TaxTMI 
TaxTMI 
2012 (10) TMI 48
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....ture of Rs.3 crores. d) The parties produced before him for examination are the created parties for generation of cash, which is established by recording of statement of various persons. e) Traveling expenditure claimed by the assessee was found to be bogus and does not have any relation with the business need of the assessee. 2) On the facts and circumstances of the case and in law, ld CIT(A) erred in directing the AO to allow remuneration and interest to partner ignoring the fact that the remuneration and interest to partner was already considered as the AC adopted the net income of the assessee at 12% of total receipts." 2. The relevant facts are that assessee is engaged in the business of construction as a contractor. The assessee is registered with the PWD of Govt. of Maharashtra and does government contracts. The assessee filed return of income declaring an income of Rs.60,69,325 on a total construction receipt of Rs.20.09 crores. 3. During the course of assessment proceedings, Assessing Officer has stated that the gross profit declared by the assessee is 20.65% and net profit is at 3.69%. He stated on analysis of the expenditure claimed by the assessee ....
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.... also examined the partner of the assessee Shri Lachhman M Rijhwani and recorded his statements, stated in para 16 at pages 16 to 19 of the assessment order. The AO concluded that the claim of the assessee's expenditure to foreign visit as a traveling expenditure is not genuine. 6. In view of above, AO concluded that the assessee's books of account are not reliable. Therefore, AO rejected books of account of the assessee under section 145(2) of the I.T.Act, 1961 and estimated the income of the assessee at 12% of the total contract receipts which comes to Rs.2,47,02,521. Being aggrieved, assessee filed appeal before ld CIT(A). 7. On behalf of assessee, it was contended that the net profit of the assessee is 9.75% but the AO has wrongly shown at 3.69% after deducting interest and remuneration to partners. It was contended that the labour charges consisted of payment of sundry labour charges amounting to Rs.3,83,57,294, which was evidenced mostly by vouchers and bills and payment to labour contractors amounting to Rs.3,63,26,326 evidenced mostly by bills. That the vouchers relating to labour payment made in cash were of Rs.1,38,84,260 and the balance payments were made by....
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.... or core issue in this appeal. Ld CIT(A) has held that the AO has not made out the case for invoking section 145(3) [wrongly mentioned sec. 145(2)] and consequently action of applying 12% rate is also without any basis. Ld CIT(A) also directed the AO to allow deduction for the interest payment and salary due to partners. The reasons given by ld CIT(A) are in paras 4.3 to 4.8 of impugned order, which read as under: "4.3 The appellant is a builder and is registered as Class-I contractor with the PWD of the Government of Maharashtra. The total construction receipts have been declared as Rs.20.90 crores. In the immediately preceding year, it was Rs.14.5 crores, thus there is a jump of 37% in the receipts turnover this year. The profit before tax is Rs.75.94 lakhs and the gross profit to turnover ratio is 20.65%. The net profit ratio as per books is 9.75% but it been taken as 3.69% by the AO after deducting interest and remuneration to partners. 4.4. The AO has focused on the labour charges as it constituted 37% of the total construction expenses. The appellant has during the course of hearing produced original labour vouchers and bills relating to sundry labour ch....
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....as no need to number them separately. The issue regarding absence of signature of the appellant is clarified by the fact that there was no such column and the vouchers being prepared at the site office and entered in the accounts there is no need for it. Thus the appellant has furnished explanation which is credible and satisfactory. Had the AO issued a show cause notice after his verification exercise was over declaring his intention to make an estimate based on his version of facts then these issues could have been clarified by the appellant. It is observed that no such opportunity was provided and the books of accounts rejected on the basis of one sided findings without confronting the assessee. The unilateral onerous exercise on the part of AO has also resulted in incorrect tabulation of impounded Vouchers leading to discrepancies. Even the segregation of cheque and cash payments appears to be incorrect. The correct tabulation as worked out is as follows: Narration No. of Vouchers Amount (Rs.) Total labour payments made in cash at various sites 3320 1,38,260 Total labour payments made in cheque for various sites against bills 2,44,71,009 Total pay....
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....t was also argued that there is nothing wrong in moving out on one's own even if one had earlier worked with the appellant. It was also added that the TDS has been done on all payments to the labour contractor. Thus it is seen from the above materials on record that though the AO has made an attempt to treat this contactor has done labour contract work worth Rs.5,67,955/- only as a dummy one but it has failed to bring enough material evidence to establish the same. The person confirmed that he has done work for the appellant at MIDC, Andheri and makes the bill which is submitted to site Engineer. The payment to him is by cheque on which TDS has been done. There is nothing on record to establish that the money has gone back to the appellant. The cash payment made to the labourers is also vouched. As such no case of collusive transaction is made out. The amount of contract work done by this contractor is also very small (0.76%), if one looks at the total labour expenditure of Rs,7.4 Cr. 4.7 The AO had examined one of the partners on the issue of whether the traveling and exclusively for the purpose of business. After recording his statement he was of the view that there is n....
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....Bogus. The conditions for invoking Sec. 145(3)[wrongly mentioned as 145(2)] are not made out in this case. The consequential action of applying 12% rate is also without any basis. Thus taking all facts and circumstances as highlighted cumulatively the addition so made is deleted. The AO is also directed to allow the deduction for the interest and salary due to the partners as per the partnership deed in accordance with the provisions of the I.T.Act." 10. Hence, department is in appeal before the Tribunal. 11. During the course of hearing, ld D.R. supported the action of Assessing Officer. He produced some of the vouchers before us and stated that maintaining of vouchers were defective as they do not contain requisite details for which payments were made by the assessee as labour expenses. He submitted that for some of the vouchers no details were given as to how much payments were made for labour and at what rate the labour charges were paid. He submitted that assessee was not maintaining basic details of payments, and hence, AO was justified to reject books of accounts of the assessee and to apply estimated net profit rate of 12% on the total contract receipts. 12. ....
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....the assessee is following same method of accounting which has been accepted in preceding and succeeding assessment years. He submitted that the order of ld CIT(A) is justifiable. 13. We have carefully considered the orders of authorities below and submissions of learned representatives of parties. We also perused one of the files containing vouchers which was produced by ld D.R. at the time of hearing. During the course of hearing, ld D.R. submitted that the vouchers do not contain requisite details of the rate at which the labour payments were made nor some of the vouchers contains details as to how many days the labour payment was made. Therefore, the vouchers were not reliable. However, Ld D.R. has not disputed the contention of assessee that there were only 65 vouchers which did not bear the requisite details/signatures and out of which 9 vouchers were supported by bills of contractors against whom payments were made by cheques. Ld A.R. categorically contended that out of the labour expenses of Rs.7,46,81,595, the total cash payment is only Rs.1,38,84,260 and the balance payment of Rs.6,07,97,335 was made by cheques. We observe that assessee was working at 21 sites....