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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the Assessee, pertaining to assessment year 2007-08, is directed against the order passed by the ld. Commissioner of Income Tax (Appeals),Asansol, in appeal No.141/CIT(A)/Asl/ACIT/Cir-1/Asl/2009-10,which in turn arises out of an order passed by the Assessing Officer u/s.143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 30.12.2009.
The brief facts of the case qua the assessee are that the assessee filed his return of income for A.Y.2007-08 on 30.03.2009 showing total income of Rs.96,20,949/-. Assessee’s case was selected for scrutiny u/s.143(3) of the Act and the AO completed the assessment by making addition on account of bogus outstanding liabilities shown by the assessee at Rs.17,51,545/-. The AO observed that in respect of outstanding liability the assessee did not submit the list of names of Labourers, ID Nos. PF, and ESI Code number of the labourers. The assessee also did not furnish the details regarding time framed, site details, number of months for which labour wages were outstanding, and the assessee also did not furnish the documents required by the AO to verify the wages liabilities as claimed by the assessee. Therefore, the AO worked out the fictitious wages liabilities based on the amount debited in the profit and loss account and the outstanding liability shown in the balance sheet. The AO worked out the fictitious liabilities of Rs.17,51,545/- being the difference between liability shown in the balance sheet at Rs.2,34,58,716/- and amount fund blocked which includes bills receivable, Cheque in hand and TDS etc. at Rs.2,17,07,171/-.
Aggrieved from the order of the Assessing Officer, the assessee filed an appeal before the CIT(A), who held that power of CIT(A) is co- terminus with that of the Assessing Officer, therefore, exercising the power of co-terminus, the CIT(A) himself did the best judgment assessment. Therefore, ld. CIT(A) took the average disclosed net profit for taking two preceding and one succeeding year which came to Rs.8.87%.
Therefore, ld. CIT(A) held that if net profit is fixed at 8.87% then addition came to 0.61% of Rs.69,067,485/- which came to Rs.4,21,312/-. The Ld. CIT(A) observed that there are other disallowance in the assessment for all three years and in addition to this there was unsubstantiated rise in wages payable disproportionate to turnover. He enhanced the figure of Rs.4,21,312/- to bring it on par with the profit rate of preceding years and also absorb the rise in wages payable disproportionate to turnover and therefore,considering these facts ld. CIT(A) fixed the addition at Rs.6,00,000/-.
Not being satisfied with the order of the CIT(A), the assessee is in further appeal before us, and has taken the following grounds of appeal :-
1. That, on the facts and in the circumstances of the case, the Ld. C.I.T.(A) erred in sustaining the addition to the extent of Rs.6,00,000/- on lump sum basis as against Rs.17,51,545/- made by the Ld. A.O. in spite of the fact that the A.O. on his anticipation and without pointing out any excess wages being claimed or debited to PIL Account assumed that the outstanding wage liability shown in the Balance Sheet was fictitious.
2. That, The Ld. C.I.T.(A) ought to have considered before sustaining lump sum addition of Rs.6,00,000/- that the Ld. A.O. has not doubted or made any addition on account of wages claimed and debited to P/L Account and that being so, the addition sustained on the pretext of fictitious wage liability is uncalled for, void ab initio and liable to be deleted. 3. That, the Ld. C.I.T.(A) further erred in not considering while sustaining the addition of Rs.6,00,000/- on estimate basis that in past as well as subsequent assessment years, no such disallowance in the garb of fictitious wage liability was ever made in scrutiny assessments for those years and there was uniformity/ consistency in maintaining the audited accounts and claiming wages and outstanding wages in the same manner in those years. 4. That, without any prejudice to the above, the Ld. C.I.T.(A) to suit lump sum disallowance/addition sustained by him at Rs.6,00,000/- estimated the rate of N.P. this year at 8.87% on average basis as against 8.26% shown by the assessee and not disputed by the Ld. A.O. and hence such estimation of N.P. without any rationale is arbitrary, uncalled for and not sustainable in law. 5. That, as the order of Ld. C.LT.(A) on the above issues suffers from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 6. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.
Although in this appeal, the assessee has raised six grounds of appeal but at the time of hearing the solitary grievance of the assessee has been confined to the issue that ld. CIT(A) made the addition of Rs.6,00,000/- on estimated basis without rejecting books of account of the assessee.
5.1 Ld. AR for the assessee has submitted before us that the ld. CIT(A) made the addition of Rs.6 lakhs based on the estimate. The Ld. Assessing Officer has worked out the fictitious liability at Rs.17,51,542/- and further ld. CIT(A) has reduced the addition to Rs.6,00,000/-. The Ld. AR for the assessee has submitted that the ld. AO worked out bogus liabilities at Rs.17,51,545/-, without pointing out any excess wages being claimed or debited to profit and loss account. The Ld. AO presumed the outstanding wages liability shown in the balance sheet as fictitious without any base. The Ld. AR for the assessee also submitted that in case of assessee in subsequent years no such disallowance in the grab of fictitious wages liability is made in scrutiny assessment. There was uniformity and consistency in maintaining the audited accounts and claiming wages and showing outstanding wages in previous years and subsequent years. The Ld. CIT(A) did the addition at Rs.6 lakhs based on estimated net profit of the assessee @ 8.87%. Therefore, addition based on estimate without rejecting books of accounts made by the ld. CIT(A) may be deleted.
5.2. On the other hand, Ld. DR for the Revenue has primarily reiterated the stand taken by the CIT(A), which we have already noted in our earlier para and is not being repeated for the sake of brevity.
5.3. Having heard the submissions of ld AR for the assessee and perused the material available on records, we are of the view that ld. AO as well as ld. CIT(A) have made the addition based on the estimate and surmise and conjecture. We noticed that ld. AO worked out the fictitious wages liability based on the figure debited in the profit and loss account and based on the outstanding liability of wages shown in the balance sheet observing that assessee did not have enough money to pay the liabilities. The Balance Sheet of the assessee does not contain any difference and both sides of Balance Sheet ( asset and liability side of the balance sheet) has agreed and there is no any difference in the Balance Sheet whatsoever. The Ld. AO did not bring any cogent reason on the record to substantiate his plea that assessee has shown bogus outstanding liability. However, ld. CIT(A) has reduced the addition made by the AO at Rs.17,51,545/- to Rs.6,00,000/- based on the estimated rate of net profit @8.87%. The Ld. CIT(A) also did the estimate without rejecting the books of accounts of the assessee and without pointing out any specific error in the books of account. Therefore, neither the AO nor the ld. CIT(A) brought any cogent evidence on record to show that the assessee has shown fictitious outstanding wages liability. Therefore, the addition made on estimated basis by the ld. CIT(A) needs to be deleted.
Accordingly, we delete the addition made by the ld CIT(A).
5.4. In the result, appeal filed by the assessee, is allowed. Order pronounced in the open court on this 19/04/2017.