No addition can be made on account of Fabrication Charges paid to Small Time Workers: ITAT[Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that no addition could be made on account of fabrication charges paid to small time workers.

Neena Hardeep Singh, the taxpayer engaged in the business of fabrication and trading of readymade garments. After filing the return of income, it was found by the AO that the assessee has shown purchases amounting to Rs. 76,88,380 /- from M/s. Thakur Associates.

When an investigation was made on the premises it was found that the house is the residential house of the brother of Sanjiv Thakur, the proprietor of M/s. Thakur Associates. During the investigation, inquiries were made from Rahul who was nephew of Sanjiv Thakur said that he is not aware of the existence of the firm M/s. Thakur Associates.

Thereafter, the AO directed to assessee for verifying the party but he failed to do so. Hence it was assumed that M/s. Thakur Associates to be an entity created to provide accommodation entries and the AO treated the purchase made from M/s. Thakur Associates as bogus purchases.

Further AO further observed that expenses of Rs. 5,65,490/- had been shown as payments made for fabrication expenses but there was no corresponding TDS. As assessee did not provide confirmations of these parties, AO considered these as non-genuine expenditures, not incurred for purpose of business and addition of this amount was made.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeal)(CIT(A)) who deleted addition on account of fabrication expenses. Against the order revenue filed an appeal before the tribunal.

Princy Singla, Department Representative submitted that M/s. Thakur Associates is a non-existing entity. It was also pointed out that transactions of purchase and sales reflected in the books of accounts were all fictitious and intended to take money out of India in the form of false exports and bring them back through Hawala. Thus, the fabrication charges paid to certain parties were not genuine expenditure.

Ajay Vohra, Counsel for the assessee submitted that there is general practice to make cash payments to small time workers and it is difficult to keep records of cash payments but the same was not considered without any reasonable observations. CIT(A) has rightly deleted the addition made on the fabrication charges

After reviewing the facts and submission the two member bench of the tribunal comprising Shamim Yahya (Accountant Member) and Anubhav Sharma (Judicial Member) dismissed the appeal filed by the revenue and confirmed the deletion of addition upon the fabrication charges paid to small time workers .

To Read the full text of the Order CLICK HERE

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