Income Tax Appellate Tribunal - Kolkata
Ashoke Singh, Kolkata vs Assessee on 22 June, 2010
आयकर अपीलीय अधीकरण, Ûयायपीठ - " िस ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA
(सम¢)Before ौी महावी
महावीर
वीर िसंह, Ûयायीक सदःय,, एवं/and ौी,
ौी सी.डȣ.राव लेखा सदःय)
[Before Hon'ble Sri Mahavir Singh, JM & Hon'ble Sri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A No. 1873/Kol/2010
िनधॉरण वषॅ/Assessment Year: 2007-08
Ashok Singh Vs Deputy Commissioner of Income-tax,
(PAN-ASUPS 0861 R) Circle-51, Kolkata
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
For the Appellant: Shri Somnath Ghosh
For the Respondent: Shri S. K. Malakar
आदे श/ORDER
महावीर िसंह, Ûयायीक सदःय)
Per Mahavir Singh, JM ( महावीर सदःय
This appeal by assessee is arising out of the order of CIT(A)-XXXII, Kolkata in Appeal No.94/CIT(A)-XXXII/09-10/Cir-51/Kol, vide dated 22.06.2010. Assessment was framed by DCIT, Circle-51, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2007-08 vide his order dated 31.12.2009.
2. During the course of hearing the Ld. Counsel for the assessee stated that he has filed revised ground of appeal in terms of Rule 11 of ITAT Rules, 1963. On queries from the Bench, the Ld. DR has not objected to the filing of the revised grounds in terms of Rule 11 of ITAT Rules, 1963. Accordingly, same are admitted and adjudicated upon.
3. The first issue in this appeal of the assessee is against the order of CIT(A) confirming the disallowance made by Assessing Officer on account of labour charges for non-deduction of TDS u/s. 194C(2) of the Act and read with section 40a(ia) of the Act. For this, the assessee has raised the following ground no.1:
"1. For that the Ld. CIT(A)-XXXII, Kolkata acted unlawfully in upholding the impugned addition in the sum of Rs.9,39,000/- made by way of disallowance on ITA 1873/K/2010 Ashoke Singh AY 07-08 account of labour charges by the Ld. Deputy Commissioner of Income Tax, Circle-51, Kolkata including in speculation, surmise, suspicion and conjecture on an imaginary prognosis of application of s.40(a)(ia) of the Income Tax Act, 1961 for the alleged infringement of s. 194C(2) of the Income Tax Act, 1961 and the purported findings on that behalf are altogether arbitrary, baseless, capricious, flawed, unjustified, wrong and perverse."
4. The brief facts leading to the above issue are that the assessee has claimed labour payments of Rs.25,01,634/- for deployment of labourers under various projects. The assessee has undertaken 14 projects of Indian Oil Corporation and one project of IBP Ltd. The assessee is doing contract work including construction of oil tank, false ceiling, boundary wall, building generator room etc. at different places in West Bengal, Orissa and Assam. According to the assessee, TDS was deducted by IOC and IBP against the payments made to the assessee. The assessee is making labour payments to various individuals for carrying out contract work. The Assessing Officer during the course of assessment proceedings, on verification of labour payments, noted that the assessee had made payment to head mistries or sardars exceeding Rs.50,000/- and according to him, assessee is liable to deduct TDS u/s. 194C(2) of the Act but no TDS was deducted. Accordingly, he disallowed the payments of Rs.9,39,000/- made to various individual labourers during assessment year. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the Assessing Officer exactly on similar lines. Aggrieved, now the assessee is in appeal before us.
5. Ld. DR relied on the assessment order and the order of CIT(A).
6. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee has been awarded contract by Indian Oil Corporation and also of IBP Ltd. The assessee is doing contract work including construction of oil tank, false ceiling, boundary wall, building generator room etc. at different places in West Bengal, Orissa and Assam. The assessee is executing these contracts through mistries and sardars to carry out labour and making payments to various individuals for carrying out labour work and made payment exceeding Rs.50,000/- in the present assessment year as listed out by the Assessing Officer in his assessment order. The Assessing Officer has disallowed the payments of labourers exceeding Rs.50,000/- in ITA 1873/K/2010 Ashoke Singh AY 07-08 the absence of non-deduction of TDS in terms of section 194C(2) of the Act. Here, the fact is that the assessee has assigned labour work to various individuals for carrying out the contract of construction of oil tank, false ceiling, boundary walls, building generator room etc. and all payments are undisputedly to individuals, whether the assessee is a contractor or sub-contractor, who falls u/s. 194(1) or 194C(2) of the Act. In view of the above facts, we are of the view that the assessee has not given contract to various individuals for carrying out labour work but is executing the contract awarded by IOC or IBP and this is not a labour contract falling u/s. 194C(1) of the Act or a sub-contract u/s. 194C(2) of the Act. Once it is established that these payments are to labourers through head mistries or sardars the same cannot be treated as contract or sub-contract falling u/s. 194C(1) or 194C(2) of the Act, the assessee is not liable to deduct TDS and consequently no disallowance can be made by invoking the provisions of section 40a(ia) of the Act. Accordingly, in the present case also the assessee is not liable to deduct TDS and the provisions of section 40a(ia) of the Act has wrongly been invoked by the AO and confirmed by CIT(A). We delete the disallowance and order accordingly. This issue of the assessee's appeal is allowed.
7. The next issue in this appeal of the assessee is against the order of CIT(A) confirming the disallowance of bogus purchases of Rs.13,32,306/-. For this, the assessee has raised the following ground no.2:
"2. For that the Ld. CIT(A)-XXXII, Kolkata erred in upholding the purported addition made on account of the impugned bogus purchases in the sum of Rs.13,32,306/- by the Ld. Deputy Commissioner of Income Tax, Circle-51, Kolkata without considering the cogent explanation underlined by impeccable evidence adduced on record and the alleged finding of sustaining the infirm addition of the said amount is wholly arbitrary, erroneous, unwarranted and perverse."
8. The Brief facts leading to the above issue are that Assessing Officer noted during the course of assessment proceedings, that assessee had made cash purchases amounting to Rs.13,32,306/- and in order to carry out verification of the above purchases, notices u/s. 133(6) were issued to the parties, from whom the purchases were claimed to have been made by the assessee. According to the Assessing Officer, these letters returned unserved by the Postal Authorities and these persons were unavailable on the given ITA 1873/K/2010 Ashoke Singh AY 07-08 addresses. The assessee made contentions before the Assessing Officer, the contents as reproduced in the order of CIT(A), is being again reproduced for the sake of clarity.
"The suppliers of materials are reluctant to receive any letter and also its reply if it comes from income tax department due to their fearness about the department or to avoid the hazardness resulted suffering of your assesee under scrutiny. The details of them who have genuinely transacted with P. R. Enterprises and mode of payment are enclosed herewith. In some cases I have made cash payment in different dates due to the necessity but it did not involve over Rs.20,000/-."
9. Accordingly, the Assessing Officer disallowed and made addition of bogus purchases at Rs.13,32,306/- on account of cash purchases as bogus or unverifiable. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the Assessing Officer by giving following finding in his appellate order:
"As already discussed above during the appellant proceedings the A.O. of the assessee relied upon only the statement of facts and the grounds of appeal filed by the assessee. As per the ground of appeal the assessee has contended that the nature of his business is that such payments in remote areas, to execute the project, need to be made in cash. He also contended that the A.O. had disallowed the purchases from even that person from whom reply to notice u/s. 133(6) was received by him. The assessee therefore, contended that the disallowance made by the A.O. shall be deleted. In the assessment order the A.O. has given finding that the assesee had failed to justify the cash purchases and such cash purchases were found unverifiable. The assessee also failed to produce the persons, when called upon by the A.O. to do so, from whom he had claimed to have made such cash purchases. Since the assessee had failed to establish the genuineness of the purchase made in cash when required by the A.O. to do so and, since the assessee had failed to establish the genuineness of such purchases even during the appellate proceeding, I find no reason to interfere with the decision of the A.O. in this regard. The addition made by the A.O. of Rs.13,32,306/- is, therefore, upheld and this ground of appeal fails."
Aggrieved, now assessee is in second appeal before us.
10. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has declared total purchases at Rs.1,53,43,634/-. The Assessing Officer noted from the list, showing the names and addresses, from whom the purchases were made by the assessee and notices u/s. 133(6) were issued to the suppliers of the material of above Rs.1 lac but these notices returned unserved as these parties are untraceable on the given addresses. The assessee before the Assessing Officer submitted copies of accounts of the suppliers but could not produce these parties. The Assessing Officer noted that these parties, from whom the assessee made purchases in cash, as listed in the assessment order at Rs.13,32,306/-, had inflated the ITA 1873/K/2010 Ashoke Singh AY 07-08 purchases and failed to prove the genuineness of these purchases, he disallowed cash payments of Rs.13,32,306/-. We find that the nature of the business of the assessee is such, that to execute the project in remote are, the suppliers supply the material in cash payment only as they do not believe in cheque payments. It is also a fact that the assessee has failed to justify the cash purchases as he is unable to produce these parties and the payments are also in cash. Since the assessee failed to establish the genuineness of the purchases made in cash, the Assessing Officer made addition and CIT(A) upheld the same. It is also a fact, as recorded in the assessment order that these payments were made on various dates during the year for purchase of material in cash, the entire purchase in cash cannot be the profit of the assessee. Here, we have already pointed out during the course of hearing the case law of the coordinate bench of ITAT Ahmedabad "C" Bench in the case of Vijay Proteins Ltd. Vs ACIT (1996) 58 ITD 428, wherein the Bench vide para 19 reported at page 470, on the similar facts and circumstances decided the issue, as under:
"19. We will now consider as to how much deduction should be allowed to the assessee in respect of cost of purchase of oil cakes said to have been really received by them but the bills produced in support thereof were not genuine bills. It is absolutely clear from the facts, material and evidence brought on record that the assessee produced fictitious vouchers in support of purchase of oil cakes shown as purchased from the 33 bogus suppliers. It also produced fictitious vouchers for transportation of these goods. The goods were not received from the parties from whom it is shown to have been purchased but such material was received from a different source which is exclusively within the knowledge of the assessee and none also. Even after the AO brought adequate material on record which exposes the false stand taken by the assessee, the assessee did not come out with the truth as to where from it had purchased the oil cakes in mention which are shown to have been purchased from the said 33 bogus parties.
19.1 There could be various possible alternative sources wherefrom the assessee could have acquired oil cakes for production in their SEP, viz.,
(a) It is generally known that the oil mills are engaged in carrying out unaccounted production of oil as well as oil cakes. The assessee might have purchased such oil cakes out of unaccounted production done by various oil mills.
(b) The AO in the written submissions made before the Tribunal in part B of the paper book of the Department has also indicated about one more possibility, viz., that the assessee is having an oil mill and is also producing the oil cakes.
The bogus purchase of oil cakes shown by the assessee according to the AO might be out of their own unaccounted production for which the bills have been prepared by the assessee themselves in the names of bogus concerns. In this regard it would be worthwhile to make a reference to letter dt. 10th Dec., 1995, submitted on behalf of the assessee. It has been indicated that the crushing ITA 1873/K/2010 Ashoke Singh AY 07-08 capacity of assessee's own oil mill is approximately 50 tons per day and the crushing capacity of the assessee's associate concern is approximately 62.500 tons per day. It has been further stated that crushing was carried out only for 110 days in the year under appeal in assessee's own mill. The chart showing power consumption vis-a-vis crushing in assessee's own mill has also been submitted along with the letter. The figures of production and these details given in the aforesaid letter show that the installed capacity of the oil mill belonging to the assessee has been used only partly.
The ratio of consumption per unit of power with reference to the production carried out in different months has also not been taken into consideration for determining the reasonableness of production shown by the assessee in this oil mill. The possibility indicated by the AO in the written submissions made in compilation marked as part B cannot totally be ruled out by the AO while making an addition on account of low yield in the oil mill has himself restricted the addition on account of introduction of oil cakes only to the extent of Rs. 3,19,618 apart from the alleged low yield of oil obtained from rapeseeds.
19.2 In any case, the oil cakes so received and used by the assessee in the production activities has come out of the unaccounted production of oil cakes of other mill owners or partly from other mill owners and partly from oil mills belonging to the assessee and their associate concerns. Nothing definite can be said because the true source wherefrom the assessee acquired such oil cakes shown as having been purchased from 33 bogus suppliers is known only to the assessee and none else. But one thing is certain that the assessee has definitely inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers.
19.3 It is well known that if purchases are made from open market without insisting from the genuine bills, the suppliers may be wiling to sell those products at a much lower rate as compared to the rate at which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply the goods. There may be various factors due to which there is bound to be a substantial difference between the party purchase price of unaccounted material and rate of purchase of unaccounted for goods. There may be a saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture of sale of goods in question. The suppliers or the manufacturers make a substantial saving in the income-tax in respect of income from sale of unaccounted goods produced and sold by them. This may also be one of the factors due to which the seller may be willing to charge lower rates for unaccounted goods as compared to accounted for goods. Keeping all these factors in mind and also keeping in view the decision of the Tribunal in the case of Sanjay Oil Cake Industries vs. IAC ITA No. 2653, 2654 and 2655/Ahd/1988, dt. 29th April, 1994, we hold that 25% of the purchase price accounted for in the books of accounts through such fictitious invoices in the name of 33 bogus parties should be disallowed out of the amount of purchases shown to have been made from those 33 bogus suppliers. The total purchases shown as made from these 33 parties which have been disallowed by the AO are as under :
Rs.
(i) Bogus purchases as discussed in para 70,03,826
38 read with para 22 of the assessment order
(ii) Bogus purchase as discussed 17,99,788
in para 40 of the assessment order 17,99,788
ITA 1873/K/2010 Ashoke Singh AY 07-08
We direct the AO to disallow 25% of the aforesaid amount on account of inflation of purchase price. The amount of disallowance would accordingly come to Rs. 22,00,903 which may be rounded to Rs. 22 lakhs. The amount of expenditure shown by way of freight on the aforesaid purchases has been separately disallowed by the AO to the tune of Rs. 5,02,752. Since the assessee has failed to prove that such oil cakes were received from outside the State, as shown as per the fictitious invoices, we agree with the view taken by the Departmental authorities in respect of disallowance of the entire amount of freight in relation to the aforesaid purchases. The disallowance of Rs. 5,02,752 is also, therefore, confirmed. Thus, the AO is directed to restrict the disallowance to an aggregate sum of Rs. 27,02,752 (Rs. 22 lakhs plus Rs. 5,02,752) as against the aggregate disallowance of Rs. 93,06,366 made by the AO comprising of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,02,752."
In view of the above facts and circumstances in the present case and the case law of Vijay Proteins Ltd. Supra, the facts being exactly identical, respectfully following, we direct the Assessing Officer to recompute the disallowance of these bogus purchases at 25%. Accordingly, the appeal of the assessee is partly allowed.
11. The next issue in this appeal of the assessee is against the order of CIT(A) confirming the addition of bank deposits as unexplained investment u/s. 69A of the Act.
For this, the assessee has raised the following ground no.3:
"For that the Ld. Commissioner of Income Tax (Appeals)_XXXII, Kolkata acted illegally and with material irregularity in upholding the impugned addition of Rs.29,73,826/- made by the Ld. Deputy Commissioner of Income Tax, Circle-15, Kolkata wrongly invoking the provisions of s. 69A of the Income Tax Act, 1961 and the alleged finding on that issue is wholly arbitrary, unreasonable and perverse."
12. Brief facts leading to the above issue are that assessee has made deposit either through transfer from other accounts or in cash in Central Bank of India, Purba Putiari Branch in his name i.e. Account No.1068474737. Assessing Officer, during the course of assessment proceedings, requiring the assessee to explain these deposits made during the period from 14.10.2006 to 31.3.2007 as under:
Sl. No. Date Amount
1. 02.12.2006 Rs. 4,56,500/-
2. 18.12.2006 Rs. 4,57,490/-
3. 15.02.2007 Rs. 5,13,427/-
4. 15.02.2007 Rs. 5,13,427/-
5. 15.02.2007 Rs. 5,13,427/-
6. 08.03.2007 Rs. 5,128/-
Rs.29,73,826/-"
ITA 1873/K/2010 Ashoke Singh AY 07-08
The assessee before Assessing Officer stated that these deposits are made out of withdrawal of fixed deposits of assessee's father and the source of fixed deposits and other deposits in father's account is out of sale consideration of HUF property, (agreement of the property belonging to HUF at Bihar was filed before Assessing Officer) for a consideration of Rs.23,60,300/-. The assessee also stated that he has withdrawn deposit in cash on different dates and re-deposited the same on other dates. The Assessing Officer has not accepted the explanation of the assessee and added as unexplained deposits by treating the same as undisclosed income at Rs.29,73,826/-. Aggrieved, assessee preferred appeal before CIT(A) and he also confirmed the action of the Assessing Officer exactly on similar lines. Relevant finding of CIT(A) reads as under:
"During the appellate proceedings also no evidence has been adduced by the assessee to explain the sources of deposit made in the above mentioned bank account, therefore, I find the addition of Rs.29,73,826/- made by the A.O. on this account to be justified. Accordingly, the said addition is confirmed and ground no. 4 is, thus, dismissed."
Aggrieved, now assessee is in appeal before us.
13. The assessee before us filed copy of conveyance deed of the property of HUF at page 90, whereby he tried to prove that a sum of Rs.23,60,300/- was received. The assessee stated that all these deposits are explained deposits but Assessing Officer has not provided opportunity to explain the same. The assessee also contended that apart from sale consideration of land in Bihar i.e. of HUF, the assessee's father has also received cash on account of withdrawal from the bank account which was redeposited. We find that these facts are emanating out of the orders of Assessing Officer and even of CIT(A). The Assessing Officer no doubt has noted the fact that assessee has filed copy of sale agreement of HUF property in Bihar for a sum of Rs.23,60,300/- and also the bank statements where the assessee has identified the withdrawals, which was subsequently deposited in the bank account. Since the proper investigation is not carried out by Assessing Officer or by CIT(A) and from these documents, whether these will prove the source or not, no categorical finding is recorded and no speaking order is passed by the lower authorities. In the absence of the same, we set aside this issue to the file of Assessing Officer. The Assessing Officer is directed to consider the sale of property in Bihar and also cash withdrawals deposited in bank account. He will provide ITA 1873/K/2010 Ashoke Singh AY 07-08 reasonable opportunity of being heard and also reasonable opportunity to produce the documents, to the assessee to explain the bank deposits. The assessee will also cooperate with Assessing Officer to explain these deposits. In view of these facts and circumstances, we set aside this issue to the file of the Assessing Officer.
14. In the result, the appeal of the assessee is partly allowed but for statistical purposes.
15. Order pronounced in open court on 11th day of March, 2011.
Sd/- Sd/-
सी.डȣ.राव, लेखा सदःय वीर िसंह, Ûयायीक सदःय
महावी
महावीर
(C. D. Rao) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated 11th day of March, 2011
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - Sri Ashoke Singh, 16/6/2, B. T. Road, Talpukur, Kolkata-700 123.
2 ू×यथȸ/ Respondent, DCIT, Circle-51, Kolkata.
3. आयकर किमशनर/The CIT(A), Kolkata
4. आयकर किमशनर (अपील)/CIT, Kolkata.
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, सहायक पंजीकार/Asstt. Registrar.