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2022 (9) TMI 1480 - ITAT BANGALOREInflation of labour charges - According to the learned A.O., these labour charges are prepared by one or two persons and signatures of the receiving parties were not found in few of the vouchers and all payments are made in cash - HELD THAT:- When the self-made vouchers are prepared in-housely, it must be prepared by inhouse persons only and as such, it has common pattern and that cannot be reason to doubt the genuineness of the payment. The assessee cannot carry on this business without incurring the expenditure. The allegation of the AO is that the vouchers are prepared at a stretch on one or two days during the financial year. There is no basis for this kind of allegation made by the AO and he has not brought anything on record to establish this contention of him. Being so, we have to reject this plea of the revenue authorities. In our opinion, considering the nature of the business of the assessee, we can take the judicial notice of the fact that if the AO had any doubt with regard to genuineness of any one of the voucher produced by the assessee, he could have drawn sample vouchers and called upon the assessee to produce the concerned recipient to establish the genuineness. Without doing so, making any adhoc disallowance is not legally sustainable. In our opinion, the impugned expenditure in fact claimed to have been incurred by the assessee wholly and exclusively for the purpose of its business and it cannot be said that this expenditure is bogus or fictitious and cannot be said that it has not been incurred by the assessee for the purpose of business. We do not see remotely there is any mention of rationale in arriving at the percentage of disallowance in the present case, and secondly, we find force in the claim of assessee that devoid of any specific infirmity in the books of accounts of the assessee, disallowance of labour charges expenditure by the lower authority is not proper and the adhoc disallowance made by authorities in most ordinary manner. In our opinion, to estimate any disallowance the first and foremost thing is that the A.O. has to reject the books of accounts by observing that books of accounts are not reliable and not verifiable. Then he has to specify the each entry which are to be considered as bogus or unverifiable and only to that extent he can make disallowance. In the present case, in a wholesome manner the A.O. made disallowance on estimate basis without rejecting the books of accounts. However, Ld. CIT(A) sustained this addition to the tune of 10% in A.Y. 2007-08 to 2011-12 and 2.5% in A.Y. 2012- 13 & 2013-14. This is having no legal sanction - Thus, we delete the addition and allow the ground taken by the assessee. Speed money payment - AO considered seized material marked as 1/Dock/3 & 4 which has been placed at assessee’s paper book Nos. 219 to 223, which contains details of the payment made by the Supervisors unloading cargo on 29.4.2010 from a ship known as M.V. ALEX “D”. On that basis, AO was of the opinion that the speed money payment was between Rs. 23 to 26 per M.T. - HELD THAT:- A.O. cannot put himself in the chair of businessman and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The A.O. must put himself in the shoes of the assessee and see how a prudent businessman would act. The A.O. must not look at the matter from their own view point but that of a prudent businessman. A businessman’s sole intention is to run the business and earn profit. In the course of carrying such business, he has to incur expenditure and in the present case, the business is such a nature that loading and unloading has to be done on priority. Otherwise, the shipping person has to incur huge loss in the form of demurrage or damages. In order to avoid such heavy charges, in different times of day & night the assessee has to hire the labourers to do the loading and unloading of ship even by paying extra charges due to urgent need of the same. In such situation, the assessee may be forced to pay extra amount in the interest of the business and in that act of the assessee, AO cannot find fault and observe that he should reduce the expenditure so as to pay the maximum income-tax to the government. In our opinion, in view of above discussion, the disallowance made by AO is only on conjectures and surmises basis, which cannot be applied. Accordingly, adhoc disallowance made by AO is deleted. Payments made to sub-contractors - AO notes that the amounts paid to the employee sub-contractors are immediately drawn through bearer cheques - A.O. has disallowed the expenditure stating that the assessee exercises control over the employee sub-contractors and that the payments made by them are infact the expenses of the assessee itself, which ought to have been incurred by it directly - HELD THAT:- In our opinion, hiring assessee’s employees as a sub-contractors and making payment to them cannot be reason to disallow this expenditure. There is no provision under any provisions of the Act to hire assessee’s own employees as a sub- contractors and there is no allegation that these expenditure not incurred by the assessee for the purpose of business. In such circumstances, when the assessee paid the amount to its sub- contractors though they were the employees of the assessee that expenditure cannot be disallowed unless there is a material is brought on record to suggest that this is a fictitious expenditure. More so, when the income was offered by the sub-contractors has been accepted by the department as their income and subject to the assessment thereafter, they cannot deny the payment of that expenditure in the hands of assessee. On this count also, this expenditure to be allowed in the hands of the assessee and that cannot be partial or adhoc disallowance in the hands of the assessee. Accordingly, we dismiss this ground of revenue in all the above appeals. Illegal payment - speed money paid consisted of illegal gratification to government servants - HELD THAT:- As discussion with regard to speed money in earlier para, the addition is deleted on similar line as expenditure incurred wholly and exclusively for the purpose of business and it cannot be considered as payment by assessee is towards any illegal gratification as the AO has not brought on record iota of material for making such allegation. Accordingly, addition is deleted on this count. This ground of revenue is dismissed in all the revenue’s appeals. Disallowance of bad debts was not made in the original return of income filed - HELD THAT:- The assessee claimed bad debt in the revised return. In our opinion, reassessment is for the benefit of revenue and originally, the assessee has not claimed the bad debt in the original return of income. Being so, assessee cannot claim bad debt in the reassessment proceedings. Accordingly, this ground of assessee is dismissed. Assessment u/s 153A - incriminating material found in search or not? - HELD THAT:- As completed assessment cannot be tinkered without the support of any incriminating material found during the course of search. Therefore, the assessment framed for assessment 2006-07 without any incriminating material, the AO was not justified in framing assessment u/s 153A r.w.s. 143(3) of the Act as there was no seized material relating to AY 2006-07 was found during search action. It is not the case of AO that the seized material, if any suggested the inflation of expenditure. Hence, the framing of assessment for the assessment year 2006-07 cannot be upheld.
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