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ACIT, Circle-33, Kolkata Versus Debdas Dutta

2018 (2) TMI 962 - ITAT KOLKATA

Disallowance @ 10% of Labor Charges - Non deduction of tds - non-availability of supporting evidence - Held that:- AO has not brought on record any cogent reasons for making the disallowance of the above stated amount. It is not the case that the expenses were considered to be bogus or unreasonable. The allegation of the AO is that the vouchers were handmade. There are certain situations and circumstances where the external documents in support of the expenses are not available. One of such expe .....

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u/s 133(6) - Held that:- It is undisputed fact that all the trade creditors appearing in the balance-sheet are arising out of the expense of material purchased by the assessee. Thus all the purchases have been duly accepted by the AO and same was not disputed. However, the trade creditors which are emanating from the purchases have been disallowed merely on the ground of non-response of notice issued to them u/s 133(6) of the Act. In our considered view, the trade creditors cannot be disturbed .....

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lso observed in the absence of any documentary evidence the AO should have referred to the historical data of the assessee for making the disallowance in scientific manner but in the instant case, AO has made the disallowance based on his surmise and conjecture. AO arbitrarily has disallowed @ 5% of material purchase and had accepted 95% of the expense which is contrary to the finding of AO. It is also important to note that the assessee has declared net profit @ 6.5% which is quite reasonable i .....

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3, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 25.03.2013 for assessment year 2010-11. The grounds raised by the Revenue reads as under:- 1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in deleting the addition made on account of disallowance @ 10% of Labor Charges of ₹ 6,00,26,712/- on which no TDS was made and payments were made in cash through self-made vouchers having neit .....

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ppeals) has erred in deleting the addition of ₹ 21,53,716/- i.e. 5% of materials purchased as the assessee failed to produce any details of materials consumed and also no books of account & supporting documents were produced. 4. Any other ground, appellant craves leave to submit on or before the hearing of the appeal. Shri Sallong Yaden, Ld. Departmental Representative appeared on behalf of Revenue and Shri D.S. Damle, Ld. Authorized Representative appeared on behalf of assessee. 2. Fi .....

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e assessee out of total labour charges has deducted Tax Deducted at Source (TDS) to the tune of labour charges of ₹2,30,26,215/- and remaining labour charges of ₹600,26,712/- was incurred without deducting TDS. The AO during the course of assessment proceedings observed that the labour charge incurred without TDS deduction are incurred in cash and supported with the self-made vouchers. The AO further observed that the selfmade vouchers were completed in all respects and necessary det .....

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s of the projects and all the necessary details in support of labour charges such as vouchers, wage distribution register and other relevant documentary evidence were duly produced before AO. ii) It is important to understand that most of the labourers employed were illiterate and unskilled. These labourers were residing in such remote places where banking facilities are not available. Thus in such circumstances, wages were disbursed in cash. iii) AO failed to point out any specific instance of .....

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asonableness of expense; Ld. CIT(A) after considering the submissions made by assessee has deleted the addition made by the AO by observing as under:- 5.3 I have carefully considered the submissions of the appellant and have perused the details of labour charges as debited in the appellant s profit & loss account. As noted in the foregoing during the relevant year the appellant carried on the business as a government contractor. The appellant executed civil contract in the interiors of West .....

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at various sites. As per the normal practice followed in the business of contract execution, labour wages are disbursed periodically in cash and therefore the mere fact that the assessee incurred the labour wages in cash cannot militate against the assessee. It is not disputed by the AO that the appellant had maintained records in respect of labour wages paid and the same were produced before him. Although the AO alleged that the expenses were not fully verifiable he did not spell out in the im .....

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east few specific instances where the expenditure was found to be not supported by any vouchers or other supporting evidences. I however find that just by making generalized observation that the appellant failed to produce full supporting evidences the AO produced to make adhoc disallowance. I also find merit in the AR s submissions that the disallowance was made without application of mind. Not only the AO disallowance not point out any specific instance of unverifiable expenditure but the AO h .....

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d. The AO did not point out any specific infirmity or inaccuracy in any of the particular expenditure incurred. In the circumstances even by Assessing Officer' own admission 95% of the expenditure was found to be genuine and bonafide but he doubted only 5% of the expenditure to be not genuine. In my considered opinion if the AO found 95% of the expenses to be genuine and did not point out any specific instance of the expenses being un-verifiable he was not justified in making adhoc estimated .....

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s assessee failed to produce books of account, bills and vouchers. On the other hand, Ld. AR reiterated the submissions that were placed before Ld. CIT(A). He relied on the order of Ld. CIT(A). 6. We have heard the rival contentions of both the parties and perused the materials available on record. The instant case, addition was made by AO on account of non-production of supporting evidence in relation to labour charges. Therefore, the AO disallowed the labour charges on ad hoc basis @ 10%. Howe .....

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also observed that AO was very much empowered to initiate the penalty u/s 271(1)(b) of the Act in the event of non appearance of assessee on the date of hearing despite the fact that notices for hearing were sent to him. On perusal of the assessment order, we note that no penalty of whatsoever has been initiated by the AO. We also observed that the AO has not initiated penalty on account of nonmaintenance of books of account u/s 271A of the Act. 6.3 We also find that various Tribunal s orders as .....

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iled to furnish necessary evidence for purchase and other expenses. Purchase & expenses not confirmed on an enquiry conducted by the AO u/s. 133(6). Ld. CIT(A) confirmed the order of the Assessing Officer. Tribunal relied on the decision of Hon ble Orissa High Court decision in the case of CIT Vs Nandaram Hunda Ram (1976) 103 ITR 433, wherein it is held that if the assessee failed to produce acceptable accounts revenue would be on the decision of Royal medial Hall vs. CIT (1962) 46 ITR 748 ( .....

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visions of Section 145(3) and estimated net income from the contract business @ 8%. Assessee failed to produce the labour payment vouchers and purchase bills to verify the expenses purchase and closing stock. Ld. CIT(A) has estimated the income from regular contract business at 8% of the contract receipts and 4% in so far sub-contracting is concerned. Honble lordship of Tribunal, directed to estimate the income @ 6% from the contract business sand so far as profit on sub-contract business and ro .....

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ined purchase, sub-contract expenses and under valuation of work-in-progress. The Ld. CIT(A) estimated the total income by applying net profit rate of 4%. Both the assessee and revenue has challenged to the extent of order against them. The Tribunal inclined upon the order of the Ld. CIT(A) and accordingly confirmed. However, in the instant case, we find that the assessee has offered net profit @ 6.5% which is quite reasonable from the business of Government contracts. We also note that the AO h .....

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books of accounts. The relevant provision of section 145(3) reads as under : 16[Method of accounting.17 145. (1) - (2)- (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.] But .....

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in he facts and circumstances of the given case. It is because the assessee is a Government Contractor which is labour intensive activity. Therefore the AO needs to refer to the earlier year financial statement to ensure unreasonable expenses has been claimed by the assessee. But no such exercise was carried out by the AO. In this connection, we also rely on the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA 11/Kol/2013 Dated 12.11.2014. The relevant ext .....

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iture is unverifiable or is un-vouched, then such specific expenditure is disallowable. Her no such specific identification has been done. In these circumstances, we are of the view that the estimated disallowance as confirmed by the ld. CIT(Appeals) is unsustainable. Consequently the same stands deleted. In the result, Grounds No. 2 & 3 of the assessee s appeal stand allowed. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and .....

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as requested to produce necessary details in respect of following parties:- Name of the parties Amount 1. Shahabuddin Dhali 5,70,964 2 Nur Ali Khan 5,16,280 3 Maji Enterprise 3,36,530 4 Konked International 3,83,986 5 Bengal Trading Corporation 8,42,829 6 Anisur Alam Malick 98,000 7 Adhunik Traders 4,53,620 8 Mazid Ali Gazi 2,18,112 9 Kamlesh Biswas 28,,61,533 10 Chandan Kr. Viswas 23,76,000 11. Amit Basu 26,93,691 12. Bengal Engineering Corpn 35,30,257 Total amount Rs.1,14,49,545 As the assesse .....

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mes, address, opening and closing balance were duly furnished before AO. The assessee was doing transactions regularly with those parties and all the transactions of purchase and payment made to them were duly accepted by the AO except the outstanding balance appearing at the end of the financial year under consideration which showed that AO has not doubted the transactions which have been squared up during the year under consideration. The financial statements of the assessee were duly audited .....

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in respect of sundry creditors brought forward from the earlier years. 9.1 The addition u/s. 68 of the Act can be made if any sum is received by the assessee. In the instant case, no sum whatsoever has been received by assessee as all the transactions are arising in the books of account of the assessee from the business. In view of the above, the assessee submitted that the addition made by the AO is based on his conjecture and surmise. Ld. CIT(A) after considering the submission of assessee obs .....

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lip; it appeared from the material on record that the assessee had trading transactions with 11 parties. From the copies of accounts furnished, it appeared that 11 parties had either supplied materials or labor for executing contractual jobs. Value of invoices raised by each of the party was credited to the individual account of the creditor in the appellant s books. From the information on record it appeared that in the course of assessment the appellant had furnished details of labour charges .....

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o whom such labour charges were payable, 6 parties viz. Bengal Engineering Corpora ion, Kamlesh Biswas, Chandan Biswas, Anisur Alam Mallick, Mazid Ali Gazi and Amit BIasu are the persons whose outstanding balances as on 31.03.2010 were considered by the AO for the purposes of making impugned addition. I further find that out of the aforesaid six parties, 5 parties viz Kamlesh Biswas, Chandan Biswas, Anisur Alam Mallick, Mazid Ali Gazi and Ami Basu had furnished their letters of confirmations in .....

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ather the AO had accepted the expenses to be genuine and tax was properly deducted u/s. 194C of the Act. In this factual background, therefore, the amounts outstanding and due to these six parties could not therefore be assessed as income of the appellant. 6.5 As regard to the amounts outstanding and due to the remaining five parties, it appeared from the copies of ledger accounts that these parties viz. Maji Enterprises, Adhunik Traders, Nur Ali Khan, Konked International & Sahabudin Dhali .....

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ransactions with the appellant. As regards addition of outstanding sum of ₹8,42,829/- mad in the name of Bengal Trading Corporation, I note that the said Bengal Trading Corporation is another proprietary concern of Shri Debdas Dutta i.e. the appellant himself. It therefore appeared that one proprietary concern of the appellant had provided sum of money to another proprietary concern i.e. Bengal Trading Company. As such, the transactions between the two proprietary concerns beneficially bel .....

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Trading Corporation and Bengal Trading Company, the transactions with remaining 11 parties were on trading account. The said 11 parties had supplied ma erial or labour for which invoices were raised on the appellant. In he impugned assessment order, the AO did not disallow the expenses incurred on the ground that the assessee s trading transactions were either bogus or proved to be not genuine. In the circumstances, whom part of the transactions resulting in debit of expenses to the profit & .....

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In this regard I find that the appellant s case is supported by the decision of Delhi High Court in the case of CIT vs. Ritu Anurag Agarwal (supra). In this case, additions in respect of sundry creditors balances were made on the ground that the assessee failed to produce books of account, bills &vouchers etc. While upholding the relief allowed by the ITAT, the High Court observed that in the assessment order purchases from the parties were not disbelieved nor trading results disclosed by th .....

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edit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under Section 68, more so when the purchase has been accepted as genuine and a deduction therefore has been allowed. 6.8 Applying ratio laid down in these judgments, I therefore hold that since in respect of sums due to 11 parties the AO did not dispute or disbelieve the appellant s trading transactions with thes .....

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be assessed as the income of the appellant. for the reasons discussed in the foregoing, therefore, the entire addition of ₹1,14,49,545/- is directed to be deleted. Ground No.s 3, 4 & 5 are allowed. The Revenue, being aggrieved, is in appeal before us. 10. Before us Ld. DR submitted that books of account were not produced before Ld. CIT(A) as well as before AO. Therefore Ld. CIT(A) should have rejected books of account as he held co-terminus power but Ld. CIT(A) failed to invoke the pro .....

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AR relied on the order of Ld. CIT(A). 11. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, the addition was made by AO on the ground that the trade creditors could not respond to the notice issued u/s 133(6) of the Act. However, Ld. CIT(A) reversed the order of AO. It is undisputed fact that all the trade creditors appearing in the balance-sheet are arising out of the expense of material purchased by the assessee. Thus al .....

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34 ITD 148 (Del) wherein it was held as under : In the case of the assessee these creditors represent the outstanding amount on account of the purchases. There can be three alternative allegations against the assessee. One can be that these credits represent the credit for earlier years. If that be the case, no addition can be made in this year under section 68. The second allegation can be that these credits represent the purchases for which payments have been made by the assessee during the ye .....

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ot correct. However, on going through the assessment order, it is evident that the trading results have been accepted. Despite this, for the sake of analysis, if it is considered that the assessee has failed to prove the genuineness of the creditors and, consequently, the purchases to that extent are not genuine, then the declared gross profit of ₹ 32,16,564 will get further enhanced by ₹ 37,99,907, i.e., a GP of ₹ 70,16,471 on a total turnover of ₹ 2,51,55,930 giving an .....

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ot supply the addresses of these creditors. All the facts and circumstances of the case, including that of destruction of books of account, old period, petty karigars, advances to the suppliers, debtors and the closing stock, and particularly the fact that all these creditors have been paid off in the subsequent year and the return for that year has been accepted by the department clearly show that in the case of the assessee it is not necessary to add these creditors. Respectfully following the .....

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the expenses requested the assessee to produce the supporting evidence but assessee failed to do so. Therefore, AO disallowed the materials purchased expenditure @ 5% i.e. ₹21,53,716/- and added to the total income of assessee. 14. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that all the necessary details of materials purchased were duly produced before AO during assessment proceedings. The assessee further submitted that if it has fa .....

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assessment u/s. 144 of the Act which he failed to do so. Assessee also cited various courts case where it was held that no disallowance on ad hoc basis can be made. Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO by observing as under:- 7.3 I have carefully considered the submissions of the parties. It appeared that the AO made the disallowance primarily on the ground that the assessee failed to produce books of account. The AR of the appellant had furnis .....

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not prove o indicate any falsity or infirmity in the information statutorily provided by the Tax Auditor. In the circumstances, I find that the AO did not prove any specific short coming or inadequacy in the audited accounts furnished before him. The appellant had also furnished the details of materials consumed and no specific infirmity in these details was pointed out. I further note that even though the AO stressed on the fact of non-compliance on the appellant s part, yet 95% of the expense .....

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excess of ₹1 crore which in percentage terms was approximately 6.5%.Having regard to the nature of business and the turnover achieved disclosure of such income cannot be considered to be low or unreasonable. For the reasons aforesaid, therefore, I do not find any justification for sustaining the adhoc estimated disallowance of ₹21,53,716/- on account of material consumption. The disallowance is therefore deleted. Ground Nos 6 & 7 are accordingly allowed. The Revenue, being aggrie .....

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