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TMI Blog2016 (4) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of Rs. 6.54 Crores in that year as against AY. 2007-08. The Cross-Objections by assessee is on the issue of 40(a)(ia) stating that there are no outstanding payments as at the end of the year, so the provisions do not apply. 2. Since common issues are involved, we have heard the cases together, and are decided by this common order. We have heard Ld. DR and AR in detail and perused the documents and orders on record. 3. Brief facts leading to present appeals are that, assessee-firm is a Civil Contractor and has carried out works at Allahabad, Uttar Pradesh. The returns filed by the appellant firm for these two years ie. AY. 2005-06 & AY. 2006-07 were taken-up for scrutiny at separate times and disallowances have been carried out by invoking the provisions of section 40(a)(ia), expenditure claimed, interest on monies advanced to partners, section 40A(3) and salaries. As common issues involved, both the appeals were taken-up simultaneously and have been disposed off by a common order by Ld.CIT(A). One issue of contention was extent of vouchers impounded. While the AO has observed that whatever vouchers that were impounded at the time of survey were all considered while it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en awarded works in the following projects of the AAI, as per the letters of AAI (a) College of Education (b) Collection of Pharmacy (c) Girls Hostel (d) Basket Ball Court and Olympic Torch (e) Yeshu Darbar 4.4 The AAI in their letter dt.30.11.2007 has indicated the value of works carried out by the appellant firm on Yeshu Darbar as per M-Book is Rs. 4.11 crores and payments made were RS.73 lakhs and the payments due were shown as Rs. 3.38 crores. Besides, against total claim of works carried out by the appellant firm on all five of the above projects, standing at Rs. 26,31,72,802 as admitted by the AAI in their letter dt.30.11.2007, the payments made were Rs. 19,25,39,470, with the disputes arising in College of Pharmacy, Girls Hostel and Yeshu Darbar. Here we are concerned with the genuineness of the expenditure on the work carried out in Yeshu Darbar. As may be seen from copies of M-Book pages, even though the value of work as supported by the M-Book is claimed at Rs. 4.10 crores, by virtue of AAI's unilateral and arbitrary reduction of unit prices but without disturbing the quantity of units, the monies receivable were thrown into a dispute. As can be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n credence to. 4.8. Further, it is the argument of the AO vide his final Remand Report dated 19-2-2010 that the appellant has executed all the works relating to Yashu Darbar by 31-3-2004 as can be seen from paras-3, 4 and 5 of his Report. The AO draws attention to Page-280f M-Book, wherein it is clear that the appellant executed works worth Rs. 6,38,00,869/- by 10-3-2004 and balance work, of Rs. 18,51,003/- as done subsequently as per Page-24 of the said M-Book. He has also drawn reference to statement styled 'Annexure III' given by AAI. He finally concludes that the value of earth work done by assessee on Yashu Darbar is only Rs. 86,46,913/- as on 31-3-2004 and therefore pleaded for rejecting the claim of the appellant for expenditure on earth work to an extent of Rs. 1,92,90,404/- on Yashu Darbar. 4.9. The argument of the AO is very closely considered in the backdrop of M-Books, Running Bills and correspondence from AAI. The AO has missed the wood for the trees since he had failed to consider that even though works were completed by the said dates, the appellant had not received any monies and since the appellant is following 'cash' system of accounting, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for earth work was directed to be deleted in the AY. 2005-06". d. On correctness of Method of Accounting & Total Receipts: 5.1. The scenario emerging out of the above position throws up two issues to be resolved - correctness of the method of accounting- adopted by the appellant and the correct amounts to be brought to tax. It is the stand of the appellant that he had been following the cash system of accounting and was offering whatever gross receipts received from the AAI in the captioned years. However, I find an inconsistency in this method of Accounting in the backdrop of works carried out as per M-Books and the bills submitted on 18/06/2005. Apparently, the works carried out as per M-Books are of significantly higher value vis-a-vis the amounts paid by the AAI to the appellant firm. For example, as per the bill dated 15-6-2005 submitted by the firm to the AAI, the value of works on Yeshu Darbar come to Rs. 6.51 crores in the AY's 2005-06 & 2006-07 whereas the firm has offered lesser monies in their return of income for this work, since no monies were received by the firm. On the other hand, as the bill corroborated by the M-Book is much higher, it can be safely i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Memorandum of Understanding has been perused in the backdrop of assessee's explanation dt.12.03.2010. The appellant had vehemently argued that the entire monies receivable by virtue of MoU cannot be treated as income and thus taxed. While admitting the deficiency in not accounting for work-in-progress and thus, the defect in the accounts maintained, the appellant had also argued that the firm had carried out works as gathered from AAI and hence, expenditure has to be allowed thereupon the residual receivables. However, nothing is claimed to allow as expenditure. Even though it is acceptable that the expenditure has been incurred by the assessee on Yeshu Darbar Project for carrying out the earth work etc., the monies received on that work were not brought to tax either on account basis as per MoU or on actual receipt basis or even upon the basis of incurring expenditure. Hence it is held that these monies were to be brought to tax. It is also acceptable that the entire receipts cannot be taxed and expenditure should be allowed and only profit be brought to tax, even though the residual amount is yet to be received from the AAI. By considering all these issues, it is decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, interest to partners and remuneration to partners, if any". f. On 40(a)(ia) : "5.6. Coming to the disallowance U/s. 40(a)(ia), the argument of the appellant that each individual worker is engaged but paid throuqh group leader, is accepted. Accordingly, the addition is also deleted in both the AY's 2005-06 and 2006-07. However, on application of the ratio in tne cases of lndwell Constructions (1998) 232 ITR 776 (AP) and International Forest Co. (1975) 101 ITR 721 (J&K), there was no justification for separate additions after rejecting books and applying higher gross profit, rate. Hence the other disallowances on tile count of interest on advance to partner and disallowances u/s. 40A(3) are also deleted". Ld. CIT(A) finally concluded the appeals stating as under: "6. However, the assessment is considered as 'enhanced' for the reason that the unrealized monies of Rs. 6.57 Crores were brought to tax by bringing the captioned MoU of December, 2006 to II . Even though the monies were brought to tax on estimate basis, it is considered that the monies could escape tax, especially since the appellant had closed relations with AAI and the last return filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d them. We are also not inclined to accept the Revenue's contentions that so much of expenditure was not incurred. Without the expenditure being incurred, the project could not be completed. In AY. 2005-06, the AO disallowed the expenditure as not vouched and also invoking Section 40(a)(ia) so much so on the turnover of 11.24 Crores, the income was determined at Rs. 3.76 Crores, which itself is very high in this line of business. In the given circumstances, the only option is to reject the books of accounts and estimate the income. In contract works, since, assessee has done work away from its area of operation, in Allahabad, estimation of income at 9% is reasonable. Further, if the ground 10 of Revenue in AY. 2006-07 is allowed, there will be reduction of turnover and consequent income. We are not able to understand why Revenue has taken that stand which will reduce the income. Be that as it may, we are of the opinion that Ld. CIT(A) has analysed the issues in detail and has come to correct decision in determining the issues and adjudicating rival contentions. We see no reason to differ from the findings, as Revenue has placed only arguments without any evidence in support. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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