Sh. Shiv Kumar, Ludhiana vs Assessee

Tax(Appeals)-II, Ludhiana dated 28.5.2012 for

assessment year 2008-09.

2. We have heard the learned representatives of both

the parties and perused the material available on record.

3. Ground No.1 is general and needs no adjudication. 2

4. On Ground No.2, the assessee challenged the addition

of Rs.1,53,000/- made on account of disallowance under

section 40A(2)(b) of the Income Tax Act.

5. The brief facts are that during the year under

consideration the assessee had claimed an amount of

Rs.11,76,000/- under the head "salary and wages". Out of

this, the assessee has paid salary of Rs.2,25,000/- to his

son Shri Amandeep Kumar and Rs.1,59,000/- to his son

Shri Daniel. The Assessing Officer noted that during the

year maximum salary paid to other employees is

Rs.84,000/- per annum. The Assessing Officer further

noted that Shri Amandeep Kumar was only 10th pass and not

technically qualified. The Assessing Officer accordingly

held that salary paid to Shri Amandeep Kumar was

excessive. The Assessing Officer disallowed Rs.1,53,000/-

out of salary paid to Shri Amandeep Kumar under section

40A(2)(a) of the Act.

6. The assessee challenged the addition before the

learned CIT (Appeals) and written submission is quoted in

the impugned order, in which the assessee briefly explained

that the assessee is approximately 57 years of age and is

engaged in the business/profession of providing services of

crane on job work basis for construction of bridges, heavy

load machinery and in uplifting of machinery in furnaces

meaning thereby the business/profession of providing the

services with aid of cranes which can basically be done by

the young and energetic persons. The cranes could not be 3

operated by every labourer and need experience to operate

the same. Any mis-happening of the cranes can cost in

lacs of rupees for its repair and maintenance. The safety of

the cranes is also required. The assessee could hire the

services from outside sources but which would cost more.

The sons of the assessee would be in a better position to

take care of the cranes. Therefore, the salary paid to them

was quite genuine and reasonable. The salary paid to Shri

Daniel, who is Mechanical Engineer and has knowledge was

reasonable salary in the present assessment year. The

total receipts of the assessee in the preceding year were of

Rs.35.17 lacs and the salary/wages paid were Rs.7,20,000/-

whereas during the year under appeal the receipts are of

Rs.76.72 lacs, against which salary/wages were paid to the

tune of Rs.11.76 lacs. The expenses are lesser as

compared to the earlier years ratio and receipts are more as

compared to the earlier years. Therefore, no unreasonable

salary has been paid. It was also submitted that both the

sons of the assessee were doing job for about 11 to 13 hours

in a day, whereas the workers would be available for 6 to 7

hours in a day and considering the more receipts the

Assessing Officer should not have made disallowance. The

learned CIT (Appeals), however, did not accept the

contention of the assessee because the salary paid to other

employees was lesser. Shri Amandeep Kumar was not

technically qualified. It was the first year in which he has

worked for the assessee. Therefore, this ground of appeal of

the assessee was dismissed.

4

7. After considering the rival submissions, we are of

the view that addition is on excessive side. The assessee

explained that both the sons have been working for the

assessee for operating the cranes. The assessee is about

57 years of age and the nature of the work performed by the

assessee was such that the help of others are required for

operating the cranes. The Assessing Officer did not

disallow any salary/wages paid to other son of the assessee

Shri Daniel in a sum of Rs.1,59,000/-. Both the sons of

the assessee are doing same job for the assessee and merely

because Shri Amandeep Kumar was not technically qualified

would not give occasion for the Assessing Officer to disallow

the salary substantially. It is not in dispute that the total

receipts of the assessee were substantially higher in

assessment year under appeal as compared to the preceding

year and it is also not in dispute that the salary/wages paid

was comparably lower in percentage as was paid in the

earlier years. These facts would clearly support the case

of the assessee that both the sons of the assessee have been

working whole heartedly for the business of the assessee

and through their efforts total receipts of the assessee have

increased. Therefore, the Assessing Officer has failed to

make out a case of any un-reasonable payment to the sons

of the assessee. However, considering the fact that Shri

Amandeep Kumar was not qualified as against the

qualification of other son Shri Daniel, it would be

reasonable and appropriate to restrict the salary paid to

Shri Amandeep Kumar slightly lesser as was given to Shri 5

Daniel because both of them were doing the same job for the

assessee. Considering the above discussion, it would be

reasonable and appropriate to allow salary paid to Shri

Amandeep Kumar in a sum of Rs.1,50,000/- as against the

payment of salary of Rs.2,25,000/-, thereby the addition is

restricted to Rs.75,000/- only. The orders of the

authorities below are accordingly modified to the extent that

the addition on account of disallowance for paying salary to

Shri Amandeep Kumar would be restricted to Rs.75,000/-

only.

