SUNIL SRIVASTAVA,HALDWANI vs. THE INCOME TAX OFFICER, WARD-2(1)(3), HALDWANI

The only issue to be decided in this appeal is as to whether the ld. CIT(A) NFAC was justified in confirming the addition of Rs 48,55,140/- in the facts and circumstances of the case.

We have heard the rival submissions and perused the materials available on record. The assessee is an individual and had filed his return of income for the Asst Year 2016-17 on 17.10.2016 declaring total income of Rs 2,65,473/-. The assessee earns income from salary, income from capital gains income from share business, income from contract business and share of profit from Association of Persons (AOP). In the scrutiny assessment proceedings, the ld. AO observed in the assessment order that assessee and his authorized representative appeared before him from time to time and filed various repies, produced books of accounts copies of bank account and other details which were examined on test check basis.

The ld. AO observed that during the year under consideration, the assessee has done trading of shares as NSC derivatives , MCX commodities through M/s Sushil Financial Services Limited. For this business, the assessee had got his accounts audited u/s 44AB of the Act. The ld. AO observed that in the said business, the expenses debited were audit fee, accounting charges office expenses, books and periodicals, bank charges and interest. The investment in this business has been made through assessee’s bank account with ICICI Bank. The ld. AO observed that assessee’s Future & Options (F&O) Profit was Rs 3,39,49,438/- ; F&O Loss was Rs 3,86,42,089/- resulting in net loss of Rs 47,81,382/-. On sale of shares, the assessee had earned short term capital gain at Rs 1,59,183/- and long term capital gain of Rs 12,61,857/-, which has been claimed as exempt u/s 10(38) of the Act. The assessee also furnished the ledger account of the assessee as appearing in the books of M/s Sushil Financial Services P Ltd, Mumbai for trading of shares and commodities, which was accepted by the ld. AO.

Further as per Form 26AS, the assessee had tax collected at source u/s 206CA of the Act by M/s Rajasthan State Beverages Corporation Limited showing total purchase of Rs 2,52,68,805/- and tax collected at source of Rs 2,52,688/- . The assessee was asked to furnish the details of the same, which were duly furnished.

The ld. AO observed that apart from above, the assessee had disclosed income of Rs 29,58,690/- from contract business. For contract business, the assessee filed a separate profit and loss account showing net contract receipt at Rs 48,55,140/- from M/s Parvatiya Mines, Haripur Motia, Haldwani. After claiming labour and wages of Rs 18,14,150/- and salary expenses of Rs 82,300/-, net profit was shown at Rs 29,58,690/-. The ld. AO observed that the assessee did not furnish any balance sheet for this business and also observed that the assessee is bound to get his accounts audited u/s 44AB of the Act for this contract business also and accordingly initiated penalty proceedings u/s 271B of the Act. The assessee filed the muster roll and salary and wages register before the ld. AO for this contract business. The ld. AO observed that on perusal of the wages register, the assessee had paid wages of Rs 500 to Rs 800 per day when the minimum wages for unskilled labourers was Rs 300 to Rs 350 per day. The ld. AO directed the assessee to produce 11 labourers which were identified by the ld. AO. The assessee submitted that he had received contract from M/s Parvatiya mines for labour supply, all the funds infused into the business of assessee and in Bodega Sales were from regular transactions of share trading and from various concerns. It was further stated that the work done for M/s Parvatiya Mines was of production of soap stone lumps of 7469.45 tons @ Rs 650 per ton, the labour employed was not on permanent basis and was only for limited period of contract. Therefore, he did not maintain any details of such employees and as such many of them were from outstation, however, some of the labours could be contacted and identity of them is produced. The ld. AO observed that in support of payment, the assessee filed a photo copy of a page of so called attendance register. Regarding excessive payment made to the labours for per day work, it was stated that wages are paid for per day wages and for overtime worked by them. The ld. AO however did not heed to these submissions of the assessee and observed that from the perusal of the bank statements, there were no sufficient withdrawals to meet the labour charges and wages of Rs 18,14,150/- during the period 01.02.2016 to 31.03.2016. The ld. AO also observed that assessee was not able to produce any original documents, books of accounts, receipt of payment of Rs 48,55,140/- , withdrawals for payment of labout and wages through any bank statement or otherwise. The ld. AO also observed that assessee had not filed any details of withdrawals of cash for payment of labour and wages from any of the account either maintained with banks or with any AOP. The assessee filed copy of his account with M/s Parvatiya mines showing details as under:-

