AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 791
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.... of road contract and had filed its return of income for the assessment year 2010-11 on 29.06.2010 declaring total income of Rs. 34,27,040/-. The assessment was completed u/s 143(3) of the Act dated 21.06.2012 determining the total income of Rs. 40,07,540/-. Later this assessment was sought to be revised by the CIT u/s 263 of the Act wherein vide order dated 27.02.2014. The Ld. CIT(A) directed the AO to reexamine the issue on account of labour charges and earth work charges and compute the impugned disallowance thereon u/s 40a(ia) of the Act,, if any, among others. The assessee incurred labour charges of Rs. 64,03,663/- and earth work charges of Rs. 56,50,917/- during the year. When show caused by the ld. AO with regard to nondeduction of tax at source on the said payments, the assessee replied that these are labour charges paid to various labour Sardars/ Munshis who in turn passed on by distributing the monies/ wages to various labourers involved in the road contract work. It was submitted that the assessee had not engaged any labour contractor in lieu of which these payments were made. This labour sardars/ munshis are also labour heads working for the assessee through whom the wa....
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....nd quite naturally upon the accomplishment of work on a particular area out of the total road building length, wages could be distributed and entries are recorded by crediting the amount in the ledger account of such supplier of raw material to whom payments are made by the assessee in some fixed intervals. In other words, in these cases, payments were made for the supply of raw material and also towards outstanding wages to different workers from time to time which are duly recorded and noted in the Ledger maintained by the assessee. 3.2. It was specifically brought to the notice of the ld. AO that the assessee was mainly engaged in road construction works in rural area of Malda, Murshidabad, Nadia and Birbhum districts and that they never assigned to any sub-contractor any job as the partners were looking personally after the execution of the work through local labourers employed in the rural area at the site and that these workers were paid weekly and hence no question of deduction of tax would arise. 4. The ld. CIT(A) appreciated the contentions of the assessee as stated above and deleted the disallowance by observing as under: "3.2 I have carefully considered the submissio....
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....abour heads) with a clear direction to distribute the same to various labourers either on daily or weekly basis , as the case may be. These payments are duly supported by voluminous wage sheets which are part of the records before the lower authorities and also supported by a certificate from a Chartered Accountant certifying the fact that the said payments were made to various workers towards labour charges and earth work charges. We hold that the assessee in the instant case had not engaged any labour contractor or any sub-contractor for making payment of labour charges and earth work charges. In this scenario, the provisions of section 194C cannot be made applicable in the facts and circumstances of the case. Accordingly, the ld. CIT(A) had rightly deleted the disallowance made in the sum of Rs. 1,20,54,550/- u/s 40a(ia) of the act which, in our considered opinion, requires no interference. Accordingly, ground no. 1 raised by the revenue is dismissed. 6. The next ground is to be decided in this regard the ld. CIT(A) was justified in deleting the disallowance of Rs. 2,13,37,312/- u/s 40A(3) of the Act, in the facts and circumstances of the case. 7. The brief facts of this issue....
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....make payments on Sunday. It was stated that the ld. AO had not doubted the fact that the said payments were made for acquiring raw materials. It was subsequently brought to the notice that there is always requirement on the part of the supplier of raw material to pay in cash and this is mainly due to the paramount fact that they are not having any bank account facility primarily because of their residence in the village and adjoining areas which has no banking facilities. It was submitted that if there is any delay/ any interruption in the supply of raw materials to the assessee its road construction project will be delayed which the assessee as a contractor working under local authorities and Government Departments would be answerable and the same would be entirely detrimental to the interests of the assessee. Accordingly, it was pleaded that the said payments, even though made in cash squarely falls in the various clauses provided in Rule 6DD of the Rules i.e. i) payments were made on national holidays and non-working days of banks and ii) payments were made to parties situated in remote villages where there are no banking facility and iii) payments were made out of business expe....
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.... Further, where the payment is made by the assessee to the vendors in a village or town which is not served by any Bank it is outside the purview of Sec. 40A(3) in view of Rule 6DD(j). [OM Shakti Agencies Madras Pvt. Ltd. vs DCIT (Chennai) - 136 DTR 181]. Than the payments made are genuine and that the identity of the payee is not in doubt and taking into consideration the facts and circumstances of the case relating to building of roads in interior areas of the villages and also taking into consideration the fact that as per the requirements of the suppliers of raw materials all used to assemble on Sundays for the sake of convenience, payments made on Sundays exceeding Rs. 20,000/- has also to be considered as not hit by the provisions of Sec. 40A(3) read with Rule 6DD(j). I am accordingly of the opinion that in the facts & circumstances of the case of the assessee the payments exceeding Rs. 20,000/- made in cash in remote village areas cannot be considered for disallowance. I have verified the dates relating to payments made in cash as noted in the table by the Ld. CIT in his order u/s 263 with reference to the relevant calendar and I find that such payments exceeding Rs. 20,0....
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....aterials used by the assessee in its road contract work. He observed that there is every possibility that the some roads should be under completion and that the bill was not raised for the same. Accordingly, he estimated the value of work-in-progress as on 31.03.2010 to be Rs. 20 lacs and made an addition for the same in the assessment. 9. The assessee submitted that the aforesaid system of accounting was followed by it consistently for many years. It was pleaded that without the rejection of books of accounts of the assessee, there cannot be any addition on estimated basis. The Ld. CIT(A) deleted the addition by observing as under: "5.2 I have examined the facts & circumstances of the case. It is a fact that the assessee has been building roads since past some years and has been consistently following the system of accounting whereby receipts are duly recorded in the accounts and similarly purchase of raw materials is also accounted for. As a matter of fact, it is a continuing process and the assessee is maintaining its accounts accordingly. Under these circumstances, there is no reason on the part of the AO to deviate from the existing system of accounting being followed by th....