SHRI ARPAN KUMAR GHOSH,HOWRAH vs. ITO, WARD-48(1), KOLKATA, KOLKATA

The issue raised in Ground No. 1 relates to the disallowance of Rs.13,31,842/- made by the Assessing Officer under section 40(a)(ia) and confirmed by the ld. CIT(Appeals).

The assessee in the present case is an individual, who is engaged in the busness of manufacturing of Hosiery goods under the name and style of his proprietary concern M/s. V.K. Textile. The return of income for the year under consideration was filed by him declaring total income of Rs.2,33,320/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has made total

I have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. counsel for the assessee has contended by relying, inter alia, on the decision of the Hon’ble Calcutta High Court in the case of Khadim Shoes Pvt. Limited [134 Taxman 297] that the amount in question having been paid by the assesese for outsourcing of the manufacturing activities, the provisions of section 194C are not applicable, I find it difficult to accept this contention. In the case of Khadim Shoes Pvt. Limited relied upon by the ld. counsel for the assessee, the assessee had purchased goods from other manufacturers after payment of sales tax, excise duty, etc. and in these facts and circumstances as involved in the said case, it was held by the Hon’ble Calcutta High Court that the provisions of section 194C were not attracted. As rightly pointed out by the ld. D.R., the payments in question were made by the assessee in the present case on account of labour charges and it is thus not a case of outsourcing of manufacturing activity as sought to be contended by the ld. counsel for the assessee. It is thus a case of works contract to which provisions of section 194C are clearly applicable and since there was a failure on the part of the assessee to deduct tax at source from the payments in question made towards works

The issue raised in Ground No. 2 relates to the disallowance of Rs.7,458/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of various expenses.

During the course of assessment proceedings, part of the expenses claimed by the assessee under the heads “Travelling and Conveyance”, “Carriage Outward”, “Carriage Inward” and “General Charges” were found by the Assessing Officer to be made by the assessee through self-made vouchers. According to the Assessing Officer, the said expenses, therefore, were not fully verifiable and accordingly disallowance of Rs.7,458/- being 5% on total expenses of Rs.1,04,950/- claimed under the respective heads was made by him. On appeal, the ld. CIT(Appeals) confirmed the said disallowance after having found the same to be reasonable.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. At the time of hearing before the Tribunal, nothing has been brought on record by the ld. counsel for the assessee to rebut or controvert the finding recorded by the Assessing Officer that part of the expenses claimed by the assessee under the relevant heads was not fully verifiable as they were merely supported by self-made vouchers. The disallowance on account of the involvement of unverifiable element in the said expenses thus was called for and I find myself in agreement with the ld. CIT(Appeals) that the same as made by the Assessing Officer at 5% of the total expenses was fair and reasonable. I, therefore, find no justifiable reason to interfere with the

The issue raised in Ground No. 3 relates to the disallowance of assessee’s claim made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of depreciation on Television Set.

The depreciation claimed by the assessee on television set on the ground that the relevant television set was business asset being installed in his office was disallowed by the Assessing Officer in the assessment for the reason that the same was not supported by any documentary evidence. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue after having found that there were not many workers and employees employed by the assessee going by the fact that the payment made towards salary and bonus was only Rs.1,35,000/-.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. In my opinion, the disallowance made by the Assessing Officer on account of assessee’s claim for depreciation on television set and confirmation of the same by the ld. CIT(Appeals) are not well founded. If the relevant television set was installed in the office of the assessee as claimed, it was used for the purpose of the business of the assessee and depreciation thereon thus was rightly claimed. The action of the Assessing Officer in disallowing the same for want of any supporting evidence as well as the action of the ld. CIT(Appeals) in confirming such disallowance on the basis of less number of employees, in my opinion, is not well founded. I, therefore, delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Ground No. 3 of the assessee’s appeal.

The issue raised in Ground No. 4 relates to the disallowance of Rs.90,338/- made by the Assessing Officer out of interest expenditure and confirmed by the ld.CIT(Appeals).

In the Profit & Loss Account filed along with his return of income, a sum of Rs.2,34,540/- was debited by the assessee on account of interest paid on loan taken from Dena Bank and ICICI Bank. In this regard, it was noted by the Assessing Officer that a sum of Rs.5,00,000/- was advanced by the assessee to his wife free of interest. In this regard, it was explained by the assessee that the amount of Rs.5,00,000/- was advanced by him to his wife, Proprietor of M/s. Rupali Hosiery, for the purpose of his business. It was also claimed by the assessee that he had sufficient funds of his own in the form of capital reserves at the relevant time to give the advance of Rs.5,00,000/- to his wife. This case of the assessee, however, was not found acceptable by the Assessing Officer and he proceeded to disallow the claim of the assessee for interest to the extent of Rs.90,338/- as attributable to the advance of Rs.5,00,000/- given by the assessee to his wife. On appeal, the ld. CIT(Appeals) dismissed the relevant ground raised by the assessee disputing the disallowance made by the Assessing Officer out of interest by holding that the same did not require any adjudication.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly pointed out by the ld. counsel for the assessee from the relevant facts and figures discussed by the Assessing Officer himself in the assessment order, the assessee’s own fund at the relevant time in the form of capital alone were to the extent of Rs.13,53,380/- and since the same were sufficient to give the advance of Rs.5,00,000/- in question by the assessee to his wife, I find merit in the contention of the ld. counsel for the assessee that the said advance is deemed to have been given by the assesese out of his own funds and not out of borrowed funds. There is thus no diversion of borrowed fund for any personal purpose as alleged by the authorities

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on October 21st, 2016.