposes under Section 37(1) of the Income Tax Act, which was later reduced to 35% by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal held that a fair estimation of disallowance should be 20% of the site and conveyance expenses for the assessment years 2015-16, 2016-17, and 2017-18.2. Disallowance of Purchases as Unexplained Expenditures:The AO made specific disallowances for purchases from six parties who did not respond to notices under Section 133(6) and made ad-hoc disallowances of 3% of the remaining purchases, which was reduced to 2% by the CIT(A). The Tribunal held that disallowance of 2% of the value of purchases from the six non-responsive parties was justified, but other disallowances on account of bogus purchases were to be deleted.3. Disallowance of Labour Contract Payments:The AO disallowed payments to labour contractors who did not respond to notices under Section 133(6) and made ad-hoc disallowances of 3% of the remaining labour charges. The CIT(A) restricted the disallowance to 50% of the value for non-responsive parties and upheld the 3% ad-hoc disallowance. The Tribunal held that disallowance of 2% of specific labour contract payments for non-responsive parties was justified and directed the deletion of other disallowances. For payments to labour sansthas, the Tribunal directed the AO to delete the addition made under Section 69C for A.Y. 2016-17.4. Validity of Assessment Framed under Section 153C:The assessee raised an additional ground challenging the validity of the assessment under Section 153C for A.Y. 2015-16 and 2016-17. The Tribunal admitted the additional ground but did not render an opinion as the adjudication would be academic in nature due to the decisions on merits of the additions.5. Penalty under Section 271(1)(c):The CIT(A) upheld the penalty levied by the AO under Section 271(1)(c). However, this issue was not specifically addressed in the Tribunal's decision.Conclusion:The appeals of the assessee for A.Ys. 2015-16 to 2017-18 were partly allowed, and the appeal of the Revenue for A.Y. 2016-17 was partly allowed. The Tribunal provided a detailed analysis and fair estimation for disallowances related to site and conveyance expenses, purchases, and labour contract payments, ensuring that the decisions were just and based on the facts and circumstances of the case.