TMI Blog2014 (9) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... n but on an individual basis, the same would not exceed ₹ 50,000/- per person - the payments were made to casual labourers who were working for the appellant on daily wages - They were not regular employees of the assessee but worked under a direct supervision and control of the assessee - the CIT(A) was justified in holding that the provisions of section 40(a)(ia) will not be applicable in this case also - It is purely incidental that both Shri Nalawade and the assessee were road contractors - there was no justification for invoking the provisions of section 40(a)(ia) - order of CIT(A) needs no interference who has allowed the appeals of assessee by reasoned order – Decided against Revenue. Excessive labour charges added – Held that:- The assessee did not file an appeal against the decision of the CIT(A) for A.Y. 2002-03 - following the order of the CIT(A) delivered in the earlier assessment year, the claim of the assessee is restricted to 0.8% of the total expenses, which worked out to ₹ 2,12,045 - the assessee's counsel argued that the CIT(A) was not justified in confirming the adhoc disallowance of labour payment at ₹ 2,12,045/- @ 0.8% - The disallowance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above ground raised, any other grounds at the time of proceedings before the Hon ble Tribunal which may please be granted. 3. The assessee is engaged in the business of construction of road as contractor of Government and Semi-Government organizations. Search action under section 132 was conducted in this case on 23.09.2009. During course of search, incriminatory material was found regarding investment in properties, jewellary, etc. The assessee made declaration of ₹ 35.47 crores during search proceedings. The said undisclosed income declaration was duly acted upon by the assessee while filing return of income u/s.153A of the Act. The tax liability on the said undisclosed income was duly paid with interest. Consequent upon search action, assessment orders were passed u/s.153A r.w.s. 143(3) of the I.T. Act for A.Y. 2004-05 to 2009-10 and regular assessment u/s.143(3) was made in 2010-11 wherein certain additions were made to the total income. Aggrieved by the same, the matter was carried before the first appellate authority, wherein the addition of ₹ 50,39,900/- u/s. 40(a)(ia) of the Act on account of non deduction of TDS u/s.194C of the Act for A.Y. 2004-05 was ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48,525/- by observing that the assessee had contravened the provisions of section 194J by not deducting TDS on payment of ₹ 48,525/- being professional fee. Similarly, for A.Y. 2008-09 payments to C A Transport, Veer Hanuman Transport, Reliance Finance and Kotak Mahindra aggregating to ₹ 3,92,108/- was also disallowed for non-deduction of tax at source. Accordingly, the same was also added to the income in the assessment years under appeal as under. A.Y. Amount paid 2004-05 50,39,900/- 2005-06 39,42,690/- 2006-07 2,66,00,000/- 2007-08 3,64,76,525/- 2008-09 18,93,13,723/- 2009-10 10,18,73,515/- 2010-11 9,16,00,000/- 7. With regard to contravention of provisions of section 194C of the Act, the stand of the assessee has been that the addition made for assessment year 2004-05 was bad in law as sub-clauses (i)(ia) and (ib) of section 40 were substituted for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income or there is material which could reveal escapement of income. Additions could be made only if there is escapement of income in accordance with the principles enunciated for sections 147 and 148 of the Act. It was stated that the Assessing Officer has no power to re-examine an issue which is a concluded matter in an assessment earlier completed under section 143(3) of the Act. A change of opinion on the same set of facts is not permissible. Thus principles that are relevant for completing an assessment reopened u/s. 147 read with section 148 are equally applicable while framing an assessment u/s.153A. It was further submitted that in cases where transactions are disclosed in the regular books of account prior to search and no incriminating document has been found as a result of search then, those issues could not be tackled in an assessment contemplated u/s.153A of the Act. Similarly, it was contended that unless and until something was found on the basis of which an adverse inference could be drawn and the completed assessment should not be disturbed. Section 153A does not contemplate a de novo assessment. 8.2 In this background, the CIT(A) summarized the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 132A and the other is for completion of assessment of the assessment year relevant to the previous year in which the search is initiated under section 132 or any asset is requisitioned under section 132A. The person searched upon or whose assets have been is requisitioned is obliged to furnish the return of income in prescribed form, verified in the prescribed manner along with such other particulars as may be prescribed, and within such period as specified in the notice. Thereafter the assessing officer is bound to assess or reassess the income pertaining to these 6 years by virtue of the provisions of section 152A(1)(b). 