The ld. AO observed that there was a payment of Rs 10 lakhs made by the assessee to M/s Parvatiya Mines on 02.11.2015.

The ld. AO noticed that the letters dated 07.09.2018 and 23.11.2018 of M/s Parvatiya Mines have been signed by Shri Vijayant Jaiswal and Smt Sunita Jaiswal respectively. These two parties are among the owners of the firms/ AOPs from which assessee is getting salary or having substantial benefits in them.

On the contrary, the assessee tried to furnish the evidences that were available with him to prove that he had procured a contract to supply man power to M/s Parvatiya Mines and had accordingly supplied labour on a daily basis from January to March 2016. We find that the ld. AO before leveling lot of allegations on the assessee could have cross verified the entire facts from M/s Parvatiya Mines which could have cleared all his doubts beyond reasonable doubt.

We find that the assessee had claimed that it had derived contract receipts of Rs 48,55,140/- from M/s Parvatiya Mines out of supply of man power pursuant to contract entered into on 15.01.2016. We find that the assessee had furnished the copy of contract dated 15.01.2016 entered into with M/s Parvatiya Mines before the ld. AO. As stated supra, this fact could have been cross verified by the ld. AO with M/s Parvatiya Mines. Further we find that the ld. AO had accepted the payment of Rs 10 lakhs made by the assessee to M/s Parvatiya Mines on 02.11.2015 to be genuine though the purpose of payment was disputed by the ld. AO. This fact also goes to prove that assessee and M/s Parvatiya Mines had some transactions to be carried out. If there is no linkage between assessee and M/s Parvatiya Mines, why would assessee even come forward to make payment of Rs 10 lakhs on 02.11.2015 (which fact is accepted by the ld. AO) to M/s Parvatiya Mines. Since the assessee claimed that this payment of Rs 10 lakhs was made to M/s Parvatiya Mines on behalf of Mr Vijayant Jaiswal, obviously the said transaction would not be reflected in the ledger account of the assessee as maintained with M/s Parvatiya Mines and that the said transaction would only be reflected in the ledger account of Mr Vijayant Jaiswal in the books of M/s Parvatiya Mines. This accounting concept is not appreciated by the lower authorities in the instant case.

It is a fact on record that M/s Parvatiya Mines had indeed deducted tax at source of Rs 48,551/- on the contract charges incurred with assessee and the fact that this TDS was deposited by them as late as 13.12.2016 is absolutely an irrelevant consideration as far as the assessee is concerned. If the revenue has any grievance over this, then suitable action should have been taken on M/s Parvatiya Mines instead of disbelieving the transactions of the assessee.

In view of the aforesaid observations, we hold that the income shown in the sum of Rs 48,55,140/- is to be treated as contract receipts from supply of manpower to be taxed under the head income from business only. Once it is held that the assessee had derived gross contract receipts of Rs 48,55,140/-, obviously he should have incurred expenses towards labour and wages in cash as these wages are paid to the labourers on daily basis and they would prefer to have it received only in cash. Hence it is the duty of the assessee to prove the existence of cash in his hand to make the said disbursements of Rs 18,14,150/- towards labour and wages and Rs 82,300/- towards salary. We find that the ld. AR in this regard furnished the details of cash withdrawals made in the sum of Rs 49,00,000/- as under:-

In the result, the appeal of the assessee is allowed.