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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
This appeal is preferred by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-9, Kolkata dated 12.01.2015 for the assessment year 2010-11,
At the outset, it is observed that there is a delay of 30 days on the part of the assessee in filing this appeal before the Tribunal. In this regard, the assesese has filed an application seeking condonation of the said delay and keeping in view the reasons given therein, which is duly supported by an affidavit filed by the assessee, I am of the view that there is a sufficient cause for the delay on the part of the assessee in filing this appeal. I, therefore, condone the said delay and proceed to dispose of this appeal of the assessee on merit. 3. In Ground No. 1, the assessee has disputed the addition of Rs.3,39,066/- made by the Assessing Officer and confirmed by the ld.
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CIT(Appeals) under section 41(1) of the Act on account of credit balance appearing in the account of M/s. Kan Power Rubber Industries.
The assessee in the present case is an individual, who is engaged in the business of contracting in the name and style of his proprietorship concern M/s. Loknath Builders. The return of income for the year under consideration was filed by him on 12.10.2010 declaring total income of Rs.5,41,630/-. During the course of assessment proceedings, the Assessing Officer made inquiries in order to verify the sundry credits shown by the assessee. These enquiries revealed that one creditor namely M/s. Kan Power Rubber Industries was not available at the address given. In this regard, explanation offered by the assessee before the Assessing Officer was that there being no transaction with the said party after the purchases made in financial year 2004-05, he was not aware of the whereabouts of the said party. The assessee also expressed his inability to produce the said party for verification before the Assessing Officer. Keeping in view this failure of the assessee as well as the fact that the amount due from the assesese was not even claimed by M/s. Kan Power Rubber Industries for the period of more than eight years, the Assessing Officer held that the liability of the assesese towards the said party had ceased to exist and the amount of such liability of Rs.3,39,066/- was liable to be added to the total income of the assessee under section 41(1) of the Act. Accordingly the addition of Rs.3,39,066/- was made by the Assessing Officer to the total income of the assessee.
The addition of Rs.3,39,066/- made by the Assessing Officer under section 41(1) was challenged by the assesese in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer for the following reasons given in paragraph no. 4 of his impugned order:- “4. Ground no. (i) relates to addition of Rs.3,39,066/- made by the A.O. The fact of the case is that to verify the genuineness
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of sundry creditors shown by the appellant, the A.O. issued notice u/s. 133(6) of the LT. Act to M/s. Kan Power Rubber Industries but notice could not be served due to the fact that the said party was not available at the address given. The transaction with the said party was claimed to have been made during the F.Y. 2004-05. The liability was still shown to be payable which was treated by the A.O. as not existed. However, the appellant submitted that M/s, Kan Power Rubber Industries have shifted to some other place out of West Bengal. The purchase from the said party was made during the F.Y. 2004-05, The liability was still being shown payable in his books of accounts. Since the liability was genuine which is still in existence in his books of accounts, therefore, the same cannot be taxed u/s. 41(1) of the I.T. Act. In this regard, he relied upon certain judgements of the Hon'ble Courts/ITAT. After going through the facts and circumstances of the case, I find that the liability was claimed to have been created during the F.Y. 2004-05 which is proved yet to be payable. The present whereabouts of M/s. Kan Power Rubber Industries are not known to the appellant himself. Therefore, when the whereabouts of the person to whom the amount is said to have been payable is not known, then how liability to pay can be discharged. Further, in the case of Rama Steel Rowling Mills & General Engineers vs. ITO, Wd-3(1) reported in 35 Taxmann.com 262 (2013)(Rajasthan), the Hon'ble Court has held that if the assessee failed to produce creditor or unable to give exact address then such liability would extend ceased during the year and the A.O. would be free to add back the same as per law. In the case of M/s. Adarshood vs. CIT, Faridabad reported in 225 Taxman 67 (2014) (Punjab & Haryana), the Hon'ble Court has held that "balance is in name of three parties were appearing since 1984-87 - two parties continued to have any amount payable to them while 3rd was found to be non-genuine - whether in respect of amount found created in the books of accounts of assessee, liability to pay back ceased to exist and hence, Tribunal had rightly treated it to be assessee’s taxable income- held yes”. In view of above discussion, I do not find merit in the argument of the appellant, thereby, the A.O. was justified to make addition of the same”.
I have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has strongly relied on the impugned order of the ld. CIT(Appeals) in support of the revenue’s case on this issue and referred to the case laws relied upon by the ld. CIT(Appeals), it is observed that the facts involved in the said cases relied upon by the ld. CIT(Appeals) are different from the facts involved in the present case. On the other hand, the facts involved in the
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case of Shri Sahadeb Kundu decided by the Coordinate Bench of this Tribunal vide its order dated 07.05.2015 passed in ITA Nos. 1345 & 1446/KOL/2011 as cited by the ld. Counsel for the assessee are similar to the facts of the present case, wherein the similar addition made by the Assessing Officer under section 41(1) was held to be unsustainable by the Tribunal for the following reasons given in paragraph no. 5 of its order:- “5. We find from the above facts that these are trade creditors admittedly coming from earlier years being opening balance. We also find from the record that the assessee has not written-off the liability or liability has not ceased or remitted. In such circumstances, now we have to go to the provisions of section 41(1) of the Act and see the legal possession. Section 41 (1) would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year 2007-08 relevant to the assessment year 2008-09 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The AO undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi- parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that, therefore, the amount in question cannot be added back as a deemed income under section 41(1) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Hence, we have no alternative except to confirm the findings of CIT(A) in respect of deletion but reverse qua the confirmation of addition”.
Respectfully following the decision of the Coordinate Bench of this Tribunal in the case of Sahadeb Kundu (supra), I delete the addition made by the Assessing Officer under section 41(1) and confirmed by the ld. CIT(Appeals) and allow the Ground No. 1 of the assessee’s appeal.
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In Ground No. 2, the assessee has disputed the addition of Rs.1,23,192/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of disallowance out of labour charges.
In the Profit & Loss Account filed along with his return of income, a sum of Rs.24,63,837/- was debited by the assessee on account of labour charges. During the course of assessment proceedings, the claim of the assessee for deduction on account of labour charges was examined by the Assessing Officer and on such examination, he found that the entire claim of the assessee for labour charges was mainly supported by only self- made vouchers, which were not even signed by the concerned payees. Although it was argued by the assessee that the labour charges were paid to the daily labourers sometime on daily basis and sometime on weekly basis, the Assessing Officer found that even proper registers were not maintained by the assessee to support and substantiate his claim for labour charges paid on daily or weekly basis. He, therefore, held that the claim of the assessee for labour charges was not fully verifiable and accordingly a disallowance of Rs.1,23,192/- being 5% of the total labour charges claimed by the assessee was made by him.
On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue observing that the same was quite fair and reasonable in the facts and circumstances of the case.
I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the ld. Counsel for the assessee has contended that the ad hoc disallowance made by the Assessing Officer out of labour charges without pointing out any defect in the self-made vouchers maintained by the assessee is not sustainable, I find that such defects have been specifically pointed out by the Assessing Officer in his order. As noted by the Assessing Officer, the self-made vouchers produced by the assesese did not contain even the signatures of the payees. He also found that even the claim of the
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assessee of having paid labour charges to daily labourers at daily or weekly basis was not supported by any register maintained by the assessee in this regard. On the basis of these specific defects/ deficiencies pointed out by the Assessing Officer, he held that the expenses claimed by the assessee on labour charges was not fully verifiable, and made disallowance of 5% of the labour charges claimed by the assessee on account of such unverifiable element. Having regard to all the facts and circumstances of the case, I am of the view that the disallowance of 5% made by the Assessing Officer out of labour charges for the unverifiable element involved therein is quite fair and reasonable and the ld. CIT(Appeals) has rightly confirmed the same. I, therefore, find no merit in Ground No. 2 of the assessee’s appeal and dismiss the same.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on January 06, 2016. Sd/-
(P.M. Jagtap) Accountant Member Kolkata, the 6th day of January, 2016 Copies to : (1) Pabitra Biswas, 81/B, Beliaghata Main Road, Kolkata-700 010 (2) Income Tax Officer, Ward-33(3), Kolkata, 10B, Middleton Row, Kolkata-700 071
(3) Commissioner of Income-tax (Appeals)-9, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File
By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.