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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
O R D E R
Per Shri B.R. Baskaran, Accountant Member
The assessee has filed this appeal challenging the order dated 30.03.2018 passed by ld. CIT(A), Gulbarga for the Assessment Year 2015-16. The assessee is aggrieved by the decision of CIT(A) in granting only partial relief in respect of addition made by the AO out of labour charges.
We heard the parties and perused the record. The assessee is a partnership firm and is engaged in the business of purchase of Kappas, Ginning the Kappas and pressing it into Cotton Lints. It is also trades in Cotton Lints and Cotton Seeds. During the course of assessment proceedings, the AO noticed that the assessee has claimed a sum of Rs. 72.53 Lakhs as Hamali Charges (Labour charges). On verification of the supporting bills / vouchers/invoices, the AO observed that the payments have been made in cash and further these expenses are supported by self
Page 2 of 3 made vouchers. The said vouchers did not contain the full address of payees. Hence the AO took the view that the possibility of inflation of expenditure under the above head cannot be ruled out. Accordingly. In order to take care of possible revenue leakages, the AO disallowed 50% of the expenses, which amounted to Rs. 36.26 Lakhs. In the appellate proceedings the ld. CIT(A) restricted the expenditure claimed as labour charges to 25% of the returned income of the assessee. The same worked out to Rs. 51.16 Lakhs. Accordingly the ld. CIT(A) sustained disallowance to the tune of Rs. 21.37 Lakhs as against the disallowance of Rs. 36.26 Lakhs made by the AO. Still aggrieved the assessee has filed this appeal before us.
The ld. AR of assessee submitted that the Assessing Officer has made this disallowance without rejecting the books of accounts and hence the same is liable to be deleted. He further submitted that, in the preceding Assessment Years viz. Assessment Years 2013-14 and 2014-15, the Assessing Officer has made disallowance out of hamali (labour) charges on adhoc basis and the disallowance so made worked out to 4.9% and 6% of the expenditure respectively. Accordingly the ld. AR submitted that the disallowance sustained by ld. CIT(A) is very much on the higher side.
On the contrary, the ld. DR strongly supported the order passed by ld. CIT(A). He submitted that the assessee has claimed the expenses through self made vouchers which are not susceptible to verification and further, these expenses have been incurred by way of cash.
We heard the rival contentions and perused the record. There is no dispute with regard to the fact that the initial responsibility to prove the expenditure claimed by the assessee is placed on the shoulder of the assessee. In the instant case, the assessee has incurred hamali (labour) charges and they are supported by self made vouchers only. The Assessing Officer has pointed out that the address of the payees is not available on the vouchers, meaning thereby, there is merit in this submission of ld. DR that these
Page 3 of 3 expenses are not susceptible for verification. We noticed that in the past also the Assessing Officer has made disallowance out of these expenses. We have noticed that adhoc disallowance so made worked out to 4.9% and 6% respectively in Assessment Years 2013-14 and 2014-15. In the instant case, the ld. CIT(A) has sustained disallowance to the extent of Rs. 21.37 Lakhs, which worked out to 29.44%. When compared with the disallowance made in the earlier years, the disallowance sustained by ld. CIT(A) is very much on the higher side. Since the supporting vouchers suffer from certain defects, in our view, disallowance out of hamali(labour) charges is called for. Accordingly, by considering the quantum of disallowance made in the earlier years, we are of the view that this issue would meet the ends of justice if the disallowance is restricted to 7.5% of the hamali (labour) expenditure claimed by the assessee. Accordingly, we modify the order passed by ld. CIT(A) on this issue and direct the Assessing Officer to sustain the disallowance to the extent of 7.5% of the hamali charges claimed by the assessee.
In the result, the appeal filed by the assessee is partly allowed.
Pronounced in the open court on this 20th day of February, 2019.