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Income Tax Appellate Tribunal, SMC BENCH , COCHIN
Before: Shri George George K
This appeal at the instance of the assessee is directed against the CIT(A)’s order dated 26.04.2018. The relevant assessment year is 2011-2012.
The grounds raised read as follows:-
“1. The Officers below were not justified in confirming the disallowance a portion of salary & other paid to temporary staff.
The Officers below failed to appreciate the fact that by trade practice, in any textile business employment of temporary staff in festival season is inevitable.
Having accepted almost 2/3rd of the expenditure, disallowance of balances was not warranted and on flimsy grounds.”
The brief facts of the case are as follows:-
ITA No.314/Coch/2018. 2 Sri.RRanganatha Reddiar. The assessee is an individual. He is proprietor of M/s.Radhas, which is engaged in textile business. For the assessment year 2011-2012, the return of income was filed on 18.02.2013 declaring a total income of Rs.12,99,720. The assessment u/s 143(3) of the I.T.Act was completed vide order dated 04.03.2015 on a total income of Rs.15,57,904. The Assessing Officer disallowed an expenditure of Rs.2,00,000 debited in the profit and loss account under the head salary for temporary staff. The total amount debited in the profit and loss account was Rs.6,68,921 under the above said head. The A.O. was of the view that the assessee was unable to provide complete details / evidences in support of the said expenses and hence disallowed a sum of Rs.2 lakh out of Rs.6,68,921 claimed by the assessee.
Aggrieved by the assessment order, the assessee preferred appeal to the first appellate authority. It was submitted before the CIT(A) that since the assessee is in textile business, during peak season temporary staff were employed from Tamil Nadu to tide over the seasonal emergencies. It was submitted that the temporary staff being from Tamil Nadu, were provided accommodation and food. These expenses were incurred in the past years and no disallowances were made in any of the years except for the concerned assessment year. The CIT(A), however, rejected the contentions raised by the assessee and confirmed the disallowance made by the A.O. The relevant finding of the CIT(A) reads as follows:-
ITA No.314/Coch/2018. 3 Sri.RRanganatha Reddiar. “3. I carefully examined the facts of the case and also considered the rival views expressed. It is basically for want of complete details/evidences in support of the claim made, the salary paid to temporary staff has been restricted to 4,68,921/- and the balance amount was disallowed. It is not the entire amount of salary debited to the profit & loss account has been disallowed. It is only part of the amount in the absence of proof of any sort brought out, been restricted. In the backdrop, Assessee has the responsibility to explain the reason as to why salaries were paid without creating the requisite documents. It is not in practice that the salary to temporary staff is simply paid and no document for the salary paid to them need be maintained/ secured. Salary is always paid to temporary staff based on self made vouchers or based on the receipt obtained from the person concerned. The attendance register maintained may also confirm the presence of the individual on day to' day basis for the duty to be performed. Without producing either of these two, to the least, assessee cannot claim that the salary was paid to the person who worked in the assessee's' business premises. It is not the case of assessee that they employ everyone without confirming their identity. It is also not the case of assessee that no document need be maintained if they employ staff temporarily. The reason adduced by the assessee that the temporary staff are employed to tide over the crowd, would no way come for assessee's rescue since documentary evidences are very I required so as to confirm the fact that the salary was paid to a right person during the course of business carried out by the assessee. In the circumstances, I find infirmity in the decision the Assessing Officer has taken to disallow a sum of Rs.2,00,000/- and accordingly the same is confirmed.”
Aggrieved by the order of the CIT(A), the assessee has preferred the appeal before the Tribunal. The learned Counsel for the assessee had filed a paper book comprising of 8 pages
ITA No.314/Coch/2018. 4 Sri.RRanganatha Reddiar. inter alia including intimation issued for assessment year 2010-2011, the trading and profit and loss account for the year ending 31.03.2010 etc. The learned AR submitted that the payment of salary, accommodation and food expenses are incurred on year-to-year basis during peak season and no disallowance was made in the past year or in the subsequent years. It was prayed that the disallowance on adhoc basis was uncalled for and the same may be deleted.
The learned Departmental Representative, on the other hand, strongly supported the assessment order and the order of the CIT(A).
I have heard the rival submissions and perused the material on record. The A.O. had disallowed a sum of Rs.2 lakh out of salary paid to temporary staff, which in total comes to Rs.6,68,921. The reason stated by the A.O. was that the assessee could not produce complete details / evidences in support of the claim. The explanation offered by the assessee was that during the peak business season, temporary staffs are employed from Tamil Nadu, which is the native place of the assessee, to tide over the crowd visiting the shop, and they leave the services immediately after the season is over. It was further submitted that being temporary staff the assessee had to meet not only their salary but also accommodation and food. These expenses, it was submitted, are not peculiar to this year but also incurred in the past years, which was never subjected to disallowance.
ITA No.314/Coch/2018. 5 Sri.RRanganatha Reddiar. 7.1 I have gone through the records and noticed that the assessee in the past year, viz., for the assessment year 2009- 2010 and 2010-2011, had claimed deduction of salary paid to temporary staff amounting to Rs.6,68,290.77 and Rs.8.07,048.97, respectively. I have noticed that no scrutiny assessment orders were completed allowing the said claim for the past years. Since the assessee was not able to provide complete details / evidences with regard to the said expenditure, I am of the view that there could be possibilities of inflation of expenditure. However, I find that the disallowance of Rs.2 lakh out of the total expenses of Rs.6,68,921 is on the higher side (working out to almost 30% of the total expenses). Taking into account the circumstances of the case and that these expenditure was claimed by the assessee in the past assessment years, wherein no disallowance was made, I am of the view that disallowance of Rs.1,00,000 would suffice for the relevant assessment years. Hence, out of the total expenditure of Rs.6,68,921, I sustain the disallowance of Rs.1 lakh. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 31st day of January, 2019.
Sd/- (George George K) JUDICIAL MEMBER
Cochin ; Dated : 31st January, 2019. Devdas*
ITA No.314/Coch/2018. 6 Sri.RRanganatha Reddiar.
Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT (A), Thiruvananthapuram. 4. The Pr.CIT, Thiruvananthapuram. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar) ITAT, Cochin