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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
