Income Tax Appellate Tribunal - Panji
K.Venkata Surya Nrusimha Raju,, ... vs The Acit,, Visakhapatnam on 30 June, 2017
आयकर अपीलीय अधधकरण, धिशाखापटणम पीठ, धिशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
श्री िी. दुगााराि, न्याधयक सदस्य एिं
श्री धड.एस. सुन्दर ससह, लेख ा सदस्य के समक्ष
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.No.196/Vizag/2015
(धनधाारण िर्ा / Assessment Year: 2010-11)
K Venkata Surya Nrusimha Raju Asst. Commissioner of
D.No.30-18-12, Lakshmipuram Colony Income-Tax
Vadlapudi Circle 5(1)
Visakhapatnam Visakhapatnam
[PAN No.AKCPK7962R]
(अपीलाथी / Appellant) (प्रत्याथी / Respondent)
अपीलाथी की ओर से / Appellant by : Shri G.V.N.Hari, AR
प्रत्याथी की ओर से / Respondent by : Shri S.R.S.Nayayan,Sr.DR
सुनिाई की तारीख / Date of hearing : 19.06.2017
घोर्णा की तारीख/ Date of : 30.06.2017
Pronouncement
आदेश / O R D E R
PER D.S. SUNDER SINGH, Accountant Member:
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax, (CIT) (Appeals)-2 vide ITA.No.0015/0439/12-13/ACIT, C-5(1), VSP/14-15 dated 26.03.2015 for the A.Y. 2010-11.
2ITA No.196/Viz/2015, AY 2010-11
Shri K Venkata Surya Nrusimha Raju
2. Ground No.1 is general in nature and do not require specific adjudication.
3. Ground No.2 is related to the disallowance of Rs.11,73,630/- and Rs.1,00,000/- u/s 40(a)(ia) of the IT Act. The assessee claimed the deduction of Rs.11,73,630/- under the head earth work expenses and the Assessing officer(A.O) noticed that the said work was done by M/s Dozco Rental Pvt. Ltd and the TDS was not deducted by the assessee, hence the assessing officer made the disallowance u/s 40(a)(ia) of Income Tax Act. The assessee argued that that the payments to the payee were already made and there was no outstanding balance to be paid to the benificiary, hence TDS is not applicable to the assessee. The Ld CIT(A) deleted the addition following the decision of Hon‟ble Special bench in the case of Merlyn Shipping Company and the Hon‟ble Allahabad High Court judgment in the case of Vector Shipping Services P (Ltd.). However, this issue is set at rest by the Hon‟ble Supreme Court judgment in the case of Palam Gas Service v. Commissioner of Income-tax, [2017] 81 taxmann.com 43 (SC) against the assessee. The Ld.AR has not pressed this ground during the appeal. Therefore, this ground of appeal is dismissed as not pressed. 3 ITA No.196/Viz/2015, AY 2010-11
Shri K Venkata Surya Nrusimha Raju
4. Ground No.3 is related to the addition of Rs.3,90,032/- related to the sales tax payment. In the profit and loss account, the assessee debited a sum of Rs. 12,63,637/- and furnished evidence for proof of payment of Rs.8,73,605/-. Therefore AO made the addition of the remaining amount and the Ld. CIT(Appeals) has confirmed the addition made by the assessing officer. During the appeal hearing also the assessee did not produce any evidence to show that the balance amount of Rs.3,90,032/- was paid by the assessee before due date of filing return of income. The sales tax payment required to be allowed on actual payment basis as per section 43B of IT Act. During the appeal hearing also, the assessee did not furnish any evidence. Therefore, we do not find any infirmity in the order of the Ld.CIT(Appeals) and the same is upheld. This ground of appeal is dismissed.
5. Ground No.4 is related to the addition of Rs.25,23,182/- towards staff salaries. During the assessment proceedings, the assessing officer noticed that the assessee debited a sum of 25,23,182/- towards staff salaries which was disallowed with the following observation.
"In P&L account, the assessee has debited an amount of Rs.26,41,346/- towards staff salary for Engineering and Contractors 4 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju concern and an amount ofRs.21,03,040/- towards staff salary for RMC concern totaling to Rs. 47,44,386/-. He was asked to furnish staff salary register and complete details of his employees. In response, he furnished his employees' list of both concerns. He has not maintained any proper salary/wages register and payments are made through vouchers only. On verification of list of employees and their salaries, it is noticed that the assessee has produced payment for proof of only Rs.22,21,204/-, which is placed on record. The list furnished by the assessee contains salary payment details also, but they are in loose sheets not having any stamp affixed. It seems that the assessee has prepared this list in hurry to prove his payment of salaries. On verification of list of employees for RMC concern along with salaries ledger account of RMC, it is noticed that rarely any name matches with names of employees in salary list furnished with the names mentioned in salaries ledger account. In salary ledger account the assessee has shown salaries payable of Rs.4,17,642/- in Engineers and Contractors' book and Rs.5,27,295/-in RMC's book. But, in balance sheet there is no liability shown against staff salaries payable. It is clear that the assessee has made these entries only to inflate his expenditure towards salary payment. Even if the lists furnished by the assessee are taken to be correct, only an amount of Rs.22,21,2041- is allowable towards staff salaries and remaining amount of Rs.25,23,182/- is disallowed and added to the total income."
5.1 Aggrieved by the order of the assessing officer the assessee went on appeal before the CIT. The Ld. CIT confirmed the addition made by the assessing officer. Aggrieved by the order of the CIT(Appeals), the assessee filed before this Tribunal.
5ITA No.196/Viz/2015, AY 2010-11
Shri K Venkata Surya Nrusimha Raju
6. Appearing for the assessee, the Ld.AR argued that the assessee is having two contract divisions one is civil contracts and the other one is ready mix concrete works. The assessee engaged the employees and paid salaries for both the divisions separately. The assessing officer allowed the payment of salaries in respect of civil contracts, but disallowed the entire salaries incurred for ready mix contract works. The Ld.AR argued that it is unjustified to disallow the entire salaries when the assessee has declared the turnover and filed the return of income. The total contracts declared by the assessee was Rs.7,84,94,244/-. Therefore, assessee argued that without the payment of salaries, the assessee would not have carried out the contract works and declared the turnover of Rs.7,84,94,244/-.
7. On the other hand, Ld. DR argued that the assessee has maintained the books of accounts and it is the obligation on the part of the assessee to prove the genuineness of the expenditure. The assessee did not produce any vouchers and the evidence for the payment of salaries. There is every possibility of claiming double deduction since the assessee is carrying on two different divisions. The Ld. DR vehemently opposed for any relief to the assessee. 6 ITA No.196/Viz/2015, AY 2010-11
Shri K Venkata Surya Nrusimha Raju
8. We have heard the rival submissions and perused the material placed on record. The assessee is carrying on two divisions i.e. RMC and the civil contracts. The AR argued that the assessing officer has allowed the entire expenditure relating to the civil contracts, but stated to be disallowed the entire expenses relating to ready mix contract business. This fact was not supported by any tangible evidence. The assessee has to maintain the acquittance register for payment of salaries and deduct PF/ESI etc. to establish the genuineness of salaries. In this case assessee has not produced any evidence with regard to payment of salaries and contribution to PF/ESI etc. Therefore we don‟t find any infirmity in the order of the Ld.CIT(A) and the same is confirmed. On this ground, appeal of the assessee is dismissed.
9. Ground No.5 is related to the disallowance of 10% of labour charges amounting to Rs.9,92,136/-.During the assessment proceedings the assessee did not produce the evidence for payment of labour charges with vouchers and list of labour employed. The assessee stated that the payments were made to „mistri‟ in cash. In the absence of proof the assessing officer suspected the inflation of expenditure and accordingly disallowed 10% labour charges and added back to income. The assessee appealed against the assessment order and the Ld.CIT(A) 7 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju confirmed the addition observing the discrepancies and for non maintenance of vouchers / registers. Hence the assessee is in appeal before us.
10. We have heard both the parties, it is undisputed fact that the assessee has failed to furnish the registers and muster rolls relating to the payment of labour charges and did not produce any evidence before us also. The assessee did not produce the details of payment of PF, ESI etc., in support of the labour employed. Therefore, we do not find any reason to interfere with the order of the CIT(Appeals) and the same is upheld. The appeal of the assessee on this ground is dismissed.
11. Ground No.6 is related to the addition of Rs.21,40,000/- towards the creditors for expenses. During the course of assessment proceedings, assessing officer noticed that there was an outstanding amount to the extent of Rs.21,40,000/- under the head creditors for expenses. Outstanding expenses were related to the expenses incurred for electrical, hardware, bonus for staff etc. The assessee did not produce the vouchers, confirmations in support of the outstanding creditors for expenses. Out of the total outstanding amount of Rs.21,40,000/- a sum of Rs.10,00,000/- was bonus payable which is 8 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju allowable on actual payment basis u/s 43B of the Act. The assessee went on appeal before the CIT (A) and the CIT confirmed the addition. 11.1. We have heard both the parties and perused the material placed on record. The outstanding creditors expenses were related to the expenditure incurred during the year or the earlier years and debited to the P&L account but remained outstanding without making the payment. The assessee was following mercantile system of accounting and debited the expenditure on accrual basis, however, it is the duty of the assessee to prove that the outstanding expenses were not paid outside the books of accounts and the same are genuine. The assessee did not submit the details and confirmations from the respective sundry creditors for expenses. The Ld. A.R argued that the income is admitted on estimation basis and the expenditure also required to be allowed on estimation basis following the matching concept. This argument is not acceptable since the assessee has to establish the genuineness of expenditure as well as outstanding amount. The assessee failed to substantiate the genuineness of outstanding amount with the tangible evidence such as confirmation from the creditors, details of party wise outstanding with names, addresses and the amount outstanding with PAN No. etc. Therefore, we do not find any reason to interfere with the 9 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju order of the Ld.CIT(A). However, with respect to the bonus outstanding, the assessee required to submit the details with the name, and date of payment and the evidence for payment since the bonus is allowable on actual payment basis u/s 43B of IT Act in the year in which it is actually paid. Therefore, we remit the matter back to the file of the assessing officer to verify the payment of bonus and decide the issue afresh on merits. In the result, out of the total addition made by the assessing officer amounting to Rs.21.40 lakhs a sum of Rs.11,40,000/- is confirmed and the addition relating to bonus is remitted back to the file of the assessing officer. In the result, the assessee‟s appeal on this ground is partly allowed for statistical purposes.
12. Ground no.7 is related to the addition of Rs.29,80,000/- under the head „labour charges‟. Out of the addition of Rs.29,80,000/-, the Ld.CIT(Appeals) confirmed the addition of Rs.15,30,000/- and the balance amount of Rs.14,50,000/- has remitted back to the assessing officer for verification. Aggrieved by the order of the assessing officer, the assessee filed appeal before us.
12.1. Arguing for the assessee, the Ld.AR argued that the CIT(A) should not have remitted the matter back to the file of the assessing officer for 10 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju the amount of Rs.14,50,000/- and he should have allowed the relief for the remaining amount also. Further, the Ld.AR argued that the income is offered on estimation basis, therefore, the expenditure also should be allowed on the basis of matching concept.
12.2. We have heard the rival submissions and perused the material placed on record. The assessing officer has disallowed the labour charges @10% on estimation basis. Again, the assessing officer made the disallowance of outstanding labour charges. Whether the expenditure disallowed under head labour charges debited to the P&L account and the outstanding labour charges (Balance Sheet item) are one and the same or different is not clarified in the assessment order. If the outstanding labour charges in the Balance Sheet and the labour charges debited to the P&L account, both are one and the same this amounts to double taxation of the same amount which is not permissible. In case, both are different, in the absence of non production of vouchers and non furnishing the details of outstanding liabilities the disallowance is justified. Therefore, we remit the matter back to the file of the assessing officer and direct the assessing officer to verify the outstanding expenses and the labour charges and decide the issue a fresh on merits. Accordingly this issue is remitted back to the file 11 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju of the assessing officer and kept open to decide afresh. The appeal of the assessee on this ground is allowed for statistical purposes.
13. Ground No.8 is related to the disallowance made u/s 40(A)(3) of Income tax act. The assessing officer disallowed a sum of Rs.20,94,917/- towards cash payments exceeding Rs.20,000/-. The Ld.CIT (Appeals) confirmed the addition as under :
"5.3 I have considered the pleas raised in this regard. The provisions contained in section 37 is clear that the assessee is required to prove that the expenses claimed are incurred wholly and exclusively for his business. The assessee has filed its return and declared income with reference to audited results of his books of account. Therefore the burden lies on the assessee to prove the income declared in the return is correct. As the assessee has failed to prove, the assessing officer is justified in making disallowance wherever adequate proof was not adduced. Further it is noted that the assessee has not made any alternative declaration for his income on estimate basis. The major disallowance related to wrongful claims made and towards technical violation of law. If these were excluded, the resulting disallowance would not lead to high profit percentage. Therefore, no infirmity can be found in the assessing officer's action in making disallowances wherever satisfactory proof of expenditure was not adduced."
13.1. We have heard both the parties and perused the material placed on record. The assessing officer disallowed the entire payments made in cash without identifying the specific payments which exceeded Rs.20,000/- per person, per day. As per the provisions of Section 40A(3) of the I.T. Act, where the assessee incurred such expenditure in respect of which the payment is made to a person in aggregate exceeds 12 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju Rs.20,000/-, is not an allowable expenditure. Therefore, it is the obligation on the part of the assessing officer to identify each payment which exceeds Rs.20,000/- per day and make the disallowance. In this case, no such exercise has been done by the assessing officer. Instead, the assessing officer disallowed the entire cash payments. Therefore, we set aside this ground to the file the assessing officer to identify the payments made in cash or otherwise than by a crossed cheque exceedingRs.20,000/- per day per person and disallow the resulting amount after giving opportunity to the assessee to explain the reasons for making such payments. Accordingly, this issue is remitted to the file of the assessing officer in the light of the above direction. This ground of appeal is allowed for statistical purpose.
14. Ground No.9 is alternative ground of the assessee to estimate the income reasonably.
14.1. The Ld.AR argued that the assessing officer has made the disallowances under the various heads including some balance sheet items as well as the expenses. Since the expenses are not verifiable, the Ld. AR argued that the assessing officer ought to have estimated the income instead of making various disallowances.
13ITA No.196/Viz/2015, AY 2010-11
Shri K Venkata Surya Nrusimha Raju 14.2. On the other hand, the Ld. DR argued that the assessee is following approbate and reprobate methods which is not permissible. The assessee stated to have maintained the regular books of accounts and following the mercantile system of accounting. When the case is selected for scrutiny and called for the details after pointing out the defects the assessee is asking for estimation of income and this attitude should not be allowed. Non furnishing of the required information at the time of assessment proceedings should not conform undue benefit by estimating the income instead of making the assessment as per the books of accounts.
14.3. We have heard the rival submissions and perused the material on record. The assessee has maintained the books of accounts which are audited by the qualified CA. As per 44AB of the IT Act, the assessee is required to maintain the regular books of accounts and the income is to be computed in accordance with the books of accounts maintained. As rightly argued by the AO, the assessee is requesting for estimation of income when the AO detected the defects in the books of accounts and failed to furnish the necessary evidence in support of its claim and the same is not permissible. Therefore, we do not find any merit in 14 ITA No.196/Viz/2015, AY 2010-11 Shri K Venkata Surya Nrusimha Raju argument of the Ld.AR to resort for estimation of income. Accordingly, this ground of appeal is dismissed.
15. In the result, the appeal filed by the assessee is partly allowed.
The above order was pronounced in the open court
on 30th Jun 2017.
Sd/- Sd/-
(िी. दुगााराि) (धड.एस. सुन्दर ससह)
(V. DURGA RAO) (D.S. SUNDER SINGH)
न्याधयक सदस्य/JUDICIAL MEMBER लेख ा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददनांक /Dated : 30.06.2017 L. Rama, SPS आदेश की प्रधतधलधप अग्रेधर्त/Copy of the order forwarded to:-
1. अपीलाथी / The Appellant - K Venkata Surya Nrusimha Raju, D.No.30-18-12, Lakshmipuram Colony, Vadlapudi, Visakhapatnam
2. प्रत्याथी / The Respondent - ACIT, Circle- 5(1), Visakhapatnam
3. आयकर आयुक्त /The CIT-2, Visakhapatnam
4. आयकर आयुक्त (अपील) / The CIT (A)-2, Visakhapatnam
5. धिभागीय प्रधतधनधध, आय कर अपीलीय अधधकरण, धिशाखापटणम / DR, ITAT, Visakhapatnam
6. गाडा फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM