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The Income Tax Officer, Ward-6 (1) , Hyderabad Versus M/s. Acurite Contractors and Engineers and Vica-Versa

2016 (4) TMI 898 - ITAT HYDERABAD

Disallowance invoking Section 40(a)(ia) - CIT(A) allowed the claim - Held that:- The Revenue contentions have no merit in considering the fact that so many vouchers were impounded in the course of survey, but has not considered 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 .....

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nover 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 find no merit in Revenue’s grounds and accordingly, they are rejected. - .....

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sessee. Revenue has filed redrafted revised grounds in both the years on the issues of: a) Ld. CIT(A) accepted cash system of accounts instead of mercantile system followed by assessee; b) Ld. CIT(A) wrongly rejected books of accounts and estimated income at 9%; c) Ld. CIT(A) wrongly deleted the additions made u/s. 40A(3) & 40(a)(ia) of the Act;. d) Ld. CIT(A) has wrongly stated enhancement of income in AY. 2005-06 when he has given substantial relief and ; e) In AY. 2006-07 wrongly brought .....

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e-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 o .....

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,401/- (for AY. 2005-06) while the AO has arrived at the actual expenditure based upon the vouchers available at ₹ 22,13,997/- and thus resulting in disallowing the expenditure of ₹ 1,92,90,404/-. 4. The other major item of contest is with regard to substantial payments made to individuals with regard to labour charges, centering, brick masonry, electrical, painting and other masonry works totaling to ₹ 1,23,35,119/- in AY. 2005-06 and ₹ 67,88,723/- in AY. 2006-07. It is .....

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enience of both sides, the payments were made on a group basis to one of them identified as a group leader. Hence, these persons mentioned were not contractors but they were group leaders and for the sake of convenience, the payments were disbursed to individual labourers through the group leaders. Thus, it is argued that the works carried out were not on sub-contract basis and thus, the provisions of Section 40(a)(ia) were not applicable. 5. As assessee has done contract work only with M/s. All .....

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ome of his findings on various issues are as under: a. On the works carried on by assessee: 4.3 As can be seen the assessee has been 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 ₹ 4.11 crores a .....

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eshu 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 ₹ 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 there appears to be some disputes between the bills presented by the appellant firm and payments made by the University. It is also noticed from the returns of income .....

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such valuable works to the appellant firm without calling for tenders nor giving a clear detailed work order to the appellant. Even so, the value of work and sub-items were not mentioned in the work order, which is usually the case in any work order. It is quite difficult for the principals to keep monitoring the progress of work as well as payments without this clarity in work order. Be that apart; the AAI has given contradictory information at different times about the value of works carried .....

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rk seems to have been carried out by appellant after 31-3-2004. However, in their letter dated 25/01/2000, the value of work was indicated at RsA.11 crores. Hence, there is a ring of dubiousness around the quality of information given by AAI. All these contradictions were submerged in their correspondence only post-MoU. Thereafter, their correspondence on value of works carried out by the appellant firm was matching with the value of works mentioned in MoU. Hence, it is inferred that the AAI is .....

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attention to Page-280f M-Book, wherein it is clear that the appellant executed works worth ₹ 6,38,00,869/- by 10-3-2004 and balance work, of ₹ 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 ₹ 86,46,913/- as on 31-3-2004 and therefore pleaded for rejecting the claim of the appellant fo .....

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iture .was incurred and hence to be deducted in the same year. Even though the method of accounting followed by appellant is lopsided, which will be discussed later, the presentation made by the appellant deserves to be considered for obtaining a holistic view of the assessee's picture. Besides, the AO had also obtained copies of Running Bills submitted by the appellant to AAI which includes bills dated 18-6-2005 (incorporated below here). As per this bill, it can be inferred that even thoug .....

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Books can be relied upon. It can be seen that the AAI has only disturbed the rate per unit but not disturbed the quantities of the work carried out. Thus, it can be held that the appellant has carried out the works on Yeshu Darbar as can be verified from the M-Book. Coming to the value of work carried out an billed to AAI, it is also seen that the same can be verified from the Bills presented to the AAI on 18-6-2005 and 4-7-2006. From these bills, it is apparent that the appellant had carried ou .....

