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2016 (11) TMI 888 - ITAT MUMBAI

2016 (11) TMI 888 - ITAT MUMBAI - TMI - Disallowance of Labour Charges - Held that:- we concur with and uphold the finding of the learned CIT(A) that in the absence of any material evidence being brought on record by the AO to prove that the payments made to these three related parties as bogus, the said payment of labour charges to him cannot be termed as bogus and the action of the so to discover the entire payment of labour expenditure, since they were incurred through related parties, is unj .....

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matter, we are of the opinion that the adhoc disallowance of 25% of expenditure incurred on labour charges paid to related parties under section 40A(2) of the Act was not warranted in the facts and circumstances of the case on hand as discussed above and therefore direct the AO to delete the same.- Decided against revenue - Bogus purchases under section 69C - Held that:- Without causing any enquiries to be made to establish his suspicions, the AO cannot make the addition under section 69C of .....

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of payment through banking channels, etc., and there is no evidence brought on record by the AO to establish that the said payments were routed back to the assessee, the addition made by the AO under section 69C of the Act is unsustainable - Decided against revenue - Disallowance of Motor car expenses - Held that:- In the order of assessment, the AO has made an adhoc disallowance of 20% of motor car expenses and depreciation thereof (i.e. ₹ 79,063/-). On appeal, the learned CIT(A) sust .....

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nting to ₹ 2,44,423/-. On appeal, the learned CIT(A) has sustained the disallowance to the extent of 5%. Except for raising the ground before us, Revenue has not brought on record any material evidence to controvert the impugned order of the CIT(A) and warrant our interference therein on this issue. In this view of the matter, we uphold the order of the learned CIT(A) on this issue. - Decided against revenue - ITA No. 6821/Mum/2014, ITA No. 6381/Mum/2014 - Dated:- 16-11-2016 - Shri Jason P .....

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for A.Y. 2010-11 on 15.10.2010 declaring total income of ₹ 62,40,310/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 25.03.2013; wherein the income of the assessee was determined at ₹ 2,02,24,470/- in view of the following additions/disallowances: - (i) 20% disallowance out of motor car expenses &# .....

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llowance out of motor car expenses and telephone expenses to the extent of 5% thereof; (ii) sustained 25% disallowance under section 40A(2)(b) out of total labour charges paid to three sister concerns; i.e. disallowance to the extent of ₹ 26,39,726/- was sustained. (iii) Profit @12.64% on bogus purchases. 3. Both Revenue and the assessee, being aggrieved by the impugned order of the learned CIT(A)-29, Mumbai dated 22.08.2014 for A.Y. 2010- 11, have preferred cross appeals in respect of iss .....

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ing officer without considering the fact and merits of the case. The Hon'ble CIT (Appeals) has also erred in not considering the fact that purchases to the extent of ₹ 29,90,240/- out of the above alleged bogus purchase were written back / reversed in the subsequent year on defects finding in the material supplied, without considering the fact and merits of the case. The Hon'ble CIT (Appeals) has also erred in not considering the further payments of ₹ 9,31,950/- out of the di .....

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e case and in law the Ld. CIT(A) has erred in reducing the disallowance the motor car expenses from 20% to 5% without appreciating the fact that the assessee was not maintaining any log book for motor car and use of motor car for personal purposes cannot be ruled out. 2. On the fact and in the circumstances of the case and in law the Ld. CIT(A) has erred in reducing the disallowance of Telephone expenses from 15% to 5% without appreciating the fact that the use of Telephone expenses for personal .....

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eturn Of Income. Further, on the fact and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate that the assessee was not able to place any evidence to prove that the subcontract were carried out by the sister concerns with their own funds. 4. On the fact and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate that the peak method of disallowance as held in the case of M/s Vijay Proteins Ltd. (1996 58 lTD 428 Ahd) was correct method f .....

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Profit & Loss account on account of labour charges paid to different subcontractors on the civil contracts undertaken by him. Out of these, amounts totalling to ₹ 1,05,58,905/- had been paid to the following related concerns (hereinafter referred to as related parities): - (i) M/s. Bhairav constructions ₹ 37,22,876/- (ii) Jain Infrastructure ₹ 34,34,207/- (iii) Nakoda Developers ₹ 34,01,822/- It was also observed from the schedule of sundry debtors that amounts total .....

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4AF of the Act, which pertains to retail trading and does not cover the cases of sub-contractors. The AO also noticed from the returns of income that these three parties had neither received any money from any source or incurred their own funds to justify expenditure upto 95% as claimed therein; more so when the sub-contracts said to be undertaken by them is for labour supply, where payment to labourers is the basic part of expenditure. In the light of the aforesaid observations, the AO was of t .....

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carried out civil contract works for organizations like RBI, M/s. Reliance Infrastructure Ltd., etc. and therefore ruled out the possibility of these concerns making payments for civil contracts without any work being carried out. It was also noticed that the AO did not cause any independent enquiry to prove that either that no work was carried out by these three related parties or that the expenditure booked on account of labour charges to them was totally bogus. Therefore, in the absence of a .....

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n made in the subsequent year and since the labour jobs to complete the contract have been carried out, the expenditure incurred through the three related parties cannot be doubted. After thus concluding, the learned CIT(A) observing that since the assessee has not placed on record comparative evidence to show that payments to the related parties were at par with labour payments to other concerns performing similar jobs, the provisions of section 40A(2) of the Act are attracted and consequently .....

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out for RBI, Reliance Infrastructure Ltd. etc. The fact that no enquiry was conducted by the AO to prove that either no work was carried out by these related parties or that the expenditure booked was entirely bogus, was noted by the learned CIT(A), who proceeded to hold that the disallowance of the entire expenditure was not called for. The learned A.R. of the assessee further contends that after holding thus, the action of the learned CIT(A) himself to then proceed to invoke the provisions of .....

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15) 37 ITR (Trib) 343 (Bangalore) (ii) Sayaji Iron and Engg. Co. Vs. CIT (2002) 253 ITR 749 (Guj.) (iii) Johnson and Johnson Ltd. vs. ACIT (ITA No. 3289 and 9437/Mum/2014) (iv) Goldcrest Exports vs. ITO (ITA No. 442/Mum/2009) 4.3.2 It is also contended that expenditure incurred on labour charges paid to the same three related parties was accepted by the Department and no disallowance under section 40A(2) of the Act was made in scrutiny assessment proceedings for A.Y. 2009-10 (copy placed at pg. .....

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ussed in paras 4.1 to 4.4 (supra) it is seen from a perusal of the impugned order of the learned CIT(A) that after due consideration of the material on record he negated the AO s view that the said transactions with the three related parties involving the incurring of expenditure for labour charges were bogus after observing that the said expenditure was in respect of civil contract works carried out for RBI, Reliance Infrastructure Ltd., who would certainly have not paid the assessee unless the .....

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lated parties as bogus, the said payment of labour charges to him cannot be termed as bogus and the action of the so to discover the entire payment of labour expenditure, since they were incurred through related parties, is unjustified and unsustainable in the facts and circumstances of the case. Consequently, ground No. 3 of Revenue s appeal is dismissed. 4.6 In its appeal in connection with ground No. 1 the assessee s submission is that the learned CIT(A) order sustaining an adhoc disallowance .....

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nt is made. In our considered view, the learned CIT(A) has failed to point out any particular expenditure in respect of labour charges which according to him is excessive or unreasonable but has proceeded to uphold an adhoc disallowance of 25% thereof, which is, in our view, unsustainable. In this view of the matter, we are of the opinion that the adhoc disallowance of 25% of expenditure incurred on labour charges paid to related parties under section 40A(2) of the Act was not warranted in the f .....

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t selling any material and the assessee in the case on hand had made so called purchases amounting to ₹ 41,60,393/- from some such parties, as per the details hereunder: - (i) Ramdev Trading ₹ 73,433/- (ii) Dhruv Sale Corporation ₹ 1,77,138/- (iii) Shubhlaxmi Sales Corporation ₹ 11,28,491/- (iv) Ambika Trade Impex ₹ 3,42,007/- (v) Om Corporation ₹ 14,34,864/- (vi) National Trading Co. ₹ 1,50,938/- (vii) Universal Trading Co. ₹ 2,38,203/- (viii) Bal .....

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ailed to do. The assessee s failure to do so, and relying on the information of the Sales Tax Authorities that these parties admitted to have given bogus bills, the AO proceeded to conclude that the assessee had made the aforesaid purchases (supra) from the above parties out of his undisclosed income and later on obtained the bogus bills to that extent from these parties. In that view of the matter, the AO proceeded to disallow the peak of the above purchases at ₹ 33,09,526/- and brought i .....

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P. Shown by the assessee in the year under consideration. 5.2 The learned D.R. was heard in support of ground No. 4 raised by Revenue challenging the action of the learned CIT(A) in directing the AO to assess the GP of 12.64% as the disallowance out of bogus purchases. It was prayed that the impugned order of the learned CIT(A) be reversed and that of the AO be restored. 5.3.1 The learned A.R. of the assessee was heard in support of the grounds raised at S. No. 2 to 4. In these grounds, the asse .....

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n the form of copies of purchase bills issued by the parties, proof of payment for such purchases through banking channels, delivery challans, etc. It is contended that, on the contrary, the AO has neither caused any independent enquiry nor brought on record even a shred of evidence to prove that the said purchases were bogus and in coming to an adverse finding merely relied on the information of purchase parties listed by the Sales Tax Department. The learned A.R. of the assessee submitted that .....

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carefully considered the material on record; including the judicial pronouncements cited. On an appreciation of the material on record, it is evident from the order of the assessment that it is on the basis of information from the Sales Tax Department that the assessee issued notice to the assessee calling upon him to explain the genuineness of the aforesaid purchases from the said parties (supra). As the assessee was unable to produce the said parties, the AO primarily relying on the informatio .....

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for the same were through banking channels, delivery challans, etc. in order to establish the genuineness of the said purchases. It is a fact on record that the AO has not doubted the corresponding sales effected by the assessee and therefore it is in order to conclude that without corresponding purchases being affected, the assessee could not have made the sales. 5.4.2 We find that the AO has not brought on record any material evidence to conclusively establish that the purchases are bogus. Me .....

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m the Sales Tax Department. In the case on hand, the AO failed to make any enquiry to establish his suspicions. Further, the corresponding sales have not been questioned. We find that the assessee has brought on record documentary evidences to establish the genuineness of the purchase transactions, the action of the AO in ignoring these evidences cannot be accepted. When the copies of purchase bills of these parties, delivery challans, proof of payment through banking channels, etc., and there i .....

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that the addition made by the AO under section 69C of the Act on account of peak of alleged bogus purchases of ₹ 33,09,256/- to be unsustainable. Consequently Revenue s ground raised at S. No. 4 is dismissed. 5.5 In this order at paras 5.4.1 to 5.4.2 (supra) we have held that the AO s action in making the addition u/s. 69C of the Act on account of alleged bogus purchases was factually unsustainable in the legal and factual matrix of the case. Consequently, the finding of the learned CIT(A) .....

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