TMI Blog2000 (2) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... as discussed above (20 per cent of 1,80,581 + 19,460 + 1,52,675 + 51,724 + 28,460) 88,580 --------- 41,68,000 --------- 3. The assessee preferred an appeal against the said order before the CIT(A). The CIT(A) vide its impugned order dt. 23rd Aug., 1999, sustained disallowance of Rs. 8 lakhs out of Rs. 40,31,743 made by the AO out of wages and bonus, etc. The CIT(A) thus granted relief of Rs. 32,31,743. The Revenue has preferred an appeal against the said relief granted by the CIT(A). The assessee has also preferred an appeal against confirmation of the disallowance to the extent of Rs. 8 lakhs. 4. The CIT(A) deleted the disallowance of Rs. 48,000 made in respect of remuneration paid to lady director Kavita Ranawat. The Revenue has not challenged the aforesaid relief granted by the CIT(A). 5. The CIT(A) confirmed the disallowance made @ 20 per cent out of aggregate expenditure of Rs. 4,42,000. He thus confirmed the disallowance to the extent of Rs. 88,580. The assessee has challanged the confirmatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record held that disallowance made @ 25 per cent out of total wage payments is not justified. The actual payment made to the 7 persons identified as having similar and identical thumb impression is stated to be Rs. 3 lakhs which has to be disallowed and the possibility of similar payments claim on the basis of such thumb impression cannot be ruled out. The CIT(A), therefore, confirmed the ad hoc addition of Rs. 8 lakhs, which worked out to about 5 per cent of the entire payments and such a disallowance of Rs. 8 lakhs would give a net profit rate of 11.5 per cent given on gross receipts of the assessee against the past history of maximum 8 per cent. The CIT(A) thus confirmed the addition of Rs. 8 lakhs and granted relief of Rs. 32,31,743. 8. The learned senior Departmental Representative Shri B.D. Gurjar, strongly supported the order of the AO. He contended that the CIT(A) should have confirmed the total disallowance out of wages made by the AO to the tune of Rs. 40,31,743. He read the assessment order word by word and laid emphasis on relevant findings and evidence wherever necessary. He also drew our attention to the report of the fingerprint expert which was annexed to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup leader. It is also prevalent that when any labourer cannot come personally to collect the amount, then he instructs his or her co-labourer or co-labourers to collect and the labourer collecting the amount pays to the wages earning labourer. The report of the expert does not lead to the conclusion that all those seven labourers did not exist nor it establishes that payment were not made to them as shown in the books of account. 11. Shri Ranka, submitted that a copy of expert's report was given to the assessee at 5.30 p.m. on 30th March, 1999 and the case was going to be time-barred on 31st March, 1999. No opportunity to make comments on the said report or to cross-examine the fingerprint expert or to furnish report from other fingerprint expert was given. The entire disallowance has been made in violation of principles of natural justice. 12. Shri Ranka submitted that even assuming that the books of account maintained by the assessee can be validly rejected under s. 145(2) still the income of the assessee has to be assessed in a just and fair manner. The best assessment can be made by comparing the assessee's own past history. The assessee ever since the inception in asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant company. He submitted that it is a prevalent practice that when any labourer cannot come personally to collect the amount, he instructs his co-labourer to collect the payment of wages. The supervisor being satisfied as to the identity and reliability of the co-labourers, obtains his/her signature/thumb impression on payment sheets. The payments made by the company are real and actual and none of the wage earners have ever complained of non-receipt. Shri Ranka also relied on the decision of the Tribunal, Jaipur Bench in the case of Shri Parasmal Pareek, reported in 19 TW 60 in which penalty of Rs. 70,000 levied in respect of similar disallowance out of wage payment was deleted by the Tribunal. The Tribunal in para 15 of that order has observed that the explanation of the assessee that it is customary to receive payment on behalf of others, cannot be brushed aside. In that case, a disallowance of Rs. 1 lakh was sustained on the grounds that the assessee had agreed for such a disallowance before the Departmental authorities. Shri Ranka also relied upon the fact that similar practice was explained before the AO in the case of M/s Bharat Construction Co. Udaipur in the assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expert should, therefore, be completely ignored and the addition based thereon should be deleted. 15. Shri Ranka submitted that the rate of profits declared by the assessee is better as compared to the net profit declared in all past years. The assessee has declared net profit of 8 per cent which is in conformity with the net profit rate now incorporated by the legislature as a reasonable rate of net profit in s. 44AD. In the past also the agreements executed with various cement companies contained a case of maximum profit of 13 per cent as in the year under consideration. That does not mean that the assessee could derive net profit rate of 15 per cent. The assessee also produced in the paper book certain specimen bills such as copy of bill dt. 1st May, 1995 which shows that they had charged commission for supply of labour @ 10 per cent only. Out of this commission of 10 per cent, the assessee has to incur various expenditure Therefore, the net profit rate of 8 per cent shown by the assessee is most reasonable and adequate. Shri Ranka also drew our attention to the written submissions submitted before the CIT(A) support the correctness and adequacy of the declared net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised representative on the report of the expert is clearly contrary to the specific provisions of s. 142(3) and is also contrary to the principles of natural justice. In such a situation, the learned CIT(A) should have either set aside the assessment order and he should have restored the matter back to the AO, directing him to grant reasonable opportunity to the assessee to submit his comments on the expert's report and in case the assessee desires, the AO should grant then an opportunity to cross-examine the expert. In the alternative the CIT(A) who has very wide and plenary powers, could carry out such an exercise during the course of appellate proceedings before him. Without providing the assessee an opportunity to submit his defence or documents in rebuttal of the report of the expert and without giving them opportunity to cross-examine the expert, no part of the disallowance should be sustained on the basis of such a report of the expert obtained by the AO. It is well settled law that the principles of natural justice, particularly, the rule of audi alteram partem fully applies to assessment proceedings under the provisions of IT Act as it vitally affects the civil rights of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the cashier/supervisor. The identity and existence of those labourers could also be proved by producing their respective documentary evidence relating to ESI, PF or other documents, required to be maintained as per various laws relating to labour welfare. If the assessee accepts that the thumb impressions of seven persons are of one and the same person, then the (sic-onus) will lie on the assessee to either produce those seven labourers or to produce clinching evidence before the AO to show that they really rendered services and they really received wages payments. In case the assessee establishes the identity of the seven workers, and produces satisfactory evidence to prove that payments were really received by them, ordinarily the suspicion going on the mind of the learned assessing authorities about the falsity or bogus nature of payment should come to an end. In such a situation the net rate of 8 per cent approximately declared by the assessee should be accepted as such. Net profit rate declared in the year under consideration is better as compared to net profit rate of 4.94 per cent in asst. yr. 1990-91 and net profit rate of 4.56 per cent in asst. yr. 1993-94, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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