TaxTMI 
TaxTMI 
2005 (5) TMI 256
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....o manufacture corrugated boxes and as per contract Rs. 4,11,780 was payable to the contractor out of which Rs. 50,000 had been paid and TDS amounting to Rs. 8,236 had been deducted. As such Rs. 3,53,544 was payable as on 31-3-1998. During the assessment proceedings, in order to verify the contract, inquiries were made regarding work undertaken by Shri Mohd. Aslam and his statement was also recorded. Shri Mohd. Aslam admitted to have undertaken the contract work for the assessee and he also admitted to have raised the bill of Rs. 4,11,780 which according to him was received in cash on various dates. The Assessing Officer, however, did not believe that Shri Mohd. Aslam could work as a contractor for the assessee during the year under consideration. According to him, Shri Mohd. Aslam could not produce any evidence to establish that he was ever appointed as a contractor by the assessee and also could not produce any books of account or even the attendance register to show as to how many workers were actually employed by him to do the job work. The Assessing Officer also doubted the claim of the assessee that only Rs. 50,000 was paid to Shri Mohd. Aslam during the current year. Accordin....
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....that he did not carry out the work. It was further stated that the contractor had received the money from the assessee and had duly disclosed the same in his return of income filed for assessment year 1998-99 and TDS of Rs. 8,236 was also deducted at the time of making the payment to him. It was argued that the genuineness of the payment of Rs. 50,000 made to the contractor during the year relevant to assessment year under consideration and Rs. 3,53,544 made during the next year, had not been doubted by the Assessing Officer and other wages paid during the year had also not been doubted but the Assessing Officer proceeded to disallow the claim because Shri Mohd. Aslam had raised the consolidated bill and also because he could not convince the Assessing Officer regarding payment made by him to his labour engaged to carry out the work. Accordingly, it was submitted that no adverse inference should have been drawn in the case of assessee because the onus to prove that the contractor was hired by them who did the labour work to manufacture corrugated boxes and in lieu of his services, the payment of Rs. 4,11,780 was received by him, had duly been discharged and since the sales effected....
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....above Rs. 50,000 those were to be paid by the assessee from outside the books of account which required to be added. Ld. CIT(A) stated that there was no evidence brought on record by the Assessing Officer to support the above findings. He further emphasised that the payment had duly been shown in the books maintained by the assessee for the next year and those payments had not been doubted by the Assessing Officer. The receipt of those payments had also been acknowledged by the recipients. Ld. CIT(A), accordingly deleted the addition made by the Assessing Officer. Now the department is in appeal. 6. Ld. DR for the revenue while supporting the order of Assessing Officer vehemently argued that the contractor namely, Mohd. Aslam was not a man of means and was not in a capacity to make the payment to the labourers without receiving the amount from the assessee which showed that the payments had been made by the assessee outside the books of account. Therefore, the Assessing Officer was justified in making the addition. He prayed to restore the addition made by the Assessing Officer. 7. In his rival submissions, Ld. counsel for the assessee reiterated the submissions made before t....
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....en doubted by the Assessing Officer and even the remaining payment of Rs. 3,53,544 made in the subsequent year had also not been doubted. Therefore, the Assessing Officer was not justified in making the disallowance on the basis of assumptions and presumptions. The claim of the assessee that the percentage of wages for the year under consideration was less in comparison to the earlier year, had not been denied. In that view of the matter also, the claim of the assessee on account of wages was a genuine claim. It seems that the Assessing Officer had taken adverse view only on the basis that full and final payment had not been made to the contractor by the assessee and that the bills should have been raised on monthly basis and not annually but in the instant case there was no such condition that the payments should have been made full and final. It is well-settled that the assessee knows the manner better in which business should be conducted, as far as receipt of payment is concerned it is the choice of the recipient. In the instant case the contractor never denied that he had not worked for the assessee even he had shown the work done for Rs. 4,11,780 from the assessee in his inco....
