MOHIT LAL GHOSH,HOOGHLY vs. ACIT, CIR-I, HOOGHLY, HOOGHLY

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 19.03.2014. Assessment was framed by ACIT, Circle-1, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2011 for assessment year 2009-10. Shri Somnath Ghosh, Ld. Advocate appeared on behalf of assessee and Shri Anand Kumar Singh, Ld. Departmental Representative represented on behalf of Revenue.

Facts in brief are that assessee in the present case is an individual and engaged in the business of brick field, hire charges of lorry etc., The assessee is a proprietor of two concerns namely Sundry Brick fields and Maa Mangalchandi Brick Field. The assessee has claimed earth cutting expense for ₹19,42,960/- and ₹8,22,220/- in its two both proprietor concerns. The assessee in support of its expense has produced the debit vouchers wherein in many cases the name of recipient and address were not recorded. Accordingly, AO opined that independent verification to establish the authenticity of the expense cannot be made. Therefore, AO in the absence of corroborative evidence has disallowed the 10% of the expense to the tune of ₹2,76,518/- and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that assessee is engaged in manufacturing activities of brick making which is labour intensive industries. The AO in assessment order has not denied the fact that these expenses were not incurred exclusively for the purpose of assessee’s business. Thus, the aforesaid expenses were incurred for the running of assessee’s business. The AO has questioned about the manner in which the documents in support of earth cutting expenses were maintained and accordingly made the disallowance on estimated basis. It was also submitted that the labour register was maintained and no defect in such register was pointed out. But the AO has disallowed the expense on his own premise and conjecture. However the Ld. CIT(A) has disregarded the submission of assessee and confirmed the order of AO by observing as under:- “4.3 appellant’s submission and fact available on record is carefully considered. As is evident from Assessing Officer's order appellant has claimed substantial expenditure on earth cutting expense. However, no verifiable evidence could be produced before the AO, to enable him to cross verify the extent of expense claimed. As the AO had claimed the expense, the onus was cast upon him to produce necessary evidence which would enable A.Y. 2009-10 Mohit Lal Ghosh Vs. ACIT, Cir-1 HG Page 3 him to cross check the extent of expense claimed. Evidences such as muster roll register containing the name and address of the labour employed labour return filed with labour department, statutory deposits such as PF, ESI etc done, needs to be maintained in support of expense, considering the volume of expense claimed. In absence of the same, AO had correctly disallowed a part of it. In view of the above, appellant’s appeal on this ground is dismissed.”

Before us Ld. AR filed paper book which is running pages from 1 to 86 and he reiterated the arguments that were made before the Ld. CIT(A). On the other hand, Ld. DR vehemently relied on the order of Authorities Below.

We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the disallowances made by the lower authorities. There is no dispute about the facts of the case which have been elaborated in the foregoing paragraphs. Therefore the same are not repeated here for the sake of brevity. Now the issue before us arises for our adjudication is whether the lower authorities are justified in making the aforesaid disallowances on ad-hoc basis in the aforesaid facts and circumstances. The case of the AO is that many vouchers produced before the AO in support of earth cutting expenses were not containing the name and addresses of the recipient. Thus the AO has disallowed expenses on ad-hoc basis. Indeed it is the duty of the assessee to produce necessary supporting evidence as desired by the AO in support of expenses claimed. In case assessee fails the disallowances are warranted. However at the same time the AO has to make the disallowances in scientific manner i.e. after considering various aspects as detailed under:- 1. Nature of the business of the assessee 2. Nature of the expenses 3. Past history of the assessee in relation to such expenses 4. Maintenance of the books of accounts interest back to such expenses A.Y. 2009-10 Mohit Lal Ghosh Vs. ACIT, Cir-1 HG Page 4 5. Prevailing practice for the incorrect of such expenses in the relevant industry etc. These are some factors which the assessing officer needs to consider before making the disallowances for any expenses in the absence of any supporting documentary evidence. 6.1 In the instant case before us we find that the assessee is engaged in the business of brick fields which is labour intensive industry. The assessee has to deploy labourers for various purposes. The AO has made the disallowances on the ground that the name and the addresses of the recipients were not reflecting in the vouchers produced before him. From the above observation of the AO it is clear that the said expenses are not unreasonable or excessive. Thus these expenses are commensurate to the business of the assessee. In such circumstances we are of the view that the AO chose to disallow only those vouchers of the expenses which are not supported with the name and address of the recipient. In the case before us the AO has taken a base to disallow those expenses in respect of those vouchers not supported with the name and address of the recipient. However the AO at the time of disallowances has quantified the disallowances on ad- hoc and estimated basis. The AO has chosen to make the disallowance without finding the specific defect in the related vouchers. In our view it is the duty of the AO to point out specific vouchers for the disallowances where the name and address of the recipient are not reflecting. Thus in view of above we are of the opinion that the disallowances made by the AO and subsequently confirmed by the ld CIT(A) are not sustainable in the eyes of law. Moreover, the lower authorities before making the disallowances should have cross verified the history of the assessee, the nature of the expenses claimed and the books of accounts maintained in the course of the business. In the aforesaid facts and circumstances it was the duty of the AO to verify whether such expenses are commensurate to the business of the assessee on basis of past & subsequent history but there is no such finding given by the AO on this aspect. We find that the AO has made the disallowances in mechanical A.Y. 2009-10 Mohit Lal Ghosh Vs. ACIT, Cir-1 HG Page 5 manner which is not are correct method. In these circumstances, we are of view that the estimated disallowance is not sustainable in the eyes of law. In this connection, we also rely in 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.:- “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 same on the same ground. However, we are of the view that no estimated disallowance can be made for inability to make independent verification. If any specific expenditure is unverifiable or is un-vouched, then such specific expenditure is disallowable. Here 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.”