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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM]
Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 25.01.2017 of CIT(A)-13, Kolkata relating to A.Y.2013-14.
Ground No.1 raised by the assessee reads as follows :- “1.For that on the facts and in the circumstances of the case the Ld. C.I.T.(A)-13 erred in law as well as in fact in confirming the disallowance of Rs.27,95,994/- as bogus excess Labour Charges made by the assessing officer.”
The Assessee is an individual. He is engaged in the business of making gold ornaments against making charges and selling of gold ornaments as proprietor under the name and style of M/s. Swarna Mahal Jewellers. There was a survey u/s 133A of the Income Tax Act, 1961 (Act) conducted at the business premises of the assessee on 14.02.2013. In the course of survey a statement of the assessee was recorded. The assessee was specifically asked by the officer conducting the survey for the books of accounts. The assessee explained that the books of accounts will be prepared on the basis of challans and vouchers available with the assesse. In answer to question no.7 and 8 the assessee replied as follows :-
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“Q.7 Please go through the book bearing ID Mark TD-29 and TD-30, please comment Ans. These books contain the voucher/receipt f payment made to labour for job work.
Q.8 It is evident from the ID Mark TD-29 and TD-30 that the total expenses for job work arrived at Rs.41,20,819/- in aggregate, do you agree ? Ans. Yes.”
Thereafter the survey team calculated the profit and loss account for the period from 01.04.2012 to 14.02.2013 (date of survey) which are as follows :- “Q.20 On the basis of the data available in your premises and as per your admission, the P&L Account of Shri Tapas Dhara is drawn as under and total income have been calculated on the basis of your admission, vide your answer to the Question no.2 to 18.
Profit and Loss Account of Shri Tapas Dhara Prop. Of Swarna Mahar Jewellers for The period 01-04-2012 to 14-02-2013 (Amount in Rs.) (Amount in Rs.)
Opening W.I.P. 215082/- Sales 1277286/- Purchase 550000/- Direct Income 7861580/- Direct Exp 4120819/- Gross Profit b/d 4252965/- 9138866/- 9138866 Indirect Expenses 726922/- (as per bill & voucher produce by you)
Net Profit b/d 3526043/-
Add: Diff.in value of Gold (Current Asset) (Value of Gold determined by valuer) 15745056/- Value das per last account 12548773/- 3196283/- Premium received for relinquishment of Tenancy 300000/- Share of Rent from Bank 253152/- Share from Marriage Hall Rent 300000/. Interest Income from HDFC 163718/- Unexplained cash 36680/- Unexplained Cash Deposit 244000/- (Vide ID Mark TD/01 Page No.96,97,98&100) Rent from Vodafone 54270/- Income 8074146/-
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Finally in question no.21 the assessee offered that he shall offer the income determined as per Profit and loss account and pay advance tax. “Q.21. On the basis of the above taxable income and considering your answer to the question no.19, 20 advance tax you are agreed to pay.
Ans. I have already paid the advance tax to the tune of Rs.6 lakhs and now on the basis of the income determined during the survey. I will pay Rs.20 lakhs as Advance tax for F.Y. 2012-13, A.Y.2013-14, by 15-03-2013. However, a part payment will be paid by 25.02.2013.”
The assessee filed return of income for A.Y.2013-14 disclosing total income of Rs.90,51,790/- which was revised to a total income of Rs.92,87,260/-. The assessee filed a revised version of profit and loss account from 01.04.2012 to 14.02.2013 (date of survey). On comparison of the profit and loss account prepared at the time of survey and the profit and loss account filed in the course of assessment proceedings the AO found the following discrepancies :-
As can be seen from the aforesaid chart that at the time of survey the survey team estimated the direct expenses (labour charges) at a sum of Rs.41,20,819/- whereas as per the revised profit and loss account filed in the course of assessment proceedings the direct expenses (labour charges) were shown at Rs.69,16,813/-. There was an excess claim on account of labour charges of Rs.27,95,994/-. The AO called upon the assessee to explain the reasons for the difference. The assessee explained that the figure reflected in the profit and loss account filed during the assessment proceedings showing labour charges of Rs.69,16,813/- is based on records. The
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assessee pointed out that the outstanding as when it was paid to the various karigars TDS wherever necessary was deducted. The assessee also enclosed ledger copies of each individual karigar. The AO however held that the reply of the assessee was considered and not accepted. According to the AO direct expenses on account of labour charges was taken on the basis of bills, vouchers and evidences produced by the assessee and incorporated in the profit and loss account at the time of survey which was accepted by the assessee. Therefore the difference of Rs.27,95,994/- was treated by the AO as bogus expenditure and disallowed and added to the total income of the assessee. 8. On appeal by the assessee the CIT(A) confirmed the order of the AO. The following were the observations of CIT(A) :- “I have perused the submissions of the appellant and AO's observation. In this case perusal of AO's order shows that aforesaid expenditure of Rs.41,20,819 /- was found as labour charges as on date of survey whereas the appellant while recasting the expenses claimed, such expenditure at Rs.69,16,813/-. In this regard, it is pertinent to mention here that the AO has considered the direct expenses based on bills, vouchers and evidences produced by the appellant at the time of survey. No further claim was made after date of surveyor during the course of survey. Perusal of payment sheet submitted during the appellate proceedings, shows that total payment through cheque was made of Rs.5l,78,40S/- which was comprising of outstanding balance of Rs.13,70,289/-. The total outstanding balance at the beginning of the year was Rs.16,21,832/- and still payable till date of survey was Rs.2,Sl,S43/-. In this regard, it is further to point out that labour charges payments cannot be outstanding for more than one month. If average of total cheque payment for eleven month is taken then monthly payment comes to Rs.3.46 lakhs approximately only which can be estimated as outstanding. It is further seen that total claim of the appellant is accepted to the extent of Rs.41,20,819 /- which means Rs.3,12,073/- is further accepted apart from the cheque payment made up to the date of survey. The appellant has claimed that remaining payments have been made subsequently. The appellant is silent as why the aforesaid submission was not made during the course of survey. Had it been so, the same should have been also found as per bills and vouchers as remaining expenses were found. In this regard it is further to point out that the appellant is engaged in jewellery business where labour charges are very essential because it is related with issuance of gold quantity given to the job workers for which bill or documents has to be maintained without that the appellant cannot have any control over the item issued to particular job worker. As the appellant failed to prove the aforesaid claim during the course of survey as no corresponding bills and vouchers were found, therefore, considering the payments to the extent of Rs.38 lakhs and bills,
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vouchers found to the extent of Rs.42 lakhs makes it ample clear that it was actual expenditure which was found during the course of survey and that is why the appellant did not speak anything about the outstanding balance being correct state of affairs. Therefore, the addition made by the AO is hereby upheld and the appeal ground is dismissed.”
Aggrieved by the order f CIT(A) the assessee has raised ground no.1 before the Tribunal. 10. We have heard the rival submissions. The ld. Counsel for the assessee drew our attention to the fact that the direct labour expenses as claimed in the profit and loss account filed by the assesee in the course of assessment proceedings was based on actual expenses incurred evidenced by entries in the books of accounts. He brought to our notice that the direct labour charges computed at the time of survey was only provisional and not conclusive. It was based only on the vouchers and receipts found at the time of survey. He also brought to our notice that the ledger copies of every karigar and returns of TDS filed by the assesse were duly produced by the assessee before the AO and there is no reason why the plea of the assessee should be disbelieved. In this regard the ld. Counsel also drew our attention to list of karigars to whom the assessee made payments during the previous year which is placed at page 1 of the assessee’s paper book. The break-up of payments to these karigars by cheque or by cash and the ledger accounts of the respective karigar were also filed before the AO. These details are available at pages 3 to 471 of the assessee’s paper book. The ledger accounts of the karigar also show that outstanding as on the date of the previous year relevant to A.Y.2013-14 were paid in the subsequent assessment year. Wherever cash was paid vouchers have also been provided. In the light of these documents the ld. Counsel submitted that the action of the revenue authorities in making the impugned addition without bringing any material on record cannot be sustained. The ld. DR relied on the order of the AO.
We have considered the rival submission. The evidence filed by the assessee before the AO gives a complete break up of payments of labour charges with individual names of the labourers and their ledger accounts. Payments have been
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made by cheques as well as cash and wherever there was an obligation of deduction of tax at source the same had been deducted. Details are available in the case of all the karigars to whom the assessee paid labour charges. In the light of the above evidence we fail to see any reason as to why the profit and loss account filed by the assessee in the course of assessment proceedings and the labour charges reflected therein should be doubted by the revenue authorities. The reasoning given by the revenue authorities is that the labour charges cannot be outstanding for more than one month. It was explained by the assessee that the karigars have a long association with the assessee and the transactions between the assessee and the karigars is a continuous transactions over a period of several years and therefore the reasoning given by the CIT(A) was not correct. Keeping in mind of all the evidence on record, we are of the view that the addition made by the revenue authorities is without any basis and purely on surmises and conjectures. The outcome in the survey has been taken as conclusive by the revenue authorities. The assessee has demonstrated as to how the labour charges worked out at the time of survey did not reflect the correct position. For the reasons given above the addition of Rs.27,95,994/- is deleted. Ground no.1 raised by the assessee is allowed. 12. Ground No.2 raised by the assessee reads as follows :-
For that on the facts and in the circumstances of the case the Ld. C.I.T.(A)-13, erred in law as well as in fact in confirming the estimated disallowance of the indirect expenses of Rs.2,42,874/- made by the assessing officer.
The facts are identical as stated in ground no.1. In the profit and loss account prepared at the time of survey the indirect expenses were shown at Rs.7,26,922/- whereas in the profit and loss account filed in the course of assessment proceedings the same were claimed at Rs.9,69,766/-. There was an excess claim of Rs.2,42,874/- on account of indirect expenses. The assesseee claimed that the indirect expenses claimed in the profit and loss account filed in the course of assessment proceedings reflected the correct indirect expenses. This was not accepted by the AO or the CIT(A).
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We have considered the rival submissions and we find that the difference on account of indirect expenses is owing to depreciation claimed at Rs.3,46,692/- which was omitted to be claimed at the time of preparing the profit and loss account upto the date of survey (prepared at the time of survey by the survey team). It is also the plea of the assessee that the indirect expenses were determined on a lump sum basis and not on the basis of bills or vouchers. In these circumstances we are of the view that the addition of Rs.2,42,874/- made by the revenue authorities is without any basis. The same is directed to be deleted. Ground no.2 raised by the assessee is allowed.
In the result the appeal by the assessee is allowed. Order pronounced in the Court on 03.01.2018.
Sd/- Sd/- [Dr.A.L.Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 03.01.2018.
[RG Sr.PS]
Copy of the order forwarded to:
Tapas Dhara, 14/B, Gopal Bose Lane, Kolkata-700050. 2. A.C.I.T., Circle-44, Kolkata. 3. C.I.T (A).-13, Kolkata. 4. C.I.T.-15, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.