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2018 (4) TMI 1203 - AT - Income TaxAddition u/s 41(1) in respect of M/s Suryalakshmi Garments - Held that:- The provisions of sec. 41(1) shall apply only in case of ceased trading liability. As the assessee has demonstrated that M/s Suryalaxmi Garments is having running account and the balance outstanding in its name has been paid in the succeeding years. Hence we are of the view that the provisions of sec. 41(1) shall not apply to the facts of this issue. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition relating to M/s Suryalaxmi Garments. Disallowance made out of labour charges - Held that:- As rightly held by Ld CIT(A), it cannot be said that the assessee has conclusively proved the genuineness of labour charges. A portion of the expenditure claim may be disallowed in order to take care of revenue leakages. CIT(A) has disallowed 30% of the labour charges paid to the five parties. We notice that the AO has not shown that the labour charges were not incurred at all. It is an admitted fact that the garments cannot be manufactured without incurring labour charges. Hence, disallowance of 30% appears to be on the higher side. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 15% of the labour charges paid to the five parties. Disallowance made of purchases made from M/s Harsh Textiles - assessee has contended that he has produced the quantity details to prove the receipt and consumption of the cloth - Held that:- The notice issued to the said party has returned back and since the assessee could not produce the above said party before the AO, it cannot be said that the assessee has conclusively proved the genuineness of purchases. Disallowance of a portion of purchases is called for to take care of revenue leakages. As submitted that the cloth is rateable item under VAT tax - tax authorities have disallowed 25% of the value of purchases made from M/s Harsh Textiles, which we consider to be on the higher side when we consider the contentions of the assessee. We modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the addition to 5% of the value of purchases made from M/s Harsh textiles.- Appeal of assessee partly allowed.
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