TMI Blog2018 (10) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... s 40A(3) - payments made in cash - proof of business expediency/ business compulsions - Held that:- There is no dispute that the banking facilities are not available in some parts of these villages. The assessee had stated that the raw materials supplier insisted for making payments in cash in view of the fact that their residence are situated in the remotest villages where there are no banking facilities. Hence the assessee had to necessarily make payments only in cash out of business expediency/ business compulsions so as to ensure smooth supply of raw materials from the said supplier for the purpose of its road contract works in order to avoid any delay in execution of the said work allotted to the assessee by the Government and local authorities. There is no dispute that the payments were made on Sundays, public holidays etc by the assessee. None of the aforesaid findings given by CIT(A) have been controverted by the revenue before us. Hence we do not find any infirmity in the order of the Ld. CIT(A) by granting relief to the assessee - Decided in favour of assessee. Ad hoc addition towards work-in-progress - Held that:- The entire books of accounts together with requisite d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee incurred labour charges of ₹ 64,03,663/- and earth work charges of ₹ 56,50,917/- during the year. When show caused by the ld. AO with regard to nondeduction of tax at source on the said payments, the assessee replied that these are labour charges paid to various labour Sardars/ Munshis who in turn passed on by distributing the monies/ wages to various labourers involved in the road contract work. It was submitted that the assessee had not engaged any labour contractor in lieu of which these payments were made. This labour sardars/ munshis are also labour heads working for the assessee through whom the wages were distributed to various labourers for the sake of convenience. In support of this, the assessee submitted a detailed wage sheet of various workers and also the ledger account of labour charges and earth work charges. The ld. AO did not accept the contentions of the assessee and proceeded to disallow the entire expenditure of ₹ 1,20,54,500/- (56,50,917 + 64,03,633) u/s 40a(ia) of the Act for non-deduction of tax at source u/s 194C of the Act. 3.1. The assessee submitted that earth work is a process which is necessary to be done on the surface whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically brought to the notice of the ld. AO that the assessee was mainly engaged in road construction works in rural area of Malda, Murshidabad, Nadia and Birbhum districts and that they never assigned to any sub-contractor any job as the partners were looking personally after the execution of the work through local labourers employed in the rural area at the site and that these workers were paid weekly and hence no question of deduction of tax would arise. 4. The ld. CIT(A) appreciated the contentions of the assessee as stated above and deleted the disallowance by observing as under: 3.2 I have carefully considered the submissions of the appellant and the facts of the case. I have considered the nature of the business which has been undertaken by the assessee. Construction of roads is being made in remote villages areas as is apparent from the description of the work undertaken by the assessee. It has been vehemently contended by the A/R that the assessee never entrusted any work relating to construction of the roads to any contractor. It has been urged that there is no specific direction in the order u/s 263 on this issue. Rather the ASSESSING AO has been directed to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making payment of labour charges and earth work charges. In this scenario, the provisions of section 194C cannot be made applicable in the facts and circumstances of the case. Accordingly, the ld. CIT(A) had rightly deleted the disallowance made in the sum of ₹ 1,20,54,550/- u/s 40a(ia) of the act which, in our considered opinion, requires no interference. Accordingly, ground no. 1 raised by the revenue is dismissed. 6. The next ground is to be decided in this regard the ld. CIT(A) was justified in deleting the disallowance of ₹ 2,13,37,312/- u/s 40A(3) of the Act, in the facts and circumstances of the case. 7. The brief facts of this issue is that the ld. AO observed that the assessee had made payments in cash for purchase of materials i.e. bitumen and stone chips etc. exceeding ₹ 20,000/-per day and the total of such payments made thereon worked to ₹ 2,13,37,812/-. He observed that the said payment is in violation of provisions of Section 40A(3) of the Act. When show caused in this regard, the assessee replied that the payments were made in cash on public holidays in support of which the assessee filed the complete details of payments together wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay/ any interruption in the supply of raw materials to the assessee its road construction project will be delayed which the assessee as a contractor working under local authorities and Government Departments would be answerable and the same would be entirely detrimental to the interests of the assessee. Accordingly, it was pleaded that the said payments, even though made in cash squarely falls in the various clauses provided in Rule 6DD of the Rules i.e. i) payments were made on national holidays and non-working days of banks and ii) payments were made to parties situated in remote villages where there are no banking facility and iii) payments were made out of business expediency of the assessee. 5. The Ld. CIT(A) deleted the disallowance by observing as under: 4.2 I have gone through the facts of the case and the submissions of the appellant. A reference to the audited statements of accounts shows that the assessee has been making purchase of various raw materials which include purchase of stone chips and sand. It is contended by the A/R that these materials and readily available near about the villages through which the road construction work passes. In the order u/s 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into consideration the fact that as per the requirements of the suppliers of raw materials all used to assemble on Sundays for the sake of convenience, payments made on Sundays exceeding ₹ 20,000/- has also to be considered as not hit by the provisions of Sec. 40A(3) read with Rule 6DD(j). I am accordingly of the opinion that in the facts circumstances of the case of the assessee the payments exceeding ₹ 20,000/- made in cash in remote village areas cannot be considered for disallowance. I have verified the dates relating to payments made in cash as noted in the table by the Ld. CIT in his order u/s 263 with reference to the relevant calendar and I find that such payments exceeding ₹ 20,000/- are made on Sundays. I am accordingly of the view that there is no justification in applying the provisions of Sec. 40A(3) in respect of cash payments exceeding ₹ 20,000/- to the suppliers of raw materials namely bitumen sand etc. Accordingly, this ground of the assessee is allowed and the addition of ₹ 2,13,37,312/- is deleted. Aggrieved the revenue is in appeal before us. 6. We have heard the rival submissions. At the outset, we find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It was pleaded that without the rejection of books of accounts of the assessee, there cannot be any addition on estimated basis. The Ld. CIT(A) deleted the addition by observing as under: 5.2 I have examined the facts circumstances of the case. It is a fact that the assessee has been building roads since past some years and has been consistently following the system of accounting whereby receipts are duly recorded in the accounts and similarly purchase of raw materials is also accounted for. As a matter of fact, it is a continuing process and the assessee is maintaining its accounts accordingly. Under these circumstances, there is no reason on the part of the AO to deviate from the existing system of accounting being followed by the assessee year by year. That the total receipts from the road construction have been very correctly shown by the assessee in the accounts is not in dispute. Raw materials purchased are duly supported by the documentary evidences. The basis of this addition is with reference to the order of the Ld. CIT u/s 263 who directed the A.O. to verify the specific facts relating to construction receipts declared in the month of February March 2010 sit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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