INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Unexplained expenditure - Disallowance based on presumptions and assumptions

AO observed that during relevant year under consideration, assessee-company made fresh claim of expenditure on account of labour charges. Though details of parties to whom such labour charges were paid showing deduction of tax deducted at source had been furnished, but the assessee could not establish the requirement of the said expenditure. So, the same was disallowed. AO further observed that expenses on account of packing material consumption had increased in comparison to last year. On the contrary, the sale of product was reduced, which suggested that there had been reduction of production or manufacturing vis a vis sale. So, the AO alleged that the assessee had inflated expenditure on account of consumption of packing material and accordingly, disallowed the same.Held: Assessee explained that it hired some additional labour on temporary basis for keeping the unit running in full speed and those labours were contractual labours, hence labour charges. It also filed a copy of the statement before the AO giving the names and address of the contract labours, the amount and the TDS made, etc. Further, the assessee also explained the reasons for increase in expenditure on account of consumption of packing material. Therefore, it would be said that the disallowances were based on presumptions and assumptions as the same were not based on any evidence. Further, it was not the case of the AO that such expenditure were not incurred or were bogus. Further, the fact of the assessee incurring such expenditures was not challenged by the AO. Hence, the disallowances made in respect of expenditure on account of labour charges and expenditure on account of consumption of packing material was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 36(1)(iii)

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