TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 528
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.... as Revenue both are now in appeal before us. The grounds raised by the Revenue reads as under:- 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made by the A.O. of Rs. 2,50,000/- on account of unexplained cash credit u/s. 68 of the Act. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance out of labour charges made by the A.O. of Rs. 27,74,439/-. 3. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made by the A.O. of Rs. 99,86,407/- on account of material recovery. 4. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in restricting the 50% disallowance made by the A.O. of Rs. 37,61,619/- on account of carting expenses to 25% of total expenditure claimed i.e. to Rs. 18,80,810/-. 4. The effective grounds raised by the Assessee reads as under:- 1. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of the Assessing Officer making addition of Rs. 16,05,932/- on account of valuation of closing WIP. 2. On th....
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....ppearing the ledger. 6.1The fact remains that the individual capital accounts of the partners showed transfer of capital into the Assessee firm and at the same time, the Assessee's books showed the receipt of capital of identical amounts.. The only difference was in the dates. A simple difference in the dates of entry could not be taken as a ground to treat such capital as the unexplained income of the Assessee firm. It must be noted that no one would transfer duly accounted for funds for unaccounted and undisclosed investments. 6.2 Even if it was to be accepted that the capita! introduced in the names of the four partners were not fully explainable from their individual books of account yet, such capital could not be assessed in the hands of the firm u/s 68 of the Act. It has to be accepted and understood that no addition could be made in the hands of the firm, of the sums introduced by the partners, as unexplained cash credits. If at all any addition was to be made, it could only be made in the hands of the individual partners, where they could be called upon to explain the source of such funds, and action could be taken accordingly, under the Act. In the case of the Assess....
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....pital into the Assessee firm and at the same time the Assessee's books showed the receipt of capital on identical amounts the only difference was in dates. He further relying on the various decision cited in his order has noted that no addition could be made in the hands of the firm of the sums introduced by the partners as unexplained cash credit and if at all any addition was to be made, it could only be made in the hands of individual partners for which he also placed reliance on the decision of Gujarat High Court in the case of Pankaj Dyestuff (supra). Before us, the Revenue has not brought any material to controvert the findings of CIT(A) nor has brought to our notice any contrary decision of jurisdiction High Court or Apex Court to show that the decision in the case of Pankaj Dyestuff Industries (supra) has been overruled. In view of the aforesaid facts and relying on the aforesaid decision of Hon. Gujarat High Court, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. 2nd ground is with respect to deletion of disallowance of labour charges amounting to Rs. 27,74,439/-. 11. During the course assessment proceedings, A.O. ....
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....shed fact that in such cases, payments are made by the contractee in stages i.e. after a particular work is completed and the same is inspected and verified. The payments are thus made on a Running Account (RA) basis, for which bills are raised from time to time. It is also a known fact that organizations such as the SMC take some time in passing such bills and making payments. Therefore, there is always a time gap between the raising of a RA bill and the actual receipt of the payment. On the other hand, for the purpose of completing a particular stage of work the labour expenses would have already been incurred before the RA bill was raised. Therefore, there could be any one-to-one correlation between the payment of labour expenses and the raising of the RA bills, and the receipt of payment from the contractee. This the AO failed to appreciate, Hence, the comparison made by her between the labour expenses and the RA bills on a monthly basis, was erroneous. 10.1 The AO next raised the issue concerning the high percentage of labour expenditure incurred by the Assessee as compared to the gross receipt. While the Assessee had claimed that such expenditure represented only 13.80% of t....
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.... financial year i.e. on 31-03-2006. M/s Muktar foundation would have credited such amount in its books only after the draft would have been encashed, which would have been in the next year. In any case, the alleged difference was fully explainable from the books of the Assessee and its bank account. Therefore, no adverse inference could be drawn. 10.3 Given such facts of the case, it is held that there was no justification in making a percentage disallowance out of the labour expenses claimed. The addition of Rs 27,74,439/- will therefore stand deleted. 12. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. 13. Before us, the ld. D.R. took us through the findings and observations of A.O. and thus supported his order. The ld. A.R. on the other hand reiterated the submissions made before CIT(A). He further submitted that there was no direct co-relation between the labour expenses claimed and the bills amount raised as the Assessee recorded the receipts only on the basis of R.A. bills approved by SMC. He also placed on record the copy of year-wise profit and loss analysis and from it, he pointed that the gross receipts was to the extent of Rs. 10.05 crores ag....
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....son to interfere with the order of CIT(A). Thus this ground of Revenue is dismissed. 3rd ground is with respect to deletion of addition of Rs. 99,86,407/- made on account of material recovery. 15. A.O. noticed that Assessee had debited Rs. 2,21,61,849/- towards material recovery from Ranjit construction. The Assessee was asked to furnish the copies of purchase bills, LR, Octroi receipts evidencing the transportation and receipt of material at site. A.O. noticed that no material were received in the month of May, June, July, September and November. In response to the query of A.O, Assessee submitted that the material was not procured by the Assessee but was received from the main contractor M/s Ranjit Construction and it also filed copies of the purchase bills but however could not file copies of L.R, Octroi receipts or register in support of receipt of goods. A.O. was therefore of the view that the complete authenticity of the claim of material recovery was not proved beyond doubt in the absence of transportation as according to him LR, octroi etc prove actual receipt and consumption of material other than cement and steel. A.O. also noted that the major items/ingredient required....
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....since, the issue was the genuineness of the materials supplied by the SMC and M/s, Ranj'it Construction and its further use in the construction process. 14.1 The AO had before her copies of agreements between the SMC and M/s. Ranjit Construction, and also between M/s. Ranjit Construction and the Assessee. These two agreements clearly reflected the arrangement entered into between the three parties. In any case, if the AO had any doubt about the claim made by the Assessee, she could have easily verified the facts from both the SMC and M/s. Ranjit Construction which is also a tax-payer. If is important to note that the AO never denied the fact that the Udhna Majura Flyover was actually constructed and that, the Assessee was engaged in the construction as a sub-contractor. The flyover is there for all to see, very close to the Aayakar Bhawan in Surat, Therefore, there could not be any question raised regarding the supply of materials such as cement and steel by the SMC and M/s. Ranjit Construction to the Assessee, especially when the Assessee had not shown any purchase of its own, at least in the initial period of the project. 14.2 The AO raised the question of the purchase bill....
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....make such an evaluation, and hence, her observation was totally off the mark. It has been argued by the AR that the quantity of the wire purchased shown in the purchase bills tallied with the quantity shown in the RA bill no 16, which was the last bill for the year under consideration. In any case, there was simply no basis or any factual information or analysis for the AO to take the view that the claim of purchase of wire was in excess of what would have been required to construct tie flyover. What the AO failed to take note of was that, the Assessee had executed the project for the SMC, who had not only provided the basic materials for the project, at least for most part of the project, but had also supervised the construction and execution of the project. The SMC had made payments on the basis of supervision, execution and verification on a continuous or running account basis. If the SMC had not drawn any adverse inference or had not levied any penalty for over billing or over utilization of materials, the A.O. was simply not in a position to draw any adverse inference in this regard. The total addition of Rs. 99,86,407/- will stand deleted. 16. Aggrieved by the order of CIT(A....
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....ovided by SMC. He has also noted that the quantity of wire purchased shown in the purchase bills tallied with the quantity shown in R.A. bills. Before us, no material has been brought on record by Revenue to controvert the finding of CIT(A) and therefore we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. 4th Ground of Revenue and Ground no. 3 of Assessee is with respect to restricting the disallowance of carting expenses to Rs. 18,80,810/-. 20. During the course of assessment, on perusal of the Profit and Loss account, A.O noticed that Assessee had debited carting expense of Rs. 75,23,238/- in its Profit and Loss account. He also noticed that Assessee had claimed purchase of reti and Khapachi aggregating to Rs. 54,49,182/- and also purchase of petty purchase of building material etc, where according to A.O., element of carting was not required and therefore according to A.O, the carting expenses was far in excess of purchase of materials. The A.O. therefore asked the Assessee to justify and substantiate the expenses by furnishing the bills of material purchase and carting bills. A.O noted that Assessee did not furnish the bills o....
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....on record by the A.O. 26.2 Next, the A.O. issued notices u/s. 133(6) to all the parties to whom the Carting expenses were allegedly paid. All the notices were returned unserved by the Postal Authorities. The A.R's explanation is that, there are many parties who are engaged in carting and transporting goods, and it is very difficult to obtain there whereabouts after business transaction with them is over. This is a very simplistic explanation. It is a verifiable fact that each builder has his fixed transporter(s). In any business, when dealing though a period of time, the parties concerned develop an understanding and trust, and therefore, they continue to deal with each other over the year until and unless some event or some circumstances lead to the break-up of the business relationship. This would apply more commonly to the builder or the contractor. Every builder has his own fixed suppliers for various materials or items required for his building activity. This would also include transporters and, depending on, the credit period allowed by the service provider, and the sincerity of the recipients of such service in making the payments the length of such relationship would b....
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....d fact that the nature of activity in which the Assessee is engaged, the material like Reti, Kapachi etc are required to complete the contract and for which the carting expenses are also required to be in carried. It is Assessee's submission that Assessee had deducted the TDS before making the payment of carting expenses but at the same time the Assessee could not furnish the PAN Number and complete details of addresses and the notices issued by A.O. u/s. 133(6) also returned unserved. Before us, it is submitted that if the disallowance as made by A.O is upheld, it will result into net profit on the basis of gross receipts to 20.82% which is on the higher side. It is also a fact that CIT(A) had restricted the disallowance to 25% instead of 50% of the expenses. From the list of parties from whom the TDS has been deducted and which is placed on page 59 of the paper book, it is seen that in a few cases though Assessee has stated it had deducted TDS but in the list no PAN numbers of some of the parties have been indicated. Considering the totality of facts and peculiar circumstances of the case and nature of the business and activity carried out by Assessee, we are of the view that....
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....may be argued that any addition to the closing stock would be of no benefit to the Revenue since the same would have to be treated as the opening stock of the subsequent year, I am constrained to sustain the findings and conclusion of the AO. Consequently, the addition of the sum of Rs 16,05,932/- will stand confirmed. 27. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. Before us, the ld. A.R. reiterated the submissions made before A.O. and CIT(A). He further submitted that if the value of goods is considered to be in stock as on the last day then the A.O. be directed to consider the same as opening stock in subsequent year. Ld. D.R. on the other hand supported the order of A.O. and CIT(A). 28. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the material worth Rs. 16,05,932/- were purchased on the last 2 days of the year and the Assessee could not prove that the same was consumed and was not in the stock at the end of the year and in such circumstances, the action of A.O in considering the same as part of closing stock cannot be faulted. But at the same time, it is also an accepted principle of accountan....