ASSTT. CIT-32(1), MUMBAI V. SUNITABEN SHANTILAL PATEL, MUMBAI

ITA 111/MUM/2021

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 1630 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Appeal Filed On: 07-02-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Corroborative evidences; FORM 26AS
• Section: 145; 271(1)(c); 44AD; 142(1); 143(2); 145(3); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 111/Mum/2021 (A.Y. 2015-16) Asst. Commissioner of Income Tax-32(1), Room No. 702, 7 th Floor, Kautilya Bhavan, Bandra Kurla Complex, Bandra (E), Mumbai-400051. ...... Appellant Vs. Sunitaben Shantilal Patel, 1903, Siddhivinayak Tower CHS Ltd. Link Road, Sudhendra Nagar, Dahisar (E), Mumbai-400068. PAN: AFHPP0267N ..... Respondent Appellant by : Sh. B.K. Bagchi, Sr. DR Respondent by : Sh. Jigaar Mehta, AR Date of hearing : 30/06/2022 Date of pronouncement : 01/07/2022 ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-44, Mumbai [hereinafter referred to as ‘the CIT (A)’] vide order dated 13.08.2020 for the Assessment Year (AY) 2015-16. The assessee has raised the following grounds of appeal: 1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in rejecting the Audited Books of Accounts and reducing the turnover to Rs. 9,50,35,865/- against turnover of Rs. 12,05,07,568/- as disclosed in the audited books of accounts.” 2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in eliminating he profits to 8% of the reduced Turnover against addition of Rs. 8,49,87,993/- made by the AO.” 2 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting disallowance of labour charges of Rs. 67,11,814/- without appreciating that the assessee failed to furnish any supporting evidence as accepted by the assessee herself in her submission and offering Rs. 5,00,000/- for disallowance.” 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting disallowance of Rs. 5,28,04,476/- on account of unpaid labour expense to daily wagers made by the AO when assessee categorically failed to furnish any details of persons to whom this unpaid labour expenses was to be paid”. 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting addition of Rs. 2, 54, 71,708/- being difference of Receipts offered for taxation and that appearing in Form 26AS without appreciating that the assessee was following mercantile system of accounting.” 6. “The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the Assessing Officer be restored.” 7. “The appellant craves leave to amend or to alter any ground or add a new ground which may be necessary.” 2. Brief facts of the case are that the assessee is an individual e-filed her return of income for the AY 2015-16 on 01.01.2016 declaring total income of Rs. 56,48,200/- . The case was selected for limited scrutiny; subsequently case was converted from limited scrutiny to complete scrutiny. Statutory notices under section 142(1) & 143(2) of the Income Tax Act, 1961 (for short ‘the Act’) were issued. 3. During the course of assessment proceedings, the assessee is asked to produce reconciliation of income as per Form 26AS and income shown by assessee. As per Form 26AS revenue from contract to assessee was Rs. 11, 83, 80,263/- whereas assessee shown Rs. 9,30,08,560/-. Hence, there was a difference of Rs. 2, 54, 71,701/- 4. The assessee’s contention before the Assessing Officer (AO) is as under: 3 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel “26. The assessee’s contention that the difference of Rs. 2, 54, 71,703/- is treated as advance given is not correct factually. There is no mention of advance received in the Balance sheet of the assessee as on 31.03.2015. The assessee’s contention that these contract receipts will be adjusted in next year i.e., A.Y. 2016-17 is not acceptable since the assessee is following mercantile system. All the receipts which are accrued to the assessee have to be shown as income of the assessee in the year of accrual in accordance with the mercantile system. 27. Therefore, the difference of Rs. 2, 54, 71,703/- which is not offered to taxation in the A.Y. 2015-16 although the same is accrued to the assessee is added to the total income of the assessee. Penalty proceedings are separately initiated separately for furnishing of inaccurate particulars of income u/s 271(1) (c).” 5. Against the findings of the AO assessee explained her position in this regard before the ld. CIT (A). The ld. CIT(A) vide para-4, 4.1, 4.2 and 4.3 discussed and analyzed the factual position of the matter in detail and allowed the ground of assessee and agreed with the figure of Rs. 9,30,08,560/- shown by the assessee by virtue of the reconciliation submitted as under: Name of the Party As per Form 26AS As per Books Difference Avi Housing Realtors 52,75,520 52,75,520 Dharti Developers 5,35,00,047 3,48,03,864 1,86,96,183 Lotus Grih Nirman Pvt. Ltd. 4,87,44,537 4,72,44,537 15,00,000 Total 2,54,71,703 6. We have also gone through the submissions of the assessee furnished before the First Appellate Authority (FAA). A close perusal of these entries indicates that the date of booking of these entries as appearing in Form 26AS is much beyond the due date of filing the regular return. It is thus apparent that the builders have themselves booked these entries beyond the due date of filing of return, thus, the appellant was unaware of these entries which appeared in the Form 26AS after the due date of filing return of income. Thus, it may be appreciated that the said amounts indicate provisions booked in the current year by the builders in relation to which work has been conducted in subsequent year. 4 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel Attention is invited to the fact that the difference of Rs. 2,54,71,703/- has in fact been offered in AY 2016-17 as evident from the difference of income as appearing in financials and Form 26AS for the relevant AY as under: Particulars Page Ref Amount (Rs.) Income as per Financials of AY 2016-17 23 2,98,09,478 Income as per Form 26AS of AY 2016-17 24 43,37,775 Difference 2,54,71,703 7. In the circumstances, we found no flaw in the accounting system and income declared by the assessee and there is no perversity in the order of ld. CIT (A). Hence, order of ld. CIT (A) is sustained and ground of Revenue is dismissed. 