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....ters. It was stated by Shri Mohd. Aslam that he employed 11 workers for the purpose of corrugation of boxes. One of them was paid Rs. 4,000 per month and the other ten were being paid @ Rs 3,000 per head per month. When asked to produce the records, it was claimed by Shri Mohd. Aslam that the diary in which receipts and payments had been recorded was destroyed on 31-3-1998 when the account was settled with the assessee-company. Shri Mohd. Aslam failed to give names of the employees. He also could not give any satisfactory reply in regard to the amounts paid to the workers during the financial year and as to how much was payable to them as at the end of the previous year. When asked as to how the payments were made to the workers when only a sum of Rs. 50,000 was received from the assessee, it was claimed that the payments had been made to the workers out of past savings of Rs. 1,25,000 and loans from father and brother of Rs. 18,000 and Rs. 15,000 respectively. Shri Mohd. Aslam had claimed to have maintained attendance register and had promised to produce the same on 4-1-2001 before the Assessing Officer. He had further stated before the Assessing Officer that he did not continue t....
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....s office in respect of wages payable at Rs. 3,53,544 as per questionnaire dated 1-10-1999 from the assessee. (ii) The capacity of Mohd. Aslam to make even part payments to the workers is not established keeping in view the kind of work he was doing like a labourer in subji mandi. This type of work is normally opted by any young person only when he is in dire needs of making both ends meet. Therefore, his claim in his statement that he made part payment to the workers out of his personal savings of Rs. 1,25,000 is not worth acceptable. Besides, with the help of any documentary evidence he could not prove that he had savings worth Rs. 1,25,000 and that he had taken loans from his relatives to make part payments to the workers. It will not be out of place to mention here that presently he is working as a barber in his father's shop. (iii) As admitted by Mohd. Aslam he was not having any experience of corrugated box manufacturing or of any other business. On the other hand, the corrugated box manufacturing was started by the assessee company for the first time during the relevant assessment year. Therefore, from the point of view of common prudence, no businessman would entirely ....
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....have worked for the assessee. If one were to go by the statement of Shri Mohd. Aslam without looking into the surrounding circumstances and the human probabilities, perhaps the burden of the assessee to produce evidence in support of the claim would appear to have been discharged. So, however, it is the duty of the authorities to take into account the entire facts and circumstances of the case and also to test the evidence produced by the party in the light of surrounding circumstances and human probabilities. Their Lordships of Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540, held that "science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probabilities." The said view has been reaffirmed by Their Lordships of the Supreme Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC). 7. Thus, I proceed to consider the evidence produced by the assessee in the light of surrounding circumstances and human probabilities. I would first like to refer to the ledger account maintained by ....
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....sp; 14,692 11. Feb., 1998 18,773 12. March 1998 17,672 ---------- 2,11,426 13. Labour Exp. Bill 4,11,780 &nbs....
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....0 and loans of Rs. 18,000 and Rs. 15,000 from his father and brother respectively. In other words, Rs. 1,58,000 were stated to have been paid to the labourers for the work done of more than Rs. 4,11,000. The profit as per the return of income filed after the Assessing Officer had raised the query shown by Shri Mohd. Aslam is Rs. 32,942 only. Firstly Shri Mohd. Aslam does not have any source from which he could have saved Rs. 1,25,000. Even as per his statement, he was earning a meagre amount of Rs. 1,500 per month as a loader before undertaking the contract work for the assessee. No evidence of having received loans from his father and brother was produced before the Assessing Officer or before any other authority. Therefore, the claim of Shri Mohd. Aslam that he paid wages partly out of his savings and loans is nothing but a bare statement unsupported by any evidence. The claim that the wages exceeding Rs. 2 lakhs had remained payable towards the labourers is also unbelievable. It is common knowledge that the labourers require money for their daily necessities and can hardly afford to leave wages with any person for whom they have worked for substantial period. No record of the la....
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....it is the duty of the assessee to establish identity of the creditor, his creditworthiness and genuineness of the credit. It is not the duty of the Assessing Officer to establish the source from which the assessee has earned the income. This view is supported by the following decisions:- (i) Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC); (ii) Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC); (iii) Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC); (iv) Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.); (v) C. Kant & Co. v. CIT [1980] 126 ITR 63 (Cal.); (vi) CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465 (Cal.); and (vii) CIT v. Kamdhenu Vyapar Co. Ltd. [2003] 130 Taxman 147 (Cal.). In this case the assessee has identified Shri Mohd. Aslam. Shri Mohd. Aslam has confirmed the credit. The creditworthiness of Shri Mohd. Aslam has not been established. Shri Mohd. Aslam is not a regular contractor. His past history having worked as a labourer/loader in Sabji Mandi and his subsequent assignment as barber in his father's shop does not leave even iota of doubt that he is not a man of means. His creditworthiness is, therefore, not established. He could no....
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....as per Form No. 16A, available on record. The aforesaid form further showed that tax was deducted from the amount payable to contractor Shri Mohd. Aslam s/o Shri Abdul Rashid of Malerkotla as contractor's name is duly mentioned in the statutory form. 3. The Assessing Officer during the course of assessment proceedings summoned and recorded the statement of Mohd. Aslam and held that it was unbelievable that labourers engaged by Shri Mohd. Aslam worked without getting their daily wages (as the amount of Rs. 3,53,544 was shown as due). The said Shri Mohd. Aslam lacked financial capacity to engage 11 labourers on credit basis to carry contract work. As per the practice, no labour would carry any work without obtaining daily wages. According to the Assessing Officer, Mohd. Aslam could not produce any evidence to establish that he was ever appointed as a contractor by the appellant. Mohd. Aslam could not produce any books of account or even the attendance register to show as to how many workers were actually employed by him to do the job work. The Assessing Officer also doubted the claim of the appellant that for contract work only Rs. 50,000 were paid to Mohd. Aslam during the curren....
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....t on oath, had accepted the contract of making of corrugated boxes and had received Rs. 50,000 in the current year and the balance amount on different dates falling in the next year. Merely because the contractor could not produce attendance register to show as to how many workers were actually employed by him, it cannot follow that no work was carried out by him. The contractor had shown the receipt from contract in his return and also took benefit of tax deducted at source. Other wages paid in similar fashion were accepted by the Assessing Officer. Other circumstances like raising of one consolidated bill, part payment of contract amount, suspicion regarding capacity of contractor to pay to his labour, non-raising of monthly bill of job work were insufficient to disallow the claim in question. 5. The learned Commissioner of Income-tax (Appeals), after considering the facts and circumstances of the case, allowed the claim of the assessee with the following observation: "In order to decide the issue, I have considered the various arguments of the AR carefully. The Assessing Officer had disallowed the claim of wages payable at Rs. 3,53,544 on the ground that the contractor to ....
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.... the claim of total wages of Rs. 6,23,206 including the claim of Rs. 4,11,780 on account of a contractor's bill seems to be quite reasonable as compared to the expenditure of Rs. 2,32,405 claimed under the same head last year keeping into account the fact that the material consumed has increased threefold over the year whereas hike in wages is comparatively less. The Assessing Officer in his concluding remarks has observed that either the claim regarding the wages for box manufacturing is bogus or if at all any wages were paid over and above Rs. 50,000, these were paid by the assessee from the funds outside the books of account which needs to be added. There is no evidence brought on record by the Assessing Officer to support these findings. The Assessing Officer cannot say that the manufacturing of corrugated boxes have not taken place because he himself has accepted the sales of corrugated boxes declared at Rs. 75,74,785. Secondly evidence is thereon record to suggest that the payment of Rs. 3,53,544 which was over and above Rs. 50,000 was made by the appellant out of the funds not recorded in the books. The payment of this amount has been duly shown out of the books maintained f....
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....ull and final payment in the year under consideration. It is for the assessee to conduct his business in the manner he likes. The contractor in the instant case never denied that he did not carry contract work for which he showed Rs. 4,11,780 as receipt in his return. No case for excessive payment of wages was made out. Accordingly the ld. Accountant Member proposed to confirm the impugned order of the learned CIT (Appeals). 7. The learned Judicial Member (Hon'ble Vice President) did not agree with the above view. He found that the Assessing Officer had given the following reasons for not accepting the claim of the assessee: (i) Shri Mohd. Aslam could not produce any evidence to establish that he was ever appointed as contractor by the assessee. Besides, in spite of his promise he could not produce any books of account or even the attendance register to show as to how much workers were engaged by him or in what manner he was making payments to them. Rather he took an excuse with the contention that all the books of account had been destroyed on 31-3-1998 after reconciliation of his account with the books of the assessee. But contrary to this, it is best known to Shri Mohd. As....
