, ""
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
.. , .. ,
./I.T.A. No.5925/Mum/2012
( / Assessment Year :2009-10)
Prakash Engineers, / Jt.Commissioner of Income Tax -
104, Charishma Centre, Vs. 22(2),
1st floor, 19th Road, 4th floor,
Chembur,
Mumbai-400071
Vashi Railway Station Building,
Vashi,
Navi Mumbai-400705
( /Appellant) .. ( / Respondent)
./I.T.A. No.6130/Mum/2012
( / Assessment Year :2009-10)
Jt.Commissioner of Income / Prakash Engineers,
Tax -22(2), Vs. 104, Charishma Centre,
4th floor, 1st floor, 19th Road,
Chembur,
Vashi Railway Station Mumbai-400071
Building,
Vashi,
Navi Mumbai-400705
( /Appellant) .. ( / Respondent)
. / . / PAN/GIRNo. :AAGFP5386C
/ Assessee by : Shri Y.P.Trivedi and
Ms.Usha Dalal
/Revenue by : Shri Premanad J.
/ Date of Hearing
: 31.12.2014
/Date of Pronouncement : 13.2. 2015
2 5925 & 6130/M/12
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
These cross appeals are directed against the order dated 25.7.2012
passed by Ld CIT(A)-33, Mumbai and they relate to the assessment year
2009-10.
2. The assessee is in appeal in challenging the order of Ld CIT (A) in
confirming the addition of Labour charges of Rs.4.16 crores paid by way of
cheques. The revenue is aggrieved by the decision of Ld CIT(A) in
restricting the addition of labour charges paid by way of cash to 10% of
the expenses. The revenue is also aggrieved by the decision of Ld CIT(A)
in deleting the disallowance of Rs.5,60,000/- made from Repairs and
Maintenance expenses.
3. We heard the parties and perused the record. The assessee firm is a
civil contractor engaged in undertaking road construction work, mainly for
Municipal Corporation of Greater Mumbai. It filed its return of income for
the year under consideration declaring a total income of Rs.3.48 crores.
The assessing officer, during the course of assessment proceedings,
examined one of the partners of the firm as well as one of its employees.
The AO noticed that the assessee has claimed expenditure of Rs.10.38
crores as Labour charges and Rs.7.57 crores as job work charges. The AO
noticed that the job work charges were also essentially labour charges
only. Thus, the assessee had claimed a sum of Rs.17.95 crores as labour
3 5925 & 6130/M/12
expenses which accounted for 39.30% of the civil contract receipts. Major
amount of expenses were also found to have been incurred in cash.
4. In the statement taken from one of the partners named Shri Nand K
Bijlani u/s 131 of the Act, he admitted that there were deficiencies in the
vouchers. The relevant observations made by the AO are extracted below
for the sake of convenience:-
"3.5 It was pointed out to Shri Bijlani during his deposition u/s 131
on 25.11.2011 that apart from the labour charges paid in cash,
there were discrepancies in the labour charges paid by cheques too.
It was brought to his notice that enquiries conducted u/s 142(2) of
the Act at the premises of some of the recipients of labour charges
(paid by cheques) revealed that the payees were men of little means
and were employed as the assessee's drivers / road roller operators
etc. on meager salaries, besides, many of them had denied receiving
the labour charges from the assessee by cheques. They had
affirmed that whatever amount was deposited as cheques in their
accounts (mainly with Vijaya Bank, Chembur branch), was
withdrawn in cash by employees of the assessee and that the
proceeds of these cheques never reached them (i.e., the labourers
concerned)."
When the partner of the assessee was confronted with the findings of the
AO, he offered additional income of Rs.2.00 crores for AY 2009-10,
apparently to cover up the deficiencies. The Assessing officer accordingly
added to the total income the sum of Rs.2.00 crores offered by the
assessee in the sworn statement.
5. The AO examined the labour charges incurred by way of cash and
noticed that the assessee did not possess primary evidence to support the
claim to the tune of Rs.1,97,66,687/-. Hence, the offer of Rs.2.00 crores
4 5925 & 6130/M/12
made by the assessee was considered by the AO as having made on
account of unproved cash expenses incurred towards labour charges.
Further, the AO proceeded to discuss the details of enquiries made by him
in respect of payments made by way of cheque. In paragraph 4.7 of the
order, the AO came to the conclusion that the payments to the extent of
Rs.4,16,71,407/- made to 12 parties cannot be considered to be genuine.
The AO arrived at such a conclusion mainly for the reason that the
relevant cheques were seen to have been encashed by the assessee's
employees or the payees were not available at the given address.
Accordingly, the AO disallowed the labour expenses to the tune of
Rs.4,16,71,407/-.
6. The AO noticed that the assessee has paid a sum of Rs.5,60,000/-
to M/s New India Equipment Co. and claimed the same as revenue
expenditure. The AO noticed that the above said payment was made
towards purchase of `100 ton concrete silo'. Hence the AO treated it as
Capital expenditure and accordingly disallowed the claim of Rs.5,60,000/-.
However, he allowed depreciation of Rs.84,000/- computed at the rate of
15% thereon.
7. In the appellate proceedings, the Ld CIT(A) confirmed the
disallowance of labour charges incurred by way of cheque, which
amounted to Rs.4,16,71,407/-. With regard to the observation of the AO
that the labour charges incurred by way of cash was not supported by
5 5925 & 6130/M/12
primary evidence to the tune of Rs.1,97,66,687/-, the Ld CIT(A) held that
the addition on account of the same should be restricted to Rs.43,84,104/-
and accordingly granted relief to the tune of Rs.1,53,82,583/-. However,
he did not render any decision on the telescoping benefit given by the AO
against the offer of Rs.2.00 crores made by the assessee. The Ld CIT(A)
held that the expenditure of Rs.5,60,000/- incurred on concrete silo is
allowable as revenue expenditure.
8. Aggrieved by the orders passed by Ld CIT(A), both the parties have
filed these appeals before us. We have heard the parties extensively and
perused the record. A perusal of statement recorded from the partner u/s
131 of the Act would show that the assessee has offered a sum of Rs.2.00
crores for the labour charges incurred by way of cash as well as by way of
cheque. However, the AO only has presumed that the said offer was in
the context of labour charges incurred by way of cash only. It is pertinent
to note that the Ld CIT(A) has verified by the audited financial statements
and have given a finding that the financial statement was showing liability
as labour charges payable. However, the Ld CIT(A) declined to accept the
same on the reasoning that the assessee has failed to establish the nexus
between the bank withdrawals and the cash payments. Further, they were
supported by self made vouchers. However, the Ld CIT(A) also held that
the claim of the assessee could not be rejected in toto. Accordingly he held
that the disallowance of Rs.1,97,66,687/- should be restricted to
6 5925 & 6130/M/12
Rs.43,84,104/-. Accordingly he gave a relief of Rs.1,53,82,583/-.
However, the Ld CIT(A) has failed to discuss about the telescoping benefit
given by the assessing officer. We have already noticed that the Ld CIT(A)
has confirmed the addition of labour charges of Rs.4,16,71,407/-.
9. The main contention of the Ld A.R was that the impugned additions
have been made only on presumptions without correctly appreciating the
facts prevailing in the case. He submitted that the disallowances made by
the AO treating them as bogus in nature, if considered to be correct for a
moment, would give astronomical profit to the assessee, which any
contractor could not have realized. He submitted that the net profit
determined by the AO would result in a G.P rate of 34.89% and net profit
rate of Rs.21.12%, as against the average net profit of about 6% declared
by the assessee in the past. He further submitted that the industry
average was only around 9% only. Accordingly the Ld A.R contended that
the tax authorities have made the impugned additions only on
presumptions and surmises.
10. The Ld D.R, while supporting the order of Ld CIT(A) with regard to
the confirmation of addition of Rs.4.16 crores, contended that the Ld
CIT(A) should not have granted relief in respect of cash expenditure, when
the assessee itself had offered Rs.2.00 crores as income.
7 5925 & 6130/M/12
11. It can be seen that the entire addition revolves around the labour
expenses only. As noticed earlier, the assessee has offered Rs.2.00 crores
to cover up the deficiencies in respect of labour charges incurred by way
of cash as well as cheque. With regard to the cheque expenses, the
contention of the assessee is that the cheque expenses have been
properly verified and the practice followed has not been properly
appreciated. In support of the same, the assessee has worked out the G.P
ratio, N.P ratio and rate of profit declared by comparable cases. When we
compare the profit ratios and comparable cases, we find some force in the
contentions of the assessee. It is an admitted fact that the assessee is
executing mainly road contract works, wherein the labour expenses are
tend to be high. Hence, we are of the view the disallowance of entire
expenses incurred by way of cheque may not be right proposition, because
the assessee could not have executed the project without incurring labour
expenses. However, the investigation carried out by the AO has revealed
a lot of deficiencies in the methodologies adopted by the assessee. We
have already noticed that the assessee itself has offered a sum of Rs.2.00
crores to cover up deficiencies in respect of both cash and cheque
payments. Hence the AO was not right in presuming that the above said
offer would cover only cash payments. We have already noticed that the
Ld CIT(A) also did not agree with the view taken by the AO that the entire
cash expenses, which are not supported by primary evidences, should be
8 5925 & 6130/M/12
disallowed. Under these set of facts, we are of the view that the present
dispute should be settled by making some estimates.
12. Hence on a conspectus of the matter, we are of the view that the
dispute relating to disallowance of part of labour expenses would meet the
ends of justice, if we restrict the disallowance to Rs.2.00 crores (being the
amount offered by the assessee) plus 10% of the labour expenses
incurred by way of cheque. We order accordingly. The decision rendered
by the Ld CIT(A) on this issue would stand modified accordingly. Hence,
the grounds 1 & 2 raised by the revenue would stand allowed, since the
additional income of Rs.2.00 crores offered by the assessee would cover
up lack of supporting vouchers in respect of cash payments. The grounds
urged by the assessee would stand partly allowed, since in the facts and
circumstances of the case, it may not be proper to disallow entire
expenses incurred by way of cheque.
13. The next issue urged by the revenue relates to the deletion of
disallowance of Rs.5,60,000/-. We notice that the assessee has incurred
the expenses towards purchase of concrete silo. The Ld CIT(A) noticed
that it formed part of "ready mix concrete plant" having no independent
functioning. Before us, the Ld A.R submitted that the said part is required
to be replaced frequently. Accordingly, the Ld CIT(A) held that the same
is revenue expenditure. On consideration of the above facts, we do not
find any infirmity in the order of Ld CIT(A) on this issue.
9 5925 & 6130/M/12
14. In the result, the appeals filed both by the assessee and the revenue
are partly allowed.
The above order was pronounced in the open court on 13th Feb, 2015.
13th Feb, 2015
sd sd
(.. / H.L. KARWA) (.. ,/ B.R. BASKARAN)
/ PRESIDENT /Accountant Member
Mumbai:13th Feb,2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
true copy
(Asstt. Registrar)
, /ITAT, Mumbai
|
