ORDER
1. Since there is a difference of opinion between the Members of the Bench in the above mentioned case, we state the following point of difference and refer the same to the Hon’ble President for further necessary action as envisaged u/s 255(4) of the Income Tax Act :-
“Whether, on the facts and in the circumstances of the case, the Assessing Officer was addition of Rs. 3,53, 544/- on account of outstanding wages of Shri Mohd. Aslam of Malerkotla?”
N.K. Saini, Accountant Member
1. This is an appeal by the department directed against the order of Ld. CIT(A) 18.3.2002 .
2 In this appeal, although five grounds have been raised however, the only grievance of the department relates to deletion of addition of Rs. 3,53,544 made by the Assessing Officer on account of labour contract payable.
3 The relevant facts related to this issue in brief are that the assessee was a manufacturer of paper cones and corrugated boxes The assessee had shown turn over of Rs. 75,74,785 under the head “manufacturing of corrugated boxes” and Rs. 73,57,058 under the head “cone manufacturing’ The assessee had debited Rs. 6,23,206 on account of wages paid out of which a sum of Rs. 3,53,544 was payable to Shri Mohd. Aslam. Before the Assessing Officer the assessee submitted that it had engaged one Shri Mohd. Aslam as contractor to manufacture corrugated boxes and as per contract. Rs. 4,11,780 was payable to the contractor out of which Rs. 50,000 had been paid and TDS amounting to Rs. 8236 had been deducted. As such Rs. 3,53,544 was payable as on 31.3.98. 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 afford to employ as many as eleven workers to carry out the contract work without making any payment of wages to them. The explanation given by Shri Mohd. Aslam that he had paid to his workers out of his past savings worth Rs. 1,25,000 and by receiving few loans from friends and relatives, was also not believed by the Assessing Officer. The Assessing Officer also observed that in a labour contract business monthly bills were raised by the labour contractor and regular TDS was deducted. Since only one bill was raised by the contractor for the total work during the current year, it was held to be against the normal practice. On the basis of certain inconsistencies found in the statement of Shri Mohd. Aslam and also holding that Shri Mohd. Aslam could not have carried out the contract as alleged by the assessee, liability of wages payable at Rs. 3,53,544 was held to be unproved or un-substantiated. The Assessing Officer also observed that either the claim of wages payable was bogus or if at all any wages were paid, these were paid by the assessee from the funds not recorded in the books of account. He accordingly, disallowed the claim and added the amount of Rs. 3,53,544 to the returned income of the assessee.
4. The assessee carried the matter to the Ld. CIT(A) and submitted that no defects whatsoever, were pointed out by the Assessing Officer in the hooks of account of the assessee and that sales of corrugated boxes to the tune of Rs. 75,73,584 had been accepted to be correct and the wages claimed during the year were at Rs. 6,23,206 as against Rs. 2,32,405 claimed last year. It was explained that the material consumed during the year was at Rs. 99,88,420 as against the material consumed last year at Rs. 32,71,669 and the wages incurred during the year were lesser as compared to last year because the hike in wages was comparatively less. It was further stated that Shri Mohd Aslam had accepted having undertaken the contract work of the assessee and had also accepted having raised bill of Rs. 4,11,780 for the job work done out of which Rs. 50,000 was received during the current year and the balance had been received on various dates falling in the next year. Simply because the contractor could not produce the attendance register to show as to how many workers were actually employed by him, did not prove that he did not carry out the work. It was further stated that 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. 8236 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 the Assessing Officer. Therefore, the claim of wages payable should have been accepted.
5. Ld. CIT(A) , after considering the submissions of the assessee observed that he Assessing Officer for disallowing the claim of the assessee suspected the consolidated bill of job work done as according to him the bills should have been raised on monthly basis and regular TDS should have been deducted from each payment made to the contractor. According to the Ld. CIT(A), the above factor was not sufficient enough to disallow the claim of wages made by the assessee because the assessee had explained the purpose for which the services of the contractor were engaged and there was no dispute regarding the fact that the assessee has manufactured corrugated boxes and sales of corrugated boxes had been accepted by the Assessing Officer. Secondly the contractor, Mohd. Aslam had never denied and had rather accepted having done the job work of corrugated boxes for the assessee. He also admitted having received a sum of Rs. 4,11,780 in lieu of the job work done and the payment of Rs. 50,000 made to him during the current year had been accepted by the Assessing Officer, the balance money shown as payable as on 31.3.98 had been admitted to be received by the Contractor during the next year and the TDS of Rs. 8236 was deducted by the assessee on those payments. Ld CIT(A) emphasised that Mohd. Aslam not only had accepted receipt of contract money but had also declared these receipts as a part of his income in his income tax return filed for the Any 1998-99. All those factors taken together would suggest that the services of Mohd. Aslam in the capacity of a contractor were actually availed by the assessee. CIT(A) further stated that even otherwise the claim of total wages of Rs. 623,206 including the claim of Rs. 4,11,780 on account of contractor’s bill appeared to be quite reasonable as compared to the expenditure of Rs. 2,32,405 claimed under the same head last year keeping in view the fact that the material consumed had increased threefold over the year whereas hike in wages was comparatively less, CIT(A) also pointed out that the Assessing Officer in his concluding remarks had observed that either the claim regarding the wages for box manufactured was bogus or if at all any wages were paid over and above Rs. 50,000 those were to be paid by the assessee from outside 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(A). He further stated that the material consumed by the assessee had been accepted by the Assessing Officer and without using the labour the consumption of material was not possible. He further stated that the percentage of wages was less in comparison to the wages paid in the last year. So, the Assessing Officer arbitrarily made the addition which had rightly been deleted by the Ld. CIT(A).
7. As regards to the payments made to the contractor, Mohd. Aslam, Ld. counsel for the assessee vehemently argued that in the subsequent year, payment had been accepted by the Assessing Officer and TDS was deducted by the assessee and even Mohd. Aslam was assessed to tax and in his return he had accounted for the contract amount of the Jobwork. As such the Assessing Officer made the addition without any basis and the Ld. CIT(A) was fully justified in deleting the same.
8. We have heard both the parties at length and carefully gone through the material available on record, In the present case, it is noticed that the Assessing Officer disallowed the outstanding amount of wages i.e. wages payable amounting to Rs. 3,53,554. The above amount had been shown by the assessee as wages payable out of total amount of wages of Rs. 4,11,780 for the work done by Mohd. Aslam. In the instant case, the Assessing Officer had not doubted the sale of corrugated boxes amounting to Rs. 75,74,785 for which the labour through Mohd. Aslam amounting to Rs. 4,11,780 had been utilised. For making disallowance, the Assessing Officer opined that the contractor was not a man of means However, no evidence of whatsoever nature had been brought on record and even if it is assumed that the contractor was not a man of means, claim of the assessee on account of wages cannot be denied when the Assessing Officer had not doubted the payment of Rs. 50,000 during the year under consideration and also the remaining payment in the next year, it was not the business of the assesses to know from where the contractor brought the money to make the payment to the labourers which were used for the job work of the assessee because the assessee was concerned with the work to be done through contractor and to make the payments to him against the work done. The payments made by the assessee amounting to Rs. 50,000 alongwith TDS of Rs. 8236 had not been doubted by the Assessing Officer and even the remaining payment 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 assessee claimed excess wages for the corrugated boxes manufactured and sold for Rs. 75,74,785. We, therefore, considering the totality of the facts as narrated herein above, are of the view that the Ld. CIT(A) rightly deleted the disallowance made by the Assessing Officer. We do not see any valid ground to interfere with the findings of the Ld. CIT(A) on this issue.
9. In the result, appeal of the department is dismissed.
M.A. Bakshi, Vice President
1. I have gone through the order proposed by my learned brother in this appeal and have also discussed the issue with him. However, since I am unable to persuade myself to subscribe to the view proposed by my learned brother, I hereby pass a separate dissenting order.
2. Though the facts have been stated by my learned brother in the proposed order; I would like to reiterate the same in my own words for the sake of easy reference and coherence.
3. The respondent was engaged in the business of manufacture of paper cones and corrugated boxes. The assessee had filed the return of income, which had been processed Under Section 143(1)(a). Since the case of the assessee was selected for scrutiny, the AO examined the books of account and the relevant records for the purpose of making assessment Under Section 143(3) During the course of scrutiny of the accounts, the AO observed that apart from debiting the wages every month, the assessee had debited a sum of Rs. 4,11,780 on the last date of previous year in the said account. On further scrutiny, it was found that the assessee had shown a sum of Rs. 3,53,544 as payable in the name of Shri Mohd. Aslam, Malerkotla. Shri Mohd. Aslam was called by the AO for the purpose of verification of the genuineness of the claim of wages paid to him and the outstandings of Rs. 3,53,554. Shri Mohd. Aslam appeared before the AO and his statement was recorded. Shri Mohd. Aslam admitted to have worked as a contractor for the assessee and having raised a bill for Rs. 4,11,780. The AO found that Shri Mohd. Aslam had been working as a loading worker in Sabji Mandi and earning a meager amount of Rs. 1500/- per month. The father of Shri Mohd. Aslam was a barber having three sons and two daughters. It was stated by Shri Mohd. Aslam that he employed 11 workers 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 assesses 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 falter 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 AO. He had further stated before the AO that he did not continue the contract work and was working as a barber. He had also admitted that he did not have any previous experience of any kind of work except as a labourer in Sabji Mandi. On 4.1.2001, Shri Mohd. Aslam appeared before the AO without producing any records. It was claimed that all the records had been destroyed on 31.3 1998. No evidence in regard to loans had also been furnished. Shri Mohd. Aslam also claimed before the AO that he had filed the return of income in form No. 2D on 20.1.2000 along with the copy of profit & loss a/c, capital account and balance sheet. In the said balance sheet, a sum of Rs. 3,53,544 was shown as receivable from the assessee-company and the two creditors, namely, S/Shri Shaukat Ali and Abdul Rasheed, were also reflected in the balance sheet. The AO did not accept the genuineness of Shri Mohd. Aslam as a contractor and the claim that a sum of Rs. 3,53,544 was outstanding at the end of the previous year. The reasons for not accepting the claim of the assessee as given by the AO are as under:-
(i) Shri Mohd. Aslam could not produce any evidence to establish that he was ever appointed as contractor by the assessee. Besides, inspite of his promise he could not produce any books of account or even the attendance register to show as to how much worker were engaged by him or in what manner he was making payments to them. Rather he took an excuse with the contention that all the books of accounts had been destroyed on 31.3.98 after reconciliation of his account with the books of the assessee. But contrary to this, it is best known to Shri Mohd. Aslam as to how he was able to furnish a copy of account of the assessee company as per his books of account on the date of his statement. Besides, it is also best known to Shri Mohd. Aslam as to how he was able to prepare his final accounts including Profit and Loss account, Capital account and his balance sheet on 20.1.2000 when he furnished his income tax return. It is relevant to mention that in the Profit and Loss account he has claimed various kind, of expenses meticulously such as printing and stationery, medicine, labour welfare, cycle repair and general expenses etc. It is an important fact to note that even the return of income was filed by Mohd. Aslam for the first time on 20.1.2000 when a specific query had been made by this office in respect of wages payable at Rs. 3,53,544/- as per questionnaire 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 subzi 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 inexperience 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 31.3.98 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, asses-see made a meager payment of Rs. 50,000/- on 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.
In view of above, the AC observed that the wages claimed payable by the assessee to Shri Mohd. Aslam was not found to be a genuine claim as neither the capacity of Shri Mohd. Aslam was proved as contractor who was paying partial wages from his own resources nor the assessee could justify the employment of 11 workers with any documentary evidence substantiating total wages claimed of Rs. 6,23,206 debited to Profit and Loss account, out of which a sum of Rs. 3,53,544 was claimed to be payable.
4. The assessee filed an application to the Addl. CIT, Range-2, Ludhiana and the latter, after giving opportunity to the assessee, issued directions to the AO approving the proposed addition of Rs. 3,53,544.
5. The assessee appealed to the CIT(A) and the latter has deleted the addition. The Revenue is in appeal before us.
6. The question before us is, as to whether the AO was justified in making the impugned addition when Shri Mohd. Aslam had appeared before the AO and accepted to have raised a bill for a sum of Rs. 4,11,780 and also having admitted a sum of Rs. 3,53,544 bring payable to him as on 31.3.1998. In my considered view, the issue that requires serious consideration is, as to whether the AO could on the basis of surrounding circumstances and human probabilities reject the evidence furnished by the assessee in support of the claim by way of production of Shri Mohd. Aslam stated to be the labour contractor to have worked for the assessee. If one were to go by the statement of Shri Mohd. 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, 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, 214 ITR 801(SC).
7. Thus, I proceed to consider the evidence produced by the assesses 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 paper book. This statement is reproduced hereunder:-
“Wages a/c as on 31.3.98 (A.Y. 98-99):
Sr. No. Month Amount
1. April, 97 16221
2. May " 13788
3 June " 17973
4 Jul " 18589
5 Aug " 19256
6 Sept. " 20105
7 Oct. " 21615
8 Nov. " 15845
9 Dec. " 16897
10 Jan. 98 14692
11 Feb. 98 18773
12 March 98 17672
2,11,426/-
13 Labour 4,11,780/-
Exp. Bill
6,23,206/-"
A perusal of the statement reveals that assessee has debited the wages every month aggregating to Rs. Rs. 2,11,426. There is an entry on the last day of the previous year of Rs. 4,11,780, which is stated to be on account of Shri Mohd. Aslam. The bill of Shri Mohd. Aslam, an engager (as per the letterhead) is placed at page 4 of the paper book. His address given is as Nehru Market, Outside Sherwani Gate, Malerkotla, PIN. 1480023. Phone number is also given as 52250. However, PP has been added in ink indicating that Shri Mohd. Aslam does not have any telephone. On the same letterhead, office address is indicated at the bottom as that of the assessee, which is as under:-
Twinkle Papers (P) Ltd.,
Ludhiana Road,
Malerkotla.
8. The AO has in the assessment order highlighted the fact that Shri Mohd. Aslam had no previous experience of working as a contractor. In the subsequent year also he has not worked as a contractor but as a barber. In the preceding year, he has worked as a labourer/loader on meager amount of Rs. 1500/- p.m. He is stated to have engaged labourers for the assessee throughout the year for which a sum of Rs. 50,000 is stated to have been received between 28.2.98 and 30.3.98 i.e. in the last month of the year. The work done as per the bill is for Rs. 4,11,780. Shri Mohd. Aslam has filed return of income for the assessment year 98-99 on 20.1.2000 only after a specific query to the assessee about these wages by the AO vide questionnaire dated 1.10.99. 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 AO 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 meager amount of Rs. 1500/- 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 AO 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 lacs 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 AO. As already pointed out, the return of income was filed only after an inquiry was made by the AO 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 consideration, I do not have any doubt in my mind that the evidence produced by the assessee in the shape of Shri Mohd. Aslam is nothing but a tutored witness. The human probabilities and surrounding circumstances clearly establish that the claim put forward by the assessee about the contract having been allotted to Shri Mohd. Aslam is nothing but a make belief story. The statement of Shri Mohd. Aslam in the light of human probabilities and surrounding circumstances is unbelievable. Therefore, the AO, in my view, was justified in not relying upon the same.
9. The next question that arises for consideration is as to whether the AO was justified in making the addition of Rs. 3,53,544? The AO has made the addition by treating the wages to the extent of Rs. 3,53,544 as bogus. In the alternative, it has been held by the AO that the credit of Rs. 3,53,544 is not genuine whereas the assessee having incurred the wages to the tune of Rs. 3,53,544 in addition to the wages debited on regular basis may be a possibility, there is no escape from the conclusion that the credit of Rs. 3,53,544 in the name of Shri Mohd. Aslam as on 31.3.98 is not genuine. There is a credit in the books of account of the assessee in the name of Shri Mohd. Aslam. The credit is on account of outstanding wages. Assuming that the wages have been incurred by the assessee, the amount is shown to be outstanding as on 31.3.98. 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 AO to establish the source from which the assessee has earned the income. This view is supported by the following decisions:-
i) Sreelekha Banerjee and Ors. v. CIT, 49 ITR 112 (SC);
ii) Kale Khan Mohammad Hanif v. CIT, 50 ITR 1 (SC);
iii) Roshan Dividend income Hatti v. CIT, 107 ITR 938(SC);
iv) Shankar Industries v. CIT, 114 ITR 689 (Cal.);
v) C. Kant & Co. v. CIT, 126 ITR 63(Cal.);
vi) CIT v. Precision Finance Pvt. Ltd., 20-8 ITR 465 (Cal.) &;
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 AO was justified in making the addition and that the CIT(A) was not right in deleting the same.
10. In the result, on the basis of my order, the appeal of the revenue is allowed.
ORDER
1. On account of difference between the Hon’ble Members of the Chandigarh Bench, the following question has been referred to me under Section 255(4) of the Income-fax Act:
“Whether, on the facts and in the circumstances of the case, the Assessing Officer was justified in making the impugned addition of Rs. 3,53,544 on account of outstanding wages of Shri Mohd. Aslam of Malerkotla ?”
2. The facts of the case, briefly stated, are that the assessee manufactured corrugated boxes in the relevant assessment year. The assessee showed turnover of Rs. 75,74,785 against turnover of Rs. 73,57,058 of the last year. The assessee had debited Rs. 6,23,206 to wages account out of which Rs. 3,53,544 were disallowed by the Assessing Officer. This amount was claimed as due to one, Shri Mohd. Aslam engaged as a 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 work without obtaining daily wages. According to the Assessing Officer, Mohd. Aslam could not produce any evidence to establish that he was ever appointed as a contractor by the appellant, Mohd. Aslam 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 appellant that for contract work only Rs. 50,000 were paid to Mohd. Aslam during the current year. The explanation given by Mohd. Aslam that he had paid some payments to his workers out of his part savings of Rs. 1,25,000 and also by raising few loans from relatives was also not believed. The Assessing Officer also observed that in labour contracts monthly bills were raise by the labour contractor and regular. TDS is deducted on monthly payment basis. Since only one bill was raised by the contractor for the total work done during the current year, this was held to be against the normal practice. The A.O. held that Mohd. Aslam could not have carried out the contract as alleged by the appellant, the wages payable shown at Rs. 3,53,544 were treated as unproved and disallowed. It has been further observed that either the claim of wages payable is bogus or if at all any wages were paid, these were paid by the appellant from the funds not recorded in their books of account. He accordingly disallowed the claim and added the sum of Rs. 3,53,544 to the returned income of the appellant. The Assessing Officer ultimately added back Rs. 3,53,544 with the following observation:
“Keeping in view the facts of the case in totality the wages shown payable at Rs. 3,53,544 (4,11,780 claimed as wages for box manufacturing minus Rs. 50,000 paid by the assessee in cash through the account of Shri Mohd. Aslam) is found an unproved or unsubstantiated claim of expenses which will be added to the income of the assessee. Alternatively, if at all any wages were paid by the assessee over and above Rs. 50,000, it were paid by the assessee from the funds outside the books of account which also needs to be added. Penalty under Section 271(1)(c) will separately be initiated for furnishing inaccurate particulars of income.”
4. The assessee impugned above disallowance in appeal before the Commissioner of Income-tax (Appeals) and contended that no defect, whatsoever, was found in the books 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 labour, non-raising of monthly bill of job work were insufficient to disallow the claim in question.
5. The learned Commissioner of Income-tax (Appeals), after considering the facts and circumstances of the case, allowed the claim of the assessee with the following observation:
“In order to decide the issue, I have considered the various arguments of the AR carefully. The Assessing Officer had disallowed the claim of wages payable at Rs. 3,53,544 on the ground that the contractor to whom such wages have been shown payable, was not a man of means. The contractor also could not satisfy the Assessing Officer regarding the payment made by him to his labour engaged to carry out the job work. The Assessing Officer also suspected the consolidated bill of job work done as according to him the bills should have been raised on monthly basis and regular TDS should have been deducted from each payment made to the contractor. This factor to my mind is not sufficient enough to disallow the claim of wages made by the appellant. First of all the appellant has explained the purposes for which the services of the contractor were engaged. The appellant had started the production of corrugated boxes for the first time for which the labour was to be employed. Instead of employing the labour directly, the services of a contractor were hired. There is no dispute regarding the fact that the appellant has manufactured corrugated boxes and sales of corrugated boxes shown at Rs. 75,74,785 have been accepted by the Assessing Officer. Secondly the contractor Mohd. Aslam has never denied and has rather accepted having done the job work of corrugated boxes for the appellant during the relevant year. He has admitted having received of Rs. 4,11,780 in lieu of the job work done. The payment of Rs. 50,000 made to him during the current year has been accepted by him and the Assessing Officer also has not doubted the genuineness of this payment. The balance money shown payable as on 31.3.1998 is admitted to have been received by him during the next year. It is also a fact that TDS of Rs. 8236 was deducted by the appellant on these payments. Mohd. Aslam has not only accepted the receipt of the contract money but have also declared these receipts as a, part of his income in his income tax return filed for assessment year 1998-99. All these factors taken together would suggest that the services 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 Assessing Officer to support these findings. The assessing Officer cannot say that the manufacturing of corrugated boxes have not taken place because he himself has accepted the sales of corrugated boxes declared at Rs. 75,74,785. Secondly evidence is thereon record to suggest that the payment of Rs. 3,53,544 which was over and above Rs. 50,000 was made by the appellant out of the funds not recorded in the books. The payment of this amount has been duly shown out of the books maintained for the next year. The payments made in the next year have not been doubted by the Assessing Officer. The receipt of these payments have also been acknowledged by the recipient. Under these circumstances, the allegations that the payment of wages could have been made out of funds not disclosed in the books, cannot be sustained. Considering the overall expenditure debited under the head wages vis-a-vis the production shown during the current year and also the fact that Mohd. Aslam has accepted having done the job work, the claim of wages shown to have been paid to him at Rs. 4,11,780 could not be denied. With the result, addition of Rs. 3,53,544 is deleted.”
6. The Revenue being aggrieved, brought the issue in appeal before the Appellate Tribunal. The Hon’ble Members of the Bench after hearing both the parties proposed dissenting orders. The learned Accountant Member agreed with the view taken by the learned Commissioner of Income-tax (Appeals), whereas the learned Judicial Member (Hon’ble Vice President) in the proposed order restored the order of the Assessing Officer. While rejecting the appeal of the Revenue, the learned Accountant Member observed that the Assessing Officer had not doubted the sale of corrugated boxes amounting to Rs. 75,74,785 for which labour charges were incurred amounting to Rs. 4,11,780 through Mohd. Aslam. The disallowance has been made on the ground that the contractor was not a man of means. However, no evidence was brought on record to establish the above facts. Even otherwise it was assumed that the contractor was not a man of means, the same could not be the ground to disallow the claim in question when payment of Rs. 50,000 in the year under consideration and remaining payment in the next year was not doubted. It was not for the assessee to know from where the contractor brought the money to make the payment to his labourers for carrying the job 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 Id. 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 was ever appointed as contractor by the assessee. Besides, inspite of his promise he could not produce any books of account or even the attendance register to show as to how much worker were engaged by him or in what manner he was making payments to them. Rather he took an excuse with the contention that all the books of account had been destroyed on 31.3.1998 after reconciliation of his account with the books of the assessee. But contrary to this, it is best known to Shri Mohd. Aslam as to how he was able to furnish a copy! of account of the assessee company as per his books of account on the date of his statement. Besides, it is also best known to Shri Mohd. Aslam as to how he was able to prepare his final accounts including Profit and Loss Account, Capital account and his balance sheet on 20.1.2000 when he furnished his income tax return. It is relevant to mention that in the Profit & Loss Account he has claimed various kind of expenses meticulously such as printing and stationery, medicine, labour welfare, cycle repair and general expenses etc. It is an important fact to note that even the return of income was filed by Mohd. Aslam for the first time on 20.1.2000 when a specific query had been made by this office in respect of wages payable at Rs. 3,53,544 as per questionnaire 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 subzi 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 boxes manufacturing or of any other business. On the other hand, the corrugated boxes 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 inexperience 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, assessee 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 proposition, the learned Judicial Member (Hon’ble Vice President) relied upon the decision of the Supreme Court in the case of CIT v. Durga Prasad More, 82 ITR 540 and of Sumati Dayal v. CIT 214 ITR 801. The learned Judicial Member (Hon’ble Vice President) also considered the detail of wages debited by the assessee in his account and found that apart from claim of Rs. 4,11,780 payable to Shri Mohd. Aslam, the assessee had separately claimed wages of Rs. 2,11,426 by debiting the account every month. From the bill issued by Mohd. Aslam, the learned Judicial Member (Hon’ble Vice President) found that he had only a PP phone number and address on the letter head was the same as that of the assessee.
8. The learned Judicial Member (Hon’ble Vice President) agreed with the Assessing Officer with the following observation:
“8. The Assessing Officer has in the assessment order highlighted the fact that Shri Mohd. Aslam had no previous experience of working as a contractor. In the subsequent year also he has not worked as a contractor but as a barber. In the preceding year, he has worked as a labourer / loader on meager amount of Rs. 1,500 p.m. He is stated to have engaged labourers for the assessee throughout the year or which a sum of Rs. 50,000 is stated to have been received between 28.2.1998 and 30.3.1998 i.e. in the last month of the year. The work done as per the bill is for Rs. 4,11,780. Shri Mohd. Aslam has filed return of income for the assessment year 98-99 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 of 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 meager 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 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 lacs 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 more 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 consideration, I do not have any doubt in my mind that the evidence produced by the assessee in the shape of Shri Mohd. Aslam is nothing but a tutored witness. The human probabilities and surrounding circumstances clearly establish that the claim put forward by the assessee about the contract having been allotted to Shri Mohd. Aslam is nothing but a make belief story. The statement of Shri Mohd. Aslam in the light of human probabilities and surrounding circumstances is unbelievable. Therefore, the Assessing Officer, in my view, was justified in not relying upon the same.
The next question that arises for consideration is as to whether the Assessing Officer was justified in making the addition of Rs. 3,53,544? The Assessing Officer has made the addition by treating the wages to the extent of Rs. 3,53,544 as bogus. In the alternative, it has been held by the Assessing Officer that the credit of Rs. 3,53,544 is not genuine whereas the assessee haying incurred the wages to the tune of Rs. 3,53,544 in addition to the wages debited on regular basis maybe a possibility, there is no escape from the conclusion that the credit of Rs. 3,53,544 in the name of Shri Mohd. Aslam as on 31.3.98 is not genuine. There is a credit in the books of account of the assessee in the name of Shri Mohd. Aslam. The credit is on account of outstanding wages. Assuming that the wages have been incurred by the assessee, the amount is shown to be outstanding as on 31.3.98. 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 assesses, it is the duty of the assessee to establish identity of the creditor, his creditworthyness 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 and Ors. v. CIT 49 ITR 112 (SC),
ii) Kale Khan Mohammad Hanif v. CIT 50 ITR 1 (SC),
iii) Roshan Dividend Income Hatti v. CIT 107 ITR 938 (SC),
iv) Shankar Industries v. CIT 114 ITR 689 (Cal),
v) C. Kant & Co. v. CIT 126 ITR 63 (Cal),
vi) CIT v. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal) and;
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 no 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 tone labour contractor to the tune of Rs. 3,53,544 for the wages due to poor labourers who have claimed to have worker 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 parties. Shri Puniha, the learned Departmental Representative submitted that corrugated boxes were manufactured by the assessee for the first time and, therefore, there was no justification to compare the trading result of above item with the trading result of earlier year when no boxes were reproduced. It was further not explained by the assessee as to why a novice like Shri Mohd. Aslam was employed as a contractor for carrying manufacturing activities. Shri Puniha emphasized that the return of income was submitted by Shri Mohd. Aslam on 20.1.2000 when enquiries relating to wages were raised by the Assessing Officer on 1.10.1999. He submitted that belated return filed by Shri Mohd. Aslam was only a self serving document. Shri Mohd. Aslam was not only not in a position to carry on the job work but also lacked financial capacity to employ 11 labourers as claimed by him. His statement that books of account were destroyed after settlement of account, was too hollow to be accepted. The statement was also contradicted by return submitted by Shri Mohd. Aslam with details of wages received and wages paid. The Revenue has clearly established that Shri Mohd. Aslam could not have carried the job work for which the wages to the tune of Rs. 4,11,780 were claimed. The assessee was totally relying upon the bald statement of Shri Mohd. Aslam, which was of no value.
9.1 Shri Puniha further argued that on facts and circumstances of the case, the wages could not have remained outstanding and must have been paid in the financial year if business expediency is kept in view. No agreement could have possibly been entered by the assessee with Shri Mohd. Aslam. It was not for the Revenue to record finding relating to payment in the next year as the next year was not being examined. It was a new line of business carried for the first time and, therefore, finding of the learned Accountant Member that the wages claimed were less than the last year, was untenable. The matter was required to be judged on the basis of probabilities and, therefore, the learned Accountant Member was not justified in saying that it was not for the assessee to find out where from the payment by the contractor to his labourers was made. Above fact was relevant to know whether wages claimed were genuine or not. Material brought by the Revenue clearly established that apparent was not the real. There was no 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 account has been duly accepted without pointing any defect or adverse comment.
11.1 Shri Jain further submitted that it was not a cash transaction. No cash was paid. He also drew my attention to the copy of returns filed by Shri Mohd. Aslam in which receipt in question was duly shown with profit of Rs. 32,942. Shri Mohd. Aslam has also placed on record his capital accounts and Balance Sheet alongwith his return. The said return has also been accepted. In these circumstances, the revenue could not disallow the deduction claimed on account of wages. Shri Jain submitted that the appellant did not place copy of statement of Shri Mohd. Aslam before the Tribunal and revenue’s appeal was liable to be dismissed on this short ground.
11.2 Shri Jain as a primary objection submitted that tax effect of the appeal was less than Rs. 1 lac and, therefore, the appeal of the Revenue should not be entertained and dismissed forthwith.
12. I have given careful thought to the rival submissions of the parties. I have also examined reasons given by Hon’ble Members for their dissenting views. It cannot be disputed that an assessee cannot ask the revenue to accept an “improbable” case. However, the present case cannot be said to be falling in improbable category. On consideration of facts of the case, I have found that the Assessing Officer has accepted the contract between the assessee and Shri Mohd. Aslam and allowed Rs. 50,000 out of total claim of deduction of Rs. 4,11,780 for carrying manufacture of corrugated boxes. The balance amount Rs. 3,53,544 shown as outstanding was disallowed. Admittedly it was a single contract for manufacture of boxes and, therefore, it is not possible (nor probable) to reject one part of the contract and accept the other part. At any rate having accepted and allowed deduction of Rs. 50,000, heavy onus lay on the revenue to show and justify disallowance of the balance amount under the same indivisible contract. No solid reasons have been given to disallow claim of Rs 3,53,514.
13. Simple case set up and proved by the assessee has been held to be improbable and rejected without any legal justification. The assessee claimed that it got manufactured corrugated boxes on contract through Mohd. Aslam for total consideration of Rs. 4,i 1,780. The fact that boxes were not manufactured has been accepted. Such manufacture was carried from raw material of 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 accounts 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:
--------------------------------------------------------
28.2.98 To cash 20,000
22.3.98 To cash 20,000
30.3.98 To cash 10,000
31.3.98 By Bill 4,11,780
31.3.98 To TDS 8,236
To Balance B/F 3,53,544
------------------------
Total: 4,11,780 4.11.780
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Verified & Confirmed the Statement Signatures"
The balance amount was paid in the next financial year and detail of payment made as per account is as under:
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"M/s Twinkle Papers Pvt. Ltd., Malerkotra
Copy of Account: Labour Charges Payable (Contractor)
1.4.1998 to 31.3.1999
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Date: Particulars Debit Credit:
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1.4.98 By balance B/F 97-98 353544
12.6.98 To cash for labour payments 18000
15.6.98 To cash for labour payments 18000
24.6.98 To cash for labour payments 19000
25.8.98 To cash for labour payments 16000
26.8.98 To cash for labour payments 18000
27.8.98 To cash for labour payments 18000
28.8.98 To cash for labour payments 18000
29;8.98 To cash for labour payments 16000
30.8.98 To cash for labour payments 16000
31.8.98 To cash for labour payments 15000
22.8.98 To cash for labour payments 16350
22.8.98 To cash for labour payments 10900
01.9.98 To cash for labour payments 18000
02.9.98 To cash for labour payments 15000
05.9.98 To cash for labour payments 17000
09.9.98 To cash for labour payments 18000
10.9.98 To cash for labour payments 18000
11.9.98 To cash for labour payments 16000
12.9.98 To cash for labour payments 15000
16.9.98 To cash for labour payments 16000
18.9.98 To cash for labour payments 13000
19.9.98 To cash for labour payments 8294
17.2.99 To cash Advance TDS Deposited 4000
31.3.99 By Loading & Unloading charges 452996
-do- To TDS Payable 5060
-do- To Balance C/o 99-2000 443936
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Total: Rs. 806540 806540
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15. The first of the account reproduced above for period ending 31.3.1998 and showing payment of Rs. 50,000 has been accepted 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 accounts 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 Punia, learned D.R. submitted that assessment year 1999-2000 in which payment of Rs. 3,53,554 was made, was not being examined for purposes of assessment and, herefore, no comments were made on account of Shri Mohd. Aslam for the said period ending 31.3.1999. This, to say the least, is an argument for the sake of argument. The question involved was whether sum of Rs. 3,53,554 shown as payable and carried forward was genuine and was actually paid towards wages as claimed, the current year payment of Rs. 50,000 having been duly allowed. The genuineness of payment of above amount was in dispute and this question could not be decided without looking at and without examining the detail and mode of payment made in the next year. The assessee rightly placed copy of account of Mohd. Aslam and details of payments made after 1.4.1998 and these details must have been examined. It is more reasonable to hold that no defect or fault was found in these payments. If these were not examined as contended by the learned D.R., then revenue has to blame itself for this failure. The question of genuineness of payment made could not be decided without examining details of above payments. Prima facie I do not find any fault with the payments made by the assessee nor any has been brought to my notice during the course of hearing of appeal or in the orders of the revenue authorities.
17. The assessee has further supported his claim with reference to tax deducted at source of Rs. 8236 from the contract amount credited to the account of Mohd. Aslam. The tax deducted at source was deposited by the assessee with the revenue as per information contained in form 16A dated 30.5.1998. Mo dispute about above deduction of tax at source has been raised by any authority nor the fact of deduction of TDS has been doubted. Mohd. Aslam claimed credit for above deduction of tax at source and, there is no material on record to show that the credit for the same has not been allowed to him. This document go a long way to support the genuineness of claim regarding deduction put forward by the assessee.
18. The claim of assessee relating to deduction of Rs. 4,11,780 is not only supported by entries in regularly maintained and audited accounts of the assessee, but is also corroborated by accounts of Sh. Mohd. Aslam submitted by him with his return filed with the Income-tax Department. The amount due has been duly disclosed as taxable receipt with 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 for as the assessee is concerned as Mohd. Aslam submitted his income-tax return on 20.1.2000 after some queries were raised by the A.O. 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 A.O. in the case of the assessee. The revenue authorities in my view were not justified in treating Mohd. Aslam and the assessee as one and the same person and not separate legal entities. There is nothing on record to show that Mohd. Aslam was under thumb and control of the assessee and had filed the return on behest, of the assessee. Mohd. Aslam was an independent contractor and was liable to show his income. There may be hundred and one reasons to hold back details and books of accounts before the A.O. in assessee’s case. The assessee could not compel him to produce such accounts and, therefore, no adverse inference against the assessee could be drawn from non production of books by Mohd. Aslam. The assessee could rely upon the fact that deduction claimed was duly shown for tax purposes by Mohd. Aslam and accepted by the Revenue. The assessee could also rely on copy of his capital account showing balance of more than Rs. 1 lac. The assessee could rely on evidence which is corroborating his version. It was open to the revenue to challenge his return and accounts filed by Mohd. Aslam in his own case. Having not raised any dispute there, it was not permissible for the revenue to reject the whole thing merely because books were not produced by Mohd. Aslam or he had filed the return after some query was raised in assessee’s case. Unconnected and irrelevant factors have been taken into account to deny deduction to the assessee. For purpose of income tax wherever payment / deduction is challenged as non genuine, it is significant that the payee has shown such payment. This cross verification and cross checking is important and, therefore, is entitle to great weight. Such material evidence can not be brushed aside as done in this case. I am inclined to agree with the learned Accountant Member on this aspect of the matter.
19. I further find that in the account of Md. Aslam for the period ending 31.3.99, there is a fresh credit of Rs. 4,52,996/- towards loading and unloading charges. The assessee has further shown to have deducted Rs. 5060/- towards tax from above amount. The aforesaid copy was duly filed by the assessee with the revenue authorities in the course of assessment proceedings and no objection has been raised on the genuineness of above entry which clearly shows that Mohd. Aslam could arrange labour on contract as also necessary finances for such jobs. The entry strengthens the case of the assesses The contention of the learned DR, that period ending 31.3.99 was not under scrutiny, is of no avail. Ail 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 AO 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^ AO. 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 AO and learned CIT(A) had the benefit of said statement but then they took contradictory views. In such a situation views of the higher forum must prevail and is required to be accepted. In my humble opinion, the other course of accepting what is stated by the AO and negated by the Id. CIT (Appeals) regarding the statement is not permissible. Be that as it may, on facts I see no justification in holding that Md. Aslam was novice and had no idea of contract nor had the capacity to carry the job. I would rather go by the documentary evidence on record which clearly establishes that deduction claimed in dispute is genuine.
21. One more reason for not accept in that Md. Aslam was novice and, therefore could not be trusted with contract work of value of more than Rs. 4 lacs is that there is no evidence to show that Md. Aslam was not qualified to carry on the contract job. Assuming, for the sake of argument, that he was personally not qualified, what about the qualification of the workers employed by him? There is no material nor is there any finding that even workers employed by Md. Aslam were not fit to carry on the contract job. The job has been carried; tin boxes manufactured and sold. It is not the revenue’s case that manufacture work was done by the assessee himself or by somebody else. The work was got done from labourers who charged wages. These wages are claimed to be paid through Md. Aslam. Why such claim is not being believed? Without any justification and on suspicion and doubts, assessee’s case has been rejected. No material is available on record to show that there was practice to pay workers on daily or monthly basis. It is further not established on record that the contract work carried on by Md. Aslam was not carried as per the prevalent practice. The AO rejected the claim of the assessee based on documentary evidence without effectively challenging the said evidence.
22. It is suggested in the order of the AO as also in the proposed order of learned Judicial Member that assessee did pay wages to contractor/workers for getting tin boxes manufactured but those were paid from undisclosed sources and the entry of Rs. 3,53,544/- on account of outstanding wages was wrong. Thus, undisclosed investment was made by the assessee and, therefore, addition of the above amount is justified. There is not an iota of evidence to show that the assessee made undisclosed investment 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 Md. Aslam to file returns of income, prepare accounts in his case and do so may wrong things alleged by the AO. 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 not engage labourers is imaginary and has no legs to stand. The contract work was got done but entire payment could not be cleared by the end of the year and, therefore, was shown as payable in the books of accounts and was cleared in the next year as shown in the books of accounts. It is a normal incidence of business that many times there is delay in payment to creditors for variety of reasons mainly; non availability of cash. Even where there is commitment in writing to make payment by a particular date and stringent conditions imposed to check delay, there is delay in the payment and parties accept it a normal feature of the business. We may refer to large number of cases where inspite of heavy demurrage charged by railway and other public agencies, there is delay in the clearance of goods and demurrage are paid. In the present case also, the exact terms and conditions of payment are not known and contract to manufacture is not in writing. It is possible that assessee might have committed to make payment as such as work was carried on and finished by Mohd. Aslam but due to shortage of cash or other compulsions, there was delay of approximately two months and payment was made as soon as cash was available, and as reflected in the next accounting year. One can go on imagining these probabilities without considering the relevant material. On facts I hold that the case is established through documentary, evidence. The payment was required to be allowed. The revenue authorities were not justified in doubting the genuineness of the entries in the accounts and disallowing the claim. The addition made was rightly deleted by the learned CIT (Appeals).
23. For the aforesaid reasons, I agree with the order proposed by the learned Accountant Member. The matter should now be placed before the regular Bench for passing appropriate order.