IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H' NEW DELHI
BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No. 1817/Del/2012
Assessment Year: 2008-09
V.K. Dewan & Co., vs Income Tax Officer, MD-67, Pitampura, Ward 38(2), 2nd Floor, New Delhi. C.R. Building, (PIN AAAFV3548C) I.P. Estate, New Delhi. (Appellant) (Respondent) Appellant by: Shri Sumer Garg
Respondent by: Shri B.R.R. Kumar, Sr.DR
O R D E R
PER CHANDRA MOHAN GARG, J.M.
This appeal has been preferred by the assessee against the order of
CIT(A)-XXVIII, New Delhi dated 27.3.2012 by which he partly allowed the
appeal of the assessee, confirming the addition made by AO for the AY
2. The grounds of appeal read as under:-
"1. That the ld. CIT(A) erred in law and on facts in sustaining the disallowance of Rs.35,000 out of ad hoc addition made by the AO in the facts and circumstances of the case.
2. That the ld. CIT(A) erred in law and on facts in making an ad hoc disallowance of Rs.7000/- out of expenses under the head "salaries to staff" to avoid any 2 ITA No.1817/Del/2012
leakage of revenue and the ld. CIT(A) erred in sustaining the disallowance at Rs.35000/- without assigning any reason whatsoever."
3. Briefly stated, the facts of the case are that the AO finalized the
assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to
as "the Act") and noted that the assessee was engaged in the business of
manufacturing of ready mix concrete and showed net loss of Rs.2,17,766/-
for the year under consideration. He also noted that the assessee debited
Salaries to Staff of Rs.3,90,105 in the Profit & Loss account and on
examination of books, it was found that these expenditures were not properly
vouched and an amount of Rs.70,000 was added to the income of the
assessee considering the nature of receipts and also unvouched nature of
such expenses to avoid leakage of revenue.
4. The assessee invoked the CIT(A) and the CIT(A) partly allowed the
appeal of the assessee by impugned order and reduced the addition of
Rs.70000/- made by the AO to Rs.35000/-. Hence, this appeal before this
Tribunal by the assessee.
5. The AR submitted that the ld. CIT(A) agreed to the submissions and
citations placed before him but he partly allowed the appeal and confirmed
the addition to the tune of Rs.35,000 without any reasonable basis. The ld.
DR supported the action of the AO by submitting that the expenses claimed 3 ITA No.1817/Del/2012
by the assessee were not properly vouched, therefore, the addition was made
to avoid leakage in the revenue and the ld. CIT(A) used his discretion on
proper application of his authority and extended 50% relief to the assessee.
He vehemently submitted that it is the prime duty of the assessee to properly
vouch the expenses which he intended to claim as deduction but he failed to
do so, therefore, the action of the AO, as confirmed by the CIT(A), is correct
and based on reasonable grounds.
6. We have heard both the parties and carefully considered the rival
arguments and perused entire record before us. Ld. CIT(A) while dealing
with ground nos. 1 to 4 observed as under:-
"Grounds no. 1 to 4 wherein the appellant has challenged disallowance of Rs.70000/- out of salaries paid to staff.
I have gone through the assessment order and written submission of the appellant. The AO has contended that during the financial year 2007-08 relevant to AY 2008-09, the assessee has shown net loss (-) 217766/-. On examination of details filed by the assessee it was noticed that assessee has debited Salaries to Staff of Rs.390105/- in his Profit & Loss Account. During the course of assessment proceedings the assessee was asked to file bills and vouchers. It was found during the course of examination of books of accounts that these expenses are not properly vouched. Therefore, an amount of Rs.70,000/- was disallowed to avoid any leakage of revenue.
It is submitted that during the course of assessment proceedings, the AO asked the appellant to 4 ITA No.1817/Del/2012
produce books of account and relevant vouchers for verification, which was duly complied by the appellant. It would be relevant here to say that the appellant maintains complete details and evidence of payment of salaries to staff. If the AO was not satisfied with the details furnished by the appellant, he should have asked for further details from the appellant. No such details were asked for from the appellant.
It is submitted that the books of account of the appellant are liable to audit u/s 44AB of the Act. The tax auditors have duly audited the said vouchers and expenses. The assessee was never informed by AO of any defect or discrepancy in the vouchers produced before him. Moreover, the AO has failed to record specific defects and particular vouchers in his assessment order.
The Hon'ble Delhi Court in the case of CIT v Harish Mohini Kathuria (ITA No. 679/2011) dismissed the department's appeal holding as under:-
"After going through the orders of the authorities below, we are of the opinion that the Tribunal rightly observed that the disallowance of a part of expenditure on account of wages as well as consumable goods was on ad hoc basis and there was no rational behind the same. The Tribunal also rightly recorded that the AO had not pointed out any specific defect in the vouchers and there was no finding that any expenditure was not found to be genuine or not relating to the business."
