TaxTMI 
TaxTMI 
2025 (11) TMI 1398
X X X X Extracts X X X X
X X X X Extracts X X X X
....evity. 2. The assessee has raised the following grounds of appeal in ITA No.310/Bang/2025 for the Assessment year 2017-18:- 1. That the order of the learned lower authorities in so far it is prejudicial to the interests of the appellant, is bad and erroneous to the facts and circumstances of the case. 2. That the learned lower authorities erred in law and facts in not considering the revised reply filed on 04.04.2019 for the statements recorded during the survey proceedings u/s 133A of the Act. 3. That the learned lower authorities of Income tax erred in law in dismissing the consideration of revised reply in the predetermined manner without bringing any valid materials on record. 4. That the learned lower authorities erred in law and on facts in making an addition of Rs.4,65,00,000/- u/s 37 of the Act. 5. That the learned lower authorities erred in law and on facts by making the disallowance of Rs.4,65,00,000 u/s. 37 of the Act, stating no evidence were produced, even though bank statements, ledger extracts, and TDS certificates were provided during the course of assessment proceedings. 6. That the learned lower authorities ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....materials on record. 4. That the learned lower authorities erred in law and on facts in making an addition of Rs. 1,94,62,591/- u/s 37 of the Act. 5. That the learned lower authorities erred in law and on facts by making the disallowance of Rs. 1,94,62,591/- u/s. 37 of the Act, stating no evidence were produced, even though bank statements, ledger extracts, and TDS certificates were provided during the course of assessment proceedings. 6. That the learned lower authorities failed to appreciate the facts that business of contracting involves huge labour expenses which was the main reason for cash withdrawals in sub-contractors account. 7. That the learned lower authorities erred in law and on facts in making a disallowance u/s 37 merely on the presumption that employees cannot be sub-contractors as well. 8. That the Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the order of learned Assessing Officer merely on a mechanical satisfaction without any material evidence. 9. That the learned lower authorities erred in law and on facts in making a disallowance merely based on the original statements given b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontractors along with the PAN. Upon verification, it was found that the sub-contractors included employees and relatives of the assessee. The details of the persons who were claimed to be subcontractors but were employees of the assessee are- Name of the parties AY 2017-18 AY 2018-19 Jayanth Kumar 75,50,000/- 27,11,600/- Mahantesh Walikar 74,50,000/- 29,49,173/- Naganath 73,00,000/- 38,19,896/- Ramesh S 85,50,000/- 35,18,218/- Ranganathan 75,00,000/- 26,51,420/- Saravanan K 81,50,000/- 38,12,284/- Total 4,65,00,000/- 1,94,62,591 4.2 During the course of survey proceedings, the revenue found a register titled "Workers and Drivers payment book" as well as the ledger extracts. The statements of Shri. Ramesh S & Shri. Manjunath were recorded. The statement of the assessee was also recorded on 01.03.2019 which was done post survey as the assessee was not present in town at the time of survey proceedings. The statements of the assessee, Shri. Ramesh S and Shri. Manjunath were claimed to be received by the assessee on 30.03.2019 and certain errors were noticed by the above parties caused due to pressure & stress du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny proceedings, where he states that he does not remember any work done at all. * The bank statements of all the persons in question, where the pattern of withdrawals is similar. The statement of Shri Ramesh S is referred here, where he states that he withdraws the money & gives it back to the assessee. * Circumstances where, these persons in question have filed returns only in AY 2018-19 and not before that even after having taxable income. The AO also considers that mere deduction of TDS cannot be a ground to claim that the expenditure incurred is genuine in the absence of any other supporting documentary evidences. 4.6 Further, during the course of the scrutiny proceedings, the assessee through the letter dated 25/12/2019 had requested the directions of the Additional Commissioner of Income Tax, Range- 1(2), Bengaluru u/s 144A of the Act in his own case. The Additional Commissioner of Income Tax, Range-1(2) had issued a show cause notice to the assessee asking him to explain as to why the subcontract payments made to employees should not be disallowed. The assessee filed the reply on 27/12/2019. After considering the reply of the assessee, the Additional ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... did not intended to. Due to the confusion in the nomenclature, the revenue authorities misunderstood those workers as employees. Further Shri. Manjunath also confirmed that other 5 parties are also workers and this was interpreted as employees by the revenue authorities. Apart from the above statements, no document was brought on record to prove that Shri. Ramesh or other 5 parties are employees of the assessee. Further the Authorities below stated that Shri Ramesh has not carried out any sub-contract work for the assessee and this was confirmed by Shri Manjunath and the assessee in their respective statements. Therefore, it was concluded that the subcontract work carried out by the 6 parties are bogus. 8.1 Pointing out to these, the ld. AR of the assessee firstly submitted that the statements recorded during the survey proceedings alone should not be taken into consideration for arriving at the conclusion. The affidavits of all 6 parties along with the assessee enclosed with their income tax returns, bank statements, Form 16A, retractions filed by the assessee, Shri Ramesh, Shri Manjunath also to be considered. The ld. AR also submitted that the reason for statement alone shou....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the deduction claimed cannot be disallowed on the above grounds. 8.4 Without prejudice to the above submissions, the AR of the assessee also submitted that the statement of Shri Ramesh was alone recorded but the disallowance has been made with respect to expenditure incurred towards other 5 parties also without any basis. However, Shri Ramesh has retracted the statement given during the survey proceedings, showed the return of income filed for financial year 2014-15 to 2017-18 where the current assessment years also covered and brought payment registers on record to support the submissions of the assessee. 9. The ld. DR on the other hand vehemently submitted that the Authorities below have correctly disallowed the expenses claimed under section 37 of the Act in respect of sub-contract expenses paid to the above 6 parties who were employees & relatives of the assessee. Further, the ld. DR submitted that the assessee could not furnish any documentary evidence with respect to work done by the sub-contractors such as contract agreements, MOUs, nature of work done, bills/vouchers etc. A written submissions was also filed before this Tribunal placing high reliance on the findings....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n during the course of the survey has no evidentiary value. It is simply an information which can be used for corroboration purpose for deciding any issue in favour or against the assessee. Whatever statement is recorded under section 133A of the Act, is not given any evidentiary value obviously for the reason that the Officer cannot administer any oath and to take any sworn statement which alone has an evidentiary value as contemplated in law. The Apex Court in the case of Pullangode Rubber Produce Co. Ltd. V. State of Kerala (1973) 91 ITR 18 (SC), held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Further, Hon'ble Madras High Court in the case of CIT v. S Khader Khan Son (2008) 300 ITR 157 (Mad) observed as follows- "A power to examine a person on oath is specifically conferred on the authorities only under section 132(4) of the act in the course of any search or seizure. Thus, the Income Tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, has expressly provided for it, whereas section 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the accounts of the assessee are either pointed out by the auditor or by the AO. Further, the books of Account of the assessee were also not rejected by the AO u/s 145(3) of the Act. During the course of assessment proceedings, the assessee produced/furnished the labour register along with the labour payment register. Further, during the course of survey a register titled "Workers and Drivers payment book" & not the "Employees Register" were found. The ledger were also found by the survey team. The AO also did not point out any mistakes in the said book/extracts. We are of the opinion that the AO had not brought any material on record to demonstrate that the payment of sub-contractor expenses that too after the deduction of TDS were bogus for these assessment years. The revenue had also not pointed out any defects in the Affidavits along with the income tax returns, bank statements & Form-16A filed in respect of six parties. 10.4 We completely agree with the contentions of the AR of the assessee that as the business of the assessee is a Civil construction work & in this kind of business practically no body enters into an MOU/agreements for supply of labour. It is also not h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct conducted at the assessee's premises on 27.02.2019. The statement of the assessee was recorded on 01.03.2019. The copies of the statements were obtained by the assessee on 30.03.2019. The retractions were filed by all the 3 persons on 04.04.2019. Therefore, the retractions were filed within a very short period of 5 days from the date of obtaining the copy of the statements recorded. We are of the opinion that when the retraction has been made within a short span then such explanation has to be reasonably given effect to in concluding the assessments. Reliance is placed on the decision of the co-ordinate Bench of the ITAT Chandigarh in case of Lachhman Dass Bansal v. Deputy Commissioner of Income-tax [2024] 162 taxmann.com 599 which held as under- "41. In this regard, we find that firstly the retraction letter has been filed within a short span of two weeks from conclusion of the survey proceedings duly supported by an affidavit of the assessee which has been filed before the AO as well as copy thereof has been filed before the senior authority i.e; Addl. CIT, Sangrur. As far as the intervening period is concerned, the assessee duly explained that being a senior citizen,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le of law that the Revenue has to prove undisclosed income beyond doubt. So far as the document or loose paper or the diary as relied upon by the AO, while making addition is concerned, it is a well settled principle of law that the Revenue has to prove the undisclosed income without any room for doubt. The document relied upon should be a speaking one and should contain narration in respect of various figures noted therein. Unless the document contains full details about the dates and the contents thereof are supported by any corroborative material, cannot be relied upon for making addition. Thus, it is an admitted position, in the case in hand, firstly the basis of making addition is nothing but the statement given by the assessee during survey which has already been dealt with by us hereinabove and considering the order passed by different High Courts and the Hon'ble Apex Court, we find that the statement which has already been claimed to have been retracted by the assesse though the same has not been taken into consideration by the Revenue, even otherwise cannot be relied upon since the same was recorded under section 133A of the Act having no evidentiary value in the eye o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....self to purchase the raw materials and execute the work with the labours hired through the labour contractors as per the requirements of the project. He further explained in his retraction dated 04.04.2019 (placed at Page Nos. 107 to 112) that where work is allocated to sub-contractors for complete execution using their own resources is one type of work and the other type where the assessee executed the work himself with the help of labour contractors etc. Hence Shri. Ramesh and Shri Manjunath clearly stated that they were not sub-contractors and they have not carried out any sub-contract work because they were labour contractors and during the recording of statement also they have confirmed to have not carried out any sub-contract work because they were not subcontractors. We also take note that in Q. No. 12 and Q.No. 15 of the retractions provided by Shri Ramesh and Shri Manjunath confirmed that they were not sub-contractors but the labour contractors. The explanation of Shri Ramesh S and Shri Manjunath in the retractions filed seems to be reasonable for the reason that the nature of work was explained during the statement recorded and cannot be believed to be after thought. Furt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same with bills raised and proof of payment made. Ans : I have 'Payment register' covering part of the payments incurred as 'Labor Charges Paid'. I do not have any documentary proof of the bills raised or expenses incurred in respect of these entries. 10.12 During the course of hearing before us, the AR of the assessee was asked to bring such payment registers on record to justify the payments made to the labour contractors. On such directions, the ld. AR produced all the 6 registers maintained by each of the labour contractor for their individual projects and submitted that the registers were showing the details of the labours present on each day in the project and at the end of the week, the signature would be made to prove their work. Further, each project's work order was enclosed at page nos. 21, 90, 151, 209, 266 and 309 showing the details of the project site, allotment date etc. to prove the existence of actual project, work carried out by the labour. The screenshots of labour register and work order of Mr. Ranganath and Saravanan are provided below; 10.13 Based on the registers maintained by the labour contractors, the details of the labours....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to the Labours once the payment were received from the assessee. Based on the above findings, this bench also sought for the statement showing the comparative chart of the turnover, sub-contract expenses, labour expenses, gross profit & net profit and various ratios for the current as well as past years. The assessee submitted the said statement and no irregularity or difference in the pattern was found compared to the earlier or subsequent assessment years. It is also noticed that the profit declared for the current year is much higher than preceding and subsequent years and accordingly it can be concluded that there is no inflation of expenses to reduce the profit corresponding to the earlier or subsequent years. 10.17 Lastly, we are also surprised to note that the ld. Additional Commissioner of Income Tax, Range-1(2) had although accepted the payments towards the sub-contractor expenses on one hand, however on the other hand relying on the certain decisions of the Hon'ble Supreme Court and High Court had directed the AO to add Rs. 4,65,00,000/- u/s 37 of the Act treating the same as not incurred wholly & exclusively for the business purpose of the assessee. We could not und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AT BANGALORE MAHANAGARA PALIKE No. BE/SJN/AE/WO/\OT /2017-18 Office of the Exccutive En Shivaji Nagar Division, BBMP Buildings, ShivaJI NE Queens Road, Bangalore -560 052, Dated ATali WORK ORDER To. Sri. C.G. Chandrappa, No. 1C, 301, Maruthi Nilaya 3" Main, 3" Block, HRBR Layout, Kalyana Nagar, Bangalore-560 043 Pursuant to signing of the contract agreement No: BE/SJN/AG/\o /17-18 dated: 19. tuy for the below mentioned work, you are hereby instructed to contact ARE (Shivaji Nagar) and proceed with the execution of the said works in accordance with the contract documents. the execution of the said works in Name of work instructed accordance with the contract documents. COMPREHENSIVE DEVELOPMENT OF ROADS AND DRAINS IN WARD NO. 90, 91 AND 92 IN SHIVAJI NAGAR SUB- DIVISION (Package -2) (6 Works) Estimate Cost of work R$ 1300.00 Lakhs Job Number, Date and approved Amt | 090-17-000022 Head of Account P-3158 SIP infrastructure Project Works (GOK 2016-17 & 2017-18 Nagarothanna) Estimate Number EE/SJN/AE/EST/16-17 Administrative Sanction No : Dacos: 21/06/2016 Technical Sanction No: No. CE(E)TS/A2_/16-17 dated: 28/01/2017 Tender Notification No & Date EE/....