Income Tax Appellate Tribunal - Raipur
Income Tax Officer Ward -4,, Bhilai(Cg) vs Smt. Tejinder Kaur,, Durg on 15 April, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAIPUR BENCH, RAIPUR
BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER.
I.T.A. No.192/BLPR/2011
Assessment Year : 2008-09.
The Income-tax Officer-4, Smt. Tejinder Kaur,
Bhilai.. Vs. Rasmada, Dist. Durg.
PAN AQSPK3820F.
Appellant. Respondent.
Appellant by : Smt. Shital S. Verma.
Respondent by : Shri R.B. Doshi.
Date of Hearing : 11-02-2016
Date of Pronouncement : 15th April, 2016
O R D E R
Per Shri Shamim Yahya, A.M.
This appeal by the Revenue is directed against the order of learned CIT(Appeals), Raipur dated 08-07-2011 and pertains to assessment year 2008-09. The grounds of appeal read as under :
Whether in law and on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.1,67,987/- made by the AO in the light of various decision relied upon by the assessee and opined on the basis of transaction bills and other supporting documents, proving the genuineness of party/payment.
Whether in law and on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made by the AO on account of 20% out of labour expenses at Rs.71,740/- by accepting the assessee's plea that the payments to workers were made through wage sheet.
Whether in law and on facts and circumstances of the case, the Ld.CIT(A) was justified in deleting the addition made by the AO at Rs.51,92,673/- by not accepting the valuation of closing stock furnished by the assessee.
2. Apropos ground No. 1- Deletion of disallowance of Rs.1,67,987/-.
On this issue the AO has noted that the assessee made cash payments to some of the parties against expenses in excess of Rs.20,000/-. Hence Rs.1,67,987/- was disallowed under the provisions of section 40A(3).
3. Before the learned CIT(Appeals) the assessee submitted that one of the cash entry of Rs.35,000/- was debited to factory building account. Hence the same has not been claimed in profit & loss account. Hence the question of disallowance u/s 40A(3) does not arise. Regarding the other expenditures of four payments the assessee submitted that since the payments were genuine and genuineness is not doubted, no disallowance should be made.
4. After considering the submissions of the assessee and the facts on record the learned CIT(Appeals) held that a basic intention of enacting of section 40A(3) was to target ingenuine transaction. In this case since the transactions are genuine, no disallowance should be made.
5. We have heard both the counsel and perused the records. We find that as regards the capital expenditure of Rs.35,000/- on account of factory building is concerned, section 40A(3) is not attracted inasmuch as payment has not been claimed as expenditure in the profit and loss account. Regarding other expenditure, no case has been made out that the payments fall under the exceptions carved out in Rule 6DD of the I.T. Rules which provide for cases and circumstances in which a payment exceeding Rs.20,000/- made otherwise than by cheque or draft is to be allowed.Since the payment made in this case do not fall under any of the exceptions carved out under Rule 6DD, in our consideration opinion, these payments are hit by the rigours of section 40A(3). Hence in this respect we set aside the order of learned CIT(Appeals) and restore that of the AO.
6. Apropos ground No. 2- Disallowance of Rs.71,740/-.
On this issue The AO has stated that the assessee has incurred labour charges of Rs.3,58,750/- and out of this 20% amounting to Rs.71,740/- is disallowed with the observation that the expenses are not verifiable and that most of the expenses are claimed on the basis of self made vouchers.
7. Before the learned CIT(Appeals) assessee submitted that the payment to workers has been made through wages sheet. In this sheet, various details are mentioned like name of the worker, presence during the month, rate of wages per day and the total payment and it also contains signature/ thumb impression of the workers. Appellant further submitted that in respect of this expenditure, obtaining any other supporting is not possible."
8. Considering the same, learned CIT(Appeal) held as under :
"I have gone through the assessment order and written submission of the appellant. The disallowance of Rs.71,740/- (20%) out of labour charges of Rs.3,58,750/- on the contention that the expenses are not verifiable and such contention without any specific instance is unwarranted. Relying on the judgment of Dhakeshwari Cotton Mills Vs. CIT 26 ITR 775 (SC), I find force in the argument of the appellant that the disallowance is made purely on presumption and surmises which is uncalled for and not sustainable. Hence, the impugned disallowance of Rs.71,740/- hereby deleted."
9. We have heard both the counsel and perused the records. We find that on this issue the AO has made an adhoc disallowance without bringing on record specific and cogent reasons. Learned CIT(Appeals) has passed a reasonable order which in our considered opinion does not need any interference. Accordingly we uphold the same.
10. Apropos ground No. 3- Deletion of Addition of Rs.51,92,673/- :
On this issue the AO has observed that the valuation of closing stock as per the audited accounts was Rs.71,56,022/- while the figure communicated to the bank was on higher side. The AO has furnished the details of the difference in the assessment order and concluded that the stock disclosed in the books is not correct and the stock submitted to the bank is correct. Therefore, the AO added the difference of Rs.51,92,673/- in the total income.
11. Upon assessee's appeal, learned CIT(Appeals) deleted the addition holding as under :
"I have carefully gone through the assessment order and written submission of the appellant. I found force in the argument of the appellant that, the appellant is in the business of excisable product and is maintaining day to day quantity details. The quantity of closing stock reflected in the books is supported by the statutory stock register maintained by the appellant, which is turn is supported by the purchase and sale bills. The AO has not given any finding that the purchase/sales or the entries in the stock register or the books, the AO was not justified the explanation of the appellant. In support of the stock figure reflected in the books, the appellant has led proper and cogent evidence in the form of bills and stock register which have not been found to be incorrect. It is also found that the appellant is enjoying cash credit facilities from the bank. The appellant has submitted before me a working of calculation of drawing power (DP). The working clearly indicates the fact that if the appellant had communicated the correct/book stock figure to the bank, it's outstanding balance would not have been covered by the available DP and the bank would have reduced the DP of the appellant in the next month. The explanation of the appellant that excess stock figure was submitted to the bank so as to cover the outstanding loan amount is thus substantiated. It is also found that the appellant is maintaining day to day stock register, which is subject to verification by the excise authorities and the appellant also furnished stock details in Form No. 20 submitted to the Sales Tax Department containing the same figure as is reflected in the books/account of the appellant. The Copy of excise return of March, 2008 wherein also i find that the quantity of the closing stock of 31/03/2008 is the same as has been considered/taken in the books/account. It is, thus established that the appellant has disclosed the book stock figure to the sales tax department and excise Authorities also. All these evidences lead to irresistible conclusion that the stock statement submitted by the appellant to the bank was incorrect and inflated figures were communicated to the bank. The stock statement submitted to the bank is not corroborated by any evidence/ material. It is not even the case of the AO that the appellant has indulged into unrecorded purchase/production as there is no such finding in the assessment order. In such circumstances, the explanation submitted by the appellant deserves to be considered. On the basis of details of closing stock valuation furnished by the appellant, I further found force in argument of appellant that, the circumstances present in this case advance the case of appellant. Except for the stock statement submitted to the bank, there is no other evidence/material in support of the addition. On the other hand, the appellant has established that the closing stock figure as per books/account is correct figure. Such correct figure is supported by the purchase/sale bills, entries in the stock register, DP calculation, sale tax and excise returns etc. In view of this, the explanation of the appellant are accepted. It is further found force in the argument of the appellant that, this is the first year of operation of appellant's unit and the unit has worked only for 2 months. The turnover of the appellant is Rs.56,42,145/- and there is no finding of the OA that, this turnover is not correct. The income as computed by the AO is Rs.56,19,573/-. It is improbable that an income of Rs.56,19,573/- could be earned out of a turnover of almost similar amount. Going by the working of the AO, the N.P. rate comes to 99.60% which itself proves that the figure computed by the AO is nothing but an imaginary figure. In CIT vs.Smt. P.K.Noorjahan 237 ITR 570 (SC), it has been held that even if the explanation of source of investment is found to be not satisfactory, this by itself should not lead to any addition and a further question should arise for consideration that, whether it is possible for the appellant to have earned the impugned income. Seen in the background of the ratio of the above decision also, the action of the AO does not seem to be reasonable. Under section 69B, burden of proving that the appellant made investment in excess stock lies on the AO. In the facts of the case, this burden has not been discharged by the AO. It is also noted that, it is not the case of the AO that the bank had verified the stock physically and so that inflated figure submitted to the bank remains under cloud. The stock statement submitted to the bank remains uncorroborated. It could be an acceptable fact that generally for various reasons, the stock statement submitted to the bank is on the higher side, to fulfill the bank formalities. No addition can be made only on the basis of uncorroborated stock statement submitted to the bank. In view of this, I am of the considered opinion that in the facts and circumstances, if the case, the AO was not justified in making the addition and the stock statement submitted to the bank could not be considered as proof of investment, in the absence of any evidence/material. Considering the arguments of the appellant and reliance made by the appellant on various decisions as mentioned by the appellant, I am of the opinion that, there could be variety of reasons in the commercial practice to report more figure of stock to the bank to show that the bank is safe and assessment could not be made on the basis of statement given by the assessee to a third party, even if it is given to a bank, unless there is material to corroborate the statement. The burden of showing that the assessee has undisclosed income is on the Revenue and this burden cannot be discharged by merely referring to the stock statement. The ratio of all the decisions, support the case of the appellant. Thus, the appellant has eventually presented before me that, the stock statement submitted to the bank is incorrect and that the correct stock is reflected in the books/account. The AO has not found out even a single instance of any unrecorded purchase. In view of this, I am of the considered opinion that the addition of Rs.51,92,673/- made by the AO is improper and not justified. Hence, the impugned addition of Rs.51,92,673/- is hereby deleted."
12. Against the above order, Revenue is in appeal before us.
13. We have heard both the counsel and perused the records. We find that the AO has made the addition in this case only on the basis of statements submitted by the assessee to Bank. It is not the case that the AO has found any discrepancy in the books of account of the assessee or stock records maintained by the assessee. There is also not on record that the bank authorities had made any physical verification of the stock. In such circumstances dehorse any finding with respect to discrepancy in account or stock records maintained by the assessee, any addition based upon unverified statement submitted to third parties can at best be a reason for suspicion but not a conclusive proof for addition of undisclosed income/stock. This proposition is duly supported by following case laws :
i) ITO vs. Jagdip Kanjibhai 66 ITR 199 (Ahd.).
ii) CIT vs. Swamy 241 ITR 363 (Mad.).
iii) CIT vs. Laxmi Engineering Industries 308 ITR 279.
iv) ACIT vs. Mangalam Publication 317 ITR (AT) 48 (Cochin).
14. The learned D.R. has also placed reliance upon some other case laws for the proposition that contradictory stock statement submitted to bank can be relied upon. But we find that it has been settled law that when two views were possible, one in favour of the assessee should be applied. We also take note of the fact that there is no contrary decision of Hon'ble jurisdictional High Court cited before us. In these circumstances, following the precedents as mentioned above, we uphold the order of learned CIT(Appeals) and delete the addition.
15. In the result, thi s appeal filed by the Revenue stands partly allowed.
Order pronounced in the Open Court on this 15th day of April,2016.
Sd/- Sd/-
(MUKUL K. SHRAWAT) ( SHAMIM YAHYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER.
Dated: April, 2016.
Copy forwarded to :
Smt. Tejinder Kaur,
Prop. M/s Shashi Steel & Forging,
Borai Industrial Area, Rasmada,
Dist. Durg.
I.T.O.,-4, Bhilai.
C.I.T. , Raipur.
CIT(Appeals), Raipur.
D.R., ITAT, Raipur.
Guard File
True Copy
By Order
Assistant Registrar,
Income Tax Appellate Tribunal,
Nagpur Bench, Nagpur.
Wakode
7 ITA No. 192/BLPR/2011.