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Assistant Commissioner of Income Tax, Income Tax Officer Versus Square One

2016 (1) TMI 1031 - ITAT MUMBAI

Disallowance of wages - CIT(A) allowed relief to assessee - Held that:- The assessee has given a reasonable and plausible explanation that the assessee is a civil contractor and hires worker who are mostly illiterate and cannot sign and instead use their thumb impressions and wage register was duly audited by the auditors who have not pointed out any defect or deficiency in the wage register. The AO has also not also specified any authority of law whereby it is mandatory in India on the part of .....

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n the maintenance of records but that is not sufficient to disallow the claim of expenses of the assessee. Nor is the case of the revenue that these expenses are bogus or fictitious and have never been incurred or paid by the assessee. Thus, we are of considered view keeping in view the facts and circumstances of the case, that ad-hoc disallowance being 15% of the wages made by the AO cannot be sustained and we are not inclined to interfere with the orders of the CIT(A). - Decided against revenu .....

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djudicated the appeal of the assessee on merits after considering the replies, documents and evidences furnished by the assessee till 16-12-2011. We found no infirmity in the orders of the CIT(A) which we uphold - Decided against revenue - ITA No. 3235, 3234/Mum/2012 - Dated:- 4-1-2016 - Saktijit Dey, JM And Ramit Kochar, AM For the Appellant : Shri Rakesh Ranjan, DR For the Respondent : None ORDER Per Ramit Kochar, Accountant Member I.T.A. No. 3235/Mum/2012(Assessment Year:2008-09) This is an .....

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in this appeal with respect to relief given by the CIT(A) with respect to disallowance of wages of ₹ 14,14,705/- to the assessee on the ground of ad-hoc disallowance of 15% of total wages paid of ₹ 94,31,368/-. 4. The assessee has paid total wages of ₹ 94,31,368/- during the previous year. The learned assessing officer (Hereinafter called "the AO") asked the assessee to produce the wages register. From the wages register it was observed by the AO that most of the pay .....

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fit ratio of 19.2% shown by the assessee is low as compared to normal gross profit ratio in this line of business. Therefore, 15% the total wages paid i.e. ₹ 14,14,705/- was dis-allowed by the AO for want of proper check and verification and added to the total income of the assessee vide assessment orders dated 24/12/2010 passed u/s 143(3) of the Act. 5. Aggrieved by the assessment orders dated 24/12/2010 passed u/s 143(3) of the Act by the AO, the assessee filed the first appeal before th .....

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e learned AC has failed to point out the exact figures where there were no proper stamps. Thus it is a Vague Statement without any substantiation and therefore needs to be ignored Your appellant further appreciates that the impugned project of Constructing I. T. park buildings at Hyderabad were subject to so many permissions, approvals and inspections. One cannot expect the regularity and consistency in getting such permissions, approvals etc. This leads to inconsistency in Volume of work done e .....

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by the Contractors on Builders/Developers depending upon the stage of work completed and duly certified by the Architects/Engineers of the Builders/Developers. Following this practice consistently, your appellant cannot raise bills for every work done at the site, but he has to wait till the prescribed stage of construction is completed to raise the bill. Hence such correlation is redundant. Your appellant has disclosed Gross Profit Ratio of 19.2% (Profit & Loss A/c attached, Annexure-A). H .....

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3). No irregularities were found by the learned AC during the verification process. The Ad hoc disallowance of ₹ 14,14,705 @ 15% of Total Wages of ₹ 94,31.368/- is purely based on surmises and conjecture and not substantiated by any authentic evidence. To substantiate the above, the Ld. A.R. relied upon the following judicial pronouncements. Appellate order No. CIT(A)C-1-AP/411/07-08 dated 31/12/2008 in case of M/s Rushi Housecon Pvt. Ltd. which has been upheld by the H'ble ITAT, .....

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ITR 266 (P&H) held that small expenditure cannot be disallowed on the ground that they are not fully vouched. The Indore Bench of Appellate Tribunal in the case of Beta Naphthol Pvt Ltd. v. DCIT (1994) 50TT J 375 (Ind) has held that no disallowance should be made for conveyance expenditures for the want of evidences as it is not possible to support every item of expenditure with proof. Similarly Jaipur Bench ITAT in the case of Raj Enterprises v. ITO (1995) 51 TTJ 408 (Jp) has held that ad h .....

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cogent reasons. The CIT(A) held that the said disallowance by the AO cannot be sustained. The CIT(A) further held that the AO has failed to appreciate that the accounts of the assessee are audited and no defect is pointed by the auditors and hence the CIT(A) deleted the ad hoc disallowance on the basis that no cogent reasons has been stated by the AO for disallowance vide orders dated 27-02-2012. 7. Aggrieved by the orders of the CIT(A) dated 27-02-2012, the Revenue is in appeal before the Trib .....

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tion by disallowing wages @15%, amounting to ₹ 14,14,705/-. 8. None appeared on behalf of the assessee when the appeal was called for hearing. We have observed that opportunities were earlier given to the assessee since 2013 and the assessee has not appeared despite service of notice and hence we are proceeding with the appeal on merits after perusing the material on record and after hearing ld. DR. 9. We have observed that the assessee is engaged in the business of Civil Construction as C .....

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ssee but has rather brought out some generalized technical deficiencies in the wage records maintained by the assessee but has not pointed out any specific defects. The AO has not pointed out specific defects in the wage register rather he chose to make adhoc disallowance based on general and technical deficiencies in the wage register. The books of accounts of the assessee were duly audited by the auditors and no defects were pointed by the auditors. The AO has also not rejected books of accoun .....

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signatures of the payee's in the receipts/ vouchers instead of thumb impressions and taking of thumb impressions of the payee will invalidate or lead to inadmissibility/ rejection of the documents under prevailing laws in India nor the AO has brought any authority under Act that if revenue stamp is not affixed on cash payments exceeding the prescribed limit under law, will lead to disallowance of the said expenses under the Act. No doubt, this could be deficiency in the maintenance of record .....

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No. 3234/Mum/2012(Assessment Year:2009-10):- 10. This appeal filed by the Revenue is directed against the Order by the learned Commissioner of Income Tax (Appeals)-35, Mumbai ('CIT(A)' for short) dated 27.02.2012. 11. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Tribunal are as under: "(i) "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made by the A.O. on account of subcontract ch .....

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y the A.O. out of salary and bonus expenses without appreciating the fact that the assessee did not submit the details of above expenses during assessment proceedings without which necessary verification could not be carried out in the assessee's case." (iii) "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the above addition on the basis of fresh evidence produced/submitted before him and thereby did not follow the provisions of Rule 4 .....

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urnished during the assessment proceedings. (v) "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that deduction of TDS from transportation charges and submission of party-wise details of transportation charges are sufficient compliance of the detailed query raised by the A.O. when no detail as per specific queries of the A.O. (asking for address, TDS deduction detail etc. so that verification can be made) were furnished during the assessment pro .....

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ces of the case and in law, the ld. CIT(A) erred in holding that details of salary and bonus were furnished during the assessment proceedings and all salary payments effected by cheques when no such details were actually furnished during the assessment proceedings and all salary payments effected by cheques when no details as per specific query (asking for address of employee, PAN, TDS etc.) were furnished during the assessment proceedings." (viii) "The appellant prays that the order o .....

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r CASS and notice u/s 143(2) of the Act dated 24-08-2011 was issued and duly served on the assessee. Subsequently notice u/s 142(1) of the Act was issued along with questionnaire and duly served on the assessee on 01-11-2011. The assessee filed part details and thereafter the assessee did not cooperated during the course of assessment proceedings and the assessment was getting time barred on 31.12.2011, one more opportunity was granted by the AO to file balance details by 16-12-2011 vide show ca .....

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t and Loss Account for the financial year 2008-09 i) Sub-contractor charges Rs.1,37,96,451/- ii) Transportation Charges ₹ 2,56,297/- iii) Wages Rs.1,53,50,684/- iv) Rent ₹ 1,85,500/- Rs.2,95,88,932/- The assessee did not filed the break-up details of sub contract charges i.e. name and address of the person, amount paid etc.,break up details of transportation charges, wages and details regarding TDS deducted and paid against the above mentioned expenses claimed in P & L A/c were n .....

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notice dated 12-12-2011 was issued by the AO proposing to disallow 15% of the above mentioned expenses claimed of ₹ 38,98,350/- i.e disallowance of ₹ 5,84,752/- was proposed. The assessee did not filed any reply and the AO,therefore, treated ₹ 5,84,752/- as un-explained expenditure and added to total income of the assessee. (c) The AO issued notices u/s 133(6) of the Act to verify the purchases and confirmations had been received from various parties and following differences w .....

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not filed any reply and the AO treated the said difference as bogus expenses and added to the income of the assessee vide assessment orders dated 16-12-2011 u/s 144 of the Act. 13. Aggrieved by the assessment orders u/s 144 of the Act dated 16-12-2011 passed by the AO, the assessee filed the first appeal before the CIT(A). 14. The assessee submitted before the CIT(A) that the assessment was framed u/s 144 of the Act and proper and adequate opportunity has not been granted by the AO before framin .....

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the control of the assessee. Thus, the assessee submitted that proper and adequate opportunity was not provided by the AO to the assessee and the assessment u/s 144 of the Act was framed on 16-12-2011. It was observed by CIT(A) that the assessee has submitted the replies before the AO in Tapal/dak counters of the Revenue and the AO has not considered the replies filed even till 16-12-2011 i.e. date of framing of assessment order u/s 144 of the Act and the CIT(A) decided the appeal on merits aft .....

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onthwise details of Sub Contract charges along with photocopies of bills of Sub contractors were furnished. The CIT(A) observed that the assessee is a civil contractor. These Sub Contract Charges were subject to TDS. The CIT(A) held that it amounts to sufficient compliance and therefore the impugned disallowance of ₹ 1,37,96,451/- on account of sub contract charges was deleted by the CIT(A) vide orders dated 27.02.2012. b) Transportation charges ₹ 2,56,297/- The CIT(A) observed that .....

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details of Wages (month wise) were furnished. The CIT(A) observed that the assessee has also maintained wage register for the year. The CIT(A) observed that it is termed as sufficient compliance of the query raised by the A.O. The CIT(A) therefore deleted the impugned disallowance on account of wages ₹ 1,53,50,684/- vide orders dated 27-02-2012. d) Rent ₹ 1,85,500/- The assessee filed complete documents on 20-12-2011 i.e. after the completion of assessment and hence the CIT(A) obser .....

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nce of the query raised by the A.O.. The CIT(A) therefore deleted the impugned disallowance on account of Salary & Bonus of ₹ 5,84,752/- vide orders dated 27-02-2012. 15. Aggrieved by the orders of the CIT(A) dated 27-02-2012, the Revenue has filed appeal with the Tribunal. 16. The ld. DR submitted that no evidence was submitted before the AO and the assessment was framed u/s. 144 of the Act as the assessee has not co-operated before the AO during assessment proceedings. The ld. DR sub .....

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appeared on behalf of the assessee when the appeal was called for hearing. We have observed that opportunities were earlier given to the assessee since 2013 and the assessee has not appeared despite service of notice and hence we are proceeding with the appeal on merits after perusing the material on record and after hearing ld. DR. 18. We have observed that the assessment was framed on 16.12.2011 by the AO vide assessment order u/s. 144 of the Act, whereby the AO has not even considered the rep .....

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es in the Tapal/ dak counters of the Revenue which is accepted by the CIT(A). Thus, the AO has erroneously not even considered the replies filed by the assessee in tapal/dak counters of the Revenue before the finalization of the assessment u/s 144 of the Act on 16-12-2011. The CIT(A) has only considered the replies filed till 16-12-2011 i.e. date of framing of assessment u/s 144 of the Act by the AO while adjudicating first appeal while eschewing the replies filed by the assessee before the AO o .....

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ile adjudicating appeal has not led to breach or violation of Rule 46A of Income Tax Rules, 1962 and principles of natural justice are not breached by the CIT(A) whereby he did not forwarded such evidences/replies to AO for remand report as these are not additional evidences as stipulated under Rule 46A of the Income Tax Rules, 1962. The powers of CIT(A) are co-terminus with that of the AO, and the CIT(A) has duly considered the replies submitted by the assessee in tapal/ dak counters of the Rev .....

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