2024 (1) TMI 1288 - AT - Income Tax

Unexplained cash deposit - assessee claimed that the deposits were from earlier cash withdrawals - HELD THAT - We are of the opinion that the assessee has to get due credit towards opening cash balance of Rs. 18,96,800/- and cash withdrawal from the account of Rs. 89,42,200/-, which works out to Rs. 1,08,39,000/-, that is more than the amount deposited into bank account of Rs. 107,95,803/-, as such addition of Rs. 107,95,803/- cannot be sustained. Accordingly, we delete the addition made towards unexplained cash deposit made into assessee s bank account on various dates. This ground of the appeal of the assessee is allowed. Addition towards unexplained credit card expenses - A.R. submitted that assessee has been making regular withdrawals from the bank account and the same has been used for payment of credit card expenses - HELD THAT - We have heard the rival submissions and perused the materials available on record. In our opinion, the assessee has spent an amount of Rs. 4,37,047/-, as we discussed in earlier para, this has been made by the assessee by the withdrawals made the total of Rs. 1,36,86,000/- from the assessee s bank account - Accordingly, this addition is also deleted. TDS u/s 194C - disallowance made u/s 40(a)(ia) - HELD THAT - It is an admitted fact that payment was made to individual labourers and not to the labour contractors. These facts have not been disputed by the ld. AO. Now whether we could treat these labourers as employees of the assessee and the present assessee is an employer of those employees? The employer is a person who controls and directs a servant or worker under an express or implied contract of employment. The employer accordingly is under obligation to pay him the salary or wages in compensation. Accordingly, an individual who works part-time or full-time under a contract of employment whether oral or written expressed or implied and he is liable to perform the duties as assigned. That person is called as employee. In the instant case we find that the labourers are working under the direct supervision of the assessee. They have no other separate business organization. They are representing the organization of the assessee. Thus, in our considered view there exists an employer and employee relationship between the assessee and labourers. The payment to the employees can be in the form of fixed salary as mutually agreed. We hold that the assessee is not liable for TDS deduction u/s194C of the Act. The assessee gets the relief accordingly. Adhoc disallowance towards payment of labour charges - HELD THAT - AO has disallowed the same in a surmises and conjectures manner by not specifying the discrepancies found in the vouchers produced by the assessee. It is a common business practice followed by the assessees to prepare a self-made vouchers while making the payment to parties for various expenditure and get signatures of it. Because the assessee is following this practice consistently while making the payment. The said payment cannot be doubted without bringing anything on record to suggest that payment has been inflated by the assessee on the reason that these are self-made vouchers - such practice is followed by the assessee consistently. However, there may be certain lapses on the part of assessee in preparing the same or getting signatures from the parties. Thus, to meet the ends of justice, in our opinion, it is appropriate to remit this adhoc disallowance only to 10% of such self-made vouchers instead of 25% made by ld. AO. Directed accordingly. This ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:

1. Addition u/s 69 for unexplained cash deposits.
2. Addition for unexplained credit card expenses.
3. Disallowance u/s 40(a)(ia) for non-deduction of TDS.
4. Adhoc disallowance of labor charges.

Summary:

Issue 1: Addition u/s 69 for unexplained cash deposits

The first issue concerns the addition of Rs. 1,07,95,803/- u/s 69 of the Income Tax Act towards unexplained cash deposits in the assessee's bank account. The AO found unexplained cash deposits during the assessment proceedings. The assessee claimed these deposits were from earlier withdrawals and business turnover but failed to provide sufficient evidence. The Tribunal, after reviewing the cash flow statements and previous withdrawals, concluded that the assessee had sufficient funds to explain the deposits. It cited precedents like S.R. Venkataratnam Vs. CIT and other Tribunal decisions, emphasizing that without contrary evidence from the AO, the assessee's explanation should be accepted. The addition was thus deleted.

Issue 2: Addition for unexplained credit card expenses

The second issue pertains to the addition of Rs. 4,37,047/- towards unexplained credit card expenses. The assessee argued that these expenses were covered by regular withdrawals from the bank account. The Tribunal agreed, noting that the total withdrawals were sufficient to cover the credit card expenses, and thus, the addition was deleted.

Issue 3: Disallowance u/s 40(a)(ia) for non-deduction of TDS

The third issue involves the disallowance of Rs. 1,28,35,891/- u/s 40(a)(ia) for non-deduction of TDS on sub-contract payments. The AO disallowed the amount due to the absence of PAN and addresses of laborers. The assessee contended that the payments were made to daily wage laborers without any contractual relationship, hence TDS u/s 194C was not applicable. The Tribunal found that the laborers were employees, not contractors, and thus, TDS provisions u/s 194C did not apply. The disallowance was deleted.

Issue 4: Adhoc disallowance of labor charges

The fourth issue concerns the adhoc disallowance of Rs. 48,32,852/- towards labor charges. The AO made a 25% disallowance on the grounds that payments were made in cash with self-made vouchers, which could be inflated. The Tribunal reduced the disallowance to 10%, noting that while self-made vouchers are common, the AO did not specify discrepancies in the vouchers. The Tribunal emphasized that such practices are consistent in business, and a blanket disallowance was not justified.

Conclusion:

- ITA No. 853/Bang/2023: Appeal allowed.
- ITA No. 850/Bang/2023: Appeal partly allowed.