Roopam Sarees Pvt. Ltd., Surat V. Income Tax Officer, Ward 2(1)(1), Surat

ITA 272/SRT/2022

AI Insights

The case involves Roopam Sarees Pvt. Ltd., which appealed against the orders of the Learned Commissioner of Income Tax (Appeals) confirming additions made by the Assessing Officer under section 69C of the Income Tax Act, 1961. The additions pertained to unexplained expenditures amounting to Rs. 2,28,000, Rs. 28,39,684, and Rs. 41,57,192 respectively. The Tribunal examined the circumstances under which these expenditures were made, including a survey conducted under section 133A and the subsequent disclosures made by the assessee. The Tribunal found that the assessee had provided sufficient evidence and explanations for the expenditures, leading to the deletion of the latter two additions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301831 (ITAT-SURAT)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 01-03-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 19-09-2022
• Other Referred Cases: Sreelekha Bannerjee vs. CIT, CIT vs. Swaminarayan Vijay Carry Trade (P.) Ltd, Shri Haresh Talreja vs. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASSESSEECOMPANY; WHICH IS MIXED
• Keywords: Unexplained expenditure; Income from undisclosed sources; Additional evidence; Corroborative evidences; Capital expenditure
• Section: 144; 69C; 143(3); 133A; 13; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.272/SRT/2022 Ǔनधा[रण वष[/Assessment Year: (2013-14) (Physical Hearing) Roopam Sarees Pvt. Ltd., Plot No.55, Jay Krishna Mill, GIDC Pandesara, Surat-395002. Vs. The ITO, Ward-2(1)(1), Surat. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABCR9748N Appellant by Shri Mehul Shah, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 02/03/2023 Date of Pronouncement 30/03/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”],National Faceless Appeal Centre (in short ‘ NFAC’), Delhi, dated 28.07.2022, which in turn arises out of an assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 23.03.2016. 2. The grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs. 2,28,000/- on account of unexplained expenditure u/s. 69C. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs. 28,39,684/- on account of unexplained expenditure u/s. 69C. 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in Page | 2 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. making addition of Rs 41,57,192/- being 20% of total job work expenses of Rs.2,07,85,960/-. 4. It is therefore prayed that addition made by assessing officer and confirmed by CIT (A) may please be deleted. 5. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 3. Now, we shall take these grounds one by one. In ground No.1 the main grievance of the assessee is that learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs. 2,28,000/- on account of unexplained expenditure u/s 69C of the Act. 4. Succinct facts qua the issue are that during the assessment proceedings, the assessing officer observed that Shri Rakesh C. Relan, Director of the assessee-company, vide reply dated 21.03.2016, had accepted that the assessee- company had made cash payment of Rs.2,28,000/-. Further the assessee had not been able to explain the relevant entries in the cash book for the cash payment of Rs.2,28,000/- to the Assessing officer and therefore the Assessing officer has made the addition. 5. On appeal, ld CIT(A) confirmed the action of the assessing officer. Aggrieved by the order of the assessing officer, the assessee is in further appeal before us. Learned Counsel for the assessee argued before us that pursuant to the survey action u/s 133A of the Act, which was conducted on 27.05.2013, wherein the assessee-company made total disclosure of Rs.6.50 Crores. In the said disclosure, the amount of Rs.2,28,000/- are covered, therefore such addition should be deleted. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. We have heard both the parties and note that Director of the assessee-company, vide reply dated 21.03.2016, had accepted that the assessee-company had made cash payment of Rs.2,28,000/-, therefore we confirm the findings of ld CIT(A) and dismiss ground No.1 raised by the assessee. Page | 3 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. 6. In the result, ground No.1 raised by the assessee is dismissed. 