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Issues Involved:
1. Deletion of addition of Rs. 3,53,544 made by the Assessing Officer on account of labour contract payable. Issue-Wise Detailed Analysis: 1. Deletion of Addition of Rs. 3,53,544 on Account of Labour Contract Payable Facts and Background: The assessee, a manufacturer of paper cones and corrugated boxes, showed a turnover of Rs. 75,74,785 for corrugated boxes and Rs. 73,57,058 for cone manufacturing. The assessee debited Rs. 6,23,206 for wages, out of which Rs. 3,53,544 was payable to a contractor, Shri Mohd. Aslam. The Assessing Officer (AO) disallowed the claim, doubting the contractor's capacity and the genuineness of the transaction. Assessing Officer's Findings: The AO did not believe that Shri Mohd. Aslam, who was working as a labourer and later as a barber, had the capacity to employ workers and carry out the contract work. The AO noted inconsistencies in the contractor's statements and the absence of supporting documents like an attendance register. The AO added Rs. 3,53,544 to the assessee's income, suspecting either a bogus claim or payments made outside the books. Assessee's Arguments: The assessee argued that the AO did not point out any defects in the books of account, which were audited and accepted. The contractor admitted to having undertaken the work and received payments, which were disclosed in his income tax return. The assessee contended that the AO's disallowance was based on assumptions and that the contractor's inability to produce certain documents did not invalidate the claim. CIT(A)'s Observations: The CIT(A) observed that the AO's suspicion regarding the consolidated bill and the contractor's capacity was insufficient to disallow the claim. The CIT(A) noted that the contractor admitted to having done the work and received payments, which were reflected in the books and supported by TDS deductions. The CIT(A) found the total wages reasonable compared to the previous year, considering the increased material consumption. The CIT(A) deleted the addition, finding no evidence to support the AO's conclusions. Revenue's Appeal: The Revenue argued that the contractor's financial incapacity indicated payments made outside the books. The Revenue supported the AO's addition, emphasizing the improbability of the contractor's claims. Assessee's Counter-Arguments: The assessee reiterated that the payments were genuine, supported by the contractor's admission and the TDS deductions. The assessee argued that the AO's addition was arbitrary and lacked basis. Tribunal's Findings: The Tribunal noted that the AO did not doubt the sales or the payment of Rs. 50,000 during the year. The Tribunal emphasized that the assessee was not responsible for verifying the contractor's financial means. The Tribunal found the AO's disallowance based on assumptions and unsupported by evidence. The Tribunal upheld the CIT(A)'s deletion of the addition, finding the assessee's claim of wages genuine. Dissenting Opinion: The Vice President disagreed, emphasizing the need to consider surrounding circumstances and human probabilities. The Vice President found the contractor's financial incapacity and lack of experience significant. The Vice President held that the assessee failed to establish the contractor's creditworthiness and the genuineness of the credit. Third Member's Opinion: The Third Member agreed with the CIT(A) and the Accountant Member, emphasizing the documentary evidence supporting the assessee's claim. The Third Member noted that the payments were reflected in the books, supported by TDS deductions, and corroborated by the contractor's return. The Third Member found the AO's disallowance unjustified and upheld the deletion of the addition. Final Decision: The Tribunal, considering the Third Member's opinion, upheld the CIT(A)'s deletion of the addition of Rs. 3,53,544, dismissing the Revenue's appeal.
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