SH. BALDEV SINGH,PHAGWARA vs. INCOME TAX OFFICER, WARD-1, PHAGWARA

At the first instance, I will deal with the appeal in ITA No. 658/Asr./2017. Following grounds have been raised in this appeal: “1. That the CIT(A) was not justified in in sustaining the action of AO of reopening the assessment u/s 147/148 of the Income-tax Act, 1961. Further CIT(A) failed to appreciate that there was no tangible material with the AO for formation o belief that income has escaped assessment.

The only grievance of the assessee in this appeal relates to the sustenance of disallowance of Rs.62,500/- made by the AO u/s 40A(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act).

Facts of the case in brief are that the AO issued the notice u/s 148 of the Act. In response, the assessee submitted that his revised return filed on 10.02.2012 may be treated as final return. In the said return, the assessee declared an income of Rs.9,80,450/- plus agriculture income of Rs.10,88,000/-. During the course of assessment proceedings, the AO noticed that the assessee had made payment of Rs.29,500/- on 05.01.2010 and Rs.33,000/- on 22.02.2010 other than by an account payee cheque or account payee bank draft to Smt. Renu and Smt. Parminder Kaur respectively. According to him, the aforesaid payments were made in violation of provisions of Section 40A(3) of the Act. The assessee submitted that those payments were made in remote village where he was carrying out the contract work and those payments were made to the labour of the sub contractor and that the payments made were in an emergency to the poor labourers in order to enable them to meet

Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained the addition by observing that the payments exceeding Rs.20,000/- were made to two labour contractors in contravention of provisions of Section 40A(3) of the Act. Accordingly, he confirmed the disallowance made by the AO.

Now the assessee is in appeal. The ld. Counsel for the assessee submitted that those payments were made to the labours and no payment exceeded Rs.20,000/-. He drew our attention towards page nos. 5 to 25 of the assessee’s paper book which are the copies of the vouchers showing the payments made to the different labours. It was stated that the payments were made to the individual labour through sub contractor, in other words, those payments were not made to the sub contractor rather to different persons and none of the payments exceeded Rs.20,000/-. Therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified.

In his rival submissions, the ld. DR supported the orders of the authorities below and further submitted that the payments were made to the sub contractor exceeding Rs.20,000/- in violation of Section 40A(3) of the Act. Therefore, the disallowance made by the AO was rightly sustained by the ld. CIT(A).

I have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the assessee made the payments to different labourers which is evident from page nos. 5 to 25 of the assessee’s paper book. Those payments were petty payments

In ITA No. 659/Asr./2017 for the assessment year 2011-12, one of the issues raised by the assessee relates to the sustenance of disallowance of Rs.1,31,900/- made by the AO u/s 40A(3) of the Act.

The facts related to this issue are similar as were involved in assessment year 2010-11. Therefore, the findings given in the former part of this order shall apply mutatis mutandis.

The another issue raised by the assessee relates to the addition of Rs.1,50,000/- made by the AO by invoking the provisions of Section 69C of the Act.

Facts related to this issue in brief are that the AO made the impugned addition by observing that a salary of Rs.1,50,000/- was paid to Sh. Sukhjit Singh which was not entered into books of account and the assessee was confronted as to why the said amount may not be treated as paid out of the books of account. In response, the assessee submitted as under: “That with regards to your query regarding salary of Rs.1,50,000/- paid to S. Sukhjit Singh I beg to state in my reply during the assessment proceedings of said A.Y. my counsel mistakenly printed the name in the reply as Gurjeet Singh instead of S. Sukhjit Singh in the details of salary paid given in reply. Further I beg to state that in the books of accounts my accountant wrongly posted salary amount of Rs.1,20,000/- only instead of Rs.1,50,000/- paid to Sukhjit Singh.”

Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: “The ITO made an addition of Rs. 150000/- on account of salary paid to Mr. Sukhjit Singh which was alleged to be out of books of accounts. The addition was made on the ground that in the (ax audit report it was mentioned that salary of Rs. 150000/- was paid to Mr. Sukhjit Singhwho was a Supervisor and also a son of the assessee contractor. In the salary details provided at the time of assessment the name of Sukhjit Singh did not figure in the details of salary paid. In this regard it was submitted before the ITO at the time of reassessment that no salary was paid to Gurjit Singh but by mistake in the details provided the name of Gurjit Singh who is also the son of the assessee was printed in place of Sukhjit Singh. Further the salary paid to him was recorded as Rs. 120000/- and not Rs. 150000/-. This fact is verifiable from the books of accounts which the ITO failed to do so and the copy of ledger account of salary from the books of account is enclosed herewith wherein the name of Sukhjit Singh is clearly mentioned. When the salary of Rs. 120000/- is recorded in the books of accounts which was verified by AO no addition, u/s 69C could have been made blindly on the basis of tax audit report. Hence the same may be deleted. Further in this regard an affidavit of Mr. Gurjit Singh is enclosed herewith wherein he has clearly affirmed that no salary has been drawn by him from Mr. Baldev Singh during F.Y. 2010-11. This affidavit may be admitted as additional evidence under rule 46A of the Income Tax Rules.”

The assessee also filed the affidavit of Sh. Gurjit Singh before the ld. CIT(A) to the effect that no salary payment had been received by him from the assessee. The ld. CIT(A), however, confirmed the addition made by the AO on the ground that the assessee failed to produce evidence before the AO when specific opportunity was given.

In his rival submissions, the ld. DR strongly supported the orders of the authorities below.

I have considered the submissions of both the parties and perused the material available on the record. In the present case, it appears that the AO made the impugned addition on the basis of the Audit Report wherein the details of the payment made to the relatives have been mentioned. The name of the relative was mentioned as Sh. Gurjit Singh to whom salary of Rs.1,50,000/- was shown to be paid. During the course of assessment proceedings as well as the appellate proceedings, the assessee clarified the position and stated that the name of Sh. Gurjit Singh was wrongly mentioned. Actually the salary was paid to Sh. Sukhjit Singh @ Rs.10,000/- per month totaling to Rs.1,20,000/- in the year under consideration. The aforesaid contention of the assessee is also verifiable from the copy of the salary account which is placed at page no.s 42 & 43 of the assessee’s compilation. It is also noticed that Sh. Gurjeet Singh furnished an affidavit before the ld. CIT(A) wherein he clearly mentioned that he had not received any salary from the assessee. The contents of that affidavit dated

In the result, the appeals of the assessee are allowed. (Order Pronounced in the Court on 11/01/2019)