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Facts
The assessee's appeal concerns the disallowance of Rs.6,87,950/- for wages and the confirmation of an addition of Rs.3,52,000/- for Specified Bank Notes (SBNs) deposited during demonetization. The Assessing Officer (AO) disallowed 10% of the wages claimed due to a steep rise compared to the previous year.
Held
The Tribunal noted that the increase in wages was justified by the assessee's wholesale business operations and increased sales. For the SBNs, the Tribunal found that since the audited books of accounts were not rejected and the SBNs were part of the accepted turnover, a separate addition under Section 69A was impermissible.
Key Issues
Whether the disallowance of wages and the addition for SBNs are justified based on the facts and relevant sections of the Income Tax Act.
Sections Cited
69A, 69
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax, Appeal, Addl./JCIT (A), (hereinafter in short "the Ld.CIT(A)”), Panaji, dated 08.03.2024 for the Assessment Year (hereinafter in short "AY”) 2017-18.
The assessee is aggrieved by the action of the Ld.CIT(A) confirming (i) Rs.6,87,950/- [wages disallowed by the AO @10%], (ii) confirmation of Specified Bank Notes (SBNs) deposited during demonetization period to the tune of Rs.3,52,000/-.
Coming to the addition of Rs.6,87,950/-, brief facts are that the AO noted that assessee had filed his return of income (RoI) for AY 2017-18 on 06.01.2018 admitting an income of Rs.12,38,380/-. The case was selected for complete scrutiny and the AO noted that the assessee has booked expenditure incurred on wages to the tune of Rs.68,79,469/-.
According to the AO, there was a steep rise in the expenditure when compared with that of the earlier year which was only to the tune of Rs.46,39,075/-. Therefore, he show caused the assessee ‘as to why’ 50% of the wages should not be disallowed. The assessee furnished relevant documents like staff attendance register and explained that increase in wages was due to the fact that wages had to be paid to temporary/casual workers for delivery of goods to dealers during peak seasons. The assessee explained that he was dealing in wholesale business of food products and was supplying various food products and recharge vouchers in the name of “TJ Marketing” which increased the wages this year. The AO didn’t accept the submissions of the assessee and was pleased to disallow 10% of the wages claimed and added Rs.6,87,950/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A)
who was pleased to confirm the same.
We have heard both the parties and perused the material available on record. We note that the assessee is a wholesale dealer and distributor of food products, consumable goods, cosmetics, etc., in some parts of Chennai [around OMR, Duraipakkam, ECR and some areas in south Chennai]. The assessee supplies the goods to the retails shops with own man power. It was explained by the assessee that for payment of wages for loading, unloading and supply of goods, assessee incurred expenses, extra man power etc when the supply increased and paid more wages and the cost of man power also had increased every year. And that it is a common knowledge that the profit margin of the distributed food products is low compared to other segments. It is noted that the assessee has returned income of Rs.12,38,380/- and it noted that the total sales turnover this year was to the tune of Rs.14,12,87,137/- when compared with the turnover of AY 2016-17 to the tune of Rs.12,73,08,757/-. Thus, we note that there is 11% increase in sales whereas wages increased by 48% but the net profit was at 11%. Having noted so, we note that the cost inflation from AY 2016-17 increased to 4%. Considering all these factors, for the ends of justice and fair play, we estimate the disallowance @5% i.e. and restrict the disallowance to Rs.3,43,975/- in place of Rs.6,87,950/-. Thus, assessee gets a relief of Rs.3,43,975/-.
Coming to the next addition of Rs.3,52,000/- in respect of the SBNs deposited during demonetization period, we note that the assessee had deposited cash during demonetization to the tune of Rs.23,89,000/-. The assessee submitted that its cash book had cash balance of Rs.24,54,255/- as on 08.11.2016. The AO noted that the assessee has deposited Rs.1000/- notes between 05.11.2016 to 21.11.2016 which comes to Rs.3,52,000/-, which was treated as unexplained u/s.69A of the Act.
However, it was brought to our notice that the audited books of accounts of the assessee has not been rejected by the AO and he has accepted the sales turnover shown by the assessee to the tune of Rs.14,12,87,137/- which includes the SBNs to the tune of Rs.3,52,000/- and the assessee’s returned income of Rs.12,38,380/- has been accepted by the AO. In such a scenario, without finding any infirmity in the books/cash book/stocks as maintained by the assessee, and when assessee asserts that SBNs of Rs.3,52,000/- to be trade receipt, it can’t be added u/s.69A of the Act unless there is any evidence/material to show that assessee had some other source of income or assessee has made certain investments which is not the case of the AO. Therefore, when Rs.3,52,000/- (SBNs) is part of the total turnover of Rs.14,12,87,137/- the action of the AO to make separate addition of Rs.3,52,000/- u/s.69 of the Act tantamounts to
In the result, appeal filed by the assessee is partly allowed.
Order pronounced on the 06th day of December, 2024, in Chennai.