TMI Blog2016 (10) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... .57%, 0.88% and in assessment year 2013-14 it was 2.47%. In such a scenario taking into consideration the fact that the Assessing Officer has made disallowance of 30.64% in this assessment year and the ld. CIT(A) has restricted it to 4.56%, it would be fair and reasonable if we could fix the percentage of disallowance at 3% and we order accordingly. Addition on outstanding creditors for labour, stone cutting and polishing charges and outstanding labour dues payable - Held that:- The Assessing Officer asked for name and addresses of the individuals to whom the payments were out-standing and to ascertain this fact he issued notice under section 133(6) of the Act to 200 labours at the first instance and to 51 labours after some time. Out of that notices sent, 103 notices returned back with the postal remark that no one was residing and it was incomplete address. Therefore, we find from this fact itself that 148 notices could be served, which means more than 50% notices could be served on the labours to whom the assessee has to pay outstanding dues. Therefore taking into consideration the overall facts, wherein we have already taken note that from assessment year 2008-09 to 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance can be resorted to by the AO. The ad-hoc disallowance is an arbitrary exercise of power, which cannot be countenanced. Therefore, we delete the ad-hoc disallowance made on this count. Ad-hoc disallowance with respect to business promotion of the unit - Held that:- We do not agree to the ad-hoc disallowances as made above. For the same reasons which we have reiterated hereinabove, we delete the ad-hoc disallowance sustained by the Ld. CIT(A) and, therefore, we direct deletion of ₹ 30,000/- on this issue. Non-acceptance of agricultural income - Held that:- We take note that in the Assessment Year 2011-12, assessee has shown an income of ₹ 7,95,000/- as agricultural income of which ₹ 2,50,000/- has been disallowed by the Assessing Officer and in Assessment Year 2013-14, the assessee has shown an agricultural income of ₹ 4,50,000/- and the Assessing Officer has made disallowance of ₹ 1,50,000/- taking into consideration the overall facts stated by the Assessing Officer in respect to the yield from 7.3425 hectare as well as the Department’s stand on the agricultural income claimed by the assessee in subsequent assessment years, we are of the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since there is a decline in the net profit in comparison to the last year, the Assessing Officer asked the assessee to explain. According to the Assessing Officer, the work carried out by the assessee is a specialized work of stone engraving, so the margin of profit in such a contract work must be very high in comparison to other contract work. The Assessing Officer records that during hearing vouchers for purchase of materials were produced and has been verified by him. However, the vouchers of expenditure debited in the profit loss account under different heads were not produced before him and the wage-register in the form of muster roll was also not produced before him. The books of account, which should have been maintained by the assessee, were also not produced. On the aforesaid background, the Assessing Officer proceeded to examine the expenses claimed by the assessee and made certain disallowances, which in appeal the CIT(A) gave some relief. Dissatisfied by the decision of CIT(A), both the assessee and the department is in cross-appeal before us. 4. Ground No.1 in assessee s appeal is in respect to disallowances of various expenses under the head machinery maintenance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7- Cartage 1718533.00 200000.00 12.00 100000.00 6.00 8- Conveyance 1349331.00 300000.00 22.00 150000.00 11.00 9- Crane Maintenance 5758554.00 500000.00 9.00 250000.00 4.00 10- Deepawali Festival Exp 310550.00 50000.00 16.00 25000.00 8.00 11- Repairs and Maint. 1121787.00 300000.00 27.00 150000.00 13.00 12- Vehicle Running Exp. 1331085.00 200000.00 15.00 100000.00 8.00 4150000.00 2075000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut he has simply held that the assessee has not produced the vouchers and the books which, according to the ld. A.R. of the assessee, is contrary to the facts and so the finding of the Assessing Officer that the assessee failed to produce the vouchers and bills in respect of the expenditures is a perverse finding. The ld. A.R. of the assessee also relied upon the decision of the jurisdictional High Court in the case of Nisar Biri Sikka No.1 vs. CIT, 41 SITC 125 (Alld) wherein the Hon'ble High Court has upheld the order of the Tribunal and in that case the assessee had to pay wages by cash to the specialized stone carving labours, which was disallowed by the AO citing excess cash payment which was allowed by the Tribunal and the said view of the Tribunal has been upheld by the Hon'ble High Court. According to the ld. A.R. of the assessee without pointing out any defect in the books or without satisfying the pre-conditions laid in section 145(3) of the Act and without rejecting the books of account, ad hoc disallowance as done in this case was not warranted and according to him, though the ld. CIT(A) appreciated these facts, has restricted the disallowance only to 50% which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,481/- which is 0.74% compared with the return of income. In assessment year 2009-10, the ad hoc disallowance was of ₹ 5,32,284/- which is 1.65% as compared to the returned income. In the year under consideration, the ad hoc disallowance was to the tune of ₹ 1,36,50,000/- which comes to 30.64%; and for assessment year 2011-12, the ad hoc disallowance was of ₹ 25,06,057/- and for assessment year 2012-13, the ad hoc disallowance was to the tune of ₹ 4,98,410/- which is 0.88% and for assessment year 2013-14, the ad hoc disallowance was of ₹ 4,29,254/- which is 2.45%. We take note that in all these assessment years the assessments were completed under section 143(3) of the Act. The assessee is engaged in the same kind of business and without bringing any comparable cases and without rejecting the books of account, the estimation made on ad hoc basis cannot be countenanced. If there were any item-wise expenses, which could not have been supported by vouchers, then the Assessing Officer was at liberty to disallow the expenses item-wise and ought not to have gone for ad hoc disallowances. However taking into consideration the fact that certain vouchers regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act was not warranted. 