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Income Tax Appellate Tribunal, A BENCH, MUMBAI
Appearances For the Respondent/ Assessee : Shri Kalpesh Turalkar (AR) For the Appellant/Department Shri Mehul Jain (DR) Date of conclusion of hearing : 15.02.2022 Date of pronouncement of order : 29.03.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 28.08.2019, passed by the Commissioner of Income Tax (Appeals)-36, Mumbai [hereinafter referred to as „the CIT(A)‟] in appeal [CIT(A)-36/IT-452(a)/ACIT-24(1)/2016-17] for the Assessment Year 2014-15, whereby the CIT(A) had dismissed the appeal filed by the Assessee against the Assessment Order, dated 27.12.2016, passed under section 143(3) of the of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟].
Assessment Year: 2014-15 2. Brief facts relevant to the case are that the Appellant, a resident individual, is proprietor of M/s Tirupati Constructions and Tirupati Readymix Concrete, both, engaged in construction of roads. The Appellant filed return of income on 28.11.2014 declaring total loss of INR 1,39,16,097/-. The case of the Appellant was selected for scrutiny assessment and the Assessing Officer (hereinafter referred to as „the AO‟) completed the assessment vide, order dated 27.12.2016, under Section 143(3) of the Act after making disallowance of (a) INR.39,68,896/- being ad-hoc disallowance made of 20% of salary expenses claimed, and (b) INR.3,96,120/- being ad-hoc disallowance of 10% of the repair and maintenance expenses claimed by the Appellant.
Being aggrieved, Appellant herein preferred appeal before the CIT(A) challenging the abovesaid disallowances, which was dismissed by the CIT(A) vide the order dated 28.08.2019 impugned by way of present appeal. The grounds raised by the Appellant before us are as under:
“i) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in ignoring the turnover of the appellant‟s business of Rs.17,10,08,094/- against which the appellant had claimed salary expenses of Rs.1,98,44,481/- and Repairs and Maintenance Expenses of Rs.3,96,120/- i.e. 11.60% and 2.32 % respectively of the total receipt by observing that the expenses are excessive for the reasons stated in the Assessment order. ii). On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.39,68,896/-, being the disallowance of 20% Salary Expenses of Rs.1,98,44,481/-, on the ground that the appellant failed to prove the payment of salary by not producing KYC Documents / Bank Statement and Resume etc. of the employees who were engaged solely to operate 14 Readymix Concrete Mixer and 3 Dumpers for Assessment Year: 2014-15 the business‟ of the appellant namely construction of Roads and supply of Readymix Concrete. iii) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs.3,96,120/- being 10% out of Repair & Maintenance Exp. of Rs. 39, 61,201/- on the ground that the names of the employees, being Kashyap and Yadav, it is not clear to the Assessing Officer whether these employees were related parties and also on the ground that the expenses are supported by merely self-made and self signed vouchers and that some of the expenses may not be for business purposes.”
The Ld. Authorized Representative of the Appellant appearing before us submitted that the disallowances made by the AO were arbitrary. The details of salary expenses along with salary register were produced before the AO. However, AO did not consider the same and made a disallowance of 20% of salary expenses on ad-hoc basis. Similarly, the disallowance for repair and maintenance expenses was also made on ad-hoc basis at the rate of 10% as the AO was of the view that there was possibility that some expenses would have been incurred for non-business purposes. Per contra Ld. Departmental Representative submitted that the disallowances were made because the Appellant had failed to provide relevant evidence to support his claim for expenses either before the AO or the CIT(A). He relied upon the orders passed by the AO and CIT(A) to advance his case.
We have heard the above contentions and examined the material on record. The Grounds of appeal are being taken up in seriatim.
6. Ground No.1 is general in nature and does not require adjudication.
7. Ground No.2 relates to ad-hoc disallowance of 20% of salary expenses. A perusal of Assessment Order shows that details relating to 188 employees were furnished by the Appellant to the AO along
Assessment Year: 2014-15 with the salary register. Similarity in the names/surnames arose suspicion in the mind of the AO and he sought more details supporting documents. To allay this suspicion the Appellant explained to the AO that the Appellant was engaged in the business of construction of road and providing ready mix concrete; and had employed drivers, cleaners, and other supporting workers most of whom were from the state of Bihar and Uttar Pradesh and therefore, there was similarity in surnames. Before the CIT(A) the Appellant also filed submissions stating that Appellant had 14 ready mix concrete mixers, pumps to lift concrete, 2 JCBs, vans, tow vans etc. and therefore, required at least 22 drivers and 22 cleaners for the same. To provide support to drivers/cleaners other ordinary workers were also employed. The average salary of such workers/drivers/cleaners was 6,000/- to 12,000/- per month. However, the CIT(A) was not persuaded to grant any relief and therefore, CIT(A) dismissed the appeal.
7.1. We have examined the details of salary payments which were also filed before the CIT(A) and the same contain the name of employee, as well as the nature of work performed by such employee to distinguish between employees with same/similar names. Permanent Account Numbers of employees getting salary more of than 2 Lakhs have also been stated.
7.2 It was not the case of the AO that the salary expenses claimed by the Appellant were excessive or unreasonable. No specific defect was point out by the AO in the details of salary or in the salary register provided to him. The only cause for concern for the AO was similarity in names/surnames which was addressed by the Appellant as discussed hereinabove.
7.3 We are of the considered view that ad-hoc disallowance cannot be sustained de-hors the AO pointing out specific irregularity. The AO failed to appreciate the nature of business/employment and erred in making ad-hoc disallowance of 20% of salary expenses claimed by the Assessment Year: 2014-15 Appellant merely on basis of surmise. We do not find any justification in making ad-hoc disallowance of 20% of salary expenses and accordingly, set aside the order passed by the CIT(A) on this issue, and direct the AO to delete the impugned addition/disallowance of INR. 39,68,896/-.
Ground No.3 relates to ad-hoc disallowance of 10% of repair and maintenance expenses. The disallowance of 10% of repair and maintenance expenses has been made by the AO as the AO harbored a suspicion that some expenses might have been incurred for non- business purposes. The vouchers and receipts produced by the Appellant were rejected by making a general observation that bills and vouchers supplied were self-signed with incorrect prices without pointing out specific defects.
We are of the considered view that the AO has made the impugned disallowance on the basis surmises/suspicion without showing as to how and upto what extent personal element is involved in repair & maintenance expenses claimed by the Appellant. We do not find any justification in making ad-hoc disallowance of 10% of repair & maintenance expenses. Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO to delete the impugned disallowance of INR.3,96,120/-.
In the result, appeal of the Assessee is allowed.