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Facts
The assessee, engaged in trading agricultural produce, filed its return for AY 2017-18. The Assessing Officer (AO) disallowed coolie & labour charges and farm expenses due to a lack of documentary evidence. The CIT(A) confirmed these additions, despite a remand report acknowledging the expenses were reasonable and common in the business.
Held
The Tribunal held that the disallowance of coolie & labour charges and farm expenses was not justified. It noted that the AO's remand report confirmed the expenses were reasonable and common in the business, and that self-made vouchers were acceptable in such circumstances, especially when they represented a small percentage of the turnover.
Key Issues
Whether disallowance of coolie & labour charges and farm expenses is justified when supported by self-made vouchers and considered reasonable and common for the business.
Sections Cited
144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
Per Prashant Maharishi, Vice President
This appeal is filed by Carreg Commodities Pvt. Ltd. (the assessee/appellant) for the assessment year 2017-18 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(Appeals)] dated 31.12.2024 wherein the appeal filed by the assessee against the assessment order passed u/s. 144 of the Income-tax Act, 1961 [the Act] dated 23.12.2019 by the ITO, Ward 2(3), Mangalore [ the ld. AO ] was partly allowed.
The assessee is aggrieved and has preferred this appeal raising the following grounds:-
“ 1. The order of the learned authorities below in so far as it is against the appellant is opposed to law, equity, facts, weight of evidence, probabilities and circumstances of the case.
2. The learned authorities below are not justified upholding disallowance of Cooly and Labour charges Rs, 34,60,350/-, and disallowance of Farm Expenses amounting to Rs. 3,81,124/- on the facts and circumstances of the case.
The Learned Authorities below erred in not allowing the Cooly and Labour Charges of Rs. 34,60,350/- without appreciating these are essential for the business and are less than 1% of the turnover of the company. The learned Authorities below erred in ignoring the fact that these expenses are incurred for loading and unloading of materials paid to various labourers on need based on day to day basis. Hence the entire expenditure deserves to be allowed on facts and circumstances of the case.
4. The learned authorities below are not justified in disallowing a sum of Rs, 34,60,350/- being cooly & labour charges holding that these expenses are not be verified for its genuineness without appreciating the fact that the expenses are in the nature of Cooly and wages paid and vouchers were furnished for verification on the fact and circumstances of the case.
The learned authorities below are not justified in disallowing a sum of Rs. 3,81,124/- being Farm Expenses holding that these expenses are not be verified for its genuineness without appreciating the fact that the expenses are in relation to business and vouchers were furnished for verification on the fact and circumstances of the case.
6. The Hon'ble Commissioner of Income Tax Appeals erred in rejecting the observation made by the Assessing officer in the remand report on facts and circumstances tithe case.
The learned authorities below erred in appreciating the fact that there cannot be any bills for Cooly and Labour Charges and the very basis of disallowance is bad in law on facts and circumstances of the case.
8. Without pre-judice to any other contention, the disallowances are highly excessive and deserve to be reduced substantially. 9. The appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal
10. For the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeals may be allowed and Justice rendered.”
3. The assessee is basically aggrieved with the finding of the ld. CIT(A) in confirming the disallowance of coolie & labour charges of Rs.34,60,350 and expenditure of Rs.3,81,124 on account of farm expenses.
Briefly stated facts of the case show that assessee is a company engaged in the activity of trading in agricultural produce, filed its return of income on 31.1.2018 at a total income of Rs.18,24,410. Return was picked up for complete scrutiny. During the course of assessment proceedings, the assessee did not comply the earlier notices and notice u/s. 144 was issued on 18.12.2019 which was responded to. Therefore the ld. AO found that assessee has debited Coolie & Labour charges of Rs.34,60,350 and also farm expenses of Rs.3,81,124 for which no documentary evidences were available and therefore
disallowed the same. The total income was computed at Rs.80,11,654 by assessment order dated 23.12.2019 passed u/s. 144 of the Act.
5. The assessee aggrieved with the same preferred appeal before the ld. CIT(A). The assessee filed application for additional evidence with respect to vouchers and details of Coolie & Labour charges and farm expenses. The ld. CIT(A) asked for the remand report. In the remand report the ld. AO submitted that assessee has filed copies of bills of above expenditure. The Managing Director of the company was called for by the AO to furnish the original bills which were produced by the assessee before the ld. AO along with explanatory note. The ld. AO held the Coolie & Labour charges of Rs.34,60,350 represents payments made to unskilled labour for loading & unloading of the products. The AO was of the view that there are no bills in respect of these expenditure and only self-made vouchers are prepared. He also confirmed that expenditure of this nature is common in this kind of business. With respect to farm expenditure, it was found to be primarily cost related to enhanced cultivation and maintenance of crops. The income from this farm was already included in the revenue of the assessee. When the vouchers were produced, the ld. AO held that these are self-made vouchers for purchase of manure and other labour expenses. The finding of the AO is that these expenses appears to be reasonable. However, the ld. CIT(A) confirmed both the above additions and assessee is in appeal.
We have heard Shri Ravishankar S.V., Advocate who relied upon the remand report of the AO and also heard the ld. DR. After careful consideration, we find that in the remand report with respect to the expenditure of Rs.34,60,350, the assessee has produced all the original bills. The AO has also confirmed the nature of expenditure of payment made to unskilled labourers who are typically involved in loading & unloading of merchandise as well as hamali charges. The AO also accepted that generally this kind of expenditure are always incurred on self-made vouchers and there are no bills of third parties. The AO further found that expenditure of this nature is common in the business carried on by the assessee. Despite the above fact, the ld. AO and the ld. CIT(A) upheld the disallowance as these expenditure are self-made vouchers, genuineness of the same cannot be considered. We find that the ld. CIT(A) has ignored para 2.6 of the remand report wherein the ld. AO has categorically held that such expenditure are reasonable and common in the business. The remand report of the AO did not show that expenditure are not incurred wholly & exclusively for the purpose of assessee’s business. Merely because it is self-made voucher which is accepted to be common by the AO, it does not become non-genuine. Therefore the confirmation of the disallowance of the above expenditure, when it is merely 1% of the total turnover of the company, is not justified. Accordingly ground Nos.3 & 4 of the appeal of the assessee are allowed.
7. The facts relating to farm expenses challenged by ground No.5 is also on similar grounds. The ld. AO in his remand report has accepted that these expenditure are Coolie charges at the farm of assessee income from which is already included in the gross revenue and the fact that agricultural activities requires Coolie and other labour charges. The AO categorically held that expenditure is reasonable, but doubted the genuineness on account of self-made vouchers. There are many expenditure in the business for which the third party evidences are not available always. In such circumstances only self-made vouchers are prepared narrating the expenditure, the person to whom it is paid and respective dates of payment, etc. In view of the above facts, the ld. CIT(A) merely because of the self-made vouchers for expenses confirmed the disallowance is not correct. Therefore disallowance made by the ld. AO and confirmed by the ld. CIT(A) of Coolie & Labour charges and farm expenses is reversed and ld. AO is directed to delete the disallowance.
Accordingly the appeal of the assessee is allowed.
Pronounced in the open court on this 04th day of July, 2025.