M/S RADHASHYAM TIRTHABASHI PAUL,KOLKATA vs. ADDL.C.I.T RG - 50,KOLKATA, KOLKATA

This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-XXXII, Kolkata dated 27.02.2013. Assessment was framed by ACIT, Range-50, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 09.12.2010 for assessment year 2008-09. The grounds raised by the assessee per its appeal are as under:- “1) That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs.52,201/- under the head ‘Subscription & Donation’ without considering the facts of the case in proper perspective. 2) That in the facts and circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs.1,80,719/- under the head ‘Carriage M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 2 Outward’ by following the footsteps of the ld. AO only and without assigning any cogent reason whatsoever. 3) That in the facts and circumstances of the case, the ld. CIT(A) erred in enhancing the addition of Rs.3,15,026/- as made on estimate by the ld. AO in the assessment order under the head ‘Home Biri Labaour’. 4) That in the facts and circumstances of the case, the ld. CIT(A) erred in enhancing the addition on estimate @ 5% of the total expenditure made for Rs.6,07,49,596/- under the head ‘Home Biri Labour’, without considering the explanations and submissions made by the assessee. 5) That in the facts and circumstances of the case, the ld. CIT(A) erred in enhancing the addition under the head ‘Home Biri Labour’ amounting to Rs.30,37,480/- in spite of examining and verifying the facts and other materials available in the records. 6) That in the facts and circumstances of the case, the ld. CIT(A) was arbitrary, unjust, unlawful and absolutely based on surmises. 7) That the order passed by the ld. CIT was bad in law, unjust and contrary to the facts and records. 8) That the assessee craves to urge such other ground or grounds before or at the time of hearing of appeal.”

First issue raised by assessee in Ground No.1 is that Ld. CIT(A) erred in confirming the action of Assessing Officer by disallowing a sum of ₹ 52,201/- on account of the expense incurred under the head ‘subscription & donation’.

The facts of the case are that assessee in the present case is a partnership firm and engaged in Bidi manufacturing business and trading business of match box. During the year under consideration, assessee M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 3 has filed its return of income declaring profit of ₹1,25,53,220/- under the business head. Thereafter matter was selected for scrutiny assessment and notice was issued u/s. 143(3) r.w.s. 142(1) of the Act. The assessee produced the required books of accounts along with bank statements, various bills, Vouchers in support of expenses and receipts which were duly checked and examined by AO. The assessee for the year under consideration claimed expense of ₹ 63,203/- towards donation and subscription charges. On query, for the documentary and supporting evidence in support of aforesaid expenses, the assessee failed to produce the same for an amount of ₹ 52,201/- which therefore was disallowed on the ground of ineligibility for deduction u/s 80G of the Act. Therefore, a sum of ₹52,201/- was disallowed and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before L’d CIT(A) whereas it was prayed that the donation & subscription were paid exclusively for the purpose of assessee’s business and therefore no disallowance is required to be made. The assessee in support of its claim has submitted the list of donation & subscription before the L’d CIT(A). However, Ld.CIT(A) disregarded the claim of assessee on the ground that no evidence in the aforesaid expenses were produced. Hence the order of AO for this addition was confirmed.

Before us L’d AR submitted that the amount involved in the instant case is very small and was paid to various charitable organizations. The AR prayed before the Bench to reverse the orders of Authorities Below.

We have heard the rival parties and perused the materials available on record. From the foregoing discussion, we find that disallowance was made by the Authorities Below due to non-production of evidence in support the expenditure claimed. The ld. AR has also not brought anything even before us in support of the aforesaid expenditure. Considering the facts and circumstances of the case, we find no reason to interfere in the order of Ld .CIT(A). Hence, ground raised by assessee is dismissed.

Next issue raised by assessee in this ground is that L’d CIT(A) erred in confirming the action of AO for the disallowance of Rs.1,80,719.00 on account of carriage outward.

