ACIT, Circle-42, Murshidabad, Murshidabad V. M/s Udyog & Co., Murshidabad

ITA 1906/KOL/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0884 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALTAJ H USSAIN
• Assessee Lawyers: S L KOCHAR SHRI ANIL K
• Keywords: Rejection of books of accounts; Non-deduction of tax; Corroborative evidences
• Section: 40A(3); 143(3); 194C; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI A.T. VARKEY, JM & SHRI M.BAL AGANESH, AM ] I.T.A NO. 1906/KOL/20 16 ASSESSMENT YEAR : 2010-1 1 ACIT, CIRCLE-42, MURSHIDABAD -VS- M/S UDYOG & CO .. [PAN: AAAFU 7850 L] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI ALTAJ H USSAIN, ADDL. CIT DR FOR THE RESPONDENT : SHRI S.L. KOCHAR, A DVOCATE SHRI ANIL KOCHAR, ADVOCATE DATE OF HEARING : 24.09.2018 DATE OF PRONOUNCEMENT : 05.10.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-12, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO. 12/CIT(A)- 12/CIR-42/MSD/2015-16 DATED 29.07.2016 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-42, MURSHIDABAD [ IN SHORT THE LD AO] UNDER SECTION 263 / 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30.03.201 5 FOR THE ASSESSMENT YEAR 2010- 11. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF LABOUR CH ARGES AND EARTH WORK CHARGES MADE IN 2 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 2 THE SUM OF RS. 1,20,54,550/- U/S 40A(IA) OF THE ACT , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF ROAD CONTRACT AND HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 29.06.2010 DECLARING TOTAL INCOME OF RS. 34,27,040/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT DATED 21.06.2012 DE TERMINING THE TOTAL INCOME OF RS. 40,07,540/-. LATER THIS ASSESSMENT WAS SOUGHT TO BE REVISED BY THE CIT U/S 263 OF THE ACT WHEREIN VIDE ORDER DATED 27.02.2014. THE LD. CI T(A) DIRECTED THE AO TO REEXAMINE THE ISSUE ON ACCOUNT OF LABOUR CHARGES AND EARTH WO RK CHARGES AND COMPUTE THE IMPUGNED DISALLOWANCE THEREON U/S 40A(IA) OF THE AC T,, IF ANY, AMONG OTHERS. THE ASSESSEE INCURRED LABOUR CHARGES OF RS. 64,03,663/- AND EARTH WORK CHARGES OF RS. 56,50,917/- DURING THE YEAR. WHEN SHOW CAUSED BY THE LD. AO WITH REGARD TO NON- DEDUCTION OF TAX AT SOURCE ON THE SAID PAYMENTS, TH E ASSESSEE REPLIED THAT THESE ARE LABOUR CHARGES PAID TO VARIOUS LABOUR SARDARS/ MUNS HIS WHO IN TURN PASSED ON BY DISTRIBUTING THE MONIES/ WAGES TO VARIOUS LABOURERS INVOLVED IN THE ROAD CONTRACT WORK. IT WAS SUBMITTED THAT THE ASSESSEE HAD NOT ENGAGED ANY LABOUR CONTRACTOR IN LIEU OF WHICH THESE PAYMENTS WERE MADE. THIS LABOUR SARDARS / MUNSHIS ARE ALSO LABOUR HEADS WORKING FOR THE ASSESSEE THROUGH WHOM THE WAGES WE RE DISTRIBUTED TO VARIOUS LABOURERS FOR THE SAKE OF CONVENIENCE. IN SUPPORT OF THIS, TH E ASSESSEE SUBMITTED A DETAILED WAGE SHEET OF VARIOUS WORKERS AND ALSO THE LEDGER ACCOUN T OF LABOUR CHARGES AND EARTH WORK CHARGES. THE LD. AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND PROCEEDED TO DISALLOW THE ENTIRE EXPENDITURE OF RS. 1,20,54,500/ - (56,50,917 + 