What did the Tribunal hold?

The Tribunal found the 30% ad-hoc disallowance to be excessive. While acknowledging the assessee's lack of cooperation and the need for estimation, it reduced the disallowance to 10% of the expenditure, deeming it to meet the ends of justice.

The assessee, engaged in the business of supplying boulders and stone chips, claimed various expenses. The Assessing Officer disallowed 30% of these expenses on an ad-hoc basis due to a lack of verifiable evidence. The CIT(A) confirmed this disallowance, citing the assessee's low profit margin of 3.18%.

What were the issues?

Whether the ad-hoc disallowance of 30% of expenditure claimed by the assessee on freight, labour, salary, and wages was justified, considering the low profit declared and lack of evidence.

Shri Doman Sahani, Darjeeling vs ITO | ITAT Kolkata 2018

Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA

Before: Sri J. Sudhakar Reddy

Shri Domani Sahani….…………………….………………………………………….…………………….…….Appellant C/o. Subash Agarwal & Associates Siddha Gibson 1, Gibson Lane 2nd Floor Suite – 213 Kolkata – 700 069 [PAN: ASKPS 0312 B] Income Tax Officer, Ward-1(3), Kolkata…………....…………………………………………………Respondent Appearances by: Shri Pijush Mukherjee, Addl. CIT, appeared on behalf of the Revenue. Shri Subash Agarwal, Advocate, appeared on behalf of the Assessee. Date of concluding the hearing : March 12th, 2018 Date of pronouncing the order : April 13th , 2018 ORDER Per J. Sudhakar Reddy, AM :-

This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-SIliguri, (hereinafter the ‘Ld. CIT(A)’), dt. 31/08/2017, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’), relating to Assessment Year 2013-14.

The assessee is an individual and is in the business of supply of boulders stone chips and raw material. The sole issue that arises for my adjudication is whether the disallowance of 30% of expenditure claimed on freight charges, labour charges, salary and wages and watch and ward on ad-hoc basis is justified or not.

2.1. I find that the disallowance has been made by the Assessing Officer as the assessee failed to produce evidence in proof of genuineness of expenses. The ld. First Appellate Authority confirmed the addition as the profit declared by the assessee was only 3.18% of the turnover. He was of the view that the profit declared is very low. I find that he ld. First Appellate Authority at para 3 page 4 of his order observed that the Assessing Officer rejected the books of account of the assessee as the entire expenditure claimed was not verifiable. This is factually incorrect as the Assessing Officer has not 2 Shri Domani Sahani Assessment Year: 2013-14 rejected the books of accounts. In his view the net profit in this line of business should have been 5%. In other words, he was of the view that the profit has been under declared by 1.82%. Even after the estimated disallowance made by the Assessing Officer, the assessee had profit of Rs.4,25,479/-, which is low. Thus, the ld. CIT(A) rejected the appeal of the assessee.

This is a case of estimation of income. The assessee has not co-operated, in any manner before the lower authorities. He has not produced any evidence in support of his claim. Hence the profit has been estimated. Keeping in view the facts and circumstances of the case, disallowance of 10% of the expenditure would meet the ends of justice as in my view disallowance of 30% of the expenditure claimed on an ad-hoc basis is on the higher side and hence excessive. The balance disallowance of 20% is hereby deleted.

In the result, appeal of the assessee is allowed in part. Kolkata, the 13th day of April, 2018. Sd/- [J. Sudhakar Reddy] Accountant Member Dated :13.04.2018 {SC SPS} Copy of the order forwarded to: 1. Shri Domani Sahani C/o. Subash Agarwal & Associates Siddha Gibson 1, Gibson Lane 2nd Floor Suite – 213 Kolkata – 700 069 2. Income Tax Officer, Ward-1(3), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.

SHRI DOMAN SAHANI,DARJEELING vs. ITO, WARD - 1(3), SILIGURI, SILIGURI

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