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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI SUDHANSHU SRIVASTAVA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals], Dehradun dated 19.02.2015 pertaining to assessment year 2011-12.
The assessee has raised three substantive grounds of appeal
. However, at the very outset, the ld. AR stated that he is not pressing Ground Nos. 2 and 3. Accordingly, Ground Nos. 2 and 3 are dismissed as not pressed.
3. Surviving Ground No. 1 relates to the confirmation of addition of Rs. 2,09,07,245/- on account of alleged bogus labour wages claimed.
4. Briefly stated, the facts of the case are that a search action u/s 132 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] was initiated and took place in the business and residential premises of the assessee-firm on 17.02.2012. During the course of scrutiny assessment proceedings, some documents were seized relating to labour expenses. The same are exhibited as under:
Annexure A-1,pq no.10 Disallowance of bogus labour expenses:
S No. month Wages Telly Balance Bal made Total diff complete amount April 3360840 4500000 1139160 1139150 4499990 1 10 May 3339140 4500000 4500000 2 1160860 1160860 0 3 June 3429175 4500000 1070285 1070285 4500000 0
4 July 3472570 4800000 1327430 1327435 4800005 5 5 August 3398615 4800000 1401385 1219400 4618015 181985 September 3388500 5000000 1611500 1265300 4653800 346209 6 7 October 3251335 5200000 1948665 1213000 4464335 735665 November 3355620 5300000 1944380 1264000 4519620 630380 8 9 December 3446035 5500000- 2053965 3446035 2053965 January 3262385 5600000 2337615 3262385 2337615 10 11 February 3172205 5800000 2627795 3172205 2627795 March 3515795 5800000 2284205 3515795 2284205 12 40392755 61300000 20907245 403927755 20907245 13 total _ _
T.Amount S No. month Contributory in Non contributory in EPF EPF 1 April 243530 3117310 3360840 May 247350 3091790 3339140 2 3 June 259420 3170295 3429175 4 July 241570 3231000 3472570 5 August 241400 3157215 3398615 September 3168390 3388500 6 220110 7 October 198860 3052475 3251335 3 November 180710 3174910 3355620 9 December 189080 3256955 3446035 I 10 January 215090 3047295 3262385 February 220870 2951335 3172205 11 March 238040 3277755 3515795 12 13 total 2696030 37696725 40392755
Sno. month T.Amount Contributory in Non contributory in EPF EPF April 243530 4256460 4499990 1 May 247350 4252650 4500000 2 3 June 259420 4240580 4500000 4 July 241570 4558435 4800000 5 August 241400 4558600 4800000 September 4779890 5000000 6 220110 7 October 198860 5001140 5200000 November 180710 5-119290 5300000 8 December 189080 5310925 5500000 V January 215090 5384910 5600000 v 10 11 Februrary 220870 5579130 5800000 March 238040 5561960 5800000 12 13 total 2696030 58603970 61300000
The Assessing Officer analysed the above loose sheets and came to the conclusion that the amount in the books of the assessee is at Rs. 6.13 crores, whereas the wages as per the muster roll is at Rs. 4.03 crores. The Assessing Officer was of the opinion that the amount of Rs. 2.09 crores has been adjusted against the wages of different months to arrive at Rs. 6.13 crores, being the amount shown in tally amount and, accordingly, debited in the profit and loss account as on 31.03.2011.
The assessee was asked to explain the loose sheets exhibited elsewhere. The assessee filed its reply as under:
"Annexure A-l page no.10 shows wages complete tally amount and balance. This chart was prepared at the time of audit. When it was found the certain sheets of labour scroll were not available the auditor asked the assessee firm to collect the missing sheets. Wages are paid at the different sites of work where these labour scroll were kept. Inadvertently all the sites the staff did not sent the complete labour scroll. Hence it was pointed out to the assessee firm to bring the missing scrolls, it is difference between the labour scrolls which were with the auditor. Actually, the total payment of labour for the FY 010-11 were Rs.6,13,00,000/- as recorded in the books of accounts. Hence no adverse should be taken of this annexure. Your honour has pointed out that in the statement recorded during the search Sh.Satinder sawhney in his reply to question no.11 admitted that there was discrepancy. No doubt this statement was on oath but it is also a fact that. the assessee being a human being is under extreme pressure and anxiety during the search toe it is not possible to recollect full facts and explain the entries correctly."
The reply of the assessee did not find any favour with the Assessing Officer who was of the firm belief that the modus operandi of the assessee is to book bogus and excessive expenses in its books of account to minimise the profitability. The Assessing Officer analysed the previous history qua labour expenses as under:
Wages Percentage of wages AY Gross contractual payment to expenditure to the receipts labour gross receipts (%) 2006-07 11,28,45,511 2,57,56,671 22 2007-08 13,31,61,241 99,10,499 7 2008-09 22,13,63,461 4,19,51,000 18.95 2009-10 18,10,74,109 3,81,25,000 21 2010-11 20,44,71,219 4,68,90,000 23 2011-12 23,96,56,589 6,13,00,000 25
The Assessing Officer further observed that the payments on account of labour wages have been made all in cash and no vouchers have been found to be maintained by the assessee in respect of expenses incurred on wages payments. The Assessing Officer was of the opinion that the net profit of the assessee would have been much higher if the bogus expenses would not have been debited to the profit and loss account.
Taking a leaf out of the voluntary surrender of Rs. 1.50 crores, the Assessing Officer concluded by holding that since the partners have admitted that there are discrepancies in the books of account and hence surrendered Rs. 1.50 crores, the Assessing Officer made addition of Rs. 2,09,07,245/- as bogus expenditure.
The assessee carried the matter before the CIT(A) but without any success.
Before us, the ld. AR drew our attention to the profitability ratio of 7 A.Ys and the same is as under:
The ld. AR further drew our attention to the comparative chart of contract receipts vis a vis labour cost of 10 A.Ys., which is annexed to this order as Annexure 2 and will form part of this order.
It is the say of the ld. AR that in this line of business, the assessee had already shown a net profit of 11.37% and if the alleged disallowance of bogus labour expenses is added to the operating profit, then the net profit rate would be around 19%. The ld. AR further stated that the additions have been made on the basis of entries found on loose sheets of paper which do not have any evidentiary value.
Per contra, the ld. DR strongly supported the findings of the Assessing Officer. It is the say of the ld. DR that the Assessing Officer made addition on finding discrepancy only in one sheet and, therefore, was justified in making addition. The entries in the loose sheets conclusively prove that the expenses are bogus and the addition is justified.
The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused.
Profitability of seven A.Ys has already been exhibited elsewhere. It is not in dispute that some loose sheets were found at the time of search which contained entries relating to labour payments. In this line of trade, there are labourers who are permanently employed by the assessee and who are subjected to Employees Provident Fund Rules. There are also labourers who are not subjected to Employees Provident Fund Rules.
The quarrel is in respect of wages claimed under the second category. We do not find any merit in the observations of the Assessing Officer that the difference has been adjusted against the wages of different months to arrive at the amount of Rs. 6.13 crores debited in the profit and loss account. We, therefore, do not find any force in the observations of the CIT(A) that the trade norms alone cannot be the basis of ignoring hard evidence in a particular case. There is no dispute that even section 44AD of the Act itself accepts 8% as net profit in respect of civil contractors. As mentioned elsewhere, the assessee’s profit is in the vicinity of 11%. This fact cannot be brushed aside lightly. Assuming that there were discrepancies in the books of account of the assessee which prompted the partners to surrender Rs. 1.50 crores, but then, even this will take care of the alleged discrepancies in the books of account of the assessee. In our considered opinion, making an addition only on the basis of entries found in the loose sheets cannot be sustained. Considering the facts of the case in totality, we are of the considered opinion that an addition of Rs. 20 lakhs on this account should meet the ends of justice. We, accordingly, direct the Assessing Officer to restrict the addition to Rs. 20 lakhs.
In the result, the appeal filed by the assessee in is partly allowed.
The order is pronounced in the open court on 03.06.2019.