64,03,633) U/S 40A(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE U/S 1 94C OF THE ACT. 3.1. THE ASSESSEE SUBMITTED THAT EARTH WORK IS A PR OCESS WHICH IS NECESSARY TO BE DONE ON THE SURFACE WHERE ROAD IS TO BE BUILT. THIS SURF ACE HAS TO BE CLEARED OF UNWARRANTED MATERIALS AND LEVELLED AND THEN IT HAS TO BE TREATE D WITH WATER SO THAT THE NEXT PROCESS OF 3 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 3 ROAD BUILDING IS MADE WITH THE HELP OF MACHINES WHI CH THE ASSESSEE HAS. THEREAFTER WORKERS WOULD PLACE BUILDING MATERIALS SUCH AS STON E CHIPS, COAL TAR ETC. ON THE SURFACE AND THEN THE MOVING ROLLERS ETC. ARE USED TO COMPL ETE THE ROAD CONSTRUCTION. THE ASSESSEE NEVER ASSIGNED ANY WORK CONNECTED WITH THE ROAD BUILDING TO ANY PERSON. THE ASSESSEE PAID WAGES WHO WORKED DIRECTLY UNDER IT. I N SUPPORT OF THESE WAGES, WAGE SHEET WAS PREPARED BY THE ASSESSEE AND PAYMENT IS M ADE TO ONE LABOURER FOR ONWARD DISTRIBUTION TO THE REMAINING LABOURERS. IT WAS ALS O STATED THAT ROAD BUILDING WAS UNDERTAKEN AT SEVEN PLACES DURING THE YEAR. THESE R OADS PASS THROUGH VILLAGES WHERE THERE IS NO WAY OUT TO GO EXCEPT BY SMALL INTERIOR WAYS I.E. FOOTPATHS PASSING THROUGH THE VILLAGES. QUITE OBVIOUSLY, THE ASSESSEE HAS TO LOOK FOR WORKERS FOR NEAR ABOUT VILLAGES. THERE IS NO TECHNICAL KNOWLEDGE IN THE CO NSTRUCTION OF ROADS INSOFAR AS EARTH MOVING IS CONCERNED AND FOR PLACING BALOO, BITUMEN ETC. ON THE ROAD ITSELF. THE BALANCE OF THE WORK IS DONE BY MACHINES AND OPERATORS OWNED AND EMPLOYED BY THE ASSESSEE. IT WAS SUBMITTED THAT WORKERS ARE TAKEN FOR THE PURPOS E OF CONSTRUCTION OF THE ROAD BASICALLY FROM THE NEAR ABOUT VILLAGES AND FOR THE SAKE OF PROPER USE OF SUCH WORKERS, THE ASSESSEE USED TO GIVE NECESSARY INSTRUCTIONS TO ONE PERSON (I.E. LABOUR HEAD) AMONG THE LOT OF WORKERS, WHO WOULD ALSO BE ARRANGING FOR OBTAINING RAW MATERIALS UNDER THE INSTRUCTIONS OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THERE WERE OCCASIONS WHEN THE SUPPLIER OF THE RAW MATERIALS WOULD ALSO WORK AS A WORKER WITH THE ASSESSEE AS BECAUSE HE WOULD HELP TO BRING ANY WORKERS FOR THE PURPOSE OF WORK AND QUITE NATURALLY UPON THE ACCOMPLISHMENT OF WORK ON A PARTICULAR AREA OUT OF THE TOTAL ROAD BUILDING LENGTH, WAGES COULD BE DISTRIBUTED AND ENTRIES ARE RECORDED BY CR EDITING THE AMOUNT IN THE LEDGER ACCOUNT OF SUCH SUPPLIER OF RAW MATERIAL TO WHOM PA YMENTS ARE MADE BY THE ASSESSEE IN SOME FIXED INTERVALS. IN OTHER WORDS, IN THESE CASE S, PAYMENTS WERE MADE FOR THE SUPPLY OF RAW MATERIAL AND ALSO TOWARDS OUTSTANDING WAGES TO DIFFERENT WORKERS FROM TIME TO TIME WHICH ARE DULY RECORDED AND NOTED IN THE LEDGE R MAINTAINED BY THE ASSESSEE. 4 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 4 3.2. IT WAS SPECIFICALLY BROUGHT TO THE NOTICE OF T HE LD. AO THAT THE ASSESSEE WAS MAINLY ENGAGED IN ROAD CONSTRUCTION WORKS IN RURAL AREA OF MALDA, MURSHIDABAD, NADIA AND BIRBHUM DISTRICTS AND THAT THEY NEVER ASSIGNED TO A NY SUB-CONTRACTOR ANY JOB AS THE PARTNERS WERE LOOKING PERSONALLY AFTER THE EXECUTIO N OF THE WORK THROUGH LOCAL LABOURERS EMPLOYED IN THE RURAL AREA AT THE SITE AND THAT THE SE WORKERS WERE PAID WEEKLY AND HENCE NO QUESTION OF DEDUCTION OF TAX WOULD ARISE. 