Cheque payment is enough to prove payment and deduction for staff welfare si allowed only if made by assessee

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCHES “B” MUMBAI

BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER

AND

SHRI RAJENDRA, ACCOUNTANT MEMBER

ITA No. 233/M/09

Assessment Year 2004-05

ITA No. 6641/M/08

Assessment Year 2005-06

Murari Rajdhar Packers (P) Ltd.,

C/o. SARA & Associates,

Chartered accountants,

1s t Floor,

Peekay Mansion,

470 JSS Road,

Chira Bazar,

MUMBAI – 400 002

PAN No. AADCM 5114 H

(Appellant)

Vs.

ACIT, Circle-2

THANE.

 (Respondent)

Assessee by: Shri Shivaram &

Shri Rajesh Agarwal

Revenue by: Shri P. C. Maurya

Date of hearing: 19-06-2012

Date of pronouncement: 01-08-2012

ORDER

PER RAJENDRA, A.M.

Following Grounds of Appeal were filed by the assessee-company against the orders dated 26-11-2007 & 11-08-2008 respectively of the CIT (A)-II, Thane for the AY 2004-05 and 2005-06.

ITA 233/M/2009 - AY 2004-05

1. The Ld. CIT (A) erred in confirming disallowance of payment made to subcontractor of Rs. 35,92,311/- on the ground that identity of these sub-contractors were not proved without  properly appreciating the facts of the case and law applicable thereto.

2. The Ld. CIT (A) erred in confirming addition of Rs.2,03,032/- of staff welfare and Rs. 12600/- of rent, rate and taxes without properly appreciating the facts of the case and law applicable thereto.

3. The Ld. CIT (A) erred in not disposing off grounds of appeal under which disallowance of following expenses has been challenged.

a .Telephone expenses -Rs.18,337/-

b. Travelling expenses -Rs.16,190/-

c. Loading and Unloading -Rs.1,90,139/-

d. Freight & Transportation -Rs.1,43,090/-

Total Rs. 3,67,756/-

4. The Ld. CIT (A) erred in confirming the following disallowance without properly appreciating fact of the case and law applicable thereto.

a. Telephone expenses -Rs.18,337/-

b. Travelling expenses -Rs.16,190/-

c. Loading and Unloading -Rs.1,90,139/-

d. Freight & Transportation -Rs.1,43,090/-

Total Rs. 3,67,756/-

5. The appellant prays that the various disallowance confirmed be deleted.

6. The appellant craves your honour’s leave to add, alter or amend any grounds of appeal at the time of hearing or before.

ITA 6641/08 – AY 2005-06

1. The Ld. CIT (A) erred in confirming disallowance of Rs. 47,59,846/- being payment made to the sub-contractors on the ground that identification of these sub-contractors are not proved without properly appreciating the facts of the case and law applicable thereto.

2. The Ld. CIT (A) erred in confirming addition of Rs, 29,710/- being difference as per income credited in Profit & Loss Account and income shown in TDS certificates without properly appreciating the facts of the case and law applicable thereto.

3. The Ld. CIT (A) erred in confirming disallowance relating to telephone expenses, rent, rate and taxes on the ground that expenditures are personal expenses without properly appreciating the facts of the case and law applicable thereto.

4. The appellant prays that the disallowance made be deleted.

5. The appellant craves your honour’s leave to add,, alter or amend any grounds of appeal at the time of hearing or before.

2. The assessee company, a labour contractor, engaged in the business of job on contract basis for various textile activities, filed its return of income on 29.10.2004, declaring total income of Rs. 96,560/-. Assessing officer (AO) completed assessment and 26-12-2006 determining total income of at Rs.50.79 lakhs. During the year in question the assessee company had taken contract for checking and packing of fabrics from Donear Industries Ltd. In turn, the assessee had engaged various subcontractors to complete the job. During the assessment proceedings the AO had made certain disallowances that can be divided into two categories- i) Disallowances of sub contract amount in Rs. 35.92 lakhs ii) Disallowanceof other expenses of Rs. 13.9 lakhs.

3. First Ground of Appeal for the AY.2004-05 before us is about disallowance of payment made to the subcontractors. During the course of assessment AO had issued letters/summons to various sub-contractors calling for certain information. A few of the letters came back with noting ‘Person not found’. AO made enquiries through his Inspector about the subcontractors. On the basis of available material AO held that two labour contractors namely M/s. Sanjay Packaging and M/s. Vandana Packaging were not genuine. He made disallowance amounting to Rs. 35.92 Lakhs on account of payment to sub-contractors. Assessee filed an appeal before the First Appellate Authority (FAA). After considering the submissions made by the Authorised Representative (AR) and the assessment order, FAA upheld the disallowance made on account of payments made to the subcontractors. FAA referred to the statements of Chandrakant Mishra, proprietor of Vandana packaging and Sanjay Mishra proprietor of Sanjay packaging. FAA was of the opinion that there were several contradictions in the stand taken by the assessee. He also held that payments made to subcontractors were not genuine.

4. Before us, AR submitted that the contractors had admitted rendering of services to the assessee that copies of the returns of income filed by the subcontractors were furnished before the AO, that both the contractors were assessed to tax, that payments were made by A/c Payee cheques to the sub-contractors, that TDS was deducted by the assessee before making payments, that sub-contractors had confirmed receipts of payment, that copies of bank statements of sub-contractors were also furnished during assessment proceedings, that disallowance was made on mere presumptions only. AR relied upon the case of HI Lux automotives ((P) (183 Taxmann 260). He stated that there was arithmetical mistake in the figure mentioned by the AO with regard to the disallowance made by the AO, that correct figure was 34.97 lakhs. He further submitted that in subsequent Assessment Year, same issue was decided in favour of the assessee by the CIT(A) and the ITAT. Departmental Representative (DR) submitted that supervisor of the assessee company did not mention the names of the two sub-contractors i.e., Vandana Packagings and Sanjay Packagings that bank accounts of contractors were at Nariman Point where as payments were made at Umargaon (Guj), that genuineness of sub-contractors was not established.

