TaxTMI 
TaxTMI 
2021 (2) TMI 1143
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....essee at Rs. 31,60,340/- by making the following disallowances/additions :- i. Disallowance of interest paid Rs. 9,58,626 ii. Disallowance of shortage expenses Rs. 10,05,579 iii. Household withdrawing Rs. 2,50,000 iv. Disallowance of expenses Rs. 8,11,938 v. Late deposit of ESI & EPF Rs. 1,34,194 4. In appeal, the Ld. CIT(A) deleted the disallowance of Rs. 1,34,194/- being late deposit of EPF & ESI. In so far as interest paid disallowed at Rs. 9,58,626/- by the Assessing Officer is concerned, the CIT(A) deleted Rs. 8,18,324/- and sustained Rs. 1,40,300/-. The other disallowances/additions were confirmed by the Ld. CIT(A). 5. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. 6. The first issue raised by the assessee in the grounds of appeal relates to the order of the CIT(A) in sustaining an amount of Rs. 1,40,300/- out of disallowance of Rs. 9,58,626/- made by the Assessing Officer on account of interest paid. 7. Facts of the case, in brief, are that the AO during the course of assessment proceedings observed that assessee has claimed financial expenses at Rs. 10,38,602/-, the details of which are as under:- i. Bank Cha....
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....ate payment of credit cards were made by the assessee for business purpose only. The credit card so used are just like temporary loans, therefore, interest charged by banks for late payment of credit card dues were accounted for in the books of accounts as business expenditure. He submitted that despite the submission made before the Ld. CIT(A) that the various expenditure incurred through credit cards were for the purpose of business and such expenditures have been debited in the P & L Account, therefore, merely because there was delay in payment of credit card dues for which the bank charged interest for late payment of credit card, the same cannot be disallowed. 13. The Ld. DR on the other hand, heavily relied on the order of the Ld. CIT(A). He drew the attention of the Bench to the observation of the Ld. CIT(A) while disallowing the same which reads as under:- "Regarding the Interest on Credit Card Dues, it is submitted by the AO in his remand report that Rs. 1,40,300/- is paid as interest on credit card dues. Meaning of this payment is that first assessee is making purchases/payments through credit cards owned by it, and thereafter repaying to credit card companies as per h....
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....d by banks for late payment of credit card dues partakes the character of business expenses. In this view of the matter, I set-aside the order of the Ld. CIT(A) and direct the AO to delete the addition. 16. The second issue raised by the assessee in the grounds of appeal relates to the addition of Rs. 10,05,579/- on account of disallowance of wastage and shrinkage expenses. 17. Facts of the case, in brief, are that the assessee claimed wastage and shrinkage expenses at Rs. 10,05,579/-. The Assessing Officer asked the assessee during the course of assessment proceedings to file the details of percentage at which the shortage/wastage was claimed and the nature of work on which shortage/wastage claimed. In absence of any details to his satisfaction, the Assessing Officer disallowed the entire amount of Rs. 10,05,579/-. 18. Before the Ld. CIT(A), it was submitted that during the course of assessment proceedings, it was explained before the Assessing Officer that the wastage and shrinkage of Rs. 10,05,579/- is normal against the total turnover of Rs. 1,06,03,084/-. It was explained that in garments export and manufacturing business, there is also wastage of cloth on every step i.e. w....
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.... cloths are to be manufactured for different category of people and there is bound to be wastage and shrinkage. He submitted that it is a matter of commonsense in garments manufacturing business that there is wastage of cloth in every step i.e. while cutting as per specification, then shrinkage in dying, bleaching and rejections at the time of finishing process. There is also rejection at the time of checking of each and every piece before shipment of consignment. He accordingly submitted that the lower authorities have not applied their mind properly to the nature of the business of the assessee and sustained the addition of Rs. 10,05,579/- which is not justified under the facts and circumstances of the case. 22. The Ld. DR on the other hand, heavily relied upon the orders of the Assessing Officer and the Ld. CIT(A). He submitted that the Ld. CIT(A) has given valid reasons while upholding the order of the Assessing Officer on this issue. He accordingly submitted that the order of the CIT(A) should be upheld. 23. I have considered the rival arguments made by both the sides, perused the orders of the AO and the Ld. CIT(A) and the paper book filed on behalf of the assessee. I find....
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....ee. From the copy of the ITR filed during the course of assessment proceedings, he noted that the daughter of the assessee declared total income of Rs. 1,80,480/-. However, no mention of any drawings so made by her was submitted. Since the assessee was showing withdrawal of Rs. 93,932/- only which according to the Assessing Officer is insufficient for maintenance of the family, he made ad-hoc addition of Rs. 2,50,000/- on account of household expenses. 26. In appeal, the CIT(A) after obtaining the remand report from the Assessing Officer and rejoinder of the assessee to such remand report confirmed the additions made by the Assessing Officer by observing as under:- "In the rejoinder of the remand report, appellant's AR has not controverted the findings of the AO in the remand report. Even during the course of appellate proceedings, appellant's AR has failed to furnish the details of individual contribution towards household expenses made by the appellant's wife and his daughter. In view of these facts on record, I am in agreement with the AO that household withdrawals amounting to Rs. 93632/- , for a family of three persons cannot be said to be adequate. The AO has m....
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.... to be on the higher side. Considering the totality of the facts of the case and in the interest of justice, I am of the considered opinion that disallowance of Rs. 1 lakh lump sum on ad-hoc basis on the facts and circumstances of the case will meet the ends of the justice. I hold and direct accordingly. The order of the CIT(A) is accordingly modified and the Assessing Officer is directed to restrict the disallowance at Rs. 1 lakh as against Rs. 2,50,000/- sustained by the CIT(A). 31. The last issue in the ground raised by the assessee relates to the order of the CIT(A) in confirming the addition of Rs. 8,11,938/- being 10% of all the Direct & Indirect expenditure of Rs. 81,19,386/-. 32. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the assessee has claimed expenses of Rs. 27,49,254/- which is indirect expenses and Rs. 63,28,758/- as direct expenses. The total expenses claimed was at Rs. 90,78,012/-. Since, the assessee did not produce the books of accounts/bills & vouchers, therefore, the Assessing Officer held that genuineness of the expenses claimed, nexus with the business and justification thereof remain ....
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....e disallowance made by the Assessing Officer. He submitted that since the books of accounts were audited and the auditors have not pointed out any mistakes, therefore, the disallowance of expenses on ad-hoc basis is unjustified. He submitted that the Assessing Officer has not invoked the provisions of section 145 by rejecting the books. He submitted that before the CIT(A), the assessee has produced books of accounts and he has called for a remand report from the Assessing Officer. Referring to the decision of the Hon'ble Madras High Court in the case of V.C. Arunai Vadivelan vs ACIT vide TCA No.612 of 2019 order dated 05/02/2021, he submitted that without rejecting the books of accounts, adhoc disallowance is not justified. Relying on various decisions placed in the paper book, he submitted that there cannot be ad-hoc disallowance out of expenses when the accounts are audited and such accounts were not rejected and the Assessing Officer has not pointed out any specific discrepancy. 36. The Ld. DR on the other hand, heavily relied upon the order of the Assessing Officer and the learned CIT(A). He submitted that when the assessee has not produced any log book of telephone/car that....