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TMI Blog2019 (10) TMI 1458X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome declaring total income of Rs. 1,32,59,750/-. The return was processed u/s 143(1) and taken up the case for scrutiny. Notice u/s 143(2) and 142(1) were issued to the assessee and the assessment was completed u/s 143(3) on total income of Rs. 5,28,18,310/-. During the assessment proceedings, the Assessing Officer (AO) posted the case for hearing as many as 17 times apart from the first notice dated 31.08.2009. During the assessment proceedings, the assessee has not furnished the information as called for by the AO. The A.R. of the assessee, however, appeared from time to time and sought for adjournments or furnished the partial information. The assessee produced the ledger accounts and on verification the AO noticed huge difference between the figures mentioned in the Profit & Loss account ('P&L account' in short) and the amounts appearing in the ledger accounts in respect of chips, bitumen, oil and lubricants. The AO requested to produce the bills and vouchers in support of journal entries passed, to reconcile the differences between the books of accounts and the P&L account. The assessee did not produce the required evidences. The AO issued summons u/s 131 of the Act on 03.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of Rs. 1,00,85,000/- for business purposes and accordingly made the addition u/s 37(1) of the Act holding that the expenditure was not genuine. 2.2. The second issue in dispute is the payment made to M/s Raghava &^ Co. During the assessment proceedings, the AO found that the assessee has made payments of Rs. 38,02,376/- to M/s Raghava & Co., and the said amounts were transferred to 'earth work' and 'oil and lubricants' by passing journal entries. The assessee was asked to furnish the basic evidences for the entries made in the books of accounts as well as the reason for re-grouping the particular expenditure. The assessee failed to furnish any evidence to support it's contentions. However, the assessee filed a letter stating that the payments were given for taking the chips and dust from them as the said material was in short supply and M/s Raghava & Co. stated to have supplied the material for execution of work without any hindrance. The AO found that the payments were stated to have made for supply of chips and dust which is contrary to the entries made in the books of accounts of the assessee firm. As per the accounts, the payments were for earth work and oils and lu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough any of the accounts. The assessee booked all the expenses towards various heads such as labour, chips, oil and lubricants. As the payments to the parties otherwise by cross cheque, exceeded the threshold limit prescribed u/s 40A(3) of the Act, the AO called for explanation from the assessee as to why the payments should not be added back u/s 40A(3) of the Act. The assessee filed explanation claiming exceptions under Rule 6DD of the I.T.Rules and requested not to make any addition u/s 40A(3). The AO carefully examined the explanation of the assessee and found that the assessee has made cash payments or the payments otherwise than by crossed cheques / bearer cheques. The payments exceeded threshold limit for making the payments otherwise than by crossed cheque. The Ld.AO further found that the assessee's case is not covered u/s 40A(3) of the Act for making the payments otherwise than by crossed cheque. The AO further found that though the assessee stated to have claimed the payments made for labour payments through mastries, the AO did not find merit in the submission of the assessee. Therefore, the AO held that the assessee has violated the provisions of section 40A(3) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld.CIT(A) held that the AO is not justified in disallowing the impugned payments and accordingly directed the AO to delete the addition. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) in para No.6A, 6B and 6D which reads as under : "6A. The first issue is regarding payments made to M/s Progressive Constructions Ltd, involving Rs. 1,00,85,000. It transpires from records that chips (kankar) are one of the items without which the appellant's work would not go ahead, for which regular suppliers were there But, however at times of need, the appellant gets the same from MIs Progressive Constructions Ltd, Hyderabad When called upon to explain by the AO, the appellant has furnished the facts to the AO. It is submitted by the AR that subsequent to furnishing the details, the AO on his own obtained the information from the company from whom the chips and bitumen was obtained by the appellant and as per the AO, the company has denied the supplies and proposed addition to the appellant The appellant on seeing the information obtained by the AC has observed that the supplies were made in the name of the Managing Partner of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank, Governorpet Branch vide CC No 413 along with copies of the cheque leaves (both obverse and reverse) for examining the genuineness of payments. Such examination revealed that wherever there was withdrawal either the name of the party to whom money was given or the name or number of the account to which the money was transferred or details of clearing inward or outward is mentioned The cheque leaves specifically give the details of cash paid across the counter or/and also transfer through accounts. The copies of cheque leaves so received were verified with reference to the cash book and ledger maintained by the appellant and the AO found that majority of them were bearer cheques only. It is the finding of the AO that on many occasions the appellant has either issued self cheques or bearer cheques in the name of the third parties, but the same were en-cashed by the accountant of the appellant firm or the Managing Partner on some occasions Thus, with the help of the accountant of the appellant firm, the AO has made a table comprising third party cheques issued, which is annexed to the assessment order, with details like Serial no, Name of the person in whose name cheque was issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... masteries, who in turn pays to individual labor of his group, which is recognized, (iii) no fraud in payments was detected, (iv) bearer cheques were issued in advance to ensure supply of material and having adequate labor force to execute the road laying works in rural and remote naxal prone areas as per the schedule of completion of works within the time frame prescribed and (v) the citations of case laws furnished by the appellant helps him to steer through the mess with clean image as it is the business expediency which has helped the appellant to execute the works as per the schedule prescribed For these reasons, I am of the considered opinion that the AO was not justified in disallowing the impugned payments and accordingly, he is directed to delete the same." 4. Against the order of the Ld.CIT(A), the revenue filed appeal challenging the deletions made by the Ld.CIT(A) and the assessee filed cross objections, supporting the deletion of addition made by the Ld.CIT(A). During the appeal hearing, the Ld.DR submitted that though the AO posted the case on 17 occasions and there was no cooperation from the assessee to complete the assessment and always, the assessee was non-compli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. The assessee tried to show that the payments were made through cheques in third party's names which were encashed across the counter, against the provisions of section 40A(3) of the Act. The assessee had issued the bearer cheques and withdrawn the amounts and made the payments in excess of threshold limit to various suppliers of the materials in violation of section 40A(3) of the Act. Though the assessee claimed that the payments were made in exceptional circumstances, the assessee failed to establish the instances covered by exception under Rule 6DD of I.T.Rules. Whatever submission made by the assessee was general in nature and very vague. The assessee failed to establish the payment with matching date with regard to the exceptions covered under Rule 6DD of I.T.Rules. Taking to Annexure-1, the Ld.DR argued that though the assessee stated that the payments were made for labour / masteries, verification of Annexure-1 clearly shows that except 16 persons out of 66 items in total were paid for labour charges and all other payments were made for purchase of material. Even in respect of 16 persons, where the labour charges were mentioned in the annexure, the assessee has not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count and the figures mentioned in the audited P&L account in respect of chips, bitumen, oil and lubricants. The assessee submitted that the differences were due to regrouping of certain expenditure. Subsequently, the assessee reconciled the differences and submitted before the AO stating that the earlier rough day book was presented and no variation with regard to the amounts. The assessee stated to have made the payments of Rs. 1,00,85,000/- for purchase of chips and dust purchased from PCL. The amounts were debited in the P&L account for lubricants and oils and the assessee claimed to have made the payments for purchase of chips and dust. Though the payments were made through cheques, the PCL has neither confirmed the transaction nor issued the pucca bills to the assessee. Though the PCL stated to have issued the clarificatory letter for supply of chips and dust, the same was issued to the Managing Partner, but not to the assessee. It is not known whether the managing partner is having separate individual business apart from partnership firm. The Ld.CIT(A) misdirected himself to rely on the clarificatory letter issued by PCL in the name of Managing Partner without supporting doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.16, the Ld.CIT(A) has mentioned that the assessee has filed written submissions which were forwarded to the AO for his comments. It is observed from the order of the Ld.CIT(A) that the assessee has filed written submissions in response to which the AO submitted the remand report. From the assessment order, it is observed that the assessee has not produced the vouchers, bills in support of journal entries for expenses. Originally, the assessee had produced the books of accounts, in which there was huge variation in the audited P&L account, in respect of chips, oil and lubricants. The assessee did not establish that the payment of PCL for supply of chips as per the stock registers. In respect of Raghava & Co. also the assessee did not furnish any evidence and there was no clarity with regard to the payment whether for supply of chips or oil and lubricants or for sub contract works. The assessee freely making payments in cash and camouflaging the payments through cheques. Though the assessee has issued the bearer cheques and the payment was made otherwise than crossed cheque, the same was not reflected in the books of accounts as cash payments. Before the AO, the assessee failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of ITAT Hyderabad Bench, we hold that assessee's case is fit case for estimation of income @12.5% on main contracts and 5% on sub contracts before depreciation and interest and remuneration to partners. Accordingly, to meet the ends of justice, we direct the AO to estimate the income @12.5% before depreciation, interest and remuneration to partners. However, the income after giving effect to the order of this Tribunal should not be less than the returned income or should not be less than the income arrived at as per the first appellate authority or more than the assessed income. 8. The cross objections of the assessee are supportive of the order of the Ld.CIT(A), thus, the cross objections also stands partly allowed. I.T.A. No.432/Viz/2017, A.Y.2012-13 9. Ground No.1 and 5 are general in nature, which does not require specific adjudication. 10. Ground No.2 and 3 are related to the estimation of income. In the instant case, the AO estimated the income @12.5% on main contracts and 5% on sub contracts, taking the basis from KNR Constructions of ITAT, Hyderabad. 11. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) directed the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the AO and it is for the AO to establish that the contents of the confirmation letter were false or incorrect. The AO did not make any enquiries for verification of the genuineness of the transactions. Therefore, the AO did not shift the burden to the assessee, hence the finding of the AO that the assessee has not proved the genuineness, credit worthiness and identity is incorrect and there is no case for making the addition on account of unsecured creditors. Further, the Ld.CIT(A) relied on the decision of Hon'ble Andhra Pradesh High Court in the case of Maddi Sudarsnam Oil Mills Co., Vs. CIT (1959) 37 ITR 369, where in Hon'ble High Court held that if the income tax authorities have rejected the books of accounts, they cannot make addition on account of unexplained cash credit on the very same books. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld.
18. In the result, appeals of the revenue for the A.Y. 2008-09 and 2012-13 are partly allowed and cross objections of the assessee for the A.Y.2008-09 are also partly allowed.
Order pronounced in the open court on 4th October, 2019 X X X X Extracts X X X X X X X X Extracts X X X X
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