Income Tax Appellate Tribunal - Bangalore
Hirenallar Rudrappa Ravikumar, ... vs Income-Tax Officer, Ward-7(2)(3), ... on 3 December, 2023
ITA No.850/Bang/2023
Hirenallar Rudrappa Ravikumar, Bangalore &
ITA No.853/Bang/2023
Nallapeta Anjaiahsetty Jayaram, Bangalore
Page 1 of 22
IN THE INCOME TAX APPELLATE TRIBUNAL
"A'' BENCH: BANGALORE
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SMT. MADHUMITA ROY, JUDICIAL MEMBER
ITA No.853/Bang/2023
Assessment Year: 2013-14
Nallapeta Anjaiahsetty Jayaram
No.53, 1st Floor
Sannidhi Road Cross ITO
Basavanagudi Vs. Ward-5(2)(3)
Bangalore 560 004 Bangalore
PAN NO : ABFPJ5894F
APPELLANT RESPONDENT
ITA No.850/Bang/2023
Assessment Year: 2014-15
Hirenallar Rudrappa Ravikumar
No.201, Kuttera Arcade
Koramangala 6th Block ITO
Vs.
Bangalore 560 047 Ward 7(2)(3)
Bangalore
PAN NO : ABWPR4052N
APPELLANT RESPONDENT
Appellant by : Shri H. Guruswamy, A.R.
Respondent by : Shri Ashwin D Gowda, D.R.
Date of Hearing : 21.12.2023
Date of Pronouncement : 03.01.2024
ORDER
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These two appeals by assessee are directed against the order of NFAC for assessment years 2013-14 & 2014-15 dated 6.9.2023 and 12.10.2023 respectively passed u/s 250 of the Income Tax Act, 1961 (in short "The Act").
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 2 of 22
2. First, we will take up ITA No.853/Bang/2023. The first ground for our consideration is with regard to addition of Rs.1,07,95,803/- made u/s 69 of the Act towards unexplained cash deposit to bank account in the assessment year under consideration. The ld. AO in the course of assessment proceedings found that there were cash deposits into the SB account of the assessee to the tune of Rs.1,07,95,803/-, the source of which was not explained by the assessee and the addition has been made. On appeal before NFAC, assessee has not produced any details explaining the source of such deposit. The same has been confirmed. Against this assessee is in appeal before us.
3. Before us, ld. A.R. submitted that the amount deposited to the assessee's bank account were out of withdrawals and partly out of business turnover of the assessee of the proprietary concern M/s. Bilwa Labs. According to him, earlier withdrawal was available to him to redeposit the same to the assessee's bank account and he also relied on the order of jurisdictional High Court in the case of S.R. Venkataratnam Vs. CIT (1981) 127 ITR 807 (Karn.) wherein held that ld. AO has not made any exercise to disbelieve the version of the assessee about redeposit of the amount out of earlier withdrawals and also the ld. AO is required to disprove that the amount withdrawn earlier was not the amount redeposited. According to him, ld. AO have not brought any evidence on record in support of the rejection of assessee's claim as to the earlier withdrawal and the same was recycled by way of cash deposit at a later date, therefore, it is submitted that the ld. AO was not justified to make addition of cash deposit of Rs.1,07,95,803/- which is included in the total addition of Rs.1,12,32,850/- He has produced the cash flow statement supported by the bank account explaining the availability of cash with the assessee to deposit to bank account.
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 3 of 22 3.1 The assessee has deposited a sum of Rs.107,95,803/- into SB account with ING Vysya bank and also withdrawn a sum of Rs.89,42,200/- from the same account. Further, it is submitted that in the year under consideration, the assessee having income from following sources, which has been available to the assessee to deposit into assessee's bank account.
1. Rental income before deduction u/s 24 of the Rs.31,65,000/-
Act
2. Salary income from M/s. Ramachandra Rs.6,00,000/-
Pesticide at Rs.50,000/- p.m.
3. Business receipts from the proprietary Rs.41,60,000/-
concern M/s. Bilwa Labs
Source of funds _________________
Total Rs.79,25,000/-
_________________
3.2 According to the ld.AR, the AO overlooked withdrawal as sources
available to the assessee to deposit into said bank account and made addition of Rs.1,07,95,803/- towards unexplained cash deposits into bank account, which is to be deleted.
4. On the other hand, ld. D.R. has submitted that the assessee has not furnished any details before lower authorities. Hence, the addition has been made by ld. AO and the same has been confirmed by the NFAC.
5. We have heard the rival submissions and perused the materials available on record. The assessee has filed the detailed cash flow statements for the assessment year under consideration as below:
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 4 of 22 ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 5 of 22 ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 6 of 22 ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 7 of 22 5.1 Further, assessee has furnished the source of funds in the assessment year under consideration as below:
1. Rental income before deduction u/s 24 of the Rs.31,65,000/-
Act
2. Salary income from M/s. Ramachandra Rs.6,00,000/-
Pesticide at Rs.50,000/- p.m.
3. Business receipts from the proprietary Rs.41,60,000/-
concern M/s. Bilwa Labs Source of funds _________________ Total Rs.79,25,000/-
_________________ According to the assessee, in the assessment year under consideration, the assessee has deposited above amount to assessee's bank account. Thereafter, withdrawn Rs.86.29 lakhs from said bank account and as such there was enough source to deposit to bank account.
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 8 of 22 5.2 On going through above statement, we are of the opinion that an amount of Rs.18,96,800/- was available with the assessee as a opening balance and which is available to the assessee for redeposit to the account. The assessee has to get benefit to that extent of Rs.18,96,800/- and to be given.
5.2.1 Further, assessee has submitted that assessee was regularly withdrawing the money from bank account and it is available to the assessee to deposit to bank account. As held by Hon'ble Karnataka High Court in the case of S.R. Venkataratnam Vs. CIT cited (supra), if assessee states that earlier withdrawal is available to the assessee to redeposit the same into bank account, the credit to that amount cannot be denied without bringing any material on record to suggest that, that earlier withdrawal has been spent by the assessee for some other purpose. Same view was taken by this Tribunal in the case of Sri Krishnamurthy Narayana Murthy Vs. ITO in ITA No.2559/Bang/2019 dated 27.4.2020, wherein held as follows:
"6. I have heard the rival submissions and perused the material on record. In this case, the Assessing Officer found that the assessee has deposited a sum of Rs.1,06,19,947 in the saving bank account with ICICI Bank. The assessee was able to give explanation to the source of an amount of Rs.86,27,558, however, the assessee has not led any evidence before the A.O. with regard to the balance amount of Rs.19,92,389. Before me, the learned AR submitted that proper opportunity has not been granted to the assessee to explain the source of deposit with the bank. Further, it was submitted that the A.O. has not agreed with the opening balance of cash available to deposit in the bank and the earlier withdrawals to redeposit in the saving bank account. The assessee filed day to day cash in hand position before me and submitted that earlier withdrawals were available with the assessee to deposit that amount and due credit to be given to such earlier withdrawals as available to deposit with bank account. According to the learned DR, the earlier withdrawals made by the assessee should not have redeposited with the bank account. The assessee submitted that the assessee withdrawn money from bank account for particular purposes, however, it was not kept idle and it was redeposited to bank account. The Assessing Officer did not accept the contention of the assessee since the assessee has not filed any fund flow statement or cash flow statement before him. However, the Assessing Officer has not examined the cash book to see that any cash balance is available with the assessee to redeposit the same in the bank account. The Assessing Officer has also ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 9 of 22 not brought anything on record to show that the assessee has used the earlier withdrawals for his persons purposes and not for redeposit the same in the bank account. Therefore, it has to be presumed that the assessee has withdrawn cash and the same remains to be unutilized for one reason or the other and the cash remained with the assessee and used the same to deposit in the bank account. Similar issue was considered by the Bangalore Benches of the Tribunal in case of Sri. Byarakar Manjappa Veeresh in ITA No.1723/Bang/ 2019. Th Tribunal vide order dated 30th January, 2020 remitted the issue to the file of the Assessing Officer with the following observations: -
'6. I have heard the rival submissions and perused the material on record. In the present case, as per AIR information reported that the assessee has deposited cash into his saving bank account with Bank of Baroda, Peenya Branch, Bangalore totaling to Rs.27,45,300. The assessee explained that Rs.10 lakh deposited with the bank was accepted the A.O. Regarding the balance amount of Rs.17,45,300, it was claimed by the assessee that the cash deposits were out of earlier withdrawals and also claimed to have agricultural income. It was the plea of the assessee that she has made withdrawals and redeposited the amount into bank account. The assessee filed day to day cash in hand position before me and submitted that earlier withdrawals were available with the assessee to deposit that amount and due credit to be given to such earlier withdrawals as available to deposit with bank account. The learned DR strongly opposed the argument of the AR and submitted that during the assessment year under consideration the assessee purchased immovable properties at No.9, Laggere village, Peenya, Bangalore at a cost of Rs.38,70,230 and the earlier withdrawals from the bank account might have been used to pay the on- money for purchase of that property. Even otherwise, he submitted that the earlier withdrawals have been made to meet particular expenditure and not for redepositing with the bank account. The assessee's main plea is that the assessee had withdrawn huge amount from the said bank account on various dates and kept the said amount idle with the assessee and redeposited the same into the bank account. To this effect, the assessee has furnished the statement showing withdrawals and cash in hands on various dates. While completing the assessment, the Assessing Officer give credit to only Rs.10 lakh and the balance amount, he disbelieved and treated the said amount of Rs.17,45,300 as unexplained income of the assessee. The Assessing Officer has not accepted the contention of the assessee, since the assessee has not filed any fund flow position of the assessee. However, the Assessing Officer did not doubted withdrawals of cash on various dates. The Assessing Officer has also no evidence to prove that the assessee has made withdrawals on various dates for any other purposes. There is also no evidence that the assessee has used this money to deposit in any bank account of him or for his household expenses. In such circumstances, it cannot be said that the withdrawals have been utilized to redeposit with ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 10 of 22 the bank of the assessee. Therefore, it has to be presumed that the assessee has withdrawn cash and the same remains to be unutilized for one reason or the other and the cash remained with the assessee. In such circumstances, due credit to be given for such withdrawals of the cash by the assessee. In my opinion, similar view was taken by the Cochin Bench of the Tribunal in the case of Sri.Mathew Philip v. ITO [ITA No.443/Coch/2019 - order dated 29.11.2019] wherein it was held as under:-
"10. We have heard the rival submissions and perused the material on record. In the present case, the dispute is with regard to cash deposit of Rs.32.5 lakhs into the various bank accounts of the assessee. The main plea of the assessee is that the assessee had withdrawn cash of Rs.50 lakhs on 26/09/2014. The assessee had withdrawn cash on various dates at Rs.68 lakhs as narrated in para 5 of this order.
10.1 These amounts were redeposited into Bank accounts on various dates as follows: 02/04/2014 Rs. 3,00,000/- 27/08/2014 Rs. 1,50,000/- 26/09/2014 Rs.50,00,000/-
11. The Assessing Officer has given credit of Rs.23.50 lakhs towards cash in hand for depositing it into Bank account of the assessee. The Assessing Officer treated Rs.28.5 lakhs as unexplained sources. Thus, he treated the following amounts as unexplained cash deposits of the assessee:Rs.3 lakhs Rs.1 lakh Rs.28.5 lakhs Total:Rs.32.5 lakhs 11.1 The assessee explained that during the assessment year 2012-13, the assessee had an ailment of cancer and he could not attend to business and financial matters and kept the cash withdrawn from Bank on 31/12/2013 for medical treatment and other expenses and deposited the amount in Bank only on 26/09/2014. In support of his claim, the assessee has produced discharge summary dated 06/11/2013 from Lourde Hospital, Ernakulam before AO. He has also produced CT Scan report dated 11/07/2013 which is not disputed by the lower authorities. The Assessing Officer has not accepted the contention of the assessee that he has kept the cash idly in his hands on the reason that he has not filed the wealth tax return showing the cash in hand. The Assessing Officer has not doubted the withdrawal of cash. However, the fact is that the assessee has withdrawn cash of Rs.50 lakhs on 31/12/2013. There is no evidence brought on record to show that these withdrawals have been used by the assessee or deposited by the assessee in any other Bank. It cannot be said that these withdrawals made from the Bank account were used for household expenses or any other investment. In such circumstances, it cannot be disputed that the withdrawals have been used for redeposit into the ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 11 of 22 Bank account of the assessee. In other words, the Assessing Officer has not disputed the existence of Bank accounts and withdrawal from the same. The earlier withdrawal of Rs.50 lakhs from the Bank account on 31/12/2013 or withdrawal from various Bank accounts on different dates is not disputed. The assessee might have kept the cash withdrawals with him and redeposited into various Bank accounts on a later date. It is quite possible that the assessee might have withdrawn the cash for some purpose but the same remains to be utilized for one reason or the other and the cash continues to be remained with him. Sometimes it may also happen that the cash withdrawals from Bank accounts continues to remain as cash balance with the assessee even for many months and sometimes cash withdrawn is utilized on the same day. All these probable aspects of the matter cannot simply be ignored or brushed aside but the fact remains that the cash has been withdrawn from the Bank and that is not at all disputed. In view of this, the explanation of the assessee deserves to be accepted, unless contrary is brought on record which has not been done in this case. Considering the totality of the facts and circumstances of the case and in view of the discussions above, the cash deposits made by the assessee on various dates should be reasonably presumed that it is from earlier withdrawals made by the assessee on various dates. Accordingly, we delete the entire addition of Rs.32.5 lakhs made by the Assessing Officer."
7. In view of the above, I am of the opinion that the Assessing Officer has to examine the fund flow statement of the assessee and to re- examine the issue in the interest of justice. Accordingly, I remit the issue to the file of the A.O. to give due credit towards the amount withdrawn by the assessee and kept idle and redeposited by the assessee into bank accounts.'
7. In view of the above order of the Tribunal in the case of Sri.Byarakar Manjappa Veeresh (supra), I am inclined to direct the Assessing Officer to give due credit to the opening balance of the year and also towards earlier withdrawals, after verifying the books of account of the assessee. With these observations, we remit the issue to the file of the Assessing Officer for fresh consideration."
5.3 Further in the case of in the case of Shri Narayana Shibaroor Shibaraya Vs. ITO Ward-3(3)(3) in ITA No.684/Bang/2022 dated 23.11.2022 wherein held as under:
"5. I have considered the rival submission. I am of the view that the explanation offered by the Assessee with regard to the source of deposit of Rs.15.00 lakhs in his bank account is satisfactory and therefore, no addition can be made on account of unexplained cash. As rightly contended by the ld.counsel for the Assessee, the withdrawal of cash from the bank account prior to deposit of cash is not disputed by the ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 12 of 22 revenue. The fact that the Assessee did not explain the reasons for withdrawal of cash from his bank account cannot be the basis to hold that the source of deposit of cash was not explained by the Assessee. The legal position in this regard is that if the deposit of money in the bank account is preceded by withdrawal of money from the very same bank account, then the source of funds is prima facie demonstrated or explained by the Assessee. The Honourable Karnataka High Court in the case of S.R.Ventakaratnam Vs CIT, Karnataka-I & Others 127 ITR 807 has held that once the Assessee discloses the source as having come from the withdrawals made on a given date from a given bank, it was not open to the revenue to examine as to what the Assessee did with that money and cannot chose to disbelieve the plea of the Assessee merely on the surmise that it would not be probable for the Assessee to keep the money unutilized. The decision of the Hon'ble Karnataka High Court supports the plea of the assessee. It is seen that the cash deposits in the bank account are preceded by withdrawal from the very same bank account. I am of the view that the ratio laid down in the aforesaid judgment will apply to the facts of the present case. If the revenue wants to disbelieve the plea of the Assessee then it must show that the previous withdrawal of cash would not have been available with the Assessee on the date of deposit of cash in the bank account. The AO and CIT(A) have proceeded purely on assumption and surmises that cash withdrawn was not available to the Assessee on completely extraneous factors. In our view, the Assessee has satisfactorily explained the source of funds out of which deposit of cash was made in the bank account. I therefore delete the addition made in this regard.
Consequently, the appeal of the Assessee is allowed.
6. In the result, appeal of the assessee is allowed."
5.3.1 Similar view was taken by this Tribunal in the case of Shri Girigowda Dasegowda Vs. ITO Ward 2(2)(8) in ITA No.360/Bang/2022 dated 10.8.2022 wherein held as under:
"9. I have carefully considered the rival submission. The Hon'ble Karnataka High Court in the case of Smt. P. Padmavathy (supra) clearly laid down that earlier withdrawals of cash from Bank account have to be accepted as available to an assessee to explain a later deposit as source. The Hon'ble Court held that it was not open to the Revenue to contend that the assessee has to explain as to how the cash withdrawn earlier was utilized by an assessee and was still available with the assessee. The decisions cited by the learned DR are contrary to the law laid down by the Hon'ble Karnataka High Court and therefore not binding. I, therefore, hold the past withdrawals as claimed by the assessee from 2013 should be considered as being available to the assessee to explain the source of deposit. We are also of the view that a reasonable ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 13 of 22 quantum of cash available out of past savings should also be considered as being available to the assessee to explain the source of cash deposited in the bank account."
10. I, therefore, set aside the order of the CIT(A) and remand the case to the AO to consider the issue denovo in the light of the observations as made above.
11. The appeal of the assessee is accordingly treated as allowed for statistical purposes.
12. In the result, appeal of the assessee is allowed for statistical purposes."
5.3.2 Considering the facts of the present case in the light of the above decisions cited Supra, we are of the opinion that the assessee has to get due credit towards opening cash balance of Rs.18,96,800/- and cash withdrawal from the account of Rs.89,42,200/-, which works out to Rs.1,08,39,000/-, that is more than the amount deposited into bank account of Rs.107,95,803/-, as such addition of Rs.107,95,803/- cannot be sustained. Accordingly, we delete the addition made towards unexplained cash deposit made into assessee's bank account on various dates. This ground of the appeal of the assessee is allowed.
6. Next ground in this appeal is with regard to addition of Rs.4,37,047/- towards unexplained credit card expenses. The ld. A.R. submitted that assessee has been making regular withdrawals from the bank account and the same has been used for payment of credit card expenses.
7. On the other hand, ld. D.R. submitted that the assessee has not produced relevant evidence in support of the claim of the assessee.
8. We have heard the rival submissions and perused the materials available on record. In our opinion, the assessee has spent an amount of ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 14 of 22 Rs.4,37,047/-, as we discussed in earlier para, this has been made by the assessee by the withdrawals made the total of Rs.1,36,86,000/- from the assessee's bank account. The sources of which is discussed in earlier paras 5 to 5.3.2. Accordingly, this addition is also deleted.
9. In the result, appeal of the appeal in ITA No.853/Bang/2023 is allowed.
ITA 850/Bang/2023:
10. First ground in this appeal is with regard to sustaining addition of Rs.1,28,35,891/- being the disallowance made u/s 40(a)(ia) of the Act.
10.1 Facts of the case are that the ld. AO has found that assessee has claimed sub-contract expenditure of Rs.6,60,87,941/-. The ld. AO has asked documentary evidence for payment to sub-contractors along with list of sub-contractors, details of contract agreement entered into and proof of payment. The assessee was able to produce Form No.27A in respect of 7 parties against whom TDS was deducted on sub-contract payment to the extent of Rs.5,32,52,050/- for the balance sub-contract payment of Rs.1,28,35,891/-. The assessee was able to produce only list of names, without PAN numbers and addresses and no details of proof for payments was submitted. Since the payments exceeded a sum of Rs.30,000/- in most cases, the assessee was required to deduct TDS as per provisions u/s 194C of the Act and no TDS made. The said amount of Rs.1,28,35,891/- was disallowed by invoking the provisions of section 40(a)(ia) of the Act. The same has been confirmed by the NFAC. Against this assessee is in appeal before us.
11. The ld. A.R. submitted that the ld. CIT(A) has confirmed the addition made by the AO amounting to Rs.1,28,35,852/- being the dis-allowance u/s 40(a)(ia) of the Act on the ground of non-deduction of TDS out of the labour ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 15 of 22 charges paid to the daily casual labourers. He submitted that the ld. AO in para 3 of the Assessment Order has held that the sub-contract expenditure was claimed amounting to Rs.6,60,87,941/- against which the TDS was deducted on Rs.5,32,52,050/- and the TDS was not deducted on Rs.1,28,35,891/-. The ld. AO has further held that the TDS ought to have been deducted u/s 194C of the Act and therefore the names and PAN was sought for to whom the labour charges were paid. The AO has held that the assessee was able to furnish only a list of names without PAN and address and also without details of proof of payment. The ld. A.R. submitted that the ld. AO was not justified to dis-allow the expenditure of Rs.1,28,35,891/- u/s 194C of the Act which is not applicable since the labour charges paid to each individual labourer was not based on any contract. He submitted that the labour contract was taken in different places and the labourers were engaged from the place or nearby places on daily wage basis. The labourers were not having any PAN since the same was not obtained as the income earned by the labourers was below the taxable limit. Therefore, the AO was not justified to dis-allow the labour payment of Rs.1,28,35,891/- merely on the ground of non-submission of PAN and address. The labour contract was undertaken in the previous year 31-03-2014 whereas the assessment was taken up for scrutiny in the year 2016 after lapse of more than two years eight months and therefore the labourers who were engaged for the execution of the work were not available and also it was not practicable for the assessee to contact the labourers who normally keep going from place to place in search of the labour job. Therefore, the AO was not justified to hold that the expenditure of Rs.1,28,35,891/- was not allowable on the ground of non-furnishing of PAN and address. He submitted that the AO was not justified to invoke the provision of Section 194C of the Act which is absolutely not applicable to the facts and circumstances of the case of the assessee as the labour payment made to each individual was not on the basis of contract. Hence the addition made u/s 194C of the Act was arbitrary, unreasonable and opposed to law and facts of the case. The ld.
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 16 of 22 A.R. submitted that the ld. CIT(A) has confirmed the addition of Rs. 1,28,35,891/- for the same reasons as mentioned by the AO in the Assessment Order without appreciating the fact that the AO has vaguely mentioned that as per the list the labour charges paid exceeded Rs.30,000/- in most cases. The AO has not brought on record any contrary evidence in support of the contention that the payments were made on the basis of contract. In fact, the labour charges were paid directly to the labourers without any contractual relationship. In view of the above he submitted that provision of Section 194C of the Act was not applicable since the labour charges were paid to each individual labourer separately and directly without any relationship of contractor and contractee hence the addition made amounting to Rs. Rs. 1,28,35,891/- was opposed to law and facts of the case and hence the addition so made on presumption, supposition was a matter of guess work based on any material evidence and the same is liable to be deleted in the interest of equity and justice.
12. The ld. D.R. relied on the order of lower authorities.
13. We have heard the rival submissions and perused the materials available on record. In this case, the ld. AO has disallowed the payment made by the assessee to the labourers on the ground that no TDS was deducted u/s 194C of the Act and the same has been confirmed by NFAC. Now we have to see whether labourers are employees of the assessee or they are working on contractual capacity attracting the capacity of provisions u/s 194C of the Act. It is an admitted fact that the assessee has produced the list of labourers who has worked for the assessee for different contracts. The contention of the ld. D.R. is that assessee has furnished only names of the labourers and not furnished the PAN numbers of the said labourers and it is not disputed that the payment was made to the labourers. Being so, it is an admitted fact that payment was made to individual labourers and not to the labour contractors. These facts have not been disputed by the ld. AO.
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 17 of 22 Now whether we could treat these labourers as employees of the assessee and the present assessee is an employer of those employees? The employer is a person who controls and directs a servant or worker under an express or implied contract of employment. The employer accordingly is under obligation to pay him the salary or wages in compensation. Accordingly, an individual who works part-time or full-time under a contract of employment whether oral or written expressed or implied and he is liable to perform the duties as assigned. That person is called as employee. In the instant case we find that the labourers are working under the direct supervision of the assessee. They have no other separate business organization. They are representing the organization of the assessee. Thus, in our considered view there exists an employer and employee relationship between the assessee and labourers. The payment to the employees can be in the form of fixed salary as mutually agreed.
13.1 In this connection, we also rely in the order of Hon'ble Tribunal of Delhi in the case of St. Stephen's Hospital Vs. DCIT reported in 6 SOT 60 (Kolkata) wherein it was held as under :
"A careful perusal of the said appointment letters showed that out of the 18 consultant doctors in question, 11 doctors were being paid a fixed monthly amount by the assessee, whereas the remaining 7 doctors were being paid some fixed share of fees received from private patients treated by them in addition to the fixed monthly payment. Barring that aspect, there was no material difference in the terms and conditions of their appointment. [Para 11] Keeping in view the position arising from the terms of appointment of consultant doctors as well as the Service Rules governing the employees of the assessee's hospital, it could reasonably be concluded that all the consultant doctors were employees of the assessee, and that even if there was a distinction between the terms of employment of the permanent employees and those of consultant doctors, the fact was that they were the employees of the assessee falling in the category of fixed period/contract employee and/or part-time employee. It, therefore, followed that the relationship between the assessee and the consultant doctors was purely that of employer and employee and remuneration paid to them in terms of the said relationship was salary which attracted the provisions of section 192. [Para 14] The treatment given by the assessee as well as the consultant doctors to the remuneration paid in their respective books of account was not conclusive to decide ITA No.850/Bang/2023 Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 18 of 22 the nature of the said remuneration which had to be ascertained on the basis of relationship between the assessee and the consultant doctors. [Para 16] There was an employer-employee relationship between the assessee and the consultant doctors and, consequently, remuneration paid to them was chargeable to tax under the head 'Salaries'. The said payments, thus, were subject to deduction of tax as per provisions of section 192 and not as per provisions of section 194J. Thus, the Assessing Officer was fully justified in treating the assessee as in default for short deduction of tax at source from the payments made to the consultant doctors. [Para 17] The assessee's appeal was, accordingly, dismissed."
13.2 In the light of above reasoning, we hold that the assessee is not liable for TDS deduction under section 194C of the Act. The assessee gets the relief accordingly.
13.3 Further, same view was taken by coordinate bench of Kolkata in the case of Tapas Paul in ITA No.237/Kol/2014 dated 3.5.2017. Even otherwise, if we consider payment as a payment to the sub-contractors who supply the labourers, this issue is covered against the department by the order of this Tribunal in the case of Ace Developers in ITA Nos.74 to 76/Bang/2022 dated 27.7.2023, wherein held as under:
"5. We have heard the rival submissions and perused the materials available on record. In the present case, assessee is engaged in business of construction and sale of flats in agreement with the owner of the land. In the course of business of assessee, assessee made cash payment to sub-contractors in exceeds of Rs.20,000/- otherwise by cash or demand draft or crossed cheque or through electronic mode through bank. The assessee's plea is that payment has been made to sub-contractors who in turn make payment to their labourers towards their wages/salary. The weekly payment has been made on the work acknowledged by the site engineer. The contention of ld. D.R. is that these payments have been made to the sub-contractors by way of bearer cheques and in turn these cheques were been withdrawn through assessee's employees' and thereafter proceeds has been received back by the assessee. In fact, the assessee issued bearer cheque and in turn through its employees the amount has been withdrawn and received back by the assessee. Anyhow, the crux of the issue is that assessee has been paid the amount to sub-contractors in cash otherwise than by crossed cheque, Demand draft or electronic mode through bank. These payments made to the sub- contractors has been accounted by assessee and claimed as expenditure. There are certain judgements, which are supporting the assessee fortifying their points, which are as follows:ITA No.850/Bang/2023
Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 19 of 22
a) CIT & Anr. Vs. Balaji Engineering & Construction Works (323 ITR 351) (Karn.)
b) Anupama Tele Services Vs. ITO (366 ITR 122) (Guj.)
c) Harshila Chordia (298 ITR 349) (Raj.), wherein deleted the disallowance in case of genuine business transactions, wherein payments were made because of business expediency.
5.1 On the other hand, certain High Courts wherein confirmed similar disallowance including Bombay High Court in case of Madhav Govinda Dulshet Vs. ITO 259 Taxman 949 (Bom.), in case of Vaduganathan Talkies & Ors. Vs. ITO (428 ITR 224) (Mad) and in case of Bagmari Tea Company Ltd. Vs. CIT (25 ITR
640) (Calcutta), wherein confirmed the disallowance where the payment made in cash exceeding the stipulated amount not withstanding the genuineness of transactions. In case of Balaji Engineering & Construction Works cited (supra), the Hon'ble Karnataka High Court held that payment made by the assessee being Principal Contractor to the sub-contractor pursuant to agreement under contract for which the provisions u/s 40A(3) of the Act read with Rule 6DD of the I.T. Rules cannot be applied.
5.2 In the present case, the case of the assessee is that payments which were made to sub-contractors were covered under clause (i) of IT Rules 6DD, which provides that no disallowance will be made where the payments are made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person. The important thing to be noted is that the payment must be by the assessee to his agent, who, in turn, pays to some third person on behalf of assessee for goods and services and the sub-contractors made daily payments to workers on a daily or weekly basis through cash. On account of business exigency, the sub-contractors insisted upon cash payment and accordingly, the assessee paid through bearer cheques. Hence, business exigency of making cash payment on regular basis is also pleaded by the assessee in the instant case. To support this, assessee filed affidavits from Nagesh Poojary, S/o Mr. Gopal Kotian, Raghuveera, S/o Mr. Venkappa Salian, Manoj Kumar, S/o Mr. Mohan Gowda, which are kept on record in page Nos.63 to 68 of the assessee's paper book. In these affidavits, they have stated that they are sub-contractors of assessee firm and they insisted for cash payments to make payment to workers and confirmed the above payments. In such circumstances, it cannot be said that sub-contractors are not agents of the assessee for providing labours. Hence, on this count, the expenditure claimed on account of payment made to sub- contractors cannot be considered u/s 40A(3) of the Act as held by Hon'ble Karnataka High Court in the case of Balaji Engineering & Construction Works cited (supra) as the Tribunal being subordinate to jurisdictional High Court what matters for the Tribunal is to follow the binding precedent and delete the disallowance in case of cash payments exceeding the stipulated limit coupled with the fact that cash payments are made due to business expediency and being genuine transaction and the parties are identifiable, provisions of section 40A(3) cannot be applied. Accordingly, we are inclined to delete the addition made on this count.
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 20 of 22 5.3 There are one more payment to the labourers who are migrating labours earning wages and not permanently employed by the assessee, who have no bank accounts and these are payments made in exceptional circumstances as provided under Rule 6DD and these payments cannot fall under the purview of section 40A(3) of the Act and more so, the payments are genuine and parties are identifiable and the expenditure incurred is wholly and exclusively for the purpose of business on account of business exigency. Accordingly, provisions of section 40A(3) of the Act cannot be applied and this addition is also deleted. Thus, the ground relating to additions made u/s 40A(3) of the Act is deleted. This ground of the appeal of the assessee is allowed."
13.4 In view of this, we allow this ground taken by the assessee.
14. Next ground is with regard to adhoc disallowance of Rs.48,32,852/- towards payment of labour charges.
14.1 The ld. A.R. submitted that the ld. AO has held that the assessee was requested to furnish the documentary proof/evidence for the labour charges of Rs.1,93,31 ,409/- and a list was furnished with Ledger extract in which it was found that the payment made was less than Rs.20,000/- by cash. The AO disbelieved the contention of the assessee and disallowed 25% of the labour charges amounting Rs. 48,32,852/-. In this regard the ld. A.R. submitted that that the AO in para 4 of the Assessment Order has admitted the fact that the assessee's contracts were basically labour intensive in spite of the said finding the AO has arbitrarily disallowed the labour charges on adhoc basis. In this regard the ld. A.R. placed reliance on the decision dated 01-04-2022 of the ITAT, Raipur Bench, Raipur in the case of Shri. Kailash Chandra Agarwal v/s DCIT in ITA No. 275/RPR/2016 for the A.Y 2010-11 in which it was held that the adhoc disallownace was not permitted under the provisions of the Act. The relevant paras are 7.1 to 7.6 in which it was held, which is reproduced as under:
"Considering the entire conspectus of case, we, do not find favour with the view taken by the lower tax authorities, consequently we vacate the ad-hoc disallowance in its entirety and thereby allow the ground number 2 of the appeal."ITA No.850/Bang/2023
Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 21 of 22 In view of the above judicial decision, the adhoc disallowance made by the AO at the rate of 25% of the labour charges amounting to Rs.48,32,852/- is not sustainable law and hence the same is liable to be deleted in its entirety in the interest of equity and justice."
15. The ld. D.R. relied on the order of lower authorities.
16. We have heard the rival submissions and perused the materials available on record. In this case, ld. AO has made disallowance at 25% of labour payment on adhoc basis on the reason that these payments were made by cash which is supported only by self-made vouchers and there is every chance of inflating this expenditure. In our opinion, while making such kind of adhoc disallowance, the ld. AO has to specify the vouchers, which are not properly verified for authenticating the payment. However, in the present case, the ld. AO has disallowed the same in a surmises and conjectures manner by not specifying the discrepancies found in the vouchers produced by the assessee. It is a common business practice followed by the assessees to prepare a self-made vouchers while making the payment to parties for various expenditure and get signatures of it. Because the assessee is following this practice consistently while making the payment. The said payment cannot be doubted without bringing anything on record to suggest that payment has been inflated by the assessee on the reason that these are self-made vouchers. In our opinion, such practice is followed by the assessee consistently. However, there may be certain lapses on the part of assessee in preparing the same or getting signatures from the parties. Thus, to meet the ends of justice, in our opinion, it is appropriate to remit this adhoc disallowance only to 10% of such self-made vouchers instead of 25% made by ld. AO. Directed accordingly. This ground of appeal of the assessee is partly allowed.
17. In the result, appeal of the assessee in ITA No.850/Bang/2023 is partly allowed.
ITA No.850/Bang/2023Hirenallar Rudrappa Ravikumar, Bangalore & ITA No.853/Bang/2023 Nallapeta Anjaiahsetty Jayaram, Bangalore Page 22 of 22
18. In the combined result, appeal of the assessee in ITA No.853/Bang/2023 is allowed and appeal of the assessee in ITA No.850/Bang/2023 is partly allowed.
Order pronounced in the open court on 3rd Jan, 2024
Sd/- Sd/-
(Madhumita Roy) (Chandra Poojari)
Judicial Member Accountant Member
Bangalore,
Dated 3rd Jan, 2024.
VG/VMS
Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The DR, ITAT, Bangalore.
5 Guard file
By order
Asst. Registrar,
ITAT, Bangalore.