Shri Dhanesh Narbheram Bhansali, Urvashi, Flat No.701, Sayani Road, Opp, Ravindranath Mandir, Prabhadevi, Mumbai-400025. Vs. Asstt.Commissioner of Income Tax Cir 15(3), Mumbai.
March, 19th 2015
, " "
IN THE INCOME TAX APPELLATE TRIBUNAL" D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
.. , ,
( / Assessment Year : 2007-08)
Shri Dhanesh Narbheram / Asstt.Commissioner of Income Tax
Bhansali, Vs. Cir 15(3),
Urvashi, Flat No.701, Mumbai.
Opp, Ravindranath Mandir,
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. :AGGPB2103D
/ Appellant by Shri K Gopal
/ Respondent by Shri Love Kumar
/ Date of Hearing
/Date of Pronouncement :18.3.2015
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal filed by the assessee is directed against the order dated
29.12.2010 passed by the ld. CIT(A)-26, Mumbai and it relates to the
assessment year 2007-08.
2 ITA. No.1505/Mum/2011
2. The assessee is aggrieved by the decision of ld. CIT(A) in respect of
following three issues :
a) disallowance made out of salary and wages;
b) disallowance made under section 43B of the Income Tax Act, 1961;
c) addition of capital introduced by the assessee.
3. The assessee is in the business of undertaking civil contract works
and interior decoration works. The first issue relates to disallowance of
Rs.9,14,660/- made out of salary and wages expenditure. The ld. counsel
appearing for the assessee submitted that the assessee has claimed a sum
of Rs.11,01,560/-as expenditure towards salary and wages. The AO
noticed that a sum of Rs.9,14,060/- has been paid to temporary workers
by way of cash. Since the vouchers produced by the assessee were found
deficient of certain aspects, the AO disallowed the entire amount of
Rs.9,14,060/-. The ld. CIT(A) also confirmed the same.
4. Before us, the ld. counsel of the assessee submitted that the
assessee could not have executed his contract work without employing the
labour force. He further submitted that the assessee has furnished the
vouchers evidencing the payments and he was constrained to employ local
labourers for executing the worm. Accordingly, he submitted that there is
no reason to disbelieve the entire wages paid by the assessee in cash.
5. On the contrary, the ld. DR submitted that the evidences furnished
in support of payment of wages were mostly self made vouchers and
hence the authenticity of the wages payment becomes questionable.
3 ITA. No.1505/Mum/2011
6. The admitted fact is that the assessee is in the business of
undertaking civil contract works and decoration works. It is a common
knowledge of everybody that both kinds of work involve huge labour
expenditure. The assessee has claimed labour expenses of Rs.11.01 lakhs,
out of which the sum of Rs.9.14 lakhs have been paid by cash. The AO has
however, disallowed the entire expenditure incurred by way of cash on the
reasoning that there are certain deficiencies in the vouchers produced by
the assessee. In our view, it may not be justifiable to disallow the entire
claim of expenditure for the deficiencies found in the maintenance of
vouchers, particularly for the reasons that the assessee's work necessitates
employment of sizable labour force. During the course of hearing, the ld.
AR brought to our notice some of the vouchers placed in the paper book.
He submitted that the signature or thumb impression of the workers have
been obtained on the labour payment sheet itself. He submitted that this
practice is generally followed in all the construction contractors, since local
labourers are generally employed from the place of site itself. Considering
the characteristics of contract works, we find some merit in the
contentions of ld. A.R. Hence the disallowance of entire amount, in our
view, is not justified. However, as pointed out by the AO, there appears to
be some deficiencies in the maintenance of vouchers, for example, the
vouchers contain only the name of the labourer without any address.
Hence it will be difficult for anybody to verify the genuineness of the
payment. Hence, in order to put this issue at rest, we are of the view that
4 ITA. No.1505/Mum/2011
a round sum disallowance of Rs.1.00 lakh in order to cover up the
deficiency, if any, in respect of claim relating to salary and wages
expenditure may be made and the same, in our view, would meet the
ends of justice. Accordingly, we set aside the order of ld.CIT(A) on this
issue and direct the AO to restrict the disallowance out of salary and
wages expenditures to Rs.1.00 lakh.
7. The next issue relates to disallowance of VAT tax payable amount by
invoking the provisions of section 43B of the Act. The AO noticed from the
VAT audit report that a sum of Rs.1,92,087/- was found payable by the
assessee. However, the assessee had disallowed a sum of Rs.93,398/-
only in the return of income. Hence, the AO disallowed the balance
amount of Rs.98,689/- by invoking the provisions of section 43B of the
Act. The same was confirmed by the ld. CIT(A).
8. Before us, the ld. AR contended that the difference has arisen on
account of reduction of "Eligible input credit" by the auditor in the VAT
audit report. The ld. AR submitted that the assessee has claimed input
credit of Rs.5,67,185/-. However, the VAT Auditor has restricted the same
to Rs.3,68,505/-. Similarly, the assessee had taken the VAT amount paid
by him as Rs.7 lakhs. However, the VAT auditor has taken the same as
Rs.8 lakhs. The above said differences have resulted in showing of
outstanding amount of Rs.1,92,087/-. The Ld A.R submitted that the VAT
tax payable, as per assessee's calculation, was only Rs.93,398/- and it
has been duly disallowed by the assessee in the return of income.
5 ITA. No.1505/Mum/2011
Accordingly, the ld. AR contended that the difference amount of VAT
payable, which has arisen on account of input credit"" cannot be
considered to be an outstanding amount liable to be disallowed under
section 43B of the Act.
9. On the contrary, the ld.DR submitted that the VAT auditor has
clearly pointed out that the assessee is liable to pay a sum of
Rs.1,91,878/- and by adopting the same the AO has computed the
outstanding VAT liability at Rs.1,92,087/-. Since the assessee has
disallowed only a sum of Rs.93,398/- only, the AO has disallowed the
balance amount of Rs.98,689/-.
10. In the rejoinder, the ld.AR pointed out that the assessee was
allowed tax credit of Rs.1,77,373/- subsequently. However, upon
verification of record, he fairly admitted that tax credit was given only in
the month of July 2008, i.e., beyond the due date prescribed for filing the
return of income for the year under consideration.
11. From the foregoing discussions, we notice that the assessee had
claimed input credit of Rs.5,67,185/-, whereas the VAT auditor determined
that the input credit was available to the assessee only to the extent of
Rs.3,68,505/-. Further, there was difference with regard to VAT amount
paid by the assessee. Accordingly, the AO has determined the VAT amount
payable at the year end at Rs.1,92,087/-. It is not the case of the
assessee that he has not accepted the VAT audit report. Having accepted
the VAT audit report, in our view, the assessee was not justified in denying
6 ITA. No.1505/Mum/2011
the VAT liability shown in the audit report. Further, the assessee has not
shown to us that the computations given in the VAT audit report was not
accepted by the Sales tax department. Under these set of facts, we are
of the view that the ld.CIT(A) was justified in confirming the addition of
balance amount of Rs.98,689/- by invoking the provisions of section 43B
of the Act.
12. The next issue relates to the addition of Rs.51,000/-, being amount
introduced by the assessee as his capital in the business books. The ld.
AR submitted that the assessee has been offering income as per the
provisions of section 44AD of the Act, since his turnover was less than the
prescribed limit in the preceding years. He submitted that the year under
consideration was the first year in which the assessee has maintained the
books of account, wherein the assessee has introduced a sum of
Rs.51,000/- as his capital. He submitted that the assessee has also
explained that he had withdrawn funds from bank in the month of March
2007 and the same was utilized for introducing the capital in the books of
account. However, the said explanation was not found acceptable to the
AO and hence, he assessed the sum of Rs.51,000/- as income of the
assessee. The ld.CIT(A) also confirmed the same.
13. Since the assessee has filed returns of income in the earlier years
by computing income under section 44AD of the Act and since the
assessee has shown that he has withdrawn the funds from his bank
account in the month of March, 2007, we do not find any reason to
7 ITA. No.1505/Mum/2011
disbelieve the explanations of the assessee. Accordingly, we set aside the
order of ld.CIT(A) and direct the AO to delete the addition of Rs.51,000/-
made on this account.
14. In the result, the appeal filed by the assessee is partly allowed.
Pronounced accordingly in the open court on 18th March, 2015 in the
presence of both the parties.
18th March, 2015
( /SANJAY GARG) ( .. / B.R. BASKARAN)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai: 18th March,2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
, /ITAT, Mumbai