TMI Blog2013 (3) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... ulsory payment to be made as a reimbursement.On this amount, obviously Section 194J is not applicable. - Decided against revenue TDS u/s 194C - purchase of sign-boards - whether this payment is towards a works-contract or not? - Held that:- As per the A.O. these payments are not saved under the umbrella of Circular No. 681 dated 8.3.1994. He has also mentioned that this payment is not towards purchase of goods because the boards are made as per the specification supplied by the assessee and the entire work has been done by the payee accordingly. The ld. CIT(A) has observed that there is no evidence on record to show that these payments are not for ‘contract for sale’ and are for ‘contract for work’. In our considered opinion, the finding of the ld. CIT(A) is cursory and he has mainly relied on the narration on the bills but he has not gone into the real aspect of the controversy. On the other hand, the A.O. has examined this issue in depth and has found that this is nothing but a ‘works-contract’ between the assessee and the payee.But still we are of the opinion that this issue has not been correctly investigated into and examined by the A.O. Thus we need to restore this issue t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 - - - Dated:- 22-3-2013 - SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. For the Appellant: Sh. G.K. Gargieya Sh. Dinesh Shrimali. For the Respondent: Dr. Deepak Sehgal-CIT(DR) PER BENCH:- These are three appeals pertaining to two A.Ys. viz., 2006-07 and 2007-08, concerning the same assessee, namely, Chetak Enterprises Pvt. Ltd. For A.Y. 2007-08 both parties are in appeal. For A.Y. 2006-07 only revenue is in appeal. These appeals can be conveniently disposed off by a common order. For A.Y. 2006-07 the appeal of the revenue is directed against the order of ld. CIT(A) dated 12.03.2012. The crossappeals for A.Y. 2007-08 are directed against the order of ld. CIT(A), Udaipur, dated 14.03.2012. 2. To understand the issues properly we are narrating the facts obtaining in the appeal pertaining to A.Y. 2006-07. The assessee is a resident company and follows mercantile system of accounting. Its main business is pavement of roads on contract basis and executing works on Build, Operate and Transfer (BOT) basis. For A.Y. 2006-07, the assessee-company filed its Return of Income (ROI) on 27.11.2006 declaring total income of ₹ 2,83, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deleting the addition of ₹ 62,43,096/- made u/s 40(a)(ia) of the Act on account of non deduction of TDS on hire charges. 4. Deleting the addition of ₹ 15,43,097/- made u/s 40(a)(ia) of the Act on account of non deduction of TDS u/s 194C of the Act on the expenses incurred on sign board. 5. Restricting the disallowance from ₹ 57,46,311/- to ₹ 27,93,477/- made by rejecting the books of account u/s 145(3) and treating 10% of the cash expenditures of ₹ 5,74,63,117/- as non genuine. 5. The assessee-company has raised the following three grounds in its appeal :- 1. That in the facts and circumstances of the case as well as law the Ld. A. O. vide page 24 to 27 of the impugned order of assessment grossly erred in making and addition of ₹ 1,98,000/- + 3,31,564/- by invoking provision of u/s 40(a)(ia) of the I. T. Act, on the alleged ground that appellant thanks to deduct TDS as per provision of section 194-C of the Income Tax Act, in respect of payment of ₹ 1,98,000 + 3,31,564/- made for plant shifting charges which to also been confirmed and sustained without appreciating the complete fact brought on the record various cases la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ys. 6. The first ground in appeal No. 206/JU/2012 (A.Y. 2006-07) filed by the revenue above is regarding disallowance of depreciation in respect of a Pajero Car and six tippers. The facts apropos this ground are that the assessee-company had purchased one Pajero 2 AOO Diesel GLX and six tippers on the last day of the F.Y. i.e., on31.03.2006. The assessee has claimed depreciation on all these vehicles under section 32 of the Act. The A.O. has disallowed the total depreciation of ₹ 8,90,074/- claimed on the ground that one of the twin requisite conditions of Section 32 i.e., namely, the user of the vehicles does not stand fulfilled, therefore, the depreciation claimed cannot be allowed. On the other hand the ld. CIT(A) has found that all the above vehicles were owned and were used also by the assessee-company during the F.Y. 2005-06; and the depreciation claimed thereon is allowable. Accordingly he has allowed this claim and has deleted the addition of ₹ 8,90,074/-. The grievance of the revenue is that these vehicles were not actually put to use during the year. The case of the assessee is that the assessee had purchased vehicles and these were ready for use duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant period. When both the above conditions co10 exist the benefit of section 32 of the Act can be validly availed of by any assessee. In case of motor-vehicles, it has been held in umpteen cases that even if the vehicle is purchased on the 1st day of the relevant F.Y. and it is ready for use, the user part of condition of section 32 is satisfied. Accordingly, we hold that the assessee is entitled to claim depreciation on all these motor vehicles which may undeniably owned by the assessee-company and were ready for use may be on the last day of the F.Y. and therefore, confirm the impugned finding of ld. CIT(A) and dismiss ground No. (1) of revenue s appeal. 7. The facts of ground No. (2) of revenue s appeal regarding deletion of addition of ₹ 4,21,929/- added on account of sundry balance written off are that the assessee-company has claimed trading business loss totaling to ₹ 4,21,929/- by writing them off in its books of account on the reasoning that these are business advances made to the parties but bills of expenditure had not been received from them. These advances are stated to have been transacted in the contract business of infrastruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to deletion of additions of ₹ 1,31,125/- and ₹ 1215000/- added u/s 40(a)(ia) on account of nondeduction of tax at source (TDS) u/s 194J on consultancy charges, in A.Y. 2006-07; and similar deletion of ₹ 1620000/- in A.Y. 2007-08, are almost common, except for the figures of addition. The A.O. has noticed that the assessee-company has not deducted TDS on consultancy charges totaling to ₹ 13,46,125/- in the year relevant to A.Y. 2006-07, and ₹ 16,20,000/- in the year relevant to A.Y. 2007-08, although it required to deduct the same u/s 194 J of the Act. As per the assessee an amount of ₹ 1,31,125/- has been capitalized in the books of Hoshangabad BOT project and has not been claimed in the P L Account so provisions of Section 40(a)(ia) are not applicable as this amount was paid to M/s. pyramid Consultant in A.Y. 2005-06 after deducting TDS; and during this year this amount has been transferred to the professional consultancy charges and has been credited to the account of the party. Regarding payment of ₹ 12,15,000/- made to M.P. Road Development Corporation it was stated that it is only a provision made in the books of this year but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at pages 14 and 15 of Assessment Order. On these payments no TDS was deducted on the reasoning that these payments are saved by circular No. 681 dated 08.03.1994 from the application of Section 194C. And also that major portion of this payment has been capitalized in the books of Hoshangabad Project and has not been claimed in the P L account. The A.O. has found this payment towards works-contract to be not covered under the above circular. He has also refuted the contention of the assessee that this is only a supply of goods , because the boards are made as per the specification supplied by the assessee and the entire work, right from fabrication upto installment thereof, has been done by the payees which amounts to a composite contract of the work and not contract for sale . The A.O. has relied on the decision of the case in Associated Cement Company Ltd. vs. CIT 201 ITR 435 (SC) to make this addition u/ss 194C r.w.s. 40(a)(ia). 09.1 However, ld. CIT(A) has deleted the addition on the reasoning that the retro-reflective sign-boards (as goods) were purchased by the assessee-company from M.B. engineering Corporation for a consideration of ₹ 73,52,951/- and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13/2006 dated 13th December, 2006 that provision of section 194C would apply in respect of contract for supply of any article or thing as per prescribed specifications only if it is a 'contract for a work' and not a 'contract for sale' as laid down in para 7(vi) of circular No. 681 dated 8.3.1994. In view of above, in present case the dominant nature of transaction is contract for sale. Further as per amendment in the Act in section 194C, work does not include manufacturing or supply of product according to the requirements or specifications of customer by using material purchased from a person other than such customers. The above amendment has been held to be clarifactory as per decision in the case of CIT (TDS) Vs. Glenmark Pharmaceuticals (Mum.) in order dated 12.3.2010. The ratio's laid down in above decisions are applicable in assessee's case also. It may be mentioned that decision relied upon by the AO i.e. Associated Cement Company Ltd. Vs. CIT 201 ITR 435 (SC) has been considered in above decision while deciding the case in favour of assessee. In view of above, the appellant's case falls in the category of contract for sale hence is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts in view and decision on the issue, it is held that assessee has entered into sale/purchase transaction and not contract for work it does not fall under the purview of section 194C. Accordingly the above addition is deleted and. this ground of appeal is allowed. 09.2 Before us similar arguments have been reiterated by both the parties. After considering the rival stands, it is noticed that the main dispute involved in this issue is as to whether this payment is towards a works-contract or not. As per the A.O., this payment is towards works contract on which TDS was to be deducted. The A.O. has also mentioned that these payments are not saved under the umbrella of Circular No. 681 dated 8.3.1994. He has also mentioned that this payment is not towards purchase of goods because the boards are made as per the specification supplied by the assessee and the entire work has been done by the payee accordingly. The ld. CIT(A) has observed that there is no evidence on record to show that these payments are not for contract for sale and are for contract for work . In our considered opinion, the finding of the ld. CIT(A) is cursory and he has mainly relied on the narration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced from taxable income in case profit exceeds the book profits. But this claim was declined because the assessee did not claim this amount in its Return of Income [ROI].The A.O. has relied on the decision of Goetz (India) Ltd. 284 ITR 323 (SC) wherein it has been held that a benefit cannot be allowed by the A.O. if it is not claimed by the assessee in its return of income. 12. But, to the contrary, ld. CIT(A) has accepted this claim of the assessee by observing as under :- 4.2 During appeal, it has been stated that assessee is eligible for said claim in view of decision in the case of Bhawna Va Path Nirman Co. Vs. ACIT (Jodh.) 101 ITD 101 and Board circular No. 14(XL-35) 1955 mentioned during assessment proceedings. The subject matter was further decided in various forums as under:- i) In case of Emerson Network Power India Pvt. Ltd. Vs. ACIT 122 TTJ (Mumbai) after considering the decision in the case of Goetz (India) Ltd. and referring the decision of Gujarat High Court in the case of Choksi Metal Refinery Vs. CIT 107 ITR 63 (Guj.), it was held that assessee's claim cannot be rejected on technical ground. In case of Chicago Pneumatic India Ltd. Vs. DCIT 15 SOT 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee concerned, all the reliefs and refunds to which assessee seems to be entitled on the facts of the case even though the assessee might have omitted to claim refund or relief. The appellant has explained that it is bonafide claim to reduce income earned by way of profit on sale of tippers credited to P L account as per the principles of accounting as per Companies Act. The entire sale proceeds have been reduced from the WDV of block assets, as per I.T. Act. So the profits on sale of tippers is required to be allowed from the taxable profits. The appellant's claim is as per law. In present case, it is not the case of A.O. that said sale consideration has not been reduced from the block of assets. In view of the above Board's circulars as well as decisions referred to above relied upon by the appellant, it is held that claim of the assessee is allowable. This ground of appeal is decided accordingly . 13. Before us both parties have reiterated their original stand. In our considered opinion this is a valid claim made by the assesseecompany. There is no dispute regarding the fact that total sale consideration has been offered in the depreciation chart while reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rejection of the books and has rejected the action of the A.O. in rejecting the books of assessee. But the revenue has challenged the reduction of addition made in respect of cashexpenditure. On the other hand, the case of the assessee is that without rejecting books of accounts no trading addition can be made as per the law. 16. In this regard, it would be apt to reproduce the submission of ld. AR made in his Written Submission, which is as under :- 1. That the addition in question Rs, 57,46,311/- dealt with by the A.O.at page No. 45 to 78 of the impugned order of assessment. 2. Assessee submitted detail of cash payment made under various heads aggregating to ₹ 6,36,68,027/-. The aforesaid expenses also include payment related to wages and salary amounting to ₹ 2,85,88,663/-. Respected Sir, at paper book page No. 134 to 165 we have submitted the detail under various heads as under: Expenses incurred under various heads Amount P.BNo. Cost of Giti purchase, stone 3221246.00 134-135 Transportation 985520.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure pertain to BOT project amounting to ₹ 2810455/-, ₹ 3394455/-, aggregating to ₹ 6204910/- which has been claimed against BOT project toll tax collection which is exempted. That remaining expenses in cash aggregating to ₹ 57463117/- (63668027-6204910). The detail of expenses above ₹ 10000/- were filed for verification is of ₹ 6641061/- appear at P.B No. 124 which include Government payment of ₹ 18,65,462/- and expenses pertain to BOT toll tax collection of Nimbahera ₹ 102840/- and Jodhpur toll tax ₹ 134238/-. In respect of above said expenses, complete detailed address, name of party has been furnished. Now excluding the cash payment over ₹ 10,000/- aggregating to ₹ 6403983/- the remaining cash payment which is below ₹ 10,000/- is of ₹ 517463117/- minus ₹ 6403983/- = ₹ 51059134/-. A.O. page No. 64. A.O. on the same page further mentioned bill and vouchers in respect of expense of ₹ 9512038/- over ₹ 10000/- and below ₹ 10000/- appellant produced bill vouchers. Then expenses in cash as per A.O. works out to ₹ 51059134/- minus ₹ 95120 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his wages sheet pertain for initial period. 12. At page No. 60 of A.O. order, appellant bring on record G.P rate 15.74% as compared to last year G.P. rate 14.15% and N.P. rate 17.41% in comparison to last year N.P. rate 3.20%. Further submitted that addition as proposed at the rate of 10% being added, the G.P. rate works out to 18.98% which is quite impossible in the line of this business. 13. At page No. 61, assessee cited comparable cases which at all not considered. 14. At page No. 61, appellant submitted that on expenses of ₹ 7431744/-. FBT paid ₹ 1339577/-. 15. At page No. 61, appellant submitted that cash expenses to the tune of ₹ 12674767/- pertain to BOT project which was capitalized. And not part of profit and loss account. 16. Assessee submitted that this is a case where books of account has been maintained site wise duly audited supported by bills and vouchers. Sir major expenses even as admitted by the A.O. is related and pertain to payment to workers, wages and salary amounting to ₹ 28588663/-. Sir, it is quite impossible to give complete name, address and identification of worker who engage at the site of works, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses of royalty of ₹ 1593560/- needs to be excluded out of the amount of ₹ 57463111/- leaving cash expenditure of ₹ 55869557/-. It is seen that the appellant has shown gross profit rate of 15.74% in respect of work other than units for which deduction has been claimed under section 80IA of the Act. However, at the same time, the A. O. has made out a case that the above amount of cash expenditures are not supported by proper bills and vouchers, identity of the payee and verifiable wage register. Keeping in view the explanation of the appellant, it will be reasonable to restrict the disallowance to 5% of expenses ₹ 558695577-. So, the disallowance of ₹ 2793477/- is upheld and the balance is deleted. This ground of appeal is partly allowed. It may be added here that as 5% of the disallowance in respect of Ferozpur-Fazilka BOT projects has been upheld, same will affect the work in progress to that effect. So consequential work in progress may be determined by the A.O. accordingly. Now before the Hon'ble Bench, we submit that part of the addition amounting to ₹ 2793467/- so substantiated by the CIT(A) deserves to be deleted taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d vs. Asstt. Commissioner (2007) 104 ITD 537 wherein even the Id. Member at para No. 5.10 mentioned that even in Government offices most of the expenditure which is of petty in nature and which involve casual labour can be expected to have self made voucher, this voucher can only be justify through circumstantial evidence reasonable of the claim of expenditure under each head, be matter of adjudication but not rejection of books. 17. After considering rival submissions on this issue we have found that the rejection of the books of account by A.O. is not correct as he has not pinpointed any specific defect, much less any material defect, therein and not only has accepted the declared turnover but has also accepted the declared G.P. Rate. The ld. CIT(A) has correctly not upheld the rejection of the books. The cash expenses have been made due to the mitigating circumstances mentioned in the above-extracted submission of the ld. A.R. which according to us are justified in that situation. However, neither the A.O. nor the ld. CIT(A) and even the ld. Counsel for the assessee in the written submissions throw any light on this aspect as to whether the cash expenses were not incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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