Hemanna Pampanna Pawali, Pune V. Additional Commissioner of Income-tax,

ITA 1520/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0978 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 31-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: S N DOSHI
• Keywords: Depreciation
• Section: 131

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE ! ' , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA NO.1520/PN/2014 ASSESSMENT YEAR : 2007-08 HEMANNA PAMPANNA PAWALI, PROP. M/S R. R. CONSTRUCTIONS, FLAT NO.14, PHULE CORNER, ABOVE HOTEL PANCHAMI, PUNE SATARA ROAD, PUNE 411 009. PAN: AAZPP8448A .. APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 2, PUNE. ... RESPONDENT / APPELLANT BY : SHRI S. N. DOSHI / DEPARTMENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 31.08.2016 / DATE OF PRONOUNCEMENT: 31.08.2016 % / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE DATED 20.02.2014 F OR THE ASSESSMENT YEAR 2007-08. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE IS A CIVIL AND BUILDING CONTRACTOR AND ENGAGED IN CONSTR UCTION OF INDUSTRIAL SHEDS. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE IMPUGNE D ASSESSMENT YEAR ON 31.10.2007 DECLARING TOTAL INCOME OF RS.1,42,84,057 /- FOR THE ASSESSMENT YEAR 2 ITA NO.1520/PN/2014 2007-08. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS. ACCORDINGLY, FIRST NOTICE UNDER SECTION 143(2) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS ISSUED T O THE ASSESSEE ON 05.09.2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER FOUND THAT THE ASSESSEE HAS MADE TOTAL PAYMENTS OF RS.3,75,61,238/ - TO SUB-CONTRACTORS ON ACCOUNT OF LABOUR CHARGES. ON ENQUIRY THE PAYMENTS MADE TO : (I) SHRI MALLAPPA PUJARI RS.7,78,243/-, (II) CHANNAPPA GANI RS.11 ,20,344/- AND (III) SHEKKAPPA RS.22,56,360/- AGGREGATING TO RS.41,54,947/- COULD NOT BE VERIFIED AS THE ADDRESSES OF THE SUB-CONTRACTORS WERE NOT FOUND. T HE ASSESSING OFFICER DISALLOWED THE PAYMENTS MADE TO THE AFORESAID SUB-CONTRACTORS. FURTHER, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.50,000/- ON ACCOUNT OF UNVERIFIABLE EXPENDITURE. THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.1,72,46 8/- ON VEHICLES. THE ASSESSING OFFICER MADE DISALLOWANCE OF 20% OF THE T OTAL DEPRECIATION CLAIMED I.E. RS.34,494/- ON ACCOUNT OF PERSONAL USE OF THE VEHIC LES. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.2009, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 3. THE CIT(A) VIDE IMPUGNED ORDER ACCEPTED THE CLAI M OF THE ASSESSEE IN RESPECT OF AD-HOC DISALLOWANCE OF UNVERIFIABLE EXPENSES AND REJECTED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF PAYMENTS MADE TO THE THR EE SUB-CONTRACTORS AND THE DISALLOWANCE OF DEPRECIATION. AGAINST THE FINDINGS OF THE CIT(A), THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI S. N. DOSHI APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED THAT THE ASSESSEE HAS DISCLOSED TOTAL TURNOVER OF RS.22.24 C RORES AS PER AUDITED FINAL ACCOUNTS. THE ASSESSEE HAS MOSTLY CONSTRUCTED INDU STRIAL SHEDS AT AMBARNATH, 3 ITA NO.1520/PN/2014 TALOJA, PATALGANGA, MAHAD AND TARAPUR. AS PER TRAD ING ACCOUNT, THE GROSS PROFIT OF THE ASSESSEE IS 6.37% WHICH IS QUITE FAIR AND REASO NABLE. THE ASSESSEE HAS MADE PAYMENTS TO THE SUB-CONTRACTORS AFTER DEDUCTION OF TAX AT SOURCE. THE DISALLOWANCE OF PAYMENTS MADE BY THE AUTHORITIES BELOW IN RESPEC T OF PAYMENTS MADE TO THREE SUB-CONTRACTORS I.E. (I) SHRI MALLAPPA PUJARI, (II) CHANNAPPA GANI AND (III) SHEKKAPPA IS WITHOUT ANY BASIS. THE ASSESSEE HAS MADE PAYMENTS TO THESE SUB-CONTRACTORS AFTER DEDUCTION OF TAX AT SOURCE AN D ALL THE THREE SUB-CONTRACTORS HAVE CONFIRMED THE RECEIPT OF PAYMENTS BY FILING AF FIDAVITS. ADMITTEDLY, THERE WAS NO WRITTEN AGREEMENT FOR SUB-CONTRACT BUT THE CONFI RMATIONS HAVE BEEN RECEIVED FROM THE SUB-CONTRACTORS IN THE FORM OF AFFIDAVITS. THE LD. AR RELIED ON LEDGER ACCOUNT EXTRACTS AT PAGES 14 TO 27 OF THE PAPER BOO K. THE LD. AR CONTENDED THAT THE AGGREGATE PAYMENTS MADE TO THE ABOVE-MENTIONED SUB-CONTRACTORS IS MERELY 1.87% OF THE GROSS CONTRACT PAYMENTS. THE AUTHORIT IES BELOW HAVE DISBELIEVED THE GENUINENESS OF THE PAYMENTS MERELY ON THE GROUND TH AT THE ASSESSEE COULD NOT PRODUCE THE SUB-CONTRACTORS BEFORE THE ASSESSING OF FICER. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE FURNISHED DULY SWORN AF FIDAVITS OF THE SUB-CONTRACTORS BEFORE THE CIT(A). THE ASSESSEE COULD NOT PRODUCE THE SUB-CONTRACTORS BEFORE THE ASSESSING OFFICER AS THE SUB-CONTRACTORS MOVE FROM ONE PLACE TO ANOTHER IN REMOTE AREAS TO EXECUTE THE WORK ALLOTTED TO THEM AND THEY HAVE NO PERMANENT PLACE OF WORK. HOWEVER, WITH GREAT EFFORT THE ASSESSEE COUL D LOCATE THEM AND COULD GET CONFIRMATIONS IN THE FORM OF AFFIDAVITS. THE LD. A R POINTED OUT THAT SHRI MALLAPPA PUJARI AND CHANNAPPA GANI HAD EXECUTED THE AFFIDAVI T BEFORE THE EXECUTIVE MAGISTRATE, MAHAR AND THE AFFIDAVIT OF SHEKKAPPA HA S BEEN DULY NOTARIZED. IN THE AFFIDAVIT, THE SUB-CONTRACTORS HAVE ADMITTED THAT T HEY HAVE RECEIVED AMOUNT MENTIONED AGAINST THEIR NAMES FROM M/S R.R. CONSTRU CTION, THE PROPRIETARY CONCERN OF THE ASSESSEE AND THEY HAVE EXECUTED THE WORK ASS IGNED TO THEM. 4 ITA NO.1520/PN/2014 4.1 DURING REMAND PROCEEDINGS, THE ASSESSEE COULD P RODUCE ONE OF THE SUB- CONTRACTORS, SHRI MALLAPPA PUJARI WHOSE STATEMENT W AS RECORDED UNDER SECTION 131 OF THE ACT BY THE ASSESSING OFFICER. SHRI MALLAPPA PUJARI ADMITTED ON OATH THE RECEIPT OF SUB-CONTRACT PAYMENTS. HOWEVER, THE ASS ESSEE COULD NOT PRODUCE THE OTHER TWO SUB-CONTRACTORS, AS ONE OF THE SUB-CONTRA CTOR CHANNAPPA GANI DIED ON 30.11.2011. HIS DEATH CERTIFICATE WAS PLACED ON RE CORD. THE LD. AR REFERRED TO DEATH CERTIFICATE AT PAGE 28 OF THE PAPER BOOK TO S HOW THAT CHANNAPPA GANI HAD DIED ON 30.11.2011. THE OTHER SUB-CONTRACTOR SHEKK APPA COULD NOT BE PRODUCED AS THE ASSESSEE COULD NOT TRACE HIM. THE LD. AR CO NTENDED THAT THE ASSESSING OFFICER HAS NOT TAKEN NECESSARY STEPS TO VERIFY THE GENUINENESS OF THE AFFIDAVITS. IN SUPPORT OF HIS CONTENTION, THE LD. AR PLACED RELIAN CE ON THE DECISION OF DCIT VS. POOJA PAPER CRAFT REPORTED AS 43 CCH 332 (AHD.-TRIB .). 5. IN RESPECT OF GROUND NO.2 RELATING TO DEPRECIATI ON ON VEHICLES, THE LD. AR SUBMITTED THAT THE DEPRECIATION HAS BEEN CLAIMED ON VEHICLES USED FOR VISITING THE WORK SITES BY THE ASSESSEE AND HIS ENGINEERS. THE AUTHORITIES BELOW HAVE ERRED IN MAKING 20% DISALLOWANCE OF DEPRECIATION MERELY ON A SSUMPTION THAT THE VEHICLES WERE USED FOR PERSONAL USE AS WELL. 6. SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF THE CIT(A). THE LD. DR SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS DEDUCTED TAX AT SOURCE BUT THE GENUINENESS OF THE P AYMENTS ARE NOT ESTABLISHED. THE ASSESSEE COULD NEITHER PRODUCE THE SUB-CONTRACT ORS BEFORE THE ASSESSING OFFICER NOR COULD FURNISH THE CONFIRMATIONS OF THE PAYMENT TO THE SUB-CONTRACTORS THAT WERE MADE IN CASH. IN RESPECT OF DISALLOWANCE OF DEPRECIATION, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY LOG BOOK WITH RESPECT TO RUNNING OF VEHICLES. THE CIT(A) HAS RIGHTLY UPHELD 20% DISALLOWANCE OF TOTAL 5 ITA NO.1520/PN/2014 DEPRECIATION CLAIMED. THE LD. DR STRONGLY PRAYED F OR DISMISSING THE APPEAL OF THE ASSESSEE AND UPHOLDING THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRES ENTATIVES OF THE RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DOCUMENTS REFERRED BY THE LD. AR FRO M THE PAPER BOOK DURING THE SUBMISSIONS. IN APPEAL, THE ASSESSEE HAS ASSAILED THE FINDINGS OF CIT(A) ON TWO GROUNDS : (I) DISALLOWANCE OF RS.41,54,947/- IN RES PECT OF PAYMENTS MADE TO THE SUB-CONTRACTORS AND (II) DISALLOWANCE OF DEPRECIATI ON OF RS.34,494/-. 8. IN SO FAR AS THE FIRST ISSUE RELATING TO THE DIS ALLOWANCE OF RS.41,54,947/- ON ACCOUNT OF PAYMENTS MADE TO THE SUB-CONTRACTORS IS CONCERNED, THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THA T THE ASSESSEE COULD NOT PRODUCE THE SUB-CONTRACTORS AND NO CONFIRMATIONS WE RE FILED ON BEHALF OF SUB- CONTRACTORS. UNDISPUTEDLY, THE PAYMENTS TO THE SUB -CONTRACTORS WERE MADE IN CASH. DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER QUESTIONING THE GENUINENESS OF THE PAYMENTS AND NOT UNDER SECTION 4 0A(3) FOR CASH PAYMENTS. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSE E FURNISHED CONFIRMATIONS IN THE FORM OF AFFIDAVITS OF THE THREE SUB-CONTRACTORS ALO NG WITH THEIR LEDGER ACCOUNT EXTRACTS. THE ASSESSEE ALSO PRODUCED ONE OF THE SU B-CONTRACTORS SHRI MALLAPPA PUJARI IN REMAND PROCEEDINGS BEFORE THE ASSESSING O FFICER. THE ASSESSING OFFICER RECORDED HIS STATEMENT UNDER SECTION 131 OF THE ACT . IN HIS STATEMENT, THE SUB- CONTRACTOR ADMITTED TO HAVE RECEIVED THE AMOUNT OF RS.7,78,243/- IN CASH FROM THE ASSESSEE ON ACCOUNT OF SUB-CONTRACT FOR SUPPLY OF L ABOUR. THE CIT(A) WHILE UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER COM PLETELY IGNORED THE FACT THAT THE ASSESSEE HAD DISCHARGED HIS ONUS BY PRODUCING ONE O F THE SUB-CONTRACTOR IN REMAND PROCEEDINGS BEFORE THE ASSESSING OFFICER AND CONFIRMED THE ADDITION IN TOTO . THE SUB-CONTRACTOR IN HIS STATEMENT HAS SUPPORTE D THE CLAIM OF ASSESSEE. 6 ITA NO.1520/PN/2014 THE ASSESSEE COULD NOT PRODUCE ANOTHER SUB-CONTRACT OR CHANNAPPA GANI BEFORE THE ASSESSING OFFICER AS HE HAD DIED ON 30.1 1.2011 AFTER EXECUTING THE AFFIDAVIT ON 15.11.2010. IN HIS AFFIDAVIT, HE HAS ADMITTED THAT HE HAS RECEIVED RS.11,20,344/- FROM M/S R.R. CONSTRUCTION ON ACCOUN T OF CONSTRUCTION WORK DONE AS SUB-CONTRACTOR FOR SUPPLY OF LABOUR. THE ASSESS EE HAS PLACED ON RECORD HIS DEATH CERTIFICATE. THUS, BY NO MEANS THE ASSESSEE COULD HAVE PRODUCED CHANNAPPA GANI BEFORE THE ASSESSING OFFICER. THE A UTHORITIES BELOW WERE EXPECTING FROM ASSESSEE TO DO SOMETHING WHICH WAS B EYOND HIS CONTROL AND WAS IMPOSSIBLE. IN SO FAR AS THE PAYMENTS MADE TO SHEKKAPPA IS CONC ERNED, WE FIND THAT THE ASSESSEE HAS NOT GIVEN ANY VALID EXPLANATION FOR HI S NON-APPEARANCE BEFORE THE ASSESSING OFFICER. ON ONE HAND, THE ASSESSEE CLAIM ED THAT ALL THE SUB-CONTRACTORS WERE WORKING WITH HIM FOR QUITE LONG PERIOD OF TIME AND ON THE OTHER, THE ASSESSEE PLEADED THAT THE SUB-CONTRACTOR IS NOT TRACEABLE AS HE HAS NO PERMANENT PLACE OF WORK. IF THE ASSESSEE FAILED TO PRODUCE HIM BEFORE ASSESSING OFFICER, THE ASSESSEE COULD HAVE PRODUCED HIM DURING REMAND PROCEEDINGS. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE CIT(A) HAS MADE AN OBSERVATION IN HIS ORDER THAT NONE OF THE SUB-CONTRACTORS HAVE FILED RETURN OF INCOME. THIS FACT HAS NOT BEEN CONTROVERTED BY THE LD. AR OF THE ASSESSEE. UNDER THE FACTS, THE O NLY PASSAGE AVAILABLE WITH THE ASSESSEE TO PROVE GENUINENESS OF CASH PAYMENTS WAS TO PRODUCE THE SUB- CONTRACTOR, WHICH HE FAILED TO DO. 9. IN VIEW OF THE TOTALITY OF FACTS OF THE CASE AND DOCUMENTS ON RECORD, WE ACCEPT THE CLAIM OF THE ASSESSEE QUA PAYMENTS MADE TO SHRI MALLAPPA PUJARI RS.7,78,243/-, AS THE ASSESSEE WAS ABLE TO PRODUCE HIM BEFORE THE ASSESSING OFFICER DURING THE REMAND PROCEEDINGS AND IN RESPEC T OF CHANNAPPA GANI RS.11,20,344/- AS HE HAD DIED ON 30.11.2011 AFTER E XECUTING THE AFFIDAVIT SUPPORTING THE CLAIM OF ASSESSEE. FOR THE OBVIOUS REASON, THE ASSESSEE COULD NOT 7 ITA NO.1520/PN/2014 SECURE HIS PRESENCE BEFORE ASSESSING OFFICER IN REM AND PROCEEDINGS. HOWEVER, NON APPEARANCE OF THIRD SUB-CONTRACTOR, SHEKKAPPA H AS NOT BEEN EXPLAINED BY ASSESSEE. THE REASON FOR HIS NON APPEARANCE GIVEN BY THE ASSESSEE IS RATHER GENERIC AND CASUAL, THEREFORE, THE CLAIM OF PAYMENT RS.22,56,360/- MADE BY ASSESSEE TO SHEKKAPPA IS REJECTED. ACCORDINGLY, TH E GROUND NO.1 RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 10. THE GROUND NO.2 IN THE APPEAL OF THE ASSESSEE R ELATES TO PART DISALLOWANCE OF DEPRECIATION CLAIMED ON VEHICLES. THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.1,72,468/- ON VEHICLES OWNED BY HIM AND USED FOR BUSINESS PURPOSE. THE ASSESSING OFFICER DISALLOWED 20% OF THE TOTAL DEPRE CIATION CLAIM I.E. RS.34,494/- ON ACCOUNT OF PERSONAL USE OF VEHICLES. THE CIT(A) HA S UPHELD THE SAME. THE LD. AR OF THE ASSESSEE PLEADED THAT THE VEHICLES WERE USED FOR VISITING THE WORK SITES BY THE ASSESSEE AND ENGINEERS EMPLOYED BY HIM. WE ARE OF THE CONSIDERED OPINION THAT THE USE OF VEHICLES FOR PERSONAL PURPOSES CANN OT BE RULED OUT ALTOGETHER. HOWEVER, WE FEEL THAT DISALLOWANCE OF 20% OF DEPREC IATION ON THIS ACCOUNT IS ON THE HIGHER SIDE. TO MEET THE ENDS OF JUSTICE, 10% DISA LLOWANCE WOULD BE SUFFICIENT TO COVER THE PERSONAL USE OF VEHICLES. ACCORDINGLY, D ISALLOWANCE IS RESTRICTED TO 10% OF THE DEPRECIATION CLAIMED I.E. RS.17,247/-. THE GROUND NO.2 IN THE APPEAL OF THE ASSESSEE IS PARTLY ACCEPTED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF AUGUST, 2016. SD/- SD/- ( R.K. PANDA ) ( VIKAS AWASTHY ) / ACCOUNTANT MEMBER # / JUDICIAL MEMBER PUNE ; DATED : 31 ST AUGUST, 2016. 8 ITA NO.1520/PN/2014 %&'#()!*!+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE