TaxTMI 
TaxTMI 
2014 (9) TMI 121
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....ted. 3. The assessee is engaged in the business of construction of road as contractor of Government and Semi-Government organizations. Search action under section 132 was conducted in this case on 23.09.2009. During course of search, incriminatory material was found regarding investment in properties, jewellary, etc. The assessee made declaration of Rs. 35.47 crores during search proceedings. The said undisclosed income declaration was duly acted upon by the assessee while filing return of income u/s.153A of the Act. The tax liability on the said undisclosed income was duly paid with interest. Consequent upon search action, assessment orders were passed u/s.153A r.w.s. 143(3) of the I.T. Act for A.Y. 2004-05 to 2009-10 and regular assessment u/s.143(3) was made in 2010-11 wherein certain additions were made to the total income. Aggrieved by the same, the matter was carried before the first appellate authority, wherein the addition of Rs. 50,39,900/- u/s. 40(a)(ia) of the Act on account of non deduction of TDS u/s.194C of the Act for A.Y. 2004-05 was challenged. Similar additions were made in A.Ys. 2005-06 to 2009-10. 4. The CIT(A) on this issue having considered the same, has del....
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....6,525/- 2008-09 18,93,13,723/- 2009-10 10,18,73,515/- 2010-11 9,16,00,000/- 7. With regard to contravention of provisions of section 194C of the Act, the stand of the assessee has been that the addition made for assessment year 2004-05 was bad in law as sub-clauses (i)(ia) and (ib) of section 40 were substituted for subclause (i) by Finance (No.2) Act, 2004 and was made effective with effect from 01.04.2005 and as such were applicable to payments in assessment years 2005-06 and onwards. The assessee also relied on Department's Circular No.5 of 2005 dated 15.07.2005 in support of his contention. The CIT(A) found that the contention of assessee was correct. Since the provisions of section 40(a)(ia) as substituted by the Finance (No.2) Act 2004 was not in Statute during the relevant previous year, it could not be applied for making a disallowance for the assessment year 2004-05. The provisions of section 40(a)(ia) became applicable in relation to payments made from and during financial year 2004-05 i.e. would be relevant for making assessments of assessment year 2005-06 and onwards. This reasoned finding of CIT(A) needs no interference from our side. We uphold the s....
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....ummarized the contentions of the assessee on this issue that in cases where assessments have been made u/s.143(3) and where returns have been processed u/s.143(1) immediately before the commencement of such proceedings, it could not be stated that any assessment is pending and, therefore, unless an incriminating material or document is found in respect of such, assessment years, finality of which has been achieved u/s.143(3) and 143(1) could not be disturbed u/s. 153A of the Act. Hence, it was contended that no disallowance could be made u/s.40(a)(ia) for assessment years 2004-05 to 2008-09. 8.3 Section 153A, section 153B and section 153C have been introduced in the Income-tax Act by the Finance Act, 2003 w.e.f. 01- 06-2003. Simultaneously, Chapter XIV-B relating to special procedure for block assessments of undisclosed income in the case of searches conducted under section 132 of the Income-tax Act was omitted and provisions of section 158BI was inserted which provides that the provisions of Chapter XIV-B, section 158B to section 158BH, shall not apply where a search is initiated under section 132 or books of account, other documents or any assets were requisitioned under section....
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....ns contained in 158B the concept of block period was enunciated in section 158B(a) to mean the period of 6 assessment years preceding the previous year in which the search was conducted or any requisition made including the period up to the date of commencement of the search or requisition of assets in the previous year in which these actions were taken. There was a dual approach to completion of assessments in respect of the block period. The assessing officer was then required to complete the assessment of undisclosed income in respect of the block period. If there was any other income which would have escaped assessment but which was not noticeable from or could be linked to the books, documents, assets, etc. found during the course of search or requisition, then the assessing officer was free to proceed with those items of income under the normal provisions of the Income-tax Act contained in section 147. This implied that the assessing officer's power to assess income was restricted to such items which were found and disclosed during the course of search or requisition. Items of regular assessment were, in a manner of speech, alien to the proceedings for determination of un....
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....ld have the statutory right to file a revised return of income under section 139(5) for this assessment year. The assessing officer would be entitled to issue a statutory notice under section 142(1) if the return of income is not filed within the time allowed under section 139(1). Thereafter, the assessing officer may, having regard to the return of income, form a belief that any claim of loss exemption, deduction, allowance, or relief is inadmissible. Alternatively or concurrently, he may also form a prima facie opinion on the basis of seized material that an item of income is not included in the return of income then he can issue a notice under section 143(2) (ii) on or before the due date for picking up the case for regular assessment. In the example the due date for issue and service of notice would be 12 months from the end of the month in which the return is furnished (now six months from the end of the financial year in which the return of income was filed). Thereafter the assessment has to be completed in accordance with the time limit set out in 153B(1)(fa) read with II Proviso thereto. Since the last warrant of authorisation was executed, in this hypothetical example, on ....
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.... deleted by the CIT(A) because the additions have been made on mere change of opinion and no incriminating material was discovered in search and seizure proceedings. Nothing contrary has been brought to our knowledge on behalf of Revenue. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same. 9. Without prejudice to above, the CIT(A) further observed that during the previous year relevant to assessment year 2004-05, the appellant had debited labour charges of Rs. 50,39,900/- in the profit and loss account. The assessing officer had examined this issue during the course of assessment and had added a lumpsum amount of Rs. 5,00,000/- to the total income of the appellant. In assessment year 2005-06, assessment under section 143(3) was completed on 22/05/2007 and the issue of disallowance out of labour, charges was specifically dealt in paragraph 6(i) of the assessment order. During this year also the assessing officer noted that the vouchers signed by mukadams (gangmen) were the sole basis for making the claim of labour charges and he disallowed a sum of 15% of the total expenses claimed and added back of Rs. 6,09,250/- to the total income of the appe....
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....mployer and employee or that of a master and servant. The control over the manner in which work is required to be done by each labourer is with the appellant and the labourers obey the orders in respect of the work to be performed, mode in which it has to be performed and the manner of performance. Thus, there was no contract of service and relationship between the labourers and the appellant was one of a master and servant. The appellant thereafter relied on the decision given in the case of CIT V/s Dewan Chand 178 Taxman 173 (Delhi) in which it has been held that the payments paid directly to labourers were made to employees on daily wages which cannot be considered as a contractual payment contemplated under section 194C of the Income-tax Act. The appellant also relied on the decision given in the case of Nalawade C Maruti V/s Joint Commissioner of Income-tax, R-2 Sangli [2011] 15 Taxmann.com 218 (Pune) and wherein it is held that payments made to head of families do not fall within the ambit of section 194C and hence could not be disallowed under section 40(a)(ia). Further, the appellant relied on the decision given in the case of CIT V/s Kotak Securities Ltd. 15 Taxmann.com 77....
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....no interference from our side who has allowed the appeals of assessee by reasoned order. We uphold the same. 11. The next issue is with regard to issue of excessive labour charges pertains to AYs 2007-08 & 2008-09, the Assessing Officer made addition of Rs. 11,25,000/- and Rs. 13,49,98,000/-. It is mentioned in the assessment order for A.Y. 2008-09 that documents seized during search in the form of self-made vouchers sans signatures, date, amount etc. revealed that the appellant claimed bogus expenditure under the head labour charges'. The search party also took note of the fact that (i) the all payments were shown to have been made in cash (ii) the appellant did not furnish details such as PAN, addresses etc. of persons to whom the payments were made (iii) tax was not deducted at source on these payments as provided under section 194C. (iv) books reflected outstanding labour charges as on the date of search i.e. 23/09/2009 at Rs. 27,25,88,085/-, which stood at Rs. 28,24,50,000/- on 31/03/2009. When confronted with the evidences seized during search, Shri Maruti Laxman Mane, Managing Partner, Shri Manohar B Vidwans, Accountant and Shri Sachin V Joshi, Supervisor, in their....
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....ona fides of these payments without actually enquiring into the nature of activities performed in relation to the job requirement of road construction. Unless and until it is proved by way of admission or by way of technical proof that there was no necessity of hiring the labourers and therefore, incurring the labour charges, the labour expenses could not be treated as non-genuine. Further, the CIT(A) observed that in the immediately preceding previous year in the assessment order dated 15/05/2008, 3% of the expenditure aggregating to Rs. 7,99,511/- was added back to the total income of the appellant. This issue was further examined during the course of appellate proceedings and vide appeal no. RTN/33/08-09 dated 22/08/2008, predecessor of CIT(A) had considered the appeal for assessment year 2002-03 wherein disallowance of 0.8% out of total labour expenses of Rs. 2,01,09,200/- was sustained. Accordingly he had sustained the addition to the extent of Rs. 2,12,045/-. It is evident from records that the issue of ad hoc disallowance @ 0.8% "Out of labour charges stands concluded for the assessment years 2004-05, 2005-06 and 2006-07. The CIT(A) found no reason to deviate from the decisi....
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....pellate proceedings, the appellant contended that the addition made was uncalled for when it had already disclosed and returned and amount of Rs. 18,25,88,085/- in its return filed in response to notice under section 153A. It was further argued that in the PCMC project, which continued for about 21-24 months, maximum labour was utilized in the first year i.e. assessment year 2008-09 and more material was used as compared to labour in the subsequent year. Therefore, increase in labour charges in 2008-09 was justifiable. Labour charges were claimed to be incurred in the regular course of business and hence, it could not be treated as bogus expenses. The appellant further argued that since the expenses incurred had a direct nexus with its business, it should be regarded as an integral part of profit making process. The assessing officer has worked out the percentages on the basis of the billing done to PCMC. These amounts had been culled out from the RA bills submitted to PCMC. In all cases of contractors, revenue was recognized on the basis of the certified bill. Only those amounts were treated as incomes which were certified as correct by the Engineers of the Government office and t....
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....billed to others @ 1684.68 crores which comprises 21.8% of the turnover after adjusting for escalation charges received and sale of material. These billings would also have substantial labour charges. If this amount was also factored into the calculation, the percentage of labour turnover to total billing would automatically reduce. By the reasoning that the assessing officer has failed to consider a substantial part of turnover while computing the gross profit attributable to labour charges, it was found safe to hold that the figure of 25.58% adopted to compute the percentage of total labour billing to work billed was incorrect and could not be adopted as the basis for arriving at the gross profit from supply of labour. The gross profits in labour can be found out only if it is proved that labour bills, certified as correct by the PCMC, were inflated. The Assessing Officer has compared the RA bills raised on PCMC, he has not considered the other billing of the appellant. He has adopted an ad hoc rate of 12.5% as labour component (as per appellant's own working) in respect of combined billing. All these figures were not add up to the actual certified billing of the appellant be....
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....n, we could not make the payment of the year F.Y. 08-09. During the course of action u/s 132, the party on action informed us to produce the labour or gang leaders for whom, the amount of labour payable shown in Balance Sheet. It is to inform your Honour that the labour charges debited in the books of accounts are genuine. However, we are unable to produce either mukadam or direct labourers. Considering their earning & hand to mouth livelihood, those people always used to remain far away from tax. matters or other Govt. offices. They are afraid to visit any government officers, even mukadams are also reluctant to come to Income Tax Office. These are day-to-day practical difficulties we face. If the department summoned the particular labour to attend office for confirmation of this outstanding payment, certainly they will not attend any offices but advertise by mouth publicity among labour gangs who should not co-operate such parties & it is very difficult for us to pull on such type of contract work in future. Considering the work, carried out during the year, labour requirement is approximately 15-17 % of the contact which works to Rs. 12.75 to Rs. 14.45 Crores respectively. Th....
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....ing the period. I estimate the inflation of expenditure in labour shall be Rs. 18,25,88,085/- We therefore declare this amount as undisclosed income for F Y 08-09 over and above the regular income of M/s Manisha Construction Co. as per the audit report. (Emphasis supplied by me)" 11.13 It is apparent from the letter and the answer to question no. 10 that the labour charges were outstanding because the appellant has not received the payments from their principals. It was clear that the appellant's partner has voluntarily accepted that some labour charges were inflated "during the year". This was in relation to the labour charges found outstanding for the financial year 2008-09. The question also was directed towards the outstanding labour charges shown in the books of account for the financial year 2008-09. Further, the partner has also stated that the inflation of expenditure to the tune of Rs. 1825.88 lakhs was on account of labour requirement for the "work carried out during the period". Again, this period was in reference to the period for which the.' labour charge was outstanding i.e. financial year 2008-09. It was also apparent from the description of work in letter d....
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....e type of work completed by the appellant in either stages. An age-wise analysis of labour payment was not done. No questions were asked during the search and seizure proceedings about the labour charges of earlier years presumably because the same were not outstanding. The Assessing Officer has made this addition on a presumption that since most of the labour creditors were common for both the assessment years and the fact that the same creditors were written off during the previous years relevant to the assessment year 2009-10 that the creditors would be bogus for the assessment year 2008-09. However, there was no finding in the assessment order to the effect that the creditors were bogus. It is pertinent to mention that the appellant had provided the list of labour mukadams along with their addresses to the assessing officer, in response to the letter dated 15/12/2011 received by the appellant on 16/12/2011, on 23/12/2011 vide letter dated 21/12/2011. The list was never acted upon by the assessing officer apparently because there was no time for him to act upon that. In any case, these details were asked for at the fag end of the assessment proceedings and could not have been ac....
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....looking into these aspects, it was not possible to make a bald statement that the requirement of labour force would not be more than 20% of the turnover. Such an analysis of various processes and involvement of labour therein was missing in the assessment order. Under the circumstances, the RA bills as accepted by the contractee i.e. PCMC and other vendees could not be doubted upon and the labour billing certified by the authorities had to be taken as correct and no adverse inference should have been drawn. Accordingly, that there was no basis for making the addition of Rs. 1349.98 lakhs. He also find that the appellate proceedings for assessment year 2006-07, disallowance was restricted to 0.8% on the ground that the appellant was unable to furnish the supporting vouchers or necessary supporting documents. The fact persists in this year as well. The CIT(A) having followed the decision of his predecessor in assessment years 2002-03 and 2006-07 and restrict the disallowance to 0.8% of the total labour charges debited to the profit and loss account which was confirmed by ITAT as stated above by observing as under. "3. On appeal, the CIT(A) observed that similar issue had come up for....
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....nd any infirmity in the order of the CIT (A) in restricting the disallowance of labour payment @ 0.8% which works out to Rs. 2,12,045/- for this year too. Therefore, this part of the ground of appeal is dismissed." Thus, appellant's ground was partially allowed by CIT(A). This reasoned finding of CIT(A) is fortified by the decision of ITAT on the issue as stated above, needs no interference from our side. We uphold the same. 12. The next issue is with regard to understated value of immovable property of Rs. 5,83,000/- for A.Y. 2007-08. This issue was taken up as additional ground emanating from the order of the assessing officer is in respect of understatement of value of property. In assessment the appellant had agreed that the value of the property has been understated by Rs. 5,83,000/- and offered the same as income for assessment year 2007-08. The assessing officer observed that this investment was made in the assessment year 2006-07 and, therefore, he had included the sum of Rs. 5,83,000/- being the notional rental income from properties used by partners of the firm in the return of income filed under section 153A. 13. In appeal, the CIT(A) observed that there appears t....