G.S.C.O. Infrastructure (P) Ltd., Chandigarh V. JCIT, Chandigarh

ITA 114/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8447 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 30-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation
• Section: 40A(3); 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 114/CHD/2015 ASSESSMENT YEAR :2011-12 G.S.C.O. INFRASTRUCTURE (P) LTD. VS. THE JCIT SCO 67 RANGE III SECTOR 20-C CHANDIGARH CHANDIGARH PAN NO. AACCG4392A (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PARIKSHIT AGGARWAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 20/01/2016 DATE OF PRONOUNCEMENT :04/03/2016 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) CHANDIGARH DT. 17/11/2014. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSIT ION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING AN ADDITION O F RS. 31,13,971/- U/S 40A(3) OF THE INCOME TAX ACT, 1961 EVEN WHEN THE CASH PAYMENT WAS COVERED IN SPECIAL EXCEPTION UNDER THE ACT AS WELL AS RULES. FURTHER, THE WORTHY CIT(A) AS WELL AS THE LD. AO HAVE ALSO ERRED IN NOT APPRECIATING THE FACT MOST OF THE CASH PAYMENTS IN QUESTION DID NOT EXCEED RS. 20,000/- ON A DAY. 3. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSIT ION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING AN ADDITION O F RS. 2,00,000/- ON ADHOC BASIS BY ERRONEOUSLY HOLDING SUCH ADDITION IS JUSTIFIED W HEN THE %AGE OF SCRAP GENERATION OF THE APPELLANT CONTRACTOR IS LOWER AS COMPARED TO PRECEDING YEAR EVEN WHEN NO SPECIFIC DISCREPANCY WAS FOUND OR NOTI CED IN THE BOOKS OF THE APPELLANT. 4. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSIT ION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING AN ADDITION O F RS. 67,962/- U/S 14A R.W.R. 8D OF THE INCOME TAX RULES, 1962 EVEN WHEN NO EXEMPT I NCOME WAS EARNED OR CLAIMED BY THE APPELLANT. 5. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSIT ION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING AN ADDITION O F RS. 37,71,296/- WHICH WAS MADE BY THE LD. AO BY DISALLOWING 0.5% OF TOTAL EXP ENDITURE INCURRED ON VARIOUS SITES ONLY ON THE GROUND THAT SITE-WISE PROFITABILI TY IS NOT SAME WHEN NO SPECIFIC DEFECT WAS FOUND IN BOOKS OR RECORDS OR SITE-WISE P ROFITABILITY STATEMENT. 2 3. BRIEFLY STATED THE ASSESSEE IS A CIVIL CONSTRUCT ION COMPANY ENGAGED IN CONSTRUCTION OF IRRIGATION WORKS, LIKE D AM, CANALS, RIVER EMBANKMENT, MINING WORK AND SMALL ROAD PROJECTS. DU RING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RE TURN OF INCOME DECLARING INCOME OF RS. 6,16,09,500/-. THEREAFTER A SSESSMENT U/S 143(3) WAS FRAMED ON THE ASSESSEE, VIDE ORDER DT. 2 7/01/2014 ON INCOME OF RS. 6,89,23,856/- AFTER MAKING THE FOLLOW ING DISALLOWANCE / ADDITIONS. EXCESS DEPRECIATION RS. 1,64,890/- DISALLOWANCE U/S 40A(3) RS. 31,13,971/- ESTIMATION OF INCOME FROM SCRAP RS. 2,48,197/- DISALLOWANCE U/S 14A RS. 67,692/- DISALLOWANCE U/S 36(I)(III) RS. 16,000/- DISALLOWANCE OF SITE EXPENSES RS. 3771296/- THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT (A) WHO VIDE HIS ORDER DT. 17/11/2014 DELETED THE DISALLOWANCE / ADD ITIONS MADE ON ACCOUNT OF EXCESS DEPRECIATION, AND UPHELD THE DISA LLOWANCE / ADDITION MADE ON ACCOUNT OF CASH PAYMENTS U/S 40A(3 ), INCOME FROM SCRAP SALE, EXPENSES U/S 14A, INTEREST U/S 36( I)(III) AND SITE EXPENSES. 4. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THE PR ESENT APPEAL BEFORE US. 5. IN GROUND NO. 2 THE ASSESSEE HAS AGITATED AGAINS T THE ADDITION MADE U/S 40A(3) OF RS. 31,13,971/-. 6. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSING OFFICER ASKED THE ASSESSEE TO FURNISH DETAILS OF PAYMENT MA DE IN CASH IN EXCESS OF RS. 20,000/- ON A SINGLE DAY AND THE ASSE SSEE HAD CONFIRMED THAT NO SUCH PAYMENT HAD BEEN MADE DURING THE YEAR UNDER CONSIDERATION, BUT THE ASSESSING OFFICER NOTI CED THAT SUCH PAYMENTS HAD, IN FACT, BEEN MADE IN CONTRAVENTION T O THE PROVISIONS 3 OF SECTION 40A(3) OF THE INCOME TAX ACT (HEREINAFTE R REFERRED TO AS ACT). WHEN QUESTIONED ON THE ISSUE, THE ASSESSEE HAD SUBMITTED THAT THESE PAYMENTS WERE MADE FOR PURCHASE OF GOOD QUALITY AND TESTED SOIL FOR PROJECT REQUIREMENT TO AGRICULTURIS TS, WHOSE LANDS WERE CLOSE TO THE PROJECTS AND SINCE THE SITES WERE IN R EMOTE LOCATION, WHERE THESE PERSONS HAD NO BANK ACCOUNTS, THE PAYME NTS WERE MADE IN CASH. THE ASSESSING OFFICER ANALYSED THE PR OVISIONS OF RULE 6DD OF THE INCOME TAX RULE, 1962 (HEREINAFTER REFER RED TO AS RULES) AND CONCLUDED THAT THE PAYMENTS WERE NOT COVERED BY THE EXCEPTIONS GIVEN IN RULE 6DD OF THE RULES. IT WAS F URTHER NOTICED BY THE ASSESSING OFFICER THAT THE PAYMENTS WERE MADE T O SOME MIDDLE MEN AND SO WERE SUBJECT TO TAX DEDUCTION OF TAX AT SOURCE, WHICH HAD NOT BEEN DONE AND ADDRESSES OF THE PERSONS TO W HOM THE PAYMENTS WERE MADE, HAD NOT BEEN PROVIDED. HE ACCOR DINGLY ALLOWED TWO AMOUNTS, WHICH WERE BELOW RS. 20,000/- AND DISALLOWED REST OF THE AMOUNT OF RS. 31,13,971/- U/S 40A(3) OF THE ACT. 7. BEFORE THE LD. CIT(A) NO SUBMISSION WERE FILED B Y THE ASSESSEE AND THE DISALLOWANCE MADE WAS UPHELD FOR THE REASON THAT THE ASSESSEES CASE WAS SQUARELY COVERED UNDER THE PROVI SIONS OF SECTION 40A(3) OF THE ACT AND WAS NOT SAVED BY THE EXCEPTIO N PROVIDED UNDER RULE 6DD OF THE INCOME TAX RULES, 1962. LD. C IT (A) HELD AT PARA 4.2.1 TO 4.2.3 OF HIS ORDER AS FOLLOWS. 4.2.1 THE APPELLANT HAD TAKEN PLEA BEFORE THE ASSES SING OFFICER THAT THE PAYMENTS WERE MADE IN REMOTE LOCATIONS WHE RE THESE PERSONS HAD NO BANK ACCOUNTS AND SO ITS CASE WAS CO VERED BY THE PROVISIONS OF RULE 6DD. THE RELEVANT RULE IN THIS R EGARD IS RULE 6DD(G), WHICH IS PRODUCED BELOW FOR THE SALE OF REA DY REFERENCE. 6DD. CASES AND CIRCUMSTANCES.. (G) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK TO A NY PERSON WHO ORDINARILY RESIDES , OR IS CARRYING ON ANY BUSINESS , PROFESSION OR VOCATION, IN ANY SUCH VILLAGE OR TOWN THUS, A PAYMENT IS COVERED UNDER RULE 6DD(G), IT IT IS MADE; I. IN A VILLAGE OR TOWN WHICH ON THE DATE OF SUCH P AYMENT IS NOT SERVED BY ANY BANK; AND II. THE PAYMENT IS MADE TO A PERSON WHO ORDINARILY RESIDES OR CARRIES ON THE BUSINESS IN ANY SUCH VILLAGE OR TOWN . 4 4.2.2 BOTH THE ABOVE CONDITION HAVE TO BE SATISFIED SIMULTANEOUSLY. IN OTHER WORDS, IF THE PAYMENT IS MADE TO A PERSON WHO IS RUNNING A BUSINESS FROM A PREMISES IN A TOWN, WHERE THE BANKI NG FACILITIES ARE EASILY AVAILABLE, THEN THE FACT THAT THE PAYMENT IS MADE IN A REMOTE VILLAGE WILL NOT BRING THE TRANSACTION IN TH E AMBIT OF THE RULE 6DD(G). THE LOGIC BEHIND THE RULE IS CLEAR. IF BOTH THE SELLER AND THE BUYER ARE DOING BUSINESS IN A CITY, THEY CANNOT BE ALLOWED TO GO OUT OF THE PURVIEW OF SECTION 40A(3)BY CLAIMING THA T THE CASH PAYMENT FOR SOME REASONS WAS MADE IN A REMOTE VILLA GE WHERE BANKING FACILITIES ARE NOT AVAILABLE. THUS A COLLUS IVE ARRANGEMENT BETWEEN THE BUYER AND SELLER TO CIRCUMVENT SECTION 40A(3) HAS BEEN THWARTED BY RULE 6DD(G) OF THE RULES. 4.2.3 MOREOVER, IN THE INSTANT CASE, THE APPELLANT HAS ALSO NOT PROVIDED THE ADDRESSES OF THE PERSONS TO WHOM PAYME NTS HAVE BEEN MADE AND SO THE CLAIM OF THE APPELLANT THAT TH E PAYMENTS ARE COVERED BY RULE 6DD(G) CANNOT BE VERIFIED. IN F ACT, IT IS QUITE POSSIBLE THAT THE THESE PERSONS DO NOT EXIST OR PAY MENTS ARE NOT AT ALL GENUINE. HE AS IT MAY, THE WHOLE OF THE IMPUGNE D PAYMENT IS NOT COVERED BY THE EXCEPTION PROVIDED IN RULE 6DD A ND SO IS HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE DI SALLOWANCE MADE IS ACCORDINGLY UPHELD. GROUND OF APPEAL NO. 2 IS DI SMISSED. 8. AGGRIEVED BY THE SAME, THE ASSESSEE FIELD THE PR ESENT APPEAL BEFORE US. 9. BEFORE US LD. AR ARGUED THAT ALL THE IMPUGNED PA YMENTS WERE IN THE CONTEXT OF PURCHASE OF SOIL AND WERE MA DE TO MIDDLEMEN, WHO IN TURN MADE THE PAYMENTS TO THE CON CERNED PERSONS FROM WHOM SOIL WAS PURCHASED. LD. AR STATED THAT THIS FACT WAS IN THE KNOWLEDGE OF BOTH THE AO AND THE CIT(A). LD. AR STATED THAT PAYMENTS TO MIDDLEMEN WERE NOT COVERED UNDER T HE PROVISIONS OF SECTION 40A(3). LD. AR RELIED UPON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. SRI SHANMUGA GINNING F ACTORY (2013) 355 ITR 0096 IN THIS REGARD. LD. DR ON THE OTHER HAND S TATED THAT NO DETAILS OF THE PERSONS TO WHOM PAYMENTS WERE MADE W AS PROVIDED BY THE ASSESSEE AND HENCE IT COULD NOT BE VERIFIED THAT THE PERSONS WERE INDEED MIDDLEMEN LD. DR FURTHER STATED THAT EV EN IF PAYMENTS WERE MADE TO MIDDLEMEN, THE PROVISIONS OF SECTION 4 0A(3) WERE ATTRACTED SO LONG AS THE PAYMENTS EXCEEDED RS. 20,0 00/- IN CASH. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DOCUMENTS PROV IDED. 5 11. WE FIND THAT THE FOLLOWING PAYMENTS WERE IDENTI FIED BY THE AO BEING IN VIOLATION OF THE PROVISION OF SECTION 4 0A(3). SL.NO. NAME OF THE PERSON DATE OF PAYMENT AMOUNT ENTRIES TOTAL AMOUNT 1 SH. GURMINDER SINGH 06.04.2010 13.06.2010 15000 X 9= 1,35,000/- 17000 X 1 9 1 1,35,000/- 17,000/- 2. SH. AJIT SINGH 05.05.2010 19,000 X 1 = 19,000/- 1 19,000/- 3. SH. GURDEEP 15.05.2010 07.08.2010 5000 X 4= 20,000 5396 X 1= 5396 19,000 X 9= 171000 19500 X 2= 39,000 5 6 25396/- 2,10,000/- 4. SH. DHARMENDER 15.05.2010 15,000 X 10 =1,50,000/- 10 1,50,000/- 5. SH. JAGTAR SINGH 14.06.2010 10.08.2010 18.08.2010 19,000 X 2 = 38000 12000 X 1 = 12000 8000 X 5 = 40000 19000 X 4 = 76000 15000 X 1= 15000 3 5 5 50,000/- 40,000/- 91,000/- 6. SH. BABU SINGH 22.06.2010 19000 X 2 = 38000 13600 X 1= 13600 3 51,600/- 7. SH. SATPAL SINGH 22.06.2010 19000 X 5= 95000 15000 X 1 = 15000 6 110000/- 8. SH. PAL PRIT 01.07.2010 08.07.2010 19000 X 1 = 19000 18175 X 1 = 18175 19000 X 4 = 76000 16440 X 1= 16440 2 5 37175/- 92440/- 9. SH. TARA CHAND 07.07.2010 08.07.2010 18000 X 1 = 18000 14000 X 1 = 14000 19500 X 13= 253500 12660 X 1 = 12660 2 14 32000 266160 10 SH. LOVE SINGH 08.07.2010 26.08.2010 19500 X 31 = 604500 15500 X 1 = 15500 19000 X 5 = 95000 15000 X 1= 15000 32 6 620000/- 110000/- 11 SH. HARJEET SINGH 08.07.2010 19000 X 5 = 95000 12260 X 1 = 12260 6 107260/- 12 SH. AMAR SINGH 08.07.2010 19500 X 15 = 292500 15840 X 1 = 15840 14 308340 13. SH. PAL SINGH 09.07.2010 19000 X 5 = 95000 12600 X 1= 12600 6 107600 14 SH. KULWINDER SINGH 09.08.2010 20000 X 2 = 40000 10000 X 1 = 10000 3 50000/- 15 SH. RAJWINDER SINGH 18.08.2010 19500 X 26 = 5070 00 13000 X 1 = 13000 8 520000/- TOTAL 3149971/- OUT OF THE ABOVE THE AO EXCLUDED PAYMENT OF RS. 17, 000/- & RS. 19,000/- AT S.NO. 1 & 2 AND DISALLOWED THE BALANCE U/S 40A(3). 12. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE EXPL AINED VIDE ITS LETTER DT. 25.01.2014 THAT THE PAYMENTS WERE MA DE FOR PURCHASING 6 SOIL FROM AGRICULTURISTS WHOSE LAND WAS CLOSE TO TH E PROJECTS AND SINCE THE SITES WERE IN REMOTE LOCATION WHERE THE A GRICULTURISTS HAD NO BANK ACCOUNTS, THE PAYMENTS WERE MADE IN CASH. T HE AO AFTER CONSIDERING THE ASSESSEES SUBMISSION HELD THAT THE PAYMENTS WERE MADE TO MIDDLEMEN WHOSE ADDRESSES HAD NOT BEEN MADE AVAILABLE. HE FURTHER REJECTED THE ASSESSEES CONTEN TION THAT THE PAYEES HAD NO BANK ACCOUNTS, DISBELIEVING IT, AND D ISALLOWED THE EXPENSES BY APPLYING THE PROVISIONS OF SECTION 40A( 3) VIDE HIS ORDER PASSED ON 27.01.2014. IT IS CLEAR FROM THE ABOVE CH RONOLOGY OF EVENTS THAT THE AO HELD THAT THE ASSESSEE HAD NOT P ROVIDED DETAILS OF THE PAYEE MIDDLEMEN WITHOUT CONFRONTING THE SAME TO HIM AND WITHOUT GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE . HAVING ARRIVED AT A FINDING OF FACT THAT THE PAYMENTS WERE MADE TO MIDDLEMEN THE AO COULD NOT HAVE DOUBTED THE GENUINENESS OF THE SA ME WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY TO PROVE THE SAM E. THIS BECOMES ALL THE MORE IMPORTANT AND PERTINENT IN VIEW OF THE FACT THAT THIS FINDING WAS PERTINENT TO THE ISSUE OF DISALLOWANCE OF EXPENSES U/S 40A(3), SINCE PAYMENTS TO MIDDLEMEN AND AGENTS ARE EXCLUDED FROM THE PURVIEW OF SECTION 40A(3) READ WITH RULE 6DD(I) . A PERUSAL OF RULE 6DD(I) SHOWS THAT, NO DISALLOWANCE UNDER SECTI ON 40A(3) SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING TWENTY THOUSAND RUPEES IS MADE OTHERWISE THAN BY A CROSSED CHEQUE D RAWN ON A BANK OR BY A CROSSED BANK DRAFT IN CASES WHERE PAYM ENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAY MENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF SUCH PERSONS. EVEN T HE LD.CIT(A) WE FIND DID NOT CONSIDER THIS ASPECT OF THE MATTER WHI LE ADJUDICATING THIS ISSUE. 13. IN THE LIGHT OF THE ABOVE WE CONSIDER IT FIT TO REMIT THE MATTER BACK TO THE FILE OF THE AO TO DETERMINE WHETHER THE PAYMENTS WERE 7 ACTUALLY MADE TO MIDDLEMEN AND THEREAFTER TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THE ASSESSEE MAY BE GIVEN DUE OPPORTUNITY OF HEARING. 14. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREF ORE ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO. 3. RAISED BY THE ASSESSEE IS AGAINST THE ADDITION OF RS. 2,00,000 MADE ON ACCOUNT OF SCRAP SALE. 16. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE APPELLANT HAD SHOWN INCOME FROM SALE OF SCRAP AT RS. 7,47,981/- I N THIS YEAR AS AGAINST RS. 8,17,320/- IN THE PRECEDING YEAR, WHERE AS TURNOVER HAD INCREASED TO RS. 99 CRORES FROM RS. 83 CRORES IN TH E PRECEDING YEAR. THE ASSESSING OFFICER WAS OF THE VIEW THAT GENERATI ON OF SCRAP SHOULD BE PROPORTIONATE TO THE TURNOVER AND SO HE A SKED THE APPELLANT TO JUSTIFY LOWER SCRAP VALUE AND THE APPE LLANT HAD SUBMITTED THAT THIS WAS THE ACTUAL AMOUNT. THE ASSE SSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE APPELLANT AND ESTIMATED SCRAP @0.1% OF THE TURNOVER TO MATCH WITH THE SCRAP VALUE DISCLOSED IN THE PRECEDING YEAR OF .098%. ADDITION OF RS. 2,4 8,197/- WAS ACCORDINGLY MADE. 17. IN APPEAL BEFORE THE LD. CIT(A), NO SUBMISSIONS WERE FILED BY THE ASSESSEE. THE LD. CIT(A) THEREAFTER RESTRICTED THE ADDITION TO RS. 2,00,000/- DISAGREEING WITH THE VIEW OF THE AO THAT SCRAP GENERATION SHOULD BE THE SAME OR MORE THAN PRECEDING YEAR AND ESTIMATING SCRAP GENERATION TO BE IN EXCESS BY RS. 2,00,000/-. 18. BEFORE US LD. AR REITERATED THE SUBMISSIONS MAD E BEFORE THE A.O. AND SATED THAT THE SCRAP SALE SHOWN WAS THE AC TUAL FIGURE AND THERE COULD BE NO DIRECT CORRELATION BETWEEN SALES AND SCRAP 8 GENERATED AS ASSERTED BY THE A.O. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE A.O. UNDISPUTEDLY THE INCOME OF THE ASSESSEE HAS INCREAS ED FROM 83,36,77,316/- IN THE PRECEDING YEAR TO RS. 99,61,7 8,224/- IN THE IMPUGNED YEAR. THE BUSINESS ACTIVITY OF THE ASSESSE E HAS SHOWN A SUBSTANTIAL INCREASE. ADMITTEDLY SCRAP GENERATION I N THE FORM OF WASTAGE OF STEELS, CEMENT BAGS, OIL FILTER, IRON RO DS, TYRES & TUBES CONSUMABLE GOODS, WORN OUT COPPER, ELECTRICITY WIRE S, ETC. IS A NORMAL FEATURE IN THE ASSESSEE LINE OF BUSINESS. IT LOGICALLY FOLLOWS THAT THE WITH INCREASE IN BUSINESS ACTIVITY, THE SC RAP GENERATION ALSO INCREASES. THE ASSESSEE, WE FIND ON THE OTHER HAND HAS SHOWN A REDUCTION IN SCRAP SALES FROM 8,17,320/- IN THE PRE CEDING YEAR TO RS. 7,47,981/- IN THE IMPUGNED YEAR. WE FURTHER FIND TH AT NO JUSTIFIABLE REASON HAS BEEN GIVEN FOR THE SAME. THEREFORE ADDIT ION ON ACCOUNT OF SCRAP SALE IS WARRANTED BUT AT THE SAME TIME WE AGREE WITH THE LD. CIT(A) THAT THE SAME NEED NOT BE IN DIRECT PROP ORTION TO TURNOVER OF THE ASSESSEE. FURTHER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE DISALLOWANCE UPHELD BY TH E LD. CIT(A) IS ON THE HIGHER SIDE AND CONSIDER AN ADDITION OF RS. 1,00,000/- TO BE APPROPRIATE AND JUST. 19. IN VIEW OF THE SAME WE RESTRICT THE ADDITION MA DE ON ACCOUNT OF SCRAP SALE TO RS. 1,00,000/-. 20. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREF ORE PARTLY ALLOWED. 21. GROUND NO. 4 RAISED BY THE ASSESSEE WAS NOT PRE SSED BEFORE US AND THE SAME IS THEREFORE TREATED AS DISMISSED. 22. GROUND NO. 5 RAISED BY THE ASSESSEE IS AGAINST AN ADDITION OF RS. 37,71296/- MADE OF EXPENSES INCURRED ON VARIOUS SITES. 9 23. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER HAD CALLED FOR THE SITEWISE EXPENSES INCURRED BY TH E ASSESSEE AND NOTICED THAT THE EXPENSES DEBITED WERE NOT PROPORTI ONATE TO THE INCOME DISCLOSED IN RESPECT OF VARIOUS SITES. THE A SSESSING OFFICER FOUND THAT THE EXPENDITURE RECEIPT RATIO VARIED BET WEEN 55% AND 112% AND PROFIT-TURNOVER RATIO BETWEEN 4.5% AND 44. 72% AND SO HE ASKED THE APPELLANT TO EXPLAIN THE INCONSISTENCY. T HE APPELLANT HAD FILED ITS REPLY AS UNDER: AS REGARDS SITE WISE PROFIT AND LOSS REPORTED IN OUR STATEMENT, WE HERE BY CLARIFY THAT THERE ARE SOME EXPENDITURE WHI CH ARE BOOKED IN HEAD OFFICE, LIKE DEPRECIATION, INTEREST ON THES E MACHINERIES LOAN, WORKING CAPITAL INTEREST, BANK GUARANTEE COMM ISSION, CONSULTANCY/LEGAL FEES, DIRECTORS SALARY THEIR TRAV ELLING EXPENSE, HEAD OFFICE TELEPHONE EXPENSES AND EPF EXPENSES ETC . AS THE MACHINERIES ALONG WITH MANPOWER ARE FREQUENTLY MOVI NG FROM ONE SITE TO ANOTHER AS PER NEEDS OF THE PROJECT. MOREOV ER DAY BY DAY COST OF CONSTRUCTION IS INCREASING DUE TO INFLATION & STIFF COMPETITION ARE VERY FACED BY US DURING TENDER, MANY TIMES IN O RDER TO BE IN RACE WE HAD TO BID TENDERS EVEN BELOW THE ESTIMATED COST. THE DELAY IN PROJECT INCREASED THE COST OF CONSTRUC TION, LIKE CEMENT, SAND AGGREGATES ETC. MOREOVER IN PUNJAB, HA RYANA & HIMACHAL THERE IS STAY ORDER IN MINING ACTIVITIES B Y HIGH COURTS, WHICH RESULTED SHORTAGE OF MATERIALS LIKE SAND & AG GREGATES, THE PRICES HAD INCREASED MORE THAN 6 TIMES, WITH LESSER AVAILABILITY, WE HAVE TO ARRANGE THE SAME FROM JAMMU, AS THIS PROJEC T WAS FOR NATIONAL IMPORTANCE TO COMPLETED IN TIME. THERE WAS MORE PRESSURE / BURDEN TO COMPLETE THE PROJECT IN TIME BY THE RAI LWAYS. THE EXPENSES BOOKED TO VARIOUS SITE ARE ON ACTUAL BASIS WHICH CORRELATES WITH THE RECEIPTS FROM THE WORK DONE DUR ING THAT FINANCIAL YEAR. HOWEVER OVERALL PROFIT OF THE COMPANY HAS BEEN IN I NCREASE AS COMPARE TO PREVIOUS LETTER, WHICH WE HAD CLARIFIED IN OUR PREVIOUS LETTER DATED 20.01.2014(SIC) 8.1.1 THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE APPELLANT, SINCE THE APPELLANT COULD NOT RECONC ILE THE DISCREPANCIES NOTICED. HE ACCORDINGLY DISALLOWED 0. 5% OF THE EXPENDITURE INCURRED AT SITES (EXCLUDING HEAD OFFIC E EXPENSES) AND MADE ADDITION OF RS. 37,71,296/-. LD. CIT(A) UPHELD THE ADDITION MADE FOR THE REASON THAT THE ASSESSEE COULD NOT EXPLAIN THE INCONSISTENCY IN THE EXPENDITURE- RECEIPT RATIO AND PROFIT TURNOVER RATIO AND FURTHER SINCE IN THE 10 PRECEDING YEAR THE ASSESSEE HAD AGREED FOR SIMILAR ADDITION OF 0.5% OF THE EXPENSES. 24. BEFORE US LD. AR PLEADED THAT THE DISALLOWANCE MADE ON ADHOC BASIS WAS UNJUSTIFIED MORE SO IN VIEW OF THE FACT THAT ALL BOOKS OF ACCOUNTS OF THE ASSESSEE WERE AUDITED AND NO DIS CREPANCY HAD BEEN POINTED OUT IN THE SAME, THE BOOKS WERE PRODUC ED BEFORE THE AO AND NO SPECIFIC INSTANCE WARRANTING DISALLOWANCE OF ANY EXPENSES INCURRED ON SITE WAS POINTED OUT BY THE AO . LD AR STATED THAT THE ASSESSEE HAD OFFERED AN EXPLANATION FOR TH E VARIATION IN PROFIT/ TURNOVER RATIO AND EXPENDITURE / INCOME RAT IO FOR THE VARIOUS SITE VIDE ITS LETTER DT. 25.01.2014 BUT, WITHOUT CO NSIDERING THE SAME, LD. AO HAD ARBITRARILY REJECTED THE EXPLANATION OF THE ASSESSEE AND MADE AN ADHOC DISALLOWANCE. LD. AR CONTENDED THAT T HERE WERE LOSS IN CERTAIN PROJECTS / SITE SINCE IN THE FACE O F STIFF COMPETITION TENDER WERE BID BELOW ESTIMATED COST OR DELAY IN EX ECUTION OF PROJECT INCREASED THE COST OF COMPLETION OR DUE TO STAY IN MINING ACTIVITIES IN PUNJAB, HARYANA & HIMACHAL, MATERIAL LIKE SAND AND AGGREGATES HAD TO BE PROCURED FROM JAMMU WHICH INCR EASED THE COST OF PROJECT. LD. AR FURTHER STATED THAT HIGH PR OFITABILITY IN CERTAIN PROJECTS WAS ATTRIBUTABLE TO NON-ALLOCATION OF CERT AIN EXPENSES BOOKED TO HEAD OFFICE LIKE DEPRECIATION, INTEREST E TC. LD. AR ALSO STATED THAT MERELY BECAUSE THE ADDITION WAS AGREED TO IN THE PRECEDING YEAR, THE SAME COULD NOT BE MADE IN THE I MPUGNED YEAR ALSO SINCE EACH YEAR WAS A SEPARATE YEAR AND THE PR INCIPLE OF RES- JUDICATA DID NOT APPLY TO INCOME TAX PROCEEDINGS. 25. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE AO AND CIT(A). 11 26. WE HAVE HEARD THE RIVAL SUBMISSION CAREFULLY AN D PERUSED THE MATERIAL PLACED ON RECORD BEFORE US. 27. WE FIND THAT EXPENSES INCURRED ON VARIOUS CONST RUCTION SITES OF THE ASSESSEE HAVE BEEN DISALLOWED @ 5% OF THE TOTAL EXPENSES SINCE THE ASSESSEE COULD NOT GIVE A PROPER EXPLANATION FO R VARIATION IN PROFIT / TURNOVER RATIO AND EXPENDITURE / INCOME RA TIO OF VARIOUS SITES. WE FURTHER FIND THAT THE ASSESSEE HAD OFFERE D AN EXPLANATION FOR THE SAME VIDE HIS LETTER DT. 25.01.2014 REPRODU CED ABOVE. LD. AO FOUND THE SAME UNTENABLE AS NO RECONCILIATION COULD BE MADE ON THE PLEA OF MIXED EXPENSES AND THEREAFTER PROCEEDED TO PASS THE ORDER ON 27.01.2014. CLEARLY THE AO HAD NEITHER CON SIDERED NOR APPRECIATED THE ENTIRE EXPLANATION GIVEN BY THE ASS ESEE. HE MERELY PICKED UP ONE ASPECT OF THE SAME I.E; MIXED EXPENSE S AND CONCLUDED THAT THE EXPLANATION WAS NOT TENABLE, WIT HOUT STATING AS TO HOW THE EXPLANATION WAS NOT TENABLE. IF THERE WA S ANY FURTHER CLARIFICATION REQUIRED THE AO COULD HAVE VERY WELL SPECIFICALLY PUT THE SAME TO THE ASSESSEE AND SOUGHT FURTHER EXPLANA TION. BUT WE FIND THAT THE LD. AO WITHOUT AFFORDING ANY FURTHER OPPORTUNITY TO THE ASSESSEE PASSED THE ASSESSMENT ORDER. THE AO HAVING NOT TAKEN INTO CONSIDERATION THE ENTIRE EXPLANATION GIVEN BY THE A SSESSEE AND FURTHER NOT HAVING GIVEN PROPER OPPORTUNITY TO ADDU CE FURTHER EXPLANATION IN SUPPORT OF ITS CONTENTION, THE CONCL USION ARRIVED THAT THE EXPENSES INCURRED WERE NOT COMMENSURATE WITH TH E INCOME EARNED IS UNWARRANTED AND UNJUSTIFIED. LD. CIT(A) A LSO, WE FIND, SIMPLY ACCEPTED THE FINDING OF THE AO WITHOUT CONSI DERING THE FACT THAT THE FINDING OF THE AO WERE INCONCLUSIVE AND RE QUIRED FURTHER INVESTIGATION. 12 IN VIEW OF THE ABOVE, WE CONSIDER IT FIT TO RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR EXAMINING THE ISSUE AFRESH A FTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE AND THEREAFT ER DECIDE THE MATTER IN ACCORDANCE WITH LAW. 28. THIS GROUND OF APPEAL IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 29. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. 04/03/2016 SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 04/03/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR