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Income Tax Appellate Tribunal, DELHI BENCHES : B : NEW DELHI
Before: SHRI R.S. SYAL & SHRI KULDIP SINGH
ORDER PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order passed by the CIT(A) on 16.2.2016 in relation to the Assessment Year 2012-13.
The only issue raised in this appeal through various grounds is against the confirmation of disallowance of Rs.1,18,33,568/- made by the AO. Briefly stated, the facts of the case are that the assessee is engaged in the business of manpower supply/contractor. Gross receipts of Rs.13.67 crore were shown from which net profit of Rs.36.05 lac, giving NP rate of 2.64% was declared, as against the immediately preceding year’s gross receipts of Rs.11.80 crore and net profit of Rs.31.95 lac and net profit rate of Rs.2.71%. During the course of assessment proceedings, the AO observed that deduction was claimed by the assessee for a sum of Rs.13.02 crore under the head ‘Employee benefit expenses.’ The assessee was asked to furnish details of salary and wages payable, bonus payable and proof of salary payable. Apart from that, the assessee was also called upon to justify the expenses incurred on Vehicle maintenance by submitting the necessary details. The assessee appeared on 16.12.2014 and furnished the details, inter alia, of Salaries and wages paid and Vehicles repairs and maintenance.
On perusal of such details, the AO observed that these were self generated sheets containing information for Wages and salaries and 2 Vehicle repair and maintenance. The assessee gave further details of the persons to whom labour/manpower was supplied. The AO refused to accept the authenticity of these details as these were self generated sheets containing some information. In the absence of the assessee producing books of account and in view of unverifiable nature of expenses, the AO disallowed 10% of the total expenses towards Salary and wages, bonus and Vehicle maintenance, which resulted in to disallowance of Rs.118,33,568/-. In the first appeal, the assessee furnished further details of such expenses, which the ld. CIT(A) sent to the AO and a remand report was called for. The first remand report dated 4.6.2015 was submitted in which the AO objected to the admission of additional evidence as in his opinion sufficient opportunity was provided during the course of assessment proceedings. The assessee was provided a copy of such remand report. In rejoinder, the assessee submitted that the AO was wrong in saying that it was not prevented by sufficient cause from producing such evidence before the AO during the course of assessment proceedings. The AO was once again requested by the ld. CIT(A) to give his comments on the merits of additional 3 evidence. Vide his final remand report dated 29.7.2015, the AO apart from raising objection against the admission of additional evidence, also recorded that the assessee simply submitted ledger account of wages paid to various parties from which mode of payment was not clear.
Further, on tallying payment of such ledger entries with bank account statement, the AO found that all the entries were not reconciling. The assessee in rejoinder to the AO’s second remand report, submitted that it was never called upon for verification of information during the course of remand proceedings. The ld. CIT(A) came to hold that there was no reason to admit additional evidence produced by the assessee, which was eventually not admitted. On merits, he sustained the disallowance. The assessee is aggrieved against this addition.
After considering the rival submissions and perusing the relevant material on record, we find that the ld. CIT(A) sent the additional evidence to the AO and sought remand report not once, but, twice.
Having acknowledged the additional evidence filed by the assessee and, thereafter, sent the same to the AO for comments in remand report, he could not have refused to admit the additional evidence. If he was satisfied that the provisions of Rule 46A were not applicable, he should have refused to entertain the additional evidence at the very outset instead of accepting the same and sending it to the AO for remand report.
On merits, we find that the AO has made an ad hoc disallowance 4.
@ 10% of Employees benefit expenses and Vehicle maintenance expenses on the ground that details of the same were on self generated sheets containing some information for wages and salaries. During the remand proceedings, the AO did not accept the assessee’s claim by noticing that the payments made and recorded in the books were not tallying with the bank entries and some reconciliation was required. If some reconciliation was required, it was for the AO to seek explanation from the assessee and consider the disallowance if warranted. Nothing of the sort was done. It is not permissible to make an ad hoc disallowance @ 10% of expenses on frivolous issues. The assessee has placed on record a copy of its Profit & Loss Account from which it can be seen that the percentage of Employee benefit expenses to gross receipts for the year under consideration is 95.26% as against the preceding year’s percentage at 95.64%. This shows that the Employees benefit expenses have rather decreased in percentage terms vis-à-vis the preceding year.
In so far as the Vehicle maintenance expenses are concerned, these are properly totaled and the AO has not pointed out any specific instance of unverified vouchers. In view of the foregoing discussion, we are of the considered opinion that the ld. CIT(A) was not justified in sustaining the ad hoc disallowance @ 10% of Employees benefit expenses and Vehicle repair and maintenance expenses. The same is directed to be deleted.
In the result, the appeal is allowed.
The order pronounced in the open court on 18.11.2016.