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TMI Blog2020 (1) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the AO by making disallowance of Rs. 169408/- out of travelling expenses by holding that these expenses were for non business purposes vide his order dated 06/03/2019 arbitrarily. (Ground number 2 of ground of appeal filed before CIT(A)) 3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO by making disallowance of Rs. 35365/- out of advertising expenses by holding that these expenses were non supported by bills and vouchers and were non business purpose vide his order dated 06/03/2019 arbitrarily. (Ground number 3 of ground of appeal filed before CIT(A)) 4. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO by making disallowance of Rs. 2758/- out of Insurance expenses by holding that these expenses were non supported by bills vide his order dated 06/03/2019 arbitrarily. (Ground number 4 of ground of appeal filed before CIT(A). 5. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO by making disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2019 arbitrary. . (Ground number 11 of ground of appeal filed before CIT(A)) 12. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO by making disallowance of TDS claim of Rs. 39535/- by holding that the same is disallowable in the F.Y. 2008-09 and no such TDS credit was allowed by him in the scrutiny assessment completed of FY 2008-09 vide his order dated 06/03/2019 arbitrary. (Ground number 12 of ground of appeal filed before CIT(A)) 13. That the appellant craves to add, delete, alter and amend or modify any of the grounds of appeal either before or at the time of hearing. The assessee has also raised an additional ground as under :- " That AO was not justified in making addition of Rs. 7,61,166/- by invoking the provision of section 145(3) of the Income Tax Act, 1961, particularly when the books of accounts maintained by the assessee are true and correct and true profit can be deduced there from. Learned CIT Appeal also grossly erred in affirming the order of AO." 2. We have heard the ld. A/R as well as the ld. D/R on the admission of additional ground. The assessee has raised th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS has been deducted, therefore, the payments cannot be said to be not verifiable. Similarly, the payments regarding transport expenses at the site are also supported by self made vouchers but all these expenditures are verified by the Site Supervisor and also subjected to TDS, therefore, this cannot be a ground for rejection of books of account. As regards the site-wise consumption register, the ld. A/R has submitted that it is not practically possible to maintain site-wise consumption register when the assessee is working at different sites and as per the practice followed, the assessee physically verifies the work-in-progress at the end of each financial year. The closing stock-in-progress is determined based on the physical verification of the work. Thus the ld. A/R has contended that when the assessee is maintaining books of account in regular course of business duly supported by the details and vouchers, then the rejection of books of account under section 145(3) is not justified. 4. On the other hand, the ld. D/R has submitted that the AO has given a detailed finding of fact regarding the various defects in the books of account and particularly the claim of direct expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure otherwise not disallowed under section 37(1) of the Act. Therefore, this explanation of the assessee cannot be accepted when the AO has specifically raised the query about the supporting evidence in respect of various claims made by the assessee. The second explanation of the assessee is that the various expenditures were incurred at the remote sites of the assessee and, therefore, the proper vouchers were not available with the assessee but only self made vouchers were produced by the assessee in support of the claims. It is pertinent to note that the assessee is working as a Railway Contractor and, therefore, the claim of the assessee for incurring expenditure in the process of executing the contract work is required to be supported by proper vouchers. It is not a rare incident of small claim or only few expenditures but the AO has pointed out so many instances of the claim of expenses right from various purchases, consumable items, mess, rail loading, unloading, cutting expenses, transportation expenses. Therefore, when there is gross failure on the part of the assessee to produce the supporting evidence and it is not an isolated instance but it appears to be the claim on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be estimated on some reasonable and proper basis. The past history of GP declared by the assessee is a proper guidance for estimation of income in pursuant to the rejection of books of account. In the case in hand, the assessee has declared GP at 11.06%. The assessee also furnished the comparative details of GP declared by the assessee for the preceding years including current year as under :- Particulars FY 2007-08 FY 2008-09 FY 2009-10 Sales 9,86,19,448 8,59,02,816 8,08,18,835 Gross Profit 1,18,33,739 92,70,173 89,37,103 Net Profit before interest and remuneration to partners. 55,15,568 51,64,667 41,17,011 GP Ratio 11.99% 10.79% 11.06% For the assessment year 2008-09 the assessee declared GP at 11.99%, for the assessment year 09-10 the assessee declared GP at 10.79%. However, there was an addition made by the AO and after the addition sustained by the ld. CIT (A), the GP for the assessment year 2009-10 comes to 11.02%. Therefore, even if taking the average of preceding two years which comes to 11.05%, the GP declared by the assessee at 11.06% cannot be said to be at the lower side or any significant decline in GP. Accordingly in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm has debited Rs. 5,96,402/- as travelling expenses. While examining the ledger account of the firm, it has been noticed that Shri Shailendra Gupta had performed almost monthly journey to Jammu, Delhi, Kolkata, Mumbai Central for personal purpose. On this journey following date wise expenses were debited :- a) 01.05.2009 Rs. 45,393 b) 01.10.2009 Rs. 42,356 c) 25.09.2009 Rs. 8,400 d) 03.09.2009 Rs. 24,714 e) 28.08.2009 Rs. 12,000 f) 06.08.2009 Rs. 8,561 g) 28.10.2009 Rs. 9,534 h) 21.12.2009 Rs. 7,950 i) 30.01.2010 Rs. 10,500 Total : Rs. 1,69,408 The AR of the assessee was asked to justify the above claim. However, the A.R has not offered any satisfactory explanation. Even, some bills were related to their family tours and Mata Vaisno Devi Darshan. Therefore, above total expenditure of Rs. 1,69,408/- is disallowed treated as non business expenditure and added to total income of the assessee." It is clear that out of the total expenditure of Rs. 5,96,402/-, the AO selected 9 (nine) visits of the partner of the assessee undertaken almost monthly basis to Jammu, Delhi, Kolkata and Mumbai. The AO has also referred that some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding insurance expenses for want of supporting receipts. The ld. A/R of the assessee has submitted that the assessee submitted complete information supported by documents. The cash payment for petty expenses are allowable, therefore, the disallowance made by the AO is not justified. 17. On the other hand, the ld. D/R has submitted that since the assessee has not produced the receipts for payment of insurance premium, the claim of Rs. 2,758/- cannot be allowed. 18. We have considered the rival submissions as well as the relevant material on record. The AO has made a disallowance of Rs. 2,758/- on account of insurance expenses as under :- " Assessee firm has debited Rs. 63,821/- on account of insurance expenses. While examining the ledger account of the firm, it has been noticed that assessee debited Rs. 2,758/- on 30.06.2009, but did not supported by receipt. Therefore, Rs. 2,758/- is added to the total income of the assessee." It is clear that the AO has made the disallowance on the ground for want of supporting receipt. The insurance premium cannot be claimed without supporting receipt as it is bound to be paid against the receipt. Even otherwise, the assessee has not furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the authorities below. 21. Sales Tax Penalty : We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The AO has made the disallowance of Rs. 9,560/- towards Sales Tax Penalty as under :- " The assessee has debited Rs. 3,15,759/- in the P & L account under the head of Sales Tax Demand. During the course of assessment proceedings, the A.R has submitted copy of sales assessment orders and found that out of total claimed, penalty demands were of Rs. ,3,580+3,580+1200= Rs. 9,560/-. Since, the penalty demand is not allowable expenses, hence, Rs. 9,560/- is disallowed and added to the total income." The AO held that the said amount as claimed by the assessee in the Profit & Loss account under the head "Sales Tax Demand" is towards the penalty not allowable under section 37(1) of the IT Act. 22. Before us, the ld. A/R of the assessee has submitted that this amount towards the interest for delay in submission of return and deposit of tax is an allowable expenditure. On the other hand, the ld. D/R has relied upon the orders of the authorities below. It is clear from the assessment order that this amount is part of the total sales tax demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to K.B. Mody, but purpose of payment is not clear. Therefore, the sum of Rs. 18,118/- is disallowed treating as non business expenses and added to the total income." 26. The AO has made the disallowance of the claim of Rs. 18,118/- for want of any bill. The AO has noticed that the payment was made in cash by the assessee to one Shri K.B. Mody, but since the assessee has not produced the bill, the AO has disallowed the said expenditure as non business expenditure. Once the assessee has claimed that this expenditure is towards arbitration fee and the dispute was between the assessee and railways regarding the business work of the assessee then the said expenditure is an allowable claim. Accordingly the disallowance made by the AO is deleted. 27. Telephone expenses : The AO has made a disallowance of telephone expenses as under :- " The assessee had claimed under this head of Rs. 1,72,234/-. On perusal of details, it is found that the assessee firm had claimed the followings bills of telephones which were not related to business - 0744-2406761 Home Rs. 1,553/- 0744-2406561 Partners residence Rs. 1,010/- 94133-52723 Shree Shivam &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO in making disallowance of Rs. 252066/- out of sales tax penalty arbitrarily. (Ground number 1 of ground of appeal filed before CIT(A). 2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 23900/- out of Conveyance expenses arbitrarily. (Ground number 2 of ground of appeal filed before CIT(A)) 3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 42000/- out of Vehicle Hiring expenses arbitrarily. (Ground number 3 of ground of appeal filed before CIT(A)) 4. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 57331/- out of travelling expenses arbitrarily. (Ground number 4 of ground of appeal filed before CIT(A)) 5. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 8285/- out of workmen and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies below. 37. We have considered the rival submissions as well as the relevant material on record. If the said amount is part of the demand arising from Sales tax assessment, then it will partake the character of Sales-tax and not the penalty. However, if the said amount is on account of penalty separately levied by the Sales Tax Authorities, then it cannot partake the character of simple Sales-tax payment. Accordingly, the AO is directed to verify the fact from the record whether the said amount of Rs. 2,52,066/- is arising from separate penalty order passed by the Sales Tax Authorities or it is only a demand under the Sales Tax assessment order. Accordingly, in view of our finding on this issue for the assessment year 2010-11, this issue is set aside to the record of the AO. Ground No. 2 is regarding disallowance of Conveyance expenses. 38. The AO has made the adhoc disallowance of 10% amounting to Rs. 23,900/- in para 2 as under :- " The assessee has claimed conveyance expenses of Rs. 2,39,472/-. On perusal of vouchers maintained by the assessee under this head, it is noticed that entire expenditure has been incurred in cash and mostly vouchers are self made which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has made the disallowance only on the basis of suspicion and doubt without pointing out a specific claim of expenditure is not genuine. Accordingly, the adhoc disallowance made by the AO is not justified, the same is deleted. Ground No. 3 is regarding adhoc disallowance of vehicle hiring expenses. 42. The AO has made the disallowance of vehicle expenses in para 3 as under :- " The assessee firm has claimed hire charges Rs. 4,20,000/- towards a jeep and car. On perusal of details filed by the assessee firm, it has noticed that these vehicles have been provided by the HUF of a partner of this firm namely Shri Madan Mohan Gupta and made an agreement with firm for hiring of motor vehicles. This agreement is neither notarized nor registered. The assessee was asked to file justification for hiring of vehicles and in turn during the course of hearing assessee filed written reply trying to justify the vehicle rent payment but it is not found fully satisfactory and 10% of it i.e. Rs. 42,000/- is disallowed and added to total income of assessee treating it on hire side." 43. We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The AO has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by us for the assessment year 2010-11. Accordingly, in view of our finding on this issue, the same is confirmed. Ground No. 5 is regarding disallowance on account of Workmen and staff welfare expenses. 46. The AO has made the disallowance @ 10% of the expenses in para 5 as under :- " During the year the assessee has claimed expenses of Rs. 82,852/- under this head but no specific details regarding business expediency by assessee have been provided. It has stated that very small payment were made on account of tea, coffee, milk, edibles etc. and all these payments were necessary and incidental to the business of assessee. Further, all the expenses have been incurred in cash and vouchers maintained by assessee are self made, which cannot be stated reliable/genuine. Being the business expediency/genuineness of these expenses is not verifiable, an amount of Rs. 8,285/- which comes to 10% of these expenses are hereby disallowed and added to total income of assessee." 47. We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The AO has made an adhoc disallowance of 10% of Workmen and Staff welfare expenses on the ground of self made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses arbitrarily. (Ground number 3 of ground of appeal filed before CIT(A)) 4. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 1,44,431/- out of travelling expenses arbitrarily. (Ground number 4 of ground of appeal filed before CIT(A)) 5. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 32775/- out of workmen and staff welfare expenses arbitrarily. (Ground number 5 of ground of appeal filed before CIT(A)) 6. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Kota erred in confirming the action of the AO in making disallowance of Rs. 22666/- out of telephone and mobile expenses arbitrarily. (Ground number 6 of ground of appeal filed before CIT(A)) 7. That the appellant craves to add, delete, alter and amend or modify any of the grounds of appeal either before or at the time of hearing. Ground Nos. 1 to 6 are regarding adhoc disallowance made by the AO in respect of various expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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