4. THE LD. CIT(A) APPRECIATED THE CONTENTIONS OF TH E ASSESSEE AS STATED ABOVE AND DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE FACTS OF THE CASE. I HAVE CONSIDERED THE NATURE OF THE BU SINESS WHICH HAS BEEN UNDERTAKEN BY THE ASSESSEE. CONSTRUCTION OF ROADS IS BEING MAD E IN REMOTE VILLAGES & AREAS AS IS APPARENT FROM THE DESCRIPTION OF THE WORK UNDERT AKEN BY THE ASSESSEE. IT HAS BEEN VEHEMENTLY CONTENDED BY THE A/R THAT THE ASSESSEE N EVER ENTRUSTED ANY WORK RELATING TO CONSTRUCTION OF THE ROADS TO ANY CONTRA CTOR. IT HAS BEEN URGED THAT THERE IS NO SPECIFIC DIRECTION IN THE ORDER U/S 263 ON TH IS ISSUE. RATHER THE ASSESSING AO HAS BEEN DIRECTED TO RE-EXAMINE THE ISSUE. I HAVE GONE THROUGH THE RECORDS WHICH INCLUDE THE C ERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT CERTIFYING THE WAGE SHEETS AND AMOUNTS NOTED THEREIN WITH THE NAME OF WORKERS FOR LABOUR CHARGES AND EARTHWOR K. THE AR HAS RELIED HEAVILY ON A RECENT JUDGEMENT OF THE HONBLE THE CALCUTTA HIGH COURT REPORTED IN 385 ITR 394 IN THE CASE OF JIAUDDIN MOLLAH VS CIT WHERE IT HAS BEEN OBSERVED THE PERSONS TO WHOM THE PAYMENTS HAD BEEN MADE HAD BEEN WORKING ON BEHALF OF THE ASSESSEE AND NOT AS SUB-CONTRACTORS AND THERE WAS NOTHING ON RECORD TO SHOW THAT ANY WORK HAD BEEN ASSIGNED TO THEM BY THE ASSESSEE. THE PAYM ENT MADE TO WORKERS THROUGH THE HANDS OF THE FOUR PERSONS WAS A PAYMENT MADE DI RECTLY BY THE ASSESSEE TO THOSE PERSONS. I AM CONVINCED THAT IN THE ABSENCE OF ANY CONTRACTOR THE SUBMISSION OF THE ASSESSEE ABOUT PAYMENT OF WAGES AS RECORDED IN THE WAGE SHEETS HAS TO BE ACCEPTED. THERE ARE VARIOUS WORKERS TO WHOM WAGES HAVE BEEN P AID. IN THIS VIEW OF THE MATTER, I AM OF THE OPINION THAT THE CLAIM OF THE A SSESSEE IN RESPECT OF THE PAYMENT OF WAGES IS NOT HIT BY SECTION 193C AND AS SUCH DUL Y ACCEPTABLE. IN MY CONSIDERED OPINION, PROVISIONS OF SECTION 164C ARE NOT APPLICA BLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. ACCORDIN GLY, THE ADDITION OF RS. 1,20,54,550/- IS DELETED. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 5 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 5 5. WE HAVE HEARD RIVAL SUBMISSIONS. IT IS NOT IN DI SPUTE THAT THE ASSESSEE IS ENGAGED IN ROAD CONTRACT WORKS IN THE REMOTE PARTS OF VARIOUS VILLAGES. OBVIOUSLY, FOR THIS PURPOSE THE ASSESSEE HAD TO ENGAGE LABOURERS FROM THE NEARB Y VILLAGES IN VIEW OF THE FACT THAT THERE WAS NO PROPER PATH WAY FOR RURAL WORK SITE. W HAT ASSESSEE HAS ACTUALLY DONE IN THE INSTANT CASE IS ENGAGING VARIOUS LABOURERS FOR WORK AT ITS SITE AND FOR WHICH PAYMENTS ARE MADE TO ONE LABOURER (LABOUR HEADS) WITH A CLEA R DIRECTION TO DISTRIBUTE THE SAME TO VARIOUS LABOURERS EITHER ON DAILY OR WEEKLY BASIS , AS THE CASE MAY BE. THESE PAYMENTS ARE DULY SUPPORTED BY VOLUMINOUS WAGE SHEETS WHICH ARE PART OF THE RECORDS BEFORE THE LOWER AUTHORITIES AND ALSO SUPPORTED BY A CERTIFICA TE FROM A CHARTERED ACCOUNTANT CERTIFYING THE FACT THAT THE SAID PAYMENTS WERE MAD E TO VARIOUS WORKERS TOWARDS LABOUR CHARGES AND EARTH WORK CHARGES. WE HOLD THAT THE AS SESSEE IN THE INSTANT CASE HAD NOT ENGAGED ANY LABOUR CONTRACTOR OR ANY SUB-CONTRACTOR FOR MAKING PAYMENT OF LABOUR CHARGES AND EARTH WORK CHARGES. IN THIS SCENARIO, T HE PROVISIONS OF SECTION 194C CANNOT BE MADE APPLICABLE IN THE FACTS AND CIRCUMSTANCES O F THE CASE. ACCORDINGLY, THE LD. CIT(A) HAD RIGHTLY DELETED THE DISALLOWANCE MADE I N THE SUM OF RS. 1,20,54,550/- U/S 40A(IA) OF THE ACT WHICH, IN OUR CONSIDERED OPINION , REQUIRES NO INTERFERENCE. ACCORDINGLY, GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 6. THE NEXT GROUND IS TO BE DECIDED IN THIS REGARD THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 2,13,37,312/- U/S 40A(3) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD. AO OBSERVED THAT THE ASSESSEE HAD MADE PAYMENTS IN CASH FOR PURCHASE OF MATERIALS I.E. BIT UMEN AND STONE CHIPS ETC. EXCEEDING RS. 20,000/-PER DAY AND THE TOTAL OF SUCH PAYMENTS MADE THEREON WORKED TO RS. 2,13,37,812/-. HE OBSERVED THAT THE SAID PAYMENT IS IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. WHEN SHOW CAUSED IN THIS REGARD, THE ASSESSEE REPLIED THAT THE PAYMENTS WERE MADE IN CASH ON PUBLIC HOLIDAYS IN SU PPORT OF WHICH THE ASSESSEE FILED 6 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 6 THE COMPLETE DETAILS OF PAYMENTS TOGETHER WITH THE RELEVANT DATES AND RELEVANT CALENDERS OF THE RESPECTIVE YEAR TO PROVE THAT THE PAYMENTS W ERE MADE ON PUBLIC HOLIDAYS. THE LD. AO OBSERVED THAT THERE IS A DEFINITE PATTERN FOLLOW ED IN MAKING CASH PAYMENT WHICH APPEARED TO BE DELIBERATE AND NOT THE USUAL MODE OF PAYMENT ON THE SAID DAYS BEING HOLIDAY EVEN IN BUSINESS. HENCE THE ASSESSEES CONT ENTIONS WERE REJECTED BY HOLDING THAT THE CASE DOES NOT FALL UNDER THE EXCEPTIONS PROVIDE D RULE 6DD OF THE IT RULES. ACCORDINGLY, HE DISALLOWED A SUM OF RS. 2,13,37,81 2/- U/S 40A(3) OF THE ACT IN THE ASSESSMENT. THE ASSESSEE SUBMITTED THAT PAYMENTS WE RE MADE TO VARIOUS VILLAGERS FOR PURCHASE OF RAW MATERIALS FOR THE PURPOSE OF CONSTR UCTION OF ROAD. THESE PAYMENTS WERE MADE IN CASH ON NON-WORKING DAYS FOR BANKS I.E. SUN DAY AND NATIONAL HOLIDAYS IN SOME CASES AND PAYMENTS WERE MADE IN CASH IN PLACES WHER E THERE ARE NO BANKING FACILITIES SINCE THE SITE IS SITUATED IN A REMOTE VILLAGES. TH E ASSESSEE ALSO SUBMITTED THAT THE RAW MATERIALS SUCH AS BALOO, BITUMEN, STONE CHIPS ETC. ARE TO BE PROCURED LOCALLY FROM THE NEARBY VICINITY OF THE WORK SITE. IT WAS STATED THA T BALOO IS AVAILABLE NEARBY PONDS AND THE SMALL RIVER BEDS ALONG WITH THE ROAD TO BE BUIL T WHICH HAS TO BE LOCALLY PURCHASED AND OBVIOUSLY THERE CANNOT BE ANY PAYMENT FOR THE S AME VIA BANK BECAUSE OF NON- EXISTENCE OF BANK IN THE PLACE. IT WAS SUBMITTED T HAT THE PAYMENTS WERE MADE IN CASH IN REMOTE AREAS OF THE VILLAGES WHERE THE BUILDING WOR K WAS UNDERTAKEN BY THE ASSESSEE AND WHERE THERE WERE NO BANKING FACILITIES AND FURT HER THE PAYMENTS WERE MADE ON NATIONAL HOLIDAYS AND NON-WORKING DAYS FOR BANKS, W HEREVER APPLICABLE. THE MODUS OPERANDI WAS ALSO EXPLAINED BY THE ASSESSEE THAT TH E ASSESSEES OFFICE IS AT BERHAMPORE AND AFTER THE CLOSE OF THE WEEK ON SATURDAY, THE AS SESSEES STAFF WOULD VISIT THE PLACE OF ROAD BUILDING WHICH IS A REMOTE VILLAGE TO MAKE PAY MENTS ON SUNDAY. IT WAS STATED THAT THE LD. AO HAD NOT DOUBTED THE FACT THAT THE SAID P AYMENTS WERE MADE FOR ACQUIRING RAW MATERIALS. IT WAS SUBSEQUENTLY BROUGHT TO THE NOTIC E THAT THERE IS ALWAYS REQUIREMENT ON THE PART OF THE SUPPLIER OF RAW MATERIAL TO PAY IN CASH AND THIS IS MAINLY DUE TO THE PARAMOUNT FACT THAT THEY ARE NOT HAVING ANY BANK AC COUNT FACILITY PRIMARILY BECAUSE OF THEIR RESIDENCE IN THE VILLAGE AND ADJOINING AREAS WHICH HAS NO BANKING FACILITIES. IT WAS 7 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 7 SUBMITTED THAT IF THERE IS ANY DELAY/ ANY INTERRUPT ION IN THE SUPPLY OF RAW MATERIALS TO THE ASSESSEE ITS ROAD CONSTRUCTION PROJECT WILL BE DEL AYED WHICH THE ASSESSEE AS A CONTRACTOR WORKING UNDER LOCAL AUTHORITIES AND GOVE RNMENT DEPARTMENTS WOULD BE ANSWERABLE AND THE SAME WOULD BE ENTIRELY DETRIMENT AL TO THE INTERESTS OF THE ASSESSEE. ACCORDINGLY, IT WAS PLEADED THAT THE SAID PAYMENTS, EVEN THOUGH MADE IN CASH SQUARELY FALLS IN THE VARIOUS CLAUSES PROVIDED IN RULE 6DD O F THE RULES I.E. I) PAYMENTS WERE MADE ON NATIONAL HOLIDAYS AND NON-WORKING DAYS OF B ANKS AND II) PAYMENTS WERE MADE TO PARTIES SITUATED IN REMOTE VILLAGES WHERE THERE ARE NO BANKING FACILITY AND III) PAYMENTS WERE MADE OUT OF BUSINESS EXPEDIENCY OF TH E ASSESSEE. 5. THE LD. CIT(A) DELETED THE DISALLOWANCE BY OBSER VING AS UNDER: 4.2 I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. A REFERENCE TO THE AUDITED STATEMENTS O F ACCOUNTS SHOWS THAT THE ASSESSEE HAS BEEN MAKING PURCHASE OF VARIOUS RAW MATERIALS W HICH INCLUDE PURCHASE OF STONE CHIPS AND SAND. IT IS CONTENDED BY THE A/R TH AT THESE MATERIALS AND READILY AVAILABLE NEAR ABOUT THE VILLAGES THROUGH WHICH THE ROAD CONSTRUCTION WORK PASSES. IN THE ORDER U/S 263, I FIND THAT THERE IS A CHART NOTING NAME OF THE SUPPLIERS OF THESE RAW MATERIALS AND THERE APPEAR DATES OF PAYMENTS AL ONG WITH THE AMOUNTS WHICH EXCEED RS. 20,000/-. THE CONTENTION OF THE ASSESSEE HAS BEEN THAT SINCE THESE MATERIALS I.E. BALU, BITUMEN WERE BEING PURCHASED F ROM THE VILLAGERS IN THE AREAS THROUGH WHICH ROAD BUILDING WAS TO PASS AND HENCE T HEY WERE TO BE PAID ON CASH TO THE SUPPLIERS. THE DETAILS FURNISHED SHOW THAT SOME PAYMENT ARE MADE FROM TIME TO TIME WHICH ARE WELL WITHIN RS. 20,000/- AND THAT SI NCE THE ASSESSEE WAS REQUIRED TO MAKE PAYMENT OF LARGER AMOUNTS TOWARDS SUPPLY OF TH E RAW MATERIALS THE SUPPLIERS HAD REQUIRED THE ASSESSEE TO MAKE PAYMENTS ON SUNDA YS WHICH WAS ALSO CONVENIENT FOR THE ASSESSEE SO THAT HE WOULD CARRY FORWARD CAS H AT THE SITE AND MAKE PAYMENTS TO THE VILLAGERS / SUPPLIERS OF RAW MATERIALS. BEFO RE THE AO, THIS CONTENTION WAS MADE BY THE ASSESSEE AND IT WAS SUBMITTED THAT THER E WERE EXCEPTIONAL