8.5 Now the Income-tax Act does not prescribe for issue of notice under section 153A for the assessment year relevant to the previous year in which search was conducted under section 132 or assets was requisitioned under section 132A under the new provisions for completion of assessments in cases of search or requisition. This aspect marks a departure from the erstwhile special provisions contained in Chapter XIV-B for completion of assessments in search cases in as much as the concept of block period is done away with. In the earlier provisions contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not have any relevance in the new procedure for completion of assessments in cases of search or requisition. Thus, after the introduction of sections 153A, 153B and 153C, the assessing officer is bound to complete the assessment of income of the person who is searched or whose asset is requisitioned in respect of the 6 assessment years immediately preceding the assessment year relevant to previous year in which the search was conducted or asset was requisitioned. 8.6 In this case the relevant assessment year in respect of the previous year in which the search or requisition was carried out is 2007-2008. Assuming that the assessee has to get the accounts audited, the time limit for filing of return under section 139(1) would be 30-09-2007. This is for the reason, that notice under section 153A has to be compulsorily issued only in respect of the 6 assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made. Notice under section 153A cannot be issued in respect of this assessment year; the provisions for search or requisition assessments do not authorise this action. The assessee would have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. 8.8 In a nutshell, the issue raised in appeal could be summarized as under: (i) The assessing officer has the jurisdiction to assess or reassess in all abated proceedings. (ii) The assessing officer has the jurisdiction of assessment u/s 153A(1)(b) in all cases where no assessments are made, (cases covered by S. 143(1)) (iii) In other cases the assessing officer (a) Has the jurisdiction of assessment on all issues (which are not concluded earlier) on the basis of books of accounts or other documents found during search. (b) Has the jurisdiction to reassess in concluded matters on the basis of documents, assets, income found during the course of search but there cannot be a change of opinion. (iv) In other cases, it is not necessary that assessment should be completed on the basis of 'incriminating' material because this word is conspicuous by its absence in both section 153A or in section 132. 8.9 In view of the above, additions made under section 40(a)(i) for assessment years 2004-05, 2005-06 and 2006-07 i.e. the years in which the issue of payments to labourers without deducting tax at source was concluded in assessment proceedings under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 40(a)(ia) are not attracted in this case. The appellant has contended that the labour force in work of road construction comes from remote areas. Normally, as a group of persons from one family or one village work at site on a daily wage basis, they reside in temporary residences on site and their records are maintained by the site supervisors. The payment in respect of the labourers coming from such rembte areas is made to either the head of the family or the leader of the village. Only one voucher is signed and prepared which is in the name of the person who receives the money. Therefore, if the individual labourers are taken into consideration, the payment will never exceed ₹ 50,000/- in a year to each person. It was contended that payment of labour charges to these labourers is made through the gang leader or mukadam who makes the payment to the labourers of his gang. It was stated that the mukadam or the gang leader is also one of the labourers and payment is made through him merely for convenience. There is no contract for supply of labour either written or oral between the gang leader and the appellant. It was stressed that the relationship between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have together worked at various sites of the appellant on a daily wage basis. iii) A site record was maintained by the site supervisor and payments were largely made to the head of the family or a gangman who received money on behalf of several persons known to them being their family members or friends or relatives. iv) It would have been impractical for the appellant to prepare individual vouchers for several labourers. Since only one voucher was prepared, the payment appeared to have exceed ₹ 50,000/- for every person but on an individual basis, the same would not exceed ₹ 50,000/- per person. v) The payments were made to casual labourers who were working for the appellant on daily wages. They were not regular employees of the appellant but worked under a direct supervision and control of the appellant. 10.2 Under the facts and circumstances, the CIT(A) was justified in holding that the provisions of section 40(a)(ia) will not be applicable in this case also. It is purely incidental that both Shri Nalawade and the assessee were road contractors. Accordingly, there was no justification for invoking the provisions of section 40(a)(ia). In the light of abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.3 In appellate proceedings, on the disallowance made @ 3% (Rs. 7,99,511/-) in assessment year 2006-07, the appellant has pointed out that the issue was decided by the CIT(A), Kolhapur in its own case for assessment year 2006-07 vide appeal no. RTN/33/08-09 dated 22/08/2008, restricting the disallowance to 0.8%. 11.4 The CIT(A) having considered the submission made by the assessee and found that during the previous year relevant to assessment year 2007-08, the appellant had debited ₹ 3.75 crores under the head labour charges. The assessing officer, taking note of the fact that the appellant had offered additional income of ₹ 18.26 crores for the assessment year 2009-10 towards bogus labour charges. The fact that the entire expenditure was in cash and further since details like addresses, PAN, etc. were not furnished by the assessee, it was held that the appellant was unable to prove the genuineness of the labour expenses.-He accordingly disallowed 3% of the labour charges following the rationale in assessment for assessment year 2006-07. The assessing officer has made a remark that the labour creditors whose credits were written off for assessment year 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that out of the total contract work billed ₹ 3775.64 lakhs i.e. 46.59% was incurred in assessment year 2008- 09 and ₹ 1499.54 lakhs i.e. 25.58% during assessment year 2009- 10 towards labour charges. 11.6 The assessing officer did not appreciate the contentions putforth by the appellant. He was of the view that labour component out of combined billing being inseparable, these should have been estimated equally for assessment years 2008-09 and 2009-10. Accordingly, the Assessing Officer worked out the percentages of labour billing for assessment years 2008-09 and 2009-10 as under: A.Y. Total billing to PCMC Exclusive Labour Billing Combined billing Material billing Labour Component of combined billing @ 12.5% of C Total labour component % Total Labour billing to work billed (A) Lakhs (B) Lakhs (C) Lakhs (D) Lakhs (E) Lakhs (F) = B+E Lakhs (G) Fxloo-A 2008-09 8103.58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs. Therefore, the base figure taken for making the comparison in respect of labour charges itself was a wrong figure. Secondly, the assessing officer has not considered the fact that since the total turnover of a particular period was based on the certified bills, some part of the total turnover and labour bills would pertain to an earlier previous year. This was for the reason that all the bills submitted during the month of March were not certified on or before the 31st day of March of that financial year. Hence, some bills were split over to the next financial year although the work in respect of which was completed in an earlier financial year. Therefore, unless such bills were removed from the working, the correct percentage of labour charges to actual turnover for the year could never be found out. 11.8 The conclusion drawn by the Assessing Officer in paragraph 10.2.10 is that 46.59% of the total contract work was towards labour charges. This was also found incorrect by the CIT(A) because the actual figure of labour charges debited to the profit and loss account was ₹ 3239.19 lakhs Out of total turnover an amount of ₹ 8741.19 lakhs was billed to PCMC and the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts as a correct projection. 11.10 The CIT(A) observed that the Assessing Officer was drawn into adopting the labour charges @ 20% of turnover on account of a letter dated 27/10/2009 written by the appellant to the Investigation Wing. The assessing officer has quoted a portion of this letter as under - It may be noted that assessee submitted that labour component would be 15-17% of total turnover in its letter dated 27/10/2009. Even if the contention of the assessee that labour component would be more in the initial phase of contract, is considered, the labour component may be at the most 20% which matches with the working given at Para No. 10.2.12 supra . 11.11 Hence, the Assessing Officer was basing the addition for assessment year 2008-09 entirely on a 'commitment' made by the appellant to he Investigation Wing that the labour component 'would be around 15%-17% of the total turnover. A reference to this letter in the form of a quotation was made in paragraph 10.2.5 of the assessment order. During the appellate proceedings, it was stated on behalf of assessee that the conclusion drawn by the Assessing Officer that the appellant has admitted that labour comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores, as I am unable to produce the labourers to avoid further complication or obstacles in my future work, as undisclosed income on account of labour outstanding shown in the Balance Sheet for F.Y. 2008-09. Your honour is requested to take into consideration; all the possibilities narrated above accept an amount of ₹ 18,53,88,608.00 as Income on amount of outstanding labour charges. (Emphasis supplied by me) 11.12 This letter was along with the statement made by Shri Maruti L Mane under section 132(4) of the Income-tax Act on 21/10/2009. Shri Maruti L Mane is a partner in this firm. The relevant question is no. 10 and question and answer thereto is reproduced hereunder: Q 10 From the accounts of M/s MANISHA CONSTRUCTION CO., it is noticed that Labour charges of ₹ 28,24,50,000/- is outstanding as on 31.03.2009 out of which ₹ 1,02,69,516/- has been paid till date and thus ₹ 27,25,88,085/- is still outstanding. It is stated by you in your statement u/s 132(4) during the course of search action in the premises of Manisha Villa at Bharne Naka, Khed on 23.09.2009 vide reply to question No 16 and 18 that labour charges are paid off within 2 to 3 months. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2008-09 and not for the labour requirement of the entire period i.e. from the commencement of the work in earlier previous years. 11.14 Vide letter dated 17/12/2011, the appellant had stated that the outstanding balance as on 31/03/2008 i.e. relevant for the assessment year 2008-09 was ₹ 2438.83 lakhs which was fully paid during the financial year 2008-09. Similarly, the outstanding balance as on 31/03/2009 was ₹ 998.71 lakhs which was fully paid in the financial years 2009-10. In fact, in the assessment year 2010-11, no addition has been made on account of outstanding labour expenses and the contention of the appellant has been accepted. The contention of the appellant was that the contract of a road construction is split into two phases. Phase-I involves demolition of existing structures, earth work and other such work which require maximum involvement of labour ranging from 25% - 35% of the contract value. Phase-II involves actual laying of the road and finishing which require lesser involvement of labour ranging from 10% to 15% of the contract value. Accordingly, labour charges incurred during financial year 2007-08 relevant to assessment year 2008-09 is mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us or that it was intended to be acted upon. In view of this, the CIT(A) concluded that the list of creditors and the persons mentioned therein was accepted as genuine for the purposes of assessment and the admission of ₹ 1853.88 lakhs as their unaccounted income was made due to the inability of the appellant to produce the mukadams or gangmen for verification. Therefore, the whole issue boils down to whether labour charges of ₹ 3293.19 lakhs could have been incurred during the relevant previous year or not. 11.16 Phase-I of the road construction process involves the initial survey work, setting out of centre lines, determination of road width, excavation for road work, preparation and laying of embankment, preparation and laying of sub-grade, preparation and laying of gravel sub-grade. All these activities were carried out by skilled technical persons with the help of labourers. The work involving clearing the total road width, removal of obstacles, encroachments, filling up of potholes etc. were done with the help of labour only. The excavation for road work could be done with the help of excavators but more labour was required to do the same work for road construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated its inability to do so stating that details of labour employees are not maintained at site. In view of the inability of the appellant to reduce necessary supporting documents, the disallowance made by the A.O had been sustained in that year. The disallowance made in that year was ₹ 1,60,000/- out of total expenses of ₹ 2,01,09,200/-, which works out roughly 0.8%. The facts and circumstances being similar, I would follow my own decision in the appellant's case for the earlier year and uphold the disallowance in principle while directing the A.O to restrict the disallowance to the same percentage applied in the earlier year i.e., 0.8% which works out to ₹ 2,12,045/-. The balance disallowance made in the assessment is deleted. 4. It is an admitted position, that the assessee did not file an appeal against the aforesaid decision of the CIT(A) for A.Y. 2002-03. Hence, following the aforesaid appellate order of the CTT(A) for the year under consideration also, he restricted the claim of the assessee to 0.8% of the total expenses, which worked out to ₹ 2,12,045/-. Further aggrieved, the assessee is in appeal before us.5. During the proceedings, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer is directed to verify the head under which this income was offered for taxation in the assessment year 2007-08. If he finds that it pertains to the agreed addition of ₹ 5,83,000/- which has been held to be taxable in assessment year 2006-07 then, he shall delete the addition in assessment year 2007-08. This is for the reason that same income cannot be taxed twice in different assessment years. An income has to be taxed in the year in which it accrued and arises and not otherwise. This ground of appeal was treated as allowed for statistical purposes. 14. This reasoned finding of CIT(A) whereby he has restored the issue to the Assessing Officer with definite directions, needs no interference from our side. We uphold the same. 15. In the result, all these appeals filed by the Revenue are dismissed as discussed above. 16. In ITA Nos.1899 to 1901/PN/12 for A.Ys. 2008-09 to 2010-11 in the case of M/s. Om Construction Company, the revenue has filed the appeals on the following grounds. 1. Whether on the facts circumstances of the case law, the CIT(A) is justified in deleting the addition made on account of section 40(a)(ia) for A.Y. 2008-09 to 2010-11 as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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