MANGESH VASANT PARULEKAR,,RAIGAD vs. JOINT COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

This appeal filed by Assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Thane dated 29.07.2015 for assessment year 2011-12.

“On the facts and in law,

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ii) The TDS had been made and names, address and PANs of the brokers were available. 2. The learned CIT(A) erred in not deleting ad-hoc addition of Rs.5,00,000/- out of purchases and also erred in giving part relief of Rs.2,50,000/- only. 3. The learned CIT(A) erred in confirming an ad-hoc additions made by way of and on lumpsum basis on account of Rs.7,70,000/- out of labour charges,

Without appreciating a fact that –

i) All these payments were subjected to TDS. ii) The contractors, their name, address, PAN were available and basic requirement.

iii) The labour charges incurred pertained to piece work allotted like electric work, plumbing, flooring etc. and there were not towards casual labours on site which even are mostly supported by vouchers, bills etc. 4. The appellant craves leave to add, alter or omit or amend any of the grounds of appeal.”

proprietor of M.P. Developers and engaged in the business as Builders &

Developers. The assessee filed return of income on 29.09.2011 declaring

total income at Rs.3,29,22,464/-. During scrutiny assessment proceedings

u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’),

Assessing Officer assessed the total income of assessee for the year at

Rs.3,54,67,464/-. The Assessing Officer made the following additions

/disallowances :

i) Disallowance of unexplained brokerage - Rs.12,00,000/- ii) Disallowance of unverifiable purchase – Rs.5,00,000/- iii) Disallowance of unverifiable labour charges –Rs.7,70,000-

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iv) Disallowance out of travelling expenses – Rs.75,000/-

the CIT(A).

account of brokerage, CIT(A) observed that the assessee debited an amount

of Rs.66,05,975/- in the P & L Account under the head “Brokerage

Expenses”. The assessee was asked to furnish the name and address of the

parties, copies of agreement, nature of services rendered, amount of

business handled, rate of brokerage paid, basis and working of brokerage

expenses in respect of each person. But, the assessee could not furnish the

basis as well as working of the above brokerage paid. Accordingly, CIT(A)

confirmed the ad-hoc based addition of Rs.12,00,000/-. The relevant

contents of para 7.2 of the appellate order are relevant in this regard.

5.1 With regard to disallowance of Rs.5,00,000/-, CIT(A) observed that

during the assessment year under appeal, the assessee debited an amount of

Rs.1,00,55,648/- under the head ‘purchase’ account. The assessee was

asked to furnish the required details along with bills and vouchers,

confirmation of ledger account. But the assessee could not produce any

confirmation in respect of each purchase. Thereafter, vide order sheet noting

dated 28.07.2015, the Ld. AR requested for restricting the disallowance to

50% i.e. Rs.2,50,000/- as against Rs.5,00,000/- disallowed by the Assessing

Officer. The CIT(A) opined that since the assessee is unable to furnish

verifiable addresses along with confirmation in respect of each purchase,

therefore, the same are not open for verification in full. Accordingly, CIT(A)

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made disallowance of Rs.2,50,000/- out of Rs.5,00,000/- made by the

Assessing Officer. Para 8 of the appellate order is relevant in this regard.

5.2 With regard to disallowance of Rs.7,70,000/- out of labour charges,

the CIT(A) observed that during the year under consideration, the assessee

debited an amount of Rs.77,08,855/- in the P & L Account, under the head “

Labour Charges”. The assessee was asked to furnish the requisite details

along with proper bills and vouchers, agreements with contractors,

confirmation from contractors, and confirmation of ledger account. But the

assessee shows his inability to produce the same. Accordingly, vide order

sheet noting dated 28.07.2015, the Ld. AR requested that the disallowance

may be decided on merit. Eventually, the CIT(A) held that since the assessee

is unable to furnish the proper supporting vouchers for causal labour

payments, confirmation from contractors regarding labour payments, copy of

agreement with contractors, therefore , reasonableness of the same cannot

be ascertained and made disallowance of Rs.7,70,000/- out of

Rs.77,08,855/-. Para 9 of appellate order is relevant in this regard.

raising grounds as extracted above.

