TaxTMI 
TaxTMI 
2017 (1) TMI 254
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.... Assessee) (A.Y. 2007-08) : 2. Grounds of appeal No. 1 to 4 by the assessee relates to the order of the CIT(A) in confirming the addition of Rs. 75,24,922/- made by the Assessing Officer u/s.69A of the I.T. Act. 3. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of Civil Construction. It filed its return of income on 31-10-2007 declaring total income of Rs. 25,14,800/-. During the course of assessment proceedings the Assessing Officer observed that the outstanding balance of sundry creditors as on 31-03-2007 was Rs. 2,72,51,527/- as against Rs. 1,52,53,989/- as on 31-03-2006. The Assessing Officer on the basis of investigation carried out by him observed that out of the total creditors of Rs. 2,72,51,527/- the creditors for labour charges amounted to Rs. 63,70,021/- and sundry creditors for materials to the tune of Rs. 11,54,901/- are not genuine as the liability shown in the names of these creditors was either fictitious or already discharged by the assessee outside the books of account. The above conclusion by the Assessing Officer was arrived at after indepth investigations by issuing notice u/s.133(6) and/issue of summons u....
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....ting the reasons for outstanding liability in the name of labour creditors. 5. So far as the creditors for materials are concerned it was argued that the expenditure was incurred for purchase of material and the liability is genuine. It was argued that the accounts of the assessee are duly audited and nothing has been brought on record by the Assessing Officer to indicate that the accounting standards have been violated by the assessee while maintaining the books. 6. It was argued that even though the payments were made by cheque in subsequent year the same were considered as fictitious liability which shows the biased attitude of the Assessing Officer on the whole issue. The assessee also argued that the entire liability towards labour charges amounting to Rs. 63,70,021/- which was disallowed by the Assessing Officer as bogus was subjected to TDS by the assessee and tax of Rs. 1,28,963/- on total payment/credit of Rs. 65,03,691/- was deducted and paid to the Government account and respective TDS returns were also filed. It was argued that even though the principal amount might not have been paid as on 31-03-2007 for a number of reasons, the income comprised in the TDS amount....
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....ny cogent material and credible evidence to prove the genuineness of the creditors and the liability. It is normal practice in the contract business that the laborers or their sardars are paid lump sum amount in advance and the account is settled once the work assigned to them is completed and the bills raised, which is done either on dally basis or on weekly basis. It is inconceivable that the labor, who leads hand to mouth existence, would have waited for such a long time to receive wages from the appellant directly or through labor sardars. The liability shown in balance sheet in case of 'labor charges' is not a small amount but constitutes sizable percentage of the total expenditure debited to the profit & loss account under this head. In these circumstances, the Assessing Officer is justified in coming to the conclusion that the impugned liability shown as outstanding as on 31.03.2007 in the books of account of the appellant is either fictitious or it was already discharged outside the books of a/c. The conclusions/observations drawn by the Assessing Officer regarding genuineness of the said liability are not based on assumptions and presumptions. The well reasoned con....
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....which is placed at page 40 of the paper book, shows the following results : Net profit transferred to partners as per profit and loss account : 18,83,498 Add : Loss from windmill debited : 1,70,10,713/- Salary to partners : 4,08,000/- Interest to partners : 32,56,201/- Depreciation : 8,94,266/- Total : Rs.2,34,52,678/- Less : Other income credited to the profit and loss account Interest on FD : 18,86,502/- Dividend : 61/- Flat Rent : 3,78,000/- IT Refund : 2,96,351/- Interest on IT Refund : 10,110/- Rs.25,71,024/- Profit from contract work : Rs.2,08,81,654/- 12. Thus as against the contract receipt of Rs. 11,56,59,762/- the net profit before depreciation and salary and interest to partners comes to 18.05%. It is an admitted fact that the Assessing Officer has rejected book results u/s.145(3) and went for addition on account of sundry creditors. We find the CIT(A) while upholding the addition made by the Assessing Officer on this account has rejected the submiss....
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....and also the societies are providing facilities to members as consumer cooperative societies. The Cooperative societies are not empowered under the RBI to issue any cheque to its members. In other words, these are not provided with the various banking facilities as they are not guided by the Banking Regulation Act and the norms and guidelines provided by the RBI for running of banking business. Therefore, these cooperative societies cannot be equated with a bank so that any transactions pertaining to section 194A as done with the cooperative societies could be provided the safeguard as given in the case of a bank carrying on banking business. He, therefore, invoking the provisions of section 40(a)(ia) held that the entire amount of Rs. 4,96,922/- is required to be disallowed. He however observed that the loan taken by the assessee was utilized for acquiring the windmill and the assessee had capitalized the said interest and added the same to the cost of windmill. The assessee has claimed 40% depreciation on the same. He, therefore, restricted the disallowance u/s.40(a)(ia) to Rs. 1,98,762/- being 40% of Rs. 4,96,922/-. 15. In appeal the Ld.CIT(A) upheld the action of the Assessi....
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....made. 20. The Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions (supra) has held that separate addition in respect of items falling u/s.40(b) cannot be made to the income estimated u/s.145 after rejecting books of account as all the deductions including disallowance u/s.40(b) which are referred to in section 29 are deemed to have been taken into account while making estimate. The Hyderabad Bench of the Tribunal in the case of Teja Constructions (supra) has held that once estimation of income is made further disallowance u/s.40(a)(ia) for non deduction of TDS is not warranted. 21. Since in the instant case we have already directed the Assessing Officer go for estimation of profit from contract work, therefore, further disallowance u/s.40(a)(ia) in the instant case is not called for. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of Rs. 1,98,769/- made by him by invoking the provisions of section 40(a)(ia) of the I.T. Act. The ground raised by the assessee is accordingly allowed. 22. In ground of appeal No.6 the assessee has challenged the order of the CIT(A) in confirming the disallowance at 27,8....
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....over during this year. He, therefore, asked the assessee to explain as to what are the factors led to such reduction in gross profit yield. The assessee substantiated the reasons for fall in GP for the following reasons which has been summarised by the Assessing Officer at para 7.2 of his order and which read as under : "1. There is no fall in the GP if compared to earlier four years, except A.Y.2007-08, which was exceptional year with 25.34% GP due to various reasons. 2. The work in the current year is material intensive (instead of being labour intensive). 3. Major work done during the year was mainly in hilly area and at remote placed and two sites were at places where labour was unwilling to work. 4. There was heavy interference by the local political leaders which resulted in delay in work completion. 5. The rate in power projects in private sector are very competitive. 6. The work in respect of one site in Dist. Nagpur was 900 kms away from head office and there were many restrictions while doing the work." 29. However, the Assessing Officer was not satisfied with the explanation given by the assessee for the following reasons : "1. The explanations gi....
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....f the case. 32. In appeal the Ld.CIT(A) while upholding the rejection of book results and estimation of gross profit on the contract receipt, however observed that the assessee has been supplied materials to the tune of Rs. 2,01,75,901/- on which there cannot be any profit element. Referring to the decision of Hon'ble Supreme Court in the case of CIT Vs. Brij Bhushan Lal Ramesh Kumar reported in 115 ITR 524 where it has been held that no element of profit was involved in the turnover represented by the cost of stores/material supplied by the MES to the assessee firm, the income or profits derived by the assessee firm from such contracts would have to be determined on the basis of the value of the contracts exclusive of the cost of the materials/stores received for being used, fixed or incorporated in the works undertaken by them. He accordingly directed the Assessing Officer to restrict the GP rate to 20.5% as against GP of 18.83% disclosed by the assessee for this year. He accordingly restricted the addition to Rs. 29,26,768/- as against Rs. 90 lakhs made by the Assessing Officer. 33. Aggrieved with such order of the CIT(A) both the assessee as well as the revenue are in app....
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....element of profit was involved in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee-firm, the income or profits derived by the assessee firm from such contracts would have to be determined on the basis of the value of the contracts exclusive of the cost of the material/stores received for being used, fixed or incorporated in the works undertaken by them. After taking into consideration the explanation furnished by the appellant for the decline in the gross profit in this year, the profit ratios declared in the earlier years, the nature of business being carried on by the appellant, i.e. execution of contract works which include works at remote places and also substantial increase in the material supplied by the contractee Department in this year, it is considered fair and reasonable to adopt the G.P. rate at 20.5% per cent for the year under appeal (which is worked out by taking average of G.P. declared for the last three years, i.e. from A.Y. 2005-06 to A.Y. 2007-08) as against G.P. of 18.83% disclosed by the appellant for this year. Accordingly, the gross profit for this year works out to Rs. 3,69,52,790/- as against gross profit discl....
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....aim of depreciation to the extent of Rs. 17,19,000/-, the details of which are as under : Asset Opening WDV Additions during the year Depreciation Admissible Deprn. Closing WDV Windmill 2,27,49,505 - 80% 1,81,99,604 45,49,901 Foundation cost 23,40,000 - 10% 2,34,000 21,06,000 Erection & Commissioning 17,00,000 - 15% 2,55,000 14,45,000 Total 2,67,89,505 - 1,86,88,604 81,00,901 40. In appeal the Ld.CIT(A) directed the Assessing Officer to allow depreciation @80% in respect of erection and commissioning charges of Rs. 12 lakhs. Thus, he directed the Assessing Officer to work out the depreciation of Rs. 9,60,000/- as against Rs. 2,55,000/- allowed by the Assessing Officer in respect of erection and commissioning charges. However, as regards the foundation cost is involved, he upheld the action of the Assessing Officer in applying the rate of depreciation of 10%. 41. The Ld. Counsel for the assessee at the outset filed a copy of the order of Tribunal in the case of ACIT Vs. Sonai Engineering Pvt. Ltd. and vice versa vide ITA Nos. 1078/PN/2012 and 2157/PN/2012 order dated 27- ....
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....4,17,231 10,01,15,735 11,56,59,762 18,02,57,518 23,83,32,619 Gross Profit 1,45,57,725 1,73,51,024 2,93,10,248 3,40,26,023 3,50,77,225 GP% 19.05 17.33 25.34 18.88 14.72 Observing that there was decline in the GP ratio in this year as compared to the preceding assessment years the Assessing Officer asked the assessee to justify the reasons for such fall in the GP rate. The assessee while justifying the fall in profit ratio gave the following reasons : "1. The work in the current year is more material intensive (instead of being labour intensive) and there was substantial rise in the cost of the main raw material. In material intensive work, profits margin are empirically lower labour intensive work. 2. Major work done during the year was mainly at remote places at Wardha, Khaparkheda, Nagpur and Bhusaval and increase in distance from HO leads to lesser control of costs. 3. There was heavy interference by the local political leaders, who insisted to appoint local people for the work allotted, which resulted in delay in work completion. 4. Progress of works at Ghatewadi, in patan was affected by heavy rains and du....