CIRCUMSTANCES IN THE MATTER OF PAYMENTS OF AMOUNTS EXCEEDING RS. 20,000/- IN CASH AND THAT THESE EXCEPTIONAL CIRCUMSTANCES RELATED TO THE PAYMENT MADE IN VILLAGES AND PLACES WHERE THERE WERE NO BANKING FACILITIES A ND ALSO AS BECAUSE IT WAS INSISTED UPON BY THE SUPPLIERS. THE LD. CIT DISCUSS ED THIS MATTER AND ISSUED DIRECTIONS TO THE AO TO EXAMINE THE ISSUE OF CASH P AYMENTS EXCEEDING RS. 20,000/- IN VIEW OF PROVISIONS OF SEC. 40A(3), TO EXAMINE TH E GENUINENESS OF THE EXPENDITURE. THE GENUINENESS OF THE PAYMENTS MADE AND THE IDENTI TY OF THE PAYEE AND THE MOST AND FOREMOST REQUIREMENTS TO INVOKE THE EXCEPTIONS CARVED OUT IN RULE 6DD. BEING SO, IF THE ASSESSEE MADE THE GENUINE CASH PAYMENTS AND IF IS CONFIRMED BY THE RESPECTIVE VENDORS THAT THEY HAVE RECEIVED PAYMENTS AND THERE WAS COMPULSION TO THE ASSESSEE TO MAKE THE PAYMENT ON ACCOUNT OF BUSI NESS EXPEDIENCY THE SAME 8 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 8 CANNOT BE CONSIDERED UNDER THE PROVISIONS OF SEC. 4 0A(3). FURTHER, WHERE THE PAYMENT IS MADE BY THE ASSESSEE TO THE VENDORS IN A VILLAGE OR TOWN WHICH IS NOT SERVED BY ANY BANK IT IS OUTSIDE THE PURVIEW OF SEC . 40A(3) IN VIEW OF RULE 6DD(J). [OM SHAKTI AGENCIES MADRAS PVT. LTD. VS DCIT (CHENN AI) 136 DTR 181]. THAN THE PAYMENTS MADE ARE GENUINE AND THAT THE IDE NTITY OF THE PAYEE IS NOT IN DOUBT AND TAKING INTO CONSIDERATION THE FACTS AND C IRCUMSTANCES OF THE CASE RELATING TO BUILDING OF ROADS IN INTERIOR AREAS OF THE VILLA GES AND ALSO TAKING INTO CONSIDERATION THE FACT THAT AS PER THE REQUIREMENTS OF THE SUPPLIERS OF RAW MATERIALS ALL USED TO ASSEMBLE ON SUNDAYS FOR THE SAKE OF CON VENIENCE, PAYMENTS MADE ON SUNDAYS EXCEEDING RS. 20,000/- HAS ALSO TO BE CONSI DERED AS NOT HIT BY THE PROVISIONS OF SEC. 40A(3) READ WITH RULE 6DD(J). I AM ACCORDINGLY OF THE OPINION THAT IN THE FACTS & CIRCUMSTANCES OF THE CASE OF TH E ASSESSEE THE PAYMENTS EXCEEDING RS. 20,000/- MADE IN CASH IN REMOTE VILLAGE AREAS C ANNOT BE CONSIDERED FOR DISALLOWANCE. I HAVE VERIFIED THE DATES RELATING TO PAYMENTS MADE IN CASH AS NOTED IN THE TABLE BY THE LD. CIT IN HIS ORDER U/S 263 WI TH REFERENCE TO THE RELEVANT CALENDAR AND I FIND THAT SUCH PAYMENTS EXCEEDING RS . 20,000/- ARE MADE ON SUNDAYS. I AM ACCORDINGLY OF THE VIEW THAT THERE IS NO JUSTI FICATION IN APPLYING THE PROVISIONS OF SEC. 40A(3) IN RESPECT OF CASH PAYMENTS EXCEEDIN G RS. 20,000/- TO THE SUPPLIERS OF RAW MATERIALS NAMELY BITUMEN & SAND ETC. ACCORDINGL Y, THIS GROUND OF THE ASSESSEE IS ALLOWED AND THE ADDITION OF RS. 2,13,37,312/- IS DELETED. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUTS ET, WE FIND THAT THERE IS NO DISPUTE THAT THE ROAD CONSTRUCTION WORK IS CARRIED OUT BY T HE ASSESSEE AT REMOTEST VILLAGES IN MALDA, MURSHIDABAD, NADIA AND BIRBHUM DISTRICTS. TH ERE IS NO DISPUTE THAT THE BANKING FACILITIES ARE NOT AVAILABLE IN SOME PARTS OF THESE VILLAGES. THE ASSESSEE HAD STATED THAT THE RAW MATERIALS SUPPLIER INSISTED FOR MAKING PAYM ENTS IN CASH IN VIEW OF THE FACT THAT THEIR RESIDENCE ARE SITUATED IN THE REMOTEST VILLAG ES WHERE THERE ARE NO BANKING FACILITIES. HENCE THE ASSESSEE HAD TO NECESSARILY MAKE PAYMENTS ONLY IN CASH OUT OF BUSINESS EXPEDIENCY/ BUSINESS COMPULSIONS SO AS TO ENSURE SM OOTH SUPPLY OF RAW MATERIALS FROM THE SAID SUPPLIER FOR THE PURPOSE OF ITS ROAD CONT RACT WORKS IN ORDER TO AVOID ANY DELAY IN EXECUTION OF THE SAID WORK ALLOTTED TO THE ASSES SEE BY THE GOVERNMENT AND LOCAL AUTHORITIES. THERE IS NO DISPUTE THAT THE PAYMENTS WERE MADE ON SUNDAYS, PUBLIC HOLIDAYS ETC BY THE ASSESSEE. NONE OF THE AFORESAID FINDINGS GIVEN BY THE LD. CIT(A) 9 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 9 HAVE BEEN CONTROVERTED BY THE REVENUE BEFORE US. HE NCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) BY GRANTING RELIEF TO T HE ASSESSEE IN THIS REGARD. ACCORDINGLY, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 7. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS W ITH REGARD TO THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE AD HOC ADDITION MADE BY T HE LD. AO IN THE SUM OF RS. 20 LACS. TOWARDS WORK-IN-PROGRESS, IN THE FACTS AND CIRCUMST ANCES OF THE CASE. 8. THE LD. AO OBSERVED THAT THE ASSESSEE HAS PURCHA SED VARIOUS MATERIALS AND HAD USED THE SAME FOR THE PURPOSE OF ITS ROAD CONSTRUCTION, HAD BEEN PERIODICALLY RAISING RUNNING ACCOUNT BILLS WITH THE RESPECTIVE AUTHORITIES AND HAD DULY DISCLOSED CONTRACT RECEIPTS THEREON. THE LD. AO DID NOT DISPUTE THE VALUE OF PR OJECT OR VALUE OF CONTRACT RECEIPTS DISCLOSED BY THE ASSESSEE. BUT HE OBSERVED THAT THE ASSESSEE HAD NOT SHOWN ANY OPENING WORK-IN-PROGRESS OR CLOSING WORK-IN-PROGRESS IN RE SPECT OF MATERIALS USED BY THE ASSESSEE IN ITS ROAD CONTRACT WORK. HE OBSERVED THA T THERE IS EVERY POSSIBILITY THAT THE SOME ROADS SHOULD BE UNDER COMPLETION AND THAT THE BILL WAS NOT RAISED FOR THE SAME. ACCORDINGLY, HE ESTIMATED THE VALUE OF WORK-IN-PROG RESS AS ON 31.03.2010 TO BE RS. 20 LACS AND MADE AN ADDITION FOR THE SAME IN THE ASSES SMENT. 9. THE ASSESSEE SUBMITTED THAT THE AFORESAID SYSTEM OF ACCOUNTING WAS FOLLOWED BY IT CONSISTENTLY FOR MANY YEARS. IT WAS PLEADED THAT WI THOUT THE REJECTION OF BOOKS OF ACCOUNTS OF THE ASSESSEE, THERE CANNOT BE ANY ADDIT ION ON ESTIMATED BASIS. THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: 5.2 I HAVE EXAMINED THE FACTS & CIRCUMSTANCES OF T HE CASE. IT IS A FACT THAT THE ASSESSEE HAS BEEN BUILDING ROADS SINCE PAST SOME YE ARS AND HAS BEEN CONSISTENTLY FOLLOWING THE SYSTEM OF ACCOUNTING WHEREBY RECEIPTS ARE DULY RECORDED IN THE ACCOUNTS AND SIMILARLY PURCHASE OF RAW MATERIALS IS ALSO ACCOUNTED FOR. AS A MATTER OF FACT, IT IS A CONTINUING PROCESS AND THE ASSESSE E IS MAINTAINING ITS ACCOUNTS ACCORDINGLY. UNDER THESE CIRCUMSTANCES, THERE IS NO REASON ON THE PART OF THE AO TO DEVIATE FROM THE EXISTING SYSTEM OF ACCOUNTING BEIN G FOLLOWED BY THE ASSESSEE YEAR BY YEAR. THAT THE TOTAL RECEIPTS FROM THE ROAD CONS TRUCTION HAVE BEEN VERY CORRECTLY 10 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 10 SHOWN BY THE ASSESSEE IN THE ACCOUNTS IS NOT IN DIS PUTE. RAW MATERIALS PURCHASED ARE DULY SUPPORTED BY THE DOCUMENTARY EVIDENCES. TH E BASIS OF THIS ADDITION IS WITH REFERENCE TO THE ORDER OF THE LD. CIT U/S 263 WHO D IRECTED THE A.O. TO VERIFY THE SPECIFIC FACTS RELATING TO CONSTRUCTION RECEIPTS DE CLARED IN THE MONTH OF FEBRUARY & MARCH 2010 SITE-WISE AND WITH REFERENCE TO THE PURC HASE OF RAW MATERIALS TO CONSIDER THE CLOSING STOCK OF RAW MATERIALS AS ON 3 1.03.2010. THE A.O. HAS APPARENTLY MADE AN ESTIMATED ADDITION WITHOUT ASSIG NING ANY BASIS WITH REFERENCE TO THE RECORDS. IT HAS BEEN VEHEMENTLY CONTENDED BY THE A/R THAT T HE ASSESSEE HAS BEEN TO THE BUSINESS OF CONSTRUCTION OF ROADS FOR THE PAST MANY YEARS AND HE HAS NO OPENING WORK IN PROGRESS AND NO CLOSING WORK IN PROGRESS. I T HAS BEEN SUBMITTED THAT THIS IS THE SYSTEM OF MAINTAINING THE ACCOUNTS WHICH IS BEI NG FOLLOWED CONSISTENTLY OVER MANY YEARS AND HAS BEEN ACCEPTED AS SUCH. A METHOD OF ACCOUNTING ADOPTED BY THE TAX PAYER CO NSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR OF VALUATION (UNITED COMMERCIAL BANK VS CIT 240 ITR 355) (SC). THUS I DO NOT SEE ANY JUSTIFIABLE REASON TO DEVIAT E FROM THE ESTABLISHED AND ACCEPTED SYSTEM OF ACCOUNTING WHICH THE ASSESSEE HA S BEEN FOLLOWING AND, ACCORDINGLY, I AM OF THE OPINION THAT THE ESTIMATED ADDITION OF RS. 20,00,000/- MADE BY THE A.O. UNDER THE HEAD WORK-IN-PROGRESS IS NOT CALLED FOR. IN THIS VIEW OF THE MATTER, THE ADDITION OF RS. 20,00,000/- IS DELETED. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD RIVAL SUBMISSIONS. AT THE OUTSET WE FIND THAT THIS ADDITION TOWARDS WORK-IN-PROGRESS HAS BEEN MADE BY THE LD. AO ON AN ESTIMATED BASIS. WE FIND THAT THE ENTIRE BOOKS OF ACCOUNTS TOGETHER WITH REQUISITE DE TAILS WITH SUPPORTING EVIDENCES WERE DULY SUBMITTED BY THE ASSESSEE BEFORE THE LD. AO WH ICH IS NOT DISPUTED BY THE LD. AO. WE FIND THAT NO DEFECTS WERE POINTED OUT BY THE LD. AO IN THE SAID ACCOUNTS OR IN THE VOUCHERS AND EVIDENCES SUBMITTED BY THE ASSESSEE. W ITHOUT REJECTING THE BOOKS OF ACCOUNTS, THE LD. AO CANNOT RESORT TO MAKE ANY ADDI TION ON AN ESTIMATED BASIS. WE FIND THAT THE ASSESSEE HAS NOT BEEN SHOWING OPENING STOC K OF WORK-IN-PROGRESS AND CLOSING STOCK OF WORK-IN-PROGRESS IN ITS BOOKS OF ACCOUNTS FOR THE PAST MANY YEARS AND THIS SYSTEM OF ACCOUNTING HAS BEEN ACCEPTED IN THE PAST BY THE REVENUE. IN ANY CASE, THE 11 ITA NO.1906/KOL/2016 M/S UDYOG & CO. A.YR. 2010-11 11 ADDITION WAS MADE ONLY ON AN ESTIMATION WHICH CANNO T SURVIVE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 11. GROUND NO. 4 RAISED BY THE REVENUE IS GENERAL I N NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 05.10.2018 SD/- SD/- [A.T. VARKEY] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 05.10.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ACIT, CIRCLE-42, MURSHIDABAD, 39, R.N. TAGORE R OAD, P.O.-BERHAMPORE, DISTRICT- MURSHIDABAD, PIN-742101. 2. M/S UDYOG & CO., 194, NILMONI BHATTACHARJEE LANE , P.O.- BERHAMPORE, DIST- MURSHIDABAD, PIN-742101. 3..C.I.T(A).- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S