ITO Vs Gauram Prasad Nishad (ITAT Raipur)
The Revenue appealed against the Commissioner of Income-tax (Appeals)’s order for Assessment Year 2007-08, challenging deletion of additions relating to unexplained capital, loan account differences, wage disallowance, unexplained cash credits under Section 68, and admission of additional evidence under Rule 46A. The assessee also filed a cross-objection supporting the CIT(A)’s order.
Regarding the addition of Rs.5,66,753 as unexplained capital under Section 68, the Tribunal noted that the Assessing Officer, in the remand report, accepted that the assessee had explained the source of the capital introduced during the year. Holding that no addition was warranted in view of this admission, the Tribunal upheld the deletion made by the CIT(A).
On the addition of Rs.65,274 for differences in the loan account, the Tribunal observed that the Assessing Officer admitted in the remand report that the addition had been made through oversight and that the assessee’s explanation appeared to be correct. The deletion by the CIT(A) was accordingly upheld.
With respect to the Rs.22,83,288 disallowance out of wages, the Tribunal found that the Assessing Officer had made an ad hoc disallowance of 25% on the grounds that wage registers were not produced, wages appeared excessive, and documents for verification were lacking. The Tribunal observed that the assessee was engaged in supplying labour for industrial operations, that the wage-to-gross receipt ratio was broadly consistent with the preceding year except for a marginal increase, and that in the subsequent year the Assessing Officer had accepted the wage claim subject to a minor disallowance of Rs.70,000. While holding that a 25% ad hoc disallowance was not sustainable, the Tribunal, considering the marginal increase in wages and the assessee’s concession that a small disallowance could be made, modified the CIT(A)’s order and sustained a disallowance of Rs.1 lakh.
Regarding the addition of Rs.4,70,000 under Section 68, the Tribunal noted the CIT(A)’s finding that only Rs.2 lakh represented a fresh loan during the year, while the remaining loans were brought forward from earlier years. For the fresh loan, the assessee had produced the lender’s income-tax return, capital account, bank statement and confirmation. Although the Assessing Officer stated that the lender was a person of limited means and pointed to cash deposits in the bank account, the Tribunal agreed with the CIT(A) that the assessee had discharged the burden of establishing the lender’s identity, creditworthiness and the genuineness of the transaction. The Tribunal also observed that doubts regarding cash deposits in the lender’s bank account could be examined in the lender’s case and upheld the deletion of the addition.
Accordingly, the Revenue’s appeal was partly allowed by sustaining a disallowance of Rs.1 lakh out of wage expenses, while the deletions of the remaining additions were upheld. The assessee’s cross-objection, being merely in support of the CIT(A)’s order, was dismissed as infructuous.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
This appeal by the Revenue and Cross Objection by the assessee emanate out of the order of the Learned Commissioner of Income-Tax (Appeals), Raipur (CG), dated 23.05.2012 and pertains to Assessment Year 2007-08.
2. The grounds of appeal raised by the Revenue read as under:-
“1. Whether in law on facts & circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.5,66,753/- made by the AO u/s 68 of the I.T. Act, 1961 on account of unexplained capital.
2. Whether in law on facts & circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.65,274/- made by the AO on account of difference in loan account as per bank statement and as per Balance Sheet.
3. Whether in law on facts & circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs.22,83,288/- made by the AO out of payment of wages.
4.Whether in law on facts & circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.4,70,000/- made by the AO u/s 68 of the I.T. Act, 1961 on account of unexplained cash credit.
5. Whether in law on facts & circumstances of the case, the CIT(A) was justified in admitting additional evidence in violation of Rule 46A of the I.T. Rules, 1962.
6. The order of the Ld. CIT(A) is erroneous both in law and on facts.
7. Any other ground that may be adduced at the time of hearing.”
Apropos Ground No.1 : Deletion of addition of Rs.5,66,753/- on account of unexplained capital.
3. The assessee, in this case, is an individual, deriving income from supply of labours for industrial operation. This addition is based upon the Assessing Officer’s finding that the assessee has shown deposits in the capital account of Rs.5,66,753/- in addition to the profit of the year. Since no explanation regarding the source of deposit was offered, the amount involved was added to the assessee’s income. The assessee made elaborate submissions and furnished additional evidences before the learned CIT(A). The learned CIT(A) obtained remand report from the Assessing Officer. In the remand report, the Assessing Officer admitted that “the assessee has explained the details of the source of capital introduced during the year under consideration”. On the basis of this acceptance by the Assessing Officer in the remand report, the learned CIT(A) deleted the addition.
4. Against the above order of the CIT(A), the Revenue is in appeal before us.
5. Upon hearing both the Counsel and perusing the record, we find that since in the remand report the Assessing Officer himself has accepted that the assessee has explained the details of the source of capital introduced, no addition in this case is warranted. In fact, Revenue’s grievance in filing the appeal, while the Assessing Officer himself is accepted the veracity, is not justified. Hence, we uphold the order of the learned CIT(A).
Apropos Ground No.2 : Deletion of addition of Rs.65,274/- on account of difference in loan account as per bank statement and balance-sheet.
6. On this addition also learned CIT(A) obtained remand report from the Assessing Officer. In the remand report, the Assessing Officer stated that “it appears that the same addition has been made through oversight by the Assessing Officer. The explanation submitted by the appellant appears to be true.” In these circumstances, learned CIT(A) deleted the addition.
7. Having heard both the Counsel and perusing the record, we find that when in the remand report the Assessing Officer himself has accepted the veracity of the assessee’s claim that this addition has been made by oversight of the Assessing Officer, we find that the learned CIT(A) was justified in deleting the addition.
Apropos Ground No.3 : Deletion of disallowance of Rs.22,83,288/-made by the Assessing Officer out of payment of wages.
8. In this issue, the Assessing Officer has stated that the appellant has claimed payment of wages at Rs.85,36,004/- and bonus at Rs.5,97,150/-; that the appellant has not produced wages register not submitted any details along with his reply; that the payment of wages is excessive; that in the absence of any documents to verify the payment of wages, 25% of the amount paid as wages is disallowed & added to the income of the appellant. Before the CIT(A), it was submitted that the Assessing Officer has made the disallowance of 25% of the wages without assigning proper reason. The learned CIT(A) held that the profitability percentage of the assessee has been consistent; and if the impugned addition is sustained, the net profit would be 27% as against 3% declared by the assessee. Learned CIT(A) also noted that in the subsequent year the Assessing Officer has accepted the claim of wages of Rs.98,39,167/- subject to minor disallowance of Rs.70,000/-; hence holding that without rejecting the books of accounts of the assessee, the Assessing Officer could not make ad-hoc disallowance from the wage payment. Hence, the learned CIT(A) deleted the addition.
9. Against the above order, the Revenue is in appeal before us.
10. The learned Departmental Representative submitted that the assessee has not maintained proper record and vouchers for the wages paid; hence, he submitted that the Assessing Officer has rightly made the disallowance. Per contra, the learned Authorized Representative submitted that the assessee has maintained proper vouchers. He submitted that in the line of assessee’s business proper printed vouchers cannot be expected in all the cases. The learned Counsel submitted that assessee’s profit ratio was 2.97% in the preceding assessment year and it is 3% in the present assessment year. He submitted that though he admitted that there has been a marginal increase in the percentage of wages to the gross receipts. In the immediately preceding assessment year it was 96.65% but in the current assessment year it is 97.01%. The learned Counsel submitted that the assessee has maintained proper books and record and the same had been audited. Learned Counsel further placed reliance upon the decision of Hon’ble ITAT, Delhi Bench in the case of Simbhaoli Sugar Mills Ltd. vs. ACIT, 17 SOT 90, for the proposition that estimated ad-hoc disallowances of expenditure are not sustainable.
11. Upon careful consideration, we find that, in this case, the Assessing Officer has made an ad-hoc disallowance of 25% of the wages paid. This has been based upon the reasoning that the assessee has not produced wage register, the payment of wage seems excessive and there is absence of document to verify the payment of wages. We find that above reasons mentioned by the Assessing Officer did not warrant an ad-hoc disallowance of 25% when the facts and circumstances of the case are considered. The assessee derives income from the supply of labours for industrial operation. The percentage of wages to the gross receipt is consistent with that returned in the preceding assessment year, except for marginal increase. In the subsequent assessment year also, the Assessing Officer has accepted the wages paid, except a minor disallowance of Rs.70,000/-. Under these circumstances, in our considered opinion, the ad-hoc disallowance is not sustainable. However, when confronted in this regard that there has been a marginal increase in the percentage of wages to the gross receipt and the fact that wages are not 100% verifiable, the learned Counsel of the assessee agreed for a small disallowance. We also find that one of the pleas in support of the deletion of the addition taken by the learned Counsel of the assessee relied upon the learned CIT(A) is the fact that in the subsequent assessment year the payment of wags was accepted by the Assessing Officer, except for the minor disallowance of Rs.70,000/-. In these facts, in our considered opinion, the disallowance of wags to the extent of Rs.1 lac will meet the ends of justice. Accordingly, we modify the order of the learned CIT(A) and hold that the disallowance to the extent of Rs.1 lac out of wage expenses is sustainable and accordingly, the disallowance of Rs.1 lac is upheld.
Apropos Ground No.4 – regarding the deletion of addition of Rs.4,70,000/- made u/s 68
12. In this case, CIT(A) observed that the Assessing Officer has stated that the appellant has shown unsecured loans from various person at Rs.4,70,000/; that confirmations of these persons or copies of their account have not been filed; that all the persons are from the same family/community; that all the loans are below Rs.20,000/-except from Shri G R Nishad which is of Rs.2,00,000/-; that no details have been filed in this case also; that since the genuineness of the creditors of their creditworthiness has not been provided, the amount of Rs.4,70,000/- is added as unexplained cash credit u/s 68.
13. Upon assessee’s appeal, the learned CIT(A) has deleted the addition, by holding as under:-
“28. I have carefully gone through the assessment order and submissions of the appellant. I do find force in the submission of the appellant that the fresh loan taken during the year under consideration amounting to Rs.2,00,000/- pertains to Mr. G.R. Nishad only. The other unsecured loans were brought forward from the preceding years Balance Sheet. Thus, the addition is not warranted during the year under consideration. As regards fresh loan of Rs.2,00,000/- taken during the year from Mr. G.R. Nishad, it is seen that the appellant has placed on record, copy of income tax return, capital position, bank statement and confirmation of account. The AO in the Remand Report stated as under:
“On verification of the copies of the accounts of Shri G.r. Nishad, it is found that he is a person of little means having yearly income of about Rs.1 lacs; that the bank accounts of Shri G.R. Nishad with Punjab National Bank reflects that Rs.2,00,000/-was deposited on 29.08.2006 and the same was given to S.P. & Associates on 21.09.2006”
29. The A.O. has merely stated that the lender is not a person of means, however, the A.O. has not pointed out any falsity in the capital position of the lender furnished by the appellant. From the perusal of bank statement of the lender, it is seen that the appellant had made cash withdrawals from the same bank account. I am convinced that the appellant has discharged the onus that lay on him u/s 68 to discharge the identity and creditworthiness of the lender and genuineness of the loan transaction. Looking to the facts and circumstances of the case, the addition made by the A.O. cannot be sustained, hence, the addition of Rs.4,70,000/- is deleted.”
14. Against the above order, Revenue is in appeal before us.
15. We have heard both the Counsel and perused the record. We find that the learned CIT(A) has given a finding that the fresh loan taken during the year was only Rs.2,00,000/-. In this regard, copy of the income-tax return, capital position, confirmation of account and bank statements are produced. The Assessing Officer has rejected the same on the ground that the assessee’s creditors are persons of little means having yearly income of Rs. 1 lacs and bank statement reflects cash deposit. We find that the learned CIT(A) has held that, on perusal of bank statements, he found that the assessee had made cash withdrawal from the same bank account and the assessee has discharged the burden of proving the creditworthiness of the lender and the genuineness of the loan transaction; hence, the CIT(A) deleted the addition. We further find that there is no presumption that persons with smaller incomes cannot make any savings whatsoever. Doubts raised by the Assessing Officer regarding the bank statement with regard to the deposit can be subject matter of verification in the hands of the lender and not the assessee. This is more so when the lender is filing the income-tax return. In these circumstances, in our considered opinion, there is no infirmity in the order of the learned CIT(A); accordingly, we uphold the same.
16. In the result, this appeal filed by the Revenue is partly allowed. Cross-Objection – By assessee
17. The Cross-objection filed by the assessee is in support of the order of the learned CIT(A). Since we have already dealt with the order of the CIT(A) in the Revenue’s appeal above, no separate adjudication is required on the cross-objection. Hence, the cross-objection filed by the assessee is dismissed as infructuous.
18. In the result, Revenue’s appeal is partly allowed and the assessee’s cross-objection is dismissed.
Order pronounced in the Court on 15th October, 2015 at Raipur.