7. In Ground no.2, the grievance of the assessee is that learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs. 28,39,684/- on account of unexplained expenditure u/s 69C of the Act. 8. Succinct facts qua the issue are that during the scrutiny proceedings, the assessing officer has issued notice to the assessee to explain the transaction mentioned in star-red note book BF2- found/impounded during survey operation. In response, the assessee had submitted cash book and explained the transaction. The cash book and other evidence were verified by the assessing officer in the presence of the accountant of the assessee. However, assessing officer was not satisfied with the explanation of the assessee therefore made an addition of Rs.28,39,684/- on account of unaccounted expenditure. 9. On appeal, ld CIT(A) confirmed the action of the assessing officer. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. 10. Learned Counsel for the assessee submitted that considering the total disclosure, the additions made should be deleted, as it would lead to double addition, once on account of unaccounted expenditure and the second time on account of unaccounted cash receipt. The ld Counsel stated that pursuant to the survey u/s 133A conducted on 27.05.2013 in the case of assessee- company by the Department a total disclosure of Rs.6.50 Crores was made for assessment year 2013-14, [ Rs.1,62,50,000/- each in the cases of Rakesh Relan HUF- A.Y.2013- 14,PAN-AACHR4583B-A.Y.2013-14-ITR4 dated 01.04.2014, and Rajesh Relan HUF-A.Y.2013-14,PAN-AAGHR3065Q-A.Y.2013-14-ITR4 dated 07.04.2014, and Neha Rajesh Relan A.Y.2013-14,PAN-AAHPR7023F- A.Y.2013-14-ITR1 dated 01.04.2014, and Manisha Relan-A.Y.2013-14, PAN-AATPR2923G- A.Y.2013-14-ITR 4 dated 07.04.2014] and considering the total disclosure of Rs.6,50,00,000/- the additions made should be deleted , as it would lead to double addition, once on account of investment and the second time on account of expenditure. The assessee has also submitted before the assessing officer, the copy of computation of income and ITR V for the A.Y.2013-14 in the above four cases. Page | 4 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. 11. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 12. We have heard the rival parties and have gone through the material placed on record. We note that no any modus operandi of maintaining two sets of books was found during the course of survey and no any evidence of the suppression of production or suppression of sales was found during the course of survey evidencing any unaccounted business activity for the assessee concern. The assessee used to maintain manual cash book represented by Star Red Note Book and after some interval, entries in computerized cash book was mentioned on the basis of actual expenditure voucher received by the accountant and during that time, few entries were consolidated due to smallness of amount or similar nature of expense. Therefore, we note that twin conditions of section 69C of the Income Tax Act,1961 that “the expenditure should be incurred and the source of expenditure should be unexplained” is not fulfilled because the “Star Red Note Book” shows source of Rs.1,61,00,000/- withdrawn from bank at various intervals and the same entries are matched in the computerized cash book as well as with the contra entries in the bank statement. Even on the expense side of the “Star Red Note Book”, Rs.15,00,000/- denotes “transfer to cash book” which is anyway doesn’t depict any sort of expenditure so as to attract section 69C of the Act. Further six (6) entries of Star Red Note Book amounting to Rs. 75,000/- each shows the name of Rajesh Relan who is the Director of the Company total amounting to Rs.4,50,000 (Rs.75,000*6) which simply states that Rajesh Relan was custodian of cash received and as stated above and it should be noted that assessee has explained the figures during assessment proceedings as well as CIT(A) proceedings. Working was given by the assessee to explain the entries of manual cash book with computerized cash book however, assessing officer has failed to give any findings on the said working nor pointed out any defects in the said working. The whole exercise is to be based on facts and it is the duty of the assessing officer to marshal all the facts and come to a logical conclusion about the entries in cash book and explanation thereto given by the assessee for the year Page | 5 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. under consideration. However, assessing officer failed to do so. For this we rely on the Judgment of Hon'ble Supreme Court in case of Sreelekha Bannerjee (491 ITR 122), wherein it was held that “..... before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence, which it has in possession ...” 13. We note that individual, assessee, who is Karta of HUF, is also director in assessee-company (Roopam Sarees Pvt. Ltd.). They keep the “on money” in individual capacity as well as for assessee-company, which is mixed, and unaccounted expenditure made by them is also mixed, belong to HUF, individual and assessee-company. They offered Rs.6,50,00,000/- “on money” for taxation. The said on-money includes unaccounted expenditure and unaccounted income also. They disclosed Rs.6.50 crores as a group wherein unaccounted expenditure of assessee-company of Rs.28,39,684/- also covered for the purpose of telescoping. 14. We note that assessee has submitted cash book and explanation in respect of the entries in the cash book and assessee also submitted overwhelming number of other documentary evidences like ITR, bank account etc. and these documents cannot be brushed aside by the assessing officer without any valid reason. We note that assessing officer has not refuted or discredited these evidences submitted by the assessee. That is, assessing officer does not mention why he is not accepting these evidences. In holding a particular receipt or expense as income from undisclosed sources, the faith of the assessee cannot be decided by the revenue on the basis of surmises, suspicious and probabilities, [Northern Bengal Jute Co. Ltd Vs CIT 70 ITR 407 (Cal).]. Based on these facts and circumstances we delete the addition of Rs.28,39,684/-. 15. In the result, ground No.2 raised by the assessee is allowed. 16. In Grounds no. 3 assessee has raised the grievance stating that ld CIT(A) restricted the addition to Rs.41,57,192/- being 20% of total job work expenses of Rs.2,07,85,960/-. Page | 6 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. 17. Succinct facts qua the issue are that during the survey action on assessee company on 27.05.2013, some unsigned self-made vouchers pertaining to FY.2012-13 were found and the same were impounded and inventorised in BF-4 to BF-10 box file. On verification of the same during the survey proceedings, it was found that they all were unsigned and without any supplementary evidences. Statement of Shri Rakesh C. Relan, Director of assessee company was recorded in survey proceedings and he was asked to explain the same. In explanation, Shri Rakesh C. Relan said that all these expenditure mentioned in vouchers are related to cash expenditure and were done under his knowledge and due to lack of time and laziness, these vouchers remained unsigned by him. On issue of receiver’s signature and cash payment he stated that these payment were given to village labourer women, who were involved in the work of cutting threads, stitching less etc. and they all were uneducated, therefore, compulsory cash payment had to be done and also receiver’s signature were not possible. Further, he added that some vouchers were also related to regular workers, and signatures of them were pending, who were expended to come and sign the same in few days. He also added that all expenditure reflects in vouchers are genuine. Further he elaborated reason of these vouchers found in separate bundle during the survey action that the assessee company desired to initiate audit in just few days, therefore, to overcome mistakes of these vouchers, bundle of these unsigned vouchers were separated. 18. In statement recorded of Shri Rakesh C. Relan during the assessment proceedings, he again reiterated the all above points about this issue as he stated in survey proceedings. During statement recorded in assessment proceedings, page no. 54 to 66 of loose paper file BF-3, brought to the notice of Shri Rakesh C. Relan, which are related to sheet of the entries mentioned in above stated unsigned vouchers, total of which are of Rs.2,07,85,960/-. After perusal of the same, he confirmed that sheets mentioned in page 54 to 66 are related to unsigned voucher found and total of Rs.2,07,85,960/- are related to total of cash payment which is mentioned in unsigned vouchers. Further, Shri Rakesh C. Relan said that he will produce the cash book of the assessee- company for FY 2012-13 on Page | 7 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. 12.03.2016 and will be able to show and verify these entries from cash book of assessee-company. However, he failed to do so. Hence, because of absence of verification from cash book and lack of supporting evidences, the assessee vide show cause notice dated 17.03.2016, was requested to show cause as to why above stated cash expenditure of Rs.2,07,85,960/- should not be treated as unexplained expenditure u/s 69C of the I.T. Act. 19. In response to the show cause notice, the assessee has submitted its reply, which is reproduced below: "...the vouchers that are unsigned show the cash payments which are recorded in the above said notebook and the same are also recorded in the cash book. All of these vouchers are related to regular workers' expense. The main reason for the unsigned vouchers is that these payments were given to workers, who were skilled in the work of cutting threads, stiching, laces, embroidery handwork, stone work, mirror work etc. but they all were uneducated. Few of these workers work at the factory where as few of them take them take the same work at their places. Neither do they have any bank accounts so they always ask to be paid in cash. They work only on cash basis as these payments are petty cash payments (not more than Rs. 19,999/- individually), we are making payments by cask only for their convenience. These workers keep away from signing or giving their thumb impression on any of the vouchers as they fear of getting involved in any of the legal matters. And we enforce them to do so, they may give up on working for us and it would be difficult for us to locate such skilled workers. If we lose them, we lose our business. Therefore, particularly cash payment had to be done and all of these vouchers are related to regular expenses. Particulars Financial year 2011-12 Financial year 2012-13 Sale 9,12,58,029/- 9,98,05,948/- Job Work 2,00,66,619/- 2,10,47,418/- % of Sale 21.99% 21.09% GP(%) 16.61% 16.90% NP(%) 4.56% 4.60% As per above table, the job work expense is approximately the same as compared to previous year i.e. almost 20% of the sales.” 20. However, the assessing officer rejected the contention of the assessee and held as follows: “....Hence, it cannot be said that whether such entire expenses have been incurred wholly and exclusively for business purpose and possibility of bogus expenses element cannot be ruled out. Therefore, a part of such expenses i.e. 20% is treated as bogus expenses and disallowed. Such disallowance comes to Rs.41,57,192/- which is added back to the total Income of the assessee.....” Page | 8 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. 21. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of Assessing Officer. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. 22. We heard both sides in detail and also perused the records of the case including the paper book filed by the assesses company running into 288 pages. Before us, the assessee has submitted the following documents and evidences, viz: (i) Written submission filed before CIT(A) dated 20.02.2018 (vide paper book page nos. 1 to 12) (ii) Chart showing alleged unaccounted expense entries matched with the cash book (vide paper book page no.13) (iii) Cash Book (vide paper book page nos. 14 to 130) (iv) Relevant pages of Star Red Notebook BF-2 (vide paper book page nos. 131 to 154) (v) Relevant Bank Statement – IndusInd Bank (vide paper book page nos.155 to 203) (vi) Relevant Bank Statement – The Jammu & Kashmir Bank (vide paper book page nos.204) (vii) Acknowledge of Return of Income along with computation of total income for AY.2013-14 (vide paper book page nos.205 to 208) (viii) Audit Report along with Audited Financial Statements (vide paper book page nos. 209 to 240) (ix) Statement of Rakesh Relan u/s 131 (vide paper book page nos.241 to 274) (x) Acknowledgement of Return of Income along with Computation of Rakesh Relan HUF (vide paper book page nos.275 to 277) (xi) Acknowledgement of Return of Income along with Computation of Rajesh Relan HUF (vide paper book page nos.278 to 280) (xii) Acknowledgment of Return of Income along with Computation of Neha Rajesh Relan (vide paper book page nos.281 to 284) Page | 9 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. (xiii) Acknowledgment of Return of Income along with Computation of manisha Relan (vide paper book page nos.285 to 288) 23. Learned Counsel for the assessee pleads that during the course of assessment proceedings, assessing officer (‘AO’) observed that the unsigned self- made vouchers were found during the survey and Shri Rakesh C. Relan, the director of the assessee- company in his statement given at the time of survey proceedings gave its explanation which is referred on page no. 10 of assessment order. In the said statement, he stated that these vouchers aggregating to Rs.2,07,85,960/- are related to cash payment of job work expenditure and were paid to uneducated village labour, who were involved in work of cutting, threading, stitching, etc. and signature of them were pending. Further, the Assessing Officer issued a show cause notice dated 17.03.2016 requesting assessee as to why the cash expenditure of Rs.2,07,85,960/- should not be treated as unexplained expenditure u/s 69C of the I.T. Act. In reply to the show cause, the assessee contended that all the vouchers that are unsigned represents the cash payments which were duly recorded in the cash book. The persons to whom these payments were made did not have any bank accounts and therefore compulsory cash payment had to be done to these persons which were all below Rs.20,000/-. All these expenditure from the unsigned vouchers were verified side by side with the cash book of the assessee- company and were found to be tallied. However, the AO made disallowance of Rs.41,57,192/- being 20% of the total job work expenses of Rs.2,07,85,960/- on the ground that entire expenditure would not have incurred wholly and exclusively for business purpose. In the course of appellate proceedings, it is submitted that in respect of unsigned vouchers found and impounded during the survey, statement of Director of the assessee- company Shri Rakesh C. Relan was recorded wherein he stated that all these expenditures amounting to Rs.2,07,85,960/- were made against job work done by regular workers as well as unskilled workers. The unskilled workers were village labourer, women and the work involved consisted mainly of cutting threads, stitching laces, embroidery handwork, stone work, mirror work, etc. These workers worked on cash basis and payments were petty cash payments (not more Page | 10 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. than 19,999/- individually). As they were uneducated they kept themselves away from signing or giving thumb impression on any of the vouchers and thus they remain unsigned. The assessee never forced these workers to imprint their signature as assessee feared losing them. It is to be noted that all though some vouchers remained unsigned but all these expenditures were dully accounted in the cash book of the assessee and these vouchers were verified side by side with the cash book of the assessee- company and were found to be tallied. Further it is to be noted that the total job work expenses as a percentage of turnover was 21.09% during the year under consideration which was in line with previous AY 2012-13 in which case it was 21.99%. Thus, there is no increase in the percentage of job work expenses as compared to last year and hence the same should be accepted. The above contention is depicted in Tabular format as below: Particulars Financial Year 2011-12 Financial Year 2012-13 Financial Year 2013-14 Sale 9,12,58,029/- 9,98,05,948/- 11,19,15,811 Job Work Expense 2,00,66,619/- 2,10,47,418/- 2,33,01,863 Jobwork expense as percentage of Sale 21.99% 21.09% 20.82% GP% 16.61% 16.90% 16.23% NP% 4.56% 4.60% 4.54% On perusal of the above, it should be appreciated that the gross profit ratio of the assessee concern has increased from 16.61% to 16.90% in A.Y. 2013-14 and more so it can be observed that the gross profit ratio has increased with increased turnover. It is submitted that the Assessing Officer has failed to bring on record any evidence suggesting that any portion of jobwork expenses was not for the purpose of business or that expenditure had not been incurred. Thus, only because the vouchers remained unsigned, AO cannot jump to the conclusions that these are bogus expenditures and treat the same as unexplained payments in absence of any adverse material. Further it is submitted that Assessing Officer has not rejected books of accounts u/s 145(3) and hence without rejection of books disallowance should not be made on ad hoc basis. More so the GP of assessee is increased from 16.61% to 16.90% and which is more than the G.P. of subsequent year i.e. A.Y.2014-15 and the job work expense as percentage of sale has in fact decreased Page | 11 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. from 21.99% to 21.09%. Reference can be placed on the judgement of High Court of Gujarat in the case of CIT vs. Swaminarayan Vijay Carry Trade (P.) Ltd [33 taxmann.com 403] which dealt with similar issue of unsigned vouchers wherein the Honourable Court deleted the same by accepting the findings of Tribunal as follows: "16. We have considered the rival submissions and perused the material available on record and also gone through the order of Learned CIT (Appeals). We find that the only basis of making these ad hoc disallowance by the Learned CIT (Appeals) is this that certain portion of such daily disallowances paid by way of cash to drivers can always be for non- business purpose because such daily allowances paid to drivers and helpers are not subject to verification in its entirely. We find that this is not the objection of Learned CIT (Appeals) that such daily allowances paid by the assessee to drivers and helpers are excessive or unreasonable. This is also true that in most of the cases, such drivers and helpers are either illiterate or semi-literate and this is also true that they work in adverse condition and, therefore, it is not always expected from them to maintain proper supporting evidences and vouchers in respect of various small expenditure incurred by them on their fooding and other miscellaneous expenses. Considering these facts, we are of the opinion that in the absence of any specific instance of any such expenditure being of non-genuine nature or in the nature of non- business purpose and also in the absence of any allegation that such expenditure is excessive or unreasonable, such ad hoc disallowance made by the Learned CIT (Appeals) for want of proper verification only is not justified in the facts of the present case because in the present case, daily allowances have been paid by the assessee to its drivers and helpers who are generally illiterate or semi-literate and while on tour, they work in adverse conditions. Therefore, we delete this ad hoc disallowance in all the years." Thus, the said order of Tribunal was confirmed by Honourable Gujarat High Court in its order dated 21 st March, 2013. 24. Without prejudice to the above argument, if any disallowance has to be made then it may only be made as reasonable percentage say 2% of the total job work expenses claimed by the assessee i.e. Rs.4,15,720 [being 2% of Rs.2,07,85,960/- ]. Further Reliance is placed in the case of Shri Haresh Talreja vs. Income Tax Officer [ITA No. 683/PN/2013] wherein the Honourable Tribunal Pune Bench held that “We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We find the AO disallowed an amount of Rs.1,87,272/- being 5% of the expenditure of Rs.37,45,446/- on account of various expenses the details of which are given earlier on the ground that the assessee was not able to produce full details for the above expenditure. We find the CIT(A) upheld the disallowance on Page | 12 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. the ground that most of the expenditures are supported by self made vouchers and therefore the veracity and admissibility of the same could not be verified. It is the submission of the Ld. Counsel for the assessee that accounts are audited and the auditors have not pointed out any discrepancies. The AO has also not brought out any specific defects. We find although the auditors have not pointed out any discrepancies in the accounts maintained by the assessee, however, the fact remains that some of the expenses are supported only by self made vouchers. Therefore, it cannot be said that the entire expenditure incurred by the assessee is wholly and exclusively for the purpose of business. It is the settled proposition of law that for any expenditure to be allowed as deduction the onus is always on the assessee to satisfy the AO regarding the genuineness of such expenditure which has been incurred wholly and exclusively for the purpose of business. Since in the instant case admittedly some of the expenses are supported only by self made vouchers, therefore it cannot be said that the entire expenditure is genuine and is incurred wholly and exclusively for the business purpose. Therefore, some disallowance has to be made under the facts and circumstances of the case. However, disallowance made by the AO at 5% of the above expenses appears to be on the higher side. Considering the totality of the facts of the case disallowance of 2.5% of the expenses, in our opinion, will meet the ends of justice. Accordingly, the AO is directed to disallow Rs.93,606/- against Rs.1,87,212/- disallowed by him which has been upheld by the CIT(A). The assessee gets relief of Rs.93,606/- on this ground. Ground raised by the assessee is accordingly partly allowed.” 25. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 26. We note that assessee is into the business of embroidery job work during the year under consideration. A survey was conducted in the case of assessee on 27.05.2013 and invoice of Safe Industrial Security Services, a Star Red Note Book, some unsigned self-made vouchers and a hand written loose paper were found and inventorized. During the course of survey, in reply to Q.3 of the Statement u/s 131 of the Act, the Director of the assessee- company Mr. Rakesh Relan, stated that he is engaged in the business of trading of sarees and job work related to embroidery. The concern Roopam Designer Sarees Pvt. Ltd. is engaged in the business of trading of sarees and the assessee- company Roopam Sarees Pvt. Ltd. is engaged in the business of job work related to embroidery. There is nothing in the statement to hint any discrepancy in the books of accounts of the assessee i.e. Roopam Sarees Pvt. Ltd and the voluntary disclosure of Rs.7,04,25,004/- was made as follows in sister concerns / related individuals: Page | 13 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. Name of the assesse Financial Year Disclosure Amount (Rs.) Rajesh Chandrabhan Relan (HUF) 2012-13 6,50,00,000/- (On-Money) Rakesh Chandrabhan Relan (HUF) Manisha Rakesh Relan Neha Rajesh Relan Roopam Designer Sarees Pvt. Ltd. 2013-14 37,03,377/- Roopam Designer Sarees Pvt. Ltd. 2012-13 15,00,000/- Roopam Designer Sarees Pvt. Ltd. 2013-14 2,21,627/- TOTAL 7,04,25,004/- In reply to Q. 30 (Refer Pg. No.261 of Paper Book) in his statement u/s 131 , Mr. Rakesh Relan has stated that the source of “On Money” of Rs.6,50,00,000/- is the income generated from the “Business of Textiles.” i.e. business of Roopam Sarees Pvt Ltd and Roopam Designer Sarees Pvt Ltd. On perusal of the audit report filed in the Paperbook at Pg.209 to 240, the following factual matrix arises: The business of embroidery is capital intensive as well as labour intensive. On perusal of the audit report, it can be seen that the fixed assets at Schedule “D” shows the opening gross block at Rs.3,93,08,204/- and closing gross block at Rs.4,27,64,266/- at serial no. 13 “Embroidery Machine”. Correspondingly, there is job work of Rs.2,10,47,418/- in the year under consideration (AY 2013-14) and Rs.2,00,66,619/- in the preceding year (AY 2012-13) and there are no other direct labour expenses. We note that this is not a case of unexplained expenditure as the impugned expenses of Rs.2,07,85,960/- are recorded in the books of accounts. Hence, it can be stated that the expenses are incurred wholly for the purpose of business and the labour expenses are reasonable and in lines with turnover as well as capex investment of the assessee. The AO has not rejected books of accounts Particulars FY 2011-12 FY 2012-13 Sale 9,12,58,029/- 9,98,05,948/- Job Work Expense 2,00,66,619/- 2,10,47,418/- Jobwork expense as percentage of Sale 21.99% 21.09% GP% 16.61% 16.90% NP% 4.56% 4.60% Page | 14 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. u/s 145 of the Act. It should be appreciated that along with increased turnover, the job work expense as % of turnover has decreased from 21.99% to 21.09% and the G.P. ratio has increased from 16.61% to 16.90% and hence, no adverse view is called for. 27. Without prejudice, the ld Counsel argued that disallowance may be made upto 2% of labour expenses to cover any small procedural discrepancies because the only grievance of the AO is that the vouchers are self-made and unsigned. Even otherwise, if it is assumed that estimated % of this cash has not been actually expended or inflated, it would mean that the actual cash is flown back to the assessee and it would represent money in circulation which is ultimately covered in the voluntary disclosure and hence separate addition should not be made. 28. No doubt, the job works vouchers by job workers did not sign by job workers. However, it is undisputed fact that they did job work. The job work expenses are shown by assessee in cash book, which is not disputed by Assessing Officer. The cash book was examined by Assessing Officer in presence of assessee. Such job work cannot be done without incurring expenses, either in cash or by cheque. Though, the vouchers are unsigned but this direct evidence, to the effect that there are job work expenses in the profit and loss account in the previous years also. The Assessing Officer disallowed 20% of job work expenses on the ground that some vouchers were not signed by workers, however, Assessing Officer has not disallowed the job work expenses mentioned in the profit and loss account and only amount mentioned in the unsigned vouchers were disallowed, which is not acceptable. 29. We note that the AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 of the Act. Here in this case, the AO has not passed any order u/s 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses with the self-made vouchers. While Page | 15 ITA No.272/SRT/2022 Roopam Sarees Pvt. Ltd. scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than going for ad hoc disallowance of percentage basis of the expenses claimed by the assessee which action of the AO is arbitrary in nature and cannot be sustained. Therefore, the addition is directed to be deleted. 30. In the result, ground no.3 raised by the assessee is allowed. 31. In the combined result, appeal filed by the assessee is partly allowed. Order pronounced on 30/03/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 30/03/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat