TMI Blog2013 (9) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... st Revenue. Disallowance of Labour Charges - Whether the CIT(A) erred in deleting the addition of made by the A. O. on account of disallowance of part of the labour charges claimed by the assessee and directing to estimate the net profit at the rate of 8% of turnover and make suitable addition - Held that:- The assessee had maintained regular books of accounts and same were audited, that audit report u/s. 44ABwas filed, that the AO had not pointed out any specific defects, that he only stated that the bills were prepared on the last day without pointing out as to how he reached to that conclusion, that the reason for high percentage of labour charges was, that the the assessee had undertaken de-sludging and cleaning of drainage lines which was mainly labour oriented, that the AO could have only rejected the books of accou -nts and estimated 8% of the contract value as income from this business as per the provisions of section 44AD of the Act. As the AR of the assessee did not object to said estimation of 8% profit on the contract value in respect of M/s. Appollo so he directed the to rework the addition. If FAA had tried to restrict the disallowance on percentage method no fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... And Rajendra, JJ. For the Appellant : Shri Harigovind Singh For the Respondent : Shri Vijay C. Kothari ORDER Per Rajendra, A. M: Challenging the order dt. 23-02-2010 of the CIT(A)-35, Mumbai Assessing Officer(AO) has filed following Grounds of Appeal:- i)"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 43, 14, 000/- made by the A. O. on account of deemed dividend uls. 2(22)(e) of the l. T. Act, 1961" ii)"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 24, 30, 650/- made by the A. O. on account of disallowance of part of the labour charges claimed by the assessee and directing to estimate the net profit at the rate of 8% of turnover and make suitable addition. " iii)"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 83, 225/- made by the A. O. on account of deemed rent in respect of Vishwa Ganga Flat out of the total addition made of Rs. 1, 47, 7171-. " iv)"On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been executed on 10. 06. 2006 but was prepared on the stamp paper on 28. 12. 2005, that no entry of any resolution in this regard if any, passed by the company for such a big amount of MOU, had been produced for verification, that nowhere in the final accounts and the audit report of KSEPL reference of such MOU was found, that the auditor in column 24 of the Tax Audit Report had shown the amount received from KSEPL as loan and not as advance against the booking, that the claim of the assessee that amount of Rs. 26. 64 lacs was towards flat sold to the company (on 01. 06. 2006) was not correct, that the assessee had not filed full set of conveyance deed of the flat sold to KSEPL. Finally, he held that company possessed huge accumulated profit to the tune of Rs. 3, 00, 42, 563/-as on 31. 03. 2007 and the amount of advance at Rs. 43. 4 lacs received by the assessee from KSEPL was liable to be taxed in the hands of the assessee as deemed dividend. 2. 1. Assessee preferred an appeal before the First Appellate Authority(FAA). After considering the submissions of the assessee and the assessment order, he held that the transactions which were the subject matter of addition were availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to reject such unregistered agreement, that there was no necessity to enter the transactions pertaining to loan and lease of immoveable property in the register u/s. 301 of the Company Act, that the company had paid only advance to the assessee, that the sale did not conclude in the year under consideration, that there was no necessity to enter the said transaction in the register u/s. 301 of the Company Act. FAA referred to the copy of minutes of meeting of the Board of the Directors of KSEPL, dtd. 22. 5. 2006, in which the decision to purchase the premises was recorded. He held that a perusal of the minutes showed that the assessee had paid Rs. 18. 5lacs on various dates with the intention of purchasing commercial area of about 2250Sq. ft. for Rs. 1. 40 Crores which was to be paid within 6 months, that the company could not mobilise the required amount, that the amount was refunded back, that the agreement was entered on 10. 6. 2006, that company intimated the assessee by letter dt. 10. 1. 2007 that they could not funds for purchase of premises for Rs. 1, 40, 00, 000/-, that the assessee ultimately repaid the amount on 11. 01. 2007(Rs. 14, 50, 000/-) and on 19. 01. 2007(Rs. 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the FAA has dealt the issue about the provisions of Company-Act in detail and there is no legal infirmity in his order. He has taken note of minutes of meeting of KESPL. In these circumstances we are of the opinion that amount involved was a pure and simple business transaction-it was neither loan nor advance. Therefore, respectfully following the judgments relied upon by the FAA, we decide ground no. 1 against the AO 3. Next ground of appeal is about disallowance made under the head 'Labour Charges'. During the assessment proceedings, AO found that assessee had debited Rs. 1, 16, 52, 896/- under the head material transport and labour charges. He directed the assessee to file details of labour-charges- claim along with details of TDS made thereon and justification for allowability of the claim made by him. He found that out of total expenses an amount of Rs. 96, 22, 600/- was towards the direct labour charges and Rs. 19, 30, 296/- was towards sub-contract charges. On verification of the details, AO held that the assessee had claimed to have made payments to different parties, that all the payments had been made by way of cash, that it was not ascertainable as for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that AO had asked the assessee to produce only a few vouchers. 3. 3. We have heard the rival submission and perused the material available on record. We find that the assessee was showing GP @ for previous AYs, that in the year under consideration he got contract from the municipality for cleaning drainage and it was a basically labour oriented job. It is also a fact that AO has not pointed out any defect in the books of accounts maintained by the assessee. Though the AO has mentioned that vouchers were prepared on the last day of the accounting year, but it is not clear as how he arrived at that particular conclusion. In these circum -stances, if FAA has tried to restrict the disallowance on percentage method no fault can be found with his decision. No addition can be made by the AO on ad-hoc basis without relying on some documentary or oral evidences-for fastening tax liability to an assessee some kind of material is required proving that he had higher income than shown in the books of accounts. Suspicon, however strong, cannot take place of evidence. In the case under consideration AO had made addition only on suspcicion. Therefore, in our opinion, FAA had rightly deleted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the material available on record. We find that assessee had produced the agreement entered in to between him and the Sea Lord CHS for redevelopment(pg. 159of the PB). As per one of the condition of the agreement assessee had to provide alternate accommodation to the existing tenants or had to pay rent. In pursuance of the said agreement he allowed the tenants to stay in the Vishwa Ganga flat. FAA, has taken a note of the fact that there was an agreement and only after considering it he has decided the issue. In these circumstances, we do not any reason to disturb his findings. Confirming the order of the FAA, we decide Ground no. 3 against the AO. 5. The last ground of appeal is about deleting the addition of Rs. 1, 35, 950/- made by the AO on account of disallowance of part interest. During the assessment proceedings, AO found that he had shown interest payment at Rs. 1. 35 lacs against commission earned. He directed the assessee to file party wise details of interest paid and justification for allowability of such claim in view of specific provisions of section 36(1)(iii) r. w. s. 37 of the Act. Assessee filed party wise details of interest paid and the details of TDS ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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