14. After considering the submissions made by the assessee, the ld. CIT(A) was of the opinion that since the Assessing Officer has verified certain creditors out of labour charges and since he has added the entire amount of unverified credits outstanding on labour charges and stone cutting joining charges, the ld. CIT(A) confirmed the addition made by the Assessing Officer of ₹ 42,58,791/-. 15. We have heard both the parties and perused the record. We find that the assessee has claimed that the outstanding labour dues and stone cutting and polishing charges payable was of an amount of ₹ 42,58,791/-. The Assessing Officer asked for name and addresses of the individuals to whom the payments were out-standing and to ascertain this fact he issued notice under section 133(6) of the Act to 200 labours at the first instance and to 51 labours after some time. Out of that notices sent, 103 notices returned back with the postal remark that no one was residing and it was incomplete address. Therefore, we find from this fact itself that 148 notices could be served, which means more than 50% notices could be served on the labours to whom the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer the labour charges are not verifiable and have been inflated and since the assessee failed to produce the labour register in the form of muster roll and wages are therefore not verifiable, he disallowed a sum of ₹ 75 lakhs. Likewise, the Assessing Officer noted that the assessee has deposited a sum of ₹ 1,75,91,657/- under the head stone cutting polishing charges. The Assessing Officer disallowed ₹ 10 lakhs for the reason that the payments have been made in cash and no supporting vouchers have been produced. 18. Likewise, the Assessing Officer noted that assessee has deposited a sum of ₹ 1,20,15,610/- under head stone joining cutting material expenses. The Assessing Officer noted that against the aforesaid, a sum of ₹ 1,35,00,630/- is outstanding as on 31.03.2010. The Assessing Officer asked for the list of outstanding labour charges payable and the assessee provided the list of 319 persons, out of which notice u/s 133(6) were issued in 51 cases. The Assessing Officer took note of the fact that in 21 cases notices have returned back unserved. Taking note of the said fact and since the payments have been made in cash and in the absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75 lakhs. 22. The Ld. CIT(A) has given a relief of ₹ 45 lakhs out of the addition of ₹ 75 lakhs made by the Assessing Officer, that means Ld. CIT(A) has sustained ₹ 30 lakhs addition against the assessee and the Revenue s ground which states that Ld. CIT(A) has restricted the addition to ₹ 25 lakhs is per se wrong. We noted that the Assessing Officer had sent notices to 241 labourers of which only 82 notices have come back. It means 159 notices have been served on the labourers. Therefore the list given by the assessee cannot be disbelieved in toto. There may be various reasons why the notices could not have been served on the labourers in the given addresses. These skilled labourers as we understand are mainly coming from Rajasthan and used to camp in an address/ place for some time which is adjacent to place of work and once the work is over or discontinued, they will move to other locations and thus addresses also keeps changing depending on the location of work they get. Moreover, these labourers cannot be presumed to be literate, so the address might also have some deficiencies and may be incomplete. We also take into account the fact that while adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,000/- to ₹ 30,000/- by stating that the disallowance made by AO is excessive. We do not agree to the ad-hoc disallowances as made above. For the same reasons which we have reiterated hereinabove, we delete the ad-hoc disallowance sustained by the Ld. CIT(A) and, therefore, we direct deletion of ₹ 30,000/- on this issue. 18. Grounds No.5 and 6 raised by the assessee relate to non-acceptance of agricultural income of ₹ 7.40 lakhs shown by the assessee and the Revenue s ground is against the decision of CIT(A) for giving relief to the assessee by restricting the addition at ₹ 7,40,000/- when the Assessing Officer has made an addition of ₹ 12,99,200/- on this issue. 19. The brief facts is that the Assessing Officer noted that there was cash deposit in the capital account of the assessee on various dates to the tune of ₹ 15 lakhs. When asked by the Assessing Officer to furnish the source of addition in the capital account, the assessee replied that he has earned agricultural income of ₹ 7,75,000/- during the Financial Year 2009-10 and ₹ 7,60,000/- during the Financial Year 2008-09 and the assessee has deposited part of agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Khasra and the crop record from Khasra Khatanuni (7/12), shows the crops have been produced, it is fair and reasonable that Agriculture income to the extent of ₹ 7,60,000/- is allowed for the year under consideration also. Accordingly out of the total cash deposits of ₹ 15,00,000/- in capital account I allow the benefit of ₹ 7,60,000/- on account of agriculture income and the additions in respect of balance cash deposit of ₹ 7,40,000/- is confirmed. This Ground is therefore partly allowed. 20. Aggrieved by the order of the Ld. CIT(A), the Assessee and Revenue are in cross appeal before us. We take note that in the Assessment Year 2011-12, assessee has shown an income of ₹ 7,95,000/- as agricultural income of which ₹ 2,50,000/- has been disallowed by the Assessing Officer and in Assessment Year 2013-14, the assessee has shown an agricultural income of ₹ 4,50,000/- and the Assessing Officer has made disallowance of ₹ 1,50,000/- taking into consideration the overall facts stated by the Assessing Officer in respect to the yield from 7.3425 hectare as well as the Department s stand on the agricultural income claimed by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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