Alidhara Warptex Engineers, Surat V. The ACIT.,Circle-2, Surat

ITA 4370/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8633 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 10-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : A HMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 4370/AHD./2007 ASSESSMENT YEAR : 2004-2005 ALIDHARA WARPTEX ENGINEERS, SURAT -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AAEFA 3277 F) CIRCLE-2, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARDIK VORA RESPONDENT BY : SHRI M.C. PANDIT, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 12.09.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, SURAT FOR T HE ASSESSMENT YEAR 2004-05. 2. GROUND NO. 1 OF THE APPEAL OF ASSESSEE READS AS UNDER :- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N DISALLOWING EXPENSE OF RS.1,50,176/- U/S. 37 OF THE ACT FOR ALL EGED EXCESS SALARY PAID. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF LABOUR JOB WORK OF TEXTILE MACHINERIES PARTS. FOR THE ASSE SSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.14,39,717/-, WH ICH WAS ACCOMPANIED BY AUDITORS REPORT IN FORM NO. 3CB AND 3CD AS PER PROVISION OF SECTION 44 AB OF THE INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER OBSERVED THAT CERTAIN SIGNATURE IN WAGE REGISTER DIFFERS FROM MONTH TO MONTH IN REGARD TO S AME PERSON. IN RESPECT OF THE SAID OBSERVATION, THE ASSESSEE SUBMITTED AS UNDER :- (A) WE HAVE ALREADY SUBMITTED THAT THERE IS INCREAS E IN THE RATE OF G.P. FROM 27.94 TO 33.49%. 2 ITA NO. 4370/AHD/2007 (B) THE RATIO OF LABOUR CHARGES TO TOTAL RECEIPT IS DECREASED TO 52.99% FROM 58.88% COMPARED TO THE PRECEDING PREVIO US YEAR. (C) REGARDING THE DISCREPANCY IN SIGNATURE OF THE E MPLOYEES IN THE WAGE REGISTER, IT WAS SUBMITTED THAT THE SIGNATURE MIGHT NOT BE TALLIED AS THE SAME EMPLOYEE MIGHT HAVE SIGNED DIFF ERENTLY IN DIFFERENT STYLE IN DIFFERENT MONTHS. (D) IT WAS ALSO SUBMITTED THAT IT MIGHT BE THAT THE OTHER EMPLOYEE MIGHT HAVE PUT THE SIGNATURE ON BEHALF OF THE EMPLO YEE CONCERNED IF HE COLLECT THE SALARY ON BEHALF OF OTHER EMPLOYEE. (E) THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE BEEN AUDITED UNDER INCOME TAX ACT. AUDITORS HAVE NOT MADE ANY QUALIFIC ATION IN THE AUDIT REPORTS. (F) THE INSPECTION OF FACTORY ALSO FREQUENTLY CARRI ED OUT BY INSPECTOR OF LABOUR DEPARTMENT. 3.1. THE ASSESSING OFFICER FOUND THE AFORESAID EXPL ANATION OF THE ASSESSEE UNACCEPTABLE ON FOLLOWING GROUNDS :- (A) IT IS TRUE THAT THERE IS AN INCREASE IN GROSS P ROFIT RATIO. HOWEVER, THIS IS BECAUSE OF DECREASE IN TURNOVER (FROM RS.1, 06,99,834 TO RS.84,89,111) AND, THEREFORE, SUBSTANTIAL DECREASE IN THE LABOUR PURCHASE (FROM RS.50,38,158 TO RS.19,44,030). (B) THE ARGUMENT OF LEARNED A.R. IS MISPLACED WHEN HE SAYS THAT THE LABOUR CHARGES RATIO TO TOTAL RECEIPT HAS BEEN DECR EASED FROM 58.88% OF THIS YEAR TO 52.99% OF THIS YEAR. WHAT THE LEARN ED A.R, HAS DONE THAT HE HAS ADDED THE 'LABOUR