Madras H.C : The Assessing Officer was not justified in adding an amount of Rs.21,61,740/- out of the amount shown as “due to Maistries”, even though the assessee could not produce vouchers before the Commissioner of Income Tax (Appeals) and before the Assessing Officer and by making incorrect assumptions of facts that the Assessing Officer accepted the books of accounts as correct and complete

High Court Of Madras

CIT – I, Trichy vs. T. Arivunidhi

Assessment Year : 2002-03

Section : 37(1)

Mrs. R. Banumathi And K. Ravichandrabaabu, JJ.

Tax Case (Appeal) No. 78 Of 2010

April  8, 2013

JUDGMENT

K.Ravichandrabaabu, J. – This Tax Case (Appeal) filed by the Revenue as against the order of the Income Tax Appellate Tribunal relating to the assessment year 2002-03 was admitted by this Court on the following substantial questions of law:

“1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the Assessing Officer was not justified in adding an amount of Rs.21,61,740/- out of the amount shown as “due to Maistries”, even though the assessee could not produce vouchers before the Commissioner of Income Tax (Appeals) and before the Assessing Officer and by making incorrect assumptions of facts that the Assessing Officer accepted the books of accounts as correct and complete?

2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding by the Assessing Officer was not justified in making the addition towards work-in-progress, when the assessee had claimed deduction for the expenditure and had not shown the corresponding receipts?

2. The assessee is a civil contractor engaged in cable laying work for BSNL. The assessment for the relevant assessment year was completed under Section 143 of the Income Tax Act on a total income of Rs.41,10,334/-. The assessee had shown an amount of Rs.57,98,265/- as “Maistries Due” in the balance sheet. It was explained by the assessee that this amount represented wage disbursement to labourers through maistries. However, the Assessing Officer, after examining the details, added a sum of Rs.21,61,740/- out of the amount shown as maistry’s dues and added the same to the profit shown. The assessee filed an appeal before the Commissioner of Income Tax (Appeals). The first Appellate Authority confirmed the addition of Rs.21,61,740/-. Further appeal preferred by the assessee before the Income Tax Appellate Tribunal came to be allowed. Aggrieved against the said order of the Tribunal, the present appeal has been filed by the Revenue raising the above substantial questions of law.

3. Mr. J. Narayanasamy, learned standing counsel appearing for the Revenue submitted that the excess payment shown as expenditure was not, in fact, shown as income in the Profit and Loss Account and therefore in the absence of matching income shown in the Profit and Loss Account, the addition made by the Assessing Officer cannot be disturbed. He also contended that even otherwise, the expenses said to have been made, have not been proved by any vouchers, when the matter was remitted back to the Assessing Officer by the first Appellate Authority.

4. Per contra, Mr. V.S. Jayakumar, learned counsel appearing for the assessee submitted that the assessee is following mercantile system of accounting and as such, valued the work-in-progress and shown in the balance sheet. Therefore, the contention of the Revenue in this aspect is not correct. He further submitted that when the books are not rejected by the Authorities, they are not entitled to make addition based on estimation.

5. In support of the submission, learned counsel relied the decision of the Apex Court Sargam Cinema v. CIT [2010] 328 ITR 513/[2011] 197 Taxman 203. He further submitted that only when the work is completed, the assessee can show the income in the books of account, especially when the assessee is following the mercantile system of accounting. It is also his further contention that the Assessing Officer has not found anywhere that there are no vouchers produced by the assessee in support of the disputed expenses. Only when the matter was remitted back by the first Appellate Authority, that too after some years, the assessee was not in a position to produce those vouchers, as the same were damaged during 2005 due to floods. Therefore, learned counsel submitted that it is not the case that there are no vouchers, but they could not be produced only due to the reasons as stated supra. He also submitted that the Tribunal, being a fact finding authority, has found that the assessee had been following mercantile system of accounting and these amounts were duly debited to the Profit and Loss Account. When such being a factual finding rendered by the Tribunal, the same need not be interfered with by this Court, as there is no substantial question of law involved in this case. It is also further submitted by him that in any event, there is no revenue loss, as the receipt from BSNL would be shown in the next assessment year as income.

6. Heard learned standing counsel appearing for the Revenue and the learned counsel appearing for the assessee.

7. In this appeal, the Revenue raised two issues. In so far as the first issue, namely, there is no matching income shown on the Profit and Loss Account is concerned, it is seen that the assessee is following mercantile system of accounting and the said fact is evident from the assessment order itself. It is also not disputed that the assessee has already valued the work-in-progress and shown in the balance sheet. According to the assessee, even though they paid the amount to the Maistry before receipt of the payment from BSNL, they would only show the receipt as income only when the work is completed. That is why they show it as work-in-progress. The Tribunal found that the assessee, by following the mercantile system of accounting, had duly debited these amounts to the Profit and Loss Account. The said finding, being a factual finding rendered by the Tribunal, the same cannot be interfered with by this Court as no other contra facts are placed before us.

8. Learned counsel appearing for the assessee relied on the decision of the Apex Court reported in Sargam Cinema(supra) to contend that without rejecting the books of account, the Assessing Authority cannot make any addition.

9. A perusal of the order of the Assessing Officer would show that he has not rejected the books of account and only made the addition on the reason that there is no matching entry of income in the said account with the corresponding expenses made by the assessee. As it is explained by the assessee that they have shown in the books of account as work-in-progress and especially under the circumstances of following the mercantile system of accounting, we find force in the submission made by the learned counsel appearing for the assessee. Accordingly, the first issue is answered in favour of the assessee and against the Revenue.

10. As far as the next issue, namely, absence of materials to prove the expenses, is concerned, as rightly contended by the learned counsel appearing for the assessee, the Assessing Officer has not found anywhere in the assessment order that the expenses made by the assessee towards the Maistry dues is not supported by any material documents. It is only when the matter was remitted back from the first Appellate Authority to the Assessing Officer during the pendency of the appeal, the assessee was not in a position to produce those vouchers, for which he has also given reason that the vouchers were damaged during 2005 floods. Such reason assigned by the assessee was not disproved or disputed by the Revenue. On the other hand, the first Appellate Authority came to the conclusion that in the absence of vouchers in respect of the expenditure claimed, there is every possibility of wrong claim by the assessee in this regard. In our considered view, such finding of the first Appellate Authority is based on presumption and assumption. It is not the case that there are no materials. If that is the fact, then the Assessing Officer himself would have stated so in the assessment order. In the absence of any such finding by the Assessing Officer, we find no force in the submission of the learned standing counsel appearing for the Revenue in this regard.

11. Consequently, we find the order passed by the Income Tax Appellate Tribunal does not warrant any interference and accordingly, the Tax Case (Appeal) stands dismissed by answering both the substantial questions of law against the Revenue and in favour of the assessee. No costs.

[Citation : 356 ITR 218]