Before the Tribunal

There is no compliance. Subsequently, the case was posted for hearing on

14.02.2018. On the said date, assessee filed adjournment letter. Accordingly,

the case was adjourned announcing the date in open court and posting the

case for hearing on 18.04.2018. Notice was served on the assessee as is

evident from the acknowledgement placed on record. On the said date of

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hearing i.e. on 18.04.2018, none appeared on behalf of the assessee and the

appeal was fixed for hearing on 26.06.2018, 19.09.2018 and 28.11.2018

respectively. Even on the dates of hearing, neither the assessee nor any

Authorized representative appears to represent its case. It is apparent from

the record that the assessee is not keen to pursue his appeal before the

Tribunal. Considering simplicity of the facts and issue under consideration,

we are of the opinion that the issue can be adjudicated with the assistance of

the Ld. DR for the Revenue and documents on record.

perused the material available on record. We have also considered the orders

of the Authorities below.

Regarding disallowance of unexplained brokerage of Rs.12,00,000/-, it

is undisputed fact that the assessee debited an amount of Rs.66,05,975/- in

the P & L Account under the head “Brokerage Expenses”. The assessee did

not produce any evidence to substantiate its brokerage expenses. The CIT(A)

has discussed this issue vide para 7.2. For the sake of completeness, the

same is extracted as under:

“7.2 In compliance, the appellant could not furnish the basis as well as working of the above brokerage paid to his elder brothers. In view of these facts, the payments made to the family member are nothing but diversion of taxable profit in different hands, for the reasons best known to the appellant. Considering the facts in entirety, the payments made under this head are not allowable in view of the decision of the Hon'ble Supreme Court in the case of Lachminarayan Madan Lal V. CIT (1972) 86 ITR 439 (SC), wherein it is held that even if there is an agreement, between the assessee and its agents for payments of certain amounts as commission, assuming there was such payment, that does not bind the Income- tax Officer to hold that the payment was made exclusively and wholly for the purposes of the assessee's business. In this case, the Supreme Court observed as under:- “Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income Tax

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Officer to consider the relevant factors and determine for himself whether the commission said to have been paid is properly deductible. In this case absolutely no material on record has 'been brought by the assessee to suggest that the commission agents had procured any orders for the assessee. The production of hills or payments having been made by account-payee cheques cannot by itself show that the commission agents had procured any order for the assessee. No correspondence…………..” Keeping in view the facts as discussed above, the disallowance of brokerage amounting to Rs.12,00,000/-, out of Rs.66,05,975/-, is hereby sustained and this ground of appeal is dismissed.”

From the records, it is undisputed facts that the assessee failed to

discharge onus kept on him in the matters relating furnishing of evidences,

producing the parties, establishing that the payments made are not

excessive and unreasonable. None was present before us to discharge such

onus despite service of notices. Therefore, we are of considered view that the

order of CIT(A) fair and reasonable and the same does not call for any

interference. Accordingly, ground No. 1 raised in appeal by assessee is

dismissed.

8.1 Regarding the next issue relating to addition of Rs.5,00,000/- by the

Assessing Officer, we find, it is undisputed fact that assessee had debited an

amount of Rs.1,00,55,648/- under the head purchase account and the

assessee has not been able to furnish verifiable addresses along with

confirmation in respect of each purchases. The CIT(A) discussed this issue

vide para 8. For the sake of completeness, the same is extracted as under:

“8. Ground No 3 relate to disallowance of Rs 5,00,000/- out of total purchases of Rs 1,00,55,648/-

During the year, the appellant has debited an amount of Rs.1,00,55,648/- under the head purchase account. In compliance, the appellant filed the necessary details, along with bills and vouchers against these purchases. On verification of these details 1 purchases, the AO noticed that

7 ITA No. 1336/PUN/2015 A.Y.2011-12

some of the purchases are not supported by verifiable vouchers and also noticed that some the expenditure have been incurred in cash. In the absence of verifiable vouchers and other supporting evidences, the AO resorted to disallow Rs 5,00,000/-, on lumpsum basis, out of above purchases and added back to the income of the assessee.

During the course of appellate proceedings, the Ld. AR of the appellant was requested to furnish the required details along with bills and vouchers, confirmation of ledger account. In compliance, the Ld. AR had shown his inability to produce these details with the plea that it is not possible to file confirmation in respect of each purchase. Accordingly vide order sheet noting dtd. 28.07.2015, the ld. AR requested that the disallowance may be restricted to 50% i.e. Rs 2,50,000/- as against Rs 5,00,000/- is allowed by the AO. I have carefully considered the facts of the case, findings of the AO, submission of the Ld. AR and material placed on record. Since the appellant is unable to furnish verifiable addresses along with confirmation in respect of each purchase, therefore, the same are not open for verification in full. The At) has not pointed out any specific defects, as such disallowance of Rs.5 lakhs appear to be on higher side and therefore, restricted to Rs.2,50,000/-. Accordingly, the disallowance of Rs. 2,50,000/- out of Rs 5,00,000/- is hereby confirmed and balance is deleted. This ground of appeal is partly allowed.”

On this issue, we find that the evidences are not submitted by the

assessee to establish the genuineness of expenditure. The expenditure is

incurred in cash. Further, assessee gave in writing that the confirmation of

the expenditure is difficult. Considering the same, we are of the opinion that

the order of CIT(A) on this issue is fair and reasonable and the same does

not call for any interference. Accordingly, ground No. 2 raised in appeal by

assessee is dismissed.

8.2 Regarding the other addition of Rs. 7,70,000/- , we heard Ld. DR for

the Revenue on the issue of disallowance out of claim of labour charges. We

find that the assessee debited an amount of Rs.77,08,855/- in the P & L

Account under the head “ Labour Charges”. The assessee is unable to

produce any evidence in respect of each casual labour/contractors to whom

labour charges were paid. The assessee failed to produce confirmation from

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contractors regarding labour payments and also failed to file the copy of

agreement with contractors etc. Assessing Officer restricted the disallowance

to Rs.7,70,000/- i.e.10% of the claim. The CIT(A) confirmed the

disallowances and dealt with this issue in para 9 of his order. For the sake

of completeness, the same is reproduced as under:

“9. Ground No. 4 relate to disallowance of Rs.7,70,000/- out of labour charges :

During the year, the appellant has debited an amount of Rs 77,08,855/-, in the Profit & loss Account, under the head "Labour charges". In compliance, the appellant filed the necessary details, along with bills and vouchers, against these labour payments. It was claimed that all the payments were subjected to TDS, details such as name; addresses and PAN or contractors are available, labour charges are incurred for works like electric work, plumbing flooring etc. On verification of these details purchases, the AO noticed that some of the payments are not supported by verifiable vouchers and also noticed that some the expenditure have been incurred in cash. In the absence of verifiable vouchers and other supporting evidences, the AO resorted to disallow Rs 7,70,000/- i.e. @ 10%, on lump sum basis out of f total labour charges or Rs 77,06,855/- and added back to the income of the assessee.

During the course of appellate proceedings, the Ld. AR of the appellant was requested to furnish the required details, along with proper bills and vouchers, agreements with contractors, confirmation from contractors, and confirmation of ledger account. In compliance, the Ld. AK had shown his inability to produce these details with the plea that it is not possible to file confirmation in respect of each casual labour/contractors to whom the labour charges were paid. Accordingly, vide order sheet noting dtd. 28.07.2018, the Ld. AR requested that the disallowance may be decided on merit. I have carefully considered the facts of the case, findings of AO, submission of the Ld. AR and material placed on record. Since the appellant is unable to furnish the proper supporting vouchers for casual labour payments, confirmation from contractors regarding labour payments, copy of agreement with contractors, therefore, the reasonableness of the same cannot be ascertained. Keeping in view of the facts as discussed above, in my considered opinion, the disallowance of labour charges, amounting to Rs.7,70,000/-, out of Rs.77,08,855/-, is quite reasonable and therefore, sustained and this ground of appeal is dismissed.”

Un-verifiability of the expenditure and off-bank transactions are the

reasons for the adhoc disallowances. The assessee failed to discharge onus

in this regard. The assessee did not furnish the requisite details, along with

proper bills and vouchers, agreements with contractors, confirmation from

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contractors, confirmation of ledger account etc. Considering the same, we are of the opinion that the order of CIT(A) on this issue is fair and reasonable and the same does not call for any interference. Accordingly, ground No. 3 raised in appeal by assessee is dismissed.

In the result, appeal of the assessee is dismissed. 9.

Order pronounced on 12th day of December, 2018.

Sd/- Sd/- (सुषमा चावला / Sushma Chowla ) (डी.क�णाकरा राव/D. Karunakara Rao) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 12th December, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-2, Thane. 4. The Pr. CIT-2, Thane. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.

10 ITA No. 1336/PUN/2015 A.Y.2011-12

Date 1 Draft dictated on 06.12.2018 Sr. PS/PS 2 Draft placed before author 10.12.2018 Sr. PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order