TaxTMI 
TaxTMI 
2010 (8) TMI 966
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowance of Rs. 6,32,022/- out of Rs. 8,13,889/- is in any case wholly wrong and unjustified and Ld. CIT(A) erred in confirming the said payment also. 2. For that the Ld. CIT(A) erred in law as well as in law in confirming the disallowance of Rs. 4,05,517/- treating it as bogus expenditure, debited as labour charges. The allegation is wrong & is denied. 3. For that the Ld. CIT(A) erred on facts as well as in law in confirming the disallowance of Rs. 24,150/- out of bonus of Rs. 53,150/- paid to labours." 3. The revenue has also taken the following grounds of appeal : "1.That the Ld. CIT(A)-XII erred in deleting the addition on design charges of Rs. 5,40,997/- without appreciating the fact that no TDS was deducted at the time of incurring the expenses thereby violating section 40a(ia) read with section 194 of the I T Act 1961. 2.That the Ld. CIT(A)-XII erred in deleting the addition on finishing and curing expenses of an amount of Rs. 2,65,383/- without appreciating the fact that no TDS was deducted thereby causing the violation of section 40a(ia) read with section 194 of the I T Act 1961. Ld. CIT(A) further erred in passing the order on the ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee. The senior labourer collected the labour charges and distributes to his colleague labourers as per their dues. There was no labour contract. Therefore, the provisions requiring deduction of TDS did not attract. The AO did not accept the above explanation of the assessee and has held as under : "It is a well known fact and trade practice that the labourers do any work on contract basis in case of bulk work particularly for industrial work. A labour sardar supply labourers on contract basis. This type of work come under the purview of section 194 of the I. T. Act, 1961 and labour sardar's income comes under the purview of section 44AD of the I. T. Act. It was stated by the assesee that "no single labour was paid labour charges of Rs. 50,000/- per year". But no list of total number of labourers as well as the name and address of them were bit filed. Hence, the statement is an afterthought in order to avoid the legal obligation by the assessee. Therefore, assessee's plea is not tenable and is rejected. Hence, Rs. 8,13,889/- was disallowed for violation of section 40a(ia) read with section 194 of the I. T. Act, 1961." 4.1. Aggrieved by the said order, the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that appellant has not produced any list of labourers including Sardars before the AO. Thus the list now filed appears to be an 'after thought' and in fact no supporting documentary evidences produced in support of the list of lahourrs to show that the labourers really worked in the appellant firm and that the said labourers received payments through the Sardars. The basis for preparing such lists is also not known. The appellant has also not submitted any explanation that prevented the appellant to produce these details before the A.O during assessment proceedings. Hence I reject the evidence now produced for the reasons above. As regards the payment made to Rangchitra and J. J. Embroidery, the appellant itself admitted the default. In view of the facts discussed, I am in agreement with the AO's action of rejecting the appellant's contentions and treating the amount of Rs. 8,13,889/- azs an addition to the income as the appellant violated the provisions of section 40a(ia) read with section 194C of the I. T. Act. The addition made on this count is upheld." 4.2. The AO also added an amount of Rs. 2,65,383/- shown to have paid to Mr. Mazafar Iqbal towards ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere exists a oral contract between appellant and sardars which is valid in the eyes of law" is wholly misconceived and unfounded. There is no arrangement as presumed by the AO. He also contended that a contract in relation to any work pre- supposes an obligation on the part of the contractor or sub-contractor to do something for a consideration but that is not the case here. There is no element of consideration to the so called sardar and there is no contract whatsoever with anybody or the so called labour Sardars, oral or written. It is plain & simple payment of labour charges to several labourers through one of them. In the normal course of working a senior or comparatively more competent labourer is called as incharge or Sardar which does not mean that he is a contractor for the job to be done. He is just like his other fellow labourers and being comparatively competent also does work of guiding & helping the other labourers in doing their work. In the process he collects his wages and also the wages payable to the fellow labourers and distributes the wages amongst his fellow labourers. The observation of the Ld. CIT(A) that "the list now filed (of labourers) appears to be an af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 194 of the I. T. Act. Hence, the AO has rightly disallowed the said sum and added the same to the total income of the assessee. He also contended that the action of the Ld. CIT(A) was not justified in deleting the addition on finishing and curing expenses of an amount of Rs. 2,65,383/- without appreciating the fact that no TDS was deducted thereby causing the violation of section 40a(ia) read with section 194 of the I. T. Act. He also contended that the Ld. CIT(A) was wrong in passing the order on the basis of the judgment in the case of Hindustan Coka Cola Beverage P. L:td. Vs. CIT 293 ITR 226 based on CBDT circular no. 275/201/95-IT(B) dated 29.01.1997 in spite of the fact that the said circular is not applicable in the instant case as the facts of the two cases are different. He also contended that in the case of Hindustan Coka Cola , TDS was deducted @2% instead of 10% on warehousing charges paid to Pradip Oil Corporation whereas in the instant case addition was made u/s. 40a(ia) of the I. T. Act read with sec. 194C. While delivering the judgment, the Hon'ble Apex Court referred to the CBDT circular No. 275/201/95-IT(B) dated 29.01.1997 which says that 'no demand v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f labourers for carrying out any work, it will attract disallowance of expenditure. The Hon'ble Supreme Court in Birla Cement Works v, CBDT [2001] 248 ITR 216 has laid down the conditions precedent for attracting the provisions of section 194C, namely, (i) there must be a contract between the person responsible for making payment to contractor, (ii) the contract must be for carrying out of any work, (iii) the work is to be carried through the contractor, (iv) the consideration for the contract should exceed Rs. 10,000/-, i.e., the amount fixed by section 194C and (v) that the payment is made to the contractor for the work carried out by him. Therefore, section 40(a)(ia) cannot be read in isolation or to the exclusion of section 194C, In the instant case, the controversy was regarding the payments made for disbursement of labour charges to labour-heads. The assessee had specifically stated before the lower authorities that there was no contract between the assessee and the labour-heads. Whereas it is the case of the Revenue that the assessee's case falls u/s. 194C(2) of the Act. Thus, revenue claims that there was existence of contractor/sub- contract and these labour heads ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the P & L A/c. It is also observed that the assessee could not reconcile the matter. The A.O. therefore, disallowed the sum of Rs. 4,66,882/- comprising of two amounts (Rs.4,05,517/- + Rs. 61,365/-) by treating it as bogus expenditure. On appeal before the Ld. CIT(Appeals) it was submitted that the working in the assessment order was not clear and the unsigned vouchers actually amounted to Rs. 3,72,765/- and not Rs. 4,66,882/- as mentioned by the A.O. Admittedly it was an inadvertent mistake on the part of the staff not to obtain the signatures at the time of making the payments, but the payments were duly made and debited in the normal course and, therefore, it should have been allowed. The submission made before the Ld. CIT(Appeals) in this connection is set-out in para-5.2 of the impugned order. It was submitted that admittedly the total unsigned vouchers were of Rs. 3,72,765/- only and the unsigned vouchers of Rs. 61,556/- were duplicate vouchers against which no payments were made and, therefore, in any case no cognizance could be taken of the vouchers of Rs. 61,556/-. The Ld. CIT(Appeals), however, did not agree with the submission of the assessee and observed that no doc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....act remains that payments made in cash and debit vouchers do not contain the name and addresses of the recipients. Moreover certain bills were not submitted by the appellant. However the appellant admitted that the total unsigned vouchers comes to Rs. 3,72,765/- and that unsigned vouchers for Rs. 61,556/- were 'duplicate vouchers' and hence not :debited in account. The appellant further submitted that none of the payment vouchers are for any bogus expenses and that some of the vouchers by oversight not signed by the printing labourers and recipients who carried out printing job works. :However, the appellant has not submitted any documentary evidence before the A.O even before me to prove the genuineness of expenditure. The payment vouchers produced before the A.O are defective as they are devoid of names and addresses of recipients. As such the A.O could not verify the genuineness of expenditure and added. The argument of the appellant that 'not-signing the vouchers' is a minor discrepancy which does not call for disallowance is not tenable. It is not only lack of signatures but lack of names and addresses which make evidences defective and unverifiable. The AO als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ined before the Ld. CIT(Appeals) that the assessee was never called upon to furnish the name of the persons to whom the bonus was paid. A ledger account copy of the bonus account was submitted to the A.O. a copy whereof is also placed on record. It was submitted that the bonus account in the ledger, names of the payees was not written because in the ledger a consolidated amount for payment to several labourers was posted as one figure. The A.O's allegation that payments were made to unknown persons who were not labourers was wholly misconceived and wrong. A statement giving names of the persons to whom bonus was paid was submitted before the Ld. CIT(Appeals) vide copy at page-8 of the Paper Book. After examining this list the Ld. CIT(Appeals) observed that payment of bonus to labourers who were temporarily employed was against normal practice that exists in the industry or any other business activity. In this view of the matter he considered the bonus payment to labourers is an odd feature. He also observed that the assessee had not proved conclusively that the bonus payments were made to the listed labourers. By so observing he upheld the disallowance of bonus payment to the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to whom bonus paid including employees. He also bobserved that the assessee failed to produce the necessary evidence to prove that the labourers shon in the list were the real ones who worked with the assesee at the relevant time. He also stated that payment of bonus to labourers who were temporarily employed was against normal practice that exists in the industry or any other business activity. In this view, he considered the bonus payment to labourers is an odd feature. He also observed that the assessee had not proved conclusively that the bonus payments were made to the listed labourers. By so observing he upheld the disallowance of bonus payment to the extent of Rs. 24,150/- relating to the labourers and directed the AO to examine the genuineness of bonus payments of Rs. 29,100/- shown against the staff before allowing the same. On careful perusal of the submissions of both the parties and also the orders of the authorities below, we find force in the submissions of the assessee that the assessee produced the ledger copy of the bonus account to the AO wherein the names of the payees were not written because in the ledger a consolidated amount for payment to several labourers w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the principals and has got no value if rejected. Moreover, the frames consist of a lesser value than the charge of designing and screening received for the job by these parties. Therefore, the assessee's reply that Sec. 194C is not applicable for the aforesaid expenses is not tenable and was rejected by the AO. Hence, Rs. 5,40,997/- was disallowed and added to the total income for violation of section 40a(ia) read with section 194 of the I T Act 1961 .lt was contended by the assessee before Ld. CIT(A) that it was outright purchase. Screen and design were sold by the parties to the assessee and there was no element of job charges. These parties were semi-illeterate, made designs for printing on nylon cloth and sell such designs. The user of word design charges or screen charges in the bills can only be attributed to lack of knowledge of English or user of the talking language. Ld. CIT(A) was of the view that no material was supplied by the assessee for making design and screen. The Ld. CIT(A) erred in considering the fact that the specification was supplied by the assessee for making designs and screens and rates were fixed on the basis of such specification. Such designs and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s dismissed. 8. Ground No. 3 of the revenue's appeal relates to deletion of addition of closing stock of Rs. 5,43,834/-. At the time of assessment proceedings the AO observed that an amount of Rs. 2,64,525/- was shown as closing stock in the P & L Account whereas the total outstanding bills at the end of the year comes to Rs. 8,08,359/-. This includes various purchases from various parties. Therefore, difference comes to Rs. 5,43,834/-. Since the assessee could not substantiate the difference with evidence the difference of Rs. 5,43,834/- was added to the total income. In appeal, the Ld. CIT(A) directed the AO to delete the addition of Rs. 5,43,834/- made towards difference in closing stock. Aggrieved by the said order, now the revenue is in appeal before us. 8.1. At the time of hearing before us, the Ld. Relied on the order of the AO and submitted that an amount of Rs. 2,64,525/- was shown as closing stock in the profit and loss account whereas the total of outstanding bills at the end of the year comes to Rs. 8,08,359/-. This includes various purchases from various parties. Since the asseeee could not substantiate the difference with evidence the difference of Rs. 5,43,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd. We find that according to the AO, there was a difference between closing stock amount and outstanding bills as on 31.3.2005 and he added the difference to closing stock as the assesee could not substantiate the difference with evidence. In appeal, the Ld. CIT(A) has held as under : "7.3. I have carefully considered the facts and also the contentions raised by the appellant. The A.O has noticed substantial difference in the value of closing slack when compared to the purchases made at the fag end of the year. The A.O added the difference on the ground that the difference could not be substantiated. On the other hand he appellant argued that all the relevant details along with explanation has been furnished before the A.O and the A.O has not pointed out any infirmity in the explanation and the appellant duly accounted for all the purchases and the payments were made by cheques and that the goods received much in advance compared to corresponding bills which would be received much after the delivery of goods and hence merely based on the bills received towards the end of the year the A.O is not justified in making the addition. On due consideration, I find there is merit ....