Aggrieved, assessee preferred an appeal before L’d CIT(A) whereas assessee submitted that expenditure incurred for the purpose of carriage of the goods from factory to the different markets on the part of North-East region. The AO has checked the above expense on test check basis and found no defects in the expense. The expenses incurred by assessee were quite reasonable and commensurate with the M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 5 nature and volume of the business. The assessee further submitted that in the year under consideration the above expense is coming just 1.18% of the total turnover. Similar expense was allowed in the earlier AY which was coming to 1.14% of the turnover of assessee. The increase in the expense is just .04% in comparison to earlier year and which is mainly due to increase in the price of fuel and escalation costof other items. However, L’d CIT(A) rejected the plea of assessee by holding that the expense was disallowed by AO on the ground of non-production of supporting evidence. Again, assessee has also failed to bring supporting evidence at the time of appellate stage. Consequently, Ld. CIT(A) confirmed the action of AO.

Before us L’d AR submitted that the expense was incurred for the purpose of business and similar expenses were also incurred in earlier years. There was no disallowance made by the Authorities Below. This year, there is a small increase in expense i.e. .04% which is mainly on account of increase of fuel cost and escalation of other cost. The lower authorities have disallowed the expense on estimate basis and he prayed before the Bench to reverse the orders of Authorities Below.

We have heard rival contentions and perused the materials available on record. From the foregoing discussion, we understand that M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 6 the lower authorities have disallowed the carriage outward expense claimed by assessee for a sum of ₹ 1,80,719/- out of ₹ 29,67,915/- due to non-production of supporting evidence. Before us L’d AR has argued that L’d CIT(A) erred by disallowing the expense on estimate basis. However, we find that lower authorities have given clear-cut finding that disallowance is made on account of non-production of vouchers and not on estimate basis. Therefore, in our considered view the plea of AR is not tenable that the expenses were disallowed on estimated basis. However, at the same time, we also understand that many times the proper vouchers in support such kind of expenses are not available. Therefore in the absence of supporting vouchers, we need to look other factors before making any disallowance like nature of business, history of the expense claimed in earlier years, audited financial year statement etc. In the instant case, assessee has produced all the documentary evidence in support of its expenditure except the aforesaid amount of ₹1,80,719/- which is just 1.18% of the total turnover of assessee business. At the same time, we cannot ignore that similar expenses were claimed in the earlier AY and this year, the expense claimed by assessee are in commensuration with earlier year expense. We find force in the argument raised by L’d AR that there was a slightly increase in the aforesaid expense and that too mainly increase in the fuel cost and other escalated cost. However, it is also important to note that the documentary evidence was not placed before the lower authorities. Now, in the interest of natural justice and fair play, we after considering the totality of the facts of the case as discussed above, not interested in sending back the matter to the AO to avoid further litigation. Therefore, in the interest of justice and fair play, we restrict the disallowance to the extent of ₹50,000/- for the year under consideration, as all the vouchers M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 7 were not produced for verification during the appellate proceedings.Ground No. 2 is decided in favour of assessee in part.

Next issue is inter-connected in grounds No. 3, 4 & 5 are that L’d CIT(A) erred in enforcing the addition made under head “Home Biri Labour” expenses for an amount of ₹ 30,37,480/- out the total labour expense claimed for an amount of ₹6,07,49,596/-.

The AO after scrutinizing the above expense observed that an expense of ₹3,15,026/- was not verifiable due to non-production of supporting evidence. Accordingly, AO disallowed a sum of ₹3,15,026/- and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before L’dCIT(A) where assessee submitted that wages were paid to labours and on such wages PF was also paid. There was a tripartite agreement between the Bidi Merchandise Association with Trade Unions which was framed under the supervision of Labour Commissioner of Govt. of West Bengal. Accordingly the rate of bidi making was determined on the production of 1000 bidi by such home bidi labour for Rs. 41/- per 1000 bidi at Aurangabad, and Rs. ₹ 40.80/- per 1000 bidi making at Chamagram and ₹ 40/- per 1000 bidi making at Tungidighi. The assessee further submitted that this practice of making such payment is for more than 40 years and payment was used to pay on weekly basis. It is also important to note that excise duty was also paid on such production of bidi. The assessee has been incurring manufacturing expense for the last seven years and no disallowance was made so far. It is also important to note that for the AY 2007-08 a proceedings u/s 263 was initiated but L’d CIT could not find any defect on the accounts of assessee in relation to the M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 8 aforesaid expenses. Therefore, the proceedings u/s. 263 was finally dropped. However, L’d CIT(A) issued show cause notice upon assessee for the production of details of the expense of ₹6,07,49,596/- and stated that why not 5% of home bidi labour expense should be treated as not genuine. In compliance to the notice, assessee submitted the details for the expense of home bidi makers for one month. However, L’d CIT(A) has disallowed 5% of such expense and enhanced the total income of assessee by observing as under:- “I carefully considered the material before me. I found that the appellant debited Rs.6,07,49,596/- as Home BiriLabour and AO disallowed Rs.43,15,026/- as non genuine expenses. During the appellant proceeding the A/R was asked to filed the detail of Rs.6,07,49,596/- of Home Biri Labour along with supporting evidence. The appellant not filed any detail along with the supporting evidence from the genuineness of the expenses prove. The appellant filed the method of payment and basis of the wages. The detail of the wage never produce. The genuineness of the expenses may examine on the basis of voucher. The name of labour and signature of the recipient but the appellant failed to file any documents which established that the expenses are genuine. In the absence of the supporting voucher, I am the view that the Home Biri Laboour expenses are not fully genuine. Hence, I issued a enhancement notice treating 5% of Home Biri Labour expenses as not genuine. Considering the above findings and facts of the case, I am the view that 5% of Home Biri Labour expenses are not genuine. Hence, I treated at Rs.30,37,480 as not general expenses. The AO made the addition of Rs.3,15,026/- which is confirmed genuine and further, I enhance the income of Rs.27,22,454 has treating bogus Home Biri Labour expenses. This ground is not allowed.”

Before us L’d AR reiterated same submissions as made before L’d CIT(A) and stated that disallowance on estimated basis is not permissible in terms of Hon'ble Supreme Court judgment in the case of Dhakeswari Cotton Mills Ltd. v. CIT (1954) reported in 26 ITR 775 (SC)

We have heard rival contentions and perused the materials available on record. From the foregoing discussion, we find that assessee has claimed home bidi makers for an amount of ₹ 6,07,49,596/- but AO could not verify an amount of ₹ 3,15,026/- out of the aforesaid expenditure. So the addition was made by AO for the aforesaid amount. However, L’d CIT(A) has enhanced the income of assessee by making the total disallowances @ 5% of the total home bidi expenses on the ground that no supporting evidence was filed by assessee. Now, the question before us arises so as to whether the action of L’d CIT(A) for enhancing the total income of assessee is correct in view of the aforesaid facts and circumstances.It is very clear that AO has given very clear-cut finding that expense of ₹3,15,026/- was not verifiable on the basis of non-production of document and AO reached to this conclusion after scrutinizing of all the expense claimed by assessee. However, L’d CIT(A) issued show cause notice to assessee to produce the details of the home bidi makers expense. As per the appellate order, assessee has failed to produce the supporting evidence. So the addition was enhanced to ₹30,37,480/- by the ld. CIT(A) by observing that assessee filed the details for the method of payment of wages and without furnishing supporting evidence of such expense. However, we find that assessee has given a detailed submission which is emanating from the order of L’d CIT(A). In our considered view, L’d CIT(A) failed to consider other aspect in relation to such expense. The order of L’d CIT(A) is silent about the submission of the assessee where it was categorically submitted that payment of wages were supported with the payment of P.F., the assessee was also assessable under the Excise M/s Radhashyam T Paul v. ACIT Rng-50, Kol. Page 10 Act and assessee has paid excise duty on the production of bidi, in the earlier years such expenditures were claimed but no such disallowance was made by Authorities Below. There were also proceedings against assessee u/s 263 of the Act which was finally dropped by Revenue. The home bidi expenses were decided in terms of tripartite agreement which was made in the presence of Labour Commissioner of Govt. of West Bengal. As per the submission of assessee as recorded in the appellate order that one month details in support of expense was submitted. In view of above, we find that L’d CIT(A) has failed to consider the above stated facts before enhancing the disallowance made by AO and we find lot of force in the argument raised by L’d AR that L’d CIT(A) has enhanced the income by disallowing the expense on estimate basis. In this connection, we are also putting our reliance in the judgment of Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. (supra). The relevant extract of the order is reproduced below.