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....ial year without deducting any TDS. In the account of Mohd. Aslam no other credit entry was made on account of monthly claim of wages other than the one made at the end of the financial year for Rs. 4,11,780. These features are against the normal practice, which prevails in the labour contract business where monthly bills are raised by the labour contractor and regular TDS is deducted from each payment made to the contractor." 7.1 In his proposed order, the learned Judicial Member (Hon'ble Vice President) has stated that the question involved before them was to be decided on the basis of surrounding circumstances and human probabilities and not merely on the statement of Shri Mohd. Aslam. For above proposition, the learned Judicial Member (Hon'ble Vice President) relied upon the decision of the Supreme Court in the cases of Durga Prasad More and Sumati Dayal. The learned Judicial Member (Hon'ble Vice President) also considered the detail of wages debited by the assessee in his account and found that apart from claim of Rs. 4,11,780 payable to Shri Mohd. Aslam, the assessee had separately claimed wages of Rs. 2,11,426 by debiting the account every month. From the bill issued by M....
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....t is common knowledge that the labourers require money for their daily necessities and can hardly afford to leave wages with any person for whom they have worked for substantial period. No record of the labourers to whom the amount was payable by Shri Mohd. Aslam was produced before the Assessing Officer. As already pointed out, the return of income was filed only after an inquiry was made by the Assessing Officer in regard to wages and outstanding shown by the assessee. Shri Mohd. Aslam had no past experience in contract business or in corrugation of boxes. Moreover, curiously, his office address as per his bill is that of the assessee. Taking the totality of the facts and circumstances of this case into consideration, I do not have any doubt in my mind that the evidence produced by the assessee in the shape of Shri Mohd. Aslam is nothing but a tutored witness. The human probabilities and surrounding circumstances clearly establish that the claim put forward by the assessee about the contract having been allotted to Shri Mohd. Aslam is nothing but a make belief story. The statement of Shri Mohd. Aslam in the light of human probabilities and surrounding circumstances is unbelievabl....
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.... of doubt that he is not a man of means. His creditworthiness is, therefore, not established. He could not afford to give credit to the assessee of Rs. 3,53,544. It is unimaginable that a company having a turnover of a crore of rupees would have withheld the payment to one labour contractor to the tune of Rs. 3,53,544 for the wages due to poor labourers who have claimed to have worked for manufacture of corrugated boxes. In the light of the peculiar facts of this case, I am of the considered opinion that the Assessing Officer was justified in making the addition and that the Commissioner of Income-tax (Appeals) was not right in deleting the same." 9. The difference has been brought before me and I have heard both the parties. Shri Puniha, the learned Departmental Representative submitted that corrugated boxes were manufactured by the assessee for the first time and, therefore, there was no justification to compare the trading result of above item with the trading result of earlier year when no boxes were reproduced. It was further not explained by the assessee as to why a novice like Shri Mohd. Aslam was employed as a contractor for carrying manufacturing activities. Shri Puniha....
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....o. 5 of the Paper Book. 11. Shri Jain further submitted that tax at source was deducted from the amount payable to the contractor and paid to the account of the Revenue as per statement on Form No. 16-A. In the aforesaid Form, the name of Shri Mohd. Aslam is duly stated and the amount paid/payable is shown at Rs. 4,11,780. The above document clearly rule out any concoction of story as an after thought done when proceedings were initiated against the assessee. The entire case of the Revenue was based on surmises and conjectures. Shri Mohd. Aslam is a contractor carrying on job work as also labour work on contract basis. Even in the next year, he had carried work for which sum of Rs. 4,52,996 was due to him. The said account has been duly accepted without pointing any defect or adverse comment. 11.1 Shri Jain further submitted that it was not a cash transaction. No cash was paid. He also drew my attention to the copy of returns filed by Shri Mohd. Aslam in which receipt in question was duly shown with profit of Rs. 32,942. Shri Mohd. Aslam has also placed on record his capital accounts and Balance Sheet alongwith his return. The said return has also been accepted. In these circ....
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....Mohd. Aslam were not made as reflected in the books of account of the assessee. These books were not only accepted as regularly maintained but were also supported by an audit report. No discrepancy whatsoever has been found in these accounts. 14. In order to prove its claim relating to expenditure, assessee placed on record a copy of account of Mohd. Aslam showing that Rs. 50,000 were paid in the year under consideration and balance amount was shown as payable. The detail of payment as per above account is as under:- "Copy of Account SH. MOHD. ASLAM, MALERKOTLA 1-4-1997 to 31-3-1998 Date Particulars Debit &n....
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....p; Copy of Account: Labour Charges Payable (Contractor) 1-4-1998 to 31-3-1999 Date Particulars Debit Credit 1-4-1998 By balance B/F 1997-98 3,53,544 12-6-1998 To cash for labour payments 18,000 15-6-1998 To cash for labour payments 18,000 24-6-1998 To cash for labour payments 19,000 25-8-1998 To cash for labour payments 16,000 26-8-1998 To cash for labour payments 18,000 27-8-1998 To cash for labour payments 18,000 28-8-1998&nb....
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....bsp; 8,06,540 8,06,540" -------- --------- 15. The first of the account reproduced above for period lending 31-3-1998 and showing payment of Rs. 50,000 has been accented by the Revenue. It reveals that payment was made @Rs. 20,000 p.m. which was found sufficient to cover needs of Mohd. Aslam and his worker. Above payments have been accepted and duly allowed. Similar payments have been made in next year between June, 1998 to September, 1998 and whole account has been cleared as per details noted above. The payments are supported by entries in regularly maintained books of account and no error or defect in any entry relating to availability of cash etc. has been found. No adverse comments on the payment cleared between June to September, 1998 have been made by any revenue authority or learned Members of the Tribunal. There is absolutely no reason to disregard a....
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....orroborated by accounts of Sh. Mohd. Aslam submitted by him with his return filed with the Income-tax Department. The amount due has been duly disclosed as taxable receipt with profit of Rs. 32,942 earned from this contract, after claiming expenses incurred. The payable amount has also been correctly shown as also amount due to his creditors. He has also annexed his capital account. There is no dispute about the return filed by him. However, above evidence has not been considered as credible and reliable as far as the assessee is concerned as Mohd. Aslam submitted his income-tax return on 20-1-2000 after some queries were raised by the Assessing Officer in the case of the assessee on 1-10-1999. I am unable to appreciate the stand taken by the revenue in this regard. In the first place, no detail of query raised in the case of the assessee on 1-10-1999 has been placed on record. Further, one may ask what is the connection of aforesaid query with the return submitted by Shri Mohd. Aslam. Is it possible to reject the return of Mohd. Aslam as inconsequential on the short ground that some query relating to payment made to him was raised in the case of the assessee? I do not see any co-r....
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....eedings and no objection has been raised on the genuineness of above entry which clearly shows that Md. Aslam could arrange labour on contract as also necessary finances for such jobs. The entry strengthens the case of the assessee. The contention of the learned DR, that period ending 31-3-1999 was not under scrutiny, is of no avail. All the relevant material relating to genuineness of claim of carry forward balance of Rs. 3,53,544 was required to be considered. 20. The learned counsel for the assessee also submitted, and to my mind rightly, that the appeal of the revenue before the Tribunal should have been dismissed on the short ground that alleged statement of Md. Aslam heavily relied upon by the Assessing Officer was not produced before the Tribunal. I have seen the relevant record and find that said statement or copy thereof is not available on record. Even the learned DR did not have the said statement during the course of hearing of appeal. Most of the objections raised to the deductibility of disputed demand are based on consideration of statement recorded by the Assessing Officer. Without statement, no view can be taken of things admitted or denied in the statement. Onl....
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....osed investment was made by the assessee and, therefore, addition of the above amount is justified. There is not an iota of evidence to show that the assessee made undisclosed investment in the shape of payment of unaccounted wages and as noted earlier, documentary evidence is being disregarded to draw adverse unjustified inference. The Hon'ble Judicial Member in the proposed order has observed, "It is unimaginable that company having turnover of crores of rupees would have withheld the payment of one labour contractor to the tune of Rs. 3,53,544 for wages due to poor labourers who have claimed to have worked for manufacture of corrugated boxes". If the assessee had the capacity to pay to the workers, who had admittedly carried on manufacture of boxes sold for Rs. 75,74,785 then why did the assessee not pay? Why was the assessee creating fictitious entries relating to work done, wages payable, wages carried forward and paid in the next year? Why did the assessee deduct tax at source, deposit the same and then ask Mohd. Aslam to file returns of income, prepare accounts in his case and do so many wrong things alleged by the Assessing Officer. Why and for what reasons the assessee wou....