SRI ASOK KUMAR PAL,KOLKATA vs. ITO, WD-51(3), KOLKATA, KOLKATA

Ground No.1 is general in nature and calls for no specific adjudication.

Without prejudice to the above the addition with respect to Rs.11,99,121/- be restricted to the profit on from such transactions.

For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) erred in adding Rs.4,36,258/ - on account of ECL. The assessee did not have any transaction with them. The addition is not justified and the same be deleted. “

The Assessee is an individual. He is engaged in the business of sale of oil Flow Meters and derives income from executing contract job work. In the course of assessment proceedings the AO found that as per Form No.26AS declaration, (which is the declaration of Tax Deducted at Source), the contract receipts for executing the job work on which tax was deducted by the persons who made payments to the Assessee was Rs.50,25,326/-. Whereas the assessee had reflected the receipts on account of executing of job work of only Rs.43,28,316/-. The difference of Rs.7,03,010/- was added by the AO as undisclosed receipts from executing the contract job work.

The CIT(A) was of the view that the above explanation of the assessee can lead to only one conclusion and that the account of the assessee are not correct and the assessee has suppressed his receipts. He also observed that this fact is further supported by the fact that the AO had located a hitherto undisclosed bank account of the assessee, Current Account No. 3362, with United Bank of India, Halisahar Branch standing in the name of M/s Aeon Services. In this undisclosed bank account, sums totalling Rs.8,42,459/- were found credited during financial year 2008-09 and the AO added this sum also as undisclosed receipts in the hands of the assessee. During the appellate proceedings the assessee admitted that this bank account was undisclosed and that this bank account has business related receipts but claimed that these are also covered in 26AS, for which the AO has already made a separate addition. The CIT(A) held that the assessee has not been able to adduce any evidence to the effect that it had done job work for ECL of Rs.27,338/- only and not at least Rs.436258/94p for which TDS statement in 26AS is available. No confirmation from ECL has been filed validating the assessee's claims. The CIT(A) also held that the assessee’s claim that the receipts found in the undisclosed bank account with United Bank of India was already included in his trading as well as job work receipt was not true as the Assessee failed to substantiate his claim in this regard.

The AO obtained a Remand Report dated 22.08.13 from the AO in which the AO pointed out that the total undisclosed contract receipt was Rs.55,21,437/- + Rs. 8,42,459/- (found in the undisclosed bank account) and after reducing the disclosed contract receipts of Rs.43,22,316/-, the net difference was Rs.11,99,121/- and the addition made by the AO should be enhanced to Rs.11,99,121/-.

In the rejoinder to the remand report filed on 11.09.2013, the assessee accepted the manner of calculation done by the AO but claimed that since the AO has not Asok Kumar Pal – A.Y.2009-10 accounted for trading receipts of spare parts of Rs. 4,75253/-, the addition be restricted to Rs.11,99,121/- minus Rs.4,75,253/- i.e. Rs.7,22,866/- only.

The CIT(A) however enhanced the addition made by the AO to Rs.11,99,211 by observing that written submission filed on 05.08.2013 the Assessee admitted undisclosed bank account and had also accepted that these were receipts from executing contract job works but claimed that these were already included in the contract receipts of Rs.55,21,437/- but failed to prove the said contention. The CIT(A) also held that the Assessee’s further claim in his rejoinder to the remand report of the AO for further reduction of Rs.4,75,253/- on the ground that this sum represents 'Sale of Spare Parts' of Rs.4,75,253/- was an afterthought. There are several reasons for not accepting the claims of the assessee on this point:- (a) The job work is for major oil companies which always pay by cheque and after deducting TDS. (b) The trading activity receipts have not been proved to have been received by cheques only. Therefore a concession for the same cannot be given against cheque deposits in the undisclosed bank account of the assessee. (c) The written submission of the assessee also did not make any such claim as made subsequently in the rejoinder. Before the AO also, no such claim was made. (d) No further evidence has been produced in support of this claim by the assessee. For the above reasons, the CIT(A) confirmed the order of the AO and the total addition of Rs.7,03,0101- made by the AO was enhanced to Rs.11,99,121/-leading to an further addition of Rs.4,96,111/-.

Aggrieved by the order of CIT(A) the assessee has raised ground Nos. 2 and 3 before the Tribunal. At the time of hearing of the appeal the ld. Counsel for the assessee brought to our notice the decision of the Hon’ble Calcutta High Court in the case of CIT vs M/s. Royal Security Guarding (P) Ltd. On G.A.No.3488 of 2013 judgment dated 20.07.2014. In the aforesaid decision the question before the Hon’ble Calcutta High Court was the correctness of the order of Tribunal whereby the Tribunal Asok Kumar Pal – A.Y.2009-10 held that only 10% of the undisclosed receipts which were deposited in the bank account of the assessee should be added as income. The Tribunal had given the following findings in its order :- “We observe from page-7 of Id. C.I.T.(A)'s order that as per bank statement there were regular month-wise cash withdrawals totalling to Rs.22,82,716/- against deposit of amounts in the undisclosed bank account aggregating to Rs.22,89,910/- and, therefore, it can be said that the said withdrawals were utilized towards assessee's direct and indirect expenses in running of its security guard services, more so when the AO. could not bring on record anything contrary about utilization of such withdrawals. In our considered opinion, therefore, the AO. was not justified in adding back the entire receipts of Rs.23,28,60l/- as unexplained investment u/s. 69A of the Act. We further observe that the entire deposit made in the undisclosed bank account was received by cheques from the clients and the expenditure claimed to have been incurred by the assessee for its business purposes has been described on page-8 of Id. C.I.T.(A)'s order. As rightly pointed out by Id. C.I.T.(A), if the action of AO. in treating the entire receipts in undisclosed bank account as income of the assessee is considered to be correct, the rate of net profit of the disclosed and undisclosed portion taken together would be more than 50% of the gross receipts, which is unlikely in the line of business the assessee is carrying on, more so when the AO. himself for AY. 2007-08 has taken the net profit of the assessee at 6%. Therefore, considering the totality of the facts and circumstances of the case, we find no infirmity in the order of Id. C.I.T.(A) in estimating the net profit @ 10% on the aggregate receipts of both the disclosed and undisclosed portion. We, therefore, uphold the same and direct the AO. accordingly. The ground of appeal of the department, therefore, fails.”

It was submitted by him that the disclosed gross profit from the assessee’s contract business was 31.75% and only this gross profit rate should be applied to the undisclosed sales, as held by the Hon’ble Calcutta High Court. In this regard the ld. Counsel for the assessee pointed out that the undisclosed receipts were from the assessee’s business of executing the contract job work has not been disputed by the revenue authorities and in such circumstances the entire turn over cannot be added as income and only the gross profit should be added as income.

The ld. DR pointed out that the Hon’ble Calcutta High Court in its decision has specifically observed that various payments were made from the deposits in the bank account. Such facts are not present in the case of the assessee and therefore the decision of the Hon’ble Calcutta High Court should not be deleted.

I have given a very careful consideration to the rival submissions. The plea put forth by the ld. Counsel for the assessee has to be accepted. As rightly contended by the ld. Counsel for the assessee the entire contract receipts cannot be added as income. The assessee derives income from executing the contract job work and in doing so is bound to incur expenses. It is not the case of the revenue that all expenses including the expenses relatable to the undisclosed receipts from execution of contract job work has already been taken into consideration while arriving at the total income of the assessee declared in the return of income by the assessee. In such circumstances I am of the view that the belief of taxing 31.75% which is the disclosed gross profit of the assessee on the undisclosed contract receipts is just and fair and the plea of the Assessee in this regard is directed to be accepted. Ground nos. 2, 3 and 5 of the assessee are partly allowed.

Ground No.4 raised by the assessee reads as follows :- -Sri Asok Kumar Pal – A.Y.2009-10

The assessee paid the following amounts to different parties for supply of technical works and labourer on a regular basis for conducting AMC job-work. Though there exists no written agreement yet service of such labourer was taken to carry out the maintenance of oil flow Meter in different companies. According to the AO, this type of contract job falls within the ambit of See194C of the Income Tax Act, 1961 (Act) and the Assessee was under an obligation to deduct tax at source on the payments made as above as payment of such sum exceeded twenty thousand rupees which is applicable for the relevant asstt. Year [Sec194C(5)]. Since tax was not deducted at source, the AO held that there was violation of the provision of See40(a)(ia) of the Act on the following payments falling u/s.194C of the Act:

Before me, the Assessee claimed that the persons to whom the payments were made without deducting tax at source after filing their return of income and showed the amounts received from the assessee as total income. If the persons to whom the assessee made payments have included the receipts in their total income the addition u/s 40(a)(ia) of the Act should be deleted. In this regard our attention was made to the Asok Kumar Pal – A.Y.2009-10 decision of this Bench rendered in the case of M/s. Abhoy Charan Bakshi vide ITA NO.1492/Kol/2015 order dated 06.04.2016 where in similar direction was given by ITAT.

I have given a careful consideration to the submissions made by the ld. Counsel for the assessee. This Tribunal in the case of M/s. Abhoy Charan bakshi (supra) has held as follows :- 15. We have given a very careful consideration to the rival submissions. The CIT(A) has held that the second proviso to Sec.40(a)(ia) of the Act will apply in the present case and that applicability of the second proviso to Sec.40(a)(ia) of the Act which was introduced by the Finance Act, 2012 w.e.f. 1.4.2013 was retrospective in operation and was to apply w.e.f. 1-4-2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. The Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd., in judgment dated 26.8.2015 has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, the CIT(A) ought to have directed the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A). The CIT(A) ought to have also directed the AO that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also find that the Assessee has furnished all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same.”

I am of the view that similar directions as were made above should be given in the present case also. The issue is accordingly is set aside to the AO for verification as done in the aforesaid decision. Ground no.4 is accordingly treated as allowed for statistical purposes. -Sri Asok Kumar Pal – A.Y.2009-10

Ground No.6 raised by the assessee reads as follows :- “6. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) erred in making addition of Rs.79,500/- on account of education expenses for the employee of the assessee. The said disallowance is unjustified and the same be deleted.”

The assessee debited an amount of Rs.79,500/- towards Admission Expenses. During the course of hearing it was found that all payments in support of these expenses were made by cash and were supported only by self-made vouchers. The Assessee claimed the aforesaid expenditure related to education expenses of employee’s children. The AO however held that since no business purpose is served by such expenses, the same cannot be allowed as a deduction u/s 37 of the Act and he added back the said sum to the total income of the assessee. On appeal by the assessee the CIT(A) confirmed the order of AO.

Before me, the limited prayer of the ld. Counsel for the assessee was that the assessee should be given an opportunity to explain that the expenses in question were actually incurred for the education of children of the employees of the assessee. In this regard the ld. Counsel for the assessee placed before me the decision of the Hon’ble Karnataka High Court in the case of Mysore Kirloskar Ltd. Vs CIT 166 ITR 836 (Kar) wherein the Hon’ble Karnataka High Court took a view that the expenses incurred for education of children of the employee was allowable as deduction.

After hearing the rival submissions I am of the view that it would be just and proper to set aside the order of CIT(A) on this issue and remand to the AO for fresh consideration of the issue with the liberty to the assessee to establish that the expenses in question were in fact incurred for the education of the children of the employees. If it is so established then the deduction claimed should be allowed. Ground No.6 is treated as allowed for statistical purposes. -Sri Asok Kumar Pal – A.Y.2009-10

In the result the appeal is treated as partly allowed.