Shri Kanubhai Ramjibhai Makwana, Anand V. The Dy.CIT.,Anand Circle, Anand

ITA 1756/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6414 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S SURYABANSHI
• Assessee Lawyers: M G PATEL
• Keywords: Fair market value
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER I.T.A. NO. 1756/ AHD/2010 (ASSESSMENT YEAR 2007-08 ) SHRI KANUBHAI RAMJIBHAI MAKWANA, GROUND FLOOR, G. RANGOLI COMPLEX, BHALEJ ROAD, ANAND VS. DCIT, ANAND CIRCLE, ANAND PAN/GIR NO. : ACYPM8211D (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI M.G.PATEL, CA RESPONDENT BY: SHRI G S SURYABANSHI, SR. DR O R D E R PER SHRI D. K. TYAGI, JM: THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAI NST THE ORDER DATED 02.03.2010 OF CIT(A) IV, BARODA FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1) THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS OF THE C SE BY CONFIRMING DISALLOWANCE OF RS.5,29,759/- U/S 40A (2)(B) OF THE INCOME TAX ACT, 1961 THOUGH THE A.O. HAS NOT POINTE D OUT AS TO HOW SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVIN G REGARD TO THE FAIR MARKET VALUE OF THE SERVICES. 2) THE LD. CIT(A) HAS ERRED IN LAW A WELL AS ON FAC TS OF THE CASE IN CONFIRMING DISALLOWANCE OUT OF WORK WAGES EXPENSES TO THE EXTENT OF RS.2 LACS THOUGH PROPER VOUCHERS IN RESPECT OF THE EXPENSES WERE PRODUCED BEFORE THE A.O. 2. THE BRIEF FACTS OF THE CASE IN RESPECT OF GROUND NO.1 AS DETAILED IN THE ASSESSMENT ORDER ARE AS UNDER: I.T.A.NO.1756/AHD/2010 2 4. IN THIS CASE A SURVEY U/S. 133A OF THE ACT WAS CARRIED OUT ON 0370272006. ON THIS DATE STATEMENT ON OATH OF SHRI BHARAT R. MAKWANA BROTHER OF THE ASSESSEE WAS ALSO RECORDED W HEREIN HE ADMITTED THAT NO AGREEMENT OF CONTRACT OR ANY EVIDE NCE FOR PAYMENT TO LABOUR ETC WAS EXECUTED NOR ANY CRITERIA WAS ADOPTE D FOR SUB CONTRACT FOR LABOUR. AS STATED ABOVE, ASSESSEE HAS PASSED SU B CONTRACT TO THE FOLLOWING PERSONS WHO ARE SPECIFIED PERSONS COVERED UNDER SEC. 40 A (2) (B) OF THE ACT. THE DETAILS ARE AS UNDER: S.NO. NAME AMOUNT 1 T. R. PRAJAPATI 10869935 2 BHARAT R. MAKWANA 1287940 3 DIPAK S. MAKWANA 1043725 4 JIGNESH H. MAKWANA 1618380 5 ROHIT MAKWANA 1347545 AS THE ASSESSEE HAS INCURRED EXPENDITURE IN RESPECT OF WHICH PAYMENTS HAVE BEEN MADE TO THE ABOVE SPECIFIED PERSONS, THE AR WAS ASKED TO EXPLAIN WHETHER THE EXPENSES ARE EXCESSIVE OR UNREA SONABLE HAVING IN RELATION TO SUB CONTRACT PASSED FOR WHICH THE PAYME NT IS MADE. THE AR HAS CLARIFIED THAT SHRI TRIBUVAN R. PRAJAPATI IS NOT HAVING ANY DIRECT RELATION WITH THE ASSESSEE WHO HAS CARRIED O UT INDEPENDENT WORK OF THE CONTRACT. THE AR COULD NOT EXPLAIN WITH SUFF ICIENT EVIDENCES AND MATERIAL, THE CRITERIA ADOPTED BY THE ASSESSEE FOR PAYMENT OF LABOUR CHARGES TO HIS RELATIVES. IT MAY BE MENTIONE D THAT IT IS ADMITTED BY THE ASSESSEE'S BROTHERS DURING THE COURSE OF SUR VEY THAT THERE IS NO AGREEMENT OR BASIS ADOPTED FOR PAYMENT OF SUB CONTR ACT OF LABOUR TO HIS RELATIVES. THE TOTAL PAYMENTS COMES TO RS.52,97 ,590/-. THEREFORE, 10% OF THE ABOVE PAYMENTS HAS BEEN DISALLOWED AS EX CESSIVE AND UNREASONABLE AND ADDED TO THE TOTAL INCOME OF THE A SSESSEE WHICH WORKS OUT TO RS. 5,29,759/-. 