8. Ground No.1, 2, 3 & 4 are interrelated, hence disposed off together by a common finding. 9. Issues raised through ground mentioned (supra) pertains to sustainability of disallowance of labour charges @ 20% of Rs. 3,35,59,068/- (Rs. 67,11,814/-), disallowance of outstanding labour charges amounting to Rs. 5,28,04,476/- (Rs. 5,95,16,290/-). 10. In both the disallowances, AO was not agreed with the claim of the assessee and found not to be genuine. In Para 5 to 22 of the assessment order, AO dealt with these issues of disallowances. 11. Relevant extracts of assessment order are reproduced here-in-below: “5. During the course of assessment proceedings, it is observed that from the ledger A/c of Labour charges, the assessee has paid Rs 3,35,59,068/- in cash to labourers during the FY 2014-15. The assessee is asked vide notice dated 27.11.2017 the following questions: 5 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel 1. "Please furnish the vouchers/bills of direct expenses (labour Charges) as claimed in P/L account for the FY 2014-15. 2. Please produce any other supporting documents of direct expenses (Labour Charges) as claimed in P/L account for the FY 2014-15, if any 2. Please produce the detailed breakup of direct expenses (Labour Charger) as claimed in P/L account for the FY 2014-15 in the following format S. No . Name of the worker/labourer to whom payment is made PAN and address of the worker/labourer Amount paid Date of payment Mode of payment Place/Site where the worker/labou rer worked Kind of work done 6. To the above questions the reply of the assessee is mentioned below- “1 Direct expenses – in direct expenses there is only labour charges paid, Ledger A/c of Labour charges paid is enclosed herewith. Explanation for the Sr. No. 1,2,3,4 of your letter. We have paid labour charges in cash : In this connection we would like to inform you that in the construction industry it is common practice that the contractor hires large number of labours who are generally migrated from south India or other parts. They neither have permanent home nor any bank account in Mumbai. They generally stay at the site of construction, on account of the said facts the payments of labour charges are invariable made in cash. It is also a common practice that labour cards are prepared for each of the labourer and depending on the number of days worked, wages are paid on monthly basis, Labour cards are the only proof of payments wherein the thumb impression or signature of the labourers is taken Labour cards are preserved by labour supervisors at various s and when they leave the site, the supervisor used to leave the cards at sites so could not trace and collect all the cards from the various sites.” 12. Assessing Officer, in absence of any evidence adduced by assessee held as under: “12. In view of the above discussion, the claim of the labour expenses was not substantiated with any evidence and the said labour expenses remained unproved. Therefore, the claim of the labour expenses is rejected and the labour expenses to the tune Rs. 67,11,814/- i.e. 20% of Rs. 3,35,59,068/- considering the same as excessive in disallowed as an expense considering 20% disallowance as fair and reasonable and added back to the total income of the assessee for the A.Y. 2015-16. Penalty proceedings are initiated separately u/s 271(1)(c) for furnishing inaccurate particulars of income.” 6 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel 13. As far as disallowance of provision for outstanding labour charges of Rs. 5,28,04,476/- is concerned, assessee submitted that she had to receive the payment from her debtors as follows: 1. M/s Dharti Developers 1,10,08,066/- 2. M/s Lotus Grih Nirman Pvt. Ltd. 3,91,14,091/- 3. M/s Lotus Lotistics & Developers Pvt. Ltd. 15,16,454/- Total Rs. 5,16,38,611/- As a total outstanding from her debtors was Rs. 5,16,38,611/-, she cannot make payment to the labour of Rs. 5,28,04,476/- so the provision of outstanding has been made. 14. AO was not satisfied with the submission of the assessee, hence, made addition of Rs. 5,28,04,476/-. 15. Before the ld. CIT(A), assessee explained her position about the disallowances and business model as under: “[2. Appellant is a labour contractor engaged in the business of providing labour services to builders and developers: Your Honour may kindly note that the appellant has indicated a sum of Rs 9,30,08,560/- as total turnover for the year under consideration as evident from the profit and loss account placed at page no 14 of the Paper Book. Out of the said total sales, a sum of Rs.5,52,72,353/- was infact receivable from various customers as indicated at page no 19 of the Paper Book An almost equivalent amount of Rs. 5,28,04,476/- is indicated as provision for outstanding labour charges in the balance sheet at page no 16 of the Paper Book. 3. At this stage, the business model of the appellant as well as the accounting method employed by her is essential to be understood. The appellant usually issues advance invoices to builder for undertaking work on their behalf as per predetermined rates. It is based on these invoices that the builders release payment to the appellant after deduction of tax it is only on receipt of funds that the appellant commences the work at the site of the builder. The said modus operandi is essential for the appellant to mitigate liquidity crisis which may be 7 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel caused due to the delay in receipts of payment from builder on one hand coupled with the immediate payment required to be made to labourers on the other hand 4. Your Honour may note that the amount of debtors indicated in the balance sheet, is infact the amount receivable from the builders to commence the work and the amount of provisions indicated is the amount of labour charges expected to be paid for the purpose of undertaking the said jobs. Thus, the appellant has indicated the amount of revenue in relation to which the job is yet to be undertaken on one hand and on the other hand, she has also indicated the amount of expected expenses being labour charges required to be incurred for the purpose of earning the said income. This is in accordance with the matching principle of accountancy, which is one of the fundamental accounting principle. 5. The aforesaid explanation clearly indicates that the amount of provision indicated in the balance sheet is not the provision for accrued expenses as per its literal meaning but rather indicates the cost that will be required to be incurred for the purpose of undertaking future jobs; income wherefrom is already accounted in the books on the basis of invoices raised merely for the purpose of collecting advance Your Honour may thus, appreciate that as a matter of fact, if the expenses are being disallowed, the correct course of action would be to exclude the amount of Income represented by the amount of sundry debtors, also from the scope of total income, to arrive at panty in the taxation of income and allowability of expenses” 16. During the course of hearing before the ld. CIT(A) assessee was asked to produce following information for perusal. a. Ledger account of the assessee in the books of builder b. Ledger account of the builders in the books of assessee c. Copy of ITR, Computation of Income, 26AS and Financials of all the years viz. FY 2012-13 to FY 2015-16. d. Reconciliation of the figures along with the explanation. 17. Information called for as mentioned (supra) were duly furnished for the record of ld. CIT(A) and his consideration. The ld. CIT(A), considering the submissions made came to the conclusion that books of account maintained by the assessee were not correct/complete, hence, it is not possible to derive the 8 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel correct income from the books of accounts of the assessee and he rejected the books of accounts under section 145(3) of the Act. 18. As per ld. CIT(A) assessee failed to maintain documents like job register, work control chart, labour card, etc. He further noted that the appellant has booked income on cash basis whereas at certain other instances, the same is accounted for on accrual basis. The Income Tax Act, 1961 does not permit such hybrid system of accounting as per section 145 of the Act. 19. Ld. CIT(A) relied on CIT Vs. Mc Millan and Co. (1958) 33 ITR 182 (SC), which empowers CIT appeal to reject the books of accounts of the assessee by invoking the provisions of section 145(3) of the Act. Ld. CIT(A) worked out turnover of the assessee at Rs. 9,50,35,865/- as against the turnover of Rs. 9,30,08,560/- offered by the assessee. Ld. CIT(A) worked out income of the appellant at Rs. 76,02,870/- being a sum of 8% on Rs. 9,50,35,865/-. 20. We have carefully gone through the order of the AO, submissions of the assessee before the AO and ld. CIT(A) and order of the ld. CIT(A). A detailed deliberation on all the heads of disallowances were being made by the ld. CIT(A). This includes reconciliation of figures shown by assessee vis-a-vis figures shown in Form 26AS, reconciliation between ledger of the parties in assessee’s books vis-a-vis ledger of the assessee in parties books and accurate figure of turnover for the year under consideration. 21. So, we are of the considered view that in the given circumstances, Ld. CIT(A) rightly drew the support from the section 44AD in estimating the profit @ 8% of the Gross Receipts, in case of business of civil construction work. So we found no perversity in the workings of various figures done by the office of ld. CIT(A) and application of 8% Net Profit on gross receipts i.e. Rs. 9,50,35,865/- resulting in income of assessee to be Rs. 76,02,870/-. Since the assessee has 9 ITA No. 111 Mum 2021-Sunitaben Shantilal Patel already offered a sum of Rs. 56,73,522/- as business income in her return of income filed only the balance sum of Rs. 19,29,348/- is required to be added. 22. There is no doubt in terms of the provision of the Act and legal settled position of law power of ld. CIT(A) is co-terminus with the AO. But AO can do, ld. CIT(A) can exercise all those powers to deduce real income of the assessee including applying section 145(3) of the Act. We sustain the order of ld. CIT(A) in the both the terms i.e. rejection of books of accounts and applying Net Profit rate of 8% on derived figure of turnover of Rs. 9,50,35,865/-. 23. In the result, appeal of the Revenue is dismissed in terms of aforesaid findings. Order pronounced in the open court on 1 st day of July, 2022. Sd/- Sd/- (KULDIP SINGH) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 01/07/2022 SK, Sr.PS Copy of the Order forwarded to : 1. अपीलाथŎ/The Appellant , 2. Ůितवादी/ The Respondent. 3. आयकर आयुƅ(अ)/ The CIT(A)- 4. आयकर आयुƅ CIT 5. िवभागीय Ůितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाडŊ फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai