Income Tax Appellate Tribunal - Chandigarh
Shive Shankar Shukla, Baddi vs Assessee on 2 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH "A" CHANDIGARH
BEFORE SHRI H.L. KARWA, V.P. AND SHRI T.R. SOOD, AM
ITA No. 654/Chd/2011
Assessment Year: 2008-09
Shive Shankar Shukla V. I.T.O. Ward, Baddi
440 Phase II
Housing Board
Baddi
PAN: AYBPS 9576 Q
(Appellant) (Respondent)
Appellant by: Shri Tej Mohan Singh
Respondent by: Shri N.K. Saini
Date of hearing: 02.05.2012
Date of Pronouncement: 10.05.2012
ORDER
PER T.R. SOOD, A.M
In this appeal the assessee has raised the following ground:
"1 That the ld. CIT(A) should have accepted the offer of the appellant of making an assessment at 8% of the gross receipt instead of dealing with item-wise addition made by the Assessing Officer, especially when the Assessing Officer has held that the books of account is incorrect as well as incomplete.
That in case flat rate of 8% is accepted then :
a. No disallowance can be made u/s 29 to 43D of the *Income-tax Act, 1961 when an estimate is made, it is in substitution of the income that is to be computed u/s 29. As such, the disallowance of Rs. 5,30,000/- made u/s 40(ia) is not sustainable in law.
b. That principles of telescoping ought not have been ignored so far a s the addition of Rs. 9,20,000/- is concerned. The said amount is transferred to the saving bank account out of the Gross receipts of Rs. 2,15,54,000/-. The amount transferred is out of profit earned on gross receipts of Rs. 2,15,54,000/-. If the telescopic effect is not given, it shall amount to doubt taxation."
2. That without prejudice to the generality of the aforesaid grounds, all and every addition made in the impugned assessment as undisclosed income of the appellant is vitiated in law and fact:
a. That the finding of the ld. CIT(A) at para 9.8 is incomplete and without proper appreciation of the fact. The ld. CIT(A) as well as Assessing Officer has erred in fact by treating entire trading receipt as income of the appellant. Whereas as per the known principles of accountancy, the income is derived after deducting the expenditure, incurred to earn the (trading) receipts. Thus, both the ld. CIT(A) and Assessing Officer have erred in not allowing the deduction for expenditure incurred towards variable cost of Vegetable, Rice, Wheat, Disallowance, Papad, Pickle/Chatni, Onion and Sweets, out of the proceed from sale of coupons."
2. Out of above, ground No. 1(a) was not pressed, therefore, the same is dismissed as not pressed.2
3. After hearing both the parties, we find that during assessment proceedings the assessee never produced books of account, therefore, action u/s 271-A was initiated. The assessee was mainly engaged in the business of supply of labour to various industries and is also working as Canteen contractor with Hindustan Lever Ltd. (in short 'HLL') at Kirpalpur, Nalagarh. The assessee is mainly supplying labour to Pidilite Industries, Baddi. The copy of the account in the books of Pidilite Industries was obtained by the Assessing Officer and it was noted that various debit balances were outstanding totaling to Rs.
9,17,328/- in various units. The assessee had not shown these amounts in the books of account. Since no reply was furnished before the Assessing Officer, it was presumed that the assessee has suppressed receipts to this extent and a sum of Rs. 9,17,328/- was added to the income of the assessee.
4. The scrutiny of bank statements revealed that the assessee was regularly remitting money to a bank account in Allahabad as the assessee was a native of Allahabad. This account has not been disclosed. The amount remitted to Allahabad is again withdrawn. On a query it was explained that since most of workers of the assessee belonged to Allahabad Distt. the money was remitted to Allahabad for payment to assessees's workers. The assessee furnished list of 12 employees to whom salaries of Rs. 9,81,000/- were distributed at Allahabad. Some of these workers were produced before the Assessing Officer who admitted having given family address of Allahabad. The Assessing Officer noted that these workers had no evidence to support their contention. It was further noticed that opening balance in this account on 1.4.2007 was Rs. 341/- and closing balance of Rs. 6,70,925/-. Cash withdrawals were only Rs. 99,000/-. The Assessing Officer wondered how out of this Rs. 99,000/- a sum of Rs. 9,81,000/- can be paid in cash to the employees at Allahabad. Since no reply was furnished in this regard a sum of Rs. 9,20,000/- was added to the income of the assessee.
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5. It was also noticed that the assessee was having a Saving Bank account No. 1001000100121795 with Punjab National Bank, Allahabad wherein interest of Rs. 15,284/- had been credited which was not offered as income and therefore, that was also added to the income of the assessee. The Assessing Officer also noticed that the assessee has not deducted TDS on payment of Rs. 5,33,000/- to Laxmi Industries, Hardwar. For the payment for supply of labour and workers, there were many discrepancies were found. Ultimately this amount was added to the income of the assessee u/s 40(a)(ia) for non- deduction of tax.
6. The assessee had claimed a credit for TDS on account of Coral Healthcare. However, receipt of Rs. 44,403/- was not declared. Accordingly this sum was added to the income of the assessee. The Assessing Officer also noticed that there was a difference in the figure of sundry creditors as shown in the balance sheet at Rs. 5,76,318/- whereas as per details a sum of Rs. 5,37,536/-. In the absence of explanation a difference amounting to Rs. 38,782/- was added to the income of the assessee. The assessee had also claimed TDS for work done with M/s Solrex Pharmaceuticals whereas the receipt had not been declared. In this connection, there were other discrepancies also and therefore, ultimately a sum of Rs. 1,78,968/- was added to the income of the assessee.
7. During assessment proceedings the Assessing Officer noted that the assessee was working as Canteen Contractor with HLL vide agreement dated 1.10.2006 to provide catering services. As per the agreement the assessee was providing food to the employees including managers working in factory in Ist, General and 2nd shift. The assessee was required to cook food for approximately 100 employees. The assessee was paid a sum of Rs. 36,000/- per month. The assessee also collected coupon of Rs. 10 per meal from the employees. The assessee was also reimbursed on account of fixed cost incurred towards making food and that included wages employees' contractors, 4 cost of infrastructure. Information was collected from HLL and it was found that the assessee was paid Rs. 36,100/- as fixed sum, Rs. 6500/- towards canteen rent besides reimbursement for guest diets, gas, cylinders, electric bills, water bills, cleaning material items, utensils, misc. ration items etc. The assessee was paid a total sum of Rs. 7,27,884/-. Further a sum of Rs. 1,51,839/- was due and therefore, total receipts were Rs. 8,79,723/-. Since he had shown receipts at Rs. 6,86,086/- the difference of Rs. 1,93,637/- was added to the income of the assessee. Since the assessee was also collecting food coupons from employees, however, no profit and loss was declared in canteen operation. On enquiry the assessee submitted some details and pointed out that in fact there was a loss in canteen operation. On further investigation it was pointed out that the expenditure shown in the canteen operation has already been debited under the head "canteen expenses and kitchen expenses"
amounting to Rs. 2,97,205/- and Rs. 2,88,572/-. Since the total expenses has already been debited, therefore, the receipts from coupons was worked out at Rs. 10 X 100 X 365 days. A sum of Rs. 6.00 lakhs was estimated as profit from canteen operation and added to the income of the assessee.
8. On appeal before the ld. CIT(A), various submissions were made including the submission that there was a debit balance in the books of Pidilite Industries which mean that the company had given certain advances to the assessee and therefore, same may not be treated as income. The ld. CIT(A) observed that since no books of account have been maintained, therefore, profit rate of 8% should be applied and accordingly deleted the addition of Rs. 9,17,328/- subject to the conditions that a sum of Rs. 17,24,320/- being 8% of the gross receipts is offered to tax. The addition on account of bank deposit was confirmed by the ld. CIT(A) by observing that this was extra siphoning of the money. This addition was not allowed to be telescoped against 8% addition offered by the assessee. The addition of Rs. 5,30,000/- was also confirmed. The addition of Rs. 44,000/- was allowed to be telescoped. The addition of Rs. 38,782/- on account of difference in sundry creditors was allowed to be 5 telescoped and deleted. Similarly, the addition of Rs. 1,78,968/- on account of difference in receipt from Solrex Pharmaceuticals was allowed to be telescoped and deleted. The estimate addition of Rs. 6.00 lakhs on account of canteen operations was reduced to Rs. 4.00 lakhs.
9. Before us, the ld. counsel for the assessee submitted that the revenue has not filed any appeal against the observations made by the ld. CIT(A). He further submitted that once 8% profit was estimated which has been accepted by the assessee then there was no scope for further addition because the additions are made on account of difference in receipt. The addition on account of amounts remitted to Allahabad Bank also should have been allowed to be telescoped because even if no wages were distributed the same should be treated as transfer of money out of profits. The assessee in any case is not pressing grounds in respect of addition of Rs. 5,30,000/-, therefore, the estimate of profit at 8% is reasonable. As far as the ld. CIT(A)'s findings regarding canteen are concerned it was submitted that the canteen was running into loss and that is why the business was closed in the next year. In any case, the cost of per meal would be more than Rs. 10/- that was being given to the assessee in the form of food coupon. Even if the reimbursement and expenditure is considered, the same would still be a loss.
10. On the other hand, ld. DR for the revenue strongly supported the order of first appellate authority.
11. We have heard the rival submissions carefully. We find that the Assessing Officer has made various additions mainly because of difference in receipts or expenses. Once profit is estimated then obviously there is no scope for further addition. We do not agree with the finding of ld. CIT(A) that the remittance to Allahabad Bank account would constitute extra ordinary siphoning off money because even if it was proved that no cash was withdrawn from Allahabad bank account and it was the case of merely remittance and then same can be said to be out of profits.6
12. As far as canteen operations are concerned, we find that there is no material to show that the assessee has received a sum of Rs. 10,95,000/- as estimated by the Assessing Officer. The HLL had remitted total sum of Rs. 7,93,734/- which would give revenue per employee at Rs. 7.25 as worked by the assessee before the ld. CIT(A). Even if further sum of Rs. 10/- per coupon is added to the revenue the total comes to Rs. 17.25 per person. Obviously the cost of each meal would be in the same range only. Since no books of account are there even for canteen operation, we are of the opinion that it would meet the ends of justice that a lump sum addition of Rs. 1.00 lakh is made on account of profit from canteen operation. Accordingly we made overall proposal to confirm the estimation of profit @ 8% on gross receipts amounting to Rs. 17,24,320 plus addition of Rs. 5,30,000/- which was not pressed before us plus addition of Rs. 15,284/- on account of interest on Saving Bank account and addition of Rs. 1.00 lakh on account of estimated profit on canteen operations. This proposal was accepted by the ld. counsel for the assessee as well as by the assessee who was present in the Court. Accordingly we set aside the order of the ld. CIT(A) and direct the Assessing Officer to include following items of income in the assessment:
(i) Estimated income @ 8% in
the construction business: Rs. 17,24,320.00
(ii) Addition on account of non deduction
of tax (u/s 40a(ia) not pressed before us Rs. 5,30,00.00
(iii) Interest on Saving Bank account Rs. 15,284.00
(iv) Estimate profit on canteen operations Rs. 1,00,000.00
13. In the result, appeal filed by the assessee is partly allowed.
Order pronounced on 10.05.2012
Sd/- Sd/-
(H.L. KARWA) (T.R. SOOD)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 10 .05.2012
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/ The DR 7