4.1 We have heard rival submissions and perused the material available. We find that similar disallowance made by the AO were deleted by the FAA, while deciding the appeal filed by the appellant company for the Assessment Year 2006-07. ‘J’ Bench of ITAT Mumbai (ITA 6393/Mum/2009 A.Y. 2006-07 dt. 20-12-2011) had dealt the issue under consideration and had dismissed the appeal filed by the Revenue. The basic facts for rejecting the appeal of Revenue were as under:

 i) Payments made by the assessee to the sub-contractor were through A/c Payee cheques;

ii) Cheques received by the sub-contractor were reflecting in his bank a/c;

iii) TDS was deducted by the assessee;

iv) Services were rendered by the sub-contractor;

v) Receipt of payment by sub-contractor was not in dispute;

5. If the above facts are compared with the case under consideration, it becomes clear that they are identical. Except for the names and amounts involved, facts are same. In the appeal decided by the Tribunal, sub-contractor had not filed return of income, whereas in the matter under consideration, returns were filed by the persons receiving the payments. In these circumstances, we are of the opinion that disallowance made by the AO and upheld by the FAA cannot be endorsed. Assessee had discharged the burden cast on him about genuineness of transaction. In these circumstances, Ground No.1 is decided in favour of the assessee.

6. With reference to Ground Nos. 2,3 and 4 AR submitted that the same may be decided on merits. We find that the FAA has sustained disallowance of Rs. 2.03 Lakhs on account of ‘Staff’ Welfare Expenditure’. From his order, it is clear that the assessee had claimed to have paid an amount of Rs. 2,55,353/- to shri Purushottam Upadhyaya. FAA found that payment to Shri Upadhyaya was made by the subcontractors and not by the assessee. In these circumstances, we are of the opinion that decision of the FAA does not need any interference. Similarly, we find that assessee had not produced any evidence before AO/FAA with regard to payment made by the assessee-company to its sister concern. So, the disallowance by the AO and upheld by the FAA on account of rent needs to be endorsed. Thus, Ground No.2 is decided against the assessee.

7. Ground No.3 is about not deciding the Grounds of Appeal by the FAA with regard to disallowance made by the AO on account of Telephone Expenses of (Rs. 18,337/-), Travelling expenses (Rs. 16,190/-), loading and un-loading expenses (Rs. 1,90,139/-) and freight and transportation expenses (Rs. 1,43,090/-). We find that assessee had specifically raised the above ground of appeal before the FAA. In the Form No.35 as well as in the Statement of facts filed before the FAA, there is a mention about above mentioned four disallowances. We find that said ground has not been adjudicated upon by the FAA. Matter is restored back to FAA for the limited purpose of deciding Ground No.3 filed before us. He should decide the issue after hearing the assessee.

Ground No.3 is partly allowed in favour of the assessee. As a result, appeal filed by the assessee for the Assessment Year 2004-05 stands allowed in part.

ITA No. 6641/M/08

8. In the appeal for the Assessment Year 2005-06, Ground No.1 is about disallowance of payment made to three sub-contractors, including the two to whom payments were made by the assessee in the last Assessment Year also. As the facts are same as of Assessment Year 2004-05, we decided Ground No.1 in favour of the Assessee.

9. Ground No.2 is about addition of Rs. 29,710/- being difference as per income credited in P&L A/c and income shown in TDS Certificate. During the AO proceeding, AO noticed that Deonar Industries had paid/credited Rs. 1,36,64,975/- to the account of the assessee, where as assessee had returned income of Rs. 1,36,35,265/-. When inquired about the difference, assessee submitted that same was on account of discounts and rebates. AO rejected claim made by the AO and FAA upheld the same.

Before us, AR submitted that issue may be decided on merits. We find that no evidence of rebate or discounts were produced by the assessee before any of the authorities. Hence, disallowance upheld by the FAA has to be endorsed. Ground No.2 is decided against the assessee.

10. Ground No.3 is about disallowance made on account of telephone expenses (15% of the total expenditure i.e., Rs. 5752/- and expenses incurred on account of rent, rates and taxes (Rs. 12,562/-). We find that FAA upheld the addition of telephone expenditure because of non-maintenance of call register. Expenditure under the head Rent, Rates and Taxes was disallowed/upheld by the AO/FAA, as assessee had not furnished any agreement in this regard. AR submitted that issue under consideration may be decided on material available. DR supported order of the FAA. We are of the opinion that order of the FAA does not need any inference. Disallowance of rent etc., has been upheld by us for the AY 2004-05 also. Following has been the same, we endorse the decision of the FAA. Similarly, action of the FAA about telephone expenses is also justified. As a result, Ground No.3 is dismissed.

Appeal filed by the assessee for the Assessment Year 2005-06 stands Partly Allowed.

Order pronounced in the open court on 1st August, 2012.

                                                         Sd/-                               Sd/-

                                            (B.R. MITTAL)            (RAJENDRA)

                                      JUDICIAL MEMBER  ACCOUNTANT MEMBER

Mumbai,

Date 1st August, 2012

TNMM

Copy to:

1. Appellant

2. Respondent

3. The concerned CIT (A)

4. The concerned CIT

5. DR “B” Bench, ITAT, Mumbai

6. Guard File

(True copy)

By Order

Asst. Registrar,

Income Tax Appellate Tribunal,

Mumbai Benches, Mumbai