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May 18, 2021

Merely because expenses are incurred in cash, can’t be disallowed when supported by self made vouchers

by Mahesh Mara in Income Tax

Merely because expenses are incurred in cash, can’t be disallowed when supported by self made vouchers

Fact and Issue of the case

The relevant facts as emerging from the records as well as the findings of the ld. CIT(A) which are under challenge before us read as under:-

In the profit & loss account, diwali expenses of Rs. 38,282/ – has been debited. On examination, it is noticed that these expenses are not properly vouched or are supported by self-made vouchers only. Further, these expenses were met by cash payments. Therefore, these expenses are not subject to verification. Therefore, the assessee was asked vide order sheet entry dated 06.09.2016 to show cause as to why necessary disallowance may not be made out the claim so made. The assessee has not submitted anything specific in this regard. As stated above, the expenses claimed by the assessee are not subject to verification for want of proper vouchers and due to cash payments. Therefore, it is considered to disallow 5% of the expenses of Rs. 38,282/-, which comes to Rs.1,914/-, is disallowed to cover up any leakage of revenue on this account.

As regards the Ground no 3 related to disallowance made from Diwali expenses, I have gone through assessee’s submission and AO’s findings. On the facts involved and the nature of expenses as well as the proportion in which the disallowance is made to the total claim made, the disallowance is found to be reasonable & justified. The same is accordingly upheld.

In the profit & loss account, the assessee debited general cartage expenses of Rs.99,800/ -. On examination, it is noticed that these expenses are not properly vouched or are supported by self-made vouchers only. Further, these expenses were met by cash payments. Therefore, these expenses are not subject to verification. Therefore, the assessee was asked vide order sheet entry dated 06.09.2016 to show cause as to why necessary disallowance may not be made out the claim so made. The assessee has not submitted anything specific in this regard. As stated above, the expenses claimed by the assessee are not subject to verification for want of proper vouchers and due to cash payments. Therefore, it is considered to disallow 5% of the expenses of Rs. 99,800/-, which comes to Rs. 4,990/-, is disallowed to cover up any leakage of Revenue on this account. Looking to the nature of these expenses, some disallowance for non business & unverified portion in the total claim was justified. The disallowance has already been restricted to 5% of the total claim by the A.O and is found reasonable and justified. No interference is called for in the same.

In the profit & loss account, the assessee debited material shifting expenses of Rs.11,93,547/ -. On examination, it is noticed that these expenses are not properly vouched or are supported by self-made vouchers only. Further, these expenses were met by cash payments. Therefore, these expenses are not subject to verification. Therefore, the assessee was asked vide order sheet entry dated 06.09.2016 to show cause as to why necessary disallowance may not be made out the claim so made. The assessee has not submitted anything specific in this regard. As stated above, the expenses claimed by the assessee are not subject to verification for want of proper vouchers and due to cash payments. Therefore, it is considered to disallow 5% of the expenses of Rs.11,93,547/ -, which comes to Rs. 59,677/ -, is disallowed to cover up any leakage of Revenue on this account. Looking to the nature of these expenses, some disallowance for non business & unverified portion in the total claim was justified. However, the same has to be reasonable. The disallowance is already restricted to only 5% of the total claim which appears reasonable as well as justified and is not interfered with.

In the profit & loss account, the assessee debited miscellaneous expenses of Rs.42,776/-. On examination, it is noticed that these expenses are not properly vouched or are supported by self-made vouchers only. Further, these expenses were met by cash payments. Therefore, these expenses are not subject to verification. Therefore, the assessee was asked vide order sheet entry dated 06.09.2016 to show cause as to why necessary disallowance may not be made out the claim so made. The assessee has not submitted anything specific in this regard. As stated above, the expenses claimed by the assessee are not subject to verification for want of proper vouchers and due to cash payments. Therefore, it is considered to disallow 5% of the expenses of Rs. 42,776/-, which comes to Rs. 2,139/- is disallowed to cover up any leakage of Revenue on this account. On the facts involved and the nature of expenses as well as the proportion in which the disallowance is made to the total claim made, the disallowance is found to be reasonable & justified. The same is accordingly upheld.

In the profit & loss account, the assessee debited repairs & maintenance expenses of Rs. 21,98,911/. On examination, it is noticed that these expenses are not properly vouched or are supported by self-made vouchers only. Further, these expenses to the extent of Rs. 63,771/ – were paid fully in cash. Therefore, these expenses are not subject to verification. Therefore, the assessee was asked vide order sheet entry dated 06.09.2016 to show cause as to why necessary disallowance may not be made out the claim so made.

Observation of the Tribunal

The Tribunal has heard the rival contentions and perused the material available on record. Firstly, it is noted that the Assessing Officer has disallowed 5% of the loading and unloading expenses which have been deleted by the ld. CIT(A). Though, the same is not the subject matter of present dispute, however, it is relevant to consider the findings of the ld. CIT(A) wherein he has stated that the AO has not been able to bring examples of specific disallowable expenses among this category and if the books of accounts were not reliable because of cash or self made vouchers, he should have rejected the same u/s 145(3) and in absence of the same, he is satisfied with the explanation given by the assesse and the disallowance so made by the Assessing Officer appears to be unnecessary and the same was directed to be deleted. However, regarding other disallowances made by the Assessing Officer which have been sustained by the ld. CIT(A) and are subject matter of dispute before us, though, the finding of the Assessing Officer are more or less similar as in the case of disallowances of loading and unloading expenses, however, the ld. CIT(A) has sustained the same holding that on the facts involved and the nature of expenses as well as the proportion in which the disallowance is made to the total claim made, the disallowance is found to be reasonable & justified.

Tribunal find that there are inconsistencies in the findings of the ld. CIT(A),where at first place, he has held that the Assessing Officer has not able to bring any example of specific disallowable expenses in case of loading and unloading expenses and under the similar facts pattern where the disallowances have again been made by the Assessing Officer in respect of other expenses without bringing any specific disallowable expenses, he has sustained these disallowances. Therefore, on this account and in absence of the specific finding recorded by either of the authorities that the expenses have not been incurred wholly or expensive for the purpose of business or are bogus in nature merely because expenses incurred in cash and supported by self made vouchers cannot be a basis for making the disallowance in the hands of the assessee. The ld DR has contended that only 5% of the expenses have been disallowed, however, if we look at the basis of such disallowance which is cash payment and in such a situation, as a percentage of expenses incurred in cash, the disallowance comes to 29% as contended by the ld AR. As per Tribunal view, the issue is not about the percentage of expenses rather the real issue is whether the expenses so disallowed have been incurred for the purposes of business or not. There is no finding by either of the authorities that the expenses have not been incurred for the purposes of business or the test of business expediency has not been satisfied. Tribunal is of the considered view that the expenses have been disallowed for the sake of making the disallowances without bringing on record any specifics of disallowable expenses as not incurred for the purposes of business and therefore, the disallowances so made are clearly ad-hoc in nature which cannot be sustained in the eyes of law and the same are hereby directed to be deleted.

Conclusion

The Tribunal allowed the appeal of the assessee and ruled the judgment in favour of the assessee

Read the Full order from below

Merely-because-expenses-are-incurred-in-cash-cant-be-disallowed-when-supported-by-self-made-vouchers

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