ASSISTANT COMMISSIONER OF INCOME TAX CENT CIRCLE -1(3), NAGPUR V. RADHIKA METALS AND MINERALS, VIZIANAGARAM

ITA 24/NAG/2024

AI Insights

The case involves the Asstt. Commissioner of Income Tax Central Circle-1(3), Nagpur as the appellant and Radhika Metals And Minerals as the respondent. The dispute arose from an assessment order that added Rs. 98,72,370 as unexplained expenditure under section 69C of the Income Tax Act, 1961, concerning payments to labor contractors. The CIT(A) deleted this addition, leading to the Revenue's appeal to the Tribunal. The Tribunal's decision was influenced by a similar case involving the same group concern, where it was established that the expenditures were recorded in regular books of account and the source of such expenditures was evident from the books, thus not attracting section 69C.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24225 (ITAT-NAGPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDIPKUMAR SALUNKE
• Assessee Lawyers: MUKESH AGRAWAL
• Keywords: Business income; Business expenditure; Unexplained expenditure; Bogus
• Section: 148; 143(3); 142(1); 143(2); 250; 69; 69C; 44AB; 133A; 101

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER ITA no.24/Nag./2024 (Assessment Year : 2018–19) Asstt. Commissioner of Income Tax Central Circle–1(3), Nagpur ……………. Appellant v/s Radhika Metals And Minerals Shreeramanagar (P.O), DFN Colony Garividi, Vizianagaram 535 101 PAN – AAABFR2796R ……………. Respondent Assessee by : Shri Mukesh Agrawal Revenue by : Shri Sandipkumar Salunke Date of Hearing –18/11/2024 Date of Order – 27/01/2025 O R D E R PER V. DURGA RAO, J.M. The captioned appeal by the Revenue is directed against the impugned order dated 24/11/2023, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur,[“learned CIT(A)”], for the assessment year 2018–19. 2. In its appeal, the Revenue has raised following grounds:– “1. On the fact and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs.98,72,370/- being sundry creditors as assessee failed to prove the genuineness & creditworthiness of the sundry creditors amounting to Rs.98,72,370/-. 2. On the facts and in the circumstances of the case, the Id. CIT(A) erred in deleting the addition of Rs.98,72,370/- without appreciating the facts that, during the course of search proceedings, statement of Shri Bandaru Ramesh, 2 Radhika Metals And Minerals ITA no.24/Nag./2024 one of the creditors of the firm was recorded. In the said statement Shri Bandaru ramesh had stated that he never undertook any contract work. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 98,72,370/- without appreciating the facts that, during the course of search proceedings, statement of Shri Bandaru Ramesh, one of the key person of the firm was recorded and he stated that as per his knowledge the employees shown as creditors have not provided any services to the firm. 4. Further, the Ld. CIT(A) failed to appreciate the fact that had the search not been conducted, amount of Rs 98.72.370/ as sundry creditors being contractor's work remain unearthed and escaped assessment had never been brought to tar as the same has been reflecting in balance sheet under Sundry Creditors. 5. On the facts and in the circumstances of the case, the Ld CITIA) erred in deleting the addition of Rs. 98,72,370/ without appreciating the facts that during the course of search proceedings, several employees denied of undertaking any contract work and also stated that they have not provided any services to the firm. 6. Any other ground that may be raised during hearing.” 3. Facts in Brief:– The assessee is a partnership firm carrying on business of extraction and marketing of Manganese Ore minerals and different grades since 1984. It maintains regular books of account which are audited under section 44AB of the Income Tax Act, 1961 (\"the Act\"). There was a survey action under section 133A of the Act was conducted in the case of assessee on 25/08/2021. Subsequently, notice under section 148 of the Act was issued in response to which the assessee filed its return of income on 17/01/2023, declaring total income of ` 6,21,51,433. The case was selected for scrutiny and ultimate the assessment order was passed under section 143(3) and 142(1) of the Act after making disallowance of ` 98,72,370, towards contractor on account of work executed by 5 different labour contractors under section 69C r/w section 115BBE of the Act. 3 Radhika Metals And Minerals ITA no.24/Nag./2024 4. On appeal, the learned CIT(A), considering the entire submissions made by the assessee, deleted the additions of ` 98,72,370, made by the Assessing Officer. The relevant findings of the order passed by the learned CIT(A) covering the above disallowance are extracted below:– “4. Decision & Discussion: ………. Ground no.3, is regarding the addition of `98,72,370/– made under section 69C of IT Act by disallowing payment made to labour contractors. The A.O. during assessment proceedings noticed that the appellant has incurred expenditure of ` 98,72,370/– towards mining expenses. These expenses are on account of extraction of manganese ore to following labour contractors– 1. B. Sudhakar `22,52,300 2. D. Govind `22,64,850 3. S. Hussain `18,63,550 4. S. Ramesh `17,14,590 5. S. Satyanarayana `17,77,080 Total: `98,72,370 During assessment proceeding appellant has submitted copy of bills issued by labour contractors, their Ledger account in the books of appellant, copy of form 16A downloaded from Traces site and copy of income tax returns filed by the labour contractors. However, the Id. AO held that in the statement recorded during survey, these labour contractors have denied of having done any work for the appellant, hence the expenses incurred for labour contractors is bogus and added it u/s 69C of the Act. During appellate proceedings the appellant submitted that the Appellant is carrying on mining activities since 198426 The mines are open cast manual mine situated at Garividi, Dist.: Vizianagaram As the mining activities are going on since 1984, the depth of the mine has reached over 250 Ft. To carry on such deep mining activities, huge teams of man-powerin terms labourersare required. The team of the management has appointed several labour contractors to carry out various mining activities. The work awarded to the labour contractor comprises of digging, carrying over burden making path, stacking ore and mutty., etc. The contractors are being appointed by the agents of the company who normally takes the stock situation of labour team their financial condition and integrity of the contractor. After appointment, work is awarded to different contractors for different pits so as to calculate the work done by them. The agent personally supervises the work of each contractor and verifying the same directs the contractor to prepare his work bill. The work bill is being verified by the mining supervisor who transfers the said bill to the accounts department. After receiving the bills, the accounts 4 Radhika Metals And Minerals ITA no.24/Nag./2024 department verifies the rates, etc. and after deducting \"Tax at Source\" makes payment to the contractor. The village Garlvidi is a very small place, and it is very difficult to find labor contractors, so some time it also happens that some known persons of the appellant's firm / staff also engage in contract work and with their acquaintances form a labor team they execute the contract work. Appellant further submitted that the expenses on account of labour contractors are genuine business expenses, supported by bills issued by contractors, and their acceptance of it by showing contract receipts in Income Tax returns filed by them. The argument of the Appellant carries weight and I am in agreement with thesame. The appellant has discharged its onus by providing copy of bills submitted by these contractors' showing details of work done by them. Appellant has also provided their complete name, address, and PAN numbers. The contractors have shown the contract amount as income in their respective income tax returns and paid due taxes thereon. The AO has not found any defect in the documents produced by the appellant nor has the AO falsified these documents. It is also undisputed that the appellant has sold goods worth Rs. 28.84 crores during the relevant previous year. Without employing labourers through contractors such sales would not have been possible. The Id. AO has not doubted appellant's production and sales figures. As regards statement of contractor D Govind Rao taken at the time of survey, it has no evidentiary value because it has been rebutted by him before Special Magistrate, Vishakapatanam in Affidavit dated 08/12/2021. No statements of other four labour contractors were recorded during survey and on the contrary they have confirmed receipt of money by filing their IT returns and paid taxes thereon. The addition made by AO is solely based on surmise and conjecture without bringing any corroborative evidence on record which cannot be sustained. Therefore, the addition of Rs 98,72,3701 made u/s 69C is directed to be deleted. Hence ground No. 3 is hereby allowed.” Against this order of the learned CIT(A), the Revenue is in appeal before the Tribunal. 5. Before us, the learned D.R. relied upon the order of the Assessing Officer. 6. We find that we have already decided this issue in another case of Group concern of the assessee in its appeal being ITA no.234/Nag./2024, for A.Y. 2020-21 vide Para-29 to 31, which are reproduced below for ready reference:- 5 Radhika Metals And Minerals ITA no.24/Nag./2024 “29. We have gone through order of the learned CIT(A) as well as details submitted before us. We also find that the assessee is carrying on mining activities since the year 1944. The mines are open cast manual mine situated at Garividi, Dist. Vizianagaram. As the mining activities are going on since 1944, the depth of the mine has reached over 250 FT to carry on such deep mining activities, huge teams of man-power in terms of labourers are required. The team of the management has appointed several labour contractors to carry out various mining activities. The work awarded to the labour contractor comprises of digging, carrying over burden, making path, stacking of ore and mutty, etc. The contractors are being appointed by the agent of the company who normally takes the stock situation of labour team, there financial condition and integrity of the contractor. After appointment, work is awarded to different contractors for different pits so as to calculated the work done by them. The agent personally supervises the work of each contractor and verifying the same directs the contractor to prepare his work bill. The work bill is being verified by the mining supervisor who transfers the said bill to the accounts department. After receiving the bills, the accounts department verifies the rates, etc. and after deducting \"Tax at Source\" makes payment to the contractor. The village Garividi is a very small place, and it is very difficult to find labour contractors, so some time it also happens that some known persons of the assessee's firm/staff also engage in contract work and with their acquaintances from a labour team they execute the contract work. We are also gone through the assessment order, entire addition was made by the Assessing Officer under section 69C of the Act. The provisions of section 69 of the Act reproduced as under:- SECTION 69C. Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the 2448[Assessing Officer), satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. From the plain reading of section 69C it is clear that there are two conditions for invoking section 69C. First is, that the assessee has incurred any expenditure in the relevant previous year, and second is that the assessee does not offer any explanation about source of such expenditure. If both the conditions are fulfilled then only section 69C can be applied. But in the present case 1) Assessee is a partnership firm carrying on business of Mining of Manganese Ore minerals. It maintains regular books of accounts which are audited u/s 44AB of I.T. Act. 2) A Survey u/s 133A of IT act was conducted at premises of the assessee on 25.08.2021. Assessee filed return of income on 13.02.2022 declaring total income of Rs. 18,01,81,210/-. Case was selected for scrutiny and notice under section 143(2) and 142(1) were issued which were duly replied by the 6 Radhika Metals And Minerals ITA no.24/Nag./2024 assessee. In the assessment order passed u/s 143(3) the AO has made entire addition additions U/s. 69C which are in dispute in appeal. In the present case though the assessee has incurred expenditure during the year but all these expenses are duly recorded in books of accounts and they have been incurred from the regular business income of the assessee. The AO has neither during entire assessment proceeding nor in the assessment order doubted about the source of such expenditure. In view of the above we are opinion that the second limb of section 69C is not attracted in the present case, therefore we are deleted the addition made U/s. 69C.\" 30. We have considering the rival argument of the learned Counsel for the assessee as well the learned D.R. The learned CIT(A) has rightly deleted the additions under section 69C and we uphold the order of learned CIT(A) and this ground of appeal of the department were dismissed. Hence, ground no.5, raised by the Revenue is dismissed. 31. It is pertinent to mention here that the grounds raised by the Revenue harp upon the applicability of provisions of section 69C of the Act to all the additions made by the Assessing Officer. Thus, it is important to examine at the very behest as to whether the charging provisions of section 69C of the Act is at all applicable as to the facts and circumstances of the case. It is deemed expedient to refer to the provisions of section 69C of the Act which are reproduced elsewhere in the order. Here the Assessing Officer has unequivocally noted that the expenditure is recorded in the regular books of account. It is not the case that the Assessing Officer has found out some expenditure which is not reflected in the regular books of account. Thus, where the expenditure is already reflected, the source of incurring such expenditure need not be explained, as the same is evident by analysis of the books of account. Accordingly, application of provisions of section 69C of the Act fails at the very threshold. The learned D.R. could not satisfactorily explain the anomaly but he prayed before the Bench to apply the provisions of section 37 f the Act. His request is not acceptable since the same is contrary to the grounds of appeal raised by the Revenue and he is not permitted to change the colour and contour off the Revenue. Consequently, there is no merit in the additions generated under section 69C of the Act.“ 7. Since the issue before us is squarely covered by the aforesaid decision of the Tribunal rendered cited supra, we decline to interfere with the order passed by the learned CIT(A) which is hereby upheld by confirming the deletion of addition of ` 98,72,370. Thus the grounds raised by the Revenue are dismissed. 7 Radhika Metals And Minerals ITA no.24/Nag./2024 8. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 27/01/2025 Sd/- K.M. ROY ACCOUNTANT MEMBER Sd/- V. DURGA RAO JUDICIAL MEMBER NAGPUR, DATED: 27/01/2025 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "