Income Tax Appellate Tribunal - Ahmedabad
S.F. Wadia vs Income-Tax Officer on 14 August, 1986
Equivalent citations: [1986]19ITD306(AHD)
ORDER
P.J. Goradia, Accountant Member 1 to 6. [These paras are not reproduced here as they involve minor issues.].
7. The second ground is against addition of an amount of Rs. 27,100 by invoking provisions contained in Section 69C of the Income-tax Act, 1961 ('the Act'), It would be necessary to narrate in detail the factual aspects relating to the issue involved and findings made by the ITO and, therefore, para 7 of the assessment order is reproduced below :
The assessee made payments to the contractors Shri Mangaldas Lalsingh Vaghela and Shri Vasantlal Devilal Sharma. On the scrutiny of the books, of account, seized during the course of search under Section 132 of the Income-tax Act, it came to light that the payments made to the above-mentioned contractors had not been recorded in the books of the assessee at the relevant time. Shri Wadia explained that the contractors might have received those amounts from some other parties. In this connection, it is found during the course of assessment proceedings that the two contractors worked only, for the assessee and there was no narration in their books to justify the contention of the assessee. The scrutiny of the books of account reveals that on 4-11-1978, 28-11-1978, 27-12-1978, 22-12-1978, -11-1-1979, 12-2-1979, 24-2-1979, 12-3-1979 and 26-3-1979 the entries for the payments to the above-mentioned contractors had been made in the cash book after the cash balance was struck. The entries were made in different handwritings and also difference in ink. The assessee was there-fore requested to produce the books of account of the contractors and tally with the entries made in his books of account. The detailed scrutiny of books of the assessee revealed that the payments made to Shri Mangaldas on 29-11-1978, 29-12-1978 and 12-1-1979 were entered in the cash book on 26-1-1979 and all the amounts were lumped together in one entry made for Rs. 7,500 on 26-1-1979. On 28-2-1979 Shri Mangaldas has shown payments received for Rs. 2,300. The assessee was asked to explain on which date the above payment was debited in the cash book maintained. The assessee explained that Hetaji had lost this voucher and hence he had not written in the books. Shri Mangaldas has shown the amount of Rs. 4,000 being payment received from the assessee on 12-3-1979. The assessee debited only Rs. 3,000 on 12-3-1979 and an amount of Rs. 1,000 was debited on 8-5-1979. In the case of Shri Vasantlal D. Sharma the payments received by him from the assessee on 15-12-1978 has been debited by the assessee in his books of account on 26-1-1979. Shri Vasantlal D. Sharma received an amount of Rs. 3,000 on 21-3-1979. The assessee has not accounted for this expenditure in his cash book on the ground that the voucher was misplaced and hence not shown. The assessee contended that he is maintaining books of account on Samvat year basis and hence the entries should not be considered on financial basis. The contention of the assessee is duly considered. But the same is not entertained because the question of maintenance of books of account cross up when any sum is found credited in the books of an assessee maintained for any previous year and the assessee offered no explanation about the nature and source thereof or explanation offered by him is not satisfactory in the opinion of the Income-tax Officer the sum so credited may be charged to income-tax as the income of the assessee of that previous year in view of the provisions of Section 68 of the Income-tax Act. Here the question is that of an expenditure and not the income or any sum credited in the books of account. In view of the provisions of Section 69C of the Income-tax Act, 1961, the assessee's explanation for the source of the expenditure is not supported by the books of account maintained in the normal course of business and hence the amount covered by such expenditure or part thereof, as the case may be, deemed to be the income of the assessee for such financial year. The expenditure incurred from 29-11-1978 to 31-3-1979 amounts to Rs. 27,100 and the same is treated as income of the assessee under Section 69C of the Income-tax Act.
8. The Commissioner (Appeals) confirmed the decision taken by the ITO mainly on the ground that because of search and seizure operations, it was found that the payments stated to have been recorded in the books of account of the contractors did not find place in the books of account of the assessee. Besides, the assessee had made many erasures and over-writings on account of these transactions.
9. The learned counsel for the assessee brought to our notice the copies of accounts of the contractors and repeated the submission made before the authorities below. Bringing to our notice relevant details as per the petty cash book, it was submitted that the payments were recorded in the assessee's books though on different dates. Besides, these payments pertained to business expenditure and, therefore, there was no question of not recording the same in the books of account.
10. The learned departmental representative relied upon the order passed by the authorities below and further stated that it is not clear whether the petty cash book was at all produced before the ITO and the cash balance should have been proved by the assessee ?
10A. In reply the learned counsel for the assessee submitted that the ITO had seen the cash book and the addition was made because of non-appreciation of facts and non-convincing of the transactions.
11. In our opinion, the addition made is required to be deleted. The reasons are as follows :
Section 69C envisages fiction of unexplained expenditure, etc., not satisfactorily proved. On perusing the accounts of the contractors, we find that the payments are made to the contractors and, therefore, debited to personal accounts. Whether these payments are themselves an expenditure or not, is required to be first considered.
It appears that the assessee makes payments from time to time on account to these contractors who submit their bills regarding labour charges, etc. Subsequently, however, the account is adjusted from time to time on raising the necessary bills or signing the necessary vouchers, etc., on the basis of which appropriate amounts are credited in the accounts of the respective contractors. In the light of these evidences and in the absence of specific finding regarding the amount sought to be added under Section 69C being an expenditure only, no addition can be made. Since the case was not processed along this line, assuming for a while that the amounts can be considered as an expenditure, the same are found to be in respect of expenditure allowable or deductible while computing the income under the head 'Business'. It is an admitted position that the amounts paid to the persons under consideration are in respect of jobs carried out by those persons or materials supplied to the assessee. Therefore, even if addition sought to be made for unexplained expenditure on the basis that the same is not recorded in the books of account, then the whole amount in respect of the business expenditure not recorded in the books is required to be deducted while computing the profits under the head 'Business'. In the result, the figure required to be added will be nil.
12. The stand of the revenue is mainly based on the evidence in respect of the entries found in the books of account of other persons. The payments received and shown to have been received on the dates mentioned by the recipients are treated to have been paid by the assessee exactly on the same date and hence the addition. But one important aspect is forgotten in the process that the assessee in his books has also recorded payments to those recipients though on different dates. What has happened to these payments shown to have been made by the assessee. Does it mean that the payments shown by the assessee were also shown by the recipients on exactly same date mentioned in the books of account of the assessee ? This particular aspect is totally ignored.
13. When we are on provisions contained in Section 69C, we would like to mention that section was inserted vide Taxation Laws Amendment Act, 1975 with effect from 1-4-1976 on the basis of recommendation made by the Select Committee, as found in the report submitted in 1973. The section is introduced with an intention to cover the whole expenses which are not deductible while computing the income and are required to be added as income from undisclosed sources. Such expenditure would cover expenditure at the time of marriage, furnishing of a house, household expenditure and gifts. If Section 69C is sought to be invoked for an expenditure deductible while computing the income under any head probably the action would cut at the root of the intention as no addition would be made.
14. The phraseology in the section goes to show that before invoking the section it must be conclusively established by evidence or material to prove that the amount spent is an expenditure and the expenditure is incurred by the assessee only and the same is not deductible while computing the income under any head under the Act. Thus, the primary onus is on the revenue.
15. To the extent as above, the order of the Commissioner (Appeals) is modified and the ITO shall pass appropriate order in accordance with law.
16. In the result, the appeal is allowed in part.