The Income Tax Appellate Tribunal (ITAT) Kolkata Bench while deleting the ad-hoc disallowance held that no disallowance should be made under Section 37(1) of Income Tax Act, 1961 on site expenses incurred for railway business .
The assessee Durga Signal Infra Pvt. Ltd. is engaged in the business as a Railway contractor and supplier. After filing the return of income, the assessor’s case was selected for scrutiny under CASS.
During the assessment proceedings, the AO noticed that the assessee has claimed huge expenses in the P&L Account which principally resulted in a loss of Rs.17,25,690/.
It was contented that the assessee-company paid cash amounting to Rs. 5,73,183/- to M/s Cardio Technovention for the purpose of taking reversal of entry as commission received through proper banking channel. The reassessment was concluded at the returned income.
The AO after verifying the documents and list of particulars for site expenses produced by assessee, observed that assessee has not provided any documentary evidence in support of claim of site expenses, adopted an ad-hoc rate of 20% to disallowed the site expenses after reducing the component of sales tax from it.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax Appeal (CIT(A)), who dismissed the appeal of assessee. Thus the assessee filed a second appeal before the tribunal.
During the hearing of appeal Siddarth Agarwal, the counsel for the assessee submitted that the assessee has produced a detailed list of particulars in respect of site expenses.
The Counsel also referred to a comparative chart to demonstrate the quantum of site expenses which had been claimed by the assessee both in the preceding year as well as subsequent years vis à-vis the turnover of the assessee.
Finally, the counsel argued by relied upon the chart that, no such disallowance has been made in the preceding as well as subsequent years and that there is no basis of adopting 20% to make an ad-hoc disallowance without pointing out any defect in the information and details furnished by the assessee.
P. P. Barman, the Counsel for Revenue contented that the assessee merely produced a list in respect of site expenses claimed which is not supported by any other documentary evidence.
The tribunal observed that Assessee has furnished the break-up of site expenses which it has claimed in its P&L Account. Thus, AO has adopted an ad-hoc percentage of 20% to make a disallowance towards site expenses without giving any rational basis for the same.
According to Section 37(1) of the Income Tax Act provides for allowing expenditure incurred by the assessee for the purpose of its business if they are not in the nature of capital expenditure or personal expenses and not being expenditure of the nature prescribed in section 30 to 36.
After reviewing the facts and submission, the two member bench of the tribunal comprising Girish Agrawal (Accountant Member) and Sanjay Garg (Judicial Member) deleted the ad-hoc disallowance made by AO on site expenses incurred for railway business.
Thus, the bench allowed the appeal of the assessee.
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