A similar view has been taken by the Punjab & Haryana High Court in CIT vs M/s S.S.P. Ltd. (ITA Bi, 535 of 2010) wherein it was held that:
"The CIT(A) had concluded that the audited books of account along with vouchers were produced by the assessee and thereafter the AO had failed to show that the said expenditure was not for business purposes. Further, the disallowance was made on ad hoc basis without there 5 ITA No.1817/Del/2012
being any material which would justify that the amount had been spent for personal use of the directors. The aforesaid findings were confirmed by the Tribunal.
The findings of the CIT(A) and the Tribunal have not been shown to be perverse or illegal in any manner, by the learned counsel for the appellant so as to persuade this Court to interfere therewith. No substantial question of law, thus, arises for the consideration of this Court. Accordingly, there is no merit in the appeal and the same is dismissed."
The Hon'ble Delhi ITAT in M/s Matrix Inc. v ITO (ITA No.54/Del/2009) has also observed that:
"Wherever payment is made by cash, the name of the person concerned to whom the payment has been made in cash towards various expenses are mentioned. The AO has not made any sort of enquiry or cross verification from the respective person to ascertain the genuineness of the expenses. When the assessee did not produce supporting vouchers but details of payment were duly furnished, the AO should have examined and verified the expenses by making necessary enquiry, and if on enquiry, the expenses were found to be not genuine, the AO could have proceeded to disallow the expenses to certain percentage but that exercise has not been done by the AO despite the various details of expenses were furnished by the assessee. Therefore, in this background, the ad hoc disallowance of 1/3rd of all the expenses is not called for. We, therefore, delete the same."
The Hon'ble Mumbai ITAT in the case of DCIT v M/s Epcot Securities (P) Ltd. (ITA No. 395/Mum/2009) has also similarly held that:
"As rightly contended on behalf of the assessee before the ld. CIT(A) as well as before us, there is nothing in the order of the AO to show as to what details and documents were exactly called for by him, which the 6 ITA No.1817/Del/2012
assessee failed to furnish. There is also nothing brought on by the AO to show that the commission and brokerage expenses claimed by the assessee were excessive and unreasonable. The disallowance of 10% made by the AO out of commission and brokerage expenses thus was not sustainable and the ld. CIT(A), in our opinion, was fully justified in deleting the said disallowance.
In the case of Pearl Farben Chem (P) Ltd. (ITA No. 1122/Mum/2010) also the Hon'ble Mumbai Bench of ITAT has held that:
"We have perused the records and considered the rival contentions carefully. The dispute is regarding the estimated disallowance out of expenses under the heads 'repairs and maintenance', 'business promotion expenses' and 'traveling expenses'. There is no dispute that the assessee had failed to produce bills and vouchers in support of these expenses. The AO therefore is entitled to consider disallowances of expenses claimed under the above heads. However, the AO has to give basis for disallowance. The disallowance has to be based on some material and cannot be arbitrary. The AO has not placed any material on record to show that the expenses were excessive compared to the earlier year. Therefore, the round figure estimated additions made by the AO without giving any basis cannot be sustained. The order of the CIT(A) confirming the addition is, therefore, set aside and the additions made are deleted."
In view of the facts and circumstances of the case and the case laws cited by the appellant, I sustain the disallowance made by the AO to the tune of Rs.35,000/-. The appellant gets a relief of Rs.35,000 out of the total disallowance made under the head salaries of Rs.70000/-. Appeal on these grounds is partly allowed." 7 ITA No.1817/Del/2012
7. Admittedly, the assessee was engaged in the business of ready mix
concrete and claimed Rs.3,90,105 as salaries paid to staff debiting the P& L
account. The AO noted that these expenses were not properly vouched and
he made an addition of Rs.70,000. The ld. CIT(A) agreed to the above
action of the AO but he reduced the addition to 50% to the tune of
Rs.35,000. We observe that the assessee, neither before the ld. CIT(A) nor
before us, submitted any explanation regarding above infirmity, as noted by
authorities below, despite an opportunity to submit the same. The addition
of Rs.35,000 finally made by ld. CIT(A) comes to less than 10% of expenses
claimed i.e. amounting to Rs.3,90,105 and, accordingly, the addition on
account of unvouched expenses deserves to be sustained.
8. We also observe that the assessee's representative miserably failed to
establish that the action of the AO as partly confirmed by the ld. CIT(A) was
bearing some perversity or infirmity. In view of above, we have no reason to
interfere with the findings of the authorities below. Accordingly, we finally
hold that this appeal is devoid of merits and deserves to be dismissed and we
dismiss the same.
9. In the result, this appeal by the assessee is dismissed. 8 ITA No.1817/Del/2012
Order pronounced in the open court on 29th June, 2012.
( J.S. REDDY) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 29th JUNE 2012
Copy forwarded to:-
4. CIT 5. DR True copy By Order