5. IT MAY BE MENTIONED HERE THAT SIMILAR ADDITION W AS MADE IN A.Y.2005-06. LD CIT[A) VIDE HIS ORDER NO.CAB/IV-A/2 005-06/07- 08 DATED 29/08/2008 UPHELD THE ADDITION OF RS.4,97, 716/- FOLLOWING THE DECISION OF CIT(A) FOR EARLIER YEAR. 2. LD. CIT(A) HAS CONFIRMED THE ACTION OF THE A.O. BY OBSERVING AS UNDER: THE FIRST GROUND OF APPEAL IS REGARDING ADDITION O F RS.5,29,759/- U/S 40A(2)(B), BEING 10% OF PAYMENTS TO SUB-CONTRACTORS . THIS GROUND OF APPEAL IS COVERED BY CIT(A)S DECISIONS INCLUDING M Y OWN DECISION IN APPELLANTS CASE FOR ASSESSMENT YEARS 2003-04, 2004 05, 2005-06 AND I.T.A.NO.1756/AHD/2010 3 2006-07. FOLLOWING THESE DECISIONS, DISALLOWANCE O F RS.5,29,759/-, WHICH IS ON IDENTICAL FACTS IS CONFIRMED. 3. FURTHER AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, AT THE TIME OF HEARING LD. COUNSEL FO R THE ASSESSEE AT THE OUTSET SUBMITTED THAT BOTH THE AUTHORITIES BELOW MA DE / SUSTAINED THE ADDITION BY PLACING RELIANCE ON THE ORDERS FOR THE ASSESSMEN T YEARS 2003-04, 2004-05, 2005-06 AND 2006-07. IN THOSE YEARS, HONBLE ITAT HAS DELETED THE ADDITIONS. WE FIND THAT ON IDENTICAL FACTS IN I.T.A . NO. 3983/AHD/2008 FOR THE ASSESSMENT YEAR 2005-06, THE HONBLE TRIBUNAL H ELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROU GH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CIT(A) HAS DELETED THE ADDITION TO THE EXTENT OF RS.53,02,227/- AS THE PAY MENTS RELATES TO THE MONTH OF MAR' AND THE TDS WAS DEDUCTED IN MAR, 04 A ND PAID IN 19- 07-2005 I.E. BEFORE THE DUE DATE OF FILING OF RETUR N OF INCOME U/S.139(1) OF THE ACT. BALANCE, THE CIT(A) CONFIRME D AS PAYMENTS RELATES TO APRL'04 TO FEB'05 ON WHICH THE TDS WAS D EDUCTED FROM NOV'04 TO FEB'05 AND TDS WAS PAID ON 19-07-2005. TH E LD. COUNSEL FOR THE ASSESSEE, SHRI M.G. PATEL STATED THAT THE P ROVISIONS AS SUBSTITUTED BY THE FINANCE ACT, 2010 THAT THE TDS D EDUCTED IS PAID ON OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOM E AS SPECIFIED IN SECTION 139(1) OF THE ACT, THE EXPENSES RELATING TO SUCH IDS ARE ELIGIBLE FOR DEDUCTION AND NO DISALLOWANCE CAN BE M ADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THIS PROVISION AS AMENDED BY F INANCE ACT, 2010 IS CURATIVE IN NATURE AND RETROSPECTIVE IN OPERATIO N. HE RELIED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF A LLIED MOTORS (P) LTD, V. CIT (1997) 201 ITR 677 (SC) AND ALSO ON GIT V. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC). ON THE OTH ER HAND, LD. SR- DR, SHRI K. M. MADHUSUDAN ARGUED THAT THE AMENDMENT BROUGHT OUT BY THE FINANCE ACT, 2010 IS NOT CURATIVE IN NATURE AND HENCE NOT RETROSPECTIVE. HE STATED THAT THE LEGISLATURE IN IT S WISDOM HAS GIVEN A DATE REGARDING THE APPLICABILITY OF THIS PROVISION. HE STATED THAT THE SUBSTITUTION HAS BEEN DONE BY THE FINANCE ACT, 2010 W.E.F. 1-4-2010, THIS MEANS THAT THIS AMENDED PROVISION WILL APPLY F OR AND FROM I.T.A.NO.1756/AHD/2010 4 ASSESSMENT YEAR 2010-11 AND NOT TO EARLIER ASSESSME NT YEARS. ACCORDINGLY, HE URGED THE BENCH TO CONFIRM THE ORDE RS OF THE LOWER AUTHORITIES. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF ITAT I N ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06, THE DISALLOWANCE O F RS.5,29,759/- IS HEREBY DELETED. 