TMI Blog2011 (8) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had executed work mainly for the following three companies from whom he had received contract receipts: 1. R.R.Industries Rs.20,04,142/- 2. Rishab Info Park Rs.1,59,24,264/- 3. Rishab Engineering Rs.5,70,814/- 3. During the accounting year relevant to assessment year 2006- 07, the assessee also debited various expenses like, payment of accounting charges, etc. According to the Assessing Officer, the assessee had to deduction tax at source u/s 194J of the Act before making the payment to the payee. Since the assessee has not deducted tax at source, the accounting charges paid were disallowed u/s 40(a)(ia) of the Act. It was also observed that the assessee had made payments to various parties, for the purchase of materials. The assessee has made these payments in cash which has attracted provisions of section 40A(3), hence, the Assessing Officer has disallowed 20% of the same as under: Shri Mulaivendan 4.3.2006 Rs.20,787 Sultan Hardware Corpn 6.3.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rejected without making enquiry about the genuiness of the claim - Khantelwal Constructions V.CIT 227 ITR 900(Gau.). The conduct of the authorities in rejecting the explanation sitting in the arm chair is against the principle of natural justice. 3.3 The Ld ACITI CIT [A] ought to have taken note of various judgments of the Courts that once the identity of the creditors are established it is for the Department to disprove it. 4. For the above and further submissions to be made at the time of hearing the appeal may be allowed. 6. We have considered the rival submissions and the entire evidence available on record. We have also gone through the written submission filed before us. After circumspecting the entire record and the oral submissions of the parties, we have noticed that the assessee is a contractor and labour provider turned Civil Contractor. The Assessing Officer, in scrutiny assessment for assessment year 2006-07 has disallowed and added the following amounts to determine the income of Rs.22,36,816/- as against the returned income of Rs.7,18,036/-: (a) Disallowance u/s 40(a)(ia) for non-deduction of tax at source u/s 194J on payment of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on subsequent days. The ld.AR has invited our attention to the dates of taking hand loans. It was argued that confirmation letters from these hand-loaners were produced before the Assessing Officer, but he has refused to take these on record due to paucity of time available to verify. On the other hand, the ld.DR argued that the amounts credited in the books maintained shows that the assessee had squared up the accounts in that year itself and thus do not appear as creditors or debtors in the Balance Sheet. It was argued that the assessee s statement that they are his friends and have lent money when he need it was not a satisfactory one and hence, the addition made u/s 68 is justified. 11. After considering the rival submissions, we have found that the assessee had taken the entire amount from six different persons on 68 occasions whose details are verily found at pages 8 to 13 of the ld. CIT(A) s order. The assessee also filed confirmation letters from these hand-loaners which were also produced before the Assessing Officer which he did not place on record due to paucity of time. This fact was not denied from Revenue s side. In our opinion, the reasoning for disallowance as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the responsibility of getting the documentary proof by giving the least trouble to the creditors and in this case it was only to call them before the Notary Public so that whatever statement was given in the affidavits after reading the same which the Notary Public would explain to them they would sign thereon and the same is certified and becomes a sworn statement of the deponent. So, there is no harm in such an action done by the assessee. Rather it is a reality of life which cannot be ignored. When the parties have accepted their giving loans and also explained the source thereof or otherwise when the amounts are very small, but have accumulated in a huge amount, nobody else but the Assessing Officer has a duty to enquire into this aspect beyond that stage. But the Assessing Officer has not even asked the assessee to call for the creditors nor he has summoned them directly for which he has got the power particularly when the credits were squared up years back and no further amounts were borrowed from these parties, this people may not even come forward to give the affidavits and to land themselves into any trouble with the Revenue authorities. The assessee has claimed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect as the same is not covered u/s 194J. The ld. CIT(A) has failed to appreciate that section 194J covers only professionally qualified accountants, therefore, this addition is also based on illogical finding. The Assessing Officer has noticed that the assessee had debited various expenses and one of such items of expense related to payment of accounting charges. It was the opinion of the Assessing Officer that the assessee ought to have deducted tax at source u/s 194J before making the payment to the payee. Since the assessee has failed to deduct tax at source, addition was made u/s 40(a)(ia). The explanation of the assessee is that section 40(a)(ia) was introduced during this assessment year and the assessee was under the bonafide mistaken impression that the said section will be applicable from the next assessment year. The payee who is the assessee had admitted this amount as his income and paid tax thereon so, there is no loss to Revenue. Section 40(a)(ia) was inserted by Taxation Laws(Amendment) Act, 2006, with effect from 1.4.2006, which says that any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come returned while making the assessment. A part of the tax demanded as a result of the additions has already been paid by me. 16. In reply to the queries raised, the assessee replied vide letter dated 18.6.2009 as under: The work I undertook was supply of labour for construction of IT building and the project, as any IT project, was a time bound one. To complete the project on time, extra labour force had to be mobilised. When the project was not up to the budgeted level at a particular time, I had to mobilise at short notice of time, additional work force for which the payment had to be arranged immediately. Hence, the labour payments could not be predicted in advance. The projects were such that the labour force would be working overtime to finish the work on time. The workers were not permanently employed and the number of workers would vary according to the requirements of the project. Hence the labour payments could not be planned in advance ..... As explained above, additional work force was arranged at a very short notice for which the payments had to be made immediately. Hence some of the loans were obtained on week days also. Myself and the lenders have ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, it was noticed that the assessee has taken loans aggregating to Rs.20,000/- or more otherwise than by an account payee cheque or account payee bank draft in contravention to section 269SS. Explanation of the assessee in this regard is as under: I am a contractor and my main business is supply for civil construction works. Initially I was only a labour supervisor. On seeing my sincere works, I was awarded labour contracts by my clients. But I have no resources to finance my business hence my friends and relatives came forward to help me. Though labour contracts require no huge capital, weekly payments were to be made on Saturdays for that particular week. Sometimes, I could not meet the entire commitment for that particular work. Being Saturday evening, there would not be bank facility. Payments to labourers could not be postponed. Hence, I used to borrow money from my friends and relatives. Thus, the amounts borrowed were for urgent business requirements and at the time when there was no bank facility. I was unable to get any bank loan for my business since the nature of business was only labour oriented and I have no proper security to offer. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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