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2016 (8) TMI 607

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..... pense. 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 were not produced for verification during the appellate proceedings.Ground No. 2 is decided in favour of assessee in part. Addition made under head “Home Biri Labour” expenses - Held that:- There were many factors which have been ignored by L’d CIT(A) before enhancing the total income of assessee by disallowing the aforesaid expenses. We also further find that this expense has been claimed by assessee consistently for the last several years and no such disallowance was made by the Authorities Below. Consideri .....

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..... h other ground or grounds before or at the time of hearing of appeal. Shri S.K.Tulsiyan, L d Authorized Representative appeared on behalf of assessee and Shri Saurabh Kumar, L d Departmental Representative appeared on behalf of Revenue. 2. 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 . 3. 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 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 subscrip .....

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..... diture 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 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. Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. 9. Before us L d AR submitted that the expense was incurred for the purpos .....

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..... atural 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 were not produced for verification during the appellate proceedings.Ground No. 2 is decided in favour of assessee in part. 11. 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/-. 12. 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. 13. 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 .....

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..... 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 ₹ 30,37,480 as not general expenses. The AO made the addition of ₹ 3,15,026/- which is confirmed genuine and further, I enhance the income of ₹ 27,22,454 has treating bogus Home Biri Labour expenses. This ground is not allowed. Being aggrieved by this order of L d CIT(A) assessee came in second appeal before us. 14. 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) On the other hand, L d DR vehemently relied on the orders of Authorities Below. 15. 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 .....

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..... ;ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. (supra). The relevant extract of the order is reproduced below. The ITO is not barred by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but in making the assessment under sub-s. (3) of s. 23 the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under s. 23(3). In this case the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the Departmental Representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal, seems to be based on surmises, suspicions and conjectur .....

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