TMI Blog2012 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... Treating Foreign expenses as bogus – AO contended that it does not have any relation with the business need – Held that:- As the assessee furnished break-up details of local and foreign traveling of the partners. No family members accompanied the partners and that by itself is sufficient to show that the expenditures are for business purpose. Visits to foreign country were made to know for its high standard urban infrastructure like Hong Kong, Malaysia which led to increase of knowledge of recent technology in construction business. Further, the machinery was purchased from abroad in the later years. Therefore, same cannot be treated as bogus. Appeal decides in favour of assessee - ITA No.375/Mum/2009 - - - Dated:- 13-7-2012 - SHRI G.E.VEERABHADRAPPA AND SHRI B.R.MITTAL, JJ. Appellant by : Shri P.K.B.Menon Respondent by: Shri Hari Raheja ORDER Per B.R.Mittal, JM: The department has filed this appeal for assessment year 2005-06 against order dated 3.11.2008 of ld CIT(A), Mumbai on the following grounds: 1) On the facts and in the circumstances of the case and in law, ld CIT(A) erred in holding that the conditions for invoking the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers and also recorded statement of accountant Ms Stella Monteiro. During the course of her statement, she explained that the vouchers were prepared at the site by the Site Engineers and, thereafter, the same were sent to office for accounting. The AO has stated that on analysis of impounded vouchers, the vouchers impounded amounted to Rs.4,10,68,225 as against the claim of Rs.7,46,83,620 under the head labour charges . The AO stated that there was shortfall of Rs.3,36,14,795 and concluded that the vouchers for the said amount did not exist. Hence, the expenditure was inflated to that extent. The AO further stated that on examination of the impounded vouchers, there was defects such as not being numbered, signed, having addresses, etc. The AO concluded that the same were fabricated. The AO also asked the assessee to produce all the persons to whom labour expenses were made. The assessee produced 9 persons out of 15 contractors for examination, details given at page 7 of the assessment order. The AO recorded the statement of one of the contractor namely Mr Somanan Goud Nanagoud Kotikhani, details given at pages 8 to 10 of the assessment order. He confirmed to have done work with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have merit because that person engaged casual labourers and they were required to be paid cash only as they do not have bank accounts. It was contended that assessee had undertaken work at various sites and engaged labour from contractors wherever possible. The Site Engineers employed a lot of local casual unskilled labour at site. The casual labourers are poor people who worked on daily basis and collect their labour charges in cash at the end of the day. On behalf of assessee, it was contended that 9 contractors appeared before the AO and confirmed that they had supplied labour to the assessee for various sites and, therefore, casting aspersions by rejecting books of account without bringing any specific material on record to show that the books of account are not reliable or they do not show the real profit of the assessee is not justified. It was also contended that the AO also estimated the income of the assessee by not accepting genuineness of traveling expenditure that the assessee furnished details of local and foreign traveling of the partners. It was contended that no family members accompanied the partners and that by itself is sufficient to show that the expenditures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contractors who have been paid by cheque and so do not require any signature. The Labour Contractor in turn has paid the same to the labourers and failed to obtain signature. The balance 56 vouchers where there is no signature, the total value is of Rs.1,04,1071- only. This figure in percentage terms constitute O.75% of the total cash payments made through vouchers amounting to Rs.1.38 Cr. It is less than even 1 % and it is quite possible in human probability not to obtain signature of illiterate labourers on various sites on account of various reasons. The appellant has prepared voucher for the same but it has failed to obtain the signature. The amount is minor and in consequential if one 4ooks at the totality of the facts and circumstances in this case. 4.5. The AO has questioned the genuineness of labour payments made through cash vouchers. He has highlighted certain deficiencies in the cash vouchers examined by him or his Inspector. The rejoinder to these discrepancies has been given by the appellant and figures at Para 3.6, Page-7 of this appellate order. The reason why the vouchers do not bear any address or signed is; (a) They are casual labourers who come to site in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... migrants from other States who may have come in the commercial capital for livelihood. The whole issue has to be examined in totality and minor inconsequential discrepancies can not lead to rejection of audited books of accounts. It is not fair and reasonable to resort to nitpicking involving labour payments vouchers and jumping to the conclusion that it has been inflated as has been done in this case. 4.6. It is further observed that the AO had asked the appellant to produce some of the contractors on 19.12.2007 and within the span of three days i.e. on 22.12.2007, 9 contractors were produced. These contractors confirmed that they had supplied labour to the appellant at various sites, their bank statements and proof of being assessed to income-tax. The AO, however vide order sheet entry dated 22.12.2007 directed to produce the rest of the contractors for examination on 26.12.2007 25th being Christmas and a holiday) which could not be complied with the order was passed on 28.12.2007. The AO has recorded the statement of one labour contractor by the name Somana Goud Nanagoud Kotikhani and impeached his independent credentials as he had worked with the appellant prior to venturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been examined by me. The AO could have disallowed certain percentage of foreign travel expenditure if he felt that it had a personal element in it. But to make this as one of the grounds to reject the books of accounts is too far fetched. Disallowance out of such expenses are made regularly and routinely by the AOs but they cannot be taken as one of the sufficient grounds to reject the audited books. In this case the fact that the partner has made the visits on its own without any family member strengthen its case for having incurred wholly and exclusively for the business. In any case it can not be part of the reason for invoking Sec. 145(3) (wrongly mentioned 145(2) by the AC) of the I.T.Act, 1961. 4.8. The AO has invoked Sec. 145(2)[it should be 145(3)] on the above mentioned grounds which are therefore held to be inadequate. It has further gone to take 12% as rate to estimate its income. The basis on which this rate has been identified has not been mentioned. No comparable case has been brought on record to establish this 12% rate is a reasonable and fair one. Even under presumptive rate of taxation meant for small contractors having less than Rs. 40 lakhs of turnover who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractors amounting to Rs 3,63,26,326/- were produced before the AC and the same were verified by the Inspector of the AO. He submitted that out of total labour expenses of Rs. 7,46,83,620/-, cash payment is Rs.1,38,84,260 and the balance payments of Rs. 6,07,97,225/- were by cheques only. He submitted that the Assessing Officer asked the assessee to produce the contractors and the assessee produced 9 contractors alongwith their bank statements and proof being assessed to tax. He submitted that AO has doubted the payments to one of the contractors Shri Somana Goud Nanagoud Kotikhian merely because he had worked with the assessee prior to starting independent labour supplies. Ld A.R. further submitted that in respect of vouchers produced before the AO and impounded by him, the total number of vouchers where there is no signature or there was some defects were only 65. He submitted that out of those 9 vouchers are supported by bills and labour contractors who were paid by cheques and the balance 56 vouchers were of the total value of Rs.1,04,107/- only which could not be assumed as a mode to inflate expenses. Ld A.R. further submitted that the casual workers do not have any address an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net profit declared by the assessee for the assessment year under consideration is highest. We observe that ld CIT(A) has also taken into account the above aspect and considering the same, he has stated that AO has failed to notice all the vouchers have a noting of the site and this itself is the entry in the Debit Column and all vouchers are marked after they are entered in the accounting package and hence there was no need to number them separately. We observe that the assessee has furnished explanation in respect of deficiencies pointed out by the AO in respect of vouchers maintained by the assessee and the explanation furnished by the assessee is satisfactory. We agree with ld CIT(A) that issue of discrepancy in the vouchers as pointed out by the AO is inconsequential if the same is considered in totality and, accordingly, we agree with ld CIT(A) that rejection of audited books of account on the above details given by AO is not justifiable. We observe that one of the reasons given by AO for rejecting the books of account is the traveling expenditure debited by the assessee. We observe that the assessee gave the details of the expenditure incurred, break-up of which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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