M/S DROLIA ELECTROSTEELS PVT. LTD,RANCHI vs. DCIT, RANCHI

The grounds of appeal raised by the assessee are as follows: i. For that the ld. CIT(A) was not justified in confirming addition of Rs. 9,08,743/-, disallowed out of expenses claimed under the head ‘Iron Ore Crushing Charges’. The disallowance is illegal and incorrect.

Ground no. 1 relates to the addition of Rs. 9,08,743/- disallowed out of expenses claimed under the head ‘Iron Ore Crushing Charges.’

Brief facts qua the issue are that the assessee company is engaged in the business of manufacturing of sponge iron and mild steel billets. The assessee filed its return of income on 29.09.2011 declaring total income of Rs. 19,91,19,385/-. The case was processed u/s 143(1) of the Act. Later on the case was selected for scrutiny through CASS and notice u/s 143(2) was issued on 01/08/2012 which was duly served on the assessee. In response to the notices, the ld. Counsel for the assessee filed details and the case was discussed.

We note that the Assessing Officer had made addition based on estimate i.e. ad hoc addition. On appeal the ld. CIT(A) confirmed the addition. The assessee is in appeal before us. The ld. Counsel for the assessee has raised the issue that disallowance of Rs. 9,08,743/- out of “Iron Ore Crusing Charges” was unjustified, illegal and incorrect. The ld. Assessing Officer’s observation that cogent evidence was not produced which was not correct. Factually entire expenditure was in nature of labour expenses. The ld. Counsel for the assessee further submitted that the expenses were paid to labourers and were subject to payment of ESI and P.F. The ld. Assessing Officer has not doubted these expenses but based on surmises disallowed 10% of expenses. The ld. DR on the other hand has stated that the disallowance was made as the assessee did not produce evidence for verification

We have heard both the parties and perused the material available on record. We note that it is true that the ld. Assessing Officer did not doubt expenses on ESI or PF, but the assessee at the appellant stage too has not been able to adduce any evidence to counter the statement of the ld. Assessing Officer that these details were produced before the ld. Assessing Officer for verification. Since the Assessing Officer has note doubted the genuineness of the expenses, therefore to meet the end of justice we reduce ad hoc disallowance to 5% from 10%.

Ground no. 2 relates to disallowance of Rs. 3,30,802/- being 10% of ‘Iron Ore Handling Charges’ by ld. CIT(A). At the outset itself the ld. Counsel for the assessee has raised the issue that disallowance of Rs. 3,30,802/- out of “Iron Ore Handling Charges” was unjustified, illegal and incorrect.

Ground no. 3 relates to disallowance of Rs. 76,025/- out of “Travelling Expenses”. At the outset the ld. Counsel for the assessee submitted that disallowance of Rs. 76,025/- out of “Travelling Expenses” was not justified. The expenses incurred were fully verifiable and were incurred for the purpose of business. The ld. DR on the other hand, has stated the disallowance was made by the Assessing Officer as the assessee did not produce bills for verification of these expenses and therefore the appellant’s claim that the entire expenses were for business purpose were not established. Not being satisfied with the order of the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the order of the Assessing Officer.

We have heard both the parties and perused the material available on record. We note that the Ld. CIT(A) has confirmed the ad hoc disallowance on account of iron ore handling charges at Rs. 3,30,802/- and travelling expenses at Rs. 76,075/- , as the assessee has not produced the relevant bills / vouchers. We note that Page | 3

In the result, the appeal filed by the assessee is partly allowed.