V SATHYAMOORTHY&CO,ERODE vs. DCIT, CENTRAL CIRCLE -2, COIMBATORE

As is evident, the issues that fall for our consideration are addition arising out of search proceedings in the case of the assessee.

1.3 The Ld. AR advanced arguments and referred to various documents as placed on record. The Ld. CIT-DR also advanced arguments and supported the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 2.1 The assessee being resident firm filed return of income u/s 139(1). The assessee was subjected to search action u/s 132 on 28-10-2020. Accordingly, an assessment was framed u/s 143(3) r.w.s. 153A on 04- 05-2022 making certain additions in the hands of the assessee. The issues that form subject matter of this year are disallowance of wages payable for Rs.62.75 Lacs and disallowance of salaries payable for Rs.14.69 Lacs. Post search-proceedings, notice u/s 153A was issued to the assessee on 30-04-2021. The assessee filed return of income and disclosed certain additional income. The details of the same could be tabulated as under: - Additional Returned Date of filing Income Income Income Income No. A.Y of return u/s returned u/s assessed disclosed u/s.153A 139(1) 139(1) u/s.143(3) Rs. Rs. A B C D E F (F-D) 1 2015-16 08.09.2015 10,89,38,240 11,02,35,450 12,97,210 2 2016-17 10.02.2017 5,52,28,000 5,72,95,360 20,67,360 NA 3 2017-18 23.01.2018 15,78,68,530 NA 19,07,00,920 3,28,32,390 4 2018-19 15.12.2018 11,39,91,610 11,58,49,610 18,58,000 NA 5 2019-20 30.01.2020 14,40,23,110 NA 30,74,07,590 16,33,84,480 6 2020-21 31.03.2021 20,40,75,060 36,16,07,280 15,75,32,220 NA 7 2021-22 31.03.2022 67,59,66,220 NA NA NA 2.2 It transpired that the assessee made payments to casual laborer to carry-out work at various construction sites. The payments were made on weekly basis. The works undertaken by the laborer was recorded in Measurement books (M Books). Some of such M Books were seized during search. Based upon the entries in the M Books, labour excel sheets were prepared on weekly basis and the payment was made to the contractors through banking channels. These labour payments excel sheets for different financial years were maintained in the tally server of the assessee which was also seized. 2.3 On comparison of workers’ wages expenses for FY 2018-19 as maintained in Tally system vis-à-vis actual wage payments as per excel sheets, it was found that for the month of April, 2018 to June, 2018, the workers’ wages expenses accounted in the tally system was lesser than the actual payment made during the year. The payments that were made through banks were used to set-off the previous year wages payable even though the wages expenses were incurred during FY 2018-19. On examination of tally data, it was noted that huge amount of wages payable was entered in the last month of financial years and claimed as expense. For FY 2018-19, the wages payable entered in the tally system was not set-off as on the date of search. The partner of the firm Shri S. Anandavadivel admitted to booking of bogus wages payable in the last month of the year. It was stated that though the expenses were incurred for the Financial Year (FY) 2018-19, in order to balance the ledgers of bogus wages payable for FY 2017-18, entries of payments were made in FY 2018-19. On these facts, Ld. AO alleged that the same was done so as to suppress the profit. Similar practice was followed for booking salaries payable. The wages payable for this year was Rs.391.07 Lacs whereas salaries payable was for Rs.29.53 Lacs. The Ld. AO proceeded to make appropriate disallowance against the same. 2.4 The assessee refuted the allegation of Ld. AO on the strength of ledger extracts and submitted that wages paid for subsequent years was inadvertently provided in the relevant previous year. The payment made in subsequent years was not claimed as expenditure but reversed against the provisions made in previous year. While submitting the return in response to notice u/s 153A, the assessee stated to have not considered the above provisions. Regarding salary, it was submitted that it was year-end provision which was subsequently paid. In other words, it was submitted that the amount of Rs.391.07 Lacs was already disallowed in the form of reduction in the claim of wages in the Profit & Loss account filed in response to notice issued u/s 153A. The provision of salary for Rs.29.53 Lacs was stated to be rightly claimed since the same was duly evidenced. Accordingly, the assessee opposed any disallowance as proposed by Ld. AO. 2.5 However, Ld. AO observed that the assessee offered additional income of Rs.328.32 Lacs for bogus wage issue but did not offer additional income of Rs.62.75 Lacs. Therefore, the addition of Rs.62.75 Lacs was sustained. The argument on salary payable was also not accepted on the ground that the same was merely an after-thought. At the time of search, the assessee had not submitted any evidence to prove the salary payment in next year. Therefore, the salary payable for Rs.29.53 Lacs was also disallowed. 2.6 The Ld. AO also made addition of Rs.4 Lacs as undisclosed income for sale of flats in ‘Esha Apartments’. However, the same has already been deleted by Ld. CIT(A) vide para 7.2.20 of the impugned order. Appellate Proceedings 3.1 On the issue of wages payable, the assessee, inter-alia, submitted that the same is based on information available in regular books of accounts and not based on any incriminating material. The disallowance of Rs.62.75 Lacs represents actual wages paid by the assessee during the year which was evidenced by the ledger extracts. The said amount was claimed as provision in original return of income. Therefore, the same ought to have been allowed on actual payment basis during this year. 3.2 The Ld. CIT(A) rejected the legal arguments of the assessee and held that Ld. AO could make regular addition also with respect to any issue that comes to his notice. The Managing Director admitted that the wages were cleared on weekly basis. Further, at year-end wages payable were shown to reduce the profits. Therefore, wages payable would reflect wages artificially inflated by recording non-existent expenditure. The question of actual payment in subsequent year as claimed by the assessee would not arise at all. The findings of Ld. AO would lead to a presumption that actual expenditure incurred by the assessee for any financial year in initial three months towards wages is suppressed to the extent of provisions made for wages for previous year. Accordingly, the impugned addition was confirmed. 3.3 The addition on account of salary payable was also confirmed on the ground that the assessee did not provide the details of staff in whose case salary was shown to be outstanding. The Managing Director admitted of booking bogus salary expenses. If the amount recorded was bogus, the question of payment of such bogus salary in subsequent year would not arise. Therefore, the addition of Rs.14.69 Lacs was sustained. With respect to balance provision of Rs.14.84 Lacs as stated to be reversed in AY 2016-17, the AO was directed to verify the claim and delete the addition to that extent, if the claim was found to be true. Aggrieved, the assessee is in further appeal before us. Our findings and adjudication 4. Upon perusal of ledger extracts of wages payable and salaries payable as placed on record at Page Nos. 70 to 112 of the paper-book Volume-II, it could be seen that as on 01-04-2016, the wages payable are for Rs.62.75 Lacs which have fully been paid by the assessee by 30- 04-2016. The assessee has made provision of wages payable for AY 2017-18 for Rs.391.07 Lacs which, as per the statements made during the course of search proceedings, are booked artificially to suppress the profit of this year. The assessee has reversed / not considered this provision while filing the return of income u/s 153A and it has already offered additional income to that extent. The Ld. AO has already concurred with this fact. Another finding of Ld. AO is that on comparison of workers’ wages expenses for FY 2018-19 as maintained in Tally system vis-à-vis actual wage payments as per excel sheets, it was found that for the month of April, 2018 to June, 2018, the workers’ wages expenses accounted in the tally system was lesser than the actual payment made during the year. The payments that were made through banks were used to set-off the previous year wages payable even though the wages expenses were incurred during FY 2018-19. On these facts, it was to be concluded that the expenditure, per-se, was not bogus but it was only a timing difference of making a claim. The assessee made advance provision for wages in one year and adjusted the same in subsequent wages actually paid from such provisions without claiming the wages in next year. The motive was to suppress the profit of a particular year. This being so, when the provision itself has been reversed in a particular year, the payment thereof in the next year would be allowable to the assessee as expenses of subsequent year. If the same is not allowed, the assessee would suffer disallowance in both the years.

by the assessee stand allowed.

7. No material arguments have been advanced on legal grounds in this year. Further, no defect has been shown in the jurisdiction of Ld. AO. The corresponding grounds raised by the assessee stand dismissed.