TMI Blog2016 (5) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, does not require any interference on our part. Accordingly, we confirm the action of the CIT(A) following the decision of jurisdictional High Court in the case of Reliance Utilities Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] - Decided in favour of assessee Adhoc disallowance on telephone expenses, vehicle expenses etc. - Held that:- We have considered rival contentions and found that personal element in such expenses cannot be ruled out. Therefore, keeping in view the totality of facts and circumstances of the case, we restrict the disallowance to the extent of 10% of such expenses. - Decided in favour of assessee partly Addition on account of alleged non-genuine purchases of the assessee - Held that:- All the materials were supplied at the site of the execution of work, payment of which were made by account payee cheque. We also found that when the work was being executed the site has been visited by the engineers of BMC to check the progress and validity of the work. The MCGM is also having its own inhouse vigilance department to check the quantity and quality of the work done. Only after satisfying with the quantity and quality of work done, the payment was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness projects. However, the AO did not accept assessee s contention and after discussing the issue in para 5-6 made disallowance of ₹ 3,54,957/-. 5. By the impugned order, CIT(A) deleted disallowance after observing as under :- I have considered the above submissions. The appellant objected to the average investment arrived at by the Assessing Officer as per the formula provided in Rule 8D(ii). The Assessing Officer adopted the value of investment as ₹ 1,19,57,766/- as on 31.3.2009. It is the submission of the appellant that ₹ 59,43,220/- was the actual investment in shares and the balance was the investment into the joint venture business projects which is not the assets of the appellant and should not be taken into consideration. As per the formula in Rule 8D(ii) i.e. 'A' x 'B'/'C', 'B' represents the average value of the investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. 'C' represents the average of total assets as appearing in the balance sheet of the assessee on the first day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 37(28). Since the expenditure was incurred wholly and exclusively for the purpose of business and was not in personal nature, there was no justification for disallowing the same. Accordingly, we confirm the order of CIT(A) on this issue. 11. The revenue is also aggrieved for deleting disallowance of interest of ₹ 4,61 ,376/-. The Assessing Officer had discussed this issue in para 8 of the assessment order, wherein he observed that the assessee had made advances to some parties from whom no interest has been charged. The assessee has been paying interest on the loans taken and hence Assessing Officer was of the view that interest attributable to interest free advances has to be disallowed at 12% per annum and accordingly ₹ 4,61,376/- was disallowed. 12. By the impugned order the CIT(A) deleted disallowance of interest after observing as under :- 6.3. I have carefully considered the above submissions. The opening capital as per the balance sheet as on 31 3.2008 was ₹ 8.4 cr and the closing balance ₹ 5.37 crores. which shows that the appellant had got huge surplus funds available in the form of capital. Hence the contention of the appellant that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y CIT(A) are as per material on record, therefore, does not require any interference on our part. Accordingly, we confirm the action of the CIT(A) following the decision of jurisdictional High Court in the case of Reliance Utilities Ltd., 313 ITR 34. 14. The revenue is also aggrieved for deleting adhoc disallowance of ₹ 1,00,000/- on telephone expenses, vehicle expenses etc. The AO was of the view that the element of personal in nature in respect of the above expenditure cannot be ruled out and hence made an adhoc disallowance of ₹ 1,00,000/-. 15. By the impugned order, CIT(A) deleted the same after observing as under :- 7.3. I have considered the above submissions of the appellant. During the course of assessment proceedings itself the appellant had furnished evidences in the form of vouchers pertained to each and every heads of expenditure. The Assessing Officer had not found out any discrepancy. The Assessing Officer had no material in his possession to show that personal element is involved in respect of the above expenditure. In view of the above, the adhoc addition made by the Assessing Officer is hereby deleted. 16. We have considered rival contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnish the scope of work in respect of the entire 14 contracts. One such scope of work with regard to Akhil Nalla is reproduced below to understand the nature of construction carried out by the appellant'- Scope of work:- 1. Construction of box type drain from Charkop Road Akhil Hotel to Kadsiddeshwar Roadto Manori Creek RIC Ward, Kandivali(W). 2. M25 RCC wall with M 25 RCC slab at top to cover the same 3. Construction of S.W Drain at other side in C.C. at 28 THD 4. Raising and construction of road from starting point to end. The scope of work in respect of all the contracts are almost identical which involves construction of the drain and slab to cover the top along with raising and construction of road from the starting point to end. This scope also gives the construction programme. The appellant was given the time to complete the work within 12 months. Hence to carry out the above civil construction work the appellant had to necessarily purchase the building materials such as cement, steel etc. without which it is not possible to complete he contract awarded. 8.3.2 During the course of assessment proceedings itself it is the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt of the work order would result in levy of penalty of ₹ 500/- per day. Similarly a penalty of ₹ 500/- per day will be imposed if Quality Control Engineers is not found appointed/deployed on the work. Section 6 talks about technical specifications. Clause 6.2.2 6.2.3. deals with the material used in the contract and samples and test of materials. As per sub clause 6 of 6.2.3, the Contract shall not use any material without prior testing and clearance by Engineer in charge. In cases where the material is use without testing is liable for rejection either partly or fully. Similar clause is appearing in General Specifications in clause 6.4.3. All the above clauses clearly indicates that the material used at site undergoes a stringent quality control and the entire work is being monitored by the Site Engineer appointed by the MCGM. 8.3.6. As and when the work is going on the appellant raises a running bill which would be then checked and verified by the Sub-Engineer which is then checked and verified by the Assistant Engineer before the same got forwarded to the Executive Engineer. After final checking by the Executive Engineer, the bills are furnished to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similar details were also furnished in respect of Project by name I.B.Patel i.e. details of material used and Payment certificate issued by MCGM. 8.3.8 The appellant had also filed the evidence in respect of testing the materials used in the contract. Few such copies issued by Material Testing Laboratory, MCGM are available in the submissions made. The perusal in reference NO.AESM/BRK/2009-09-31 and AESM/BRKl2009-09-32 both dated 24.2.2008 indicates that the quality of the brick used by the appellant had been tested by the Asstt.Engineer(Soil Mech.) of MCGM. Similarly certificate issued by the MCGM for testing the cement by Material Testing Laboratory for the period October, 2006 to Jan. 2009 for the work carried out in the case of I.B.Patel was also furnished. 8.3.9. All the above clearly indicates that material for the above contracts reached the respective site which got tested for its quality. Depending upon the stage of work, running bills were prepared and payments received after certification by the Site Engineers. All these clearly prove that the contract work has been executed to the satisfaction of the MCGM Authorities and due payments were received against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 02/05/2012 by your honour. In this respect we have been instructed to submit as under: 1. As regards Statement recorded on 04101/2012 We are not discussing all the questions and Answers of the statement recorded on 04/01/2012. Rather the relevant question and answer relating to disclosure made thereto are discussed hereunder: a. In reply to question no 11 the appellant submitted as under which is reproduced hereunder: As far as I am concerned, we have actually purchased the material and all these purchases are bonafide purchases used for execution of our contracts. I agree that I am not in a position to give the supporting documents to some of these bills such as the delivery challans, lorry receipts, octroi receipts etc to you right now in all the cases. I will be in a position to get them from the sites and submit to you in due course. A perusal of the above Answer it is crystal clear that the assessee actually purchased the material and all these purchases are bonafide purchases. He further stated that he is not in position to give some of the supporting of some of the bills right now. However the same can be produced and for which we gave the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry challan/Entry of material record and payment has been given by assessee there does not remain an iota of doubt about purchase and utilization thereof. d) In reply to question no 11 the assessee has re-iterated that we have actually purchased the material and all these purchases are bonafide. He further stated that he is not in position to give supporting of some of the bills and not all the bills right now. However we gave all the details vide replying to question no 8. Therefore the question of treating genuine purchases as bogus does not arise. After consideration of the question raised and replies given by the appellant the following facts emerges. i) Firstly the appellant gave the disclosure for AY 2010-11! 2011-12 and AY 2012-13 which has no relevance with the impugned assessment year for which we are in appeal before your honour. ii) Secondly the department did not find any evidences of inflation of expenses or having found in possession of cash being received back or any undisclosed investment during the course of survey action to prove that appellants purchases for the impugned AY i.e. AY 2009-10 are bogus. iii) Thirdly the statement given p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal V Shah (question No.?). Mr.Kishore G Shah was categorical that the payments relates to the controversial parties mentioned in question No.? are genuine. However I find that this survey report has no direct bearing to the facts of this case. Again the AO had forwarded copy of the survey report of DDIT(lnv.) Unit 4(2) dated 14.5.2012 which was received in this office on 19.10.2012. I have perused the survey report which contains only the relevant portions of the statement recorded from Shri Arvind Jainjn para 6 and the suggestions given to the AO by the ADIT is available in para 8 which is reproduced as under, for the sake of convenience:- Suggestions to Assessing Officer This report is only indicative and not exhaustive or all inclusive in nature. The Assessing Officer is requested to carry out in depth investigation and examine the impounded books of accounts/computed hard disks, statements recorded etc. to arrive at his/her own conclusion. The Trial balance and Profit Loss Account of the above Survey Folders' of the respective entities. Nevertheless, while framing the assessment orders, due consideration may be given to the points discussed in this res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he materials purchased for execution of the contracts are bona fide. However, he was not in a position to give supporting documents such as delivery challan. lorry no date of receipt etc. He had also mentioned that the details would be submitted in due course. Finally in answer to question NO.16 he had agreed that there is some element of inflation of expenditure on purchase of materials on account of which ₹ 5.7 crores was admitted as additional income in the hands of M/s.lndra Construction Co. and ₹ 16.3 crores in the case of M/s.API construction Co., Prop. Shri Indervadan Jain for F.Ys.2009-10 to 2011-12. 8.3.15. It is worth mentioning here that in the post survey statement recorded by the DDlT on 2.5.2012 Shri Arvind Jain had given an evasive answers in respect of bogus purchase of materials by taking accommodation bills. The answers to question No.6 9 are reproduced as under:- Q.6. Your statement was recorded during the course of survey proceedings under section 133A of the Act on 4th/5th January, 2012 vide answers to Question NO.6 7 you had stated that you know Mr.Mafatlal Shah and you had also stated that you might have taken accommodation entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sundesha Enterprise 35 Simplex Corporation 17 Vardhman Traders 36 Padmavati Enterprises 18 Vatsa Enterprises 37 Modern Spun Pipe 19 Vruksha Enterprises 38 SAPNA Traders 39 Hermitage Trading Company Private Limited. You have now also submitted to me the name of the parties from whom you have made purchases during the F.Y.2008-09, 2009-10, 2010-11 the current year in the format stated in Q.8 above. From the same, it is again seen that you are not in. a position to explain and give required supporting of some of the bills, in spite of the fact that considerable time has already lapsed. Please justify your action of releasing the payments based on oral confirmations without having any supporting. Please comment. Ans. I again state that Indra Construction Company and API Construction might have taken accommodation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bank accounts where the cheques got cleared and try to analyse whether immediately after clearing, cash was withdrawn only to pay it back to the appellant. I wonder what prevented the AO to carry out such enquiries. Thus the Addl.Commissioner had miserably failed to carry out the basic ,necessary investigations before coming to such a conclusion. 8.3.18 I also failed to understand why the AO was keeping the Survey Report which was sent by the DClT on 14.5.2012 i.e for almost 5 months with him when he knew that appellant had filed an appeal before the CIT(A) and the case was posted for hearing. Copies of sworn statement .survey report etc were received by me after the case was heard and the materials were forwarded to me in bits and pieces on 3 occasions. The whole lot could have been filed at once. The AO did not even apply his mind before giving a submission. He did not verify whether the 12 parties on whom the addition was made were out of 39 parties supposed to have issued bogus bills. The AO had conveniently omitted the portion of the statement where the appellant admitted that the material purchases were genuine and highlighted only the portion of the statement whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found in the course of survey proceeding could not be a basis for making any addition in the block assessment; and (v) the word may used in section 133A(3)(iii) of the Act, viz., record the statement of any person which may be useful for, or relevant to, any proceeding under this Act makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. 3. This decision of Hon.Madras High Court got affirmed by Hon.Supreme Court in appeal Nos.13224 of 2008 6747 of 2012 dt.20.09.2012. This is reported in 25 Taxman.com 413(SC). He head note is as under:- Held dismissing the appeal, that in view of the scope and ambit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the partners of the assessee-firm that the disclosed income was assessable as lawful income of the assessee. 4 Paul Mathew vs. CIT 263 ITR 101 (Kerala) A power to examine a person on oath is specifically conferred on the authorised office only under section 132(4) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her appeal: Held dismissing the appeal, that for a statement to have evidentiary value, the survey officer should have been authorised to administer an oath and to record a sworn statement. While section 132(4) of the Act specifically authorizes an officer to examine a person on oath, section 133A did not permit the same. Moreover, the word may used in section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was not a conclusive piece of evidence by itself. It was settled law that though an admission was an extremely important piece of evidence, it could not be said to be conclusive and it was open to the person who had made the admission to show that it was incorrect. Since the assessee had been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the Assessing Officer could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey. 6. CIT vs. Vijaykumar Kesar 327 ITR 497: The confession made by the assessee during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Valves P Ltd (vi) Balaji Textile Industries (P) vs Third income Tax Officer (vii) Diagnostics vis. CIT reported in 334 ITR 111 Culcutta (viii) Gujarat Sanjay Oilcake Industries vs CIT reported in 316 ITR 274 (ix) Gujarat DCIT vs Adinath Industries reported in 252 ITR 476 (x) CtT vs M K Bras reported in 163 ITR 249 (Guj) (xi) 134 TT J 167 Delhi CTR Volume 50 Part VI page 39 I have gone through the above decision which supports the case of the appellant. In view of the above, the addition made by the Assessing officer is hereby deleted. This ground of appeal is allowed. 19. Against the above order of CIT(A), revenue is in appeal before us. 20. We have considered rival contentions and found that assessee is engaged in the execution of contracts awarded by the government department for which he use to purchase material from the market. Proper records were maintained for such purchases and same were placed in the regular books of accounts. Utilisation of the goods were duly supported by records and respective certification by BMC authorized personal. A clear finding has been recorded by the CIT(A) with respect to these purchases and uti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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