M/s Ferro Concrete Construction (I) Pvt. Ltd., Indore V. The ACIT 4(1), Indore

CO 18/IND/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7445 (ITAT-INDORE)
• Duration Of Justice: 3 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 10-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Section: 133(6); 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 61/IND/2012 A.Y.2008-09 ASSTT. COMMISSIONER OF INCOME TAX 4(1) INDORE :: APPELLANT VS M/S. FERRO CONCRETE CONSTRUCTION (I) PRIVATE LIMITED, INDORE PAN AAACF 2726 K :: RESPONDENT C.O. NO.18/IND/2012 ARISING OUT OF ITA NO. 61/IND/2012 M/S. FERRO CONCRETE CONSTRUCTION (I) PRIVATE LIMITED, INDORE :: OBJECTOR VS ASSTT. COMMISSIONER OF INCOME TAX 4(1) INDORE :: RESPONDENT REVENUE BY SHRI R.A. VERMA, SR.DR ASSESSEE BY SHRI HITESH CHIMNANI, CA DATE OF HEARING 09.07.2012 DATE OF PRONOUNCEMENT 11.07.2012 2 O R D E R PER JOGINDER SINGH , JUDICIAL MEMBER THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 28 TH NOVEMBER, 2011 AND THE ASSESSEE HAS ALSO PREFERRED CROSS OBJECTION. FIRST WE SHALL TAKE UP THE APPEAL OF T HE REVENUE WHEREIN THE GROUND RAISED IS THAT THE LEARNED FIRST APPELLATE AUTHORITY, UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, ERRED IN RESTRICTING THE AD DITION ON ACCOUNT OF CONSTRUCTION EXPENSES TO RS.21,33,385 /- (25% OF RS.85,33,538/-) BY FOLLOWING THE DECISION O F THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 WHICH WAS RENDERED ON DIFFERENT FACTS. 2. DURING HEARING OF THIS APPEAL, THE LEARNED SENIOR DR, SHRI R.A. VERMA, DEFENDED THE ASSESSMENT ORDER BY MAKI NG THE ASSERTIONS WHICH ARE IDENTICAL TO THE GROUND RAISED BY EXPLAINING THAT IN THE ASSESSMENT YEAR 2006-07 AD HOC ALLOWANCES WERE MADE WHEREIN THE ASSESSING OFFICER DID 3 NOT POINT OUT ANY DISCREPANCY IN THE EXPENDITURE VOU CHERS WHEREAS DURING THE IMPUGNED ASSESSMENT YEAR, THE ADDITION WAS MADE ON THE BASIS OF SPECIFIC INQUIRIES ESTABLISHING NON-EXISTENT SUB-CONTRACTORS ESPECIALLY W HEN THE ASSESSEE COULD NOT PRODUCE SUCH SUB-CONTRACTORS T O PROVE THEIR IDENTITY AND GENUINENESS. ON THE OTHER HAND, SHRI HITESH CHIMNANI, THE LD. COUNSEL FOR THE ASSESSE E, DEFENDED THE IMPUGNED ORDER BY SUBMITTING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE CIT(A) AND THE TRIBUNAL AFTER EXAMINING THE FACTS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 (ITA NO. 247/IND/2010 ORDER DATED 6 TH APRIL, 2011). 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN CONSTRUCTION ACTIVITIES ON BEHALF OF GOVERNMENT DEPARTMENT. THE ASSESSEE IN ITS RETURN DECLARED INCOME OF RS. 1,45,06,688/- FILED ON 30 TH 4 SEPTEMBER, 2008. THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, NOTICE U/S 143(2) WAS ISSUED TO WHICH THE ASSESSMENT PROCEEDINGS WERE ATTENDED BY THE ASSESSEE. THE ASSESSEE FILED CONFIRMATIONS, BOOKS OF ACCOUNTS, L EDGER, CASH BOOK, SALE AND PURCHASE EXPENSES AND VOUCHER FOR SUCH EXPENSES. THE ASSESSEE DECLARED AMOUNT OF RS.32,07,13,221/- SHOWING THE NET PROFIT OF 4.80%. THE ASSESSEE WAS ASKED JUSTIFICATION FOR FALL IN THE NET PRO FIT. THE ASSESSEE IN ITS REPLY DATED 16 TH DECEMBER, 2010 CLAIMED AS UNDER :- (I) THE ASSESSEE COMPANY EARLIER WAS WORKING FOR GOVERNMENT DEPARTMENTS ESPECIALLY DRILLING & GROUTING WORK FOR DAMS AND CANALS. (II) THAT DURING THE YEAR ASSESSEE COMPANY EXECUTED WORK FOR ROAD AND BUILDING WORK AT AJMER WHICH ARE HAVING A QUITE LOW MARGIN AS THERE IS A STIFF COMPETITION IN THIS TYPE OF WORK. (III) THE WORK ORDERS WERE OLD AND BASED ON OLD RATES. (IV) THAT THE ABOVE MAJOR FACTORS REDUCED THE PROFIT IN COMPARISON TO IMMEDIATE PRECEDING 5 YEAR BUT MORE FROM THE ASSESSMENT YEAR 2006- 07. WHICH IS ABOUT 4.17% AS AGAINST SHOWN THIS YEAR AT 4.6%. 4. IN VIEW OF THE ABOVE REPLY OF THE ASSESSEE, THE LE ARNED ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSES SEE HAS SHOWN WORK IN PROGRESS ON ESTIMATE BASIS, NO PROP ER BILLS AND VOUCHERS WERE PRODUCED JUSTIFYING THE VALUAT ION OF WORK IN PROGRESS, CLOSING STOCK, VOUCHERS ARE PRE PARED ON PLAIN PAPER ON WHICH NO ADDRESSES ARE MENTIONED, HAVING NO SALES TAX NUMBER AND THE PAYMENTS WERE MADE IN CASH OR CHEQUE BY WAY OF SELF PREPARED VOUCHERS, CAL LED INFORMATION UNDER SECTION 133(6) OF THE ACT FROM CER TAIN CREDITORS WHICH WERE RETURNED UNSERVED, THE BOOK RE SULTS WERE REJECTED U/S 145(3) OF THE ACT AND COMPLETED TH E ASSESSMENT, DISALLOWING RS.85,33,538/- OUT OF CONSTRUCTION EXPENSES OF RS.12,04,55,333/-. 6 5. ON APPEAL, THE LEARNED CIT (A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE ALONG WITH OBSERVATIONS M ADE IN THE ASSESSMENT ORDER AND BY FOLLOWING THE DECISION OF THE TRIBUNAL, HELD AS UNDER :- 4.2 COMING TO GROUND NO.2 IT HAS TO HE NOTED THAT THERE IS DEPARTURE IN THE FINDINGS OF A.O. AS FAR A S DISALLOWANCE OF THE CONSTRUCTION EXPENSES IS CONCER NED VIZ-A-VIZ FINDINGS ARRIVED IN EARLIER ASSTT. YEAR ( S) WHEREIN ADHOC DISALLOWANCES WERE MADE BASED ON INADEQUATE DETAILED IN BILLS AND VOUCHERS, INCOMPLE TE ADDRESSES OF PAYEES AND ABSENCE OF OTHER RELEVANT A ND NECESSARY DETAILS. THE A.O. FOR THE YEAR UNDER CONSIDERATION ISSUED LETTERS CALLING FOR INFORMATIO N UL S 133(61 FROM 16 CONTRACTORS NAMED IN ASSESSMENT ORDE R IN WHOSE NAMES OUTSTANDING AMOUNTS WERE SHOWN AS PAYABLE. THE AO HAS NOTED THAT THE APPELLANT FILED CONFIRMATION LETTERS FROM SOME OF PARTIES WHO ARC A LL FROM ISARDA TONK (RAJ.) I.E. SITES WHERE THE APPELL ANT HAS UNDERTAKEN THE PROJECT OF CONSTRUCTION OF DAM. THE AO HAS FURTHER NOTED THAT ALL SUCH PERSONS HAD NO PAN ALLOTTED IN THEIR NAMES AND NOT ASSESSED TO TAX AND LETTERS SENT SEEKING INFORMATION U/S 133(6) WERE RETURNED BACK UNSERVED IN 13 OUT OF 16 CASES AND IN REMAINING 3 CASES NEITHER