Tax Authorities acting as handwriting experts holding wage register fabricated. ITAT quashed the disallowance based on probability of forged signatures
ABCAUS Case Law Citation:
ABCAUS 2532 (2018) 09 ITAT
The assessee was a manufacturing footwear.
During the assessment proceedings, it was observed by the AO that the salary / wage sheet register produced by the assessee did not have the complete addresses of the employees and the PF number mentioned against them was also not genuine.
It was also noticed that receiving of salary / wages by the karigars in the salary sheet had been signed with the same ink throughout the year. Besides, the hand writing was found identical for different persons. Moreover, the signature of same person varied from month to month.
The assessee in a written reply submitted that the karigars were residing in dirty Bastis in very pitiable conditions and resided in Group, had no house number and gave their address with name of the locality only. That PF and ESI was not deductable on the salary of the karigars workers was above Rs. 15,000.00 per month during the relevant period. Regarding the hand writing of signatures on the wages payment register, it was submitted that they were done by the persons who have received the salary. These persons used to come in group from particular locality and they had great intimacy and relations between them and sometimes one person of their group would sign the payments to them.
The AO did not accept the above explanation offered by the assessee and he asked the assessee to produce the employees/karigars and to file their complete names and addresse
The assessee again reiterated that Karigars resided at small Bastis. They were temporary labour and not permanent labour and used to shift from factory to factory wherever they got wages/ salary according to their demand. Their complete addresses were never provided by them to the assessee nor they provide any ID proof to the assessee and in fact assessee also did not need any address of these persons because they were monthly workers and get the wages according to the time given by them for the factory for production and assessee also did not normally never provide advance to them.
The AO held the register maintained by the assessee to be fabricated and made disallowance to the extent of 75% of the total expenses claimed
The CIT(A) examined the production register as well as the electricity expenses bills pertaining to the unit. The CIT(A) also took note of survey report of the Commercial Tax department and intimation by the assessee to the Central Excise department as regards the production of footwear in the unit. partly deleted the disallowance.
CIT(A) concluded that the assessee had actually run and operated its manufacturing operations from the unit during the second half of the impugned year.
However he restricted the disallowance to the total of payments made by the assessee to six karigars observing that their signatures were in all probability, forged.
Both the Assessee and Revenue were in appeal before Tribunal.
The Tribunal observed that the disallowance was based entirely on conjectures and surmises. Both the Authorities below had acted as experts in the field of handwriting analysis in holding the register/part thereof to be fabricated, without calling for the report of a hand writing expert, which is impermissible in law.
The Tribunal opined that a Taxing Authority cannot bring in his own conjectural opinion in a specialized field such as hand writing, or graphology, where the report of a specialist is of immense importance and determinative of the authenticity of the handwriting. Both the Authorities below having concurrently not sought such a report, this lacuna could not now be allowed to be filled in.
The Tribunal pointed out that even the estimate arrived at by the AO had no basis in the assessment order. The CIT(A) too, was not sure of herself, when she observed that the signatures of the six karigars were, ‘in all probability forged’.
The Tribunal disallowed made is deleted in toto. The appeal filed by the Department was dismissed, whereas the cross appeal filed by the assessee was allowed.