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2022 (4) TMI 957 - AT - Income TaxDisallowance of expenses - whether the AO should have been afforded an opportunity of examination? - HELD THAT:- Certain decisive facts were not adjudicated upon by CIT(A) in the remand proceedings viz. the correct proportionate amount of expenditure relatable to the impugned assessment year i.e. AY 2008-09, and the corresponding amount which needs to be allowed for this year in subsequent year and the quantum which is relatable to preceding financial year 2007-08. Neither has the issue of bifurcation of income between AY 2007-08 and AY 2008-09 been discussed with CIT(A) in his order. The assessee placed additional evidences and supporting documents in support of its claim of expenditure before the CIT(Appeals) for the first time, in respect of which no opportunity was given to Ld. AO for verification. CIT-A(A) disallowed the entire expenditure though the AR of the assessee has averred before us that part of the expenses could not been disallowed since they did not pertain to the instant year. Therefore, in our view, since certain important aspects have not been dealt with by Ld. CIT(A) in his order and respectfully following the decision of the Hon'ble Gujarat High Court in the case of Pradyuman Patel [2013 (9) TMI 1286 - GUJARAT HIGH COURT] in the interests of justice, we are restoring the matter to the file of CIT(A) on the limited point to verify the correct quantum of expenditure Disallowance of amount actually expended carrying out work for FCI - HELD THAT:- Expenditure proportionate to impugned AY 2008-09 i.e. the year for consideration before us be allowed in the year FCI has finally rejected the claim of the assessee. For this purpose, the CIT(A) may carry out necessary verification as to ascertain the precise year when the claim has been finally rejected by FCI and allow deduction of proportionate expenses pertaining to AY 2008-09 in the year, when the claim has been finally rejected by FCI. On the connected issue regarding the quantum of expenditure which would be deductible in the year in which claim is finally rejected by FCI, the Ld. AR of the assessee himself has submitted that only part of the expenses of ₹ 2,51,59,561/- pertain to AY 2008-09. Therefore, in our view, once the CIT(A) after giving due opportunity to Ld. AO has arrived at the correct amount of expenditure relatable to this year, respectfully following the directions of Hon'ble ITAT in the assessee's case vide order dated 25/02/2014 for AY 2008-09, the proportionate expenditure incurred in AY 2008-09 be allowed in the year when the claim has been finally rejected by FCI. Bogus Sundry Creditors - HELD THAT:- Since the assessee did not furnish any details in respect of balance creditors before the ld. CIT(A), in our view, the ld. CIT(A) has not erred in confirming the addition in respect of balance sundry creditors with respect to whom details have not been furnished by the assessee. In the result, the cross objection of the assessee is dismissed. Disallowance of Demurrage Charges & Disallowance on account of Rail Transit Loss - HELD THAT:- As decided in MAHALAXMI SUGAR MILLS COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX [1984 (5) TMI 6 - DELHI HIGH COURT] demurrage is a charge by way of compensation and includes amount chargeable for failure to storage and transport goods by contractor for its delayed clearance. It is not a fine paid to the port authorities for any criminal act but is a compensation for the use of port facilities beyond the free period allowed under the rules. Demurrage charges are charged not for any infraction or violation of law but on account of commercial failure of the contractor. In the case of Ripley & Co. Ltd. [2017 (4) TMI 164 - ITAT KOLKATA] held that demurrage paid by assessee for its failure to complete work within prescribed time allotted by principal was allowable deduction u/s 37(1) - we are of the considered view that ld. CIT(A) has not erred in law and in facts in deleting the addition on account of demurrage/wharfage charges and deletion on account of rail transit loss since the same are not penal in nature. Regarding the second issue in relation to whether the assessee has correctly netted off the charges waived by the relevant rail/port authorities, we observe that the assessee produced relevant copies of ledger accounts and supporting before Ld. CIT(A) for his perusal, who after analyzing the same concluded that on perusal of materials on record it is observed that assessee has charged demurrage/wharfage on net basis after adjusting for waiver by relevant port authorities. In the result, we find no infirmity in the order of Ld. CIT(A) while adjudicating on this issue in favour of the assessee. Disallowance of labour charges - HELD THAT:- We are of the view that ld. CIT(A) has not erred in law or in fact in restricting the disallowance to 10% of the labour charges, especially looking into the facts that assessee employs labour for work at Railway Head, PF and ESI laws are not applicable to daily wage labour and further the ld. A.O. has also not found any material error of irregularity in the copies of ledger accounts and wages register maintained by the assessee. Disallowance u/s. 40(a)(ia) - assessee did not give names of various parties viz. transporters and their PAN Nos. and also did not furnish details of payments made to them - HELD THAT:- On the facts of the case, it is observed that the ld. CIT(A) in orders passed u/s. 271C of the Act and u/s. 201(1)/201(1A) of the Act for A.Y. 2012-13 has granted complete relief on the same set of facts. The facts of the case for the instant year have been analyzed in detail while allowing relief to the assessee for this year. Accordingly, in our view, there is no infirmity in the order of ld. CIT(A) while granting relief for disallowance u/s. 40(a)(ia) of the Act. Restricting disallowance in respect of transportation payment @ 10% of total expenses - HELD THAT:- The Mumbai Tribunal in the case of Parsoli Corporation Ltd. [2019 (1) TMI 933 - ITAT MUMBAI] restricted the disallowance to 10% in respect of self-made vouchers as being fair and reasonable. Again, the ITAT Ahmedabad in the case of DCIT v. M/s. Unique Metropolis [2022 (3) TMI 891 - ITAT AHMEDABAD] held that in view of the facts of the instant case, in the absence of supporting evidences, genuineness of payment made in cash is not established and therefore disallowance upheld by the ld. CIT(A) at 10% of total cash expenses is found to be quite reasonable and justified. In our view the ld. CIT(A) has not erred in disallowing a sum of 10% of total cash expenses. In our view, looking into the nature of business of the assessee where expenses constitutes a vital part of expenses in this line, the necessity of payment in cash purpose of carrying out the business, the ld. CIT(A) has not erred in law or in fact in restricting the disallowance to 10% of the expenditure.
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