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Facts
The assessee claimed manpower expenses amounting to Rs.1,09,54,580. The Assessing Officer (AO) found Rs.17,28,680 to be genuine and disallowed the remaining Rs.92,25,900, considering the payments made in cash through self-made vouchers as not verifiable. The National Faceless Assessment Centre (NFAC) sustained an addition of Rs.72,25,900.
Held
The Tribunal noted that the assessee's net profit rate was comparable to previous years, but acknowledged that self-made vouchers could lead to inflated expenditures. Citing a High Court judgment that allowed deductions for similar payments made for business expediency, the Tribunal found that a complete disallowance was not justified.
Key Issues
Whether the disallowance of manpower expenses claimed through cash payments evidenced by self-made vouchers is justified.
Sections Cited
250 of the Income Tax Act, 1961, 143(2) of the Act, 143(3) r.w.s. 143(3A) & 443(3B) of the Act, 44AB of the Act
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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI KESHAV DUBEY
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC dated 24.4.2024 for the assessment year 2018-19 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
The assessee raised grounds in this appeal with regard to sustaining addition of Rs.72,25,900/-. With regard to man power expenses on the ground that these payments are made in cash by self-made vouchers and therefore, the authenticity, reasonableness and genuineness of the same could not be ascertained.
Facts of the case are that the appellant is an individual and filed revised return of income on 18.09.2018, declaring total income of Rs.10,10,070/-. Subsequently the case was selected for Limited Scrutiny on the issue that the appellant has claimed to have incurred substantial sales promotion expenses vis-a-vis gross receipts. In view Dasanna Hanumanthappa, Mysore Page 2 of 4 of these facts the notice u/s 143(2) of the Act was issued to the assessee on 28.09.2019 and subsequently the details related to these expenses, along with credible documents were called for. In compliance the assessee had submitted the certain details which were examined by the AO. During the year the assessee was an official partners for the door to door marketing of the products of Amazon Distributors Private Limited and was engaged in this business for past many years. The assessee was also engaged in the business of providing labourers for the construction of single residential houses. After considering the submission of the assessee the AO completed proceedings u/s 143(3) r.w.s. 143(3A) & 443(3B) of the Act, on 05.03.2021. He made addition of Rs.92,25,900/- towards the man power expenses. Against this assessee carried appeal before NFAC. NFAC given relief of Rs.20 lakhs and sustained addition of Rs.72,252,900/-. Against this assessee once again in appeal before us.
The ld. A.R. submitted that assessee’s books of accounts are audited u/s 44AB of the Act and there was no defects in the books of accounts noticed by the ld. AO and there was no rejection of books of accounts by ld. AO. Without rejecting the books of accounts, he disallowed the expenditure on adhoc basis. He also drew our attention to the earlier year’s financials where he declared net profit. In the earlier year, the financial results are as follows:
Dasanna Hanumanthappa, Mysore Page 3 of 4 4.1 Further, he submitted that as seen from above, the net profit rate declared by the assessee is at par with the earlier assessment years. Hence, there cannot be any additions on this count.
The ld. D.R. submitted that the assessee was not able to substantiate this expenditure and supported by only self-made vouchers. The genuineness was doubted by the lower authorities. Hence, the above disallowance has been made and same to be sustained.
We have heard the rival submissions and perused the materials available on record. In the present case, as seen from the above, assessee declared net profit at 4.13% and as against the 4.22% declared in assessment year 2017-18 and 3.28% in assessment year 2016-17. However, the ld. AO noticed that the assessee claimed an expenditure of Rs.1,09,54,580/- towards manpower expenses for door to door selling of products. Out of this, the expenditure of Rs.17,28,680/- found to be genuine and balance amount of Rs.92,25,900/- found to be non-genuine and disallowed the same. 6.1 We have carefully gone through the financial details produced by assessee as reproduced in para 4 of this order. The net profit rate for the assessment year under consideration was 4.13% as compared to assessment year 2017-18, which was 4.22%, which is lower than the earlier assessment year 2017-18. In our opinion, there may be inflation of expenditure by making self-made vouchers. However, it cannot be the expenditure of disallowance sustained by the ld. CIT(A) at Rs.72,25,900/-. 6.2 Hon’ble jurisdictional High Court in the case of CIT and another Vs. Konkan Marine Agencies reported in 313 ITR 308 held as under: “Held, dismissing the appeal, that taking into consideration the assessee’s business and the prevailing practice in the trade, whereby payments had to be made by firms like the assessee in order to ensure that the work of handling goods was done within reasonable time and emergency operations of cargo handling were done beyond working hours, such payments were made either through labour or workers’ union.
Dasanna Hanumanthappa, Mysore Page 4 of 4 It could not be considered to be prohibited by law. The assessee could not be expected to take receipts from individual workers or make payment by way of cheques. The payment was made by the assessee for business purposes and the expenditure had been incurred in the ordinary course of business. Therefore, the deduction was allowable by way of business expenditure.”