Gujarat High Court
Yagnesh V Budh vs The Income Tax Officer, Ward 1(3) on 2 July, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/172/2008 ORDER DATED: 02/07/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 172 of 2008
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YAGNESH V BUDH
Versus
THE INCOME TAX OFFICER, WARD 1(3)
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Appearance:
DARSHAN R PATEL(8486) for the Appellant(s) No. 1
KARAN G SANGHANI(7945) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 02/07/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Darshan R. Patel for the appellant and learned Senior Standing Counsel Mr. Karan G. Sanghani for the respondent.
2. By this appeal under section 260A of the Income Tax Act, 1961 (For short "the Act"), the appellant-assessee has challenged judgment and order dated Page 1 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined 11.04.2007 passed by Income Tax Appellate Tribunal, Rajkot Bench, Rajkot (For short "the Tribunal") in Income Tax Appeal No.829/RJT/2004 for Assessment Year 2001- 2002.
3. This Tax Appeal was admitted vide order dated 31.01.2008 for consideration of following substantial question of law:
"Whether on the facts and in the circumstances of the case the Tribunal is right in law in restoring the addition of Rs.10,81,248/- made under Section 69C on account of payments made to labourers?"
4. Brief facts of the case are that the appellant is an individual and is engaged in the business of supply of labourers on contract basis.
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5. For the Assessment Year 2001-2002, the return of income declaring total income of Rs.2,08,550/- was filed on 03.10.2001.
6. The assessment order dated 31.03.2004 under section 143(3) of the Act was passed determining total income of Rs.13,49,940/-. Apart from disallowance out of telephone, petrol, donation etc., the Assessing Officer also disallowed Rs.10,81,248/- by way of unexplained payments made to the labourers and Rs.24,000/- on account of low household expenses.
7. Being aggrieved, the appellant assessee preferred an appeal before the CIT(Appeals) who by order dated 19.08.2004 deleted the addition of Rs.10,81,248/- for Page 3 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined unexplained payment under section 69C of the Act by observing as under:
"4. I have carefully considered the submissions made. There is no doubt that the labour charges have been shown as unpaid in the books of accounts and outstanding in the balance sheet. However, it is also clear that the sufficient cash balance was available with the appellant right from Oct 2000 to Mar
01. This is a situation where the facts stated by the appellant in the statement contradictory to the position revealed by books of accounts. In this situation the AO has believed the facts stated by the appellant as correct that about 80% of the payment to the labour was made prior to Mar 01, & therefore accepts the fact that the books of account do not reflect the correct To position. this extent there is no problem. Now having accepted the facts of payment prior to Mar 01, the AO says that it was made from undisclosed sources and, therefore, the relevant amount has to be added to the income. It is this finding of the AO which does not appear to be very logical and correct. This is because once he admits that the picture reflected by balance sheet is not correct how can he give a finding which is again based on the said balance sheet. The appellant had sufficient cash balance available with him as per books of account right from Oct 2000 to Mar Page 4 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined
01. Therefore obviously the payment to labour would have been made from the said cash. I labour payment was made from some other source what was the need to withdraw & keep huge cash balance? The position reflected by b/s that huge cash was available with appellant does not seem to be correct according to facts and circumstances. The appellant was not having very big business (having gross receipts of Rs less than 40,00,000) & can not afford (&also does not need to) maintain huge cash balance. Only he was accounting not having and did knowledge any understand not of the importance of making proper timely entries in the books of account about the real cash transactions. Since he made adhoc advance payments to labour he though that the entry in books will be passed only when the final payment is made. In any case if the appellant was having any dishonest intention he could have very easily mislead the AO by sticking to the correctness of books of accounts. However, because of his honesty he admitted the correct facts before the AO and stated that major part of the payment was already made. The appellant never said that the payment was made from some other source & not from the cash available in books. Contrary to the entries in the books of accounts, if the payment to labour had not been made from undisclosed sources, the appellant would never have given this kind of reply. Therefore, I am Page 5 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined of the considered opinion that the payments made 31/3/01 to cannot be said undisclosed sources.
5. Having decided the issue in principle, now I examine as to whether entire addition can be deleted? Although the cash balance available in books on some days was less than the amount added as unexplained payment, the same also cannot lead to the conclusion that the payment was made from undisclosed sources because even the amount of addition has been worked out only on estimate basis. The appellant had stated that about 80% of payment was already made but he did not mean that exactly 80% payment had been made. It could have been 75% or 85%. In substance, major part of the payment was stated to be made before Mar 01 for which cash was sufficiently available with the appellant. In view of this what ever part of payment made is treated to be made before 31/3/01 the same stands explained by cash balance in books & cannot be treated as having been made from undisclosed sources. Accordingly the entire addition of Rs 10,81,248 is deleted."
8. Being aggrieved, the appellant preferred an appeal before the Tribunal. The Tribunal after considering the aforesaid findings arrived at by the Page 6 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined CIT(Appeals) restored the addition made by the Assessing Officer by observing as under:
"6. We have carefully considered the rival submissions, and perused the material on record and have also gone through the orders of the tax authorities as well as balance sheet which was submitted along with the appeal by the Revenue. We noted that in the balance sheet cash in hand of Rs. 1073280/- has been shown. We also noted the assessee has shown current liabilities which included labour charges Rs.13,51,560/-. In our opinion, the onus is on the assessee to prove that he made the payment during the year. The assessee has filed the balance sheet duly audited by Chartered Accountant along with the return. Subsequently when the AO raised query to the assessee during the course of assessment about the outstanding labour payments, reply to question the assessee Nos.21 confessed in and 22 in the statement recorded u/s 131 that he made 80% of the labour charges payment in cash during the period October, 2000 to March, 2001 and it is only 20% amount was outstanding. This is also an admitted fact that the assessee Page 7 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined has not made any entry in respect of payment made to the labourers. Thus, the only inference could be that the payment has been made to the labourers by the assessee out of undisclosed sources, although the ld. AR during the course of hearing filed copy of the revised balance sheet but he was fair enough to concede that the copy of the revised balance sheet was not before the authorities assessment below during the course proceedings. of This fact is also apparent from the date when the balance sheet was compiled by the Chartered Accountants which is dated 19-08-2004 while the assessment has been completed by the AO on 31-3-2004. Even no evidence has been submitted that the copy of the revised balance sheet has been filed before the CIT (A) as the appeal has been concluded before the CIT (A) on 19-08-2004 itself. We have gone through the order of the CIT(A). The CIT(A), in our opinion, has simply deleted the addition ignoring the admitted facts that the payment has been made by the assessee was not recorded by the assessee prior to 31-03-2001. Even by submitted sheet balance the the assessee does not represent the true and fair view if the assessee has made the payment to the outstanding labourers but passed Page 8 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined the entry subsequent to 31st March because in that case the cash in hand shown in the balance sheet will overstated stand the while current liabilities towards the labour charges would also stand overstated. We also noted that the assessee could not be able to give the list of the parties to whom the labour charges were payable. The assessee even did not submit the proof for the payment being made to the labourers, neither before the authorities below nor before us. We, therefore, set- aside the order of the CIT(A) and restore the order of the AO on this issue."
9. Learned advocate Mr. Darshan Patel for the appellant submitted that the Tribunal has failed to consider the findings arrived at by the CIT(Appeals) to the effect that the entire addition under section 69C of the Act is made on the basis of the statement of the appellant during the course of the assessment proceedings and therefore, the findings of Page 9 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined the Assessing Officer is not logical or correct because the amount alleged to have been paid by the appellant about 80% of the outstanding at the end of the year shown in the audited balance sheet prior to March, 2001 do not reflect the correct position as there is sufficient cash balance shown at the end of the year on 31.03.2001.
10. Learned advocate Mr. Patel invited the attention of the Court to the audited balance sheet at page 99 of the paper book reflecting the cash balance of 10,73,280.26. It was therefore, submitted that when there is sufficient cash balance reflected in the books of account, there was no question of making any payment out of the undisclosed income by the Page 10 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025 NEUTRAL CITATION C/TAXAP/172/2008 ORDER DATED: 02/07/2025 undefined appellant. It was further submitted that the Tribunal has further failed to take into consideration the fact that the Assessing Officer has made disallowance only on the basis of the assumption relying upon the statement of the appellant and without there being any corroborative evidence, no addition could have been made by the Tribunal as no labour payment is made out of the cash balance available in the books of account and only defect was that the entries in respect of payments were not reflected in the books of accounts of the assessee which were passed subsequently in the month of April, 2001. Hence the error in passing the books of entry could not have constitute the income of the appellant. Page 11 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025
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11. At this stage, learned advocate Mr. Darshan R. Patel under instructions seeks permission to withdraw this appeal.
12. Considering such request, we decline to answer the question of law arising in this Tax Appeal and accordingly, the Tax appeal stands dismissed as withdrawn.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) RAGHUNATH R NAIR Page 12 of 12 Uploaded by RAGHUNATH R NAIR(HC00196) on Fri Jul 04 2025 Downloaded on : Sat Jul 05 01:47:54 IST 2025