DCIT, MEERUT vs. SH. RANJIT SINGH & CO., MEERUT

“1. Whether in the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) has erred in law and fact in deleting the addition of Rs.4,35,16,201/- made by the AO due to 30% disallowance of certain expenses claimed by the assessee in P&L A/c ignoring the fact that the assessee failed to produce any documentary evidence to substantiate cash payment in respect of the said expenses and is maintaining neither any document of muster roll payment nor any self made cash voucher for these expenses.

Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the addition by partly allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.

We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

Undisputedly, the assessee has made cash expenditure of Rs.14,50,54,002/- on the basis of muster roll. AO disallowed 30% of the expenditure to cover up possible leakage as bogus payment in violation of section 40A(3).

Perusal of the impugned order passed by the ld. CIT (A) shows that undisputedly, it is rightly observed that cash expenses incurred by the assessee during the year under assessment are 65% and not 80% as has been held by AO. It is also not in dispute that the AO has impounded the books of account of the assessee during the assessment proceedings and has not disputed the same rather proceeded to make the disallowance on estimate basis by invoking the provisions contained u/s 40A(3) of the Act.

The ld. CIT (A) has also taken into account the fact that in the past, net profit @ 7.5% has been held to be fair by the Revenue authorities and similar view has been taken in AYs 2004-05, 2005- 06, 2006-07 and 2007-08 which has also been confirmed by the coordinate Bench of the Tribunal in assessee’s own case for AY 2011-12 in order dated 23.03.2018 by upholding the finding returned by ld. CIT (A) who has considered the net profit rate on receipt from erection work @ 7.5%. Even otherwise, when books of account have not been disputed by the Revenue authorities and ld. CIT (A) has deleted the addition by following the rule of consistency, there is no justification in resorting to guesswork and estimation. In these circumstances, disallowance made on ad hoc basis without assigning any reason as to why 30% disallowance of expenses have been made, is not sustainable in the eyes of law. So, we are of the considered view that ld. CIT (A) has rightly decided the issue in question. So, finding no illegality or perversity in the findings returned by the ld. CIT (A), the present appeal filed by the Revenue is dismissed. Order pronounced in open court on this 16th day of January, 2019.