TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1114
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....nt of labour expenditure incurred by the assessee with respect to the total revenue/gross receipts shown by the assessee. He also referred to the order of the learned CIT - A, who according to him rejected the books of accounts of the assessee without even calling for the books of accounts and estimating the profits of the assessee as per last year. 3. At the time of hearing of the stay petition, at the consent of the parties and looking at the nature of the issue involved, the appeal was also heard. 4. The assessee has preferred this appeal against the order of the learned that Commissioner of income tax (appeals) - 2, New Delhi dated the 30/8/2019 for assessment year 2016 - 17 raising following grounds of appeal:- "1 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in concluding that "it would be a better course to reject books of accounts under section 145 of the Act and make reasonable estimation of profits." The said finding is not only without jurisdiction and beyond the scope of the appeal and in violation of section 251 of the Act but also factually incorrect, legally misconceived and wholly untenable 1.1 That the learned Commis....
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....oner of Income Tax (Appeals) and also the order of assessment are devoid of factual basis, legally misplaced and have been arrived in disregard of the detailed replies and, documentary evidence furnished by the appellant in the course of assessment proceedings and appellate proceedings. 2.3 That the learned Commissioner of Income Tax (Appeals) has further erred in rejecting the books of accounts on assumption and presumption and thereby failing to appreciate that surmise, conjecture and suspicion can neither in law and nor on fact can be made a valid basis to reject books of Accounts u/s 145 of the Act. 2.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that no specific defect has been pointed out by the learned Assessing Officer in the books of accounts maintained by the appellant company 2.5 That while invoking such rate of profit @ 2.3%, the learned Commissioner of Income Tax (Appeals) has enhanced the assessment without granting any opportunity to the appellant and is in violation of section 251(2) of the Act and therefore, the same is not in accordance with law and unsustainable. 3 That the learned Commissioner of Income Tax (Appeals) ha....
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....ilable, he directed the learned assessing officer to calculate the net profit at the rate of 2.3 percentage of the turnover for this year too. Consequently he sustained the addition to this extent. He deleted the interest disallowance of INR 3890/-. With respect to the grant of tax deduction at source of INR 5 27229/- the learned CIT - A did not allow the claim of the assessee on the premises that mobilization advance had not been offered for tax as income in the impugned assessment year. He further noted that the learned assessing officer has already examined the reconciliation of TDS with gross receipts and allowed the eligible credit of tax deduction at source on the income part, which was offered by the assessee during the year. 7. Thus, assessee aggrieved with the order of the learned CIT - A has preferred this appeal before us. 8. The first disallowance/addition is with respect to 50% of the outstanding liability of Rs. 107320130/- because of the wages amounting to INR 5 3660065/- made by the learned assessing officer. During the course of assessment proceedings the learned assessing officer noted that main reason for selection of the case in scrutiny is large increase in s....
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....that as assessee is the civil contractor profit of the contract is generally assumed at 10% which is not in the case of the assessee. Therefore, the learned assessing officer also noted that assessee has hired subcontractors for carrying out the work. Therefore in the end, the learned assessing officer noted that the claim of the assessee that it had INR 1 07320130/- on account of the outstanding wages payable as at the end of the year is not correct as the same is also not supported by the books of accounts maintained by the assessee. He also noted that the outstanding wages are for the month of February and March 2016, which is feasible and not correct. Therefore he made an addition to the extent of 50% of the outstanding liability because of the wages amounting to INR 5 3660065/-. 9. On appeal before the learned CIT - A, he rejected the books of accounts of the assessee and determined net profit by adopting the net profit of the previous year at the rate of 2.3% of the turnover where the assessee's net profit for the current year was only 1.23 percentage. Thus, he sustained the addition to that extent. Thus assessee is in appeal. 10. The learned authorised representative subm....
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....s of accounts of the assessee without even looking at the books of accounts. He submitted that before the learned CIT - A the books of accounts were not at all produced as he never demanded the same. He otherwise stated that the profits of the assessee are comparable with respect to the earlier years. On the merits of the addition he submitted that the outstanding wages have been paid in the subsequent month which the learned assessing officer as well as the learned CIT - A has not verified. He further submitted that in the Ledger account of the outstanding wages payable, only 2 entries can logically appear, 1 of the outstanding amount and 2nd of the payment of this liability in the subsequent month. He submitted that the learned assessing officer has failed to appreciate the accounting entries. With respect to the thumb impression of the labourers, he submitted that most of the labourers are uneducated and may not sign, which cannot be harped on for making any disallowance. He further stated that assessee has produced the muster roll, the Ledger account, the attendance register et cetera before the learned assessing officer and none of these evidences were found to be false or any....
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....10 - 11 at the lowest to 2.13% for assessment year 2015 - 16. For the assessment year 2016 - 17, the assessee has earned the gross profit ratio of 1.23 percentages. Therefore, the net profit percentage shown by the assessee, which is supported by the audited books of accounts, is comparable with the earlier years. On the issue of outstanding wages, the ld AR submitted a chart as under:- Turnover (I) Wages % of Wages incurred and claimed i.r.o Turnover (VI=III/I) % of Wages Outstanding i.r.o. Turnover (VII=VI/III) Opening Balance (II) Wages incurred and claimed (III) Wages paid during the year (IV) Closing balance (V=II+III-IV) 2010-11 141,32,34,036 7,71,19,588 18,73,08,588 21,96,92,020 4,47,36,156 13.25 3.16 2011-12 204,66,89,492 4,47,36,156 13,92,70,014 17,24,07,713 1,15,98,457 6.92 0.5 2012-13 255,73,35,265 1,15,98,457 27,28,25,745 22,19,07,468 6,25,16,734 10.74 2.44 2013-14 370,57,22,247 6,25,16,734 24,51,58,738 21,24,44,949 9,52,30,522 6.57 2.57 2014-15 528,91,87,874 9,52,30,522 24,86,42,126 26,68,80,349 7,69,92,299 4.70 1.46 2015-16 840,05,86,960 7,69,92,299 35,22,66,785 2....
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....rely gone on the ledger entries. The reason given by him for making addition/ disallowances if that details of wages were filed after a long delay of more than a month. This is unusual. Ultimately assessee has filed the complete details before the learned assessing officer who has examined the muster role in attendance register therefore this cannot be reason for making the addition. The learned AO further noted that Muster roll for the HUDA Gurgaon produced before the AO shows all payments to labour are made on monthly basis which is not the common business practice. Details have been prepared on monthly basis at one go. The details do not have evidentiary value as a primary document. The learned assessing officer also did not show that in the ld similar line of the business, the duration of the payment of wages is not on monthly basis. It is also not shown that how he has come to know about the common business practice without putting such evidences before the assessee and confronting him. Further more the assessee is carrying this business for a fairly long time and assessing officer himself has assessed it under section 143 (3) of the income tax act. When he has accepted this ....
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....bsequent year. According to us to decide about the allowability of the outstanding the wages payable it is necessary for the learned assessing officer to examine whether this liability exist or not, as the learned assessing officer himself has allowed the labour expenditure debited to the profit and loss account, this option is now not available with him. Therefore, only option left with the learned assessing officer is to verify whether such liability has been discharged by the assessee in subsequent year or not. As the learned assessing officer has not given his comments on this aspect, then questioned by the bench to the learned authorised representative, he readily agreed that such an evidences can be produced before the assessing officer. The learned departmental representative also agreed that if such outstanding wages is paid in subsequent year, it could not be disallowed. Therefore, to determine the allowability with respect to the genuineness of the outstanding wages it is necessary to verify whether such expenditure have been paid in the subsequent month or not. For this reason, we set aside the whole issue back to the file of the learned assessing officer to examine pay....