DCIT, Sirsa V. M/s Namdhari Rice & General Mills, Sirsa

ITA 1055/CHANDI/2010

• Counselvise Citation: 105521514 RSA 2010
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: D K GOYAL
• Keywords: Unexplained expenditure; Deemed to accrue or arise in india
• Section: 69C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.1055/CHD/2010 (ASSESSMENT YEAR:2007-08) THE D.C.I.T., VS. M/S NAMDHARI RICE & GENERAL MI LLS, SIRSA. SRI JIWAN NAGAR, SIRSA. PAN: AABFN1595J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI, DR RESPONDENT BY : SHRI D.K.GOYAL DATE OF HEARING : 18.07.2012 DATE OF PRONOUNCEMENT : 31.08.2012 O R D E R PER SUSHMA CHOWLA, J.M. : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), ROHTAK DATED 9.6.2010 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED U/S 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 18,40,856/- REPRESENTING AGGREGATE OF EXPENDITURE INCURRED ON P AYMENTS TO S/SH. HARJEET SINGH, MOHAN SINGH & JAGDEEP SINGH WITHOUT APPRECIATING THAT THE BILLS FORMING BASIS OF CLAIM OF EXPENDITURE WERE NEVER PREPARED/SUBMITTED/SIGNED BY THESE PERSONS AS CONFIRMED BY THEM IN THEIR STATEMENTS RE CORDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.6,70,923/- ON ACCOUNT OF EXPENDITURE INCURRED ON PAYMENT TO SH . SHER SINGH IGNORING THE FACT THAT IN THE STATEMENT RECORDED DU RING THE COURSE OF ASSSESSMENT PROCEEDINGS, HE ADMITTED THAT THE EN TIRE SUM WAS RECEIVED DURING THE YEAR ITSELF AND NOTHING REMAINE D OUTSTANDING ALTHOUGH THE ASSESSEE HAD SHOWN THE ABOVE AMOUNT AS 2 OUTSTANDING ON 31.03.2007. THE LD. CIT(A) HAS FURTH ER ERRED IN ADMITTING THE AFFIDAVIT OF SH. SHER SINGH DURING AP PELLATE PROCEEDINGS WITHOUT CONFRONTING THE AO AS NONE OF T HE CONDITIONS AS ENUMERATED IN RULE 46A OF THE INCOME TAX RULES E XISTED IN THIS CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.24, 19,860/- MADE FOR SHORTAGE CLAIMED IN THE TRADING ACCOUNT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS RUNNING RICE SHELLER. DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE HAD DEBITED RS.35,75,106/- UNDER THE HEAD WAGES. FROM THE PERU SAL OF THE DETAILS, THE ASSESSING OFFICER NOTED THE ASSESSEE TO HAVE PA ID WAGES TO THE TUNE OF RS.28,20,880/- ON THE LAST DATE OF THE YEAR TO T HE RELATED PERSONS WHO WERE COVERED UNDER THE PROVISIONS OF SECTION 40A(2) (B) OF THE ACT. THE DETAILS OF THE EXPENDITURE ARE ENLISTED UNDER PARA 2.1 AT PAGE 2 OF THE ASSESSMENT ORDER. IN RESPONSE TO THE QUERIES RAISE D BY THE ASSESSING OFFICER, THE EXPLANATION OF THE ASSESSEE WAS THAT T HE PAYMENTS WERE MADE TO THE SAID CONTRACTORS AGAINST LABOUR CONTRACT WOR K FOR LOADING OF PADDY FROM MARKET, UNLOADING & STACKING IN FACTORY APART FROM FILING, STITCHING & STACKING OF RICE BAGS IN FACTORY AND ALSO LOADIN G AND UNLOADING AT THE TIME OF SALE OF RICE. THE ASSESSEE CLAIMS THAT NO WRITTEN CONTRACT WAS MADE WITH THE CONTRACTORS AND TDS HAD BEEN DEDUCTED WHEREVER DUE ON THE PAYMENT OF WAGES. THE ASSESSEE FILED COPIES OF ACCOUNTS OF THE CONTRACTORS WITH COPIES OF THE BILLS AS RAISED BY T HE CONTRACTORS AND PROOF OF FILING OF RETURNS BY THE CONTRACTOR WAS AL SO ENCLOSED WITH THE ABOVESAID REPLY. IT WAS CONTENDED BY THE ASSESSEE THAT THE WAGES WERE PAID AT THE MARKET RATES. THE RATES AS FIXED BY TH E GOVT. AND CHARGED BY THE AAHARTIA IN BILLS WERE RS.1.72 PER BAG FOR FI LLING AND STITCHING AND LOADING CHARGES WERE EXTRA. 4. THE ASSESSING OFFICER NOTED THAT ALL THE SAID CO NTRACTORS WERE THE SONS OF SISTER OF ONE OF THE PARTNERS EXCEPT SHRI J AGDEEP SINGH WHO WAS THE SON OF THE BROTHER-IN-LAW OF THE PARTNER. THE ASSESSING OFFICER FROM 3 THE PERUSAL OF THE COPIES OF THE BILLS RAISED BY TH E CONTRACTORS AND THEIR COPIES OF ACCOUNTS IN THE BOOKS OF ACCOUNT OF THE A SSESSEE NOTED THAT THE FOUR CONTRACTORS HAD ISSUED ONLY ONE BILL EACH FOR THE SAID AMOUNTS, FOR THE ENTIRE YEAR AND THE SAID BILLS WERE ISSUED ON T HE LETTER PAD OF THE ASSESSEE FIRM. THE SAID BILLS DID NOT CONTAIN ANY BILL NUMBER OR DATE. THE PAYMENTS OF THE SAID CONTRACTORS WERE MADE IN C ASH RANGING BETWEEN RS.15,000/- TO RS.19,000/- AS AGAINST THE AMOUNTS D UE TO THE PARTIES AS TABULATED AT PAGE 4 OF THE ASSESSMENT ORDER. THERE WERE CORRESPONDING CLOSING AMOUNT DUE TO THE SAID PARTIES AT THE END O F THE YEAR. THE ASSESSEE WAS REQUISITIONED TO PRODUCE THE ABOVE SAI D CONTRACTORS FOR EXAMINATION AND THEY WERE SO PRODUCED BY THE ASSESS EE. THE ASSESSING OFFICER VIDE PARA 2.5 TO 2.7 HAS DELIBERATED UPON T HE STATEMENT RECORDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HAV E ALSO NOTED THE FACT THAT THE ASSESSEE WAS ASKED TO CROSS EXAMINE THE SA ID PARTIES, TO WHICH HE DECLINED AND RECORDED HIS COMMENTS BEFORE SIGNIN G THE STATEMENT. THE ASSESSING OFFICER AT PAGE 8 OF THE ASSESSMENT O RDER OBSERVED AS UNDER: IN VIEW OF THE FOREGOING FACTS AND CIRCUMSTANCES O F THE CASE AS DISCUSSED ABOVE, THE CLAIM OF EXPENSES ON ACCOUNT O F WAGES AS DEBITED IN THE ACCOUNTS OF THE FOLLOWING PERSONS WHO ARE ALSO THE RELATIVES OF ONE OF THE PARTNERS OF THE FIRM IS HELD TO BE BOGUS AND TH US DISALLOWED :- NAME AMOUNT SH.HARJEET SINGH : RS.992369.60 SH.MOHAN SINGH : RS.491848.00 SH.JAGDEEP SINGH : RS.356638.65 ------------------- TOTAL : RS.1840856.25 -------------------- 2.9 BESIDES, IN VIEW OF THE CATEGORICAL STATEMENT O F SH.SHER SINGH THAT NOTHING WAS OUTSTANDING IN HIS ACCOUNT AS ON 3 1.03.2007 AND THAT THE ENTIRE PAYMENT AGAINST THE WORK DONE DURING THE YEA R 01.04.06 TO 31.03.07 WAS RECEIVED BY HIM BEFORE 31.03.07; THE CREDIT BAL ANCE OF RS.670973.40 SHOWN BY THE ASSESSEE IS HELD TO BE UNTRUE AND INCO RRECT AS THE ASSESSEE 4 HAD OBVIOUSLY MADE THE ENTIRE PAYMENT TO SH. SHER SINGH OUT OF UNEXPLAINED INCOME BEFORE 31.03.2007. ACCORDINGLY, A SUM OF RS.670973/- IS TREATED TO BE THE UNEXPLAINED EXPENDITURE OF THE ASSESSEE AND HELD TO BE ITS DEEMED INCOME U/S 69C OF THE INCOME TAX ACT, 19 61. 5. ACCORDINGLY, THE ADDITION OF RS.25,11,830/- WAS MADE BY THE ASSESSING OFFICER. 6. THE CIT (APPEALS) NOTED THAT THE ASSESSEE HAD F ILED EVIDENCE IN RESPECT OF CLAIM OF EXPENDITURE BEING THE COPY OF I NDIVIDUAL RETURNS OF INCOME FILED BY EACH OF THE PAYEE, THE DETAILS OF P AYMENT, COPY OF BILL AND PAYMENTS BEING MADE AFTER DEDUCTION OF TAX AT S OURCE. IN VIEW OF THE ABOVE SAID EVIDENCE FILED BY THE ASSESSEE AND A LSO THE STATEMENT RECORDED DURING THE COURSE OF ASSESSMENT PROCEEDING S WHEREIN THE SAID PARTY HAD ADMITTED TO HAVE DONE THE JOB FOR THE ASS ESSEE DURING THE PREVIOUS YEAR UNDER CONSIDERATION, MERELY BECAUSE B ILLS WERE PREPARED BY THE ACCOUNTANT OF THE ASSESSEE, WERE NO GROUND F OR DISALLOWING THE CLAIM OF THE ASSESSEE. THE CIT (APPEALS) FURTHER H ELD THAT IT IS NOT POSSIBLE TO ACCEPT THAT IN CASE OF WORK BEING DONE BY THE CONTRACTOR, EXPENDITURE SHOULD BE DISALLOWED AS BOGUS EXPENDITU RE ON THE GROUND THAT BILL WAS NOT RAISED BY THE CONTRACTOR; PARTICULARLY WHEN THE TDS HAS BEEN DEDUCTED FROM THE PAYMENTS, THE CO NTRACTORS HAVE SHOWN THE PAYMENTS IN THEIR INCOME TAX RETURNS AND SUCH EXPENDITURE HAS BEEN ALLOWED IN THE PRECEDING ASSES SMENT YEARS EVEN U/S 143 (3). THERE IS NO DISPUTE AS TO THE INC URRING OF EXPENDITURE AND AS TO THE SERVICES RENDERED . THE CIT (APPEALS) THUS DELETED THE DISALLOWANCE OF RS.18,40,856/-. I N RESPECT OF THE AMOUNT DUE TO SHRI SHER SINGH, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER AS THE SAID PERSON IN HIS STATEME NT HAD ADMITTED THAT NO AMOUNT WAS OUTSTANDING IN THE CASE, IT WAS NOTED BY THE CIT (APPEALS) THAT THE SAID PAYMENT WAS PAID BY CHEQUE IN THE SUCCEEDING YEAR ON 15.10.2007 AND THE ASSESSMENT OR DER WAS PASSED ON 14.12.2009. THE ASSESSEE HAD ALSO FILED AN AFFI DAVIT DURING THE 5 ASSESSMENT PROCEEDINGS IN WHICH SHRI SHER SINGH AFFIRMED THAT ON THE DATE OF RECORDING O F THE STATEMENT HE WAS NOT AWARE OF THE EXACT POSITION OF HIS ACCOU NT WITH THE ASSESSEE AS THE STATEMENT PERTAINED TO FINANCIAL YE AR 2006-07 BUT WAS RECORDED ON 3.12.2009. HE ALSO CONFIRMED TO HA VE RECEIVED OUTSTANDING PAYMENT AS ON 31.3.2007 IN THE FINANCIA L YEAR 2007-08 THROUGH ACCOUNT PAYEE CHEQUE. IN VIEW OF THE SAID AFFIDAVIT, THE CIT (APPEALS) DELETED THE ADDITION OF RS.6,70,943/- MADE BY THE ASSESSING OFFICER. THE CIT (APPEALS) IN TOTALITY D ELETED THE DISALLOWANCE OF RS.25,11,830/-. 7. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT (APPEALS) AND HAS RAISED GROUND NOS. 1 AND 2. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THAT THE SAID AMOUNT WAS PAID T O FOUR CONTRACTORS, WHO WERE COVERED PERSONS UNDER SECTION 40A(2)(B) OF THE ACT AND THE EXPENDITURE WAS BOOKED ON THE LAST DAY OF THE YEAR. IT WAS FURTHER SUBMITTED BY THE LEARNED D.R. FOR THE REVENUE THAT THE AMOUNT WAS PAID IN PART IN CASH DURING THE YEAR UNDER CONSIDERATION AND THE PERSONS IN THEIR STATEMENTS HAD DENIED HAVING ISSUED THE BILLS TO THE ASSESSEE OR SIGNED THE SAID BILLS WHICH WERE ADMITTEDLY ISSUED BY THE CLERK OF THE ASSESSEE CONCERN. 8. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERAT ION IS PLACED AT PAGE 22 OF THE PAPER BOOK AND AT PAGE 27 IS THE LIST OF SUNDRY CREDITORS, WHICH AMOUNTS WERE PAID THROUGH ACCOUNT PAYEE CHEQU ES, IN THE SUCCEEDING YEAR. THE LEARNED A.R. FOR THE ASSESSEE FURTHER STRESSED THAT ACTING ON THE BASIS OF THE STATEMENT RECORDED DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, OTHER EVIDENCE AVAILABLE CO ULD NOT BE RULED OUT. OUR ATTENTION WAS DRAWN TO THE STATEMENT RECORDED O F SHRI JAGDEEP SINGH PLACED AT PAGE 91 ONWARDS IN WHICH HE CLAIMED TO BE IN THE BUSINESS OF LABOUR WORKS SINCE FEBRUARY, 2007. SIMILAR REFEREN CE WAS MADE TO THE 6 STATEMENT OF SHRI HARJEET SINGH PLACED AT PAGE 88 O F THE PAPER BOOK, SHRI SHER SINGH PLACED AT PAGE 94 OF THE PAPER BOOK AND SHRI MOHAN SINGH PLACED AT PAGE 97 OF THE PAPER BOOK. THE LEA RNED A.R. FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN ITO VS. M/S SHIV KUMAR & S ONS (HUF) IN ITA NO.854/CHD/2009 RELATING TO ASSESSMENT YEAR 2006-07 AND POINTED OUT THAT THE FACTS OF THE PRESENT ASSESSEE WERE SIMILAR TO THE FACTS BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CL AIMED EXPENDITURE ON WAGES TO THE TUNE OF RS.35,75,106/- OUT OF WHICH WA GES TO THE TUNE OF RS.28,20,880/- WERE BOOKED ON THE LAST DATE OF THE YEAR TO FOUR PERSONS I.E. S/SHRI HARJEET SINGH, MOHAN SINGH, JAGDEEP SIN GH AND SHRI SHER SINGH. ADMITTEDLY, THE SAID FOUR PERSONS WERE COVE RED PERSONS UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, AS POIN TED OUT BY THE AUDITOR IN THE AUDIT REPORT FILED ALONGWITH THE RETURN OF I NCOME FOR THE YEAR UNDER APPEAL. THE CLAIM OF THE ASSESSEE WAS THAT T HE PAYMENTS WERE MADE TO THE ABOE SAID CONTRACTORS AGAINST LABOUR CO NTRACT WORK FOR LOADING OF PADDY FROM MARKET, UNLOADING & STACKING IN FACTORY APART FROM FILING, STITCHING & STACKING OF RICE BAGS IN FACTORY AND ALSO LOADING AND UNLOADING AT THE TIME OF SALE OF RICE. IN ORD ER TO SUPPORT ITS CLAIM OF EXPENDITURE, THE ASSESSEE BEFORE THE ASSESSING O FFICER FURNISHED THE COPIES OF ACCOUNT OF THE SAID PARTIES, PROOF OF DED UCTION OF TAX OUT OF THE SAID PAYMENTS OF WAGES AND ALSO PROOF OF FILING OF RETURNS BY THE CONTRACTOR WAS ALSO ENCLOSED WITH THE ABOVESAID REP LY. THE SAID WAGES WERE PAID AT THE GOVERNMENT PRESCRIBED RATES. THE STATEMENT OF THE SAID PERSONS WERE RECORDED DURING THE COURSE OF ASSESSME NT PROCEEDINGS. THE ASSESSING OFFICER ON THE PERUSAL OF THE COPIES OF T HE BILLS OF THE CONTRACTORS AND THEIR RESPECTIVE COPIES OF ACCOUNT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, NOTED THE FOLLOWING FEATUR ES: 7 I) ALL THE FOUR CONTRACTORS HAVE ISSUED ONLY ONE BI LL EACH FOR THE AMOUNTS AS AFORESAID, FOR THE ENTIRE YEAR. II) ALL THE FOUR BILLS HAVE BEEN PREPARED/ISSUED ON THE LETTER PAD OF THE ASSESSEE FIRM. III) ALL THE FOUR BILLS HAVE BEEN PREPARED BY ONE S INGLE INDIVIDUAL. IV) NONE OF THE FOUR BILLS CONTAIN ANY BILL NUMBER OR DATE. 10. THE STATEMENT OF ALL THE FOUR CONTRACTORS WERE RECORDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND FROM THE SAID STATEMENT/S, THE ASSESSING OFFICER IN PARA 2.9 NOTED AS UNDER: I) ALL THE CONTRACTORS ARE BASICALLY AGRICUL TURISTS. II) THEY ADMITTEDLY DO NOT KEEP/MAINTAIN AN Y RECORDS FOR THE ALLEGED LABOUR WORK. III) THEY ALL ARE HAVING BANK ACCOUNTS WITH BA NK OF BARODA, SRI JIWAN NAGAR BUT THEY ARE NOT CERTAIN ABOUT THE MODE OF RECEIPT OF PAYMENTS, WHICH WERE MADE IN CASH TO ALL OF THEM . IV) THEY COULD NOT GIVE ANY SATISFACTORY REPLY AS TO HOW THEY MANAGED TO PAY OFF THE WAGES TO THE LABOURERS WH EN PAYMENTS FROM THE ASSESSEE FIRM WERE NOT FORTHCOMING TO THEM FOR THE WORK DONE. V) THEY DID NOT HAVE ANY RECORDS TO 'COROBORATE 1 THEIR STATEMENTS WITH ANY EVIDENCE THAT IN THE EVENT OF NON-RECEIPT OF PAYMEN T FROM THE FIRM; THEY MADE PAYMENTS TO THE LABOURERS OUT OF THEIR AGRICUL TURE INCOME; DESPITE SOME APPARENTLY LEFT WITH ANY SAVINGS AFTER MEETING OUT AGRICULTURE AND HOUSEHOLD EXPENSES. VIII) NONE COULD TELL WITH CERTAINTY /CONVINCINGLY AS TO WHETHER BILLS WERE ISSUED TO THE FIRM, AND IF YES, HOW MANY TIMES DURI NG THE PERIOD OF ONE YEAR. 11. THE ASSESSING OFFICER FURTHER VIDE PARA 2.6 OBS ERVED AS UNDER: 2.6 LAST BUT NOT THE LEAST, OUT OF THE FOUR, THE FO LLOWING THREE CONTRACTORS; WHEN THEY WERE CONFRONTED WITH THE COPIES OF THOSE VERY BILLS FILED BY THE ASSESSEE FIRM IN SUPPORT OF ITS CLAIM FOR WAGE EXPENSES, THE Y CATEGORICALLY DENIED TO HAVE EVER ISSUED THOSE BILLS OR SIGNED THEREON. THE RELE VANT EXTRACT OF THEIR STATEMENT IN THIS REGARD IS REPRODUCED HEREUNDER :- 8 1. SH.HARJEET SINGH 'Q.NO.6: I AM SHOWING YOU A COPY OF BILL FOR RS.99 2369,60 FOR THE PERIOD FROM 01.04.2006 TO 31.03.2007 WHICH IS ON THE LETTER PAD OF M/S.NAMDHARI RICE & GEN. MILLS; PLEASE CONFIRM IF YOU HAVE ISSUED THI S BILL AND WHETHER SIGNATURES AS APPEARING ON THIS BILL HAVE BEEN MADE BY YOU ? ANS.: THIS BILL HAS NOT BEEN ISSUED BY ME NOR BY MY MUNIM. SIGNATURES AS APPEARING ON THIS BILL HAVE NOT BEEN MADE BY ME. ' 2. SH.MOHAN SINGH 'Q.NO.LL: I AM SHOWING YOU A COPY OF BILL FOR RS.4 91848.90 FOR THE PERIOD 01.04.2006 TO 31.03.2007 WHICH ON THE LETTER PAD OF M/S.NAMDHARI RICE & GENERAL MILLS; PLEASE CONFIRM, IF YOU HAVE ISSUED AND SIGNE D THIS BILL? ANS.: THIS BILL COPY HAS BEEN SEEN BY ME AND I CONF IRM THAT I HAVE NOT SIGNED THIS BILL WHICH OTHERWISE BEARS SIGNATURES IN MY NAME.' 3. SH.JAGDEEP SINGH 'Q. NO. 7: I AM SHOWING YOU A COPY OF BILL FOR RS .356638.65 FOR THE PERIOD FROM 01.04.2006 TO 31.03.2007, ISSUED ON THE LETTER PAD OF M/S.NAMDHARI RICE & GEN. MILLS. PLEASE CONFIRM, IF YOU HAVE ISSUED THIS BILL AND WHETHER SIGNATURES AS APPEARING ON THIS BILL HAVE BEEN MADE BY YOU? ANS.: NO, I HAVE NOT ISSUED THIS BILL NOR I HAVE SI GNED ON THIS AS APPEARING ON THIS COPY OF BILL.' 12. THE CONCLUSION OF THE ASSESSING OFFICER VIDE PA RA 2.7 WAS AS UNDER: 2.7 FROM THE ABOVE THE ONLY IRRESISTIBLE CONC LUSION WHICH FOLLOWS IS THAT THE ASSESSEE HAS MADE AN ATTEMPT THROUGH UNSUCCESSFUL T O CLAIM BOGUS EXPENSES ON ACCOUNT OF 'WAGES' ON THE STRENGTH OF THE BILLS WHI CH HAVE NEITHER BEEN ISSUED BY ANY OF THE FOUR CONTRACTORS NOR SIGNED BY THEM EXCEPT SH.S HER SINGH WHO HAS CONFIRMED ONLY HIS SIGNATURES ON THE BILL. THE STATEMENT OF SH.S HER SINGH THAT HIS MUNIM PREPARED THE BILL IS ALSO NOT CORRECT AS IT WAS FAIRLY ADMIT TED ON BEHALF OF THE ASSESSEE THAT ALL THE FOUR BILLS WERE PREPARED BY ONE SINGLE INDIVIDU AL AS IS EVIDENT FROM THE COPIES OF BILLS AND THAT WAS BY SH.PRITAM SINGH, ACCOUNTANT O F THE FIRM. FURTHER, IT IS WORTHWHILE TO POINT OUT THAT THE STORY OF THE ASSESSEE THAT A BAL ANCE OF RS.6,70,973.40 WAS OUTSTANDING AS PAYABLE TO SH.SHER SINGH AS ON 31.03.07 IS FOUND T O BE UNTRUE. 9 13. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS ON THE FACT THAT THE PARTIES HAD DENIED TO HAVE ISSUED THE BILL S AND HAD ALSO DENIED SIGNATURE ON THE BILLS ISSUED IN RELATION TO THE CL AIM OF WAGES. HOWEVER, THE PERUSAL OF THE STATEMENT RECORDED DURING THE CO URSE OF ASSESSMENT PROCEEDINGS REFLECT THE PARTIES CATEGORICALLY ADMIT TED TO HAVE CONFIRMED THE FACTUM OF RENDERING SERVICE TO THE ASSESSEE FOR WHICH THEY HAD RECEIVED THE PAYMENTS WHICH WAS DULY REFLECTED IN T HEIR RETURNS OF INCOME. THE SECOND ASPECT TO BE CONSIDERED IS THAT THOUGH THE SAID PARTIES ARE COVERED PERSONS UNDER SECTION 40A(2)(B) OF THE ACT, THE RATES OF WAGES PAID TO THE SAID PARTIES WERE AS PRESCRIBE D BY THE GOVERNMENT AND CONSEQUENTLY THERE IS NO VIOLATION OF THE PROVI SIONS OF SECTION 40A(2)(A) OF THE ACT I.E. THE CHARGES PAID TO THE R ELATED PARTIES WERE AT MARKET RATES. FURTHER THOUGH DURING THE YEAR UNDER CONSIDERATION, PART OF THE WAGES DUE TO THE SAID CONTRACTORS WERE PAID IN CASH, BUT THE BALANCE OUTSTANDING AMOUNT HAS BEEN PAID BY CHEQUE/ S IN THE SUCCEEDING YEAR. THE ASSESSEE HAD ALSO DEDUCTED TAX AT SOURCE OUT OF THE SAID PAYMENTS DUE TO THE CONTRACTORS. THE SUPPORTING EV IDENCE FILED BY THE ASSESSEE IN RESPECT OF EACH OF THE SAID CONTRACTORS WAS THE DETAILS OF PAYMENTS MADE, COPIES OF THE RESPECTIVE BILLS, COPI ES OF ACCOUNTS OF THE SAID PERSONS IN THE BOOKS OF THE ASSESSEE AND DETAI LS OF PAYMENTS MADE AFTER DEDUCTION OF TAX AT SOURCE. FURTHER THE COPI ES OF THE RETURNS OF INCOME FILED BY THE RESPECTIVE PERSONS HAVE ALSO BE EN FILED. IN RESPECT OF THE THREE PERSONS I.E. S/SHRI HARJIT SINGH, JAGD EEP SINGH AND MOHAN SINGH, THE CIT (APPEALS) AT PAGES 3 AND 4 OF THE AP PELLATE ORDER HAS TABULATED THE EVIDENCE FILED BY THE ASSESSEE IN RES PECT OF THE CLAIM OF EXPENDITURE AND HAS ALSO TABULATED THE DETAILS OF A MOUNT OF WAGES PAID, TAX DEDUCTED AT SOURCE AND ALSO DATE OF DEPOSIT OF TAX AT SOURCE WHICH WAS 31.5.2007. IN VIEW OF THE ABOVE SAID EVIDENCES AVAILABLE AND ALSO THE FACTUM OF CONFIRMATION BY THE RESPECTIVE PARTIE S OF HAVING RENDERED THE SERVICES, THE SAID EXPENDITURE MERITS TO BE ALL OWED IN THE HANDS OF ASSESSEE COMPANY. WE ARE IN CONFORMITY WITH THE OR DER OF THE CIT 10 (APPEALS) IN THIS REGARD AND UPHOLDING THE SAME WE CONFIRM THE DELETION OF DISALLOWANCE OF RS.18,40,856/-. 14. THE NEXT DISALLOWANCE MADE IN THE HANDS OF THE ASSESSEE WAS ON ACCOUNT OF THE AMOUNT DUE TO SHRI SHER SINGH OF RS. 6,70,923/-, OUT OF TOTAL CLAIM OF RS.9,80,024/-. AS POINTED OUT IN TH E PARAS HEREINABOVE THE SAID ADDITION WAS MADE IN THE HANDS OF THE ASSESSEE AS SHRI SHER SINGH IN HIS STATEMENT RECORDED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS HAD DENIED ANY AMOUNT DUE FROM THE ASSESSEE. HOWEVER, THE ASSESSEE FURNISHED AN AFFIDAVIT OF THE SAID PERSON DATED 26. 5.2010 IN WHICH HE AFFIRMED THAT THE STATEMENT GIVEN BY HIM WAS RELATA BLE TO THE DATE OF RECORDING OF THE STATEMENT AND NOT AS ON THE CLOSE OF THE YEAR. THE STATEMENT WAS RECORDED ON 3.12.2009 AND ON THAT DAT E NOTHING WAS DUE FROM THE ASSESSEE FIRM. THE ASSESSEE ALSO FURNISHE D DOCUMENTARY EVIDENCE OF PAYING THE SAID SUM OF RS.6,70,923/- BY WAY OF CHEQUE TO SHRI SHER SINGH ON 15.10.2007. THE ASSESSMENT ORDE R IN THE CASE WAS PASSED ON 14.12.2009 AND THE ASSESSEE HAD MADE THE PAYMENT MUCH BEFORE THE DATE OF ASSESSMENT ORDER. IN VIEW OF TH E DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE AND CONFIRMATION OF SHRI SHER SINGH, WE FIND NO MERIT IN THE ADDITION MADE BY THE ASSESSING OFFICER TOTALING RS.6,70,923/-. WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT (APPEALS). THUS GROUND NO.1 AND 2 RAISED BY THE RE VENUE ARE DISMISSED. 15. THE ISSUE IN GROUND NO.3 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.24,19,860/-. THE ASSESS ING OFFICER FROM THE EXAMINATION OF QUANTITATIVE DETAILS OF MILLING OF P ADDY NOTED THE ASSESSEE TO HAVE CLAIMED SHORTAGE TO THE TUNE OF 18 29.08 QTLS (825.08 + 1004.00) IN THE PROCESS OF SORTEX & SILKY RICE. TH E REPLY OF THE ASSESSEE IS INCORPORATED AT PAGE 10 OF THE ASSESSME NT ORDER. THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE AS IN THE SORTEX MACHINE, ONLY GRADING OF RICE WAS MADE AND THUS RIC E OF DIFFERENT GRADES (COLOURWISE) WAS SORTED-OUT BY THE SORTEX MACHINE EQUIPPED WITH 11 CAMERAS IN THIS PROCESS, THERE WAS HARDLY ANY SCOPE FOR ANY SHORTAGE. THE ASSESSING OFFICER THUS HELD THAT SHORTAGE OF 1829.08 QTLS IS, THUS, NOT FOUND TO BE OF ACCEPTABLE NATURE, MORE SO WHEN THE RAW MATERIAL I.E. RICE WAS HAVING SALEABLE VALUE BEFORE BEING PUT INT O THE ABOVEMENTIONED SILKY & SORTEX PROCESS . THE ASSESSEE HAD CLAIMED SHORGATE OF 27.36% IN MILLING OF PADDY AND ADOPTING THE CLOSING STOCK RAT ES OF RICE PERMAL AT RS.825/- PER QTL. AND THAT OF RICE BASMATI AT RS.14 65 PER QTL., AS SHOWN BY THE ASSESSEE, ADDITION ON ACCOUNT OF SHORTAGE CL AIMED WORKED OUT AS UNDER: QTY. RATE PER QTL. VALUE (AMT.IN RUPEES) RICE PERMAL 825.08 QTL. 1150/- 9,48,750/- RICE BASMATI 1004.0 QTL. 1465/- 14,70,860/- ------------- 24,19,860/- ------------- 15. HOWEVER, THE ASSESSING OFFICER MADE NO ADDITION OF RS.24,19,860/- IN VIEW OF THE ENHANCEMENT OF INCOME BY RS.25,11,83 0/- BY WAY OF DISALLOWANCE OF WAGE EXPENSES. 16. THE CIT (APPEALS) DELETED THE ADDITION IN THE A BSENCE OF ANY EVIDENCE OF THE ASSESSEE HAVING INFLATED ITS PURCHA SES OR THE SALES BEING OUTSIDE THE BOOKS OF ACCOUNT. FURTHER THE CIT (APP EALS) OBSERVED THAT THE BOOKS OF ACCOUNT HAD NOT BEEN REJECTED BY THE A SSESSING OFFICER AND MERELY BECAUSE THERE WAS SHORTAGE IN THE PROCESS OF SORTEX COULD NOT THE BASIS FOR HOLDING THE SALES OUTSIDE THE BOOKS OF AC COUNT. 17. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT (APPEALS). 18. WE HAVE HEARD BOTH THE AUTHORIZED COUNSELS ON T HE SAID ISSUE AND PERUSED THE RECORD. THE ASSESSEE IS INVOLVED IN TH E MILLING OF PADDY AND HAD CLAIMED SHORTAGE TO THE TUNE OF 829 QTLS IN THE PROCESS OF SORTEX AND SILKY RICE. THE PROCESS OF MILLING OF PADDY WAS UN DERTAKEN BY THE ASSESSEE IN RESPECT OF TWO QUALITIES OF RICE I.E. P ARMAL AND BASMATI AND 12 WHILE MILLING THE SAID PADDY, IT HAD CLAIMED SHORTA GE OF 12284.24 QTLS IN PADDY PARMAL ACCOUNT AND 20652.87 QTLS IN PADDY BAS MATI ACCOUNT. THE SAID SHORTAGE HAS BEEN ALLOWED AS PART OF THE MILLI NG PROCESS OF PADDY CARRIED ON BY THE ASSESSEE AND NO ADDITION ON THIS ACCOUNT HAS BEEN MADE IN THE HANDS OF THE ASSESSEE. HOWEVER, AFTER MILLI NG THE RICE THE ASSESSEE HAS SORTED THE SAID RICE BY WAY OF POLISHI NG IN THE SILKY MACHINE AND GRADING OF RICE IN THE SORTEX MACHINE. IN THE SILKY MACHINE RICE AGAIN POLISHES AND THE CLAIM OF THE ASSESSEE W AS THAT IN THE SAID PROCESS SHORTAGE WAS NOT DISPUTED. WE FIND NO MERI T IN THE SAID CLAIM OF THE ASSESSEE. HOWEVER, IN THE SORTEX MACHINE WHERE ONLY GRADING OF RICE IS MADE BY SORTEX MACHINE EQUIPPED WITH CAMERA, WE FIND NO MERIT IN THE SAID CLAIM OF SHORTAGE DURING THE SAID PROCESS. WE UPHOLD THE ORDER OF THE ASSESSING OFFICER IN MAKING THE ADDITION OF RS. 24,19,860/-. WE REVERSE THE ORDER OF THE CIT (APPEALS) AND DIRECT T HE ASSESSING OFFICER TO TREAT SUM OF RS.24,19,860/- AS INCOME OF THE ASS ESSEE. 19. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE T HAT WITHOUT REJECTION OF BOOKS OF ACCOUNT THE SAID ADDITION COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE. GROUND NO.3 RAISED BY THE REVENUE IS THUS ALLOWED. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2012. SD/- SD/- ( MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 31 ST AUGUST, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 13