SH. RAKESH KUMAR AGGARWAL,JALANDHAR vs. THE DEPUTY COMMISSIONER OF INCOME TAX,, JALANDHAR

5.2 On the issue of wages, Ld. CIT(A) noted that the assessee was following mercantile system of accounting. The assessee did not raise bills for payment rather the contractee made own assessment of work through engineers to make payment against the measurement. The same would imply that expenditure was incurred by the assessee before the corresponding payment was made by it. Therefore, the contention that the expenses could not be correlated to the receipts on monthly basis was plausible one. The assessee did not maintain contract-wise details and accordingly, he could not supply the requisite information as called for by Ld. AO. The average wages for first nine months as a percentage of receipts was around 24.18% which would show that higher wages were debited in later months. The assessee furnished wages registers and vouchers which were not accepted since complete details were not available therein. The Ld. CIT(A) also opined that application of lowest monthly wage rate as applied by Ld. AO was erroneous. The assessee did work of Rs.43.45 Lacs. The expenditure on above four head of expenditure worked out to be Rs.59.54 Lacs. Since no evidence was led to show that the expenses debited in March, 2007 related to earlier period, the inevitable conclusion would be that the assessee incurred huge losses during March, 2007 and the expenditure was inflated for this month. On these facts, Ld. CIT(A) estimated lump sum addition of Rs.20 Lacs on account of Wages and partly allowed the appeal of the assessee. Aggrieved, the assessee is in further appeal before us.

5.3 On the issue of Diesel / LDO / Lubricant expenses, the Ld. CIT(A) observed that there was no basis for adopting the rate of 19%. The ratio of these expenses for first nine months was 18.07% whereas the ratio for the last quarter was 47.69%. The expenses would be higher during winter months. Finally, the expenditure on lubricant was allowed in full whereas diesel / LDO expenses were allowed to the extent of 19% of total receipts. The same resulted into confirmation of disallowance of Rs.10.35 Lacs. 5.4 The assessee incurred expenditure on crusher sand and bajri for Rs.10.93 Lacs. The Ld. AO allowed 8.5% of this expenditure which was enhanced by Ld. CIT(A) to 9%. The same reduced the impugned disallowance to Rs.7.05 Lacs. 5.5 The average expenditure on freight and cartage was 3.19% whereas this ratio for the month of March was 7.85% which was held to be on the higher side. Therefore, lumpsum addition of Rs.2.50 Lacs was confirmed. The disallowance of Truck expenses for Rs.0.50 Lacs was deleted. 5.6 Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 6. It emerges that the assessee acted as a government contractor and it has not maintained contract wise details being carried out by it. The disallowance of expenses has been made by lower authorities on the ground that the assessee claimed higher expenditure in the last quarter of this year to reduce its profits. The assessee is also not able to substantiate the expenditure fully. Under these circumstances, the disallowances have been estimated by lower authorities on the basis of ratio analysis which is quite apt under the facts and circumstances of the case. The Ld. AR has urged that the assessee has declared higher net profit rate in this year and therefore, no disallowance is called for. These arguments could not be accepted since the assessee was unable to fully substantiate the expenditure with documentary evidences. However, this fact would be a relevant factor to estimate the impugned disallowances in the hands o the assessee. In this year, the assessee has declared net profit rate of 10.81% whereas net profit rate of 9.8% has been accepted in AY 2003-04. In AY 2006-07, this rate is 9.43%. The rate for AY 2004-05 is 9.64%. In other words, the profit rates in preceding years have been less than 10%.

Considering various factors, Ld. CIT(A) upheld lumpsum addition of Rs.20 Lacs. We broadly concur with the factual finding of Ld. CIT(A). However, this is only an estimated addition and the fact that the assessee has reflected higher Profit in this year in comparison to earlier years, we restrict the impugned additions to the extent of 10% of Rs.20 Lacs. In other words, the impugned addition stand restricted to the extent of Rs.2 Lacs only. The assessee succeeds partly in its ground of appeal

8. The disallowance of diesel / LDO expenses was made by Ld. AO considering the rate of 19%. However, as rightly held by Ld. CIT(A), there was no basis for adopting the rate of 19%. The ratio of this expenditure for first nine months was 18.07% whereas the ratio for the last quarter was 47.69%. The Ld. CIT(A) deleted the disallowance of lubricants but upheld disallowance of Rs.10.35 Lacs by confirming rate of 19% against diesel / LDO expenses. Considering the overall improved profit rate of the assessee, we direct Ld. AO to restrict the same to the extent of lump sum addition of Rs.2 Lacs. The assessee succeeds partly in its ground of appeal.

9. The Ld. AO has made addition of Rs.19.92 Lacs on account of crusher sand and Bajri. The Ld. CIT(A) partly allowed this ground and confirmed addition of Rs.7.05 Lacs. Applying the preceding analogy, we confirm lumpsum addition of Rs.1 Lacs under this head.

10. The lump sum addition of Rs.2.50 Lacs on freight & cartage is quite reasonable. We find no reason to interfere in the adjudication of Ld. CIT(A). No other ground has been urged before us.

12. The appeal stand partly allowed in terms of our above order. Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. Sd/- Sd/- (UDAYAN DAS GUPTA) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 10-06-2025 आदेश की �ितिलिप अ�ेिषत / Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF ASSISTANT REGISTRAR

ITAT AMRITSAR