M/S. BALA ENVIRO MAINTENANCE PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

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.

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.

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.

The order pronounced in the open court on 18.11.2016.