HASMUKHLAL VASANJI MISTRY, MUMBAI V. ITO 21(3)(1),

ITA 3651/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5097 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 12-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: H G BUCH
• Keywords: Depreciation; Corroborative evidences
• Section: 194C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H B ENCH, MUMBAI , , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K. BILLAIYA, AM ./ I.T.A. NO. 3651/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR : 2007-08 SHRI HASMUKHLAL VASANJI MISTRY, PROP. J.S. TUBES DRILLERS, ALLADIN COMPOUND, OPP. JAMA MASJID, KHERANI ROAD, ANDHERI (E), MUMBAI-400 072 THE ITO 21(3)(1), MUMBAI ) !& ./ * ./PAN/GIR NO. : AICPM 7544F ( )+ /APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / APPELLANT BY : ` SHRI H.G. BUCH ,-)+ / . ! /RESPONDENT BY : SHRI PITAMBAR DAS / 01& / DATE OF HEARING :12.11.2013 23( / 01& / DATE OF PRONOUNCEMENT : 20.11.2013 !4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A)-32, MUMBAI DT.28.12.2010 PERTAINING TO A.Y. 2007-08. ITA NO.3651/M/2012 2 2. THE ASSESSEE HAS RAISED 5 SUBSTANTIVE GROUNDS OF APPEAL. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT HE IS NOT PRESSING GROUND NO. 1. GROUND NO. 1 IS ACCORDINGL Y DISMISSED AS NOT PRESSED. 3. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF THE CLAIM FOR DEDUCTION OF LABOUR CHARGES AMOUNTING TO RS. 21,72,000/-. TH IS ISSUE HAS BEEN DISCUSSED BY THE AO AT PARA-6 ON PAGE-2 OF HIS ORDE R WHEREIN THE AO HAS OBSERVED THAT THE ASSESSEE HAS PASSED JOURNAL ENTRY OF RS. 21,72,000/- ON 31.3.2007, NARRATING LABOUR CHARGES PAYABLE AN D THE SAME IS SHOWN AS CURRENT LIABILITIES IN THE BALANCE SHEET FOR THE YE AR ENDING 31.3.2007. THE AO DISALLOWED THE ENTIRE AMOUNT FOR WANT OF SUPPORT ING EVIDENCES WHICH COULD SUBSTANTIATE THE ACCRUED LIABILITY OF THE LAB OUR CHARGES. 4. THE ASSESSEE STRONGLY AGITATED THIS ISSUE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONSIDERED THIS GRIEVANCE AT PA RA 4.3 ON PAGE-6 OF HIS ORDER AND AFTER UNDERSTANDING THE FACTS OF THE CASE, THE LD. CIT(A) WAS CONVINCED THAT THE WAGES OF RS. 21.72 LAKHS RE MAIN UNSUBSTANTIATED EXPENDITURE AND CANNOT BE SAID TO BE INCURRED FOR T HE BUSINESS PURPOSES AND CONFIRMED THE ADDITION MADE BY THE AO. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT REVENUE AUTHOR ITIES CANNOT DECIDE WHICH EXPENDITURE IS NECESSARY FOR THE PURPOSE OF B USINESS. FOR THIS PROPOSITION, THE LD. COUNSEL RELIED UPON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS DHANRAJGIRJI R AJA NARASINGIRJI 91 ITR 544. IT IS THE SAY OF THE LD. COUNSEL THAT THE WAGES PAID TO THE LABOUR DO NOT REMAIN THE SAME IN EVERY MONTH AND DEPENDING UPON THE OUTPUT OF THE WORKERS, THE WAGES ARE PAID. THE WAGES ARE ALS O PAID FOR OVERTIME, THEREFORE THE COMPARISON OF WAGES WITH PRIOR MONTHS OR PRIOR PERIOD IS ITA NO.3651/M/2012 3 FUTILE AND BY DOING SO, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOT IN DISP UTE THAT BY A SINGLE JOURNAL ENTRY PASSED ON 31.3.2007, THE ASSESSEE HAS CHARGED LABOUR CHARGES TO ITS PROFIT AND LOSS ACCOUNT BY RS. 21.72 LAKHS AND THE SAME IS SHOWN AS PAYABLE UNDER THE HEAD CURRENT LIABILITIES IN T HE BALANCE SHEET, EXCEPT FOR THIS THE ASSESSEE HAS NOT BROUGHT ANY COGENT M ATERIAL EVIDENCE ON RECORD TO SUBSTANTIATE/JUSTIFY HIS CLAIM. RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IS