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Income Tax Appellate Tribunal, “A” BENCH, PUNE
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.
The assessee has raised following grounds in appeal:
“On the facts and in law,
2 ITA No. 1336/PUN/2015 A.Y.2011-12
The learned CIT(A) erred in confirming an addition of Rs.12,00,000/- as ad-hoc disallowance out of brokerage payment without appreciating a fact that- i) The payments were made by crossed cheques.
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.”
Briefly stated relevant facts include that the assessee is a sole
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-
3 ITA No. 1336/PUN/2015 A.Y.2011-12
iv) Disallowance out of travelling expenses – Rs.75,000/-
Aggrieved by the order of Assessing Officer, assessee filed appeal before
the CIT(A).
During First Appellate proceedings, on the issue of addition on
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)
4 ITA No. 1336/PUN/2015 A.Y.2011-12
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.
Aggrieved by the order of CIT(A), the assessee filed appeal before us by
raising grounds as extracted above.
Before the Tribunal
Hearing of notice was issued initially on 25.09.2017 for 21.11.2017.
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
5 ITA No. 1336/PUN/2015 A.Y.2011-12
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.
We have heard the submissions made by Ld. DR for the Revenue and
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
6 ITA No. 1336/PUN/2015 A.Y.2011-12
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
8 ITA No. 1336/PUN/2015 A.Y.2011-12
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
9 ITA No. 1336/PUN/2015 A.Y.2011-12
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