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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri P.M Jagtap & Shri S.S. Viswanethra Ravi
ORDER SHRI S.S. VISWANETHRA RAVI, JM This appeal of the assessee arises out of the order of the CIT(A)-XXX, Kolkata in Appeal No.174/CIT(A)-XXX/Wd-45(2)/2009-10 dated 30-10-2012 for the assessment year 2007-08 on the following effective ground:-
“For that on the facts and circumstances of the case the ld. Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs.605325/- of stitching and washing charges. “
The sole ground in this appeal to be decided is as to whether CIT-A was justified in confirming the disallowance made by the AO on account of stitching and washing charges.
The assessee is a firm and engaged in manufacturing and trading of readymade garments. The assessee filed its return of income on 26-10-2007 declaring a total income of Rs.1,76,007/- and under scrutiny notices under section 143(2) and 142(1) of the Act were issued and AR representing the assessee appeared.
During the course of scrutiny proceedings, the AO observed that the Assessee debited an amount of Rs.41,95,619/- and Rs.4,86,490/- under the head stitching and washing charges respectively. The A.O further observed that verification letters were issued to certain parties as per list provided by the Assessee in respect of above charges, which were returned un-served by the Department of Posts. The details of the same as per the AO are reproduced as under: SI. Name of Karigars Total Remarks of the Postal No. amount Department paid 1 Mofizul Mollah 48,032 Not known 2 Hasan Ali Mollah 46,048 -do- 3 Sasiul 44,791 Incomplete address 4 Pintu Naiya 45,576 Not known 5 Zakir 49,136 No trace, incomplete Name & address 6 Khokon 47,622 No trace, incomplete Name & address 7 M/s. Stciher Co 3,25,000 Not known 8 M/s. Kiran Laundry 48,000 Not known 9 M/s.Hollywood Bolywood 41,100 Not known 10 Kousar 48,512 Not found 11 Zulfikar 45,103 Incomplete name, Hence cannot be delivered 12 M/s.Nisha Laundry 48,250 Not known 13 Nikhil 45,730 No such person in this address. Hence, not known 14 M/s. Kamal Laundry 47,425 Not known M/s. Target Internationa
According to the AO, that the entire payment was made in cash and the Assessee did not offer any explanation and the Assessee could not identify the persons nor establish the genuineness of the transactions. The A.O noticed that the assesse deducted TDS from M/s. Sticher Co. in March, 2007 and deposited belatedly in May, 2007 and even the amount of Rs.3,25,000/- made to M/s. Sticher Co. was not allowed and disallowed entire amount of Rs.9,30,325/-.
In 1st appeal the assesse submitted that the stitching and washing charges 6. were performed by the skilled job workers at their respective residential premises in muffusil areas in Howrah, Hooghly, South 24-Parganas & North 24 Parganas districts and is major part in the manufacturing of readymade garments. Further submitted that the Assessee furnished names and addresses of such job workers to AO and the cost of stitching and washing charges was economised from 36.82% in 2005-06 to 29.66% in 2007-08. It was further submitted that the said expenditure was incurred wholly and exclusively for business and for commercial expediency and was an integral part of the Assessee’s business. The assesee challenged the action of AO in disallowing an amount of Rs.3,25,007/- to M/s. Sticher Co. without considering the fact the submission of TDS certificate and complete details of such entity which was also produced before the CIT-A.
Considering the above submissions the CIT-A allowed the claim of the assesse in respect of M/s. Sticher Co involving an amount of Rs.3,25,007/- and observed as under:
The submission of the Appellant have been considered and it is seen that the AO had issued notices of verification in support of the stitching and washing charges to parties as per list and address given M/s. Target Internationa by the Appellant which could not be served in respect of 14 parties to whom payment to Rs.9,30,325/- had been shown. The AO has held that these payments are mostly in cash and since the identity of these persons or the transaction could not be verified, the payments were disallowed by him. It is however seen that only in the case of M/s. Sticher Co. where payment of Rs.3,25,000/- had been made on the submissions of the appellant can be considered. In this case the Appellant had not only deducted TDS on the payment of Rs 3,25,000/-, but also issued TDS certificate to this party which had its full address as well as PAN. Therefore the payment can neither be considered as unverifiable nor be disallowed by the AO u/s. 40(a)(ia) on the ground TDS had not been deposited by 31st March, in view of the decision of Hon'ble ITAT in Piyush C. Mehta Vs. ACIT relying on the decision of Kolkata High Court in CIT vs Virgin Creations in of 2011 dated 23-11-2011. In which it has been held that the amendment brought in finance bill 2010 had retrospective affect regarding deposit on tax deducted or before the due date of filing the return u/s. 139(1) by the assesee and therefore such payments were not disallowable u/s. 40(a)(ia). Therefore, in view of the above facts and circumstances, it is held that the disallowance made by the AO in respect of payment of Rs.3,25,000/- to M/s. Sticher Co. for violation of sec. 40(a)(ia) is not justified and the same is deleted. However in respect of the remaining cash payments to 13 parties which could not be verified, it is seen that the Appellant has not given any evidence to substantiate its claim and since notice by the AO had been issued on the address given by the Appellant only, the Appellant's plea for allowability of these payments cannot be accepted. Even if the expenditure is held to be for business purpose the AO was well within his jurisdiction to verify the genuineness of the same as to whether these expenses had been inflated by the Appellant. The Appellant has not even submitted any corroborative evidence to establish the genuineness of the transactions other than what was given to the AO in the form of copies account of these persons, allegedly signed by them. The verification notices issued by the AO were returned un- served with the remarks ‘not known’, ‘no such person in this address’ etc., it is clear that in assessment proceedings, neither the genuineness of the transactions nor the parties could be established, nor there is any evidence to the contrary before me in Appeal. M/s. Target Internationa
Therefore, considering the totality of the circumstances, the disallowance made by the AO in respect of the 13 payments totaling to Rs.6,05,325/- as per list in para 2 above, is held to be justified and upheld (Relief Rs.3,25,000/-).
Aggrieved by the order of CIT-A, the assesse before us by this appeal. In support of grounds of appeal, the Ld.AR that it was a genuine expenditure incurred for the purpose of business of assessee and the accounts of the assesse were audited and the expenses are now gone down. They are all skilled workers are in organized sector and the transactions can not be doubted. In reply, the Ld.DR submits that all the workers are not ordinary persons and they could have responded to the notices issued by the AO and it is wrong to say that their where abouts are not known to the assesse and there is no ingredient of genuine person.
9. Heard rival submissions and perused the material on record. That according to the AO that all the parties to whom the AO issued letters returned unserved and even the party on whom the TDS was deducted remained untraceble. The AO even disallowed the amounts which were paid to the M/s. Sticher Co. without considering the fact the TDS on such amount was deposited with Government proof of which a certificate to that effect was furnished before the AO, inspite of which making disallowance is unwarranted. Therefore, it shows the transactions are genuine and reliable to the fact, that, as per the submissions of the Ld.AR that they are all skilled workers and cause effect job works entrusted to them are being performed at their residential premises and all are from moffusil areas, if that is the case, we noticed that most of the parties are conducting their business under the name and style as M/s. Sticher Co, M/s Hollywood Bolywood and M/s Nisha Laundry etc.., therefore, we are of the opinion the identity of the parties are very M/s. Target Internationa much available before the AO and with regard to genuineness of business transaction also proved to be correct in the context of the business activity of the assesse and in connection thereto the job works performed by the parties therein mentioned in page-2 of order of AO and the AO could not bring on record any evidence contrary to the evidence produced by the Assessee. Therefore, we are of the opinion, that the disallowance ought not to have made by the AO in view of the discussion above and the addition confirmed by the CIT-A to the extent of Rs.6,05,325/- is deleted and the sole ground raised by the assesse is allowed.
In the result the appeal of the assesse is allowed.
Order pronounced in the open Court on 10th August, 2016