Shri Hitesh M.Gandhi, Surat V. The ACIT.,Circle-3, Surat

ITA 1540/AHD/2011

• Counselvise Citation: 154020514 RSA 2011
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: R N VEPARI
• Keywords: Depreciation; Corroborative evidences; Condonation of delay
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. MOHAN A LANKAMONY, AM) ITA NO. 1540/AHD/2011 A. Y.: 2007-08 SHRI HITESH M. GANDHI, A/1, UTSAV ROW HOUSE, NEAR SNEH SANKUL WADI, SURAT VS THE A. C. I. T., CIRCLE-3, AAYAKAR BHAVAN, MAJURA GATE, SURAT PA NO. ABRPG 1429 K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R. N. VEPARI, AR RESPONDENT BY SHRI B. L. YADAV, DR DATE OF HEARING: 16-12-2011 DATE OF PRONOUNCEMENT: 23 -12-2011 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II, SURAT D ATED 18 TH FEBRUARY, 2011 FOR ASSESSMENT YEAR 2007-08, ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING DISALLOWANCE OF 1070548/- TOWARDS LAB OUR CHARGES WHICH WERE DISALLOWED ON AD HOC BASIS @ 10% . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN NOT CONSIDERING PROPERLY THE NATURE OF ACTIVITY UNDERTAKEN BY THE APPELLANT AND HAS NOT CONSIDERED THE WRITTEN SUBMISSIONS MADE IN THIS REGARD. ITA NO.1540/AHD/2011 SHRI HITESH M. GANDHI VS ACIT, CIR-3, SURAT 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING THE ACTION OF THE AO FOR PARTLY DISAL LOWING EXPENSES OUT OF TELEPHONE, DEPRECIATION ON CAR AND INTEREST ON CAR @ 10% WHICH WORKED OUT TO 16291/- WITHOUT CONSIDERING THE TURNOVER OF THE BUSINESS AN D THE SMALLNESS OF THE EXPENSES INCURRED BY THE APPELLANT FOR EARNING SUCH INCOME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING THE ACTION OF THE AO FOR CHARGING INT EREST U/S 234B. 2. ACCORDING TO THE OFFICE THE APPEAL IS TIME BARRE D BY 2 DAYS. IN THE APPLICATION FOR CONDONATION OF DELAY IT IS STAT ED THAT THE APPEAL PAPERS WERE DISPATCHED ON TIME WHICH WERE RECEIVED AT THE OFFICE OF THE TRIBUNAL AT AHMEDABAD LATE BY ONE DAY. IT WAS, THEREFORE, PRAYED THAT DELAY MAY BE CONDONED. THE LEARNED DR HAS NO O BJECTION IF DELAY IS CONDONED FOR HEARING OF THE APPEAL ON MERI T. CONSIDERING THE EXPLANATION OF THE ASSESSEE AND SUBMISSION OF THE L EARNED DR, WE ACCEPT THE EXPLANATION OF THE ASSESSEE AND CONDONE THE MINIMUM DELAY IN FILING THE APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO TH AT THE ASSESSEE HAS DEBITED RS.1,07,05,476/- TOWARDS LABOUR EXPENSE S AND ON VERIFICATION OF THE LEDGER, THE AO ALSO NOTICED THA T ENTIRE EXPENSES ITA NO.1540/AHD/2011 SHRI HITESH M. GANDHI VS ACIT, CIR-3, SURAT 3 HAVE BEEN INCURRED IN CASH. THE AO, THEREFORE, ASK ED THE ASSESSEE TO PRODUCE THE LABOURERS OR FURNISH THEIR NAMES AND ADDRESSES. IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED THAT HE IS IN THE BUSINESS OF LAYING PIPE LINE FOR GSPC GAS CO. LTD. ON JOB WORK BASIS AND THE LABOURERS ARE DIRECTLY EMPLOYED BY HIM. IT WAS SUBMITTED THAT THE LABOURERS WERE ILLITERATE AND NOMAD AND SO IT W AS IMPOSSIBLE FOR HIM TO PRODUCE THE LABOURERS DEPLOYED IN THE BUSINE SS AND FURTHER THE PAYMENTS HAVE BEEN MADE ON DAILY BASIS IN CASH TO T HE INDIVIDUAL. THE AO DID NOT ACCEPT THIS EXPLANATION OF THE ASSES SEE ON THE GROUND THAT HE WAS NOT ABLE TO PRODUCE THE LABOURER S FOR EXAMINATION AND HE HAS FAILED TO SUBSTANTIATE HIS CLAIM OF EXPE NSES WITH REASONABLE EVIDENCE. 10% OUT OF THE LABOUR EXPENSES WERE DISALLOWED ON WHICH GROUNDS NO.1 AND 2 ABOVE HAVE B EEN RAISED. IT WAS FURTHER NOTICED THAT THE ASSESSEE HAS DEBITED/C LAIMED TELEPHONE EXPENSES, DEPRECIATION ON CAR AND INTEREST ON CASH LOAN AMOUNTING TO RS.1,62,911/- IN THE PROFIT & LOSS ACCOUNT. IT WAS FOUND THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE REGISTER FOR P ERSONAL USE OF THESE ASSETS/EXPENSES; THEREFORE, IN THE ABSENCE OF SUPPORTING EVIDENCES IT WAS HELD THAT THE ASSESSEE IS NOT ABLE TO PROVE THAT EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR B USINESS PURPOSE. 10% OF THE SAME WAS DISALLOWED ON WHICH GROUND NO.3 ABOVE IS RAISED. 5. THE ASSESSEE FILED WRITTEN SUBMISSION BEFORE THE LEARNED CIT(A) WHICH IS INCORPORATED IN THE IMPUGNED ORDER IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THAT HE HAS RECEIVED CON TRACT FOR LAYING NATURAL GAS PIPE LINE AT GANDHINAGAR IN WHICH MANUA L JOB AND ITA NO.1540/AHD/2011 SHRI HITESH M. GANDHI VS ACIT, CIR-3, SURAT 4 LABORERS WAS INVOLVED. THE WORK STARTED FOR SEVERA L YEARS. THE ASSESSEE RECORDS PAYMENT IN WAGE REGISTER, NO ADDIT IONS HAVE BEEN MADE IN EARLIER YEARS ON THIS ISSUE. BOOKS OF ACCOU NTS ARE AUDITED. THE LABOUR CHARGES IN THE ASSESSMENT YEAR UNDER APP EAL HAVE REDUCED TO 35.18% AS COMPARED WITH EARLIER ASSESSME NT YEAR 2006- 07 AND 2005-06 IN WHICH LABOUR CHARGES WERE 36.35% AND 43.85%. IT WAS FURTHER SUBMITTED THAT THE WHOLE PROJECT IS LAB OUR ORIENTED AND AS SUCH LABOUR IS THE MAJOR COMPONENT FOR COMPLETION O F THE WORK. IT WAS ALSO EXPLAINED THAT THE NET PROFIT RATE OF THE ASSE SSEE IN ASSESSMENT YEAR UNDER APPEAL IS 3.04% AS COMPARED WITH THE PRE CEDING ASSESSMENT YEAR 2006-07 IN WHICH IT WAS 2.35%. IT W AS, THEREFORE, PRAYED THAT ADDITION ON ACCOUNT OF DISALLOWANCE OF LABOUR EXPENSES MAY BE DELETED. AS REGARDS DISALLOWANCE OF 10% OUT OF TELEPHONE EXPENSES ETC. IT WAS SUBMITTED THAT LOOKING TO THE TURNOVER OF THE ASSESSEE AT RS.3.04 CRORES, THE EXPENSES IS VERY ME AGER AND NO DISALLOWANCE MAY BE MADE. 6. THE LEARNED CIT(A) HOWEVER, DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE BECAUSE THE ASSESSEE FAILED TO PRODUCE THE LABOURERS AND FURNISH THEIR NAMES AND ADDRESSES. LABOUR EXPEN SES DISALLOWED WERE ACCORDINGLY CONFIRMED. SIMILARLY ON THE DISALL OWANCE OF OTHER EXPENSES IT WAS FOUND THAT THE ASSESSEE IS RUNNING PROPRIETARY BUSINESS AND NO SEPARATE RECORD IS MAINTAINED FOR P ERSONAL USER OF THESE EXPENSES, THEREFORE, ADDITIONS WERE CONFIRMED . ITA NO.1540/AHD/2011 SHRI HITESH M. GANDHI VS ACIT, CIR-3, SURAT 5 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON T HE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE FINDINGS OF THE AUTHORITIES BELOW. 9. ON GROUNDS NO.1 AND 2, THE ASSESSEE CHALLENGED T HE DISALLOWANCE OF RS.10,70,548/- TOWARDS LABOUR CHARG ES. THE ASSESSEE EXPLAINED THAT IT IS ENGAGED IN THE BUSINE SS OF LAYING PIPE LINES ON JOB WORK BASIS IN WHICH LABOURERS ARE DIRE CTLY EMPLOYED AND LABOUR COMPONENT IS THE MAJOR EXPENDITURE FOR COMPL ETION OF THE CONTRACT WORK. ACCORDING TO THE ASSESSEE, THE LABOU RERS ARE ILLITERATE AND NOMAD. THE AO MADE DISALLOWANCES MAINLY ON TWO REASONS THAT THE ASSESSEE FAILED TO PRODUCE THE LABOURERS FOR EX AMINATION BEFORE HIM AND FURTHER CLAIM OF EXPENSES HAS NOT BEEN SUBS TANTIATED WITH REASONABLE EVIDENCES. SO FAR AS PRODUCTION OF LABOU RERS IS CONCERN, THE ASSESSEE CANNOT BE ASKED TO DO THE IMPOSSIBLE C ONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE. THE GAS PIPE LI NES ARE LAID BY THE ILLITERATE AND NOMAD LABOURERS AND THEY ARE NOT PER MANENT EMPLOYEE OF THE ASSESSEE AND MAY NOT BE AVAILABLE AFTER COMP LETION OF THE JOB WORK. THEREFORE, SUCH REASONS ADOPTED BY THE AO FOR DISALLOWANCE OF LABOUR EXPENSES AT 10% ARE HIGHLY UNJUSTIFIED. IT I S EQUALLY HOWEVER, JUSTIFIED FOR THE AO TO NOTE THAT ONUS IS UPON THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF EXPENDITURE BY REASONABLE EVIDENCE IN WHICH THE ASSESSEE COULD NOT DO MUCH BEFORE THE AO AND IT IS ALSO A FACT THAT EXPENSES HAVE BEEN INCURRED THROUGH CASH AND NO NAMES ITA NO.1540/AHD/2011 SHRI HITESH M. GANDHI VS ACIT, CIR-3, SURAT 6 AND ADDRESSES OF THE LABOURERS HAVE BEEN GIVEN. THE REFORE, THE AO WAS JUSTIFIED IN DISALLOWING PART OF THE LABOUR EXP ENSES OUT OF THE TOTAL CLAIM MADE BY THE ASSESSEE. THE ASSESSEE HAS IN THE WRITTEN SUBMISSION SPECIFICALLY EXPLAINED THAT THE LABOUR E XPENSES CLAIMED BY THE ASSESSEE ARE LESSER IN THE ASSESSMENT YEAR U NDER APPEAL AS COMPARED TO THE EARLIER YEAR. THE ASSESSEE ALSO PLE ADED THAT NO ADDITION HAS BEEN MADE ON THIS ISSUE IN THE EARLIER YEAR AND FURTHER THE ASSESSEE MAINTAINED WAGE REGISTER IN SUPPORT OF HIS CONTENTIONS. THE WHOLE PROJECT IS LABOUR ORIENTED IN WHICH DEPLO YMENT OF THE LABOURERS IS NECESSARY FOR COMPLETION OF THE PROJEC T. THE PROFIT RATE OF THE ASSESSEE HAS ALSO INCREASED AS COMPARED TO THE EARLIER YEARS. THESE FACTORS HAVE NOT BEEN DISPUTED BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCED NOTED ABOVE AND HISTORY OF THE ASSESS EE AND FURTHER THAT LABOUR EXPENSES HAVE REDUCED AS COMPARED TO EA RLIER YEAR AND PROFIT OF THE ASSESSEE HAS INCREASED AS COMPARED TO THE EARLIER YEAR, THEREFORE, IT WOULD BE REASONABLE AND PROPER TO DIS ALLOW 5% OUT OF THE LABOUR EXPENSES INSTEAD OF 10% DISALLOWED AND CONFI RMED BY THE AUTHORITIES BELOW IN 10%. WE ACCORDINGLY, MODIFY TH E ORDERS OF THE AUTHORITIES BELOW AND RESTRICT THE ADDITION TO 5% A S AGAINST 10% EXPENSES DISALLOWED BY THE AUTHORITIES BELOW. THE A O SHALL MAKE DISALLOWANCE ACCORDINGLY. IN THE RESULT, GROUNDS NO .1 AND 2 OF THE APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. 10. ON GROUND NO.3, THE ASSESSEE SIMILARLY CHALLENG ED DISALLOWANCE OF EXPENSES AT 10% OUT OF TELEPHONE EX PENSES ETC. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS DOING PROPRIETA RY BUSINESS AND HIS ITA NO.1540/AHD/2011 SHRI HITESH M. GANDHI VS ACIT, CIR-3, SURAT 7 STATUS IS INDIVIDUAL. NO SEPARATE RECORDS ARE MAINT AINED FOR PERSONAL USER OF THE TELEPHONE EXPENSES, CAR EXPENSES ETC. H OWEVER, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND THE TURNOVER IN RS.3.04 CRORES, WE ARE OF THE VIEW ADDITION OF R S.16,291/- IS ON EXCESSIVE SIDE. THE DISALLOWANCE MADE BY THE AUTHOR ITIES BELOW AT 10% OUT OF THE EXPENSES IS REDUCED AND MODIFIED TO 5% OF THE EXPENSES. THE AO SHALL MAKE DISALLOWANCE OF 5% OUT OF THESE EXPENDITURE INSTEAD OF 10%. GROUND NO.3 OF THE APPE AL OF THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 11. ON GROUND NO.4, THE ASSESSEE CHALLENGED CHARGIN G OF INTEREST U/S 234B OF THE ACT WHICH IS MANDATORY AND CONSEQUE NTIAL IN NATURE AND IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD