TMI Blog2006 (9) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... er observed that further examination of various details of expenses revealed that following expenses on account of wages have been incurred in the month of March, 1998: S.No. Amount Date of payment Month to which it pertains 1. Rs. 6,30,185 30.3.1998 January, 1998 2. Rs. 3,96,025 31.3.1998 March, 1998 3. Rs. 4,96,215 10.3.1998 February, 1998 From above facts he found that wages for the month of January, 1998 have allegedly been paid on 30th March, 1998 for the month of February, 1999 on 10th March, 1998 and for month of March, 1998 on 31st March, 1998 itself. The AO stated that it is not understood why wages for the month of January, 1998 were kept pending and those of February, 1998 were paid earlier. Moreover, wages for the month of March, 1998 have been paid on31st March, 1998itself. On examination of wages scroll, the AO further noticed as under: 1. The addresses of persons to whom wages were claimed to have been paid were not mentioned. 2. Actual date of payment is not mentioned by the payees receiving the wages. 3. Amount of work done is not verifiable against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular labourer has done at the site. Duties are shifted from place to place, work to work, their wages are paid on the basis of day-to-day basis'. This reply itself shows that the payment of wages for January, 1998 shown to be made on30th March, 1998, cannot be accepted to be the correct position depicted in the accounts maintained. This does not appeal to commonsense where the wages are on the basis of day-to-day work, no labour class will work if not paid on time. The appellant has also not given any explanation as to why the wages for January were paid in end-March". 7. The CIT(A) also found that in the course of assessment, the AO has disallowed payment of salary of Rs. 1,44,000 to Shri Sanjay Dogra and Smt. Kanchan Dogra on the plea that assessee was not able to show the work performed by these persons. However, the CIT(A) held that since the AO has estimated net profit at 8 per cent, therefore, the expenses on salary of Rs. 1,44,000 would also be covered by the net profit of 8 per cent. The CIT(A) also found that an addition of Rs. 1,42,990 was made by the AO on account of discrepancies between the figures of gross receipts as shown in the TDS certificate and those declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the month of January, the assessee did not receive the payment in respect of the work executed, and which was actually received by it in month of March, therefore, as soon as the payment was received from the Government, the assessee paid the wages immediately. As per learned Authorised Representative, no fault can be found on the part of assessee for delay of one month in the payment of labour charges which was attributable to reasonable cause being financial crises and the same cannot be made the basis for rejection of books of account. With regard to AO's allegations regarding the addresses of the labourers to whom wages have been paid were not mentioned, he submitted that labourers keep on shifting from one place of site to other and they are not having any permanent house or address at the place of site where work is executed, which is generally at remote places. He further submitted that labourers were not paid as per the work performed but they were paid on daily basis by computing the number of days put in the month with respect to daily wages payable to them. It was, therefore, stated that humanly it was not possible to provide the details as to what work a particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of Telecommunication (DOT) as class one contractor. During the year under consideration, the assessee firm had undertaken various civil projects. The proprietor of firm is a qualified civil engineer and looked after business with the help of a son who was also qualified engineer. Undisputedly, the turnover of the assessee exceeded beyond the limit prescribed for the audit under s. 44AB of the IT Act, 1961. The books of account regularly maintained were got audited and there was no adverse comment of the auditor with regard to the system of accounting being followed by the assessee or with regard to the true and fair picture of the profit disclosed by the assessee and the state of affairs being shown by the assessee as at the end of the year. Since asst. yr. 1994-95 till 1998-99, the turnover was varying between Rs. 72 lacs to Rs. 3.65 crores and the profit declared thereon was also varying from 0.99 per cent to 1.65 per cent. During the year under consideration, the contract receipts have increased to Rs. 3.65 crores as compared to contract receipts of Rs. 1.82 crores in the immediately preceding asst. yr. 1997-98. In the asst. yr. 1995-96, on the contract receipts of Rs. 1.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, February and March, 1998. The AO found that labour payment for the month of January was actually paid in March, 1998 and labour payment of February was paid in the next month of March. Labour payment for March, 1998 was paid by the end of March, 1998 itself. The AO, however, did not accept the assessee's version that delay in payment of labour wages was on account of financial difficulty. From the record, we found that assessee got the payment in respect of work executed in the month of March, therefore, immediately on receipt of payment he paid the labour charges for January, 1998. Otherwise also, the labour payment for any month was also paid in the immediately next month, no fault can be found for payment to labourers of February, 1998, in the month of March, 1998. Similarly, labour payment for March was paid by the end of March itself, cannot be made the ground for rejection of books of account. As per our considered view, the books of account regularly maintained in the course of business which are duly audited under the provisions of IT Act, 1961 and are free from any qualification by the auditors should be taken as correct unless there are strong and sufficient reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as per the provisions of s. 145. Income-tax provisions nowhere either authorize the AO or cast an obligation on the assessee to prove the negative result, i.e., to prove as to why he failed to make a profit at a particular rate. Before rejecting the books of account, the Department has to prove that accounts are unreliable, incorrect or incomplete. 13. The accounts regularly maintained in the course of business, duly audited under the provisions of IT Act and free from any qualification by the auditors, should be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. Even though it is not possible to lay down the exact circumstances in which accounts should be rejected as unreliable or incorrect, yet the accounts may be rejected as unreliable if important entries and transactions are omitted therefrom or if proper particulars and vouchers, bills, etc. are not forthcoming or if they did not include entries relating to particular class of business transaction. The assessee should invariably be given opportunity for offering explanation regarding defects in accounts and on his failure to satisfactorily explain the defects, the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide the details as to what work a particular labourer has done at the site. AO's allegations to the effect that there was no record on the scrolls as to whom payment is made and against what work done, is not sustainable, since wages scrolls were prepared not on the basis of the work which the labourer carries on, but his/her name, the details such as the number of days the person has worked, the rate of wages, the total amount is given and the receipt is taken from the labourer concerned. It is not possible to mention the work which a particular labourer has carried out during the day. We also found that in earlier years, the book results of the assessee were accepted after verification of books of account subject to minimal changes. The case law referred to by the AO while rejecting books of account are not at all applicable to the facts and circumstances of the instant case, insofar as there was no reason much less a cogent reason for rejection of books of account. These case law are applicable only when books of account are liable to be rejected and not otherwise. The AO has also not indicated any defect in the system of accounting regularly followed by the assessee, or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no finding in the present case that any of the entries in the books of account was not correct; there is no finding that the assessee is not employing a method of accounting; and there is no finding that such a method of accounting has been irregularly employed by the assessee. In the absence of any such finding. there being no reason germane to the unacceptability of the book results, it must be held that the Tribunal as well as the Revenue authorities below had no materials before them, 011 the basis of which it could be said that the trading results were not verifiable and that, therefore, they should not be accepted, nor is it their case that the trading results could not be deducible from the entries of the books of account regularly employed". The Patna High Court, therefore, held that-"the finding of the Tribunal upholding the rejection of the book profit shown by the assessee was vitiated by reason of its reliance upon suspicion, surmises as also irrelevant material. The finding that sales were unverifiable is not based on the materials on record and is an arbitrary finding." 16. In the instant case, the assessee has been regularly maintaining the percentage of profi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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