TMI Blog2022 (1) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the is partly allowed for statistical purposes. Ad-hoc disallowance of 30% of the labour charges - Addition made doubting the genuineness of the expenditure - it is a case of the Assessing Officer that the labour payments are subject to provisions of TDS. For non-compliance of TDS provisions, made the disallowance u/s 40(a)(ia) of the Act and also invoked section 40A(3) - CIT-A reasoning of the Assessing Officer was turned down by the ld. CIT(A) by holding that the provisions of section 40A(3) have no application since no single payment exceeded ₹ 20,000/- in single day. Further, the ld. CIT(A) also ruled out the applicability of the provisions of section 40(a)(ia) - HELD THAT:- In the present case, nothing is discernable from the perusal of the order of the ld. CIT(A) that the ld. CIT(A) had made an attempt to test the reality of the expenditure. Nor can be it said that he doubted the reality of the expenditure, it cannot be also said that the total labour charges incurred is excessive or unreasonable having regard to the fact that tender documents computed 30% of the contract value as a labour component and the actual charges only 33% of the contract value wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without there being anything on record. This is nothing but a complete guess work without referring to any material on record for arriving at the same. For above reasons, we are of the considered opinion that the ld. CIT(A) is justified in holding that the rejection of book results is not just and proper. Accordingly, the ground of appeal no.1 raised by the Revenue stands dismissed. Addition towards negative stock of coal - assessee has made unaccounted purchase of coal on some dates and made addition of unexplained investment - CIT(A) accepted the alternative submissions of the assessee that if it is assumed that 1280 MT was purchased on 23.11.2011 and question of negative stock of 1070 MT would not arise on 23.11.2011 and addition, if any, is warranted out in respect of out of ₹ 40,96,000/- and in view of the fact that the additions made on account of labour charges can be telescoped against the addition of unexplained investment in purchase of stock then a question of addition does not arise - HELD THAT:- From the order of the ld. CIT(A), it appears that the ld. CIT(A) had considered the additional evidence without giving an opportunity of being heard to the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free funds and, therefore, no disallowance u/s 36(1)(iii) was warranted placing reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Reliance Utilities Power Ltd., 313 ITR 340. 5. As regards to the addition u/s 40(a)(ia), the ld. CIT(A) considering the following facts that (i) The appellant has claimed substantial payments to site labourers to the extent of ₹ 14,52,00,000/- and ₹ 19,83,86,562/- in AYs. 2010-11 2011-12 respectively. (ii) The appellant has made payments to site labourers through its employees/supervisors to the group/gang leaders of the site labourers, who are generally from Orissa, Assam Bihar. (iii) The appellant company has maintained vouchers for the said payments to group/gang leaders which are duly signed by the recipient group/gang leaders. The names of the said persons are appearing in the list of payments given by the A.O. in the remand report. (iv) The appellant company has maintained vouchers for payments to each individual labourers or even names of the individual site labourers to whom payments have been made through group/gang leaders. (v) All the above payments to site labourers ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities pertaining to the creditors. The Assessing Officer also carried out the verification of sundry creditors by exercising the power vested with him u/s 133(6) of the Act. On such verification, the Assessing Officer found that the assessee had shown excess liabilities of ₹ 7,88,961/- in respect of 5 parties and in respect of 4 parties, the Assessing Officer found a sum of ₹ 3,69,357/- was shown excess by the creditors. In respect of 11 parties, no confirmation has been filed aggregating to sum of ₹ 83,01,177/-. In the above circumstances, the Assessing Officer inferred that the sundry creditors appearing in the books of accounts are bogus. Accordingly, he brought to tax a sum of ₹ 94,59,495/- invoking the provisions of section 41(1) of the Act. Even on appeal before the ld. CIT(A), the addition came to be confirmed. 11. Being aggrieved, the assessee is in appeal before us in the present ground of appeal. 12. It is submitted before us that the outstanding balances have been paid in the subsequent year upto assessment year 2013-14. This fact has been verified by the Assessing Officer during the course of regular assessment proceedings. It is further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 14,52,00,000/- doubting the genuineness of the expenditure. During the course of assessment proceedings, the Assessing Officer disallowed the 30% labour charges of ₹ 14,52,00,000/- by holding that the assessee had not complied with the TDS provisions invoking the provisions of section 40A(3) of the Act. However, during the course of proceedings before the ld. CIT(A), the ld. CIT(A) taking note of the fact that no order u/s 201 was passed by the TDS Officers held that the provisions of section 40(a)(ia) have no application. Further, the ld. CIT(A) held that even the provisions of section 40(a)(ia) had no application to the subject-payment taking note of the fact that no single labour was paid a sum exceeding ₹ 20,000/- on a single day. However, the ld. CIT(A) had disallowed 30% of the labour charges taking note of the fact that the assessee had failed to produce the labourers before the Assessing Officer for verification and no proper vouchers were maintained in respect of the said expenditure. Accordingly, disallowed ad-hoc disallowance of 30% of the direct labour charges. 17. Being aggrieved, the appellant is in appeal before us in the present ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the provisions of section 40(a)(ia) of the Act. During the remand proceedings before the ld. CIT(A), the assessee could not produce the labourers for cross-verification, coupled with the fact that the vouchers are self-made, the ld. CIT(A) made the ad-hoc disallowance of 30% of the labour charges. 22. From the perusal of the order of the ld. CIT(A), it is clear that the ld. CIT(A) had accepted factum of incurring the expenditure by observing that the works could not have been completed without engagement of the labourers. Thus, the genuineness of the expenditure is beyond the doubt but what is doubted by the ld. CIT(A) is the reasonableness of its expenditure having regard to the fact that the vouchers are self-made. The approach of the ld. CIT(A) cannot be sustained for the reason that having regard to the trade business practices, the vouchers in respect of the labour payments are clearly self-made by acknowledgement of receipt from the labourers or his gang leaders, which is not in doubt in present case. There is no doubt on cash entries made in the books of accounts, no material was brought on record by the ld. CIT(A) casting doubts on the genuineness of the labour pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as confirmed. 26. It is submitted before us that the payee had already offered the receipt to tax in the return of income and, therefore, the benefit of second proviso to section 40(a)(ia) should be granted after due verification. 27. On the other hand, ld. Sr. DR has no objection if the matter is remanded back. 28. In the backdrop of the above facts, we remit this ground of appeal no.11 to the file of the Assessing Officer to examine the applicability of second proviso to section 40(a)(ia) after due verification of the evidence. Thus, this ground of appeal no.11 stands partly allowed for statistical purposes. 29. The ground of appeal nos.12 to 14 are not pressed and the same are dismissed as not pressed. 30. The additional ground of appeal no.1 challenges that the credit for TDS was not available in Form No.26AS. It being purely a legal issue, we remit this additional ground of appeal no.1 to the file of the Assessing Officer to allow the credit of tax deduction as reflected in Form No.26AS for the assessment year 2010-11. Thus, the additional ground of appeal no.1 stands partly allowed for statistical purposes. 31. In the result, the appeal filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of CIT vs. Reliance Industries Ltd., 161 DTR 420 (Bom.-HC) and CIT vs. Reliance Utilities Power Ltd., 313 ITR 340 (Bom.-HC). 38. We heard the rival submissions and perused the material on record. The issue in the present appeal of the Revenue relates to the disallowance of proportionate interest on loans advanced to sister concern. The Assessing Officer was of the opinion that as the assessee had not charged any interest on the loan advanced to sister concern, namely, M/s. Amicitia Infrastructure Pvt. Ltd., the proportionate disallowance of interest should be made u/s 36(1)(iii) of the Act. The view of the Assessing Officer was turned down by the ld. CIT(A) taking into consideration the fact that the reserve funds available with the assessee company as on 31.03.2010 are much more higher than the amount of loan advanced to sister concern and presuming that the interest free loan was made out of the assessee company s own reserve funds not out of borrowed funds. In the present case, it is undisputed position that the free reserves as on 31.03.2010 are ₹ 29.30 crores as against the interest free advance of ₹ 15.88 crores made to the sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the book results in respect of the business of execution of civil contracts primarily on the ground that there is fall in the net profit as compared to the preceding years, no stock register and salary wages register had been maintained by the assessee company and the cash payment was made to the labourers. After rejecting the book results, the Assessing Officer had proceeded with estimation of net profit of 8% of the gross receipts of ₹ 92,47,46,336/-. Further, the Assessing Officer also made a disallowance of interest u/s 36(1)(iii) of ₹ 1,58,05,530/- on the interest free loan given to sister concern, namely, M/s. Amicitia Infrastructure Pvt. Ltd.. The Assessing Officer also made other disallowances on account of bogus purchase of coal of ₹ 26,42,369/-. 42. Being aggrieved by the above additions, an appeal was preferred before the ld. CIT(A), who vide impugned order held that the rejection of book results is not proper and just by holding that the defects pointed out does not warrant complete rejection of book results, but justify disallowance of 30% of labour charges and, accordingly, directed Assessing Officer to make ad-hoc disallowance of 30% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, 149 ITR 786 (MP); (viii) Namasivayam Chettiar (SN) vs. CIT, 38 ITR 579 (SC); (ix) Punjab Trading Co. Ltd. vs. CIT, 53 ITR 335 (Pun.); and, (x) Deputy Commissioner of Income-tax, Lucknow vs. Hanuman Sugar (Khandsari ) Mills (P.) Ltd., [2013] 38 taxmann.com 53 (Allahabad). 46. The relevant paragraphs of the judgement of the Hon ble Allahabad High Court in the case of Hanuman Sugar (Khandsari) Mills (P.) Ltd. (supra) are reproduced hereunder :- 7. It may be mentioned that profit being low by itself cannot be a ground for rejection of the books of account as per the ratio laid down in the following cases: 1. Punjab Trading Co. Ltd. v. CIT [1964] 53 ITR 335 (Punj Har.), and 2. Motiram Pesumal v. CIT [1984] 149 ITR 786 (MP) Moreover, in the instant case, the A.O. has rejected the books of account and made the addition on estimate basis. It may be mentioned that estimation is a question of fact as per the ratio laid down in the following cases: 1. CC (Import) v. Stonemann Marble Industries [2011] 2 SCC 758. 2. Vijay Kumar Talwar v. CIT [2011] 330 ITR 1/196 Taxman 136/[2010] 8 taxmann.com 264 (SC); 3. New Plaza Restaurant v. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-amended provisions of the act, the general principle laid therein can be very well applied in the context of amended provisions of section 145 of the Act. Furthermore, the approach of the Assessing Officer while rejecting the book results is also flawed for the following reasons :- (i) Though the Assessing Officer referred to certain defects in the maintenance of books of account, we are unable to discern from assessment order as to what kind of defects are found by Assessing Officer. It appears that Assessing Officer gave bald finding. It is not discernable from the perusal of the assessment order that the assessee company was given an opportunity to explain the defects and show-cause as to why the book results should not be rejected. It is requirement of law before proceeding to reject the book results, the Assessing Officer give an opportunity of being heard to the assessee. (ii) The Assessing Officer had not brought any evidence on record indicating defects in the maintenance of stock, salary and wages register and also has not given a finding as a result of such defects in the maintenance of books of accounts, as to how he could not deduce the profits and gains of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, the court is entitled to interfere. In our decision in Sree Meenakshi Mills v. Commissioner of Income-tax [1957] 31 ITR 28 after discussing the various authorities on the subject we laid down that: (3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse. The latest pronouncement of this court in Omar Salay Mohamed Sait v. Commissioner of Income-tax [1959] 37ITR 151 summarises the position thus: We are aware that the Income-tax Appellate Tribunal is a fact finding tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not pressed during the course of hearing of appeal. 55. In the result, the appeal filed by the assessee in ITA No.774/PUN/2015 for the assessment year 2011-12 stands partly allowed. ITA No.864/PUN/2016, A.Y. 2012-13 By Revenue 56. Now, we shall take up the Revenue s appeal in ITA No.864/PUN/2016 for the assessment year 2012-13 challenging the decision of the ld. CIT(A) holding that the rejection of book results is not just and proper. This issue was discussed in great detail in Revenue s appeal for the assessment year 2011-12 in ITA No.842/PUN/2015. For the reasons stated therein, this ground of appeal no.1 raised by the Revenue stands dismissed. 57. The ground of appeal no.2 challenges the decision of the ld. CIT(A) deleting the disallowance of ₹ 1,57,90,717/- u/s 36(1)(iii) of the Act. This issue was discussed in great detail in Revenue s appeal for the assessment year 2011-12 in ITA No.842/PUN/2015. For the reasons stated therein, this ground of appeal no.2 raised by the Revenue stands dismissed. 58. The ground of appeal no.3 challenges the decision of the ld. CIT(A) deleting the addition of ₹ 75,30,700/- made towards negative stock of coal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of appeal in favour of the assessee. 65. In the result, the appeal filed by the assessee in ITA No.709/PUN/2016 for the assessment year 2012-13 stands partly allowed. 66. Now, we shall take up the cross appeals of the Revenue as well as the assessee in ITA No.566/PUN/2017 and ITA No.802/PUN/2017 for the assessment year 2013-14. 67. Briefly, the facts of the case are as under :- The assessee is a private limited company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of execution of Government Contracts and trading in cholrine. The return of income for the assessment year 2013-14 was filed on 29.03.2014 declaring total income of ₹ 1,69,64,158/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Circle-2, Jalgaon ( the Assessing Officer ) vide order dated 17.03.2016 passed u/s 143(3) of the Income Tax Act, 1961 ( the Act ) at a total income of ₹ 4,38,79,914/-. While doing so, the Assessing Officer made ad-hoc disallowance of 20% on account of labour charges considering the orders of the ld. CIT(A) for the earlier years. The Assessing Officer also made a proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication. 73. The only issue in the present appeal relates to the disallowance of labour charges to the extent of 7.5% by the ld. CIT(A). For the reasons stated by us in the assessee s appeal for the assessment year 2010-11 in ITA No.773/PUN/2015, we hold that no ad-hoc disallowance of labour charges can be made. Accordingly, this ground of appeal stands allowed. 74. The ground of appeal no.2 is not pressed during the course of hearing of appeal. Hence, the same is dismissed as not pressed. 75. In the result, the appeal filed by the assessee in ITA No.802/PUN/2017 for the assessment year 2013-14 stands partly allowed. ITA No.566/PUN/2017, A.Y. 2013-14 By Revenue 76. Now, we shall take up the Revenue s appeal in ITA No.566/PUN/2017 for the assessment year 2013-14 challenging the decision of the ld. CIT(A) allowing the relief in respect of proportionate disallowance and restricting the ad-hoc disallowance @ 7.5% of the labour charges. 77. The ground of appeal nos.1 and 2 challenges the ad-hoc disallowance of interest. This issue was discussed by us in great detail in Revenue s appeal for the assessment year 2010-11 in ITA No.841/PUN/2015. For the reason s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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