MISPLACED INASMUCH AS THE INITIAL ONUS IS UPON THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF EXPENDITU RE WITH SOME LOGICAL BASIS. IN THE INSTANT CASE, WE FIND THAT THE JOURNA L ENTRY OF RS. 21.72 LAKHS IS WITHOUT ANY BASIS NOR ANY SUPPORTING EVIDENCES H AVE BEEN BROUGHT ON RECORD NEITHER BEFORE THE REVENUE AUTHORITIES NOR B EFORE US. SINCE THE ASSESSEE HAS GROSSLY FAILED IN SUBSTANTIATING HIS C LAIM OF LABOUR CHARGES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FIN DINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 8. GROUND NO. 3 RELATES TO ADHOC DISALLOWANCE OF 20 % OF RS. 8,86,736/- FROM OTHER EXPENSES. 9. THIS ISSUE HAS BEEN DISCUSSED BY THE AO AT PARA- 9 ON PAGE-3 OF HIS ORDER. WHILE SCRUTINIZING THE TRADING AND PROFIT AND LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED TOTAL DIRECT AND INDIRECT EXPENSES, EXCLUDING DEPRECIATION AND LABOUR CHARGES TO THE TU NE OF RS. 8,86,736/-. THE AO NOTICED THAT THESE EXPENSES WERE INCURRED IN CASH WHICH IS EVIDENT FROM THE CASH BOOK FURNISHED FOR THE RELEVA NT PERIOD. AS THE ITA NO.3651/M/2012 4 ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE SAM E, THE AO MADE AN ADHOC DISALLOWANCE OF 20% AND TREATED RS. 1,77,347/ - AS NON GENUINE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. THE ASSESSEE SHOWED HIS GRIEVANCE BEFORE THE LD . CIT(A) WHICH HAS BEEN CONSIDERED BY THE LD. CIT(A) AT PARA-6 ON PAGE-9 OF HIS ORDER WHEREIN THE LD. CIT(A) COMPARED THE NET PROFIT RAT IO WITH THE EARLIER ASSESSMENT YEARS AND CAME TO THE CONCLUSION THAT TH E ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE EXPENDITURE BEFORE T HE AO AND HELD THAT THE DISALLOWANCE OF RS. 1,77,347/- IS REASONABLE. 11. AGGRIEVED BY THIS, ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT THE ADHOC DISALLOW ANCE IS WITHOUT ANY BASIS. THE LD. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL INDORE BENCH IN THE CASE OF RAJAT TRADE COM INDIA (P) LTD . 120 ITD 48 AND SUBMITTED THAT IN THAT CASE ALSO THE AO HAS NOT POI NTED OUT WHICH OF THE EXPENDITURE WERE NOT VERIFIABLE , WHICH FACT IS SIM ILAR TO THE FACTS UNDER CONSIDERATION. IT IS THE SAY OF THE LD. COUNSEL TH AT WITHOUT SPECIFYING ANY EXPENDITURE BEING OF UNVERIFIABLE IN NATURE, THE A O CANNOT MAKE ADHOC DISALLOWANCE. THE LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE TRIBUNAL DELHI BENCH IN ITA NO. 3244/DEL/2012. THE LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE HONBLE HIGH COURT OF ASSAM IN THE CASE OF HARAKCHAND RADHAKISAN VS CIT 46 ITR 196 AND SUB MITTED THAT THE ADHOC DISALLOWANCE CANNOT BE SUSTAINED. 12. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE AO. 13. AFTER CONSIDERING THE ASSESSMENT ORDER IN THE L IGHT OF THE JUDICIAL DECISIONS RELIED UPON BY THE LD. COUNSEL, ONE DISTI NGUISHING FACT EMERGED. IN THE CASES RELIED UPON BY THE LD. COUNS EL, THE ASSESSEE HAS ITA NO.3651/M/2012 5 EXPLAINED THE NATURE OF EXPENDITURE. HOWEVER, IN T HE CASE IN HAND, THE ASSESSEE HAS NEVER EXPLAINED THE GENUINENESS OF THE EXPENDITURE. MOREOVER, IT IS AN UNDISPUTED FACT THAT ALL THESE E XPENDITURE HAVE BEEN INCURRED IN CASH. THEREFORE, WITHOUT ANY JUSTIFICA TION ON THE PART OF THE ASSESSEE, THE AO WAS LEFT WITH NO CHOICE BUT TO MAK E CERTAIN DISALLOWANCES. THE LD. CIT(A) CONFIRMED THE DISALL OWANCES MADE BY THE AO COMPARING THE PROFITABILITY WITH EARLIER YEARS. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE , EXCEPT FOR PLACING RELIA NCE ON VARIOUS DECISIONS CITED HEREINABOVE , HAS NOT BROUGHT ANY COGENT MATE RIAL EVIDENCE ON RECORD WHICH COULD SUBSTANTIATE ASSESSEES CLAIM FO R THESE EXPENSES. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GRO UND NO. 3 IS ACCORDINGLY DISMISSED. 14. GROUND NO. 4 RELATES TO THE ENHANCEMENT BY THE LD. CIT(A) ON ACCOUNT OF LABOUR CHARGES ON THE ALLEGED GROUND THA T THE ASSESSEE HAS FAILED TO DEDUCT TAX AS PER PROVISIONS OF SEC. 194 C OF THE ACT. 15. THE LD. CIT(A) HAS DISCUSSED THIS ISSUE AT LENG TH AT PARA-4.1 ON PAGE-3 OF HIS ORDER AND ON PAGE-4 OF HIS ORDER PROV IDED AN OPPORTUNITY U/S. 252(2) OF THE ACT TO THE ASSESSEE TO EXPLAIN WHY THE EXPENSES CLAIMED UNDER THE HEAD LABOUR CHARGES AND UNDER LAB OUR CHARGES EXPENSES WITHOUT TDS SHOULD NOT BE DISALLOWED U/S. 40(A)(IA) AND WHY ENHANCEMENT TO THAT EXTENT MAY NOT BE MADE TO THE I NCOME OF THE ASSESSEE OVER AND ABOVE THE INCOME ASSESSED BY THE AO. 16. THE ASSESSEE FILED A DETAILED REPLY WHICH WAS N OT ACCEPTED BY THE LD. CIT(A) WHO WAS OF THE FIRM BELIEF THAT BY NOT M AKING TDS THE CLAIM OF EXPENDITURE BY THE ASSESSEE DESERVES TO BE DISAL LOWED U/S. 40(A)(IA) OF THE ACT . ITA NO.3651/M/2012 6 17. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STR ONGLY CONTENDED THAT SEC. 194C OF THE ACT DOES NOT APPLY TO THE FACTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE IS AN INDIVIDUAL AND THE YEAR UNDER CONSI DERATION IS THE FIRST YEAR OF TAX AUDIT AND SINCE THE GROSS RECEIPTS OF THE AS SESSEE IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR I.E. PREVIOUS TO THE YEAR UNDER CONSIDERATION DID NOT EXCEED THE MONETARY LIMIT SPE CIFIED UNDER CLAUSE (A) OF SEC. 44AB. THE ASSESSEE WAS NOT LIABLE TO DEDUCT INCOME TAX U/S. 194C OF THE ACT AND THEREFORE THE ADDITION MADE BY THE L D. CIT(A) AS ENHANCEMENT SHOULD BE DELETED. 18. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPO N THE FINDINGS OF THE LD. CIT(A). 19. WE HAVE CAREFULLY PERUSED THE ORDER OF THE LD. CIT(A) VIS--VIS PROVISIONS OF SEC. 194C OF THE ACT. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL THAT THE SAID SECTION DOES NOT APPL Y TO THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION AS IT IS AN U NDISPUTED FACT THAT THIS BEING THE FIRST YEAR OF THE TAX AUDIT WHICH MEANS T HAT IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR THE TURNOVER OF THE ASSESS EES BUSINESS DID NOT EXCEED THE MONETARY LIMIT SPECIFIED U/S. 44AB OF TH E ACT. THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S. 194C OF THE ACT. THE STATUS OF THE ASSESSEE BEING INDIVIDUAL. THEREFORE, THE AD DITION OF RS. 30,19,146/- IS DELETED. GROUND NO. 4 IS ACCORDINGL Y ALLOWED. 20. GROUND NO. 5 IS ALTERNATIVE PLEA TO GROUND NO. 4. AS WE HAVE DELETED THE ADDITION OF RS. 30,19,146/-, GRIEVANCE RAISED VIDE GROUND NO. 5 BECOME OTIOSE. ITA NO.3651/M/2012 7 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2013 . !4 / 3( &! 5 6 7 20.11.20133 / = SD/- SD/- ( VIJAY PAL RAO ) ( N.K. BILLAIYA ) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 6 DATED 20/11/2013 . . ./ RJ , SR. PS !4 / ,0 >!(0 !4 / ,0 >!(0 !4 / ,0 >!(0 !4 / ,0 >!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. @= ,0 , , / DR, ITAT, MUMBAI 6. =A B / GUARD FILE. !4 !4 !4 !4 / BY ORDER, -0 ,0 //TRUE COPY// C CC C / D D D D (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI