DCIT, Central Circle, Kolhapur V. M/s. Manisha Construction Company, Ratnagiri

ITA 1907/PUN/2012

• Counselvise Citation: 190724514 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Income from undisclosed sources; Search and seizure; Non-deduction of tax; Difference of opinion; Agreed addition; Block assessment; Change of opinion
• Section: 143(3); 142(1); 153A; 139(5); 194C; 147; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.1902 TO 1908/PN/2012 (A.YS: 2004-05 TO 2010-11) DCIT, CENTRAL CIRCLE, KOLHAPUR APPELLANT VS. M/S. MANISHA CONSTRUCTION COMPANY A/P BHARANE, TAL. KHED, DIST. RATNAGIRI PAN: AAOFM9416A RESPONDENT ITA NOS.1899 TO 1901/PN/2012 (A.YS: 2008-09 TO 2010-11) DCIT, CENTRAL CIRCLE, KOLHAPUR APPELLANT VS. M/S. OM CONSTRUCTION COMPANY A/P BHARANE, TAL. KHED, DIST. RATNAGIRI PAN: AANFM4022B RESPONDENT ASSESSEE BY : SHRI KISHOR P HADKE DEPARTMENT BY : SHRI A.K. M ODI DATE OF HEARING : 16.06.2014 DATE OF ORDER : 30.06.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: ALL THESE APPEALS PERTAIN TO TWO DIFFERENT GROUPS ON ALMOST SIMILAR ISSUES ARISING OUT OF TWO CONSOLIDATED ORDE RS OF CIT(A), KOLHAPUR. FOR THE SAKE OF CONVENIENCE, THEY ARE BE ING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2 2. FIRST WE TAKE UP REVENUES APPEAL IN CASE OF M/S . MANISHA CONSTRUCTION COMPANY IN ITA NO.1902/PN/2012 FOR A.Y . 2004-05, IN WHICH THE FOLLOWING GROUNDS ARE RAISED. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MA DE ON ACCOUNT OF U/S40(A)(IA) RS.50,39,900/- FOR THE A.Y. 2004-05. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND MODIFY THE ABOVE GROUND RAISED, ANY OTHER GROUNDS AT THE T IME OF PROCEEDINGS BEFORE THE HONBLE TRIBUNAL WHICH MAY P LEASE BE GRANTED. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONST RUCTION OF ROAD AS CONTRACTOR OF GOVERNMENT AND SEMI-GOVERNMENT ORG ANIZATIONS. SEARCH ACTION UNDER SECTION 132 WAS CONDUCTED IN TH IS CASE ON 23.09.2009. DURING COURSE OF SEARCH, INCRIMINATORY MATERIAL WAS FOUND REGARDING INVESTMENT IN PROPERTIES, JEWELLARY , ETC. THE ASSESSEE MADE DECLARATION OF 35.47 CRORES DURING SEARCH PROCEEDINGS. THE SAID UNDISCLOSED INCOME DECLARATI ON WAS DULY ACTED UPON BY THE ASSESSEE WHILE FILING RETURN OF I NCOME U/S.153A OF THE ACT. THE TAX LIABILITY ON THE SAID UNDISCLOSED INCOME WAS DULY PAID WITH INTEREST. CONSEQUENT UPON SEARCH ACTION, ASSESSMENT ORDERS WERE PASSED U/S.153A R.W.S. 143(3) OF THE I. T. ACT FOR A.Y. 2004-05 TO 2009-10 AND REGULAR ASSESSMENT U/S.143(3 ) WAS MADE IN 2010-11 WHEREIN CERTAIN ADDITIONS WERE MADE TO THE TOTAL INCOME. AGGRIEVED BY THE SAME, THE MATTER WAS CARRIED BEFOR E THE FIRST APPELLATE AUTHORITY, WHEREIN THE ADDITION OF 50,39,900/- U/S. 40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TDS U/S.194C OF THE ACT FOR A.Y. 2004-05 WAS CHALLENGED. SIMILAR A DDITIONS WERE MADE IN A.YS. 2005-06 TO 2009-10. 4. THE CIT(A) ON THIS ISSUE HAVING CONSIDERED THE S AME, HAS DELETED THESE ADDITIONS IN ALL YEARS IN QUESTION BY CONSOLIDATED ORDER DATED 18.07.2012. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE, INTER ALIA, STATED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF U/S40(A)(I A) RS.50,39,900/- 3 FOR THE A.Y. 2004-05. THE LEARNED DEPARTMENTAL REP RESENTATIVE ALSO HAS SUBMITTED THAT THE ASSESSING OFFICER WAS JUSTIF IED IN MAKING ADDITIONS IN QUESTION ON ACCOUNT OF NON DEDUCTION O F TDS U/S.194C OF THE ACT. ON THE OTHER HAND, THE LEARNED AUTHORI ZED REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A) AN D SUBMITTED THAT THE ASSESSING OFFICER HAS ERRED IN ASSESSING THE IN COME OF ASSESSEE BY MAKING ADDITION OF 50,39,900/- U/S.40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TDS AND THE CIT(A) HAS RIGHTLY DELETED THE SAME SHOULD BE UPHELD. 5. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THE ASSESSEE HAS MADE THE FOLLOWING PAYMENTS TO LABOUR CONTRACTORS FOR THE YEARS UNDER CONSIDERATIO N. 6. THE ASSESSING OFFICER OBSERVED THAT THE AMOUNTS PAID IN EACH OF THE ABOVE YEARS EXCEEDED 50,000/-. THE ASSESSEE HAS ADMITTED BEFORE THE ASSESSING OFFICER OF NON-DEDUCTION OF TA X AT SOURCE ON PAYMENTS MADE TO SUB-CONTRACTORS. THE ASSESSING OF FICER CONCLUDED THAT THE ASSESSEE HAD CONTRAVENED THE PROVISIONS OF SECTION 194C OF THE ACT. HE THEREFORE, INVOKED THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT WHICH STATES THAT AMOUNTS PAYABLE TO A CONT RACTOR OR SUB- CONTRACTOR ON WHICH TDS HAS NOT BEEN DEDUCTED WAS N OT DEDUCTIBLE EXPENDITURE. IN A.Y. 2007-08 THE ASSESSING OFFICER HAS MADE A FURTHER ADDITION OF 48,525/- BY OBSERVING THAT THE ASSESSEE HAD CONTRAVENED THE PROVISIONS OF SECTION 194J BY NOT D EDUCTING TDS ON PAYMENT OF 48,525/- BEING PROFESSIONAL FEE. SIMILARLY, FOR A. Y. 2008-09 PAYMENTS TO C&A TRANSPORT, VEER HANUMAN TRA NSPORT, RELIANCE FINANCE AND KOTAK MAHINDRA AGGREGATING TO 3,92,108/- WAS ALSO DISALLOWED FOR NON-DEDUCTION OF TAX AT SOU RCE. ACCORDINGLY, SR. NO. A.Y. AMOUNT PAID 1 2004 - 05 50,39,900/ - 2 2005 - 06 39,42,690/ - 3 2006 - 07 2 , 66,00,000/ - 4 2007 - 08 3,75,53,000/ - 5 2008 - 09 32,39,19,615/ - 6 2009 - 10 28,88,00,000/ - 7 2010 - 11 9,16,00 , 000/ - 4 THE SAME WAS ALSO ADDED TO THE INCOME IN THE ASSESS MENT YEARS UNDER APPEAL AS UNDER. 7. WITH REGARD TO CONTRAVENTION OF PROVISIONS OF SE CTION 194C OF THE ACT, THE STAND OF THE ASSESSEE HAS BEEN THAT THE ADDITION MADE FOR ASSESSMENT YEAR 2004-05 WAS B AD IN LAW AS SUB-CLAUSES (I)(IA) AND (IB) OF SECTION 40 WERE SUB STITUTED FOR SUB- CLAUSE (I) BY FINANCE (NO.2) ACT, 2004 AND WAS MADE EFFECTIVE WITH EFFECT FROM 01.04.2005 AND AS SUCH WERE APPLICABLE TO PAYMENTS IN ASSESSMENT YEARS 2005-06 AND ONWARDS. THE ASSESSEE ALSO RELIED ON DEPARTMENT'S CIRCULAR NO.5 OF 2005 DATED 15.07.2005 IN SUPPORT OF HIS CONTENTION. THE CIT(A) FOUND THAT THE CONTENTIO N OF ASSESSEE WAS CORRECT. SINCE THE PROVISIONS OF SECTION 40(A)(IA) AS SUBSTITUTED BY THE FINANCE (NO.2) ACT 2004 WAS NOT IN STATUTE DURI NG THE RELEVANT PREVIOUS YEAR, IT COULD NOT BE APPLIED FOR MAKING A DISALLOWANCE FOR THE ASSESSMENT YEAR 2004-05. THE PROVISIONS OF SECT ION 40(A)(IA) BECAME APPLICABLE IN RELATION TO PAYMENTS MADE FROM AND DURING FINANCIAL YEAR 2004-05 I.E. WOULD BE RELEVANT FOR M AKING ASSESSMENTS OF ASSESSMENT YEAR 2005-06 AND ONWARDS. THIS REASO NED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPH OLD THE SAME. 8. SECONDLY, IT WAS POINTED THAT THE ORIGINAL ASSES SMENT YEAR IN ITS CASE WAS COMPLETED EARLIER AS DETAILED BELOW: A.Y. AMOUNT PAID 2004 - 05 50,39,900/ - 2005 - 06 39,42,690/ - 2006 - 07 2,66,00,000/ - 2007 - 08 3, 64 , 76 , 525 / - 2008 - 09 18 , 93 ,1 3 , 723 / - 2009 - 10 10 , 1 8, 73 , 515 / - 2010 - 11 9,16,00,000/ - ASST. YEAR SECTION DATE 2004 - 05 143(3) 09/11/2006 2005 - 06 143(3) 22/05/2007 2006 - 07 143(3) 15/05/2008 2007 - 08 143( 1 ) -- 2008 - 09 143( 1 ) -- 5 8.1 THE ASSESSEE HAS GIVEN A REFERENCE TO PROVISION S OF SECTION 153A AND HAS STATED THEREAFTER THE OBJECTIVES OF PR ESCRIBING 'SPECIAL PROCEDURE FOR ASSESSMENT FOR SEARCH CASES'. THE ASS ESSEE STATED THAT APART FROM THE YEARS FOR WHICH PROCEEDINGS ARE ABAT ED, IN THE REMAINING YEARS ADDITION COULD BE MADE ONLY BY RELA TING TO UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH. IN THIS REGARD, THE STAND OF THE ASSESSEE HAS BEEN THAT WHEN A SEARCH H AS TAKEN PLACE, IT IS ONLY THE SEIZED MATERIAL AND UNDISCLOSED INCO ME EMANATING OUT OF THE SAME WHICH IS RELEVANT AND USEFUL DURING AN ASSESSMENT PROCEEDING HAS TO BE CONSIDERED. HENCE, NO ADDITIO N COULD BE MADE IN MATTERS OTHER THAN THE MATTERS FOR WHICH UNDISCL OSED INCOME HAS BEEN FOUND AS A RESULT OF SEIZED MATERIAL FOUND DUR ING THE COURSE OF SEARCH. IT WAS FURTHER SUBMITTED THAT QUIETUS OF CO MPLETED ASSESSMENTS COULD BE DISTURBED ONLY WHEN THERE IS I NFORMATION OR EVIDENCE REGARDING UNDISCLOSED INCOME OR THERE IS M ATERIAL WHICH COULD REVEAL ESCAPEMENT OF INCOME. ADDITIONS COULD BE MADE ONLY IF THERE IS ESCAPEMENT OF INCOME IN ACCORDANCE WITH TH E PRINCIPLES ENUNCIATED FOR SECTIONS 147 AND 148 OF THE ACT. IT WAS STATED THAT THE ASSESSING OFFICER HAS NO POWER TO RE-EXAMINE AN ISSUE WHICH IS A CONCLUDED MATTER IN AN ASSESSMENT EARLIER COMPLETED UNDER SECTION 143(3) OF THE ACT. A CHANGE OF OPINION ON THE SAME SET OF FACTS IS NOT PERMISSIBLE. THUS PRINCIPLES THAT ARE RELEVANT FOR COMPLETING AN ASSESSMENT REOPENED U/S. 147 READ WITH SECTION 148 ARE EQUALLY APPLICABLE WHILE FRAMING AN ASSESSMENT U/S.153A. IT WAS FURTHER SUBMITTED THAT IN CASES WHERE TRANSACTIONS ARE DISC LOSED IN THE REGULAR BOOKS OF ACCOUNT PRIOR TO SEARCH AND NO INC RIMINATING DOCUMENT HAS BEEN FOUND AS A RESULT OF SEARCH THEN, THOSE ISSUES COULD NOT BE TACKLED IN AN ASSESSMENT CONTEMPLATED U/S.153A OF THE ACT. SIMILARLY, IT WAS CONTENDED THAT UNLESS AND U NTIL SOMETHING WAS FOUND ON THE BASIS OF WHICH AN ADVERSE INFERENC E COULD BE DRAWN AND THE COMPLETED ASSESSMENT SHOULD NOT BE DI STURBED. SECTION 153A DOES NOT CONTEMPLATE A DE NOVO ASSESSMENT. 6 8.2 IN THIS BACKGROUND, THE CIT(A) SUMMARIZED THE C ONTENTIONS OF THE ASSESSEE ON THIS ISSUE THAT IN CASES WHERE ASSE SSMENTS HAVE BEEN MADE U/S.143(3) AND WHERE RETURNS HAVE BEEN PR OCESSED U/S.143(1) IMMEDIATELY BEFORE THE COMMENCEMENT OF S UCH PROCEEDINGS, IT COULD NOT BE STATED THAT ANY ASSESS MENT IS PENDING AND, THEREFORE, UNLESS AN INCRIMINATING MATERIAL OR DOCUMENT IS FOUND IN RESPECT OF SUCH, ASSESSMENT YEARS, FINALIT Y OF WHICH HAS BEEN ACHIEVED U/S.143(3) AND 143(1) COULD NOT BE DI STURBED U/S. 153A OF THE ACT. HENCE, IT WAS CONTENDED THAT NO D ISALLOWANCE COULD BE MADE U/S.40(A)(IA) FOR ASSESSMENT YEARS 2004-05 TO 2008-09. 8.3 SECTION 153A, SECTION 153B AND SECTION 153C HAV E BEEN INTRODUCED IN THE INCOME-TAX ACT BY THE FINANCE ACT , 2003 W.E.F. 01- 06-2003. SIMULTANEOUSLY, CHAPTER XIV-B RELATING TO SPECIAL PROCEDURE FOR BLOCK ASSESSMENTS OF UNDISCLOSED INCO ME IN THE CASE OF SEARCHES CONDUCTED UNDER SECTION 132 OF THE INCO ME-TAX ACT WAS OMITTED AND PROVISIONS OF SECTION 158BI WAS INSERTE D WHICH PROVIDES THAT THE PROVISIONS OF CHAPTER XIV-B, SECTION 158B TO SECTION 158BH, SHALL NOT APPLY WHERE A SEARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS WERE REQUISITIONED UNDER SECTION 132A OF THE ACT AFTER 3 1-5-2003. THE NEW PROVISIONS CONTAINED IN SECTIONS 153A, 153B AND 153C WERE INCLUDED IN CHAPTER XIV - PROCEDURE FOR ASSESSMENT AND THEY RELATE TO ASSESSMENT IN THE CASE OF SEARCH OR REQUISITION MADE ON OR AFTER 01-06-2003. 8.4 THE PROVISIONS OF SECTION 153A, SECTION 153C AN D THE CIRCULAR, MAKES CLEAR THAT SECTION 153A AND SECTION 153C PROV IDES FOR COMPULSORY ASSESSMENT OR REASSESSMENT OF INCOME OF A PERSON IN WHOSE CASE A SEARCH IS INITIATED UNDER SECTION 132 OR ANY ASSET IS REQUISITIONED UNDER SECTION 132A FOR A PERIOD COMPR ISING OF 6 ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSME NT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEARCH I S INITIATED UNDER 7 SECTION L32 OR ANY ASSET IS REQUISITIONED UNDER SEC TION 132A. THE PROVISIONS OF SECTION 153B INDICATE THAT THE PROVIS IONS FOR ASSESSMENT IN SEARCH OR ASSET REQUISITION CASES CON TAINS TWO SPECIFIC SETS OF DIRECTIONS IN RESPECT OF ASSESSMENTS OR REA SSESSMENTS TO BE MADE; ONE IS FOR COMPLETION OF ASSESSMENT OR REASSE SSMENT FOR A PERIOD OF 6 ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEA RCH IS INITIATED UNDER SECTION 132 OR ANY ASSET IS REQUISITIONED UND ER SECTION 132A AND THE OTHER IS FOR COMPLETION OF ASSESSMENT OF TH E ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEARCH I S INITIATED UNDER SECTION 132 OR ANY ASSET IS REQUISITIONED UNDER SEC TION 132A. THE PERSON SEARCHED UPON OR WHOSE ASSETS HAVE BEEN IS R EQUISITIONED IS OBLIGED TO FURNISH THE RETURN OF INCOME IN PRESCRIB ED FORM, VERIFIED IN THE PRESCRIBED MANNER ALONG WITH SUCH OTHER PARTICU LARS AS MAY BE PRESCRIBED, AND WITHIN SUCH PERIOD AS SPECIFIED IN THE NOTICE. THEREAFTER THE ASSESSING OFFICER IS BOUND TO ASSESS OR REASSESS THE INCOME PERTAINING TO THESE 6 YEARS BY VIRTUE OF THE PROVISIONS OF SECTION 152A(L)(B). 8.5 NOW THE INCOME-TAX ACT DOES NOT PRESCRIBE FOR I SSUE OF NOTICE UNDER SECTION 153A FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SEARCH WAS CONDUCTED UNDER SECTION 13 2 OR ASSETS WAS REQUISITIONED UNDER SECTION 132A UNDER THE NEW PROV ISIONS FOR COMPLETION OF ASSESSMENTS IN CASES OF SEARCH OR REQ UISITION. THIS ASPECT MARKS A DEPARTURE FROM THE ERSTWHILE SPECIAL PROVISIONS CONTAINED IN CHAPTER XIV-B FOR COMPLETION OF ASSESS MENTS IN SEARCH CASES IN AS MUCH AS THE CONCEPT OF BLOCK PERIOD IS DONE AWAY WITH. IN THE EARLIER PROVISIONS CONTAINED IN 158B THE CONCEP T OF BLOCK PERIOD WAS ENUNCIATED IN SECTION 158B(A) TO MEAN THE PERIO D OF 6 ASSESSMENT YEARS PRECEDING THE PREVIOUS YEAR IN WHI CH THE SEARCH WAS CONDUCTED OR ANY REQUISITION MADE INCLUDING THE PERIOD UP TO THE DATE OF COMMENCEMENT OF THE SEARCH OR REQUISITI ON OF ASSETS IN THE PREVIOUS YEAR IN WHICH THESE ACTIONS WERE TAKEN . THERE WAS A 8 DUAL APPROACH TO COMPLETION OF ASSESSMENTS IN RESPE CT OF THE BLOCK PERIOD. THE ASSESSING OFFICER WAS THEN REQUIRED TO COMPLETE THE ASSESSMENT OF UNDISCLOSED INCOME IN RESPECT OF THE BLOCK PERIOD. IF THERE WAS ANY OTHER INCOME WHICH WOULD HAVE ESCAPED ASSESSMENT BUT WHICH WAS NOT NOTICEABLE FROM OR COULD BE LINKE D TO THE BOOKS, DOCUMENTS, ASSETS, ETC. FOUND DURING THE COURSE OF SEARCH OR REQUISITION, THEN THE ASSESSING OFFICER WAS FREE TO PROCEED WITH THOSE ITEMS OF INCOME UNDER THE NORMAL PROVISIONS OF THE INCOME-TAX ACT CONTAINED IN SECTION 147. THIS IMPLIED THAT THE ASS ESSING OFFICER'S POWER TO ASSESS INCOME WAS RESTRICTED TO SUCH ITEMS WHICH WERE FOUND AND DISCLOSED DURING THE COURSE OF SEARCH OR REQUISITION. ITEMS OF REGULAR ASSESSMENT WERE, IN A MANNER OF SPEECH, ALIEN TO THE PROCEEDINGS FOR DETERMINATION OF UNDISCLOSED INCOME OF A BLOCK PERIOD. THE PROVISIONS OF SECTION 158BA SPECIFYING THAT ASS ESSMENT MADE UNDER CHAPTER XIV-B WAS IN ADDITION TO REGULAR ASSE SSMENT, LEND CLARITY TO THE FACT THAT THERE COULD BE TWO SIMULTA NEOUS ASSESSMENT PROCEEDINGS IN CASES OF SEARCH AND SEIZURE: ONE PER TAINING TO THE UNDISCLOSED INCOME FOUND DURING THE COURSE OF SEARC H AND SEIZURE OR REQUISITION AND THE OTHER PERTAINING TO ASSESSMENTS UNDER NORMAL CIRCUMSTANCES OF REGULAR ASSESSMENT. CLAUSE (A) OF SUB-SECTION (1) UNEQUIVOCALLY STATES THAT NOTICE UNDER SECTION 153A HAS TO BE ISSUED BY THE ASSESSING OFFICER IN RESPECT OF THE 6 ASSESS MENT YEARS REFERRED TO IN CLAUSE (B) OF SUB-SECTION (1) AND THE TIME LI MIT FOR COMPLETION OF ASSESSMENT OF THESE ASSESSMENT YEARS IS SPECIFIED I N SECTION 153B(L)(A) READ WITH II PROVISO. WITH THE REPEAL OF CHAPTER XIV-B IN RESPECT OF SEARCHES CONDUCTED OR REQUISITION MADE A FTER 31-03-2003, THE CONCEPT OF BLOCK ASSESSMENT, BLOCK PERIOD, DUAL ASSESSMENTS, COMPUTATION OF UNDISCLOSED INCOME ON THE BASIS OF M ATERIAL FOUND IN THE COURSE OF SEARCH OR REQUISITION, ASSESSMENTS QU A THE ITEMS AND MATERIAL FOUND IN THE-. COURSE OF SEARCH OR REQUISI TION, ETC. HAVE BEEN RELEGATED TO POSTERITY AND THEY DO NOT HAVE ANY REL EVANCE IN THE NEW PROCEDURE FOR COMPLETION OF ASSESSMENTS IN CASES OF SEARCH OR REQUISITION. THUS, AFTER THE INTRODUCTION OF SECTIO NS 153A, 153B AND 9 153C, THE ASSESSING OFFICER IS BOUND TO COMPLETE TH E ASSESSMENT OF INCOME OF THE PERSON WHO IS SEARCHED OR WHOSE ASSET IS REQUISITIONED IN RESPECT OF THE 6 ASSESSMENT YEARS IMMEDIATELY PR ECEDING THE ASSESSMENT YEAR RELEVANT TO PREVIOUS YEAR IN WHICH THE SEARCH WAS CONDUCTED OR ASSET WAS REQUISITIONED. 8.6 IN THIS CASE THE RELEVANT ASSESSMENT YEAR IN R ESPECT OF THE PREVIOUS YEAR IN WHICH THE SEARCH OR REQUISITION WA S CARRIED OUT IS 2007-2008. ASSUMING THAT THE ASSESSEE HAS TO GET TH E ACCOUNTS AUDITED, THE TIME LIMIT FOR FILING OF RETURN UNDER SECTION 139(1) WOULD BE 30-09-2007. THIS IS FOR THE REASON, THAT NOTICE UNDER SECTION 153A HAS TO BE COMPULSORILY ISSUED ONLY IN RESPECT OF THE 6 ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSME NT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEARCH I S CONDUCTED OR REQUISITION IS MADE. NOTICE UNDER SECTION 153A CANN OT BE ISSUED IN RESPECT OF THIS ASSESSMENT YEAR; THE PROVISIONS FOR SEARCH OR REQUISITION ASSESSMENTS DO NOT AUTHORISE THIS ACTIO N. THE ASSESSEE WOULD HAVE THE STATUTORY RIGHT TO FILE A REVISED RE TURN OF INCOME UNDER SECTION 139(5) FOR THIS ASSESSMENT YEAR. THE ASSESSING OFFICER WOULD BE ENTITLED TO ISSUE A STATUTORY NOTICE UNDER SECTION 142(1) IF THE RETURN OF INCOME IS NOT FILED WITHIN THE TIME A LLOWED UNDER SECTION 139(1). THEREAFTER, THE ASSESSING OFFICER M AY, HAVING REGARD TO THE RETURN OF INCOME, FORM A BELIEF THAT ANY CLA IM OF LOSS EXEMPTION, DEDUCTION, ALLOWANCE, OR RELIEF IS INADM ISSIBLE. ALTERNATIVELY OR CONCURRENTLY, HE MAY ALSO FORM A PRIMA FACIE OPINION ON THE BASIS OF SEIZED MATERIAL THAT AN ITEM OF INC OME IS NOT INCLUDED IN THE RETURN OF INCOME THEN HE CAN ISSUE A NOTICE UNDER SECTION 143(2) (II) ON OR BEFORE THE DUE DATE FOR PICKING U P THE CASE FOR REGULAR ASSESSMENT. IN THE EXAMPLE THE DUE DATE FOR ISSUE AND SERVICE OF NOTICE WOULD BE 12 MONTHS FROM THE END O F THE MONTH IN WHICH THE RETURN IS FURNISHED (NOW SIX MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN OF INCOME WAS FI LED). THEREAFTER THE ASSESSMENT HAS TO BE COMPLETED IN ACCORDANCE WITH T HE TIME LIMIT SET OUT IN 153B(L)(FA) READ WITH II PROVISO THERETO . SINCE THE LAST 10 WARRANT OF AUTHORISATION WAS EXECUTED, IN THIS HYPO THETICAL EXAMPLE, ON 28-09-2006 WHICH IS AFTER 01-04-2004, THE LIMITA TION PERIOD FOR COMPLETION OF ASSESSMENT FOR THE ASSESSMENT YEAR RE LEVANT TO THE PREVIOUS YEAR IN WHICH SEARCH WAS CARRIED OUT OR RE QUISITION WAS MADE WILL BE 31-12-2009. 8.7 IN A RECENT DECISION OF THE SPECIAL BENCH OF I TAT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. V. DCIT IN ITA NOS. 5018 TO 5022 & 5059/MUM/10 FOR A.YS. 2004-05 TO 2009-10 DELIVERED ON 06/07/2012 HAS EXPLAINED THE PROVISIONS OF S.153A A ND THE PROVISOS THERETO IN THE FOLLOWING MANNER AND HELD AS UNDER: 58. THUS, QUESTION NO. 1 BEFORE US IS ANSWE RED AS UNDER: A) IN ASSESSMENTS THAT ARE ABATED, THE AO RETAINS THE ORIGINAL JURISDICTION AS WELL AS JURISDICTION CONFE RRED ON HIM U/S 153A FOR WHICH ASSESSMENTS SHALL BE MADE FOR EACH OF THE SIX ASSESSMENT YEARS SEPARATELY; B) IN OTHER CASES, IN ADDITION TO THE INCOME THAT HAS ALREADY BEEN ASSESSED, THE ASSESSMENT U/S 153A WILL BE MADE ON THE BASIS OF INCRIMINATING MATERIAL, WHI CH IN THE CONTEXT OF RELEVANT PROVISIONS MEANS - (I) B OOKS OF ACCOUNT, OTHER DOCUMENTS, FOUND IN THE COURSE OF SEARCH BUT NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT, AND (II) UNDISCLOSED INCOME OR PROPERT Y DISCOVERED IN THE COURSE OF SEARCH. 8.8 IN A NUTSHELL, THE ISSUE RAISED IN APPEAL COULD BE SUMMARIZED AS UNDER: (I) THE ASSESSING OFFICER HAS THE JURISDICTION TO ASSES S OR REASSESS IN ALL ABATED PROCEEDINGS. (II) THE ASSESSING OFFICER HAS THE JURISD ICTION OF ASSESSMENT U/S 153A(L)(B) IN ALL CASES WHER E NO ASSESSMENTS ARE MADE, (CASES COVERED BY S. 143(1)) (III) IN OTHER CASES THE ASSESSING OFFICER (A) HAS THE JURISDICTION OF ASSESSMENT ON ALL ISSUES (WHICH ARE NOT CONCLUDED EARLIER) ON THE BASIS OF B OOKS OF ACCOUNTS OR OTHER DOCUMENTS FOUND DURING SEAR CH. 11 (B) HAS THE JURISDICTION TO REASSESS IN CONCLUDED MATTE RS ON THE BASIS OF DOCUMENTS, ASSETS, INCOME FOUND DUR ING THE COURSE OF SEARCH BUT THERE CANNOT BE A CHANGE O F OPINION. (IV) IN OTHER CASES, IT IS NOT NECESSARY THAT ASSE SSMENT SHOULD BE COMPLETED ON THE BASIS OF 'INCRIMINATING' MATERI AL BECAUSE THIS WORD IS CONSPICUOUS BY ITS ABSENCE IN BOTH SECTION 153A OR IN SECTION 132. 8.9 IN VIEW OF THE ABOVE, ADDITIONS MADE UNDER SECT ION 40(A)(I) FOR ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 I .E. THE YEARS IN WHICH THE ISSUE OF PAYMENTS TO LABOURERS WITHOUT DE DUCTING TAX AT SOURCE WAS CONCLUDED IN ASSESSMENT PROCEEDINGS UNDE R SECTION 143(3), WERE DELETED BY THE CIT(A) BECAUSE THE ADDI TIONS HAVE BEEN MADE ON MERE CHANGE OF OPINION AND NO INCRIMINATING MATERIAL WAS DISCOVERED IN SEARCH AND SEIZURE PROCEEDINGS. NOTH ING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SI DE. WE UPHOLD THE SAME. 9. WITHOUT PREJUDICE TO ABOVE, THE CIT(A) FURTHER OBSERVED THAT DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2004-05, THE APPELLANT HAD DEBITED LABOUR CHARGES OF 50,39,900/- IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HAD EXAMINE D THIS ISSUE DURING THE COURSE OF ASSESSMENT AND HAD ADDED A LUM PSUM AMOUNT OF 5,00,000/- TO THE TOTAL INCOME OF THE APPELLANT. I N ASSESSMENT YEAR 2005-06, ASSESSMENT UNDER SECTION 143(3) WAS C OMPLETED ON 22/05/2007 AND THE ISSUE OF DISALLOWANCE OUT OF LAB OUR, CHARGES WAS SPECIFICALLY DEALT IN PARAGRAPH 6(I) OF THE ASS ESSMENT ORDER. DURING THIS YEAR ALSO THE ASSESSING OFFICER NOTED T HAT THE VOUCHERS SIGNED BY MUKADAMS (GANGMEN) WERE THE SOLE BASIS FOR MAKING THE CLAIM OF LABOUR CHARGES AND HE DISALLOWED A SUM OF 15% OF THE TOTAL EXPENSES CLAIMED AND ADDED BACK OF 6,09,250/- TO THE TOTAL INCOME OF THE APPELLANT AFTER EXAMINING THE ISSUE OF PAYME NT OF LABOUR CHARGES. SIMILARLY, FOR ASSESSMENT YEAR 2006-07 THI S ISSUE WAS EXAMINED VIDE PARAGRAPH NO. 4(IV) DURING THE COURSE OF ASSESSMENT 12 UNDER SECTION 143(3). IN THE ASSESSMENT ORDER DATED 15/05/2008, 3% OF THE EXPENDITURE AGGREGATING TO 7,99,511/- WAS ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT. THIS ISSUE WAS F URTHER EXAMINED DURING THE COURSE OF APPELLATE PROCEEDINGS AND VIDE APPEAL NO. RTN/3/08-09 DATED 22/08/2008, BY HIS PREDECESSOR IN OFFICE HAD CONSIDERED THE APPEAL FOR ASSESSMENT YEAR 2002-03 W HEREIN DISALLOWANCE OF 0.8% OUT OF TOTAL LABOUR EXPENSES O F 2,01,09,200/- WAS SUSTAINED. ACCORDINGLY THE CIT(A) HAD RIGHTLY S USTAINED 0.8% OF THE GROSS AMOUNT DEBITED TOWARDS LABOUR CHARGES AND SUSTAINED THE ADDITION TO THE EXTENT OF 2,12,045/-. THEREFORE, THE ISSUE OF DISALLOWANCE OUT OF LABOUR CHARGES STANDS CONCLUDED FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 AND T HE SAME SHOULD NOT BE DISTURBED. AGAIN THIS REASONED FINDI NG OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 10. WITHOUT PREJUDICE TO ABOVE, COMING ON MERITS TH E APPELLANT CONTENDS THAT PROVISIONS OF SECTION 40(A)(IA) ARE N OT ATTRACTED IN THIS CASE. THE APPELLANT HAS CONTENDED THAT THE LABOUR F ORCE IN WORK OF ROAD CONSTRUCTION COMES FROM REMOTE AREAS. NORMALLY , AS A GROUP OF PERSONS FROM ONE FAMILY OR ONE VILLAGE WORK AT SITE ON A DAILY WAGE BASIS, THEY RESIDE IN TEMPORARY RESIDENCES ON SITE AND THEIR RECORDS ARE MAINTAINED BY THE SITE SUPERVISORS. THE PAYMENT IN RESPECT OF THE LABOURERS COMING FROM SUCH REMBTE AREAS IS MADE TO EITHER THE HEAD OF THE FAMILY OR THE LEADER OF THE VILLAGE. ON LY ONE VOUCHER IS SIGNED AND PREPARED WHICH IS IN THE NAME OF THE PER SON WHO RECEIVES THE MONEY. THEREFORE, IF THE INDIVIDUAL LABOURERS A RE TAKEN INTO CONSIDERATION, THE PAYMENT WILL NEVER EXCEED 50,000/- IN A YEAR TO EACH PERSON. IT WAS CONTENDED THAT PAYMENT OF LABOU R CHARGES TO THESE LABOURERS IS MADE THROUGH THE GANG LEADER OR MUKADAM WHO MAKES THE PAYMENT TO THE LABOURERS OF HIS GANG. IT WAS STATED THAT THE MUKADAM OR THE GANG LEADER IS ALSO ONE OF THE LABOURERS AND PAYMENT IS MADE THROUGH HIM MERELY FOR CONVENIENCE. THERE IS NO CONTRACT FOR SUPPLY OF LABOUR EITHER WRITTEN OR ORA L BETWEEN THE GANG 13 LEADER AND THE APPELLANT. IT WAS STRESSED THAT THE RELATIONSHIP BETWEEN THE APPELLANT AND THE LABOURERS IS THAT OF AN EMPLOYER AND EMPLOYEE OR THAT OF A MASTER AND SERVANT. THE CONTR OL OVER THE MANNER IN WHICH WORK IS REQUIRED TO BE DONE BY EACH LABOURER IS WITH THE APPELLANT AND THE LABOURERS OBEY THE ORDER S IN RESPECT OF THE WORK TO BE PERFORMED, MODE IN WHICH IT HAS TO B E PERFORMED AND THE MANNER OF PERFORMANCE. THUS, THERE WAS NO CONTR ACT OF SERVICE AND RELATIONSHIP BETWEEN THE LABOURERS AND THE APPE LLANT WAS ONE OF A MASTER AND SERVANT. THE APPELLANT THEREAFTER RELI ED ON THE DECISION GIVEN IN THE CASE OF CIT V/S DEWAN CHAND 178 TAXMAN 173 (DELHI) IN WHICH IT HAS BEEN HELD THAT THE PAYMENTS PAID DIREC TLY TO LABOURERS WERE MADE TO EMPLOYEES ON DAILY WAGES WHICH CANNOT BE CONSIDERED AS A CONTRACTUAL PAYMENT CONTEMPLATED UNDER SECTION 194C OF THE INCOME-TAX ACT. THE APPELLANT ALSO RELIED ON THE DE CISION GIVEN IN THE CASE OF NALAWADE C MARUTI V/S JOINT COMMISSIONER OF INCOME- TAX, R-2 SANGLI [2011] 15 TAXMANN.COM 218 (PUNE) AND WHEREIN IT IS HELD THAT PAYMENTS MADE TO HEAD OF FAMILIES DO NOT FALL WITHI N THE AMBIT OF SECTION 194C AND HENCE COULD NOT BE DISALLOWED UNDE R SECTION 40(A)(IA). FURTHER, THE APPELLANT RELIED ON THE DEC ISION GIVEN IN THE CASE OF CIT V/S KOTAK SECURITIES LTD. 15 TAXMANN.COM 77 (BO M) WHEREIN IT HAS BEEN HELD THAT WHERE THE APPELLANT I S UNDER BONA FIDE BELIEF THAT HE WAS NOT LIABLE TO DEDUCT TAX AT SOUR CE FROM PAYMENT OF LABOUR CHARGES AND THE FACT THAT THE DEPARTMENT HAD NOT INITIATED ANY PROCEEDINGS FOR NOT DEDUCTING THE TAX AT SOURCE AND, THEREFORE, BOTH THE PARTIES HAD, FOR A LONG PERIOD, PROCEEDED ON THE FOOTING THAT SECTION 194C IS NOT ATTRACTED THEN, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE .TAX AT SOURCE UNDER SECTION 194C. CONSEQUENTLY, NO ACTION COULD BE TAKEN UNDER SECTIO N 40(A)(IA). 10.1 THE CIT(A) HAVING GONE THROUGH THE SUBMISSI ONS MADE BY THE APPELLANT HAD OBSERVED THAT THE APPELLANT DESER VES TO GET RELIEF ON ACCOUNT OF ADDITIONS MADE ON ACCOUNT OF D ISALLOWANCE UNDER SECTION 40(A)(IA) BECAUSE OF FOLLOWING RE ASONS. 14 I) THE LABOURERS EMPLOYED BY THE APPELLANT COME FRO M REMOTE AREAS WHO NORMALLY DO HAVE BANK ACCOUNTS. UNDER SUC H CIRCUMSTANCES, PAYMENTS HAVE TO BE MADE IN CASH. II) THE APPELLANT ON BEING ASKED HAS SUBMITTED SOME AFFIDAVITS SPECIFYING THAT PAYMENTS HAVE BEEN RECEIVED BY THOS E PERSONS ON BEHALF OF AND FOR THEIR FAMILY MEMBERS OR RELATI VES OR ACQUAINTANCES WHO HAVE TOGETHER WORKED AT VARIOUS S ITES OF THE APPELLANT ON A DAILY WAGE BASIS. III) A SITE RECORD WAS MAINTAINED BY THE SITE SUPER VISOR AND PAYMENTS WERE LARGELY MADE TO THE HEAD OF THE FAMIL Y OR A GANGMAN WHO RECEIVED MONEY ON BEHALF OF SEVERAL PER SONS KNOWN TO THEM BEING THEIR FAMILY MEMBERS OR FRIENDS OR RELATIVES. IV) IT WOULD HAVE BEEN IMPRACTICAL FOR THE APPELLAN T TO PREPARE INDIVIDUAL VOUCHERS FOR SEVERAL LABOURERS. SINCE ON LY ONE VOUCHER WAS PREPARED, THE PAYMENT APPEARED TO HAVE EXCEED 50,000/- FOR EVERY PERSON BUT ON AN INDIVIDUAL BASI S, THE SAME WOULD NOT EXCEED 50,000/- PER PERSON. V) THE PAYMENTS WERE MADE TO CASUAL LABOURERS WHO W ERE WORKING FOR THE APPELLANT ON DAILY WAGES. THEY WERE NOT REGULAR EMPLOYEES OF THE APPELLANT BUT WORKED UNDER A DIREC T SUPERVISION AND CONTROL OF THE APPELLANT. 10.2 UNDER THE FACTS AND CIRCUMSTANCES, THE CIT (A) WAS JUSTIFIED IN HOLDING THAT THE PROVISIONS OF SECTION 40(A)(IA) WILL NOT BE APPLICABLE IN THIS CASE ALSO. IT IS PURELY INCIDENT AL THAT BOTH SHRI NALAWADE AND THE ASSESSEE WERE ROAD CONTRACTORS. A CCORDINGLY, THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISI ONS OF SECTION 40(A)(IA). IN THE LIGHT OF ABOVE DISCUSSION, ORDER OF CIT(A) ON THIS ISSUE IN ALL THE YEARS NEEDS NO INTERFERENCE FROM O UR SIDE WHO HAS ALLOWED THE APPEALS OF ASSESSEE BY REASONED ORDER. WE UPHOLD THE SAME. 11. THE NEXT ISSUE IS WITH REGARD TO ISSUE OF EXCES SIVE LABOUR CHARGES PERTAINS TO AYS 2007-08 & 2008-09, THE ASSE SSING OFFICER MADE ADDITION OF 11,25,000/- AND 13,49,98,000/-. IT IS MENTIONED IN THE ASSESSMENT ORDER FOR A.Y. 2008-09 THAT DOCUMENTS 15 SEIZED DURING SEARCH IN THE FORM OF SELF-MADE VOUCH ERS SANS SIGNATURES, DATE, AMOUNT ETC. REVEALED THAT THE APP ELLANT CLAIMED BOGUS EXPENDITURE UNDER THE HEAD LABOUR CHARGES'. T HE SEARCH PARTY ALSO TOOK NOTE OF THE FACT THAT (I) THE ALL PAYMENTS WERE SHOWN TO HAVE BEEN MADE IN CA SH (II) THE APPELLANT DID NOT FURNISH DETAILS SUCH AS PAN, ADDRESSES ETC. OF PERSONS TO WHOM THE PAYMENTS WERE MADE (III) TAX WAS NOT DEDUCTED AT SOURCE ON THESE PAYMENTS AS PROVIDED UNDER SECTION 194C. (IV) BOOKS REFLECTED OUTSTANDING LABOUR CHARGES AS ON TH E DATE OF SEARCH I.E. 23/09/2009 AT 27,25,88,085/-, WHICH STOOD AT 28,24,50,000/- ON 31/03/2009. WHEN CONFRONTED WITH THE EVIDENCES SEIZED DURING SE ARCH, SHRI MARUTI LAXMAN MANE, MANAGING PARTNER, SHRI MANOHAR B VIDWANS, ACCOUNTANT AND SHRI SACHIN V JOSHI, SUPERVISOR, IN THEIR STATEMENTS RECORDED, ADMITTED OF HAVING INFLATED OF LABOUR EXP ENSES. CONSEQUENTLY, A SUM OF 18,25,88,085/- WAS DISCLOSED AS INFLATED LABOUR EXPENSES FOR THE ASSESSMENT YEAR 2009-10. 11.1 DURING ASSESSMENT PROCEEDINGS THE ASSESSING O FFICER OBSERVED THAT THE APPELLANT HAD WRITTEN OFF MORE THAN 400 BO GUS SUNDRY CREDITORS RELATABLE TO THE DISCLOSURE MADE ABOVE OF 18,25,88,085/-. HE NOTICED THAT MOST OF THE LABOUR CREDITORS SHOWN FOR ASSESSMENT YEAR 2009-10 AS WELL AS FOR ASSESSMENT YEARS 2007-0 8 AND 2008-09 WERE COMMON. THE APPELLANT'S CONTENTION THAT THE LA BOUR EXPENSES WERE GENUINE, FAILED TO CONVINCE THE ASSESSING OFFI CER IN THE ABSENCE OF ANY EVIDENCE IN THE FORM OF DETAILS OF RECIPIENT S, THEIR ADDRESSES, PAN ETC. 11.2 IN THE BACKDROP OF THE ABOVE FACTS, AND ALSO KEEPING IN VIEW THAT A DISALLOWANCE @ 3% WAS MADE IN THE EARLIER AS SESSMENT YEAR 2006-07, THE ASSESSING OFFICER DISALLOWED 3% OF LAB OUR CHARGES OUT OF TOTAL CLAIM MADE OF 3.75 CRORES FOR ASSESSMENT YEAR 2007-08 AS 16 WELL. THIS WORKED OUT TO 11,25,000/-, WHICH WAS ADDED TO THE TOTAL INCOME. 11.3 IN APPELLATE PROCEEDINGS, ON THE DISALLOWANCE MADE @ 3% ( 7,99,511/-) IN ASSESSMENT YEAR 2006-07, THE APPELLA NT HAS POINTED OUT THAT THE ISSUE WAS DECIDED BY THE CIT(A), KOLHA PUR IN ITS OWN CASE FOR ASSESSMENT YEAR 2006-07 VIDE APPEAL NO. RT N/33/08-09 DATED 22/08/2008, RESTRICTING THE DISALLOWANCE TO 0 .8%. 11.4 THE CIT(A) HAVING CONSIDERED THE SUBMISSION M ADE BY THE ASSESSEE AND FOUND THAT DURING THE PREVIOUS YEAR RE LEVANT TO ASSESSMENT YEAR 2007-08, THE APPELLANT HAD DEBITED 3.75 CRORES UNDER THE HEAD LABOUR CHARGES. THE ASSESSING OFFICE R, TAKING NOTE OF THE FACT THAT THE APPELLANT HAD OFFERED ADDITIONAL INCOME OF 18.26 CRORES FOR THE ASSESSMENT YEAR 2009-10 TOWARDS BOGU S LABOUR CHARGES. THE FACT THAT THE ENTIRE EXPENDITURE WAS IN CASH AND FURTHER SINCE DETAILS LIKE ADDRESSES, PAN, ETC. WER E NOT FURNISHED BY THE ASSESSEE, IT WAS HELD THAT THE APPELLANT WAS UN ABLE TO PROVE THE GENUINENESS OF THE LABOUR EXPENSES.-HE ACCORDINGLY DISALLOWED 3% OF THE LABOUR CHARGES FOLLOWING THE RATIONALE IN ASSES SMENT FOR ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER HAS MADE A REMARK THAT THE LABOUR CREDITORS WHOSE CREDITS WERE WRITTE N OFF FOR ASSESSMENT YEAR 2009-10 ARE COMMON FOR ASSESSMENT Y EAR 2007-08 ALSO WITHOUT IDENTIFYING THE CREDITORS. FURTHER, TH E ASSESSING OFFICER HAS DOUBTED THE BONA FIDES OF THESE PAYMENTS WITHOUT ACTUALLY ENQUIRING INTO THE NATURE OF ACTIVITIES PERFORMED I N RELATION TO THE JOB REQUIREMENT OF ROAD CONSTRUCTION. UNLESS AND UNTIL IT IS PROVED BY WAY OF ADMISSION OR BY WAY OF TECHNICAL PROOF THAT THERE WAS NO NECESSITY OF HIRING THE LABOURERS AND THEREFORE, IN CURRING THE LABOUR CHARGES, THE LABOUR EXPENSES COULD NOT BE TREATED A S NON-GENUINE. FURTHER, THE CIT(A) OBSERVED THAT IN THE IMMEDIATEL Y PRECEDING PREVIOUS YEAR IN THE ASSESSMENT ORDER DATED 15/05/2 008, 3% OF THE EXPENDITURE AGGREGATING TO 7,99,511/- WAS ADDED BACK TO THE TOTAL 17 INCOME OF THE APPELLANT. THIS ISSUE WAS FURTHER EXA MINED DURING THE COURSE OF APPELLATE PROCEEDINGS AND VIDE APPEAL NO. RTN/33/08-09 DATED 22/08/2008, PREDECESSOR OF CIT(A) HAD CONSIDE RED THE APPEAL FOR ASSESSMENT YEAR 2002-03 WHEREIN DISALLOWANCE OF 0.8% OUT OF TOTAL LABOUR EXPENSES OF 2,01,09,200/- WAS SUSTAINED. ACCORDINGLY HE HAD SUSTAINED THE ADDITION TO THE EXTENT OF 2,12,045/-. IT IS EVIDENT FROM RECORDS THAT THE ISSUE OF AD HOC DISAL LOWANCE @ 0.8% 'OUT OF LABOUR CHARGES STANDS CONCLUDED FOR THE ASS ESSMENT YEARS 2004-05, 2005-06 AND 2006-07. THE CIT(A) FOUND NO REASON TO DEVIATE FROM THE DECISION TAKEN BY HIS PREDECESSOR AND THEREFORE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALL OWANCE TO 0.8% FOR THE ASSESSMENT YEAR 2007-08. THIS GROUND WAS PARTIA LLY ALLOWED. 11.5 IN DEALING WITH THIS ISSUE FOR ASSESSMENT Y EAR 2008-09, THE ASSESSING OFFICER TOOK RECOURSE TO THE FACTS OF THE APPELLANT'S CASE IN ASSESSMENT YEAR 2009-10. HE OBSERVED THAT THE L ABOUR COMPONENT CLAIMED DURING 2008-09 WAS 34.29%. AFTER DISCLOS URE IN SEARCH AND SEIZURE PROCEEDING THE PERCENTAGE OF THIS COMPO NENT WENT DOWN TO 12.36% FOR ASSESSMENT YEAR 2009-10 AND 12.90% FO R ASSESSMENT YEAR 2010-11. ON BEING ASKED TO EXPLAIN, THE APPELL ANT SUBMITTED THAT IT HAD UNDERTAKEN A CONTRACT OF PCMC DURING FI NANCIAL YEAR 2007-08, WHICH CONTINUED TILL THE END OF FINANCIAL YEAR 2008-09. THE LABOUR COMPONENT WAS ON A HIGHER SIDE DURING THE IN ITIAL PHASE I.E. FINANCIAL YEAR 2007-08 RELEVANT FOR ASSESSM ENT YEAR 2008-09 AS COMPARED TO THE PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR 2009- 10 DUE TO THE NATURE OF WORK PERFORMED. AS A RESULT IT WAS OBSERVED BY THE ASSESSING OFFICER THAT OUT OF THE TOTAL CONT RACT WORK BILLED 3775.64 LAKHS I.E. 46.59% WAS INCURRED IN ASSESSME NT YEAR 2008- 09 AND 1499.54 LAKHS I.E. 25.58% DURING ASSESSMENT YEAR 2009- 10 TOWARDS LABOUR CHARGES. 11.6 THE ASSESSING OFFICER DID NOT APPRECIATE THE CONTENTIONS PUTFORTH BY THE APPELLANT. HE WAS OF THE VIEW THAT LABOUR COMPONENT 18 OUT OF COMBINED BILLING BEING INSEPARABLE, THESE SH OULD HAVE BEEN ESTIMATED EQUALLY FOR ASSESSMENT YEARS 2008-09 AND 2009-10. ACCORDINGLY, THE ASSESSING OFFICER WORKED OUT THE PERCENTAGES OF LABOUR BILLING FOR ASSESSMENT YEARS 2008-09 AND 2 009-10 AS UNDER: A.Y. TOTAL EXCLUSIVE COMBINED MATERIAL LABOUR TOTAL % TOTAL I BILLING TO LABOUR BILLING BILLING COMPONENT LABOUR LABOUR PCMC BILLING (D) OF COMPONENT BILLING TO | (A) (B) (C) LAKHS COMBINED (F) = B+E WORK LAKHS LAKHS LAKHS BILLING @ LAKHS BILLED 12.5% OF C (G) (E) FXLOO-A | LAKHS 2008-09 8103.58 2767.93 5038.58 297.07 629.82 3397.75 41.92% I 2009-10 6099.43 819.76 5438.26 42.31 679.78 1499.54 25.58% 1 THUS, ON THE BASIS OF THE ABOVE, THE ASSESSING OFFI CER WORKED LABOUR COMPONENT FOR THE ASSESSMENT 2008-09 AT AN ESTIMATE D 20% OF TOTAL TURNOVER AS AGAINST 34.29% CLAIMED. CONSEQUENTLY EX CESS LABOUR CHARGES TO THE TUNE OF 1349.98 LAKHS WAS DISALLOWED AND ADDED TO TOTAL INCOME. 11.7 IN THE COURSE OF APPELLATE PROCEEDINGS, THE A PPELLANT CONTENDED THAT THE ADDITION MADE WAS UNCALLED FOR WHEN IT HAD ALREADY DISCLOSED AND RETURNED AND AMOUNT OF 18,25,88,085/- IN ITS RETURN FILED IN RESPONSE TO NOTICE UNDER SECTION 15 3A. IT WAS FURTHER ARGUED THAT IN THE PCMC PROJECT, WHICH CONTINUED FO R ABOUT 21-24 MONTHS, MAXIMUM LABOUR WAS UTILIZED IN THE FIRST YE AR I.E. ASSESSMENT YEAR 2008-09 AND MORE MATERIAL WAS USED AS COMPARED TO LABOUR IN THE SUBSEQUENT YEAR. THEREFORE, INCR EASE IN LABOUR CHARGES IN 2008-09 WAS JUSTIFIABLE. LABOUR CHAR GES WERE CLAIMED TO BE INCURRED IN THE REGULAR COURSE OF BUSINESS AN D HENCE, IT COULD NOT BE TREATED AS BOGUS EXPENSES. THE APPELLANT FU RTHER ARGUED THAT SINCE THE EXPENSES INCURRED HAD A DIRECT NEXUS WITH ITS BUSINESS, IT SHOULD BE REGARDED AS AN INTEGRAL PART OF PROFIT MA KING PROCESS. THE ASSESSING OFFICER HAS WORKED OUT THE PERCENTAGES ON THE BASIS OF THE BILLING DONE TO PCMC. THESE AMOUNTS HAD BEEN CULL ED OUT FROM THE RA BILLS SUBMITTED TO PCMC. IN ALL CASES OF CONTRA CTORS, REVENUE WAS RECOGNIZED ON THE BASIS OF THE CERTIFIED BILL. ONLY THOSE AMOUNTS WERE 19 TREATED AS INCOMES WHICH WERE CERTIFIED AS CORRECT BY THE ENGINEERS OF THE GOVERNMENT OFFICE AND THE AMOUNTS SHOWN IN T HE RA BILL WAS NOT RECOGNIZED AS REVENUE. THE ASSESSING OFFICER HA S FAILED TO TAKE COGNIZANCE OF THIS FACT WHILE MAKING THE COMPARISON . IT WAS FOUND EVIDENT FROM THE FACT THAT IN THE CHART GIVEN IN PA RAGRAPH 10.2.11 OF THE ASSESSMENT ORDER, THE TOTAL LABOUR COMPONENT AC CORDING TO THE RA BILLS WAS TAKEN AT 3397.75 LAKHS. HOWEVER, THE AMOUNT WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT IS ONLY 3239.19 LAKHS AND THE TOTAL AMOUNT OF LABOUR CHARGES INCLUDED IN THE RA BILL SUBMITTED TO PCMC WAS 3775.64 LAKHS. THEREFORE, THE BASE FIGURE TAKEN FOR MAKING THE COMPARISON IN RESPECT OF LABOU R CHARGES ITSELF WAS A WRONG FIGURE. SECONDLY, THE ASSESSING OFFICER HAS NOT CONSIDERED THE FACT THAT SINCE THE TOTAL TURNOVER O F A PARTICULAR PERIOD WAS BASED ON THE CERTIFIED BILLS, SOME PART OF THE TOTAL TURNOVER AND LABOUR BILLS WOULD PERTAIN TO AN EARLI ER PREVIOUS YEAR. THIS WAS FOR THE REASON THAT ALL THE BILLS SUBMITTE D DURING THE MONTH OF MARCH WERE NOT CERTIFIED ON OR BEFORE THE 31 ST DAY OF MARCH OF THAT FINANCIAL YEAR. HENCE, SOME BILLS WERE SPLIT OVER T O THE NEXT FINANCIAL YEAR ALTHOUGH THE WORK IN RESPECT OF WHICH WAS COMP LETED IN AN EARLIER FINANCIAL YEAR. THEREFORE, UNLESS SUCH BILL S WERE REMOVED FROM THE WORKING, THE CORRECT PERCENTAGE OF LABOUR CHARG ES TO ACTUAL TURNOVER FOR THE YEAR COULD NEVER BE FOUND OUT. 11.8 THE CONCLUSION DRAWN BY THE ASSESSING OFFIC ER IN PARAGRAPH 10.2.10 IS THAT 46.59% OF THE TOTAL CONTRACT WORK W AS TOWARDS LABOUR CHARGES. THIS WAS ALSO FOUND INCORRECT BY THE CIT( A) BECAUSE THE ACTUAL FIGURE OF LABOUR CHARGES DEBITED TO THE PROF IT AND LOSS ACCOUNT WAS 3239.19 LAKHS OUT OF TOTAL TURNOVER AN AMOUNT OF 8741.19 LAKHS WAS BILLED TO PCMC AND THE BALANCE OF 722.03 LAKHS TO OTHER PEOPLE. THE ADJUSTED TURNOVER AFTER REDUCING THE SALE OF MATERIAL AND ESCALATION CHARGES RECEIVED AMOUNTED T O 9446.05 LAKHS. THEREFORE, TOTAL PERCENTAGE OF LABOUR CHARG ES TO TOTAL ADJUSTED TURNOVER IS 34.29% AND NOT 46.59%. 20 11.9 THE ASSESSING OFFICER HAS ADOPTED A FIGURE OF 20% OF TOTAL TURNOVER AS THE CORRECT AMOUNT OF LABOUR CHAR GES. THIS HAS BEEN DONE AFTER ADOPTING A GROSS PROFIT RATIO OF 51 .68% IN LABOUR BILLING. IN ORDER TO ARRIVE AT THE FIGURE OF 51.6 8%, THE ASSESSING OFFICER HAS COMPARED THE LABOUR CHARGES BILLED TO P CMC DURING THE FINANCIAL YEAR 2008-09 TO THE TOTAL BILLING TO PCMC . HE HAS NOT CONSIDERED SALES BILLED TO OTHERS @ 1684.68 CRORES WHICH COMPRISES 21.8% OF THE TURNOVER AFTER ADJUSTING FOR ESCALATIO N CHARGES RECEIVED AND SALE OF MATERIAL. THESE BILLINGS WOULD ALSO HAV E SUBSTANTIAL LABOUR CHARGES. IF THIS AMOUNT WAS ALSO FACTORED IN TO THE CALCULATION, THE PERCENTAGE OF LABOUR TURNOVER TO TOTAL BILLING WOULD AUTOMATICALLY REDUCE. BY THE REASONING THAT THE ASSESSING OFFICER HAS FAILED TO CONSIDER A SUBSTANTIAL PART OF TURNOVER WHILE COMPU TING THE GROSS PROFIT ATTRIBUTABLE TO LABOUR CHARGES, IT WAS FOUND SAFE TO HOLD THAT THE FIGURE OF 25.58% ADOPTED TO COMPUTE THE PERCENT AGE OF TOTAL LABOUR BILLING TO WORK BILLED WAS INCORRECT AND COU LD NOT BE ADOPTED AS THE BASIS FOR ARRIVING AT THE GROSS PROFIT FROM SUPPLY OF LABOUR. THE GROSS PROFITS IN LABOUR CAN BE FOUND OUT ONLY I F IT IS PROVED THAT LABOUR BILLS, CERTIFIED AS CORRECT BY THE PCMC, WER E INFLATED. THE ASSESSING OFFICER HAS COMPARED THE RA BILLS RAISED ON PCMC, HE HAS NOT CONSIDERED THE OTHER BILLING OF THE APPELLANT. HE HAS ADOPTED AN AD HOC RATE OF 12.5% AS LABOUR COMPONENT (AS PER AP PELLANT'S OWN WORKING) IN RESPECT OF COMBINED BILLING. ALL THESE FIGURES WERE NOT ADD UP TO THE ACTUAL CERTIFIED BILLING OF THE APPEL LANT BECAUSE AS PER THE DETAILS ON RECORD, THESE FIGURES HAVE BEEN EXTR ACTED FROM THE RA BILLS DRAWN DURING THE YEAR. RA BILLS DO NOT REFLE CT THE TRUE OR EXACT BILLING IN RESPECT OF EITHER THE TOTAL TURNOVER OR LABOUR CHARGES OR FOR THAT MATTER CHARGES INCURRED ON OTHER PURCHASES AS WELL. THEREFORE, IT WAS OBSERVED THAT THE ASSESSING OFFICER HAS PROC EEDED FROM AN INVALID PARAMETER TO MAKE A GENERALIZATION THAT THE GROSS PROFIT OF LABOUR BILLING SHOULD BE 51.68%. THE INCORRECT ASS UMPTION COULD NOT BE USED IN ANOTHER SET OF FACTS AS A CORRECT PR OJECTION. 21 11.10 THE CIT(A) OBSERVED THAT THE ASSESSING OFFIC ER WAS DRAWN INTO ADOPTING THE LABOUR CHARGES @ 20% OF TURNOVER ON AC COUNT OF A LETTER DATED 27/10/2009 WRITTEN BY THE APPELLANT TO THE IN VESTIGATION WING. THE ASSESSING OFFICER HAS QUOTED A PORTION OF THIS LETTER AS UNDER - 'IT MAY BE NOTED THAT ASSESSEE SUBMITTED THAT LABOU R COMPONENT WOULD BE 15-17% OF TOTAL TURNOVER IN ITS LETTER DATED 27/10/2009. EVEN IF THE CONTENTION OF THE ASSESSEE THAT LABOUR COMPONENT WOULD BE MORE IN THE INITIAL PHASE OF CON TRACT, IS CONSIDERED, THE LABOUR COMPONENT MAY BE AT THE MOST 20% WHICH MATCHES WITH THE WORKING GIVEN AT PARA NO. 10 .2.12 SUPRA'. 11.11 HENCE, THE ASSESSING OFFICER WAS BASING THE A DDITION FOR ASSESSMENT YEAR 2008-09 ENTIRELY ON A 'COMMITMENT' MADE BY THE APPELLANT TO HE INVESTIGATION WING THAT THE LABOUR COMPONENT 'WOULD BE AROUND 15%-17% OF THE TOTAL TURNOVER. A REFER ENCE TO THIS LETTER IN THE FORM OF A QUOTATION WAS MADE IN PARAGRAPH 10 .2.5 OF THE ASSESSMENT ORDER. DURING THE APPELLATE PROCEEDINGS , IT WAS STATED ON BEHALF OF ASSESSEE THAT THE CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT THE APPELLANT HAS ADMITTED THAT LABOUR COMPONENT WOULD BE IN THE RANGE OF 15% - 17% OF THE TOTAL TURNOVER WAS NOT JUSTIFIED. HE POINTED OUT THAT THE ASSESSING OFFICER HAS QUOTE D PARTIALLY FROM THE LETTER DATED 27/ 10/2009. HE ALSO STATED THAT T HE CONTENTS OF THIS LETTER WERE BROUGHT TO THE NOTICE OF THE ASSESS ING OFFICER IN ITS SUBMISSION MADE AT THE TIME OF ASSESSMENT ON 21/12/2011 RECEIVED BY THE OFFICER ON 23/12/2011. HE ALSO SUB MITTED A COPY OF THE LETTER DATED 27/10/2009. THE RELEVANT PORTION OF THE LETTER IS QUOTED HEREUNDER: DURING THE COURSE OF ACTION, THE LABOUR CHARGES AM OUNTING RS. 27,25,88,085.00 WAS OUTSTANDING AS ON 31.03.2009. D UE TO THE NON-RECEIPT OF CONTRACT AMOUNT DURING THE YEAR UNDE R CONSIDERATION, WE COULD NOT MAKE THE PAYMENT OF THE YEAR F.Y. 08-09. 22 DURING THE COURSE OF ACTION U/S 132, THE PARTY ON A CTION INFORMED US TO PRODUCE THE LABOUR OR GANG LEADERS F OR WHOM, THE AMOUNT OF LABOUR PAYABLE SHOWN IN BALANCE SHEET . IT IS TO INFORM YOUR HONOUR THAT THE LABOUR CHARGES DEBITED IN THE BOOKS OF ACCOUNTS ARE GENUINE. HOWEVER, WE ARE UNAB LE TO PRODUCE EITHER MUKADAM OR DIRECT LABOURERS. CONSIDE RING THEIR EARNING & HAND TO MOUTH LIVELIHOOD, THOSE PEOPLE AL WAYS USED TO REMAIN FAR AWAY FROM TAX. MATTERS OR OTHER GOVT. OFFICES. THEY ARE AFRAID TO VISIT ANY GOVERNMENT OFFICERS, E VEN MUKADAMS ARE ALSO RELUCTANT TO COME TO INCOME TAX O FFICE. THESE ARE DAY-TO-DAY PRACTICAL DIFFICULTIES WE FACE . IF THE DEPARTMENT SUMMONED THE PARTICULAR LABOUR TO ATTEND OFFICE FOR CONFIRMATION OF THIS OUTSTANDING PAYMENT, CERTAINLY THEY WILL NOT ATTEND ANY OFFICES BUT ADVERTISE BY MOUTH PUBLI CITY AMONG LABOUR GANGS WHO SHOULD NOT CO-OPERATE SUCH PARTIES & IT IS VERY DIFFICULT FOR US TO PULL ON SUCH TYPE OF CONTR ACT WORK IN FUTURE. CONSIDERING THE WORK, CARRIED OUT DURING THE YEAR, LABOUR REQUIREMENT IS APPROXIMATELY 15-17 % OF THE CONTACT WHICH WORKS TO RS. 12.75 TO RS. 14.45 CRORES RESPECTIVELY . THE WORK CARRIED OUT BY US IN THE CITY OF PUNE (PCMC). WHILE WORKING FOR ROAD CONSTRUCTION, WE HAVE TO INVOLVE LABOURERS FOR DEMOLISHING THE HOMES, SHOPS REMOVAL OF WATER SUPPLY PIPES, DRA INAGE LINES, UNDER GROUND ELECTRICAL & TELEPHONE CABLES ETC. ACR OSS THE PARTICULAR ROAD CONSTRUCTION. HENCE THE LABOUR REQU IREMENT IS MUCH MORE THAN THE LABOUR ESTIMATED IN A TENDER FOR WORK UNDER THE YEAR. CONSIDERING ALL THE FACTS & FIGURES, I ESTIMATE THE LABOUR CHARGES TO THE EXTENT OF RS. 18.53 CRORES, AS I AM UNABLE TO PRODUCE THE LABOURERS TO AVOID FURTHER COMPLICATION OR OBSTACLES IN MY FUTURE WORK, AS UNDISCLOSED INCOME ON ACCOUNT OF LABOUR OUTSTANDING SHOWN IN THE BALANCE SHEET FO R F.Y. 2008-09. YOUR HONOUR IS REQUESTED TO TAKE INTO CONSIDERATION ; ALL THE POSSIBILITIES NARRATED ABOVE ACCEPT AN AMOUNT OF RS . 18,53,88,608.00 AS INCOME ON AMOUNT OF OUTSTANDING LABOUR CHARGES. (EMPHASIS SUPPLIED BY ME) 11.12 THIS LETTER WAS ALONG WITH THE STATEMENT MA DE BY SHRI MARUTI L MANE UNDER SECTION 132(4) OF THE INCOME-TAX ACT O N 21/10/2009. SHRI MARUTI L MANE IS A PARTNER IN THIS FIRM. THE R ELEVANT QUESTION IS NO. 10 AND QUESTION AND ANSWER THERETO IS REPRODUCE D HEREUNDER: Q 10 FROM THE ACCOUNTS OF M/S MANISHA CONSTRUCTION CO., IT IS NOTICED THAT LABOUR CHARGES OF RS. 28,24 ,50,OOO/- IS 23 OUTSTANDING AS ON 31.03.2009 OUT OF WHICH RS. 1,02, 69,516/- HAS BEEN PAID TILL DATE AND THUS RS. 27,25,88,085/- IS STILL OUTSTANDING. IT IS STATED BY YOU IN YOUR STATEMENT U/S 132(4) DURING THE COURSE OF SEARCH ACTION IN THE PREMISES OF MANISHA VILLA AT BHARNE NAKA, KHED ON 23.09.2009 VIDE REPLY TO QUESTION NO 16 AND 18 THAT LABOUR CHARGES ARE PAID OFF WITHIN 2 TO 3 MONTHS. THIS FACT IS ALSO WELL KNOWN THAT NO L ABOURER OR LABOUR MUKADAM WILL WAIT FOR A LONGER PERIOD FOR RE CEIPT OF HIS DUES. NOW, MORE THAN 6 MONTHS HAVE PASSED AND SUCH LABOUR CHARGES WHICH WERE BOOKED IN F.Y. 2008-09 ARE STILL OUTSTANDING. PLEASE GIVE YOUR SAY AS TO WHETHER THE SAME IS GENUINE. ANS. I DO ADMIT THAT SUCH LABOUR CHARGES ARE NOT FU LLY OUTSTANDING IN REALITY. SUCH LARGE LABOUR CHARGES A PPEAR TO BE OUTSTANDING IN VIEW OF THE FACT THAT WE HAVE NOT RE CEIVED PAYMENT AGAINST OUR CONTRACTS AND HENCE PAYMENTS RE MAINED OUTSTANDING. I DO VOLUNTARILY ACCEPT THAT SOME OF T HE LABOUR CHARGES ARE INFLATED DURING THE YEAR. CONSIDERING T HE LABOUR REQUIREMENT FOR WORK CARRIED OUT AND QUARRY (EXCAVA TION AND MAKING STONE METAL) DURING THE PERIOD. I ESTIMATE T HE INFLATION OF EXPENDITURE IN LABOUR SHALL BE RS. 18,25,88,085/ - WE THEREFORE DECLARE THIS AMOUNT AS UNDISCLOSED INCOME FOR F Y 08-09 OVER AND ABOVE THE REGULAR INCOME OF M/S MANI SHA CONSTRUCTION CO. AS PER THE AUDIT REPORT. (EMPHASIS SUPPLIED BY ME) 11.13 IT IS APPARENT FROM THE LETTER AND THE ANSWER TO QUESTION NO. 10 THAT THE LABOUR CHARGES WERE OUTSTANDING BECAUSE THE APPELLANT HAS NOT RECEIVED THE PAYMENTS FROM THEIR PRINCIPALS. IT WAS CLEAR THAT THE APPELLANT'S PARTNER HAS VOLUNTARILY ACCEPTED TH AT SOME LABOUR CHARGES WERE INFLATED 'DURING THE YEAR'. THIS WAS I N RELATION TO THE LABOUR CHARGES FOUND OUTSTANDING FOR THE FINANCIAL YEAR 2008-09. THE QUESTION ALSO WAS DIRECTED TOWARDS THE OUTSTANDING LABOUR CHARGES SHOWN IN THE BOOKS OF ACCOUNT FOR THE FINANCIAL YEAR 2008-09. FURTHER, THE PARTNER HAS ALSO STATED THAT THE INFLA TION OF EXPENDITURE TO THE TUNE OF 1825.88 LAKHS WAS ON ACCOUNT OF LABOUR REQUIREMENT FOR THE 'WORK CARRIED OUT DURING THE PERIOD'. AGAIN, TH IS PERIOD WAS IN REFERENCE TO THE PERIOD FOR WHICH THE.' LABOUR CHAR GE WAS OUTSTANDING I.E. FINANCIAL YEAR 2008-09. IT WAS ALSO APPARENT F ROM THE DESCRIPTION OF WORK IN LETTER DATED 27/10/2010 THAT THEY WOULD PERTAIN TO INITIAL PHASES OF THE WORK OF ROAD CONSTRUCTION. THE INITIA L PHASE IN THIS 24 CASE WAS FINANCIAL YEAR 2007-08 AND NOT 2008-09. TH E APPELLANT WAS VERY CATEGORICAL IN STATING THAT REQUIREMENT OF LAB OUR FORCE WAS MORE IN THE INITIAL WORK PHASE AS COMPARED TO LATER PERI OD WHEN THE WORK BECOMES MORE MECHANIZED. THUS, THE PERCENTAGE OF 15 % - 17% OF CONTRACT WAS STATED IN RELATION TO THE LABOUR REQUI REMENT OF FINANCIAL YEAR 2008-09 AND NOT FOR THE LABOUR REQUIREMENT OF THE ENTIRE PERIOD I.E. FROM THE COMMENCEMENT OF THE WORK IN EARLIER P REVIOUS YEARS. 11.14 VIDE LETTER DATED 17/12/2011, THE APPELLANT HAD STATED THAT THE OUTSTANDING BALANCE AS ON 31/03/2008 I.E. RELEV ANT FOR THE ASSESSMENT YEAR 2008-09 WAS 2438.83 LAKHS WHICH WAS FULLY PAID DURING THE FINANCIAL YEAR 2008-09. SIMILARLY, THE O UTSTANDING BALANCE AS ON 31/03/2009 WAS 998.71 LAKHS WHICH WAS FULLY PAID IN THE FINANCIAL YEARS 2009-10. IN FACT, IN THE ASS ESSMENT YEAR 2010- 11, NO ADDITION HAS BEEN MADE ON ACCOUNT OF OUTSTAN DING LABOUR EXPENSES AND THE CONTENTION OF THE APPELLANT HAS BE EN ACCEPTED. THE CONTENTION OF THE APPELLANT WAS THAT THE CONTRACT O F A ROAD CONSTRUCTION IS SPLIT INTO TWO PHASES. PHASE-I INVO LVES DEMOLITION OF EXISTING STRUCTURES, EARTH WORK AND OTHER SUCH WORK WHICH REQUIRE MAXIMUM INVOLVEMENT OF LABOUR RANGING FROM 25% - 35 % OF THE CONTRACT VALUE. PHASE-II INVOLVES ACTUAL LAYING OF THE ROAD AND FINISHING WHICH REQUIRE LESSER INVOLVEMENT OF LABOU R RANGING FROM 10% TO 15% OF THE CONTRACT VALUE. ACCORDINGLY, LABO UR CHARGES INCURRED DURING FINANCIAL YEAR 2007-08 RELEVANT TO ASSESSMENT YEAR 2008-09 IS MORE DUE TO THE NATURE OF THE WORK. THUS ,, THE LABOUR CHARGES INCURRED FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09 WAS 34% CONSIDERING THE NATURE OF WORK INVOLVED. 11.15 THE CIT(A) HAVING CONSIDERED THE SUBMISSION OF THE APPELLANT AND THE DECLARATION UNDER SECTION 132(4) WAS MADE E NTIRELY ON ACCOUNT OF THE NATURE OF WORK DONE DURING THE FINAN CIAL YEAR 2008- 09. EXCEPT FOR THE ADMISSION BY THE APPELLANT, THER E WAS ABSOLUTELY NO EVIDENCE AT HAND TO SUGGEST THAT THE APPELLANT H AD INFLATED 25 EXPENSES FOR FINANCIAL YEAR 2007-08 OR FOR THAT MAT TER FOR ASSESSMENT YEAR 2008-09. THERE WAS NO DISCUSSION IN THE ASSESS MENT ORDER WITH REFERENCE TO THE RA BILLS SUBMITTED TO THE PCMC AUT HORITIES ABOUT THE NATURE OF BILLING WHICH WOULD REFLECT THE TYPE OF WORK COMPLETED BY THE APPELLANT IN EITHER STAGES. AN AGE-WISE ANAL YSIS OF LABOUR PAYMENT WAS NOT DONE. NO QUESTIONS WERE ASKED DURIN G THE SEARCH AND SEIZURE PROCEEDINGS ABOUT THE LABOUR CHARGES OF EARLIER YEARS PRESUMABLY BECAUSE THE SAME WERE NOT OUTSTANDING. THE ASSESSING OFFICER HAS MADE THIS ADDITION ON A PRESUMPTION THA T SINCE MOST OF THE LABOUR CREDITORS WERE COMMON FOR BOTH THE ASSES SMENT YEARS AND THE FACT THAT THE SAME CREDITORS WERE WRITTEN OFF D URING THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEAR 2009-10 THAT THE CREDITORS WOULD BE BOGUS FOR THE ASSESSMENT YEAR 2008-09. HOW EVER, THERE WAS NO FINDING IN THE ASSESSMENT ORDER TO THE EFFEC T THAT THE CREDITORS WERE BOGUS. IT IS PERTINENT TO MENTION T HAT THE APPELLANT HAD PROVIDED THE LIST OF LABOUR MUKADAMS ALONG WITH THEIR ADDRESSES TO THE ASSESSING OFFICER, IN RESPONSE TO THE LETTER DATED 15/12/2011 RECEIVED BY THE APPELLANT ON 16/12/2011, ON 23/12/2 011 VIDE LETTER DATED 21/12/2011. THE LIST WAS NEVER ACTED UPON BY THE ASSESSING OFFICER APPARENTLY BECAUSE THERE WAS NO TIME FOR HI M TO ACT UPON THAT. IN ANY CASE, THESE DETAILS WERE ASKED FOR AT THE FAG END OF THE ASSESSMENT PROCEEDINGS AND COULD NOT HAVE BEEN ACTE D UPON UNDER ANY CIRCUMSTANCES. UNDER THESE CIRCUMSTANCES, THERE IS NO ALTERNATIVE BUT TO BELIEVE THAT THE ASSESSING OFFIC ER HAD CALLED FOR THE LIST OF MUKADAMS OR GANGMEN AND CHOSEN TO ACCEPT IT WITHOUT CHECKING THE GENUINENESS OF THE SAME. THIS FACT WAS ALSO CLEAR FROM THE ASSESSMENT ORDER BECAUSE THERE WAS NOTHING IN I T ABOUT THE NON- GENUINENESS OR NON-EXISTENCE OF THE MUKADAMS OR FOR THAT MATTER THAT THE LIST WAS CONSIDERED AS FICTITIOUS OR THAT IT WAS INTENDED TO BE ACTED UPON. IN VIEW OF THIS, THE CIT(A) CONCLUDED THAT THE LIST OF CREDITORS AND THE PERSONS MENTIONED THEREIN WAS ACC EPTED AS GENUINE FOR THE PURPOSES OF ASSESSMENT AND THE ADMI SSION OF 1853.88 LAKHS AS THEIR UNACCOUNTED INCOME WAS MADE DUE TO THE 26 INABILITY OF THE APPELLANT TO PRODUCE THE MUKADAMS OR GANGMEN FOR VERIFICATION. THEREFORE, THE WHOLE ISSUE BOILS DOWN TO WHETHER LABOUR CHARGES OF 3293.19 LAKHS COULD HAVE BEEN INCURRED DURING THE RELEVANT PREVIOUS YEAR OR NOT. 11.16 PHASE-I OF THE ROAD CONSTRUCTION PROCESS IN VOLVES THE INITIAL SURVEY WORK, SETTING OUT OF CENTRE LINES, DETERMINA TION OF ROAD WIDTH, EXCAVATION FOR ROAD WORK, PREPARATION AND LAYING OF EMBANKMENT, PREPARATION AND LAYING OF SUB-GRADE, PREPARATION AN D LAYING OF GRAVEL SUB-GRADE. ALL THESE ACTIVITIES WERE CARRIED OUT BY SKILLED TECHNICAL PERSONS WITH THE HELP OF LABOURERS. THE WORK INVOLV ING CLEARING THE TOTAL ROAD WIDTH, REMOVAL OF OBSTACLES, ENCROACHMEN TS, FILLING UP OF POTHOLES ETC. WERE DONE WITH THE HELP OF LABOUR ONL Y. THE EXCAVATION FOR ROAD WORK COULD BE DONE WITH THE HELP OF EXCAVA TORS BUT MORE LABOUR WAS REQUIRED TO DO THE SAME WORK FOR ROAD CO NSTRUCTION IN CITY AREAS TO AVOID TRAFFIC CONGESTION, DAMAGES TO ASSETS OF OTHER CIVIL UTILITIES LIKE ELECTRICAL CABLE, WATER LINES, TELEP HONE LINES ETC. REMOVAL OF OTHER OBSTACLES AND LEVELING OF EMBANKMENT AND S UB-GRADE PREPARATIONS WERE PROCESSES WHICH REQUIRE INTENSIVE LABOUR FORCE. THERE WERE ALLIED ACTIVITIES ALSO WHICH INCLUDE CON STRUCTION OF SMALL BRIDGES, DRAINAGE WORK, REFURBISHING OF THE DAMAGED UTILITY LINES, CONSTRUCTION OF MEDIANS, BEAUTIFICATION, LAYING OF STEEL REINFORCEMENT, MAKING OF FOOTPATH ETC., WHICH WERE ALL ANCILLARY T O LAYING OF A ROADWAY AND THEY REQUIRE A LARGE FORCE OF SKILLED A ND UNSKILLED LABOUR. EACH AND EVERY ACTIVITY HAD TO BE ANALYZED IN RELATION TO THE WORK DONE BEFORE HOLDING THAT THE EXPENSES ON LABOU R WERE INFLATED. WITHOUT LOOKING INTO THESE ASPECTS, IT WAS NOT POSS IBLE TO MAKE A BALD STATEMENT THAT THE REQUIREMENT OF LABOUR FORCE WOULD NOT BE MORE THAN 20% OF THE TURNOVER. SUCH AN ANALYSIS OF VARIOUS PROCESSES AND INVOLVEMENT OF LABOUR THEREIN WAS MIS SING IN THE ASSESSMENT ORDER. UNDER THE CIRCUMSTANCES, THE RA B ILLS AS ACCEPTED BY THE CONTRACTEE I.E. PCMC AND OTHER VENDEES COULD NOT BE DOUBTED UPON AND THE LABOUR BILLING CERTIFIED BY THE AUTHOR ITIES HAD TO BE 27 TAKEN AS CORRECT AND NO ADVERSE INFERENCE SHOULD HA VE BEEN DRAWN. ACCORDINGLY, THAT THERE WAS NO BASIS FOR MAKING THE ADDITION OF 1349.98 LAKHS. HE ALSO FIND THAT THE APPELLATE PRO CEEDINGS FOR ASSESSMENT YEAR 2006-07, DISALLOWANCE WAS RESTRICTE D TO 0.8% ON THE GROUND THAT THE APPELLANT WAS UNABLE TO FURNISH THE SUPPORTING VOUCHERS OR NECESSARY SUPPORTING DOCUMENTS. THE FA CT PERSISTS IN THIS YEAR AS WELL. THE CIT(A) HAVING FOLLOWED THE DECISION OF HIS PREDECESSOR IN ASSESSMENT YEARS 2002-03 AND 2006-07 AND RESTRICT THE DISALLOWANCE TO 0.8% OF THE TOTAL LABOUR CHARGE S DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH WAS CONFIRMED BY ITAT AS STATED ABOVE BY OBSERVING AS UNDER. 3. ON APPEAL, THE CIT(A) OBSERVED THAT SIMILAR ISS UE HAD COME UP FOR CONSIDERATION IN THE APPEAL FOR A.Y. 2002-03 WHEREIN THE CLAIM WAS RESTRICTED TO 0.8% OF THE TOTAL EXPENDITU RE. PARTIES BROUGHT TO OUR NOTICE THE FOLLOWING OBSERVATIONS OF THE CIT(A), WHICH READ AS UNDER: 'SIMILAR ISSUE HAD ALSO BEEN RAISED BY THE APPELLAN T IN THE APPEAL FOR A. Y. 2002-03. IN THAT YEAR, THE APPEL LANT WAS ASKED TO PRODUCE NECESSARY DOCUMENTS TO SUPPORT THE CLAIM FOR LABOUR CHARGES. THE APPELLANT HAD REITERA TED ITS INABILITY TO DO SO STATING THAT DETAILS OF LABOUR E MPLOYEES ARE NOT MAINTAINED AT SITE. IN VIEW OF THE INABIL ITY OF THE APPELLANT TO REDUCE NECESSARY SUPPORTING DOCUMENTS, THE DISALLOWANCE MADE BY THE A.O HAD BEEN SUSTAINED IN THAT YEAR. THE DISALLOWANCE MADE IN THAT YEAR WAS RS. 1,60,000/- OUT OF TOTAL EXPENSES OF RS. 2,01,09,200 /-, WHICH WORKS OUT ROUGHLY 0.8%. THE FACTS AND CIRCUMSTANCES BEING SIMILAR, I WOULD FOLLOW MY OWN DECISION IN THE APPELLANT'S CASE FOR THE EARLIER YE AR AND UPHOLD THE DISALLOWANCE IN PRINCIPLE WHILE DIRECTIN G THE A.O TO RESTRICT THE DISALLOWANCE TO THE SAME PERCEN TAGE APPLIED IN THE EARLIER YEAR I.E., 0.8% WHICH WORKS OUT TO RS.2,12,045/-. THE BALANCE DISALLOWANCE MADE IN T HE ASSESSMENT IS DELETED.' 4. IT IS AN ADMITTED POSITION, THAT THE ASSESSEE DI D NOT FILE AN APPEAL AGAINST THE AFORESAID DECISION OF THE CIT(A) FOR A.Y. 2002-03. HENCE, FOLLOWING THE AFORESAID APPELLATE ORDER OF THE CTT(A) FOR THE YEAR UNDER CONSIDERATION ALSO, HE RE STRICTED THE CLAIM OF THE ASSESSEE TO 0.8% OF THE TOTAL EXPENSES , WHICH 28 WORKED OUT TO RS.2,12,045/-. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. DURING THE PROCEEDINGS, THE ASSESSEE'S COUNSEL A RGUED THAT THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADHOC DISALLOWANCE OF LABOUR PAYMENT AT RS.2,12,045/- @ 0 .8%. THE DISALLOWANCE IS ON PURELY ADHOC BASIS AND WITHOUT C HALLENGING A GENUINENESS OF SUCH EXPENDITURE AND THEREFORE, TH E SAME CANNOT BE SUSTAINED. ON THE OTHER HAND, THE DR FOR THE REVENUE MENTIONED THAT CIT (A) HAS ERRED IN RESTRICTING TO ONLY 0.8% RELYING ON THE PRECEDING YEARS. WE HAVE HEARD THE P ARTIES AND PERUSED THE RELEVANT RECORDS. CONSIDERING THE FACT THAT THE ASSESSEE HAS NOT CHOSEN TO FILE AN APPEAL TO THE HI GHER FORUM ON THE SIMILAR ISSUE FOR A.Y. 2003-03, IT IS INFERR ED THAT THE ASSESSEE IN PRINCIPLE ACCEPTED THE ADDITION AT THE RATE OF 0.8 %. THERE ARE NO CHANGES IN FACTS FOR THIS YEAR UNDER C ONSIDERATION. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT (A) IN RESTRICTING THE DISALLOWANCE OF LABOUR PAYME NT @ 0.8% WHICH WORKS OUT TO RS.2,12,045/- FOR THIS YEAR TOO. THEREFORE, THIS PART OF THE GROUND OF APPEAL IS DISMISSED. THUS, APPELLANT'S GROUND WAS PARTIALLY ALLOWED BY C IT(A). THIS REASONED FINDING OF CIT(A) IS FORTIFIED BY THE DECI SION OF ITAT ON THE ISSUE AS STATED ABOVE, NEEDS NO INTERFERENCE FROM O UR SIDE. WE UPHOLD THE SAME. 12. THE NEXT ISSUE IS WITH REGARD TO UNDERSTATED VA LUE OF IMMOVABLE PROPERTY OF 5,83,000/- FOR A.Y. 2007-08. THIS ISSUE WAS TAKEN UP AS ADDITIONAL GROUND EMANATING FROM TH E ORDER OF THE ASSESSING OFFICER IS IN RESPECT OF UNDERSTATEMENT O F VALUE OF PROPERTY. IN ASSESSMENT THE APPELLANT HAD AGREED THAT THE VAL UE OF THE PROPERTY HAS BEEN UNDERSTATED BY 5,83,000/- AND OFFERED THE SAME AS INCOME FOR ASSESSMENT YEAR 2007-08. THE ASSESSIN G OFFICER OBSERVED THAT THIS INVESTMENT WAS MADE IN THE ASSES SMENT YEAR 2006-07 AND, THEREFORE, HE HAD INCLUDED THE SUM OF 5,83,000/- BEING THE NOTIONAL RENTAL INCOME FROM PROPERTIES US ED BY PARTNERS OF THE FIRM IN THE RETURN OF INCOME FILED UNDER SECTIO N 153A. 13. IN APPEAL, THE CIT(A) OBSERVED THAT THERE APP EARS TO BE A DISCREPANCY IN THE STATEMENT MADE IN THE ASSESSMENT ORDER AND IN 29 APPELLATE PROCEEDINGS AND IN THE NARRATION IN THE C OMPUTATION OF INCOME AGAINST THE AMOUNT OF 5,83,000/-. IT IS NOT CLEAR FROM THE COMPUTATION OF INCOME WHETHER THIS PERTAINS TO AN I NCOME ON ACCOUNT OF UNDER VALUATION DECLARED UNDER SECTION 1 32(4) OR IT PERTAINS TO SOME OTHER INCOME. THE ASSESSING OFFICE R IS DIRECTED TO VERIFY THE HEAD UNDER WHICH THIS INCOME WAS OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2007-08. IF HE FINDS THAT IT PE RTAINS TO THE AGREED ADDITION OF 5,83,000/- WHICH HAS BEEN HELD TO BE TAXABLE IN ASSESSMENT YEAR 2006-07 THEN, HE SHALL DELETE THE A DDITION IN ASSESSMENT YEAR 2007-08. THIS IS FOR THE REASON THA T SAME INCOME CANNOT BE TAXED TWICE IN DIFFERENT ASSESSMENT YEARS . AN INCOME HAS TO BE TAXED IN THE YEAR IN WHICH IT ACCRUED AND ARI SES AND NOT OTHERWISE. THIS GROUND OF APPEAL WAS TREATED AS ALL OWED FOR STATISTICAL PURPOSES. 14. THIS REASONED FINDING OF CIT(A) WHEREBY HE HAS RESTORED THE ISSUE TO THE ASSESSING OFFICER WITH DEFINITE DIRECT IONS, NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 15. IN THE RESULT, ALL THESE APPEALS FILED BY THE R EVENUE ARE DISMISSED AS DISCUSSED ABOVE. 16. IN ITA NOS.1899 TO 1901/PN/12 FOR A.YS. 2008-09 TO 2010-11 IN THE CASE OF M/S. OM CONSTRUCTION COMPANY, THE RE VENUE HAS FILED THE APPEALS ON THE FOLLOWING GROUNDS. 1. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE & LAW, THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE O N ACCOUNT OF SECTION 40(A)(IA) FOR A.Y. 2008-09 TO 2010-11 AS UN DER: ASSESSMENT YEAR AMOUNT 1 2008 - 09 RS.1,02,04,000/ - 2 2009 - 10 RS.7,03,72,200/ - 3 2010 - 11 RS.1,28,99,000 30 2. THE APPELLANT CRAVES LEAVE TO ADDITION, ALTER, AMEN D AND MODIFY THE ABOVE GROUND RAISED, ANY OTHER GROUNDS A T THE TIME OF PROCEEDINGS BEFORE THE HONBLE TRIBUNAL WHI CH MAY PLEASE BE GRANTED. 16.1 A SIMILAR ISSUE AROSE IN ITA NOS.1902 TO 19 08/PN/2012 IN THE CASE OF M/S. MANISHA CONSTRUCTION COMPANY, WHER EIN THE ISSUE OF APPLICABILITY OF SECTION 40(A)(IA) OF THE ACT HA S BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE PARA 10.2 OF THIS ORDER. F ACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF CIT(A) FOR ALL THE YEARS UNDER CONS IDERATION. WE UPHOLD THE SAME. 17. IN THE RESULT, ALL THE APPEALS FILED BY THE REV ENUE IN BOTH THE GROUPS ARE DISMISSED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF JUNE, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH JUNE, 2014 GCVSR COPY TO:- 1. DEPARTMENT 2. ASSESSEE 3. THE CIT(A), KOLHAPUR 4. THE CIT, KOLHAPUR 5. THE DR, B BENCH, I.T.A.T., PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE