TMI Blog2005 (5) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 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. According to him Shri Mohd. Aslam was not a man of means who could af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the corrugated boxes at Rs. 75,73,584 had been accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side 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 the authorities below and strongly supported the order of Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income-tax return. It is not the case of the Assessing Officer that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the contract work and was working as a barber. He had also admitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aire 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 hand over its new business to a totally inexperienced person like Mohd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 the assessee in respect of wages, copy of which is placed on page 2 of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lam has filed return of income for the assessment year 1998-99 on 20-1-2000 only after a specific query to the assessee about these wages by the Assessing Officer vide questionnaire dated 1-10-1999. No record for the wages received or for the wages paid could be produced by Shri Mohd. Aslam. Shri Mohd. Aslam could not also give the names of the workers/employees who were stated to have worked for him. Shri Mohd. Aslam claimed to have paid wages to the labourers partly out of his savings of Rs. 1,25,000 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been incurred by the assessee, the amount is shown to be outstanding as on 31-3-1998. Therefore, the assessee is obliged to discharge the burden about the genuineness of the credit appearing in the books of account. Assessee has produced Shri Mohd. Aslam to confirm the credit in the books of account. The confirmation by Shri Mohd. Aslam cannot but be equivalent to confirmation of the credit. However, it is well-established law that in the case of a credit in the books of account of the assessee, 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] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessing Office. This amount was claimed as due to one, Shri Mohd. Aslam engaged as contractor to manufacture corrugated boxes. Out of the total sum of Rs. 4,11,780 contracted to be paid, Rs. 50,000 were actually paid in the current year and the balance amount (noted above) was shown as payable as on 31-3-1998. The assessee had further deducted Rs. 8,236 towards tax at source from the amount of contract money. The tax deducted at source was deposited by the assessee on 30-5-1998 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account of the assessee. The sale of corrugated boxes to the tune of Rs. 75,74,785 has been accepted to be correct. Total wages were claimed at Rs. 6,23,206 as against Rs. 2,32,405 of last year. The material consumed of value of Rs. 99,88,420 as against Rs. 32,71,669 of last year was also accepted. If the wages were taken on proportionate basis with reference to sales and material consumed, these were less than the last year. It was further argued that Mohd. Aslam in his statement 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mohd. Aslam in the capacity of a contractor were actually availed by the appellant. The total wages of Rs. 4,11,780 are alleged to have been paid to him out of which the claim to the extent of Rs. 50,000 has been accepted by the Assessing Officer and only the claim of Rs. 3,53,544 which was shown payable as on 31-3-1998 has been rejected. The acceptance of the claim to the extent of Rs. 50,000 also proves that Mohd. Aslam was employed as a contractor during the year. Even otherwise, 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 Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ob work. Further the percentage of wages in the year under consideration was less in comparison to earlier year. Thus, there was no justification to doubt the genuineness of the claim. Adverse view taken by the Assessing Officer appears to have been taken on the ground that full and final payment was not made to the contractor in the current year and that bills should have been raised on monthly basis. According to the learned Accountant Member, there was no such condition of making full 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no businessman would entirely hand over its new business to a totally inexperienced person like Mohd. Aslam. (iv) If, for argument sake, it is accepted that Mohd. Aslam destroyed the entire books of account including his personal diary on 31-3-1998 then how he could be able to work out the wages payable to the alleged 11 workers is not explainable. (v) As per assessee's books of account, assesses made a meager payment of Rs. 50,000 to Mohd. Aslam at the fag end of the financial 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 proposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth 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 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 consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 63 (Cal.); (vi) CIT v. Precision Finance (P.) Ltd. 208 ITR 465 (Cal.); and (vii) 182 CTR 600. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likelihood of job carried by Shri Mohd. Aslam as claimed by the assessee. It was not a probable transaction. The learned Departmental Representative accordingly, supported the order of the learned Judicial Member (Hon'ble Vice President). 10. Shri Jain, learned counsel for the assessee supported the Order of the learned Commissioner of Income-tax (Appeals) and that of the learned Accountant Member. He drew my attention to the account of Shri Mohd. Aslam on page No. 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of Rs. 99,88,420 consumed by the assessee is also not challenged. The assessee further claimed that total wages for getting the job work done on contract were to the tune of Rs. 4,11,780. The Assessing Officer allowed Rs. 50,000 and also wages debited in the account of the assessee from month-to-month but did not allow the balance payment which was outstanding and paid in the next year without bringing any material on record to establish that payment to 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 Credit 28- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- --------- Total: Rs. 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 and not attach proper weight to the documentary evidence produced by the assessee. 16. When faced with this situation, Shri Puniha, learned D.R. submitted that assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-relation between the two. It has further been observed that Mohd. Aslam did not file proper details or showed books of account when his statement was recorded by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. Only an adverse view could be taken against the party who had burden to place such statement on record. The Assessing Officer and learned CIT(A) had the benefit of said statement bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment 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 would take so many risks. The record does not provide any answer to all the above questions. The reason is not far to seek. The entire edifice of revenue's case that Mohd. Aslam could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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