No disallowance merely for self-made vouchers for expense common in business done

No disallowance merely because of self-made vouchers for expenses when such expenses are common in the kind of business done by the assessee – ITAT

In a recent judgment ITAT Bangalore has held that disallowance merely because of self-made vouchers for expenses is not correct when such expenses are common in the kind of business done by the assessee. There are many expenditure in the business for which the third party evidences were not available always. 

ABCAUS Case Law Citation:
4650 (2025) (07) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre in confirming disallowance of coolie & labour charges on account of farm expenses.  

The appellant assessee was a company engaged in the activity of trading in agricultural produce.  The return was picked up for complete scrutiny.  During the course of assessment proceedings, the assessee did not comply the earlier notices and notice u/s 144 was issued which was responded to. 

Therefore, the AO found that assessee had debited large amount of Coolie & Labour charges and also farm expenses for which no documentary evidences were available and therefore he disallowed the same by assessment order passed u/s. 144 of the Act.

The assessee aggrieved with the same preferred appeal before the CIT(A).  The assessee filed application for additional evidence with respect to vouchers and details of Coolie & Labour charges and farm expenses.  The CIT(A) asked for the remand report.  In the remand report the AO submitted that assessee had filed copies of bills of above expenditure.  The Managing Director of the company was called for by the AO to furnish the original bills which were produced by the assessee before the AO along with explanatory note. 

The AO held the Coolie & Labour charges represented payments made to unskilled labour for loading & unloading of the products.  The AO was of the view that there were no bills in respect of these expenditure and only self-made vouchers were prepared.  He also confirmed that expenditure of this nature is common in this kind of business.

With respect to farm expenditure, it was found to be primarily cost related to enhanced cultivation and maintenance of crops.  The income from this farm was already included in the revenue of the assessee.  When the vouchers were produced, the AO held that these were self-made vouchers for purchase of manure and other labour expenses.  Thus, the finding of the AO was that these expenses appeared to be reasonable.  However, the CIT(A) confirmed both the above additions.

The Tribunal observed that in the remand report with respect to the expenditure the assessee had produced all the original bills.  The AO had also confirmed the nature of expenditure of payment made to unskilled labourers who are typically involved in loading & unloading of merchandise as well as hamali charges.   The AO also accepted that generally this kind of expenditure are always incurred on self-made vouchers and there were no bills of third parties.  The AO further found that expenditure of this nature is common in the business carried on by the assessee. 

The Tribunal observed that the CIT(A) ignored the remand report wherein the AO had categorically held that such expenditure were reasonable and common in the business.  The remand report of the AO did not show that expenditures were not incurred wholly & exclusively for the purpose of assessee’s business. 

The Tribunal held that merely because they were self-made voucher which was accepted to be common by the AO, it does not become non-genuine.  Therefore, the confirmation of the disallowance of the above expenditure, when it was merely 1% of the total turnover of the company, was not justified. 

Similarly, with respect to coolie charges, the Tribunal noted that the AO categorically held that expenditure was reasonable, but doubted the genuineness on account of self-made vouchers.  There were many expenditure in the business for which the third party evidences were not available always.  In such circumstances only self-made vouchers are prepared narrating the expenditure, the person to whom it is paid and respective dates of payment, etc. 

Accordingly the ground the appeal of the assessee are allowed.

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