M/S VENUS FOOTARTS LTD.,NEEM KA THANA vs. ASSISTANT COMMISSIONER OF INCOME TAX, SIKAR

Ground no. 1 is regarding disallowance of stores & spares expenses for want of supporting vouchers. The Assessing Officer observed that the assessee has debited a sum of Rs. 11,31,803/- under the head stores & spares. While verifying the bills and vouchers produced in support thereof the AO noted that some bills and vouchers pertaining to stores & spares were not verifiable. On further verification it was found that the assessee could not produce the supporting evidence to the extent of the expenses of Rs. 98,586/-. Accordingly, the AO has disallowed the stores & spares to extent of Rs. 98,586/- on the ground that it was not verifiable and not supported by proper and adequate evidence. On appeal, the ld. CIT(A) after considering the facts that assessee has made cash payment of Rs. 89,363/- of stores & spares expenses which was supported by self made vouchers restricted disallowance to Rs. 45,000/- and the remaining amount of Rs. 53,586/- was deleted.

Before us, the ld. AR of the assessee has submitted that the turnover of the assessee for the year under consideration is Rs. 68.70 Crore, therefore, the expenditure debited by the assessee under these head is very reasonable and not excessive. Further, the entire expenses has been incurred wholly and exclusively for business purpose. 3 & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT Therefore, the adhoc disallowance made by the AO and sustained by the ld. CIT(A) is not justified. In support of his contention, he has relied upon the decision of Agra Bench of the Tribunal dated 15.02.2013 in case of M/s PNC Construction Co. Ltd. vs. DCIT in ITA No. 145/Agr/2012.

On the other hand, the ld. DR has submitted that assessee has failed to discharge its onus to substantiate its claim by producing supporting evidence. The assessee has not disputed the facts that there were cash payments in respect of stores & spares expenses and the assessee has produced only self made vouchers. He has relied upon the orders of the authorities below and submitted that the ld. CIT(A) has already granted substantial relief to the assessee.

We have considered the rival submissions as well as relevant material on record. The assessee has debited expenditure on account of stores & spares of more than Rs. 11.77 lacs out of which a sum of Rs. 89,363/- was paid in cash. The said claim of expenditure made in cash was supported by self made vouchers. Though the expenditure incurred in cash and supported by self made vouchers itself is not sufficient for disallowance if the assessee has established the facts that such expenditure was incurred in the peculiar circumstances and in emergent 4 & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT condition where there was no other option but to make the payment in cash. However, in the case in hand all these expenditure on account of stores and spares claimed by the assessee are in respect of purchase made by the assessee from various shops in Jaipur and Delhi. Once, the assessee has claimed the expenditure in respect of purchase made from the shops at Jaipur and Delhi then even if the payment is made in cash the supporting verifiable vouchers should have been produced by the assessee instead of self made vouchers. Therefore, the payment made in cash and supported by self made vouchers in respect of purchase made from the shops at Jaipur and Delhi cannot be accepted as exceptional circumstances wherein the assessee was not having the option to get a proper bills/vouchers or making the payment other than cash. The decision relied by the ld. AR of the assessee in respect of the work got by the assessee in the remote rural for which the assessee made payment in cash. The ld. CIT(A) already granted a substantial relief on this account in para 4.3 as under:-

Ground no. 2 is regarding disallowance made by the AO on account of unverifiable expenses. The AO noted that the assessee has claimed Rs. 3,76,687/- under the head of traveling expenses however, no evidence in support of the expenses of Rs. 43,750/- was produced by the assessee for verification. Accordingly, the AO disallowed the claim of traveling expenses to the extent of Rs. 43,750/-. On appeal, the ld. CIT(A) has confirmed the disallowance made by the AO. & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT

Before us, the ld. AR of the assessee has submitted that the expenditure incurred by the assessee is wholly and exclusively for the business purpose. Further, when the expenses were not found excessive then, merely because the assessee could not produce proper vouchers for some of the expenditure, the same cannot be disallowed.

