SRI AJAY KUMAR AGARWAL,RANCHI vs. ITO,WARD-1(1), RANCHI

At the time of hearing none appeared on behalf of assessee in spite of issuance of notice for hearing more than one occasion and Ld. Departmental Representative(DR), was present for the appellant Revenue. In the absence of any appearance by the assessee, the appeal is being disposed of ex parte qua the

The assessee has raised following grounds of appeal: i. For that ld. CIT(A) was not justified for making an ad hoc disallowance of Rs. 2,57,040/- out of labour and wages. The expense incurred was fully verifiable. The profit disclosed after considering expenses incurred was accepted, as such, the ld. CIT(A) was not justified in confirming the disallowance made.

Ground nos.1 and 2 relate to ad hoc disallowance of Rs. 2,57,040/- out of labour and wages.

Brief facts qua the issue are that during the assessment proceedings, ld. Assessing Officer has noted that the assessee debited a sum of Rs. 51,40,810/- in the profit & loss account under the head labour and wages. During the course of assessment proceedings, the assessee was asked to furnish the details and bills and vouchers pertaining to these expenses. However, the assessee failed to produce the requisite details and all the bills and vouchers pertaining to these expenses were not produced for examination and therefore, these expenses remained unverifiable under the circumstances, a sum equal to 5% of the expenditure, i.e. Rs. 2,57,040/- was disallowed, on estimate, and added back to the total income of the assessee.

Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing Officer observing the following: “6.2. I have considered the submissions of the appellant as contained in the grounds of appeal and have perused the assessment order. This proposition of the appellant that books of accounts were maintained and therefore the results cannot be accepted. If that is so it would lead to an absurd situation in which each assessee would claim that the books of accounts needs to be accepted since they have been maintained and subjected to audit. This would defeat the purpose of scrutiny assessment u/s 143(3). I have perused the assessment order and find that the ld. Assessing Officer was compelled to make ad hoc disallowances since the appellant did not produce evidence in support of the expense claimed. This has been clearly brought out in para 3.2 of the order. This brings me to the presumption under the Indian Evidence Act. Section 114(g) of that Act states: “114. Court may presume existence of certain facts. The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case. (g) that evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it;” 6.3. This case clearly leads to that presumption. It appears that despite being given several opportunities the appellant deliberately did not produce the evidence as it was apprehending more unfavourable comments. Page | 3

Aggrieved the assessee is in appeal before us.

We have heard the ld. DR and perused the material available on record. We note that the ld. CIT(A) was not justified for making an ad hoc disallowance of Rs. 2,57,040/- out of labour and wages expenses. We note the expenses incurred for business purposes and verifiable and the Assessing Officer could have examined it. The profit disclosed after considering the expenses incurred was accepted by the ld. CIT(A), therefore the ad hoc disallowance made by the Assessing Officer and sustained by the ld. CIT(A) needs to be deleted. Accordingly, we delete the addition of Rs. 2,57,040/-.

Ground nos. 3 and 4 relate to short term capital gain of Rs. 43,24,000/- towards purchase a piece of land.

At the outset itself, the ld. DR for the revenue pointed out that so far ground no.3 and 4 raised by the assessee is concerned, it is not clear whether the land was holding by the assessee as ‘stock-in-trade’ or as capital assets. Without being ascertained this primary fact, it is not possible to determine the tax liability on the assessee. We note that the ld. CIT(A) has also observed that the same issue which is being reproduced below for ready reference: “I have considered the submissions of the appellant and have perused the assessment order. There are two issues which need to be decided. First, whether the purchase and sale of land was business? Secondly, whether the provision of section 50C were applicable?” Page | 4

We have heard the ld. DR and perused the material available on record. We note that this issue needs to be verified by the Assessing Officer that whether the assessee was holding land as stock in trade or as a capital asset, therefore we set aside the order of ld. CIT(A) and remit this issue back to the file of the Assessing Officer for this limited purpose to ascertain whether assessee holds the land as stock-in-trade or as capital asset. After being ascertained the said issue, the Assessing Officer should adjudicate the issue in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes.