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2018 (2) TMI 962

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 expense appears to be labour charges 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. - Decided against revenue. - Addition on account of unverifiable sundry creditors - trade creditors could not respond to the notice issued 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 not .....

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the assessee failed to produce any books of account and also failed to give new address of the creditors for verification. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) 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. Fist issue raised by Revenue in ground No.1 is that Ld CIT(A) erred in deleting the addition made by the Assessing Officer for ₹60,02,671/-on account of non-availability of supporting evidence. 3. Briefly stated facts are that assessee is an individual and acting as government contractor. The assessee is a proprietor of two firms namely Bengal Trading Company & Bengal Trading Corporation . The assessee has debited its profit and loss account for ₹8,30,52,972/- on labour charg .....

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n the business as a government contractor. The appellant executed civil contract in the interiors of West Bengal. The nature of appellant s business required him to engage unskilled manual labour in large number at the work sites. Having regard to the nature of business carried on by the assessee it was essential for the assessee to engage labour which was mainly sourced locally. As a general practice the local labour executing manual jobs are semi-literate and migrant in nature. In the impugned order the AO did not dispute the fact that the appellant had maintained records of labour wages disbursed 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 impugned order any specific instance where the labour payment were found to be unsupported by re .....

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tion as 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%. However, Ld. CIT(A) reversed the order of AO by deleting the same. Now the issue before us arises whether the relief granted by Ld. CIT-A in the above facts and circumstances is justified. 6.1 The AO has framed the assessment u/s 143(3) of the Act which is contrary of his own finding that supporting evidences were not furnished by assessee. The AO was very much empowered to reject the books of account and to frame assessment u/s 144 of the Act which in our considered view AO failed to do so. 6.2 We 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 .....

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ax (Appeals) to meet the end of justice. 5. In the case of the ACIT Gandhidham Circle vs. M/s Ishwar Construction Co. Gandhidham, ITA No. 1140/RJT/2009 it has been held that in the AY 2005- 06, the assessee was engaged in the business of civil construction. Assessee fails to provide proper evidence in the shape of bills, vouchers, unable to verify purchases before the AO and AO made addition for unexplained 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 has made the disallowance on the ground that in most of the cases self made vouchers were produced by the assessee. However on examination of AO order we notice certain lapses as detailed below : 1. The AO made the disallowance on adhoc basis and without pointing out any specific defects in the .....

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imated 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 no interference is called for. Consequently, Revenue s ground is dismissed. 7. Next issue raised by Revenue in ground No.2 is that Ld. CIT(A) erred in deleting the addition made by AO for ₹106,06,716/- on account of unverifiable sundry creditors. 8. During the course of assessment proceedings, AO issued notice to several creditors of the assessee u/s 133(6) of the Act but in many cases either the notice was not served or no reply was made by the parties except three parties. The assessee was 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 .....

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were arisen from the purchase made by assessee thus no loan of whatsoever was taken by assessee from those parties; According Ld. CIT(A) deleted the addition made by AO by observing as under:- … … 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 paid as well as materials consumed in execution of contracts. Copies were field. Out of the total expenditure on labour charges debited in the P&L A/c. labour charges of ₹2,40,50,615/- were payable to 13 parties and in respect of these charges tax u/s.194C was deducted at source by the appellant. In respect of the labour charges payable to these parties, the AO accepted the genuineness of the entire expenditure amounting to ₹240.50 lacs on being satisfied. Out of the 13 par .....

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e. Bengal Trading Company. As such, the transactions between the two proprietary concerns beneficially belonged to the appellant himself. Having regard to these facts, I therefore find that the addition made by the AO was factually as well as legally unjustified. 6.6 As noted in the foregoing, the amounts were added by the AO without specifying the enabling provision of the Act which permitted the AO to make addition only in respect of outstanding balances appearing in the accounts of sundry creditors. The information and evidences on record prove that save and except the transactions between Bengal 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 & loss account was not proved to be bogus or unverifiable then the remaining part could not be .....

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d not 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 provision of Section 145(3) of the Act He requested the Bench to restore the matter to the file of AO for fresh adjudicated in accordance with law. The ld. DR heavily relied on the order of AO. On the other hand, Ld. AR submitted that out of 12 parties 8 parties have responded to the notice issued u/s 133(6) of the Act and AO has admitted the transactions with the parties as discussed above as genuine other than the amount of closing ba ance appearing at the end of the year under consideration. Ld. 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 .....

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note that the assessee is in the business of exports and its entire income is exempt. There is, as such, no reason for the assessee to suppress the profit as its income. [Para 20] Taking into consideration the above facts of the assessee, it is a fit case not to make any addition by invoking the deeming fiction of section 68 in respect of the sundry creditors, despite the fact that the assessee could not 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 same, we do not find any interference in the order of Ld. CIT(A). We hold accordingly. Consequently, ground raised by Revenue is dismissed. 12. Next issue raised by Revenue is that Ld. CIT(A) in deleting the addition made by AO for ₹21,53,716/-being 5% of material purchase on the ground .....

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dequacy 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 expenses was allowed by the AO himself, meaning thereby that the AO was satisfied about the genuineness of the expenditure to the extent of 95%. In the above background, therefore, I do not see any justification in the AO's action of disbelieving the genuineness of only about 5% of the expenses on account of material consumption particularly when no specific infirmity was pointed out n the details furnished. I also find that on the turnover of ₹15 crores, the assessee had disclosed income in 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 .....

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