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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV, HON’BLE & SHRI WASEEM AHMED HON’BLE
आदेश/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER
Assessee is in appeal before the Tribunal against order of ld.CIT(A)-6, Ahmedabad dated 14.03.2014 passed for the Asstt.Year 2009-10.
Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs.15,71,512/- which was added by the AO by making an estimated disallowance out of weaving charges debited by the assessee.
2 3. Brief facts of the case are that the assessee at the relevant time was running a proprietorship concern, which was engaged in the business of manufacturing and sale of grey cloth. The return of income was filed on 30.9.2009 declaring total income at Rs.2,49,970/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On the scrutiny of the accounts, it revealed that the assessee has debited a sum of Rs,3,14,30,240/- towards weaving charges. The ld.AO has directed the assessee to file supporting evidence for the above expenditure. The AO after going through the reply of the assessee observed that he has issued notice under section 133(6) to job workers for confirming the job work done by them for the assessee, and receipt of the job work charges. The notices issued were returned with a remark ‘not known/ not available’, hence, on overall analysis of the evidences, he disallowed 5% of the total expenditure, and made an addition of Rs.15,71,512/-. Dissatisfied with the disallowance, the assessee carried the matter in appeal before the ld.CIT(A), but no one could appear before the ld.CIT(A), and the ld.CIT(A) has confirmed the assessment order.
Before us, the ld.counsel for the assessee contended that weaving and processing was got done at Bhiwandi, Maharashtra. These workers keep on changing their places, and it is quite difficult to get confirmation from them. The assessee has submitted list of job workers, but could not file confirmation or they failed to respond to the notice of the AO. Under identical circumstances, disallowances have been made in the past. In the case of Ajay Kailashchandra Kanodia HUF, dispute travelled upto the Hon’ble High Court. In that case, the AO has disallowed 25% of the expenditure which was scaled down to 2.5% upto the Tribunal, and the Department went in appeal before the Hon’ble High Court in Tax Appeal No.682 of 2015. But the Hon’ble
3 High Court has upheld the order of the ITAT. Similarly, he placed on record copies of the orders of the ITAT passed in the case of other family members, wherein disallowance was restricted to 2.5% of the total expenditure debited by the assessee. He placed on record copy of the order passed in the case of Kailashchandra M. Kanodia, & 2519/Ahd/2017. These appeals have been decided vide order dated 31.7.2019. On the strength of these orders, he prayed that disallowance be restricted to 2.5%.
On the other hand, the ld.DR supported orders of the Revenue authorities. He submitted that the assessee is in the habit of not maintaining the books, and failed to make any details.
On due consideration of the above facts and circumstances, we are of the view that sole issue before the Tribunal is that, by not submitting the requisite details, how much expenditure the assessee has tried to inflate. The AO was of the view that such expenditure should be estimated at 5% of the total expenditure debited by the assessee. The Coordinate Bench in the case of other assessees, under similar circumstances was of the view that it should be 2.5% of the total expenditure. To our mind, whenever any disallowance is being made on estimate basis, then element of guess work will also be involved. There could not be any straight jacket formula to work out the disallowance required to be made. It is always to be made upon the surrounding circumstances, i.e. nature of business, nature of the expenditure in this line of business etc. The Tribunal has exercised such discretion in the case of other concerns as well as in the case of the assessee. Even one of the orders of the Tribunal was upheld by the Hon’ble High Court. Considering all these factors, we deem it appropriate to restrict this disallowance to 2.5%. The appeal of the assessee is partly allowed and 50% of the addition
4 confirmed by the ld.CIT(A) is ordered to be deleted. In other words, the ld.AO shall work out disallowance at Rs.2.5% of Rs.3,14,30,240/-.
In the result, appeal of the assessee is partly allowed. Order pronounced in the Court on 28th November, 2019 at Ahmedabad.