TaxTMI 
TaxTMI 
2011 (9) TMI 987
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..... CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 4,79,165/- made on account of machinery hire expenses. 6. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,24,831/- made on account of machinery repairs/spares expenses. 7. The ld. CIT(A) has erred in law and on facts in deleting 20% of the expenses disallowed from Site Expenses of Rs. 2,27,559/- and Site Rasoda expenses of Rs. 2,04,362/- 8. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 32,68,650/- made on account of difference of 60%. 9. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 44,44,787/- out of total addition of Rs. 56,44,787/- made on account of post-survey inquiries in respect of labour contractors. 10. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 36,75,572/- out of total addition of Rs. 46,75,572/- made in respect of payments made to three transport contractors. 11. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 38,12,667/- made on account of claim of expenditure for rendering transportation services to Shri Manoj K. Aga....
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....his amount belonged to K. M. Patel & Co., the assessee did not consider the same as its receipts. However, the AO has not appreciated this fact and has made an addition of Rs. 10,997/- being the security deposit on the work done by M/s. K. M. Patel & Co. The assessee submitted that it has failed to understand as to why the deposit on that amount should be considered to be that of the assessee, when the AO accepts that the amount belongs to K. M. Patel & Co. The assessee therefore submitted that the addition made on this account be deleted. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings are reproduced as under: "2.2 I have considered the submissions of the Authorized Representative carefully and have also gone through the details filed by the Authorized Representative. From the submissions made by the Authorized Representative it is found that Rs. 10,997/- is 2% of Rs. 5,49,849/- which is the security deposit relating to the work done by M/s. K.M. Patel & Co. The Sardar Sarovar Nannada Nigam Ltd. had deducted 2% of security deposit and the Authorized Representative submitted that the same would be returned to K.M. Patel & Co. as ....
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..... The assessee had replied before the AO that the payment to sub-contractor M/s G. K. Engineering was reasonable and not excessive. M/s G.K. Engineering is doing structural cement work at site and during the year no other contractor from whom the assessee had taken service has done this work. Since this is very sensitive matter it requires lot of care and the same was awarded to them. The AO instead of appreciating the fact that the work assigned to the sister concern was very sensitive and if the work was not carried out properly the assessee would have to suffer its consequences, has considered the same as unreasonable and has disallowed 5% of the job expenditure as excessive on the ground that the assessee had only made a statement and did not support it with any evidence. The assessee submitted that it did not understand as to what type of evidence the AO required when all bills were available and the same have been verified by him during the course of assessment proceedings. Further it was not possible for the assessee to give comparable figures of similar work carried out by other contractors when the same has not been done by any other contactor. The firm of M/s G. K. Engine....
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....) of the IT Act, it is for the AO to make out a case that the expenditure incurred is excessive or unreasonable having regard to fair market value of such services. The AO accepted the same payments in earlier years and no efforts have been made in this regard to bring any comparable case as to what was the fair market value of similar services. Therefore, there was no justification to make the addition. We rely upon decision of Hon'ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd., 117 ITR 569 in which it was held before section 40A (2) is applied, AO should have proved expenditure is excessive or unreasonable. This ground has no merit and is rejected. 5. The third ground of appeal is against deletion of addition of Rs. 86,020/- out of Rs. 1,86,020/- in respect of shortage/spoilage in cement purchase. The AO found that the assessee has not maintained stock register. While working out the cement consumption, it was found that there was a shortage of 1420 bags placement which the AO valued @ Rs. 131/- per bag and disallowed an .amount of Rs.l,86,020/- towards shortage in cement. The addition was challenged before the learned CIT(A). It was submitted that dur....
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....allowance of Rs. 1,86,020/- made by the Assessing Officer. Thus, the appellant gets part relief of Rs. 1,86,020/-." 5.1 The learned DR relied upon the order of the AO and submitted that no reason has been given for deleting the part addition and addition was made on finding discrepancy. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted wastage was claimed which was rightly partly allowed by the learned CIT(A). 5.2 On consideration of the rival submissions we do not find any merit in this ground of appeal of the revenue. The explanation given by the assessee clearly supports the findings of the learned CIT(A) that there is bound to be pilferage and wastage while dealing with cement. The learned CIT(A) has granted reasonable deduction on account of wastage/pilferage in cement. This ground has no merit. Same is accordingly dismissed. 6. The fourth ground of appeal is against deletion of disallowance of Rs. 6,37,504/- out of diesel, oil and grease expenses. The AO observed from post survey inquiry that the assessee has been inflated expenses pertaining to labour and transport and as the assessee w....
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....d the submission of the Authorised Representative carefully. The appellant has contended that it is impossible to maintain Log book. The appellant has purchased diesel from Registered dealers. The appellant has also recovered Rs. 21,70,259/- from the sub-contractors. The bills for these expenses were impounded during the course of survey and the same have been verified by the Assessing Officer. The expenses of diesel, oil in the year in appeal have decreased to Rs. 63.75 lakhs from Rs. 142 lakhs of the preceding year. Therefore, in absence of any specific material, it is not justified to disallow 10% of the expenses on account of inflation of expenses. As there is no evidence in support of the said disallowance, the disallowance of Rs. 6,37,5047- made by the Assessing Officer is deleted." 6.1 The learned DR relied upon the order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below. 6.2 On consideration of the rival submissions, we do not find any merit in this ground of appeal of the revenue. The AO accepted the amount recovered by the assessee from the sub-contractors and all the vouchers have been ma....
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....fication could have been done at his end. The fact remains that without such services the work cannot be completed. Since the addition has been made on the basis of presumption, the assessee submitted that the disallowance of Rs. 4,79,165/- be deleted. The learned CIT(A) considering the explanation of the assessee deleted the disallowance. His findings are reproduced as under: "6.2 I have considered the submissions of the Authorised Representative carefully. I find that the appellant has informed the Assessing Officer that the names, addresses and the place of deployment of machinery were already mentioned in the bills of parties which have been impounded by the Assessing Officer during survey proceedings and that if the Assessing Officer had any doubt he could have verified the genuineness of the said expenditure. The expenses under this head have decreased to Rs. 4.79 lakhs in the year in appeal from Rs. 10.32 lakhs of the preceding year. It is found that there is bound to be expenditure on hire of machinery without which the contract work could not have been completed by the appellant. The Assessing Officer has disallowed the entire machinery charges without any concrete evid....
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.... to the date of survey are in the impounded material and that the bills contain description of the item / work done. Bills themselves are, self sufficient to justify the expenditure. As regards sale of scrap, the assessee submitted that these repairs are done at different sites and since the items replaced are petty items the assessee has to keep a broad view and not a conservative view. If any business man is very conservative then there is no trust worthy relationship between the employer and employee and consequently the work suffers. It is also not known as to on what basis the AO has estimated 10% of the said expenditure to be excessive. The machinery has to undergo normal wear and tear during the year. The machinery is deployed on smooth / rough as well as hard rocky surfaces. Hence there is bound to be break down. Since the expenditure has been incurred for the purpose of business and is supported by bills and vouchers the genuineness of the expenditure cannot be doubted. Since the disallowance has been made on the basis of presumption, the assessee submitted that the disallowance of Rs. 1,24,831/- be deleted. The learned CIT(A) considering the explanation of the assessee de....
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....he has to incur different types of expenditure at its different sites, for example purchase of nails, limestone, colour, repairs to shed, duster, acid, pencil, Xerox etc. for its site office. This type of expenditure has been debited to site expenses. The total of this expenditure during the year is Rs,2,27,559/- for four sites. During the course of assessment proceedings the assessee produced before the AO all the bills of these sites. The AO verified the same with the impounded books and no discrepancy was noted. Similarly the assessee was maintaining kitchen (Rasoda) for its staff at the different sites, the Rasoda expenditure debited to profit and loss account is Rs. 2,04,362/-. It was submitted that the site where the work is executed by the assessee is not developed area and is totally barren land where for miles together no facility is available. In such circumstances the assessee was duty bound to provide to its staff the necessary food and shelter for those who go and stay at the different sites for number of days or else nobody will be ready to stay overnight and consequently the work will suffer. Thus the assessee informed the AO that bills of the said expenditure are se....
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....discussed in Para 7 of the assessment order that the assessee has created a joint venture with M/s. K.M. Patel & Co. for which a copy of Joint Venture agreement dated 22nd December, 2000 was produced before the AO. According to the terms and conditions of the said Joint Venture Agreement both the parties i.e. the assessee and M/s. K.M. Patel & Co. have entered into a Joint Venture in the nature of partnership for the specific purpose of execution of the work of constructing, providing and laying double layer burnt clay tiles lining and constructing canal service road , catch water drains on Saurashtra Branch Canal on behalf of SSNNL and both the parties have agreed to make financial participation and the ratio of participation is 60 : 40 for the assessee and M/s. K.M. Patel & Co. respectively. The AO found that the total receipt of M/s. K.M. Patel & Co. out of 4th R.A. bills was of Rs. 2,72,55,374/- in respect of execution of work of Kadi Project and for the assessee it was Rs. 3,27,11,435/-. Thus the total work done by the parties was of Rs. 5,99,66,809/- and 60% thereof as per the condition of Joint Venture agreement was Rs. 3,59,80,085/- whereas the assessee has shown receipt of....
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....d also be conducted from the corporation. If the assessee had really suppressed its receipts then there would have been difference between the TDS and the receipts shown by the assessee. It was, therefore, submitted that addition cannot be made by comparing the efficiency of two firms. Since the AO has made this addition of Rs. 32,68,650/- on the basis of presumption, the assessee submitted that the same be deleted. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings are reproduced as under: "9.2 I have considered the submissions of the Authorised Representative carefully and have also gone through the details filed by the Authorised Representative. It was submitted by the Authorised Representative that by the time the entire work of Kadi Project gets completed the ratio of receipts for the appellant and K. M. Patel & Co. would work out to 60:40. As the work was incomplete during the year in appeal, the proportion of the receipts cannot be worked out and when the SSNNL has confirmed that it had paid receipts of Rs. 3,27,11,435/- to the assessee, there is no question of assuming and presuming that the assessee has received more receip....
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....ined the receipts of the assessee and M/s. K. M. Patel & Co. and wrongly divided in the ratio of 60% and 40% for making the addition. Since, both the parties could have worked out the work mutually decided by them as per JV agreement; there was nothing wrong if the parties mutually agreed to divide the work accordingly. There is nothing on record to show that assessee actually understated or suppressed the receipts. There is no infirmity in the order of the learned CIT(A) in deleting the addition. We confirm his findings and dismiss this ground of appeal of the revenue. 12. The ninth ground of appeal is against deletion of disallowance of Rs. 44,44,787/- out of labour contract expenses of Rs. 56,44,787/-. A survey operation u/s 133A of the IT Act was carried out in the business premises of the assessee on 07-02-2002, during the course of which papers were found related to construction of godown at Aslali, wherein around Rs. 35 to 40 lakhs had been invested by the assessee and N. G. Patel and statement of partner Shri G. K. Patel was recorded wherein he disclosed an amount of Rs. 22 lakhs on account of bogus expenses debited in the profit & loss account under the head labour and ....
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....corded presuming that the persons were the labour contractors whose names appeared as labour contractor and that the AO who has recorded the statement i.e. the predecessor of the AO had not verified the identity of the persons by calling the photo identity card, driving licence or photo identity card issued by Election Commission etc. Therefore, the AO had again asked the assessee to produce these persons with proof of their identity. But they were not produced. Therefore, the AO made disallowance of the expenses. The total expenditure disallowed was Rs. 56,44,787/- in respect of hire labour contractors and Rs. 46,75,572/- in respect of three transport contractors and Rs. 38,12,667/- in respect of one engineer and contractor Manoj K. Agrawal. Before the learned CIT(A) it was submitted that there was a survey conducted on 7-2-2002 by the lncome Tax Department at the office premises of the assessee and during the course of survey statements on oath were recorded from partner Girishbhai Patel and Jasubhai Patel, son of partner Jayantibhai. During the course of survey a loose paper was found from the purse of Jasubhai Patel containing jottings about the investment made in the godown at....
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....l did not have capacity to render service because he had taken on hire 6 tractors and one JCB machine on hire to do the rain cut soil filling work and he was not aware of the ownership of three tractors as they were managed by drivers. (Page 14) 5. Even if it is proved that he has received payments from G. K. Patel & Co. it cannot be considered as made against the alleged services rendered by him. (Page 15) The assessee submitted that the reasons mentioned by the AO in rejecting the explanation of the assessee are highly unjustifiable and without considering the facts of the case and evidences on record. As regards the first observation of the AO that the assessee submitted that the statement was recorded by the then AO because the survey was conducted on 7-2-2002 and the department wanted to establish that there was inflation of expenses to justify the disclosure made by the partner of the assessee and the assessment proceedings for AY 2000-01 was also in process. As regards the second observation of the AO mentioned in the assessment order it seems that the AO doubted the then AO. It may be noted that the statements were recorded behind the back of the assessee and the asse....
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....9,928/-): The AO has made this addition because : 1. The then AO recorded the statement on oath of a person who attended before him in response to the said summons presuming that person as Mayurbhai Palel (Page 16 of the order) 2. At any point of lime the then AO has not tried to verify the identity of the person by calling for photo identity like driving license, photo identity card issued by election commission or any other proof of that persons identity.(Page 16) 3. The assessee has not produced the contractor before the AO. (Page 16) As regards the first two observations of the AO, the assessee has already discussed here in above in the case of Virag C. Patel. As regards the third issue the assessee submitted that since the contractor had already accepted that he has done work for the assessee, the onus was discharged and moreover it was the department who had issued summons u/s 331 and not that the assessee had produced them as its witness. d). Chaturbhai N. Patel (Rs.4,43,750/-) : The AO has made this addition because : 1. The then AO recorded the statement on oath of a person who attended before him in response lo the said summons presuming that person as C....
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.... assessee has already stated here in above in the case of Virag G. Patel. As regards the third issue the assessee submitted that since the contractor had already accepted that he has done work for the assessee, the onus was discharged and moreover it was the department who had issued summons u/s 131 and not that the assessee had produced them as its witness. g). Jasubhai P. Patel (Rs.7,43,400/-) : The AO has made this addition because : 1. The then AO recorded the statement on oath of a person who attended before him in response to the said summons presuming that person as Jasubhai Patel (Page 20) 2. At any point of time the then AC has nut tried to verify the identity of the person by calling for photo identity like driving license, photo identity card issued by election commission or any other proof of that persons identity.(Page 20) 3. The assessee has not produced the contractor before the AO. (Page 20) As regards the first two observations of the AO, the assessee has already discussed here in above in the case of Virag C. Patel. As regards the third issue the assessee submitted that since the contractor had already accepted that he has done work the assessee, th....
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....on be deleted. The learned CIT(A) considering the explanations of the assessee deleted the addition. His findings are reproduced as under: "10.2 I have considered the submissions of the Authorised Representative carefully and have also considered the observations of the Assessing Officer. It is found that the Assessing Officer had issued summons to the labbour contractors and transport contractors at the time of assessment proceedings for A.Y. 2000-01 and they were examined. They have admitted that they have done work for the appellant. Their statements were recorded without the knowledge of the appellant. It is found that the present Assessing Officer has proceeded on the presumption that proper persons were not produced before his predecessor as their identities were not proved. As the statements of the labour contractors had been taken by the Assessing Officer although he is not the same Assessing Officer who has passed the assessment order, the genuineness of the statements cannot be doubted and as the labour contractors have confirmed having done the work for the appellant and it is ,not the case of the Assessing Officer that the appellant was asked to produce these labour ....
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.... rightly appreciated that the AO proceeded merely on presumption that proper persons were not produced before the then AO. Since the parties accepted the payments and sufficient material was produced before the authorities below to justify the payment for the business purposes, therefore, the learned CIT(A) on proper consideration of facts and material rightly deleted the part of the addition. No infirmity has been pointed out in the order of the learned CIT(A) through any contrary material or evidence on record. In the absence of any material in favour of the revenue on record, we do not find any justification to interfere with the order of the learned CIT(A). This ground of appeal is accordingly dismissed. 14. The tenth ground of appeal is against deletion of disallowance of Rs. 36,75,572/- out of transport contractor expenses of Rs. 46,75,572/-. The reasons for disallowance of the said expenses have been discussed by the AO in Para 8 of the assessment order. The AO issued summons to the transport contractors calling for certain information. They did not attend in person, but submitted details through post. The AO observed that the capacity to render service by these persons w....
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....although the AO mentioned the name of Amit Bhavsar in the notice; no details pertaining to him were furnished to the assessee so as to comment on it. As regards the first observation of the AO that although summons were issued for personal presence, the party filed letter along with enclosures, the assessee submitted that this was the period of communal disturbance in Gujarat which started from the last week of February 2002 till May 2002. All the transporters are from outstations and at that time nobody did take risk of going out of town. This fact was known to everybody and the AO in his reason (vi) considered this to be a lame excuse knowing that the riots of that time were internationally famous and the whole world was aware of it. As regards the second observation that mere filing of the return does not prove genuineness of the transaction, the assessee submitted that filing of income tax return is mandatory for all those who have taxable income or who want to claim refund. In such a case, how could the AO doubt the genuineness of the transaction when the computation of income itself shows that there were transport receipts from the assessee? Moreover all the transporters are ....
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.... also done work for the assessee during the previous year relevant to assessment year 2000-01. These four parties which are now considered as bogus have already been considered as genuine during assessment year 2000-01. The assessee therefore submitted that the addition made with respect to transport contractors expenses be deleted since the addition has been made without appreciating the fact and on the basis of presumption. The learned CIT(A) considering the explanation of the assessee deleted the part addition. His findings are reproduced as under: ''11.2 I have considered the submissions of the Authorised Representative carefully and have also considered the observations made by the Assessing Officer in the assessment order. As regards the payment made to transport contractors, there are three transport contractors who did not appear before the Assessing Officer due to communal riots in Gujarat which look place in 2002. Subsequently, the Assessing Officer did not summon these transport contractors but these transport contractors have can find out work for the appellant in the earlier years and the payments made to them have been accepted in those years and these tran....
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....essee would have inflated the expenses. Merely because transporters have filed return of income as per provisions of section 44AE of the IT Act is no ground to disbelieve the explanation of the assessee because such course is permissible under the Income Tax Act. Considering the facts of the case in the light of the evidences and record as has been pointed out by the learned Counsel for the assessee, we do not find any justification to interfere with the findings of the learned CIT(A) in deleting part of the addition. This ground of appeal of the revenue is accordingly dismissed. 16. The eleventh ground of appeal is against deletion of disallowance of Rs. 38,12,667/- out of sub-contract expenses. The AO issued summons to the subcontractor Shri Manoj K. Agrawal but he did not make any compliance. The AO then asked the assessee to establish capacity of Shri Manoj K. Agrawal to render the service by adducing necessary evidences. The AO observed that the assessee made submission in case of transporters but did not utter a single word about Shri Agrawal. Hence, he concluded that the said transaction is non-genuine and that the assessee has failed to establish capacity of the said per....