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2018 (2) TMI 962 - AT - Income TaxDisallowance @ 10% of Labor Charges - Non deduction of tds - non-availability of supporting evidence - Held that:- AO has not brought on record any cogent reasons for making the disallowance of the above stated amount. It is not the case that the expenses were considered to be bogus or unreasonable. The allegation of the AO is that the vouchers were handmade. There are certain situations and circumstances where the external documents in support of the expenses are not available. One of such expense appears to be labour charges in he facts and circumstances of the given case. It is because the assessee is a Government Contractor which is labour intensive activity. Therefore the AO needs to refer to the earlier year financial statement to ensure unreasonable expenses has been claimed by the assessee. But no such exercise was carried out by the AO. - Decided against revenue. Addition on account of unverifiable sundry creditors - trade creditors could not respond to the notice issued u/s 133(6) - Held that:- It is undisputed fact that all the trade creditors appearing in the balance-sheet are arising out of the expense of material purchased by the assessee. Thus all the purchases have been duly accepted by the AO and same was not disputed. However, the trade creditors which are emanating from the purchases have been disallowed merely on the ground of non-response of notice issued to them u/s 133(6) of the Act. In our considered view, the trade creditors cannot be disturbed without disallowing the corresponding purchase. - Decided against revenue. Addition made being 5% of material purchase on the ground that assessee failed to produce supporting evidence - Held that:- Once the AO has reached to a conclusion that assessee has failed to produce the books of account and no supporting evidence has been filed then he should have disallowed entire amount of expense or he should have rejected the books of account and should have framed the assessment u/s. 144. We also observed in the absence of any documentary evidence the AO should have referred to the historical data of the assessee for making the disallowance in scientific manner but in the instant case, AO has made the disallowance based on his surmise and conjecture. AO arbitrarily has disallowed @ 5% of material purchase and had accepted 95% of the expense which is contrary to the finding of AO. It is also important to note that the assessee has declared net profit @ 6.5% which is quite reasonable in the line of government contractor business.- Decided against revenue.
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