PURCHASE' HEAD WITH T HE 'SALARY AND WAGES' HEAD AND COMPUTED THE RATIO ON WHOLE AMOUNT IN FACT, THE 'SALARY AND WAGES' EXPENSES HAVE BEEN INCREASED FRO M 11.79% OF LAST YEAR TO 30.09% OF CURRENT YEAR. IN THIS REGARD, THE LEARNED A.R HAS NEVER ARGUED NOR PRODUCED ANY EVIDENCE IN SUPPORT T HAT THE INCREASE IN SALARY AND WAGES EXPENSE IS RELATED TO THE DECRE ASE IN LABOUR PURCHASE EXPENSE. (C) THIS ARGUMENT IS VERY GENERAL AND SOMEWHAT DERO GATORY TO WORKERS THAT THEY ARE NOT SURE ABOUT THEIR SIGNATUR ES AND 'HAVE SIGNED DIFFERENTLY IN DIFFERENT STYLE IN DIFFERENT MONTHS' . WHEN WAGES IS GIVEN ON MONTHLY BASIS, WHICH IS THE CASE OF ASSESSEE, TH EN EVERY WORKER NORMALLY GETS IT AT ONCE AT THE END OF THE MONTH. I F IT WOULD BE ON DAY- TO-DAY BASIS, THEN CASUAL APPROACH IN DOING SIGNATU RE IS UNDERSTANDABLE BUT, WHEN IT IS ON MONTHLY BASIS, TH EN THE ARGUMENT OF NEGLIGENCE IS NOT ACCEPTABLE. 3 ITA NO. 4370/AHD/2007 (D) SIMILARLY, IT IS GENERALIZATION OF ARGUME NT THAT OTHER EMPLOYEE MIGHT HAVE TAKEN THE WAGES ON BEHALF OF THE EMPLOYE E CONCERNED. IS IT POSSIBLE THAT A PERSON WOULD SIGN OR WOULD BE PERMI TTED TO SIGN ON REVENUE STAMP AFFIXED IN FRONT OF THE NAME OF ANOTH ER PERSON? (E) THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM HAV E BEEN AUDITED U/S 44AB OF THE ACT. HOWEVER, THE AUDITOR HAS CLEARLY S TATED IN POINT 17(H) OF FORM NO. 3CD THAT '...IT IS NOT POSSIBLE FOR US TO VERIFY SUCH PAYMENTS AS THE NECESSARY EVIDENCES ARE NOT IN THE POSSESSION WITH THE UNIT.' THUS, IT IS NOT AT ALL A QUESTION WHETHER TH E AUDITOR HAS MADE ANY QUALIFICATION IN THIS REGARD OR NOT. (F) THE INSPECTION OF LABOUR DEPARTMENT OFFICIAL I S NOT RELEVANT FROM THE INCOME-TAX PERSPECTIVE. THE LABOUR LAWS ARE MAI NLY CONCERNED WITH THE FACILITIES PROVIDED TO THE LABOURERS AND A BOUT THEIR RIGHTS. THE INCOME-TAX HAW LOOKS INTO THE MATTER RELATED TO REN DERING OF SERVICE AND EXPENDITURE ACTUALLY INCURRED FOR THAT SERVICE. THE ASSESSEE HAS BEEN UNABLE TO PROVE THAT SERVICES HAVE BEEN ACTUAL LY RENDERED BY THOSE WORKERS WHOSE SIGNATURES ARE DOUBTFUL AND HEN CE WHOSE EMPLOYMENT IN THE FACTORY IS ALSO DOUBTFUL. 3.2. FINALLY IN PARA 9 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT SALARY AND WAGE REGISTER PRODUCED BY THE ASSESSEE IS NOT AUTHE NTIC AND IT IS VERY DIFFICULT TO ARRIVE AT CORRECT FIGURE OF WAGE EXPENSE IN ABSENCE OF ANY RELIABLE D ATA. HE ACCORDINGLY ESTIMATED THE EXCESS SALARY AND WAGE EXPENSE ON CUMULATIVE AVERAGE BASIS INVOLVING THREE BROAD PARAMETERS, WHICH ARE MENTIONED IN PARAS 10, 11 OF THE ASSESSMENT ORD ER. ON THIS BASIS, HE WORKED OUT THE AMOUNT DISALLOWABLE UNDER SECTION 37 OF THE INCOME TAX ACT AT RS.1,50,176/-. 4. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE DISALLOWANCE OBSERVING THAT SUBMISSIO NS MADE BY THE ASSESSEE ARE BASED IN THE REALM OF POSSIBILITIES, I.E. SOMEBODY COULD HAVE SI GNED ON BEHALF OF SOMEBODY, SOMEBODY COULD HAVE BEEN CASUALLY PUTTING SIGNATURES, ETC. THE LEA RNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED THAT THE LD. COUNSEL OF THE ASSESSEE HAS NOT BEEN ABLE TO COUNTER THE MATHEMATICAL FORMULA APPLIED BY THE A.O. IN CALCULATING THE EXCE SS SALARY AND WAGES PAID BY THE ASSESSEE. THE LD. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALS O OBSERVED THAT MERELY BECAUSE THERE WAS AN INCREASE IN THE GROSS PROFIT RATE DURING THE YEA R COULD NOT BE A GROUND TO CONTEND THAT NO DISALLOWANCE COULD BE MADE OUT OF ANY OF THE EXPENS ES CLAIMED BY THE ASSESSEE. HE FINALLY CONFIRMED THE DISALLOWANCE. 4 ITA NO. 4370/AHD/2007 5. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING, ON BEHALF OF ASSESSEE SH RI HARDIK VORA APPEARED AND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT LABOUR CHARGES RATIO TO TOTAL RECEIPTS HAD DECREASE D TO 52.99% FOR THE YEAR UNDER CONSIDERATION FROM 58.88% IN THE PRECEDING YEAR. THERE IS A SIGNI FICANCE INCREASE IN THE G.P. RATE I.E. BY 5.55%. IN THESE CIRCUMSTANCES, THE ASSESSEE HAS NOT DISPUTED THE FORMULA APPLIED BY THE ASSESSING OFFICER. HE SUBMITTED THAT NO DISALLOWANC E OUT OF LABOUR EXPENSES IS CALLED FOR ON ASSUMPTIONS AND PRESUMPTIONS, THEREFORE, THE ENTIRE DISALLOWANCE BE DELETED. 7. ON THE OTHER HAND, SHRI M.C. PANDIT, SR. D.R. AP PEARING ON BEHALF OF THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE G.P. DECLAR ED BY THE ASSESSEE IS BETTER THAN IN THE LAST YEAR. HOWEVER, ONE CANNOT IGNORE THE DEFECT POINTED OUT B Y THE ASSESSING OFFICER FOR NOT MAINTAINING PROPER WAGES REGISTER. THE FORMULA APPLIED BY THE A .O. FOR ESTIMATING THE DISALLOWANCE CAN ALSO NOT BE ACCEPTED IN TOTO BECAUSE VARIATION OF LABOUR EXPENSES IS ALSO ON ACCOUNT OF INCREASE IN THE WAGES PAID TO LABOURERS. KEEPING IN VIEW THE TOTALI TY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WILL MEET THE END OF JUS TICE, IF DISALLOWANCE IS RESTRICTED TO RS.50,000/-. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO REST RICT THE DISALLOWANCE TO RS.50,000/- ONLY OUT OF LABOUR EXPENSES. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. THE ONLY OTHER GROUND OF APPEAL IS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING TELEPHONE EXPENSE OF RS.26,320/- FOR AL LEGED PERSONAL USE. 10. WE HAVE HEARD BOTH THE SIDES. THE ASSESSEE HAS CLAIMED TELEPHONE EXPENSES OF RS.1,31,601/-. THE ASSESSING OFFICER DISALLOWED 1/5 TH OF TELEPHONE EXPENSES. THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT DISALLOWANCE IS EXCESSI VE AND IT SHOULD BE 1/8 TH . ON THE OTHER HAND, THE LD. D.R. STATED THAT 1/5 TH DISALLOWANCE IS REASONABLE. AFTER CONSIDERING THE RIVAL SUBMISSIONS 5 ITA NO. 4370/AHD/2007 WE ARE OF THE OPINION THAT IT WILL MEET THE END OF JUSTICE IF THE DISALLOWANCE IS RESTRICTED TO 1/6 TH , I.E. RS.21,934/-. WE DIRECT ACCORDINGLY. THIS GROUN D OF APPEAL IS PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 12.03.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12 / 03 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.