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TMI Blog2017 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... nd car expenses being 20% of total expenses. Appellant prays addition so made may please be deleted. 3. On the facts and in the circumstances of the case the ld. CIT(A) erred in confirming the ad hoc disallowance of Rs. 15,732/- out of labour expense being 10% of total expenses. 2.1 Apropos Ground No. 1 and 1.1 of the assessee, brief facts of the case are that during the year under consideration the assessee is engaged in the business of trading of Sugar on wholesale basis in the name and style of M/s. Madhav Trading Co. at Chirawa. The AO on perusal of the books of account of the assessee noticed that the assessee during the year under consideration had declared the gross profit of Rs. 16,06,125/- on declared total sales of Rs. 21,59,60,250/- in trading account by showing a gross profit rate of 0.74% only which is very low as compared to last year's declared gross profit rate @ 1.14%. The AO on scrutiny of books of account noticed various defects that the assessee had not maintained day to day stock register and quantity-wise details of items. The AO further noted that the assessee had not furnished complete bills and vouchers regarding purchase expenses in trading account. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case wherein a higher gross profit rate than the assessee had been shown. The ld. AR of the assessee relied on the decision of Hon'ble Jurisdictional High Court in the case Bhawani Silicate Industries , 236 Taxman 596. The ld. AR of the assessee submitted the gross profit rate chart for the last three years as under:- A.Y. Sales G.P. % 2008-09 11,74,35,192.00 0.98 2009-10 14,75,80,854.00 1.14 2010-11 21,59,60,250.00 0.74 The ld. AR of the further assessee relied on following case laws:- 1. Malani Ramjivan Jagannath Vs.Asst. CIT (Raj.) (2009)316 ITR 120 2. Haridas Parikh V ITO [2009] 29 SOT 13 (JODH.)(URO) 3. Ashok Kumar & Co. v. ITO [2004] 2 SOT 518 (Asr.) (SMC) 4. CM. Francis & Co. (P.) Ltd. v. CIT [77 ITR 449] (Ker) 5. Asstt. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Mag.) (Ahemdabad) Conclusively, the ld. AR of the assessee prayed that the lower authorities have wrongly invoked the provisions of Section 145(3) of the Act. He further submitted that the results declared by the assessee may be accepted and the trading addition of Rs. 8,55,822/- made by the AO by estimating the gross profit rate at 1.14% as against 0.74% as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers and documents in support of claim of these expenses and thus the use of telephone, cars & motor cycle and vehicle and traveling expenses exclusively for business purposes could not ascertained.. The AO asked the assessee to submit the complete details / documents and vouchers in respect of these expenses but the assessee could not furnish complete bill, details/ vouchers/documents in support of these expenses claimed by him in the profit and loss account. The AO further observed that in the absence of complete details/ vouchers and considering the nature of these expenses, personal usage of the same cannot be ruled out and thus there are chances of inflating the expenses by the assessee and in order to cover up any possible leakage on this account, he disallowed 20% out of the above expenses i.e. Rs. 67,001/- (20% of Rs. 3,35,003/-, [34,672+36847+127025+136459] and added the same to the total income of the assessee which in first appeal has been confirmed by the ld. CIT(A) by observing as under:- ''5.11 Ground No.3: is with respect to disallowance out of office expenses, out of telephone expenses and out of motor car expenses. From the assessment order, it is observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g expenses, claimed a sum of Rs. 1,27,025/- on account of depreciation on two cars and motor cycle and claimed a sum of Rs. 1,36,459/- on account of vehicle expenses. The AO for want of complete bills, details/ vouchers, documents and considering the nature of these expenses disallowed 20% of the total expenses of Rs. 3,35,003/- which comes to Rs. 67,001/- and in first appeal the ld. CIT(A) has confirmed the action of the AO. In appeal before the Tribunal, it is noted that since the books of account of the assessee has been rejected, therefore, the estimated addition has been made. It is also noted that the ld. AR of the assessee to this effect relied on various case laws including the decision of Hon'ble Supreme Court in the case of S.A. Builders vs. CIT , 288 ITR 1 and Empire Jute Co. Ltd. vs. CIT,124 1. Therefore, In view of above decisions and various others decisions of Hon'ble High Court, no separate adhoc disallowance out of the expenses debited in the profit and loss account under the heads telephone expenses, depreciation on car and motorcycle, traveling expenses and vehicle expenses is not justified.. Hence, looking to the present facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand the ground realities of the business in which appellant is engaged wherein making of payments to labour is a usual feature in as much as labour in no case will be willing to accept payment from any mode other than cash. These payments are of petty amounts and cannot be made through cheques. It must be noted that these payments have not been made to any labour contractor but to labour directly and therefore, had to be made in cash. Further, there can be no bills / vouchers with regard to the payments made to individual labourers which are engaged on daily basis. It is well understood that labourers will not issue any bill for the work done by them and therefore, practically only self made vouchers for the cash payments made to labourers are maintained. Therefore, the allegations of the Ld. AO are baseless and do not lead to any conclusion. Further, it cannot be denied that the nature of work undertaken by appellant requires extensive use of labour, therefore, disbursement of a considerable amount as labour charges is consequential in such circumstances. Thus, based on above the appellant humbly submits that the labour expenses incurred by him are quite reasonable consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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