TaxTMI 
TaxTMI 
2014 (9) TMI 121
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....re the Hon'ble Tribunal which may please be granted. 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(....
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....r. A.Y. Amount paid 2004-05 50,39,900/- 2005-06 39,42,690/- 2006-07 2,66,00,000/- 2007-08 3,64,76,525/- 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 m....
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.... an adverse inference could be drawn and the completed assessment should not be disturbed. Section 153A does not contemplate a de novo assessment. 8.2 In this background, the CIT(A) summarized 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 Cha....
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....m the erstwhile special provisions contained in Chapter XIV-B for completion of assessments in search cases in as much as the concept of block period is done away with. In the earlier provisions 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....
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....sition is made. Notice under section 153A cannot be issued in respect of this assessment year; the provisions for search or requisition assessments do not authorise this action. The assessee would 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 ....
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....n 40(a)(i) for assessment years 2004-05, 2005-06 and 2006-07 i.e. the years in which the issue of payments to labourers without deducting tax at source was concluded in assessment proceedings under section 143(3), were 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 vo....
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....ely for convenience. There is no contract for supply of labour either written or oral between the gang leader and the appellant. It was stressed that the relationship between the appellant and the labourers is that of an employer 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 famil....
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....both Shri Nalawade and the assessee were road contractors. Accordingly, there was no justification for invoking the provisions of section 40(a)(ia). In the light of above discussion, order of CIT(A) on this issue in all the years needs 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. ....
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....07. The assessing officer has made a remark that the labour creditors whose credits were written off for assessment year 2009-10 are common for assessment year 2007-08 also without identifying the creditors. Further, the assessing officer has doubted the bona 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 additi....
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.... 25.58% Thus, on the basis of the above, the assessing officer worked labour component for the assessment 2008-09 at an estimated 20% of total turnover as against 34.29% claimed. Consequently excess labour charges to the tune of Rs. 1349.98 lakhs was disallowed and added to total income. 11.7 In the course of appellate 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 perce....
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....ver as the correct amount of labour charges. This has been done after adopting a gross profit ratio of 51.68% in labour billing. In order to arrive at the figure of 51.68%, the assessing officer has compared the labour charges billed to PCMC during the financial year 2008-09 to the total billing to PCMC. He has not considered sales 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. T....
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....ceived by the officer on 23/12/2011. He also submitted a copy of the letter dated 27/10/2009. The relevant portion of the letter is quoted hereunder: "During the course of action, the labour charges amounting Rs. 27,25,88,085.00 was outstanding as on 31.03.2009. Due to the non-receipt of contract amount during the year under consideration, 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 offi....
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....ch large labour charges appear to be outstanding in view of the fact that we have not received payment against our contracts and hence payments remained outstanding. I do voluntarily accept that some of the labour charges are inflated during the year. Considering the labour requirement for work carried out and quarry (excavation and making stone metal) during 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 part....
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.... the admission by the appellant, there was absolutely no evidence at hand to suggest that the appellant had inflated expenses for financial year 2007-08 or for that matter for assessment year 2008-09. There was no discussion in the assessment order with reference to the RA bills submitted to the PCMC authorities about the nature of billing which would reflect the 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 offi....
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....ged utility lines, construction of medians, beautification, laying of steel reinforcement, making of footpath etc., which were all ancillary to laying of a roadway and they require a large force of skilled and unskilled labour. Each and every activity had to be analyzed in relation to the work done before holding that the expenses on labour were inflated. Without 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 persis....
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....s. We have heard the parties and perused the relevant records. Considering the fact that the assessee has not chosen to file an appeal to the higher forum on the similar issue for A.Y. 2003-03, it is inferred that the assessee in principle accepted the addition at the rate of 0.8 %. There are no changes in facts for this year under consideration. Therefore, we do not find 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 sa....