On the other hand, ld. DR has relied upon the orders of the authorities below and submitted that the assessee has not produced the supporting vouchers and also make the payment in cash, therefore, the assessee has failed to discharge its onus.

We have considered the rival submissions as well as relevant material on record. The ld. CIT(A) called for remand report from the AO. During the course of remand proceeding, the AO has again examined the claim and found that most of the expenses were incurred in cash. Further, some of the expanse were supported only by self made vouchers and not supported by verifiable evidence. We find that the AO has made the disallowance of the expenditure only to the extent & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT which was incurred in cash and supported by self made vouchers. The ld. CIT(A) has considered this issue in para 5.3 reproduced as under:-

Ground no. 3 is regarding the addition made by the AO on account of general expenses. The assessee has debited a sum of Rs. 4,04,804/- under the general charges. The AO noted that the assessee could not produce any supporting evidence in respect of the amount of Rs. 47,880/-. Accordingly, the AO disallowed the general expenses to the extent of Rs. 47,880/- on the ground that it is not verifiable and not & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT supported by adequate evidence. On appeal, the ld. CIT(A) has confirmed the disallowance made by the AO.

Before us, the ld. AR of the assessee has submitted that the expenditure were incurred wholly and exclusively for the business purpose of the assessee and it is also not found to be excessive.

On the other hand, the ld. DR has relied upon the orders of the authorities below.

We have considered the rival submissions as well as relevant material on record. We find that the general expenses as claimed by the assessee is only 0.06% of the turnover of the assessee. The nature of the expenditure claimed by the assessee and the amount is very petty in most of the cases as below as Rs. 50 incurred in respect of the miscellaneous daily use items as well as in respect of the services availed from various persons. Therefore, having regard to the nature of expenditure the payment made by the assessee in cash is not unusual.

Ground no. 4 is regarding addition made by the AO on account of motor car expenses. The AO has made disallowance of Rs. 55,100/- out of the total motor car expenses of Rs. 4,02,008/- on the ground that some of these expenses were incurred in cash and supported by self made vouchers. On appeal, the ld. CIT(A) has confirmed the disallowance made by the AO.

We have heard the ld. AR as well as ld. DR and considered the relevant material on record. After going through the details of the expenditure incurred on motor car we find that the entire expenditure claimed by the assessee is in respect of fuel (petrol and diesel). As per ledger account the assessee has given all the details of fuel expenses, vouchers and most of the expenses were supported by the bills of the petrol pump. Therefore, when the AO has not found any unusual or 10 & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT excessive expenditure on account of fuel during the year under consideration then, disallowance is unjustified. Even otherwise the fuel expenditure is verifiable from the counterpart and was not found to be excessive or bogus. Accordingly, disallowances made by the AO on account of motor car expenses and specifically fuel expenses are deleted.

For the assessment year 2011-12, the assessee has raised following grounds:-

Ground no. 1 is regarding disallowance of sales and administrative expenses. The AO noted that the assessee has debited Rs. 26,99,977/- under the head sales and administrative expenses which includes the expenses on account of stores and spares. The AO noted that the expenditure to the extent of Rs. 56,067/- which on account of stores and spares was not verifiable as the assessee has not produce the proper vouchers. On appeal, the ld.CIT(A) has restricted the disallowed of Rs. 28,000/-.

We have heard the ld. AR as well as ld. DR and considered the relevant material on record. This issue is common as raised by the assessee for the assessment year 2010-11 in ground no. 1. In view of our finding on this issue for the assessment year 2010-11 the disallowance sustained by the ld. CIT(A) is upheld.

Ground no. 2 is regarding addition made on account of general charges. The AO has made disallowance of Rs. 43,593/- under the head general charges for want of proper bills and vouchers. This issue is identical in the appeal for the assessment year 2010-11 in ground no. 3. & 844/JP/2017 M/s Venus Footarts Ltd. vs. ACIT In view of our finding for the assessment year 2010-11 on this issue the disallowance made by the AO is deleted.