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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-12, Kolkata [in short the ld CIT(A)] in Appeal No. 626/CIT(A)- 12/Kol./Wd-41(3)/Nadia/2014-15 dated 07.07.2016 against the order passed by the ITO, Ward-41(3), Nadia [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 05.02.2015 for the Assessment Year 2012-13.
Ground no.1 raised by the assessee is stated to be not pressed by the ld. Counsel for the assessee. Accordingly, ground no. 1 raised by the assessee is dismissed as not pressed.
Sankar Mondal A.Yr.2012-13 3. Ground nos. 2 and 3 raised by the assessee are with regard to disallowance of Rs. 11,14,285/- made by the ld. AO towards bogus purchases in respect of three parties i.e. Marbel Point, Ramkrishna Enterprise and Binoy Enterprise.
The brief facts of this issue is that the assessee is an individual engaged in doing contract business and general order supplies for Railways. The return of income for the assessment year 2012-13 was filed on 06.09.2012 declaring total income of Rs. 6,83,788/-. The ld. AR of the assessee appeared on different dates as prescribed in the order sheet for assessment records, produced books of account and other documents, filed replies for the questionnaire issued by the ld. AO and explained the return of income. The books of accounts produced were also cross-checked by the ld. AO on a random basis. The assessee during the year earned income from Railway contract under Eastern Railway, Sealdah and bank interest. The ld. AO called for details of the purchases which were duly filed by the assessee. The assessee filed list of sundry creditors before the ld. AO. From the same, the ld. AO sought to verify the purchases made from three parties i.e. Marble Point, Ramkrishna Enterprise and Binoy Enterprise by issuing notices u/s 133(6) of the Act to the respective parties. All the three parties responded to the same by stating that they had no purchase transaction with the assessee. The details of purchases claimed by the assessee through these three parties and the figures confirmed by them and difference arising there from are tabulated as under:
Sankar Mondal A.Yr.2012-13 The ld. AO show caused the assessee to treat the purchases made from above mentioned three parties as bogus purchases. The ld. AO observed in his order as under: a) Regarding purchases from Marble Point, Brajaguli, Nadia, the assessee had purchased the goods from Marble point. Tax invoices issued by Marble Point were produced before the ld. AO. Whereas Marble Point vide letter dated 06.08.2014 received by the ld. AO on 12.08.2014 had submitted that they had not incurred any transactions both cash and credit with the assessee during the financial year 2011-12. b) Regarding purchases from Ramakrishna Enterprise, the assessee furnished the tax invoices and road challans issued by the said supplier whereas the said supplier vide his letter dated nil received by the ld. AO on 25.09.2014 had stated that he had purchased from the assessee for Rs. Nil during the financial year 2011-12. c) Regarding purchases from Binoy Enterprise, the assessee submitted the tax invoices and road challans issued by the said supplier. Whereas the said supplier vide letter dated nil received by the ld. AO on 20.10.2014 had stated that he had no business connection with the assessee and that the assessee is unknown to him.
The ld. AO also observed that the assessee had not produced any road challans as stated by him in his letter and copies of invoices submitted were also not tax invoices. Instead those looked like ‘self-made’ memos as several number of such memos are unsigned and those which were signed by sellers, signatures do not tally with those in the compliances received u/s 133(6) of the Act from aforesaid three material sellers. With these observations, the ld. AO treated the entire purchases made from these three parties to the tune of Rs. 11,14,285/- as bogus purchases and added the same to the total income of the assessee.
Sankar Mondal A.Yr.2012-13 6. The assessee pleaded before the ld. CIT(A) that he executes construction work of Railways and that the said execution cannot be made without any materials. The assessee furnished the party-wise material purchases vis-à-vis disallowances made by the ld. AO as in the following table:
The assessee had executed work with materials on behalf of Railways and thereafter the bill of the assessee has been passed for payment by the Railways. The observations made by the ld. AO on the defects in the memos issued by the suppliers were addressed by the assessee in the following manner:
The assessee further pleaded that the ld. AO accordingly erred in not examining the stock books and other documents of the suppliers to examine the veracity of their denial of selling any materials to the assessee. It was also pointed out that those suppliers had also stated that they had no purchase any goods from the assessee instead of stating that they had not sold any goods to the assessee. The ld. CIT(A) called for the remand report from the ld. AO with regard to the submissions made by the assessee and for verification of the invoices submitted by the assessee. The ld. AO deputed his Inspector of Income Tax to verify the genuineness of these bills. The Inspector submitted his report by stating that all the bills that were filed were false. The ld. AO by placing reliance on the report of his Inspector reiterated his finding in the assessment order and justified the addition made towards the bogus purchase. The assessee filed objections to this remand report by pointing out various deficiencies in the replies given by the aforesaid three suppliers in their confirmations and also stated that the addresses mentioned in their replies was either incorrect or did not contain the detailed address. The assessee further pleaded before the ld. CIT(A) that the material component including transportation of the Railway
Sankar Mondal A.Yr.2012-13 contract as per audited accounts was Rs. 58,89,671/- (42,44,021/- + 16,45,650/-) constituting about 56.72% of the turnover. It was argued that if the aforesaid disputed purchases of Rs. 11,14,285/- is added together with its related transportation of Rs. 4,32,072/-, then the material component including labour would constitute 41.82% of the turnover, which is not practically possible in the line of the business in which the assessee is engaged. The ld. CIT(A) however observed that all the three parties had denied having any transaction with the assessee and accordingly upheld the action of the ld. AO. Aggrieved the assessee is in appeal before us.
We have heard rival submissions. It is not in dispute that the assessee had received income only from Railways towards contract earnings. It is not in dispute that the Railways would pass the bill for payment only after examining whether the relevant work has been executed, for which purposes sufficient materials were indeed required to be utilized by the assessee. We find that the gross profit of the assessee during the year under consideration had increased from 13% to 17.31%. If the bogus purchase of Rs. 11,14,285/- is added, then gross profit becomes 28% which is not possible to earn in the business in which the assessee is engaged. In view of the peculiar facts of the assessee’s case that he had used all the materials only in the execution of work for Railways and that the contract earnings were derived only for earnings, we hold that the addition of gross profit on the subject mentioned purchases of Rs. 11,14,285/- would meet the ends of justice. The gross profit shown by the assessee is 17.31%. Hence, we direct the ld. AO to compute the gross profit of 17.31% on the disputed purchases of Rs. 11,14,285/- and make addition accordingly. Accordingly, the ground nos. 2 and 3 raised by the assessee are allowed for statistical purposes.
Sankar Mondal A.Yr.2012-13 8. Ground nos. 4 and 5 raised by the assessee are with regard to disallowance of Rs. 24,41,147/- towards labour charges u/s 40a(ia) of the Act.
The brief facts of the issue is that the assessee claimed labour charges to the tune of Rs. 24,41,147/-. The assessee submitted the details of labour payments consisting of list of labourers to whom moneys were paid together with the mode thereon. The details of payment made are listed as under:
The ld. AO also observed that out of aforesaid payments in the sum of Rs. 23,71,547/- was paid in cash in violation of provisions of section 40A(3) of the Act. The ld. AO concluded that the aforesaid payments were made to labour contractors without deduction of tax at source u/s 194C of the Act and accordingly proceeded to make disallowance u/s 40a(ia) of the Act to the tune of Rs. 24,41,147/-. The ld. AO 7
Sankar Mondal A.Yr.2012-13 also made an observation in his order that in any case, a sum of Rs. 23,71,547/- is liable to be disallowed u/s 40A(3) of the Act for payments made in cash.
Before the ld CITA, the assessee submitted the break up of the aforesaid payments by stating that the payments were made to certain parties who had collected certain moneys on behalf of various other labourers and signature obtained from them; details of payments made to various parties where annual payment had not exceeded Rs 75,000 and thereby outside the scope of provisions of section 194C of the Act and details of payments made in excess of limits prescribed u/s 194C of the Act as under: A) Payments to parties which are below Rs. 75,000, being the limit prescribed under section 194C of the Act: Sl. Name of the labour Amount received during F.Y. 2011-12 No. contractor 1. Bilu Haldar 53,000/- 2. Tamal Das 53,000/- 3. Anup Halder 35250/- 4. Rocky Mondal 55400/- 5. Babul Sheikh 53000/- 6. Bada Nath 32500/- 7. Balai Ghosh 48600/- 8. Balai Saha 52600/- 9. Siraz Sheikh 52600/- 10. Alauddin Molla 52750/- 11. Jumma Sheikh 52600/- 12. Rafiq Ali Sheikh 53150/- 13. Rana Hazra 52050/-
Sankar Mondal A.Yr.2012-13 14. Nurali Molla 51700/- Total 698200/-
B) Payments made to parties who had collected wages on behalf of several labourers: Sl. Name of the labour Amount received during F.Y. 2011-12 No. contractor 1. Baro Sheikh 176100/- 2. Jamal Ali 128750/- 3. Ram Das 107200/- 4. Manirul Sheikh 106150/- 5. Idris Ali Sheikh 105100/- 6. Rohit Das 104500/- 7. Nasirul Molla 158400/- 8. Musafir Sheikh 264050/- 9. Rohim Sheikh 156200/- 10. Rohit Sheikh 103450/- 11. Ismail Sheikh 100200/- 12. Rana Sardar 100647/- Total 1610747/-
C) Payments made to parties in excess of limits prescribed under 194C of the Act: Sl. Name of the labour Amount received during F.Y. 2011-12 No. contractor 1. Bobi Hazra 132200/- The assessee pleaded that in respect of payments falling in the category “A” and “B” above, there cannot be any disallowance u/s 40a(ia) of the Act, as there was no 9
Sankar Mondal A.Yr.2012-13 violation of Section 194C of the Act. The assessee agreed for disallowance in respect of payments made to Bobi Hazra in the sum of Rs. 1,32,200/-. These facts were subjected to verification by the ld. AO by calling for remand. The ld. AO in the remand report agreed to the contention of the assessee. The ld. AO in his remand report also stated that there was no violation of provision of section 40A(3) of the Act, since the payments were made to a single person who in turn distributed to several labourers included in the muster roll along with their names. He had also verified the said muster rolls and was convinced and all those individual labourers were never paid of any amount exceeding Rs. 20,000/- on a single day. To summarize, the ld. AO in his remand report stated that only addition of Rs. 1,32,200/- in respect of payment made to Bobi Hazra is to be sustained for disallowance u/s 40a(ia) of the Act. However, the ld. CIT(A) completely ignored the remand report and upheld the action of the ld. AO by reproducing the assessment order. Aggrieved the assessee is in appeal before us.
We have heard rival submissions. From the facts narrated above, we find that only a sum of Rs. 1,32,200/- in respect of payments made to Bobi Hazra is required to be disallowed u/s 40a(ia) of the Act. The other figure has been accepted by the ld. AO in the remand report. It is not the case of the revenue that the ld. CIT(A) had sought to enhance the disallowance made by the ld. AO. Accordingly, ground nos. 4 and 5 raised by the assessee are partly allowed.
Ground no. 6 raised by the assessee is with regard to addition made towards cash deposits in the sum of Rs. 2,12,500/-.
The brief facts of this issue is that the ld. AO observed that the assessee had made certain cash and cheque deposits in Bank of India, Chakdaha in A/c No. 422120110000109 as under:
The ld. AO added the entire deposits of Rs. 14,65,000/- in the assessment. The ld. CIT(A) deleted the addition made towards cheque deposits in the sum of Rs. 12,52,500/- as the same were properly explained by the assessee. In respect of cash deposits of Rs. 2,12,500/-, though there were cash withdrawal made by the assessee, in view of the long gap between the date of withdrawal and the date of deposit of cash, the ld. CIT(A) sustained the addition made towards cash deposits in the sum of Rs. 2,12,500/-. Aggrieved the assessee is in appeal before us.
We have heard rival submissions. We find that the assessee has made cash deposits in the aforesaid bank account on the following dates:
10.09.2011 Rs. 2,500/- 25.02.2012 Rs. 2,10,000/- Total Rs. 2,12,500/- We find that the assessee had made withdrawals from his another bank account which was already disclosed vide A/c No. 42212511000010 on the following dates:
10.05.2011 Rs. 2,50,000/- 22.10.2011 Rs. 1,00,000/- 08.12.2011 Rs. 2,00,000/- Total Rs. 5,50,000/-
Sankar Mondal A.Yr.2012-13 We find that the withdrawal of the cash has been made in one bank account on earlier dates and the same cash has been deposited in another bank account of the assessee at a later date. Hence the source of cash deposit has been clearly explained. It is not the case of the revenue that the cash withdrawal on earlier dates had been spent by the assessee are utilized for some other purposes. Accordingly, addition made in the sum of Rs. 2,12,500/- deserves to be deleted. Accordingly, ground no. 6 raised by the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 01.08.2018