8. In the result, this ground of appeal of the

assessee is partly allowed.

9. On ground No.3, the assessee challenged the

addition of Rs.1,74,000/- on account of disallowance of

depreciation on crane.

10. The brief facts are that the Assessing Officer

noted that the assessee had claimed depreciation of

Rs.1,74,000 @ 15% on a crane, which has been shown to

have been purchased on 1.4.2007 for Rs.11,60,000/-. The

Assessing Officer noted that this crane was purchased from

M/s Indo Construction, New Delhi. The Assessing Officer

further noted that M/s Indo Construction had purchased

this crane in August, 2006 from Continental Construction

Ltd., New Delhi, who had purchased this crane in the year

1990. On the bill of Indo Construction, it was mentioned

that the crane is old used and unserviceable. The 6

Assessing Officer asked the assessee to produce the

purchase bill for the aforesaid crane. The assessee did not

produce any documentary evidence in the form of purchase

bill from M/s Indo Construction and accordingly it was held

that the assessee had not produced any evidence for

ownership as well as usage for business purpose and

accordingly disallowance was made.

11. The written submission of the assessee is

incorporated in the impugned order, in which the assessee

explained that payment of Rs.15 lacs was made to M/s Indo

Construction Company and after negotiation Rs.3,40,000/-

were returned back. The copy of the same has already been

placed on assessment record. It was submitted that the

crane though unserviceable as per bill on account of fact

that original crane is of 5 to 6 times of this value.

Second-hand crane and unserviceable it to put on the bill to

identify quantity of the crane for making verification for

transit and at State borders. The total receipts from the

crane have increased substantially, which were more than

double. Therefore, it would prove that the assessee used

the crane in question for the purpose of business. It was

submitted that the assessee has submitted documents of

ownership of machinery alongwith the reply. The payments

are made by means of account payee cheques, which have

not been doubted. Therefore, the Assessing Officer should

have allowed the depreciation on the crane so purchased.

The learned CIT (Appeals), however, did not accept the 7

contention of the assessee and dismissed this ground of

appeal. The findings of the learned CIT (Appeals) in para

5.3 of the appellate order are reproduced as under:

"5.3 I have carefully considered the appellant's submission. The appellant has claimed that Rs.15,00,000/- was paid to M/s Indo Construction on 26.03.2007 as advance for purchase of Crane and after negotiation the rate was settled for Rs.l1,60,000/-. Rs.3,40,000/- was received back by the appellant on 12.04.2007. Appellant submitted a copy of account of M/s Indo Construction in its books. The account reads as under:

Date Particulars Vch Type Vch No. Debit Credit 1.4.2007 To advance for Crane Journal 03 15,00,000.00 Trf. from Advance for Crane Ch.No.170935 For P.N. Bank.

By Crane (Indo Const.) Journal 04 11,60,000.00 12.04.2007 P.N.B. Receipt 04 3,40,000.00 O/A0765002100432354 ______________________ 15,00,000.00 15,00,000.00

In support of its claim for purchase of crane, the appellant submitted the bill issued by Indo Construction. As per this bill dated 24.03.2007, the crane has been sold to the appellant for Rs.10,40,000/- including VAT. The appellant submitted another bill dated 24.03.2007 for Rs.l.20 lacs which mentions cost of loading, transportation, unloading and reassembling of crane. There is apparent contradiction in the appellant's submission. While the appellant has claimed that the crane was purchased on 01.04.2007 for which advance of Rs.15.00 lacs was given on 26.03.2007, the purchase bill shows the date of sale on 24.03.2007. If the cost of crane was already settled on 24.03.2007 there was no reason of giving advance of Rs.15.00 lacs on 26.03.2007. Further, while in the written submission the appellant has claimed that cost of crane is Rs. 11,60,000/-, as per the 8

purchase bill the cost is Rs.10,40,000/-. The appellant also submitted a copy of account of the appellant in the books of M/s Indo Construction. The account reads as under:-

Date Particulars Vch Type Vch No. Debit Credit

26.3.2007 By ICICI Bank Receipt 171 15,00,000.00 028805002027 Ch.No.170935

To Coles Crane 54/60 No.2 Journal 1208 11,60,000.00

31.03.2007 To ICICI Bank Payment 2149 3,40,000.00 028805002027 _____ ____________________ 15,00,000.00 15,00,000.00

Perusal of the account shows that M/s Indo Construction had not shown the bills dated 24.03.2007 in its account.

In these circumstances it is quite apparent that the bill submitted by the appellant is not genuine and claim for purchase of crane remains unsubstantiated. In view of these facts the disallowance made by the AO on this account is confirmed. This ground of appeal is accordingly dismissed."

12. We have considered rival submissions and perused

the material available on record.

13. The learned counsel for assessee filed copy of the

balance sheet of assessee for the preceding assessment year

ending on 31.3.2007, in which under the head "loans and

advances" as on 31.3.2007 a sum of Rs.15 lacs had been

shown as advance for crane. It would mean that in the

preceding assessment year the assessee has given advance

of Rs.15 Lacs for purchase of crane. The assessee

submitted copy of account of M/s Indo Construction in the

books of the assessee before the learned CIT (Appeals), 9

which is reproduced above. It would show that on 1.4.2007

advance was shown against M/s Indo Construction through

cheque No.170935 in P.N. Bank. Therefore, the advance is

given by the assessee to the seller through banking channel.

On the same date on 1.4.2007, another entry is made of

Rs.11,60,000/- for crane. The copy of the same ledger

account is filed at page 12 of the Paper Book, which further

explained that the cost of the crane was Rs.10,40,000/- and

Rs.1,20,000/- was the cost of loading of the crane from

Delhi to Ludhiana and transportation, etc. Thus the total

cost of the purchase of crane was Rs.11,60,000/-. The rest

of the advance amount of Rs.3,40,000/- was returned to the

assessee on 12.4.2007 through banking channel. The

copies of the purchase bill dated 24.3.2007 of crane is filed

on page 13 of the Paper Book and the cost of transportation,

loading and unloading of dated 24.3.2007 is filed at page 14

of the Paper Book. The learned CIT (Appeals) found

contradiction in the submission of the assessee because the

assessee claimed that the crane was purchased on 1.4.2007

as per the ledger account but the purchase bill shows the

date of sale as 24.3.2007. There is no such contradiction in

the explanation of the assessee because advance of Rs.15

lacs was given in the preceding assessment year ending

31.3.2007. Therefore, the same would be the opening

balance on 1.4.2007 in a sum of Rs.15 lacs as advance for

crane. The purchase and transportation bills are of

24.3.2007, which were accounted for in the assessment year 10

under appeal. Therefore, there is no ambiguity in the

explanation of the assessee. May be the bill is issued on

24.3.2007 but the advance could be given on 26.3.2007. If

any explanation was to be called for on this point, the

Assessing Officer should examine the seller of the crane M/s

Indo Construction, New Delhi but no efforts have been made

by the Assessing Officer to make verification of the same

facts. The learned CIT (Appeals) further noted that the

cost of the crane claimed in a sum of Rs.11,60,000/- but

the cost of the crane is of Rs.10,40,000/-. The learned CIT

(Appeals) failed to note that the cost of transportation,

loading and unloading of Rs.1,20,000/- shall be added to

the cost of the crane , which in fact, has been added in the

ledger account of M/s Indo Construction as is noted above.

Therefore, there is no unusual in the explanation of the

assessee. If the Assessing Officer was having any doubt in

his mind regarding the purchase of the crane by the

assessee from M/s Indo Construction, the Assessing Officer

should have verified any fact from the seller. The Assessing

Officer has failed to note that all the transactions have been

done through banking channel and as such, it is

unbelievable that the assessee has not purchased the crane

in question. The authorities below have also failed to note

that after purchase of the crane in question in assessment

year under appeal, the total receipts of the assessee from

crane business have substantially increased. Therefore,

without purchase of the crane in question the receipts of

the assessee would not have substantially increased. The 11

Assessing Officer has not doubted the payments by means of

account payee cheques and all transactions carried out

through banking channels. Therefore, there was not

material available with the Assessing Officer to doubt the

purchase of crane by the assessee. Thus the assessee has

been able to prove that the crane in question was purchased

in the year under consideration and was used for the

purpose of business. Therefore, the depreciation was

allowable. Considering the above discussion, the orders of

the authorities below are set aside and the addition is

deleted. The Assessing Officer is directed to grant

depreciation to the assessee as is claimed.

14. This ground of appeal of the assessee is allowed.

15. In the result, the appeal of the assessee is partly

allowed.

Order pronounced in the open court on this 25th

day of May, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 25 t h May, 2015

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh