TMI Blog2013 (2) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 14,28,460/- made by the AO on account of disallowance out of contract payment made to sub contractor, Shri Yogendra Singh Jadon ignoring the facts circumstances of the case, especially that Shri Jadon did not attend the office in compliance to the summons u/s 131 of the Act issued to him to verify the payment. 3. That the ld. CIT(A) has erred in law and on facts in directing the AO to work out the addition only on the sum of ₹ 57,59,910/- against the amount of ₹ 86,59,985/- as closing work in progress by applying GP rate without appreciating the facts circumstances of the case, especially that the assessee has not furnished evidences to justify that the expenses to the tune of ₹ 61,53,841/- pertaining to the period prior to 12.03.2008. 4. That order of Ld. CIT(A) being erroneous in law and on facts deserves to be quashed and that the order of AO to be restored. 5. The appellant craves, leaves to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal. ITA No.157/Agr/2012 by the Assessee 3. The grounds raised by the Assessee in it s appeal are as under :- 1. That the Learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be added. The A.O. made addition stating that the assessee has shown lesser work in progress/closing stock. 6. The CIT(A) deleted the addition after accepting reconciliation furnished by the assessee. The assessee furnished details of expenses for the remaining period also, the summary of which noted by the CIT(A) is as under :- (page nos.19 20) The expenditure pertains to the period from 12.03.2008 to 31.03.2008 is ₹ 95,01,079.00 as detail given below :- Material purchase Rs.63,29,719.00 Cartage ₹ 29,120.00 Repair Maintenance ₹ 2,131.00 Expenditure for the period 12.03.08 to 31.03.08 as per above Chart Rs.31,40,109.00 Total: Rs.95,01,079.00 Less: Payment received by the assessee as per A.O. calculation Rs.65,19,013.00 WIP Rs.29,82,066.00 WIP and closing stock shown by the assessee Rs.62,35,833.00 Unexplained/undisclosed WIP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-progress ₹ 86,59,985/- (57,59,910 + 29,75,000) of which calculation comes to ₹ 9,71,038/-. The A.O. made addition of this amount of ₹ 9,71,038/-. The CIT(A) directed the A.O. to apply the G.P. rate on work-inprogress element of profit in respect of ₹ 57,59,910/- as he has deleted the addition made in this account of ₹ 29,00,075/-. Both, assessee and Revenue, are in appeal through ground no.3 of respective appeals. 11. We have heard the ld. Representatives of the parties and records perused. The A.O. and CIT(A) both are not correct in applying G.P. rate on work-inprogress. The A.O. is not correct in applying Accounting Standard-7 as there is no such requirement in Accounting Standard-7 for applying G.P. rate on work-inprogress. The CIT(A) in principle accepted the A.O. s view that G.P. rate is applied in work-in-progress. However, he restricted to calculate the G.P. rate only on R.57,59,910/- work-in-progress shown y the assessee as he deleted the addition on account of work-in-progress ₹ 29,00,075/- made by the A.O. The Revenue is in appeal in reducing the amount of work-in-progress by the CIT(A) through ground no.1 and direction given in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. However, the A.O. found that ₹ 22,82,466/- is on higher side after taking a liberal view the payment made in cash to an amount of 14,28,460/- which was not subject to verification was disallowed by the A.O. on the ground that the same was not incurred wholly and exclusively for the purpose of business of the assessee. 14. The CIT(A) deleted the said addition as under :- ( Para 6.2, page 24) 6.2 I have gone through the assessment order and the submission made by the ld. AR. In my view the AO has failed to bring anything on record to justify that the payments made to the Jadon were excessive or were not for work undertaken by him. If some of the payments were suspect then it was open to the AO to verify them, no such exercise has been done by the AO. Therefore, the addition made by the AO is deleted. 15. We have heard the ld. Representatives of the parties and records perused. The A.O. did not dispute about the fact that Shri Yogendra Singh Jadon has carried out sub-contract work of the assessee. The A.O. on the basis of presumption that generally labour expenses in this line of business comes to 30% whereas the payment made to Shri Yogendra Singh Jadon was exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation facility, conveyance facility, telephone facility which are generally provided by an employer to its employee. (iv) Shri Sanjay Agarwal is not a registered contractor in the records of Service Tax Department. (v) A perusal of the cash flow statement drawn from his bank statement reveals that Shri Sanjay Agarwal has not sufficient liquidity to meet out the expenses required for the execution of sub-contract work as shown by the assessee. (vi) As claimed by the assessee Shri Sanjay Aarwal has received payment from site at Lalkuan was also found false as no payment were received by him at site as evident from the self made vouchers (placed on scrutiny folder). The payment has also been made from Agra head office while on those dates he was supposedly working at Lalkuan. (vii) During the recording of the statement it also came to the notice that two Supervisor Staff were also employed by the assessee namely Shri Nitin and Shri Shailendra to look after the work at site for a salary of ₹ 3,500/- per month. Since, Mr. Sanjay Agarwal also worked as a supervisor he is entitled for a salary of ₹ 3,500/- per month. As he provided his services for five months the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd records perused. The case of the Revenue is that the assessee has claimed payments to subcontractors which were not genuine sub-contractors. The CIT(A) found that merely filing affidavit is not sufficient unless some corroborative evidence is furnished. In the case under consideration, sub-contractors could not be produced or any evidence to establish that they had actually carried out any work as claimed by the assessee. They could not produce books of account, voucher, bill etc. The A.O. has also brought on record their financial soundness which suggests that the sub-contractors could not have undertaken the work as claimed by them. It is also admitted fact that subcontractors are relatives of the assessee as required under section 40A(2)(b) of the Act. Shri Sanjay Agarwal is son of partner Smt. Uma Devi, Shri Subodh Agarwal is also son of partner Smt. Uma Devi and Shri R.R. Agarwal is husband of the partner Smt. Uma Devi. The above details have been noted from the assessee s Paper Book at page no.258. In the light of the fact and the material available on record, in principle, we agree that the sub-contract was not carried out by the above sub-contractors and in this regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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