LETTERS WERE RETURNED UNSERVED NOR ANY REPLIES WERE RECEIVED TILL THE FINALIZATION OF ASSESSMENT. THE APPELLANT WAS ACCORDINGLY CONFRONTED BY AO AS TO WHY THESE CREDIT ORS SHOULD NOT BE TREATED AS UNEXPLAINED AS THEY WERE N OT VERIFIABLE. THE AO HAS REPRODUCED THE EXPLANATION OFFERED BY THE APPELLANT IN THIS BEHALF BUT THE AO WAS NOT SATISFIED AND THE APPELLANT WAS REQUIRED TO FIL E FURTHER DETAILS LIKE BANK ACCOUNT, DETAILS OF CHEQU ES ETC. IN SUPPORT OF GENUINENESS OF PAYMENT MADE IN SUBSEQUENT YEARS. THE AD HAS OBSERVED THAT SUCH PAYMENTS WERE MADE BY BEARER CHEQUES AND WERE SUPPORTED BY SELF PREPARED VOUCHERS ON WHICH PARTIE S' SIGNATURE WERE OBTAINED. THE APPELLANT OFFERED FURT HER EXPLANATION IN THIS BEHALF BUT THE AO WAS NOT SATIS FIED AND DISALLOWED THE AMOUNT OF EXPENSES CLAIMED IN TH E NAME OF ALL SUCH 10 CONTRACTORS AT RS.85,33,538 / - AS NOTED IN THE ASSESSMENT ORDER. 7 4.2.1 DURING THE COURSE OF APPELLATE PROCEEDINGS TH E APPELLANT HAS OFFERED DETAILED EXPLANATION IN THIS BEHALF AS EXTRACTED ABOVE. IT WAS EMPHASIZED IN THE COURSE OF APPEAL HEARING BY THE AR PRESENT THAT ANY CONSTRUCT ION CONTRACTOR HAS TO DEPEND ON LOCAL MAN POWER AVAILAB LE WHEREVER CONSTRUCTION WORK IS EXECUTED AND SUCH LABOURER AND CONSTRUCTION CONTRACTORS ARE BY AND LA RGE ILLITERATE AS WELL AS DO NOT EARN SUCH INCOME WHICH WILL REQUIRE THEM TO OBTAIN PAN AND TO PAY TAXES. IT WAS ALSO EMPHASIZED THAT IF THE APPELLANT INSISTS FOR LABOUR CONTRACTOR AND LABOURORS HAVING PAN AND INCOME-TAX ASSESSABILITY THE APPELLANT MAY NEVER BE ABLE TO EX ECUTE CONTRACT WORK IN TIME. FUN HER SUCH CONSTRUCTION CONTRACTORS, BEING NOT REGULARLY WORKING ON BEHALF OF THE APPELLANT, IT WAS IMPOSSIBLE FOR THE APPELLANT TO FURNISH ADDRESSES AFTER TWO AND HALF YEARS OF COMPLETION OF PROJECT AT FARAWAY SITES AND SUCH LABOURERS AND CONTRACTORS MOVE FROM SITE TO SITE IN SEARCH OF WOR K AND EXECUTION OF WORK AND HENCE MAY NOT BE AVAILABLE ON THEIR OLD ADDRESSES. IT WAS ALSO EMPHASIZED THAT THERE WAS A MARGINAL 0.4% DECLINE IN NET PROFIT RATE COMPARED TO PREVIOUS YEAR WHEREAS GROSS RECEIPTS BROADLY REMAINED IN THE SAME REGION AT RS.32 CRORES AND IF SUCH HUGE DISALLOWANCE WAS MADE, THE NET PROFIT RATE WOU LD INCREASE BY 2.5% AND COUPLED WITH OTHER DISALLOWANC ES WILL RESULT IN EXORBITANT NET PROFIT RATE WHICH CAN NOT BE ACHIEVED IN SUCH HUGE CONTRACTS. THUS IT WAS EMPHASIZED THAT AT THE MOST DISALLOWANCE OUT OF OVE R ALL EXPENSES MAY BE AT 25% OF THE TOTAL DISALLOWANCES A S MAINTAINED BY HON'BLE ITAT FOR ASSTT. YEAR 2006-07 AND EVEN IF SUCH DISALLOWANCE IS MAINTAINED, THE NET PR OFIT RATE WOULD IMPROVE BY NEARLY 8% OR SO AND THE NET PROFIT RATE WOULD BECOME ABOUT 5.6 0% AGAINST 5.2% DISCLOSED BY THE APPELLANT AND WOULD BE STILL HIGHER EVEN IF SIMILAR DISALLOWANCES WERE UPHELD FOR EARLIER ASSTT. YEAR 2 007- 08. 4.2.2 IT HAS TO BE NOTED THAT THOUGH T H E AO HAS MADE DISALLOWANCES OUT OF CONSTRUCTION EXPENSES AFTER CONDUCTING OUTSIDE ENQUIRIES AND ISSUE IF LETTERS U Z S 133(6) AND HAS MADE FURTHER VERIFICATION ABOUT PAYM ENT MADE IN SUBSEQUENT YEAR BUT THE FACT REMAINS THAT T HESE ENQUIRIES WERE CONDUCTED AFTER NEARLY TWO AND HALF YEAR FROM THE END OF THE RELEVANT FINANCIAL YEAR AND LAB OUR CONTRACTORS CANNOT BE EXPECTED TO REMAIN AVAILABLE AT THE GIVEN ADDRESSES ALWAYS AFTER SUCH A PERIOD OF TIME. STILL FURTHER THERE IS SUFFICIENT MERIT IN THE CONTENTION S OF THE APPELLANT THAT THEM LABOURERS AND LABOUR CONTRACTOR S MAY NOT ALWAYS HAVE PAN ALLOTTED IN THEIR NAMES OR 8 MAY NOT BE FILING INCOME-TAX RETURNS. IT HAS TO HE ALSO OBSERVED THAT THE MAXIMUM AMOUNT CLAIMED IN THE NAME OF CONTRACTORS WHICH HAS BEEN DISALLOWED BY TH E AO DOES NOT EXCEED RS.13.5 LA K H S AND CONSIDERING THE FACT THAT ON SUCH LABOUR CONTRACT WORK NORMALLY PRESUMPTIVE RATE OF 80 IS ADOPTED, SUCH LABOUR CON TRACT MAY NOT BE SUBJECTED TO INCOME-TAX. IT WAS MAINTAIN ED BY THE AR THAT TDS INVARIABLY DEDUCTED FROM ALL SUC H PAYMENTS TO AVOID DISALLOWANCE U/S 40A(IA) AND THE GROSS AMOUNT OF TDS HAS BEEN PAID AT THE YEAR END. THE AR OF THE APPELLANT FILED COPY OF TDS CHALLAN F OR TAX DEDUCTED AT SOURCE FOR PAYMENT MADE U/S 194C AT RS.4,23,604/- ON 17 TH JANUARY, 2008 AND FURTHER AMOUNT OF RS.L,35,665/- PAID ON 22 ND APRIL, 2008. 4.2.3 ON OVER ALL CONSIDERATION OF FINDINGS ARRIVED AT BY AO ON RECORD IN THE YEAR UNDER CONSIDERATION VIZ-A- VIZ IN EARLIER YEAR AND CONTENTIONS OF THE APPELLANT IT HA S TO BE NECESSARILY OBSERVED THAT CONSIDERING THE NATURE OF PAYMENT AND OTHER ATTENDED FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS NO CASE FOR UPHOLDING THE ENTIRE DISALLOWANCE MADE AND THE CLAIM OF EXPENSES WHICH BROADLY FALL IN THE CATEGORY OF EXPENSES NOT FULLY VERIFIABLE FOR WANT OF COMPLETE DETAILS AND EVIDENC ES. HENCE CONSIDERING THE NET PROFIT MARGIN DISCLOSED B Y THE APPELLANT AND THE FINDINGS OF HON'BLE ITAT IN APPELLANT'S OWN CASE FOR EARLIER YEAR, THE DISALLOWANCE OF CONSTRUCTION EXPENSES IS RESTRICTED TO 25 OF THE AMOUNT DISALLOWED I.E . RS.21 ,33,385/- AND BALANCE DISALLOWANCE IS DELETED. 6. IF THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FROM BOTH THE SIDES AND THE FACTS MENTIONED IN THE IMPUGNED ORDER AS WELL AS OBSERVATION OF THE LEARNED ASSESSING OFFICER ARE KEPT IN JUXTAPOSITION AND ANALYSE D, WE FIND THAT THE IMPUGNED ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE PLEA THAT THE SUB-CONTRACTORS , 9 APPEARING AS CREDITORS IN THE BALANCE SHEET, WERE NOT FO UND AT THE GIVEN ADDRESSES. ADMITTEDLY, THE ASSESSEE FILED CONFIRMATIONS FROM THE PARTIES MENTIONED IN PAGE 3 ONWARDS OF THE IMPUGNED ORDER AND ALL WERE RESIDENTS O F ISARDA, TONK RAJASTHAN. THE LEARNED CIT(A) HAS ALSO EXAMINED THE COMPARATIVE STATEMENT OF NET PROFIT AND THAT TOO IN THE LIGHT OF THE ORDER OF THE TRIBUNAL FOR TH E ASSESSMENT YEARS 2006-07 TO 2007-08 AS IS EVIDENCED F ROM PAGES 8 AND 9 OF THE IMPUGNED ORDER ALONG WITH COMPARATIVE STATEMENT OF CLAIMED EXPENSES BY THE ASSESSE E AND DISALLOWED BY THE ASSESSING OFFICER. WE FIND THAT THE TRIBUNAL RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 25%. THE ASSESSEE BY WAY OF A NOTE TO THE COMPARATIVE CHART OF EXPENSES AND DISALLOWANCES HAS CLAIMED THAT THE NET PROFIT IS STILL GOOD. IT IS PERTINENT TO MENTION HERE THAT AT PAGES 1 AND 2 OF THE ASSESSMENT ORDER, THE LEARNED ASSESSING OFF ICER HAS 10 SPECIFICALLY MENTIONED THAT THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED DESIRED INFORMATION AND THE SAME WERE KEPT ON RECORD AFTER VERIFICATION. UNDISPUTEDLY, THE BOOKS OF ACCOUNTS, C ASH BOOKS, LEDGER, VOUCHERS FOR SUCH EXPENSES WERE PROD UCED AND THE SAME WERE TEST CHECKED. IF THE ASSESSING OFF ICER WAS NOT SATISFIED WITH SUCH RECORD, NOTHING PREVENTED HER EITHER TO ASK THE ASSESSEE TO FURNISH MORE INFORMATION OR TO BRING ON RECORD ANY EVIDENCE CONTROVERTING THE CLAIM OF THE ASSESSEE. EVEN IF THE COMPARATIVE NET PROFIT RATE IS AN ALYSED FOR THE ASSESSMENT YEAR 2006-07, IT WAS 4.17% AGAINST TOTAL RECEIPTS OF RS.20,09,90,959/-, 5.19% AGAINST RS.31,63,97,992/- AND 4.80% FROM RS. 32,07,13,221/-. IF THESE FIGURES ARE ANALYSED, THE TOTAL TURNOVER STEEPLY INCREASED IN COMPARISON TO ASSESSMENT YEAR 2006-07. EVEN OTHERWISE, THE INQUIRIES WERE CONDUCTED BY THE 11 A.O. NEARLY ABOUT AFTER 2 YEARS FROM THE END OF THE RELEVANT FINANCIAL YEAR, THEREFORE, THE LABOUR CONTRACTOR S CANNOT BE EXPECTED TO BE AVAILABLE AT THE GIVEN ADDRESS AFTER LAPSE OF SUCH PERIOD BECAUSE THEY KEEP ON SHIFTI NG AS PER THE AVAILABILITY OF THE WORK. THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 AFTER CONSIDERING THE CIRCUMSTANCES RESTRICTED THE DISALLOWANCE TO 25% OF TH E DISALLOWED AMOUNT. IN VIEW OF THESE UNCONTROVERTED F ACTS, WE FIND NO INFIRMITY IN THE STAND OF THE LEARNED CIT (A) ESPECIALLY WHEN NO CONTRARY EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER. THE STAND OF THE C IT(A) IS AFFIRMED RESULTING INTO DISMISSAL OF APPEAL OF THE REV ENUE. 7. SO FAR AS CROSS OBJECTION OF THE ASSESSEE IS CONCER NED, WE FIND THAT THE GROUND OF THE ASSESSEE IS THAT THE DISALLOWANCE TO THE EXTENT OF 25% IS EXCESSIVE. WITH OUT GOING INTO MUCH DELIBERATION, SINCE WE HAVE UPHELD TH E 12 STAND OF THE LEARNED CIT)A), THE CROSS OBJECTION RAISE D BY THE ASSESSEE HAS REMAINED FOR ACADEMIC INTEREST ONLY, CONSEQUENTLY, DISMISSED. FINALLY, THE APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11 TH JULY, 2012. SD SD (R.C.SHARMA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 11 TH JULY,2012 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-1010 13