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Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI
Before: SHRI I. C. SUDHIR & SHRI PRASHANT MAHARISHI
Assessee by: Sh. R.K. Garg, Adv Revenue by: Sh.Sheodan Singh Bhaddoriya, Sr. DR O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is preferred by assessee against the order of CIT (A) Ghaziabad vide order dated 19/12/2014 confirming disallowance of certain expenses and also addition of Rs. 11,01,275/- u/s 41(1) of the Income Tax Act on the following grounds : “
1. That under the facts & circumstances of the case, the learned CIT (Appeals) has erred to confirm the disallowance of Rs. 1,29,134/- on the plea that bills vouchers were not produced. The confirmation without finding of rejection of books of accounts and expenses did not relate to the business, is arbitrary, unjust, uncalled-for, illegal and in any case highly excessive.
2. That under the facts & circumstances of the case, the learned CIT (Appeals) has erred to confirm the disallowance of Rs.5,163/- out of freight, oil & fuel expenses without rejecting the books of accounts and finding that expenses were not incurred for business purposes. The disallowance of Rs.5,163/- is therefore, arbitrary, unjust, uncalled-for, illegal and in any case highly excessive.
3. That under the facts & circumstances of the case, the learned CIT (Appeals) has erred to confirm the disallowance of Rs. 17,120/- out of various expenses without finding for rejecting the books of accounts and that expenses were not related to the business. Disallowance of Rs.17,120/- is therefore, arbitrary, unjust, uncalled-for, illegal and in any case highly excessive.
4. That under the facts & circumstances of the case, the learned CIT (Appeals) has erred to hold that outstanding creditors liability paid in next year represents the ceased liability to exist and assessable u/s 41(l) (a). The finding is arbitrary, unjust, uncalled-for and in any case illegal and without any basis,
5. That under the facts & circumstances of the case, the learned CIT (Appeals) has erred to hold that the sum of Rs. 11,01,275/- paid in 2 | P a g e subsequent year was a deemed ceased liability and liable to be assessed u/s 41(l) (a) without rejecting the books and any material on record. Finding that liability ceased to exist or remitted, is arbitrary, unjust, uncalled-for, illegal and without any basis and based on surmises and conjectures.
Brief facts of the case is that assessee is an individual carrying on business of manufacturing of cotton cloth under the name and style of her proprietary concern M/s Yogendra industries. For assessment year 2010 – 11, return of income was filed on 23/09/2010, showing income of Rs. 2, 02, 610/– .
The first ground of appeal is against confirmation of disallowance of Rs. 1,29,134/–. The brief facts are that during assessment proceedings. It was noted by LearnedAssessing Officer that some expenses as claimed in profit and loss account and trading account of assessee are not fully supported by proper bills and vouchers. Main expenses is of manufacturing expensesof Rs. 4,31, 011/–, Tana expenses of Rs. 44,346/- ghatni expenses of Rs 34352/-and firai expenses of Rs. 6826/- amounting in order to Rs. 5,16,535/–. As these expenses were unverifiable,learnedAssessing Officer disallowed 1/4th of these expenses amounting to Rs. 1,29,134/-. Assessee being aggrieved with the order of the LearnedAssessing Officerpreferred an appeal before CIT (A)who confirmed disallowance with minor variation.
4. Before us, learned AR submitted that compared to turnover of the assessee for past 2 years, proportion of expenses are in the same range. Therefore, there is no disproportionate increase or decrease in that expenditure. It was further submitted that certain time payments made to illiterate labour, however, payments are supported by vouchers, etc. bills and vouchers are not issued by them, but it is being prepared by assessee who in turn gets them signed by those illiterate labourers. Assessee submitted complete details of such expenditure incurred by the assessee. He further submitted there is no instance being pointed out eitherby learnedAssessing Officer or CIT (A), which show that these expenditures are not genuine. Therefore, he submitted that the disallowance made by the learned Assessing Officer and confirmed by CIT (A) appeal may be deleted. Against this, learned Departmental representatives relied on the orders of Learned Assessing Officer and CIT (A).
5. We have carefully considered the rival contentions. We have noted that that disallowance has been made by learned Assessing officer and confirmed by CIT (A) without pointing out any instances of those expenses not verifiable. The disallowance has been made and confirmed 4 | P a g e on ad hoc basis. Furthermore, when the full details of expenses have been submitted before LearnedAssessing Officer by the assessee and it is comparable in the performance of the previous years, In that case, disallowance made by the LearnedAssessing Officer cannot be sustained. Therefore, we reverse finding of the CIT (A) in confirming disallowance at the rate of 25% of the expenses incurred. In the result ground, No. 1 of the appeal is allowed.
6. The second round of appeal is against confirmation of disallowance of Rs. 5163/- out of freight oil and fuel expenses. Brief details of those expenditure is that assessee has incurred freight and oil fuel expenditure of Rs. 119770/- and out of that, before the LearnedAssessing Officer vouchers amounting to Rs. 105994/-produced and vouchers pertaining to an amount of Rs. 13749/- were not available. However LearnedAssessing Officer disallowed out of expenses of Rs. 20,651/- @ 25% of the expenditure of Rs. 5163/-. This disallowance was confirmed by Commissioner of income tax (A) in appeal before him. Therefore, assessee is in appeal before us.
7. Learned authorised representative submitted before us the comparative expenses of freight and fuel and electricity expenses of last 3 years, however, because some vouchers were not produced before LearnedAssessing Officer disallowance of 25% has been made. Ld. departmental representative relied on the orders of lower authorities. 5 | P a g e
We have carefully considered the rival contentions. Learned Assessing Officer has disallowed only 25% of expenditure wherein vouchers were not available. Though the comparative chart produced by the authorised representative of the expenditure for past 2 years, it cannot be said that when the basic evidence, such as vouchers and bills are missing and not produced before the LearnedAssessing Officer, he has disallowed only 25% of those expenses, is faulty view . We do not find any infirmity in the order of lower authorities in confirming disallowance. However, it is found that the vouchers missing were to the extent of Rs. 13749/- only whereas LearnedAssessing Officer has disallowed 25% of Rs. 20651/- instead of Rs. 13749/-. Therefore, we restrict the disallowance of 25% of Rs. 13749/- only. In the resultground, No. 2 of the appeal of the assessee is partly allowed. 09. The next ground of appeal is against the confirmation of the disallowance of Rs. 17120/- out of various expenses. LearnedAssessing Officerdisallowed 1/4th of expenses such as salary, stationary, travelling expenses, telephone expenses, machine repair, miscellaneous expenses etc. On appeal before CIT (A),He restricted the disallowance by excluding salary and telephone expenses, but confirmed 1/4th out of the other expenses and hence the disallowance was restricted to Rs. 17120/-. Against this, assessee is in appeal before us.
10. Before us, authorised representative submitted that there is no instance pointed out by the learnedAssessing Officer about non-verifiability or unavailability of the vouchers, etc. of these expenses. These expenses are fully supported by the bills. None of the expenses is of personal nature or capital innature and therefore the disallowance has wrongly been confirmed by CIT (A). Against this learned DR relied on the orders of lower authorities.
11. We have carefully considered the rival contentions. We have noted that the CIT (A) as well as the learned Assessing Officer has not pointed out any defects in the details furnished. LearnedAssessing Officerhas stated that that those particular expenditures are not for the purpose of the business without any evidence. In absence of any instances being pointed out by CIT (A) orlearned Assessing Officer ad hoc disallowances out of the miscellaneous expenditure and indirect expenditure such as travelling telephone machinery repairs, stationary, etc. cannot be made. In view of this, we reverse the finding of the CIT appeal and direct the learned Assessing Officer to delete the disallowance of Rs. 17120/-out of indirect expenditure. In the result ground, No. 3 of the appeal of the assessee is allowed. 12. This the ground No. 4 and ground No. 5 of the appeal are interconnected against the confirmation of addition u/s 41(1) of the act of Rs. 1101275/- being outstanding creditors paid in subsequent years. A brief fact of the 7 | P a g e
addition is that assessee has shown creditors of Rs. 1449942/-as at the end of the year. It was found by the LearnedAssessing Officer that the some of the creditors are having same opening balances and closing balance during the year. Therefore, there is no payment made to those creditors. During the course of assessment proceedings,learned Assessing Officer asked assessee to furnish the complete postal address, permanent account number and confirmation of the creditors where closing balance is in excess of Rs. 50,000. However, assessee furnished confirmation of one M/s Laxmi trading Co. Only. One of the creditor was shown to be Sati account of Rs. 830650/-. It was stated by the assessee before the Learned Assessing Officer that this Sati account is a credit purchases of the small weavers of whose independent accounts are not opened in the books of accounts but a combined account is prepared. On the basis of the explanation of the assessee Ld. LearnedAssessing Officer was of the view that small weavers remained unpaid throughout the entire year is unbelievable and in case of other creditors also the assessee has not provided the details called for. However, before the LearnedAssessing Officer, it was submitted that these are the outstanding trading liabilities carried forward from the preceding years. For some of the accounts, it was stated that because of the dispute in quality and rate the payment to of them have not been made. However, in the subsequent years, the payments have been made. Sati account has been brought 8 | P a g e forward from the past years without any further new purchases made during the year and amount has been paid in subsequent years. However, the Learned Assessing Officer made addition under section 41(1) of the act as assessee did not even provided postal address of these parties and therefore held that these parties are non-existent. Against this, the assessee preferred an appeal before Commissioner of income tax (A) who in turn confirmed addition. According to him, it is very unusual that assessee is making cash payment to those parties in subsequent years, but could not produce even their address and no confirmation of these parties have been produced. Further, regarding the Sati account it was held that the person supplying the material is petty persons of meagre means. However, it is highly improbable that those persons would be supplying goods to the assessee and remained unpaid for a long period. Therefore, according to him. These are the bogus liabilities created by the assessee. Regarding other parties, the identical observation was made by him and he confirmed the addition holding that either the liabilities bogus or it ceased to exist.
On appeal before us,learned ARsubmitted that the liabilities have been subsequently paid by the assessee and the outstanding during the year was because of certain reasons regarding rate and quantity supplied by them. He further submitted that that the issue is squarely covered in 9 | P a g e
favour of the assessee by the decision of Hon’ble Delhi High Court in case of Commissioner of income tax vs Hotline Electronics Ltd.
Against this learned departmental representative stated that the assessee has shown the liabilities which do not exist, as assessee has not produced even the address of those parties. The cash payments have been made to these parties and therefore the assessee is in knowledge of address of those parties. Further, regarding Sati account it was stated that the assessee has stated that these are the small persons of meagre means. Therefore, it is highly improbable that these parties would keep the money receivable by them with the assessee for such a long period. Even otherwise, the assessee does not have the detail of the parties who are stated to be small weavers. Therefore, he stated that the LearnedAssessing Officer and CIT (A)have rightly made the addition.
We have carefully considered the rival contentions. The facts are clear that there are certain liabilities, which are outstanding for a long time. Before LearnedAssessing Officer, CIT (A) as well as before us, the assessee did not furnish the names, postal address of these parties. Before us regarding various creditors assesse produced copy of account from the books of the assessee, which shows that the amount has been paid in subsequent years amounting to Rs. 20,000, each on number of days in the 10 | P a g e
year ended March 2011. The copy of the bills of the supplier was submitted wherein the details such as address of the supplier’s VAT number etc. is mentioned. Similarly, with respect to Jyoti Cotspin Ltd assessee has submitted the copy of account from the books of the assessee as well as subsequent payment made to this party. The copy of the bill is also submitted which shows the address of the parties and CST numbers. Regarding Sati Account assessee has given the names of those parties. However, no address of those parties isprovided.It was submitted that in subsequent year that is in year ended on March 2011 assessee has made complete payment of Sati account. In view of the fact that subsequently assessee has made payments in cash to those parties no adverse inference has been drawn by the LearnedAssessing Officerin that year by either invoking provisions of section 40A (3) of the act or about the veracity of payments, hence now it cannot be said that payment made by the assessee through its cash to these parties is not proper.In year before us, the fact of the payment remains confirmed. Further, the assessee has not written back these liabilities, which are still standing in the books of accounts of the assessee as sundry creditors. In the present case, there may be many factors, which may give rise to a doubt in the mind of revenue that the creditors do not exist, however, for applying provisions of section 41 (1) revenue is required to show any evidence which demonstrates that the creditor has remitted that liability and has ceased to exist. The bogus 11 | P a g e