Dhanesh Narbheram Bhansali, Mumbai vs Assessee

BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग , या यक सद य के सम

आयकर अपील सं./I.T.A. No.1505/Mum/2011 ( नधा रण वष / Assessment Year : 2007-08)

Shri Dhanesh Narbheram बनाम/ Asstt.Commissioner of Income Tax Bhansali, Vs. Cir 15(3), Urvashi, Flat No.701, Mumbai. Sayani Road, Opp, Ravindranath Mandir, Prabhadevi, Mumbai-400025. (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AGGPB2103D

अपीलाथ ओर से / Appellant by Shri K Gopal यथ क# ओर से/ Respondent by Shri Love Kumar

सन ु वाई क# तार'ख / Date of Hearing : 4.3.2015 घोषणा क# तार'ख /Date of Pronouncement :18.3.2015

आदे श / 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; and 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.

घोषणा खुले यायालय म+ ,दनांकः 18th March, 2015 को क# गई ।

sd sd

(संजय गग /SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

मुंबई Mumbai: 18th March,2015. व. न.स./ SRL , Sr. PS

आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु1त(अपील) / The CIT(A)- concerned

4. आयकर आय1 ु त / CIT concerned

5. 2वभागीय त न4ध, आयकर अपील'य अ4धकरण, मुंबई / DR, ITAT, Mumbai concerned

6. गाड फाईल / Guard file.

आदे शानस ु ार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील'य अ4धकरण, मुंबई /ITAT, Mumbai