Shri Bhupinder Paul Mahajan, Mandi V. The Addl. CIT, Mandi Range, Mandi

ITA 101/CHANDI/2023

AI Insights

The case involves an appeal by Shri Bhupinder Paul Mahajan against the order of the CIT(A)/NFAC, Delhi, for the assessment year 2006-07. The primary contention was regarding the rejection of books of account and subsequent assessments made under section 144 of the Income Tax Act. The assessee, a civil contractor operating in remote areas of Himachal Pradesh, faced additions to his income on various grounds including unexplained revenue expenditure and cash credits. The Tribunal found that the lower authorities had not sufficiently substantiated their additions and that many of the payments were supported by signed vouchers and were business-related receipts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127543 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 28-05-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 27-02-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Business expenditure; Revenue expenditure; TDS
• Section: 144; 40A(3); 40(a)(ia); 133(6); 40a(ia)

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “एकल” च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “SMC” CHANDIGARH ी संजय गग , या यक सद य BEFORE: SH. SANJAY GARG, JUDICIAL MEMBER आयकर अपील सं./ ITA No.101/CHD/2023 नधा रण वष / Assessment Year : 2006-07 Shri Bhupinder Paul Mahajan, Ratti, Tehsil – Balh, Distt. Mandi (HP). बनाम The Addl. CIT, Mandi Range, Mandi. थायी लेखा सं./PAN NO: ABYPM7732L अपीलाथ /Appellant यथ /Respondent नधा रती क! ओर से/Assessee by : Shri Tej Mohan Singh, Advocate राज व क! ओर से/ Revenue by : Smt. Amanpreet Kaur, Sr.DR स ु नवाई क! तार&ख/Date of Hearing : 29.05.2023 उदघोषणा क! तार&ख/Date of Pronouncement : 31.05.2023 आदेश/ORDER The present appeal has been preferred by the assessee against the order dated 05.01.2023 of the CIT(A)/NFAC, Delhi pertaining to 2006-07 assessment year. 2. In this appeal, the assessee has taken the following grounds of appeal : 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the rejection of books of account and thereafter framing of assessment u/s 144 which is illegal, arbitrary and unjustified. 2. Without prejudice to the above, the Ld. Commissioner of Income Tax(Appeals) has erred in upholding that the addition of Rs.2,00,947/-held to be alleged unexplained revenue expenditure which is contrary to the facts on record and as such the addition upheld is arbitrary and unjustified. 3. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding that the addition of Rs.3,02,450/- for alleged cash credits which is ITA-101/CHD/2023 A.Y. 2006-07 Page 2 of 12 contrary to the facts on record and as such the addition upheld is arbitrary and unjustified. 4. That the Ld. Commissioner of Income Tax (Appeals) has further erred in sustaining the addition of Rs.22,167/- as against Rs.44,133/-made by the Assessing Officer applying the provisions of Section 40A(3) which are not applicable and as such the addition upheld is arbitrary and unjustified. 5. That the Ld. Commissioner of Income Tax (Appeals) has further erred in sustaining the addition of Rs. 1,70,853/- made by applying the provisions of Section 40a(ia) which is arbitrary and unjustified. 6. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the disallowance of Rs.51,732/- made on account of notional interest which is arbitrary and unjustified. 7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 8. That the order of the Ld. CIT(A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable. 3. The ld. AR, at the outset has submitted that as per instructions of his client, he does not prefer ground No. 1, therefore, ground No. 1 is dismissed as not pressed. 4. Vide Ground No.2, the assessee has contested the action of the lower authorities in upholding the addition of Rs.2,00,947/- on account of disallowance of revenue expenditure claimed by the assessee. The brief facts of the case are that the assessee is a Civil Contractor and operating his business in remote areas of Himachal Pradesh. During the year, the assessee claimed to have made certain payments on account of business expenditure towards labour work and hiring of vehicle etc., however, the AO finding that the assessee could not prove the aforesaid payments, made an addition of Rs.8,28,311/-. However, the CIT(A) ITA-101/CHD/2023 A.Y. 2006-07 Page 3 of 12 considering the submissions and evidences furnished by the assessee, restricted the addition to Rs.2,00,947/-. The CIT(A) in this respect has drawn a table in the impugned order which, for the sake of ready reference, is reproduced as under : Name of the person to whom notice u/s 133(6) was issued. Outcome of notice issued u/s 133(6) Expenditure disallowed (Rs) 1 .Komal Tomar to verify the labour contact payment. Notice was unserved. But assessee produced signed vouchers in support of expenditure 15,700 2. Tejinder Gupta /Vijender Singh to verify payment towards vehicle use. Notice was unserved. No supporting documents were produced". 53,750 3. Thakur Singh to verify payment towards material purchase. Denied having any account with assessee. But assessee submitted signed vouchers. 43,050 4.M/s Singh Construction to verify payment towards rent Notice was unserved. 2,49,881 5. Hem Raj to verify payment towards vehicle use Denied having any account with assessee. But assessee submitted signed vouchers. 5,277 6. Hem Singh to verify payment towards vehicle use Notice was unserved. 35,497 7A, Vishnu Ram 7B.Ranjit Singh 7C.Khem singh 7D.Devi Ram to verify payment towards use of tractors Admitted that they worked on daily basis with the assessee. Assessee produced them before the AO for cross-verification. 2,18,879 8. Duni Chand to verify payment towards use of tractors and supply of materials. Thakur Das S/o Duni Chand accepted receiving the sum of Rs 20,000 as against Rs 1,16,000 96,000 9A. Kesar chand 9B. Hem Raj Denied having any account with 1,10,277 A ITA-101/CHD/2023 A.Y. 2006-07 Page 4 of 12 9C. Roshan Lai to verify payment towards use of vehicles. assessee. But accepted that vouchers were signed by them. Total 8,28,311 4.1 The ld. CIT(A) thereafter observed that the Assessing Officer (in short ‘AO’ ) had not doubted about the genuineness of the business of the assessee. That the AO only doubted about the correctness of the payments/expenditure booked by the assessee. The AO in this respect had issued notices u/s 133(6) of the Income Tax Act, 1961 ( in short ‘the Act’). In some cases, the notices were received by the parties who admitted the transactions. He also noted that some of the parties being mostly daily wagers/vehicle operators may not actually keep track of all receipts over a time period and further the aforesaid parties did not deny the fact that they had transactions with the assessee and payments were received. He further noted that even in some cases unless there was compelling evidence to the contrary, there was no reason to doubt the correctness of the vouchers signed by the parties on account of receipt of payment. He, therefore, considering the aforesaid circumstances deleted the addition/disallowance made by the AO in respect of parties mentioned at Sr.No. 3, 4, 5, 7A to 7D, 9A to 9C as given in the table above. However, he confirmed the addition in respect of parties mentioned at Sr.No. 1, 2, 6, & 8. ITA-101/CHD/2023 A.Y. 2006-07 Page 5 of 12 4.2 In respect of party mentioned at Sr.No. 1 i.e. Komal Tomar, the ld. Counsel for the assessee has invited my attention to the Chart to submit that the said payment was made on account of labour contract payment. Notice sent to the said party remained unserved, however, the assessee had produced signed vouchers in respect of the expenditure. The ld. counsel, in this respect has submitted that the ld. CIT(A) himself has observed that where the assessee has produced the signed vouchers of the parties and there was nothing contrary to disbelieve the transaction, then the said payment/transaction was required to be accepted. He has submitted that the assessee worked in the remote area of Himachal Pradesh and the aforesaid payment was on account of labour payment and the labourers keep changing their address as per the work requirement. There was no denial that the work was carried out by the assessee and this was a small payment of Rs.15,700/- made by the assessee on account of labour payment. The signed vouchers were produced. 5. In respect of parties at Sr.No. 2, namely Tejinder Gupta/Vijender Singh, the AO, to verify the payment towards vehicle use had issued notices u/s 133(6) of the Act, however, said notices remained unserved. Even the AO noticed that no signed vouchers were produced. The ld. counsel, in this respect has submitted that the aforesaid payments were duly booked in ITA-101/CHD/2023 A.Y. 2006-07 Page 6 of 12 the books of account of the assessee. That the payment of Rs.53,750/- was made to Shri Tejinder Gupta and Vijender Singh for use of tractor. It has been submitted that they were illiterate villagers who worked on daily wages and employed their tractors for the work of civil contract. 6. In respect of the party mentioned at Sr.No.6 namely Shri Hem Singh, the facts were identical as in this case also the payment was made for use of vehicle/tractor. In this case it has been simply written that notice was unserved, however, there is no mention of the fact that the supporting documents such as signed vouchers were not furnished. Other facts are identical, 7. In respect of party mentioned at Sr.No. 8 i.e. in respect of payment made to Shri Duni Chand towards tractor and supply of materials, son of Shri Duni Chand namely Thakur Das accepted to have received payments towards work by his father, however, there was a mis-match of figure. He had admitted the receipt of Rs.20,000/- whereas, the assessee has claimed the making of payment of Rs.1,16,000/-. The ld. Counsel for the assessee in this respect has submitted that the factum of execution of work by said Shri Duni Chand has been admitted by his son, however, his son was not the witness to all the payments made to his father. That the amount has been booked on actual payment basis. ITA-101/CHD/2023 A.Y. 2006-07 Page 7 of 12 7.1 Considering the above submissions and also considering that the assessee out of small turnover of Rs.2.55 Cr has declared the profit of approximately Rs.19 lacs which is 7.44% of the turnover. I do not find justification on the part of the lower authorities in disbelieving the small payments booked by the assessee to villagers/labour etc. during the execution of his work specially when execution of the work has not been doubted and the recipients were illiterate labourers/tractor operators etc. Therefore, the impugned addition agitated vide ground No.2 is ordered to be deleted. 8. Vide ground No.3, the assessee has agitated the addition of Rs.3,02,450/- made by the lower authorities on account of alleged cash credits. The ld. Counsel for the assessee in this respect has invited my attention to para 6 of the impugned order wherein a table has been drawn in the impugned order of the CIT(A), which, for the sake of ready reference, is reproduced as under : 9. The assessee claimed in respect of the aforesaid receipts that the same were business receipts. The ld. CIT(A) considering the submissions of the assessee deleted the addition in respect of 1 Mr Dinesh Kumar 96,800 2 Mr K C Sharma 2,40,000 3 Mr K D Nirash 62,450 Total 3,99,250 ITA-101/CHD/2023 A.Y. 2006-07 Page 8 of 12 payments received from Mr. Dinesh Kumar, however, the ld. CIT(A) confirmed the addition in respect of the claim of business receipts from Mr. K.C.Sharma and Mr. K.D.Nirash. In respect of payment received from Shri K.C.Sharma, ld. counsel has submitted that it was duly explained before the lower authorities that the said payment was received from Shri K.C.Sharma on account of machinery given on rent. That Shri K.C.Sharma had made payment by way of two cheques of Rs.1 lakh each. That Rs.40,000/- was shown recoverable from Shri K.C.Sharma. He has submitted that the aforesaid were business receipts and duly booked into the books of account and the said amount was taken as business income of the assessee, whereupon the due tax duly paid. He has further submitted that even though Rs. 40,000/- was shown as recoverable, still the AO without examining the records added the said amount also as unexplained cash credits, whereas, out of total of Rs.2,40,000/-, Rs.40,000/- was even not received by the assessee during the year. In respect of payment received from Shri K.D.Nirash, the ld. counsel has submitted that the payment of Rs.62,450/- was received from Shri K.D.Nirash as business receipt. The ld. Counsel for the assessee invited my attention to the relevant observation of the CIT(A), wherein, the ld. CIT(A) himself has noted that there were entries made by Shri K.D.Nirash in his books of account towards payment made to the assessee. However, there was mis-match of certain payments or ITA-101/CHD/2023 A.Y. 2006-07 Page 9 of 12 there was mis-match of dates. The ld. counsel has further submitted that it was explained before the AO that though there was mis-match of dates, but payments were shown to have been made towards the same contract work executed by the assessee for Shri K.D.Nirash. 10. Considering the above submissions of the ld. AR and going through the record, I do not find any justification on the part of the ld. CIT(A) in confirming the impugned additions. The payment of Shri K.C.Sharma has been made by cheque and there is no denial that assessee has received the said payment from Shri K.C.Sharma. Even there is a cross verification of the ledger/books of account of Shri K.D.Nirash and there is no denial that the assessee has carried out work from them and the payments were business receipts which have been duly accounted for towards the income of the assessee and due tax paid thereupon. Therefore, the impugned additions are not sustainable, same are, accordingly, ordered to be deleted. 11. Vide ground No.4, the assessee has assailed the order of the ld. CIT(A) in sustaining the addition of Rs.22,167/- as against of Rs.44,133/- made by the AO under the provisions of Section 40A(3) of the Income Tax Act. The AO noted that the assessee had made cash payments to the labourers, therefore, he by ITA-101/CHD/2023 A.Y. 2006-07 Page 10 of 12 invoking the provisions of Section 40A(3) of the Income Tax Act made the impugned additions. Though the ld. CIT(A) agreed that the contention of the assessee that the aforesaid small amount of Rs.44,133/- was made by the assessee to the labourers who did not have any bank account and they were working in the remote area of the Himachal Pradesh and insisted of cash payments which were made as a compulsion of the business, however, the ld. CIT(A) restricted the addition to 50% of the addition made by the AO. I do not find any justification on the part of the CIT(A) having admitted the contention of the assessee that the aforesaid payment was made out of compulsion to the labourers, therefore, the impugned addition is ordered to be deleted. 12. Vide Ground No.5 the assessee has agitated the action of the CIT(A) in sustaining the addition of Rs.1,70,853/- made by the AO on account of non deduction of tax at source (TDS) invoking the provisions of Section 40(a)(ia) of the Income Tax Act. 12.1 The ld. Counsel for the assessee in this respect has submitted that the assessee may be given an opportunity to demonstrate before the AO that the respective payees have taken into account the aforesaid receipts for the purpose of computation of income and due taxes paid thereupon as per law. The ld. counsel, in this respect has submitted that earlier the ITA-101/CHD/2023 A.Y. 2006-07 Page 11 of 12 assessee was contesting the validity of the aforesaid addition on different other grounds, however, the assessee may be given opportunity to show that the respective payees have taken into account the aforesaid payment. The ld. counsel has further submitted that even the aforesaid payments are covered under the provisions of Section 194(1) and the aforesaid payments were less than the prescribed limit as applicable for deduction of TDS. The ld. counsel in this respect has submitted that the issue may be restored to the file of the AO for examination 13. The ld. DR, on the other hand has relied upon the finding of the CIT(A). 14. Considering the rival submissions, this issue is restored to the file of the AO to consider the contentions of the assessee and to verify that the aforesaid payments have been taken into consideration by the respective payees for the purpose of their computation of income and due tax, if any paid thereupon. 15. Vide ground No.6, assessee has agitated action of the CIT(A) in upholding disallowance of Rs. 51,732/- made on account of notional interest. The aforesaid disallowances have been made by the lower authorities observing that the assessee had given certain interest free loans. The ld. counsel, however, has ITA-101/CHD/2023 A.Y. 2006-07 Page 12 of 12 explained that the assessee had sufficient own funds to give interest free loan of Rs.1.78 lacs. This fact could not be rebutted by the ld. DR, therefore, the impugned addition is not sustainable. The same is ordered to be deleted. 16. The Ground Nos. 7 & 8 are general in nature and do not require any adjudication. 17. In view of my observations made above, this appeal of the assessee is treated as allowed for statistical purposes. Order pronounced on 31 st May, 2023. Sd/- ( संजय गग ) (SANJAY GARG ) या यक सद य/ Judicial Member “Poonam” आदेश क! त,ल-प अ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय ु /त/ CIT 4. -वभागीय त न2ध, आयकर अपील&य आ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar