DCIT RG 7(2), MUMBAI V. SHARAD CONSTRUCTIONS P. LTD, MUMBAI

ITA 1617/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1502 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 09-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Section: 143(3)

Judgement Text

1 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R S SYAL, AM & SHRI R S PADVEKAR, JM ITA NO. 1617/MUM/2009 (ASST YEAR 2005-06) THE DY COMMR OF INCOME TAX RANGE 7(2), MUMBAI VS SHARAD CONSTRUCTIONS P LTD B 35 ROYAL INDL ESTATE NAIGAON CORSS ROAD WADALA (E) MUMBAI 31 (APPELLANT) (RESPONDENT) PAN AAACS6302 C ASSESSEE BY: SHRI VIJAY MEHTA REVENUE BY: SHRI L K AGRAWAL O R D E R PER R S PADVEKAR: IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD CIT(A) VII, MUMBAI FOR THE ASSESSMENT YEAR 2005 -06 DATED 23.12.2008. 2 THE REVENUE HAS TAKEN MULTIPLE GROUNDS BUT THE MA IN ISSUE IS IN RESPECT OF THE DISALLOWANCE OF RS.1,49,75,347/- MAD E BY THE A.O, WHICH WAS DELETED BY THE LD CIT(A). 3 THE FACTS, WHICH REVEAL FROM THE RECORDS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL ENGINEERING AND UN DERTAKING PROJECTS AS CONTRACTOR. THE ASSESSEE HAS FILED ITS RETURN OF IN COME FOR THE ASSESSMENT YEAR 2005-06 DECLARING THE TOTAL INCOME OF RS. 72,8 8,260/- WHICH WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPL ETED U/S 143(3) OF THE ACT. THE ASSESSEE HAS CLAIMED THE EXPENSES TOWARDS LABOUR CHARGES AT RS.5,51,22,514/-. THE AO ASKED THE ASSESSEE TO FILE THE PARTY-WISE DETAILS OF 2 2 THE LABOURS, CONTACTS, TRANSPORT ETC. AFTER VERIFY ING THE DETAILS FILED BY THE ASSESSEE, IT WAS NOTICED BY THE AO THAT IN RESPECT OF THE 83 PARTIES/PERSONS, THE ASSESSEE COULD NOT PRODUCE THE PERMANENT ACCOUN T NUMBERS (PAN). THE AO HAS GIVEN THE NAMES OF THE PARTIES AND THE T OTAL AMOUNT PAID AT PAGES 3 TO 5 OF THE ASSESSMENT ORDER. 3.1 THE ASSESSEE CONTENDED THAT MANY SMALL LABOUR C ONTRACTORS ARE NOT HAVING ANY BANK ACCOUNT OR PAN. MOREOVER, THE MAJO RITY LABOURS ARE MIGRANT LABOURS AND DO NOT HAVE THE PERMANENT ADDRE SSES AND THEY MOVED AROUND FOR LABOUR-WORK FROM SITE TO SITE AND FROM S TATE TO STATE AND ALWAYS WEEKLY PAYMENT IS MADE TO THEM. MOST OF THE PAYMEN TS ARE MADE BY CHEQUE AND CASH AT SITE SO AS TO ENABLE THEM TO PAY THE WAGS TO THE LABOURERS IN CASH AT SITE. THE AO WAS NOT SATISFI ED WITH THE EXPLANATION OF THE ASSESSEE. IN RESPECT OF THE 83 PARTIES/PERSONS, WHERE THE SAID EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S ONLY. THE AO DISALLOWED RS.1,49,75,347/- IN RESPECT OF THE LABOU R CHARGES PAID TO THOSE 83 PARTIES/PERSONS. THE ASSESSEE CHALLENGED THE DIS ALLOWANCE BEFORE THE LD CIT(A) AND FOUND FAVOUR. THE LD CIT(A) DELETED THE ADDITION MADE BY THE AO. THE OPERATIVE PARTS OF THE FINDINGS AND REASONS GIV EN BY THE LD CIT(A) IN PARAS 3.4 TO 3.7 OF HIS ORDER, FOR THE DELETING THE SAID ADDITION, ARE AS UNDER: 3.4 WITH REGARD TO THE REMAINING BALANCE OF 53 PAR TIES INVOLVING THE LABOUR PAYMENT OF RS. 86,12,519/- (1,49,75,347/ (-) 30,18,017 (-) 33,48,811), IT WAS EXPLAINED THAT THE ONLY REASON F OR DISALLOWING THESE IS THAT PANS OF THOSE PARTIES WERE NOT SUBMITTED. THE AO HAD NOT GATHERED ANY EVIDENCE TO PROVE THAT THESE PAYMENTS WERE NOT MADE FOR BUSINESS PURPOSES OR THEY WERE BOGUS. IT WAS CLAIM ED BY THE APPELLANT THAT THE TOTAL EXPENSES INCURRED BY WERE AT RS. 16,03,48,840/-; OUT OF WHICH ONLY RS.5,51,22,51 4/- WERE INCURRED AS LABOUR PAYMENTS, WHICH WORKS OUT AT ONLY 34.37% OF GROSS EXPENSES AND ONLY 29.89% OF THE TOTAL REVENUE RECOGNIZED. TH US, THE LABOUR EXPENSE CLAIMED BY THE APPELLANT WAS NOT EXCESSIVE AND WELL WITHIN THE LIMITS AS PRESCRIBED BY SEVERAL OTHER GOVERNMENT DE PARTMENTS. 3.5 THE APPELLANT ALSO FURNISHED A STATEMENT TO SHO W THAT SITE-WISE WORK CARRIED OUT BY THEM IN RESPECT OF EACH OF THES E 83 PARTIES. IT WAS 3 3 STATED THAT THESE ARE MIGRATORY LABOUR FORCE, TRAVE LLING FROM ONE SITE TO ANOTHER, HAVING NO BANK ACCOUNT AT EVERY SITE, AND OFTEN REFUSE TO ACCEPT CHEQUES EVERY TIME. THUS, IN ORDER NOT TO GE T THE WORK SUFFER, THEY ARE PAID IN CASH. 3.6 HOWEVER, IN THESE CASES ALTHOUGH PANS WERE NOT AVAILABLE, STILL THE APPELLANT HAD MADE THE TDS ON EACH OF THESE PAY MENTS. FURTHER, THE DEDUCTION/CONTRIBUTION ON ACCOUNT OF ESIC HAS B EEN MADE IN EACH OF THESE CASES. FURTHER, AS PER THE SERVICE TAX ACT , VIDE NOTIFICATION NO. 1/2006-ST DATED 1.3.2006 IN THE CASE OF ANY COMPOSI TE CONTRACT, WHERE COST OF MATERIALS AND COST OF LABOUR CANNOT BE BIFU RCATED, IT IS TO BE ARTIFICIALLY PRESUMED THAT 33% OF THE GROSS CONTRAC T VALUE WILL BE SUCH WHICH WILL INVITE THE LEVY OF SERVICE TAX. THE APPE LLANT HAS CLAIMED ONLY 29.89% OF THE TOTAL REVENUE RECOGNIZED, AS THE LABO UR PAYMENT. THEREFORE, RATIO WISE ALSO THE APPELLANTS CLAIM WA S REASONABLE, INVITING NO DISALLOWANCE BY THE AO. IT IS ALSO TO BE TAKEN N OTE OF THAT MIGRATORY LABOUR HAVE HARDLY ANY FIXED PLACE OF LIVING OR BAN K ACCOUNTS AT EVERY PLACE OR ALL OF THEM MAY NOT BE HAVING PANS. IF A P ARTICULAR PARTY INSISTS ON GETTING PAN BEFORE PUTTING A LABOUR CONTRACTOR O N JOB IN A PROJECT, THEY MAY PREFER TO MOVE TO SOME OTHER PROJECTS. THU S, THE WORK ON SITE OF THE APPELLANT MAY SUFFER. THEREFORE, IN THE BUSI NESS INTERESTS, IT IS ALWAYS POSSIBLE TO EMPLOY SUCH MIGRATORY LABOUR ALS O ON ECONOMICAL BASIS. 3.7 IN THIS CASE HOWEVER, THE APPELLANT HAS ALREADY DEDUCTED THE TDS ON EACH OF SUCH PAYMENTS AND THEREFORE NO REVEN UE LOSS CAN BE DOUBTED FOR. IT IS NOT STATED BY THE AO THAT THERE WERE NO SUCH PAYMENTS 3.2 WHILE DELETING THE ADDITION MADE BY THE AO, THE LD CIT(A) RELIED ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2001-02. NOW, THE REVENUE IS IN APPEAL HERE BEFORE US. 4 WE HAVE GIVEN OUR ANXIOUS CONSIDERATION TO THE RI VAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. WE H AVE ALSO CONSIDERED THE REASONS GIVEN BY THE AO FOR MAKING DISALLOWANCE. I N THIS CASE, THE ASSESSEE HAS MADE THE TDS IN RESPECT OF ALL THE PAYMENTS. WE FIND FROM THE REASONS GIVEN BY THE AO THAT AS THE ASSESSEE COULD NOT BE A BLE TO GIVE THE PANS IN 4 4 RESPECT OF THE 83 PARTIES/PERSONS. THE AO CAME TO T HE CONCLUSION THAT THE SAID PAYMENTS WERE NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IT IS NOT DISPUTED IN THIS CASE THAT THE ASSESSEE MADE DE DUCTION AS WELL CONTRIBUTION ON ACCOUNT OF ESIC. WE ARE IN AGREEME NT WITH THE FINDINGS OF THE LD CIT(A) AND FIND NO REASON TO INTERFERE WITH THE SAME; ACCORDINGLY, CONFIRMED HIS ORDER. 5 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 18 TH , DAY OF JUNE 2010. SD/- SD/- ( R S SYAL ) ACCOUNTANT MEMBER (R S PADVEKAR ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: JUNE 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI