ACIT, CIRCLE-33, KOLKATA, KOLKATA vs. M/S. G. D. CONSTRUCTION & CO., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “A” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “A” KOLKATA Before Shri Aby.T Varkey, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.1595/Kol/2014 Assessment Year :2010-11

ACIT, Circle-33, V/s. Debdas Dutta 10B, Middleton Row, P.O & Vill. Dhaltitha, 3rd Floor,Kolkata-71 Basirhat, Dist. North 24 Pgns. West Bengal [PAN No.ADSPD 8693 D] .. अपीलाथ� /Appellant ��यथ�/Respondent

Shri Sallong Yaden, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri D.S. Damle, FCA ��यथ� क� ओर से/By Respondent 12-10-2017 सुनवाई क� तार�ख/Date of Hearing 15-12-2017 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-XIX, Kolkata dated 06.06.2014. Assessment was framed by ACIT, Circle-33, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 25.03.2013 for assessment year 2010-11. The grounds raised by the Revenue reads as under:- “1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in deleting the addition made on account of disallowance @ 10% of Labor Charges of Rs.6,00,26,712/- on which no TDS was made and payments were made in cash through self-made vouchers having neither the addresses nor complete identity of the payees.” 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in deleting the addition of Rs.1,06,06,716/- (Rs.1,14,49,545 – Rs.8,42,829) made on account of unverifiable sundry

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 2 creditors as the assessee failed to produce any books of account and also failed to give new address of the creditors for verification.” 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in deleting the addition of Rs.21,53,716/- i.e. 5% of materials purchased as the assessee failed to produce any details of materials consumed and also no books of account & supporting documents were produced.” 4. “Any other ground, appellant craves leave to submit on or before the hearing of the appeal.” Shri Sallong Yaden, Ld. Departmental Representative appeared on behalf of Revenue and Shri D.S. Damle, Ld. Authorized Representative appeared on behalf of assessee. 2. Fist issue raised by Revenue in ground No.1 is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹60,02,671/-on account of non-availability of supporting evidence.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 3 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that :- i) Large number of labours were deputed on the different sites of the projects and all the necessary details in support of labour charges such as vouchers, wage distribution register and other relevant documentary evidence were duly produced before AO. ii) It is important to understand that most of the labourers employed were illiterate and unskilled. These labourers were residing in such remote places where banking facilities are not available. Thus in such circumstances, wages were disbursed in cash. iii) AO failed to point out any specific instance of the expenditure where the evidence was not furnished; iv) AO himself has admitted the fact that about the labour charges where TDS was deducted as well as where the TDS were not deducted. This act of AO shows that he was provided with all the details of labour expense; v) The AO has not rejected the books of account and assessment was not framed u/s. 144 of the Act which proved that all the necessary details were produced before him during assessment proceeding; vi) The AO did not dispute the reasonableness of expense;

Ld. CIT(A) after considering the submissions made by assessee has deleted the addition made by the AO by observing as under:- “5.3 I have carefully considered the submissions of the appellant and have perused the details of labour charges as debited in the appellant’s profit & loss account. As noted in the foregoing during the relevant year the appellant carried on the business as a government contractor. The appellant executed civil contract in the interiors of West Bengal. The nature of appellant’s business required him to engage unskilled manual labour in large number at the work sites. Having regard to the nature of business carried on by the assessee it was essential for the assessee to engage labour which was mainly sourced locally. As a general practice the local labour executing manual jobs are semi-literate and migrant in nature. In the impugned order the AO did not dispute the fact that the appellant had maintained records of labour wages disbursed at various sites. As per the normal practice followed in the business of

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 4 contract execution, labour wages are disbursed periodically in cash and therefore the mere fact that the assessee incurred the labour wages in cash cannot militate against the assessee. It is not disputed by the AO that the appellant had maintained records in respect of labour wages paid and the same were produced before him. Although the AO alleged that the expenses were not fully verifiable he did not spell out in the impugned order any specific instance where the labour payment were found to be unsupported by relevant vouchers or evidences. Having regard to the nature of appellant’s business and also having regard to the fact that the labour wages were disbursed at periodic intervals at the job sites which were all in the interiors of the State, adverse inference could not be drawn only because payments were disbursed in cash. Before making adhoc disallowance it was necessary for the AO to bring on record at least few specific instances where the expenditure was found to be not supported by any vouchers or other supporting evidences. I however find that just by making generalized observation that the appellant failed to produce full supporting evidences the AO produced to make adhoc disallowance. I also find merit in the AR’s submissions that the disallowance was made without application of mind. Not only the AO disallowance not point out any specific instance of unverifiable expenditure but the AO held that disallowance at the rate of 5% of the expenses was justifiable. Having so observed the AO however proceeded to disallow 10% of the labour charges paid which clearly shows non-application of mind and supports the appellant’s contention that the disallowance was based on conjecture. In the present case the appellant’s books were audited by a Chartered Accountant. Even by Assessing Officer's own admission the appellant had produced the details and evidences in support of labour wages paid. The AO did not point out any specific infirmity or inaccuracy in any of the particular expenditure incurred. In the circumstances even by Assessing Officer' own admission 95% of the expenditure was found to be genuine and bonafide but he doubted only 5% of the expenditure to be not genuine. In my considered opinion if the AO found 95% of the expenses to be genuine and did not point out any specific instance of the expenses being un-verifiable he was not justified in making adhoc estimated disallowance of 10% of the expenses. The disallowance of ₹60,02,671/- as made in the impugned order is therefore directed to be deleted. Ground No.2 is therefore allowed.” The Revenue, being aggrieved, is in appeal before us. 5. Before us Ld. DR submitted that assessee was provided sufficient opportunities of being heard but most of the time assessee failed to appear before AO. Therefore in the interest of natural justice matter should be restored to the file of AO for fresh adjudication as assessee failed to produce books of account, bills and vouchers.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 5 On the other hand, Ld. AR reiterated the submissions that were placed before Ld. CIT(A). He relied on the order of Ld. CIT(A).

6.1 The AO has framed the assessment u/s 143(3) of the Act which is contrary of his own finding that supporting evidences were not furnished by assessee. The AO was very much empowered to reject the books of account and to frame assessment u/s 144 of the Act which in our considered view AO failed to do so.

6.2 We also observed that AO was very much empowered to initiate the penalty u/s 271(1)(b) of the Act in the event of non appearance of assessee on the date of hearing despite the fact that notices for hearing were sent to him. On perusal of the assessment order, we note that no penalty of whatsoever has been initiated by the AO. We also observed that the AO has not initiated penalty on account of non- maintenance of books of account u/s 271A of the Act.

6.3 We also find that various Tribunal’s orders as well as judgments of various Hon'ble High Courts have held that profit declared in the contractor business @ 4 to 6% is quite reasonable some of the cases are listed below:- 3. In the case of Metropolitan Engg. Co. Opt. Society Ltd. vs. ACIT ITA No.s 2172 & 2172/Kol/2010 it has been held that in the AY 2001-02, the assessee is engaged in civil contract business with others business segments. AO estimated net income from the work contract @ 10% on the gross contract receipts. Assessee failed to furnish necessary evidence for purchase and

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 6 other expenses. Purchase & expenses not confirmed on an enquiry conducted by the AO u/s. 133(6). Ld. CIT(A) confirmed the order of the Assessing Officer. Tribunal relied on the decision of Hon’ble Orissa High Court decision in the case of CIT Vs Nandaram Hunda Ram (1976) 103 ITR 433, wherein it is held that “if the assessee failed to produce acceptable accounts revenue would be on the decision of Royal medial Hall vs. CIT (1962) 46 ITR 748 (AP) wherein it is held that “estimate of income on the basis of materials available and the past assessment record was held proper” and Tribunal directed the Assessing Officer to recomputed the income by applying 6% of net profit on gross contract receipts. 4. In the case of Pravin Pandurang Patil, Islampur in ITA No. 850/PN/08 it has been held that in the AY 2005-06, the assessee is engaged in civil contract business with others business segments. AO rejected the books of account invoking the provisions of Section 145(3) and estimated net income from the contract business @ 8%. Assessee failed to produce the labour payment vouchers and purchase bills to verify the expenses purchase and closing stock. Ld. CIT(A) has estimated the income from regular contract business at 8% of the contract receipts and 4% in so far sub-contracting is concerned. Honble lordship of Tribunal, directed to estimate the income @ 6% from the contract business sand so far as profit on sub-contract business and road roller hiring is concerned uphold the estimation as adopted by the Commissioner of Income Tax (Appeals) to meet the end of justice. 5. In the case of the ACIT Gandhidham Circle vs. M/s Ishwar Construction Co. Gandhidham, ITA No. 1140/RJT/2009 it has been held that in the AY 2005- 06, the assessee was engaged in the business of civil construction. Assessee fails to provide proper evidence in the shape of bills, vouchers, unable to verify purchases before the AO and AO made addition for unexplained purchase, sub-contract expenses and under valuation of work-in-progress. The Ld. CIT(A) estimated the total income by applying net profit rate of 4%. Both the assessee and revenue has challenged to the extent of order against them. The Tribunal inclined upon the order of the Ld. CIT(A) and accordingly confirmed.” However, in the instant case, we find that the assessee has offered net profit @ 6.5% which is quite reasonable from the business of Government contracts. We also note that the AO has made the disallowance on the ground that in most of the cases self made vouchers were produced by the assessee. However on examination of AO order we notice certain lapses as detailed below : 1. The AO made the disallowance on adhoc basis and without pointing out any specific defects in the vouchers produced before him.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 7 2. The AO was very much authorized by the statute to reject the books of accounts under section 145(3) of the Act in the event he is not satisfied with the correctness of the books of accounts. The relevant provision of section 145(3) reads as under : 16[Method of accounting.17 145. (1) ----------------- (2)--------------- (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.]

But we note that the AO has not rejected the books of accounts of the assessee. 3. The AO has not brought on record any cogent reasons for making the disallowance of the above stated amount. It is not the case that the expenses were considered to be bogus or unreasonable. The allegation of the AO is that the vouchers were handmade. There are certain situations and circumstances where the external documents in support of the expenses are not available. One of such expense appears to be labour charges in the facts and circumstances of the given case. It is because the assessee is a Government Contractor which is labour intensive activity. Therefore the AO needs to refer to the earlier year financial statement to ensure unreasonable expenses has been claimed by the assessee. But no such exercise was carried out by the AO.

In this connection, we also rely on the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA 11/Kol/2013 Dated 12.11.2014. The relevant extract is reproduced below.:- 4. “8. We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer has disallowed 20% of the expenses on estimate basis on the ground that no independent verification to be made to find out the authenticity of the expenses. Ld. CIT(Appeals) has reduced the

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 8 same on the same ground. However, we are of the view that no estimated disallowance scan be made for inability to make independent verification. If any specific expenditure is unverifiable or is un-vouched, then such specific expenditure is disallowable. Her no such specific identification has been done. In these circumstances, we are of the view that the estimated disallowance as confirmed by the ld. CIT(Appeals) is unsustainable. Consequently the same stands deleted. In the result, Grounds No. 2 & 3 of the assessee’s appeal stand allowed.” In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. Consequently, Revenue’s ground is dismissed. 7. Next issue raised by Revenue in ground No.2 is that Ld. CIT(A) erred in deleting the addition made by AO for ₹106,06,716/- on account of unverifiable sundry creditors.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 9 As the assessee failed to produce the necessary details therefore the addition was made by AO for ₹1,14,49,545/-. 9. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that AO has made the addition in respect of 12 parties for the outstanding amount appearing as on 31.03.2010, however, the AO has not pointed out any provision of the Income-tax Act under which the addition was made. Similarly, the necessary details in respect of the creditors consisting names, address, opening and closing balance were duly furnished before AO. The assessee was doing transactions regularly with those parties and all the transactions of purchase and payment made to them were duly accepted by the AO except the outstanding balance appearing at the end of the financial year under consideration which showed that AO has not doubted the transactions which have been squared up during the year under consideration. The financial statements of the assessee were duly audited by the auditor and no defect of whatsoever was reported in respect of the aforesaid 12 parties. Out of the 12 parties 8 parties had duly replied in response to the notice issued u/s. 133(6) of the Act and confirmed the transactions with the assessee. The amount of disallowance made by the AO for ₹1,14,49,545/- includes the amount of opening balance of creditors ₹45,90,956/- for which were brought from the earlier years and in such situation no addition can be made u/s. 68 of the Act in respect of sundry creditors brought forward from the earlier years.

9.1 The addition u/s. 68 of the Act can be made if any sum is received by the assessee. In the instant case, no sum whatsoever has been received by assessee as all the transactions are arising in the books of account of the assessee from the business. In view of the above, the assessee submitted that the addition made by the AO is based on his conjecture and surmise. Ld. CIT(A) after considering the submission of assessee observed certain facts as detailed under:-

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 10 a) AO failed to bring the provision of the Act under which the addition was made; b) Out of 12 parties , 11 parties are the trade creditors with whom the assessee was doing regular business transactions; c) All the creditors shown in the books of account were arisen from the purchase made by assessee thus no loan of whatsoever was taken by assessee from those parties; According Ld. CIT(A) deleted the addition made by AO by observing as under:- “… … it appeared from the material on record that the assessee had trading transactions with 11 parties. From the copies of accounts furnished, it appeared that 11 parties had either supplied materials or labor for executing contractual jobs. Value of invoices raised by each of the party was credited to the individual account of the creditor in the appellant’s books. From the information on record it appeared that in the course of assessment the appellant had furnished details of labour charges paid as well as materials consumed in execution of contracts. Copies were field. Out of the total expenditure on labour charges debited in the P&L A/c. labour charges of ₹2,40,50,615/- were payable to 13 parties and in respect of these charges tax u/s.194C was deducted at source by the appellant. In respect of the labour charges payable to these parties, the AO accepted the genuineness of the entire expenditure amounting to ₹240.50 lacs on being satisfied. Out of the 13 parties to whom such labour charges were payable, 6 parties viz. Bengal Engineering Corporation, Kamlesh Biswas, Chandan Biswas, Anisur Alam Mallick, Mazid Ali Gazi and Amit BIasu are the persons whose outstanding balances as on 31.03.2010 were considered by the AO for the purposes of making impugned addition. I further find that out of the aforesaid six parties, 5 parties viz. Kamlesh Biswas, Chandan Biswas, Anisur Alam Mallick, Mazid Ali Gazi and Ami Basu had furnished their letters of confirmations in the office of the AO in the month of December 2012. In their confirmatory letters, each of the party had confirmed their transactions with the appellant. In the letters of confirmations they had also confirmed that the appellant had deducted tax u/s.194C form the labour charges payable to them and had furnished their respective PAN.I also find from the impugned order that the AO did not doubt the genuineness or bona fide of the expenditure by way of labour charges payable to these six parties. Rather the AO had accepted the expenses to be genuine and tax was properly deducted u/s. 194C of the Act. In this factual background, therefore, the amounts outstanding and due to these six parties could not therefore be assessed as income of the appellant. 6.5 As regard to the amounts outstanding and due to the remaining five parties, it appeared from the copies of ledger accounts that these parties viz. Maji Enterprises, Adhunik Traders, Nur Ali Khan, Konked International & Sahabudin Dhali had supplied materials such as sand, stone chips, bricks etc. to the appellant’s proprietary firm M/s Bengal Trading Co. and the invoiced

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 11 value for the materials supplied was credited to the individual party’s account in the books of the appellant. It further appeared that M/s Maji Enterprise, Nur Ali Khan & Sahabudin Dhalihad filed their confirmatory letters in the office of the AO much before the completion of the assessment. In their confirmatory letters, the parties had confirmed their transactions with the appellant. As regards addition of outstanding sum of ₹8,42,829/- mad in the name of Bengal Trading Corporation, I note that the said Bengal Trading Corporation is another proprietary concern of Shri Debdas Dutta i.e. the appellant himself. It therefore appeared that one proprietary concern of the appellant had provided sum of money to another proprietary concern i.e. Bengal Trading Company. As such, the transactions between the two proprietary concerns beneficially belonged to the appellant himself. Having regard to these facts, I therefore find that the addition made by the AO was factually as well as legally unjustified. 6.6 As noted in the foregoing, the amounts were added by the AO without specifying the enabling provision of the Act which permitted the AO to make addition only in respect of outstanding balances appearing in the accounts of sundry creditors. The information and evidences on record prove that save and except the transactions between Bengal Trading Corporation and Bengal Trading Company, the transactions with remaining 11 parties were on trading account. The said 11 parties had supplied material or labour for which invoices were raised on the appellant. In the impugned assessment order, the AO did not disallow the expenses incurred on the ground that the assessee’s trading transactions were either bogus or proved to be not genuine. In the circumstances, whom part of the transactions resulting in debit of expenses to the profit & loss account was not proved to be bogus or unverifiable then the remaining part could not be disbelieved. In fact, to the extent the appellant had made payments to these 11 parties during the relevant year, the AO had accepted the genuineness of the parties and did not draw any adverse inference. Once part of the transactions with the same parties and draw adverse inference against the appellant only with reference to the amounts remaining outstanding as at the close of the previous year. 6.7 In this regard I find that the appellant’s case is supported by the decision of Delhi High Court in the case of CIT vs. Ritu Anurag Agarwal (supra). In this case, additions in respect of sundry creditors’ balances were made on the ground that the assessee failed to produce books of account, bills &vouchers etc. While upholding the relief allowed by the ITAT, the High Court observed that in the assessment order purchases from the parties were not disbelieved nor trading results disclosed by the books rejected. In the circumstances when purchases made from the parties were accepted by the Assessing Officer then only in respect of unpaid balances the AO could not dispute the genuine existence of the parties. The same view was taken by the Special Bench of the ITAT at Delhi in the case of Manoj Agarwal vs. DCIT (113ITD 377). In its judgment the Special Bench specifically observed that there is a marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under Section 68, more so when the purchase has been accepted as genuine and a deduction therefore has been allowed.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 12 6.8 Applying ratio laid down in these judgments, I therefore hold that since in respect of sums due to 11 parties the AO did not dispute or disbelieve the appellant’s trading transactions with these parties during the year, no addition in respect of outstanding balances was justifiable under Assessment Year of the extant provisions of the Act. As regards addition of ₹8,42,289/- ,being amount outstanding and due in the name of Bengal Trading Corporation, it appeared that both Bengal Trading Company and Bengal Trading Corporation were proprietary concerns of the assessee himself and therefore liability appearing in the books of one proprietary concern in the name of another could not be assessed as the income of the appellant. for the reasons discussed in the foregoing, therefore, the entire addition of ₹1,14,49,545/- is directed to be deleted. Ground No.s 3, 4 & 5 are allowed.” The Revenue, being aggrieved, is in appeal before us. 10. Before us Ld. DR submitted that books of account were not produced before Ld. CIT(A) as well as before AO. Therefore Ld. CIT(A) should have rejected books of account as he held co-terminus power but Ld. CIT(A) failed to invoke the provision of Section 145(3) of the Act. He requested the Bench to restore the matter to the file of AO for fresh adjudicated in accordance with law. The ld. DR heavily relied on the order of AO. On the other hand, Ld. AR submitted that out of 12 parties 8 parties have responded to the notice issued u/s. 133(6) of the Act and AO has admitted the transactions with the parties as discussed above as genuine other than the amount of closing balance appearing at the end of the year under consideration. Ld. AR relied on the order of Ld. CIT(A).

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 13 be disturbed without disallowing the corresponding purchase. In holding so, we draw support and guidance from the order of ITAT Delhi Bench in the case of DCIT Vs. Divine International reported in 134 ITD 148 (Del) wherein it was held as under : “In the case of the assessee these creditors represent the outstanding amount on account of the purchases. There can be three alternative allegations against the assessee. One can be that these credits represent the credit for earlier years. If that be the case, no addition can be made in this year under section 68. The second allegation can be that these credits represent the purchases for which payments have been made by the assessee during the year itself. If this is so, the onus will be on the department to establish that assessee has made payment to these creditors. This is not even the allegation of the Assessing Officer, much less his case against the assessee. The third allegation can be that these credits do not represent the purchases which have been made by the assessee. The implication of this will be that the purchases debited in the trading account are not genuine to that extent and, accordingly, that the trading account is not correct. However, on going through the assessment order, it is evident that the trading results have been accepted. Despite this, for the sake of analysis, if it is considered that the assessee has failed to prove the genuineness of the creditors and, consequently, the purchases to that extent are not genuine, then the declared gross profit of Rs. 32,16,564 will get further enhanced by Rs. 37,99,907, i.e., a GP of Rs. 70,16,471 on a total turnover of Rs. 2,51,55,930 giving an exorbitant gross profit rate of 27.89 per cent, which is not the case. It is also important to note that the assessee is in the business of exports and its entire income is exempt. There is, as such, no reason for the assessee to suppress the profit as its income. [Para 20] Taking into consideration the above facts of the assessee, it is a fit case not to make any addition by invoking the deeming fiction of section 68 in respect of the sundry creditors, despite the fact that the assessee could not supply the addresses of these creditors. All the facts and circumstances of the case, including that of destruction of books of account, old period, petty karigars, advances to the suppliers, debtors and the closing stock, and particularly the fact that all these creditors have been paid off in the subsequent year and the return for that year has been accepted by the department clearly show that in the case of the assessee it is not necessary to add these creditors.”

Respectfully following the same, we do not find any interference in the order of Ld. CIT(A). We hold accordingly. Consequently, ground raised by Revenue is dismissed. 12. Next issue raised by Revenue is that Ld. CIT(A) in deleting the addition made by AO for ₹21,53,716/-being 5% of material purchase on the ground that assessee failed to produce supporting evidence.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 14 13. Assessee during the year has claimed material purchased of ₹4,30,74,339/- in its profit and loss account. The AO to verify the genuineness of the expenses requested the assessee to produce the supporting evidence but assessee failed to do so. Therefore, AO disallowed the materials purchased expenditure @ 5% i.e. ₹21,53,716/- and added to the total income of assessee. 14. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that all the necessary details of materials purchased were duly produced before AO during assessment proceedings. The assessee further submitted that if it has failed to produce any documentary evidence then the AO should have disallowed entire amount of materials purchased expenditure. There was no logic to accept 95% of expense and disallow 5% expense on ad hoc basis. The assessee also submitted that all the necessary details along with books of account were duly submitted and no defect was pointed out by the AO. Had the books of account not been produced before AO then he should have rejected the same u/s. 145(3) of the Act and should have framed the assessment u/s. 144 of the Act which he failed to do so. Assessee also cited various courts case where it was held that no disallowance on ad hoc basis can be made. Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO by observing as under:- “7.3 I have carefully considered the submissions of the parties. It appeared that the AO made the disallowance primarily on the ground that the assessee failed to produce books of account. The AR of the appellant had furnished details of materials consumed and these details were furnished before the AO. On perusal of the impugned order, it appeared that despite appellant’s alleged failure to comply with notices, the AO did not complete the assessment u/s. 144. I also find that the AO did not invoke provisions of Section 145(3) and thereby did not reject books of account and the results as disclosed by the audited profit & loss account. The books of the appellant were audited u/s. 44AB of the Act and the AO did not prove o indicate any falsity or infirmity in the information statutorily provided by the Tax Auditor. In the circumstances, I find that the AO did not prove any specific short coming or inadequacy in the audited accounts furnished before him. The appellant had also furnished the details of materials consumed and no specific infirmity in these details was pointed out. I further note that even though the AO stressed on the fact of non-compliance on the appellant’s part, yet 95% of the

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 15 expenses was allowed by the AO himself, meaning thereby that the AO was satisfied about the genuineness of the expenditure to the extent of 95%. In the above background, therefore, I do not see any justification in the AO's action of disbelieving the genuineness of only about 5% of the expenses on account of material consumption particularly when no specific infirmity was pointed out n the details furnished. I also find that on the turnover of ₹15 crores, the assessee had disclosed income in excess of ₹1 crore which in percentage terms was approximately 6.5%.Having regard to the nature of business and the turnover achieved disclosure of such income cannot be considered to be low or unreasonable. For the reasons aforesaid, therefore, I do not find any justification for sustaining the adhoc estimated disallowance of ₹21,53,716/- on account of material consumption. The disallowance is therefore deleted. Ground Nos 6 & 7 are accordingly allowed.” The Revenue, being aggrieved, is in appeal before us. 14. Before us both parties relied on the order of Authorities Below as favorable to them.

ITA No.1595/Kol/2014 A.Y. 2010-11 ACIT, Cir-33 Kol. Vs. Debdas Dutta Page 16 15.1 We also note that the disallowance was made by the AO on estimates which is not correct in view of the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA No.11/Kol/2013 dated 12.11.2014.Therefore we do not find any reason to interfere in the order of ld. CIT(A). Thus the ground raised by the Revenue is dismissed.