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mpounded but by the boxes containing them. It is gainsaying to reiterate that any evidentiary document or material is to be impounded or seized by a specific description lest it loses its evidentiary value. For all these reasons, it is held that the addition deserves to be deleted. Accordingly, the addition of ₹ 1,92,90,404 due to absence of vouchers 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 scena .....

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ted 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 ₹ 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 .....

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it is proposed to enhance the assessment to this extent by issuing a letter from this office dt.10.03.2010. In response to this, the assessee has filed a reply dt.12.03.2010, both being incorporated here. 5.4 It is noticed from the material available on record such as Bills, M-Books, letter from AAI and the said MoU, that the appellant has completed the works by 31-3-2006 and thus all the expenditure could also have been incurred by them. In fact, there was no evidence that any expenditure was .....

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taxation. The assessee has argued that he has been following cash method of accounting. However, this is held to be incorrect in preceding para. Accordingly, this differential amount also is to be taxed as on 31-3-2006. It is also possible that a certain portion of it might be coming from earlier assessment years as a brought forward work-in-progress. But in the absence of any material, it is difficult to discern the same relating to earlier years. Hence the entire differential sum is proposed .....

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derstanding 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 receivabl .....

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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 decided to tax the gross receipts after allowing setoff for expenditure. Since the vouchers also were not furnished relating to Yeshu Darbar work as on 31.3.2005, if the expenditure incurred therein be taken as gross receipts this would result in an artificially higher income straying away from the ends of justice. Hence it is .....

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squarely to the case here and in this backdrop, it is the duty of Revenue to reject the books of account and estimate the profits. I am guided by the ratio in the case of Sarangpur Cotton Mfg.Co.Ltd. (PC) 6 ITR 36 and Sundaram & Co. Ltd. 36 ITR 162 (Mad.). By drawing power and authority to reject the books of account is derived by me from the decision of Me.Millan & Co. (1958) 33 ITR 182 (SC) and Namasivayam Chettiyar (SN) (1960) 38 ITR 579 (SC), it is decided to reject the books and est .....

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rmine the rate of profit. It is noticed that in civil contract cases, the gross profit is estimated at 8% generally and sometimes at 11 % in extraordinary cases. I do not consider the case of appellant a general one, as the expenditure incurred on work-in-progress is not brought into books, nor it is extraordinary since the appellant is still reeling under disputes about receipt of the monies accepted to be paid as per MoU dated 29-12-2006. Hence, I deem it proper, just and adequate to estimate .....

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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 ₹ 6.57 Crores we .....

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is thoroughly assailed and found defective resulting in rejection of books. Hence, it is considered that the adjudication of appeals has resulted in 'enhancement' of the assessment in both the AY's 2005-06 and 2006-07 . 7. Before parting, my duty will be complete only on recording the commitment, single mindedness, enthusiasm and sincerity displayed by the Assessing Officer, Sri B.Narasinga Rao, ITO 6(1), Hyderabad. He has pursued the matter diligently at the assessment stage as wel .....

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Y. 2006-07 is beneficial to assessee. He submitted a chart indicating the incomes that were determined after Ld. CIT(A) s orders. Asst. Year 2005-06 Asst. Year 2006-07 Gross receipts admitted 11,24,38,255 4,45,09,000 Income admitted 54,52,614 22,54,187 Income assessed 3,76,66,336 1,14,73,395 Income as CIT(A)- MO Gross receipts 11,24,38,255 10,99,32,270* GP estimated at 9% 1,01,19,442 98,94,084 Depn. & salary to partners 9,73,366 8,45,812 Net income assessed 91,60,164 90,48,272 * Gross receip .....

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tions have no merit in considering the fact that so many vouchers were impounded in the course of survey, but has not considered 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 ₹ .....

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