IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD Before Shri S.S. Godara, JM, & Shri Manish Borad, AM. ITA No. 2366/Ahd/2011 Asst. Year: 2008-09 ITO, Wd-3, Mehsana. Vs. Smt. Kapilaben Bharatbhai Patel, Prop.of M/s Shital Enterprise, 10, Rangijot Society, Opp. GIDC Estate, Kalol. Appellant Respondent PAN AEIPP 7803A Appellant by Shri Prasoon Kabra, Sr.DR Respondent by Shri M. K. Patel, AR Date of hearing: 19/9/2016 Date of pronouncement: 30/09/2016 ORDER PER Manish Borad, Accountant Member. This appeal by Revenue for Asst. Year 2008-09 is directed against order of ld. CIT)A), Gandhinagar, Ahmedabad dated 23.6.2011 in appeal No.CIT(A)/GNR/97/2010-11 passed against order u/s 143(3) of IT Act, 1961 (in short Act) framed on 2/12/2010 by ITO, Ward -3, Mehsana. Grounds of appeal raised by Revenue read as under :- 1. learned CIT(Appeals) has erred in law and on facts in deleting addition made u/s 40a(ia) of I T Act of Rs.74,69,869/-. ITA No. 2366/Ahd/2011 2 Asst. Year 2008-09 2. learned CIT(Appeals) has erred in not considering fact that subcontract payment was part of expenses claimed under head of salary and wages. 3. On facts and circumstances of case Ld.CIT(A) ought to have upheld order of Assessing Officer. 4. It is therefore prayed that order of learned CIT(Appeals) may be set aside and that of A.O. be restored to above extent. 2. Briefly stated facts of case are that assessee is individual running sole proprietary concern M/s Shital Enterprise which is engaged in business of labour contractor. Return of income for Asst. Year 2008-09 was filed on 29.09.2008 declaring total income at Rs.3,03,890/-. Case was selected for scrutiny assessment through CASS and notice u/s 143(2) of Act was served followed by questionnaire seeking various information. In compliance thereto assessee has filed necessary details along with tax audit report, audited financial statements and produced books for verification. In course of assessment proceedings ld. Assessing Officer noticed that assessee has transferred Rs.74,69,846/- to her daughter Ms. Sheetal B. Patel which was thereafter withdrawn in cash on various dates. On seeking reasons for this transfer of Rs.74,69,846/- assessee replied that she is partly paralysed and is having problem in signing cheque(s) and bank transactions tax is payable on withdrawal above Rs.50,000/- from current account. In order to mitigate both these problems she operates jointly held SB account with her daughter and contract receipts received in her current account were mostly transferred to this SB account and cash used to be withdrawn regularly by cheque signed by daughter. ITA No. 2366/Ahd/2011 3 Asst. Year 2008-09 All these cash withdrawals have been used for payments to labourers and all these transactions in this impugned joint S.B. a/c are forming part of regular books of account. However, ld. Assessing Officer was not satisfied with this reply and was of view that payment of Rs. 74,69,846/- is in nature of sub-contract charges and disallowed this amount by applying provisions of section 40(a)(ia) of Act. 3. Aggrieved, assessee went in appeal before ld. CIT(A) and succeeded in full as ld. CIT(A) deleted addition. 4. Aggrieved, Revenue is now in appeal before Tribunal. 5. Ld. DR supported order of Assessing Officer. 6. On other hand, ld. AR reiterated submissions made before first appellate authority and also added that books of accounts are audited, no qualification has been made by auditor in Tax Audit Report. GP during year is 24.05% in comparison to previous year GP at 20.73%. Net profit rate during year under appeal is 2.65% as compared to N.P. at 4.95% in previous year. No defect has been pointed out by Assessing Officer in books of account and in total expenditure at Rs.1,35,38,811/- claimed as against total contract receipt at Rs.1,40,27,756/-. Ld. AR further submitted that ld. Assessing Officer failed to examine that if impugned sub-contract amount of Rs.74,69,846/- is treated as expenditure then income of assessee will turn into losses. ITA No. 2366/Ahd/2011 4 Asst. Year 2008-09 Also before first appellate authority assessee has filed affidavit confirming fact that her daughter Ms. Sheetal B. Patel is now residing in Canada and bank account run in her name is owned up and operated by her mother and Sheetal B. Patel has nothing to do with this bank account wherein Rs.74,69,846/- has been transferred by assessee. Further total expenditure of Rs.1,35,38,811/- are duly supported by proper bills and vouchers and no anomaly has been observed by Assessing Officer and, therefore, ld. CIT(A) has rightly deleted addition. 7. We have heard rival contentions and perused material placed before us. Solitary grievance of Revenue in this appeal is against deletion of disallowance made by Assessing Officer for Rs.74,69,846/- u/s 40(a)(ia) of Act for non-deduction of TDS on alleged sub-contract amount of Rs.74,69,846/-. 8. We observe that assessee being labour contractor has shown total contract receipt of Rs. 1,40,27,756/- and has claimed expenditure of Rs. 1,35,38,811/- which inter alia includes salary and wages, leave encashment, PF, bonus, service-tax and supervision expenses. Books of accounts are audited and GP & NP rates are marginally lower during year under appeal. issue emanated from fact that assessee has shown SB a/c jointly held with her daughter Sheetal B. Patel. During year amount of Rs.74,69,846/- was transferred to this S.B. a/c jointly held by assessee and her daughter and regular cash has been withdrawn. Assessing Officer has alleged that amount of Rs.74,69,846/- is ITA No. 2366/Ahd/2011 5 Asst. Year 2008-09 sub-contract charges subject to deduction of TDS and as there is no tax deducted at source by assessee it calls for disallowance u/s 40(a)(ia) of Act whereas on basis of material placed before lower authorities we are able to understand that assessee who is suffering from partial paralysis and finds it difficult to sign on cheques and withdraw money as and when required to pay to labourers towards wages etc. and also to bring down cost of banking transactions tax for withdrawing cash from current account thought it appropriate to route these transactions of withdrawing cash through this S.B account jointly held with her daughter. In this process she has to transfer some of contract receipts through account payee cheque from current account to S.B. a/c and then withdraw same as and when required to meet regular expenditure. 9. We further observe that ld. CIT(A) has deleted addition by thoroughly examining facts by observing as under :- 6. I have considered assessment order and submissions. following material observations are made on issue: a) disallowance u/s. 40(a)(ia) has been made without understanding law. When no expense has been claimed or allowed on any sub-contract, where is question of disallowance. What are expenses disallowed? b) AO himself has noted in assessment order at Priori that major expenses debited to the. P&L account included payments related to employees (Salary & Wages, PF Expenses etc.) and Service Tax Expenses. total expenses noted by him without any adverse comments or inference are Rs.1,35,38,811/-. total Contract Receipts shown by assessee are Rs.1,40,27,756/- (noted by AO at Pg.2.of assessment order). ITA No. 2366/Ahd/2011 6 Asst. Year 2008-09 c) If assessee has given sub-contract amounting to Rs.74,69,846/- as held by AO, then how expenses of Rs.1,35,38,811/- can be said to have been incurred on remaining contract of around Rs.65 lacs only. It is to be noted that service tax payments are debited in assessee's account and it is not AO's case that these did not pertain to her. PF has been deducted for employees whose salary and wages has been debited. When salary and wages are of assessee and so is PF deducted, how can it be said that work is done by somebody else. d) There is no doubt that assessee was not keeping well and there is valid reason for day to day transactions were routed through her daughter's account. assessee's reason given that it was to save cash transaction tax and cheques are got signed by assessee in advance, stands to reason on test of human probabilities and business practices. e) Even if there was no reason as above, just to enter transactions through account in other name would be immaterial to question. bank account in question has been shown in books of accounts and audited accounts as belonging to assessee. Just because account is in anybody's else name does not change this position. accounts in business are known to be operated by Managers, Agents etc, position would have been different only if account was undisclosed or transactions were not reflected in books of accounts. When all transactions therein are reflected in assessee's audited books of accounts, how it calls for adverse inference is beyond any logic. In totality of facts and circumstances,. disallowance u/s. 40(a)(ia) and subsequent addition In income is held to be bad in law as well as on facts of case; where no expense has been claimed or allowed on any sub-contract, accepted expenses on employees and service tax etc show that ail work was done by assessee, bank account in question has been shown in books of accounts and audited accounts as belonging to assessee and all transactions therein are reflected in assessee's audited books of accounts. addition so made to total income is directed to be deleted. 10. From going through findings of ld. CIT(A) and in light of facts discussed above, we find that this impugned amount of Rs.74,69,846/- cannot be termed as sub-contract amount because all transactions in this bank account have been passed through regular books which have been audited and effect of all these transactions are duly reflected in profit and loss account. Further ITA No. 2366/Ahd/2011 7 Asst. Year 2008-09 there is no major down fall in GP or NP rate. No adversity has been observed by Assessing Authority in expenditure claimed for year under appeal at Rs. 1,35,38,811/- and also due deduction has been made towards PF, in salary & wages and service tax is regularly deposited. We are, therefore, of view that impugned amount of Rs.74,69,846/- cannot be considered as sub-contract expenditure and certainly cannot call for disallowance u/s 40(a)(ia) of Act. We find no reason to interfere with order of ld. CIT(A). We uphold same and dismiss ground raised by Revenue. 11. Other grounds of appeal are of general nature, which need no adjudication. 12. In result, appeal filed by Revenue is dismissed. Order pronounced in open Court on 30th September, 2016 Sd/- sd/- (S. S. Godara) (Manish Borad) Judicial Member Accountant Member Dated 30/ 9 /2016 Mahata/- ITA No. 2366/Ahd/2011 8 Asst. Year 2008-09 Copy of order forwarded to: 1. Appellant 2. Respondent 3. CIT concerned 4. CIT(A) concerned 5. DR, ITAT, Ahmedabad 6. Guard File BY ORDER Asst. Registrar, ITAT, Ahmedabad 1. Date of dictation: 30/09/2016 2. Date on which typed draft is placed before Dictating Member: 30/09/2016 other Member: 3. Date on which approved draft comes to Sr. P. S./P.S.: 4. Date on which fair order is placed before Dictating Member for pronouncement: 5. Date on which fair order comes back to Sr. P.S./P.S.: 6. Date on which file goes to Bench Clerk: 30/9/16 7. Date on which file goes to Head Clerk: 8. date on which file goes to Assistant Registrar for signature on order: 9. Date of Despatch of Order: ITO, Wd-3, Mehsana v. Kapilaben Bharatbhai Patel