5. REGARDING GROUND NO.2, THE BRIEF FACTS OF THE CA SE ARE THAT DURING THE ASSESSMENT PROCEEDING THE A.O. FOUND THAT THE ASSES SEE HAS CLAIMED WORK WAGES EXPENSES OF RS.28,09,495/-. THE ASSESSEE WAS ASKED TO PRODUCE EVIDENCE IN RESPECT OF THIS PAYMENT. IT WAS EXPLAI NED THAT THIS EXPENDITURE WAS MADE BY THE ASSESSEE DIRECTLY. IN SUPPORT OF T HE CLAIM, THE VOUCHERS DECLARING NATURE OF WORK CARRIED OUT SHOWING PAYMEN T TO VARIOUS PERSONS WERE PRODUCED. HOWEVER NO DETAILS REGARDING THE SE RVICES UTILIZED FOR THE SPECIFIC PROJECT, NUMBER OF DAYS, RATES OF WAGES/DA Y, WERE MENTIONED. BESIDES THIS, ASSESSEE DID NOT MAINTAIN DAY TO DAY WAGE REGISTER AND CERTAIN VOUCHERS WERE SELF MADE. KEEPING IN VIEW THESE FAC TS 10% OF THE EXPENSES CLAIMED BY THE ASSESSEE WHICH WORKS OUT TO RS.2,80, 990/- WERE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 6. BEFORE CIT(A), IT WAS SUBMITTED THAT THE ASSESSE E WAS A CIVIL CONTRACTOR CARRYING ON WORK AT DIFFERENT SITES LOCA TED AT REMOTE PLACES. SINCE HE WAS UNABLE TO CARRY ON THE WORK AT ALL THE SITES , SUB-CONTRACTORS WERE ENGAGED WHO HIRED LABOUR LOCALLY. IT WAS SUBMITTED THAT MOST OF THE LABORERS WERE TRIBAL PEOPLE WHO DID NOT STAY FOR LONG TIME A ND IT WAS IMPOSSIBLE TO MAINTAIN VOUCHERS WITH FULL DETAILS. HOWEVER, SAMP LE COPIES OF THE VOUCHERS MAINTAINED FOR LABOUR WORK WERE FILED. IT WAS SUBM ITTED THAT DISALLOWANCE WAS NOT JUSTIFIABLE. TAKING INTO CONSIDERATION THE SE SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) RESTRICTED THIS ADDITION TO RS .2 LACS AND GAVE RELIEF OF RS.80,000/-. FURTHER AGGRIEVED, ASSESSEE IS IN APP EAL BEFORE US. I.T.A.NO.1756/AHD/2010 5 7. BESIDES REITERATING SUBMISSION MADE BEFORE LD. C IT(A), THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE CHA RT SHOWING PERCENTAGE OF LABOUR CHARGES TO SALES ACCORDING TO WHICH DURING T HE YEAR UNDER APPEAL ONLY 2.58% LABOUR CHARGES WERE PAID IN COMPARISON TO 12. 80%, 7.83% AND 9.11% IN ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 RE SPECTIVELY AND PRAYED THAT THERE WAS NO JUSTIFICATION FOR MAKING THIS ADD ITION. LD. D.R. RELIED ON THE ORDER OF LD. CIT(A). 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS, WE FIND THAT DURING THE YEAR UNDER APPEAL, A.O. HAS MADE THIS AD DITIONS AS ACCORDING TO HIM FULL VOUCHERS IN SUPPORT OF THE PAYMENTS WERE N OT PRODUCED BY THE ASSESSEE BEFORE HIM DISALLOWING 10% OF THE EXPENSES CLAIMED BY THE ASSESSEE. LD. CIT(A) RESTRICTED THIS ADDITION TO R S.2 LACS FOLLOWING HIS EARLIER YEARS ORDER IN THE ASSESSEES OWN CASE. S INCE DURING THE YEAR UNDER APPEAL, THE EXPENSES WERE 2.58% OF SALES ONLY, WHIC H ARE QUITE LOW IN COMPARISON TO EARLIER YEARS, WE FEEL THAT IT WOULD BE JUST AND PROPER TO RESTRICT THIS DISALLOWANCE TO RS.1 LAC ONLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED IN TERMS INDICATED ABOVE. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE 2011. SD/- SD./- (D.C. AGRAWAL) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED :17 TH JUNE, 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE I.T.A.NO.1756/AHD/2010 6 1. DATE OF DICTATION 15/6/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16/6/11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 16/6/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 17/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..