The DCIT, Circle-9, Surat V. M/s. Fintech Engineers, Surat

ITA 2151/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6331 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Assessee Lawyers: J P SHAH

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.2151/AHD/2009 A. Y.: 2006-07 THE D. C. I. T., CIRCLE-9. ROOM NO.423, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. FINTECH ENGINEERS, 40, SHANTI NIKETAN SOCIETY, SUMUL DAIRY ROAD, SURAT PA NO. AABFF 0995 N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ALBINUS TIRKEY, DR RESPONDENT BY SHRI J. P. SHAH, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-V, SURAT DATED 23 RD APRIL, 2009, FOR ASSESSMENT YEAR 2006-07 ON THE FOL LOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.23,52,175/- MADE BY THE A. O. ON ACC OUNT OF SALARY AND WAGES, WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.72,578/ MADE BY THE A. O. ON ACCOUNT OF NON DESTRUCTIVE TESTING (NDT) EXPENSES, WITHOUT APPRECIATING THE FACTS OF THE CASE. ITA NO.2151/AHD/2009 DCIT CIR-9, SURAT VS M/S. FINTCH ENGINEERS 2 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF SUPPLYING LABOURERS TO R ELIANCE ENGINEERING ASSOCIATES PVT. LTD. UNDER WORK CONTRAC T FOR ITS SITE AT JAMNAGAR. THE ASSESSEE IS ENGAGED IN THE ACTIVITY O F CARRYING OUT MECHANICAL WORK LIKE FABRICATION, ERECTION, PIPING AND STRUCTURAL WORKS AT SITE WHEREIN IT HAS TO PROVIDE ONLY LABOURERS WI THOUT ANY MATERIAL SINCE THE MATERIAL WAS SUPPLIED COMPLETELY BY RELIA NCE ENGINEERING ASSOCIATES PVT. LTD. THE AO OBSERVED THAT THE ASSES SEE HAD CLAIMED AN AMOUNT OF RS.2,54,21,785/- AS SALARY AND WAGES EXPENSES AGAINST CONTRACT RECEIPTS OF RS.3,08,70,945/- WHICH AMOUNTED TO 80% OF THE TOTAL RECEIPTS. THE AO OBSERVED THAT LOT OF CASH HAS BEEN WITHDRAWN FROM THE BANK ON DIFFERENT DATES FOR MAKI NG PAYMENTS TO THE LABOURERS. THE AO OBSERVED THAT FOR EXECUTION O F SUCH HUGE CONTRACT THE WORK CANNOT BE COMPLETED WITHOUT DEPLO YMENT OF ANY SPECIALIZED LABOUR CONTRACTOR. THE AO ASKED THE ASS ESSEE TO PRODUCE VOUCHERS AND SALARY REGISTER FOR VERIFICATION AND I SSUED SHOW CAUSE NOTICE AS TO WHY 25% OUT OF SALARY AND WAGES EXPENS ES SHOULD NOT BE DISALLOWED. THEREAFTER, THE AO DISALLOWED 10% OU T OF THESE EXPENSES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PRODUCE THE VOUCHERS AND SALARY REGISTER AND THIS GIVES AN IMPR ESSION OF VIOLATION OF PROVISIONS OF TDS AND SECTION 40A (3) OF THE IT ACT. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT BOOK RESUL TS OF THE ASSESSEE HAVE IMPROVED SUBSTANTIALLY AS COMPARED TO THE EARL IER YEAR SINCE THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION WAS RS. 12,83,383/- @ 4.15% AS AGAINST NET PROFIT OF ONLY RS.99,304/- @ 1 .07% IN THE EARLIER YEAR. IT WAS SUBMITTED THAT AD HOC ADDITION IS MADE WITHOUT REJECTING THE BOOK RESULTS AND THE SALARY REGISTER WAS NOT CA LLED FOR. IT WAS ITA NO.2151/AHD/2009 DCIT CIR-9, SURAT VS M/S. FINTCH ENGINEERS 3 SUBMITTED THAT THE AO MADE A CONTRADICTORY OBSERVAT ION IN THE ASSESSMENT ORDER. NO SPECIFIC INSTANCE OF VIOLATION OF ON NON- DEDUCTION OF TDS AND PAYMENT U/S 40A (3) OF THE IT ACT HAVE BEEN POINTED OUT. BOOKS OF ACCOUNTS ARE AUDITED AND HAVE GIVEN TRUE AND FAIR VIEW OF THE BUSINESS OF THE ASSESSEE. IT WAS SUBMITTED THAT SALARY AND WAGES IN COMPARISON WITH THE EARLIER YEA R IS REASONABLE IN THE RATIO OF INCOME. IT WAS ARGUED THAT THERE IS A MINOR INCREASE OF 0.73% OF THE EXPENDITURE WHICH IS JUST NOTHING. THE LEARNED CIT(A) ON EXAMINING THE RECORDS PRODUCED BEFORE HIM FOUND THE CONTENTION OF THE ASSESSEE TO BE CORRECT AND NOTED THAT REASONAB LENESS OF THE EXPENDITURE SHALL HAVE TO BE JUDGED FROM OVER ALL B OOK RESULTS OF THE ASSESSEE. THE LEARNED CIT(A) CONSIDERING THE FINDIN G OF THE AO IN THE LIGHT OF THE HISTORY OF THE ASSESSEE NOTED THAT THE AO HAS NOTED THAT THE ASSESSEE HAS NOT PRODUCED VOUCHERS FOR VERIFICA TION, THEREFORE, INSTEAD OF DISALLOWING 20% OUT OF THE EXPENSES, IT WOULD BE PROPER TO SUSTAIN TO DISALLOW RS.2,00,000/-. BALANCE WAS ACCO RDINGLY DISALLOWED. THE REVENUE ON GROUND NO.1 IS IN APPEA L ON THIS ISSUE. FURTHER, THE AO DISALLOWED 10% OUT OF SALARY AND WA GES OUT OF N.D.T. (NON DESTRUCTIVE TESTING) ON THE GROUND THAT THE ASSESSEE FIRM COULD PRODUCE VOUCHERS ONLY FOR AN AMOUNT OF R S.5,46,391/- AND NO INVOICES COULD BE PRODUCED FOR THE BALANCE AMOUN T OF RS.6,12,891/-. IT WAS SUBMITTED THAT COMPLETE DETAI LS OF NDT EXPENSES IN THE FORM OF LEDGER ACCOUNT GIVING PARTY WISE DETAILS, BANK STATEMENTS SHOWING ALL THE PAYMENTS ARE MADE THROUG H ACCOUNT PAYEE CHEQUES WAS SUBMITTED BEFORE THE AO, THEREFOR E, ADDITION IS UNJUSTIFIED. THE LEARNED CIT(A) NOTED THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE EXPENSES AND ON THE BASIS OF EVIDENCES ITA NO.2151/AHD/2009 DCIT CIR-9, SURAT VS M/S. FINTCH ENGINEERS 4 PRODUCED BEFORE HIM IT WOULD BE APPROPRIATE TO DISA LLOW AN AMOUNT OF RS.50,000/-. ACCORDINGLY, REMAINING ADDITION WAS DE LETED. THE REVENUE IS IN APPEAL IN GROUND NO.2 ABOVE ON THIS I SSUED. 3. THE LEARNED DR RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE FAILED TO PRODUCE VOUCHERS AND DE TAILS OF THE EXPENDITURE BEFORE THE AO; THEREFORE, ADDITION WAS RIGHTLY MADE BY THE AO ON BOTH THE ISSUES. 4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND SUBMITTED THAT THE FINDINGS OF THE AO WOULD SHOW TH AT ADDITION WAS MADE BECAUSE WITHOUT ASSISTANCE FROM DIFFERENT SPEC IALIZED PERSON, THE ASSESSEE COULD NOT COMPLETE EXECUTION OF THE WO RK. HE HAS SUBMITTED THAT IF SPECIALIZED PERSONS WOULD HAVE BE EN EMPLOYED BY THE ASSESSEE FOR EXECUTION OF THE CONTRACT WORK, MO RE AMOUNTS WOULD HAVE BEEN SPENT BY THE ASSESSEE AND IT WOULD HAVE R ESULTED INTO REDUCTION OF THE PROFIT. HE HAS SUBMITTED THAT THE ASSESSEE HAS NOT PREFERRED ANY APPEAL AGAINST SUSTAINING THE PART AD DITION BY THE LEARNED CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE FINDINGS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS PLEADED SPECIFICALLY THAT IN THE YEAR UNDER CONSIDERATION P ROFIT OF THE ASSESSEE HAS INCREASED CONSIDERABLY AS COMPARED WITH THE PRO FIT OF THE EARLIER YEAR. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN NET PROFIT RATE OF 4.15% AGAINST NET PROFIT RATE OF 1.0 7% OF THE PRECEDING ASSESSMENT YEAR. THE LABOUR CONTRACT INCOME HAS ALS O INCREASED ITA NO.2151/AHD/2009 DCIT CIR-9, SURAT VS M/S. FINTCH ENGINEERS 5 SUBSTANTIALLY IN THE YEAR UNDER CONSIDERATION. THUS , THE AUTHORITIES BELOW BEFORE MAKING THE DISALLOWANCE OUT OF THE EXP ENSES SHOULD HAVE CONSIDERED THE HISTORY OF THE ASSESSEE IN THE LIGHT OF THE BACKGROUND OF THE FACTS OF THE CASE. ONCE NET PROFI T RATE OF 1.07% IS ACCEPTED IN THE EARLIER YEAR, IF THE ADDITIONS MADE BY THE AO ARE TAKEN INTO CONSIDERATION, IT WOULD ENHANCE THE NET PROFIT RATE OF THE ASSESSEE TO SUCH A FIGURE WHICH WOULD BE UNREASONAB LE AND EXORBITANT AND COULD NOT HAVE BEEN EARNED BY THE AS SESSEE IN THE NATURE OF BUSINESS EMPLOYED BY THE ASSESSEE. THE AS SESSEE SHALL HAVE TO PROVIDE LABOURERS ONLY FOR EXECUTION OF THE CONTRACT WORK AND, THEREFORE, THE ASSESSEE SHALL HAVE TO EMPLOY THE PE RSONS TO WHOM NECESSARILY THE SALARY AND WAGES SHALL HAVE TO BE P AID. THUS, THE PAYMENT OF SALARY AND WAGES ARE THE NECESSARY COMPO NENT WHICH THE ASSESSEE SHALL HAVE TO INCUR FOR EARNING THE BU SINESS INCOME. THE ASSESSEE HAS FILED A CHART BEFORE THE LEARNED C IT(A) WHICH IS REPRODUCED AT PAGE 3 OF THE APPELLATE ORDER TO SHOW THAT LABOUR PAYMENT IN COMPARISON TO PERCENTAGE OF LABOUR CONTR ACT INCOME IN THE PRECEDING ASSESSMENT YEAR WAS 83.42% AND IN THE ASSESSMENT YEAR UNDER APPEAL IT WAS 84.15%. THUS, THERE IS A V ERY NOMINAL VARIATION IN THE EXPENSES, OTHERWISE THE ASSESSEE I NCURRED AND SPENT REASONABLE EXPENDITURE FOR EARNING THE LABOUR CONTR ACT INCOME. NO SPECIFIC INSTANCE HAS BEEN BROUGHT TO THE NOTICE OF THE ASSESSEE FOR VIOLATION OF SECTION 40A (3) OF THE IT ACT. THE AO FURTHER NOTED THAT WITHOUT THE HELP OF SPECIALIZED PERSON THE ASSESSEE COULD NOT HAVE COMPLETED THE EXECUTION OF THE WORK. THE LEARNED CO UNSEL FOR THE ASSESSEE, THEREFORE, RIGHTLY CONTENDED THAT IF SPEC IALIZED PERSONS WOULD HAVE BEEN EMPLOYED, THE INCOME OF THE ASSESSE E WOULD HAVE ITA NO.2151/AHD/2009 DCIT CIR-9, SURAT VS M/S. FINTCH ENGINEERS 6 REDUCED. THIS ARGUMENT CANNOT BE TAKEN ADVERSE IN N ATURE AGAINST THE ASSESSEE. THE LEARNED CIT(A) ON CONSIDERATION O F THE HISTORY OF THE ASSESSEE AND OVER ALL BOOK RESULTS OF THE ASSES SEE RIGHTLY SUSTAINED THE ADDITION OF RS.2,00,000/-. THE OTHER ISSUE IS ALSO SAME ON WHICH THE ASSESSEE SPECIFICALLY PLEADED BEFORE T HE AO THAT SOME BILLS HAVE BEEN MISPLACED BUT MOST OF THE PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES WHICH WERE ALSO FOUND MENTIONED IN THE LEDGER ACCOUNTS WHICH HAS NOT BEEN DISPUTED BY THE AO. THE LEARNED CIT(A) ON PROPER EXAMINATION OF THE FACTS A ND MATERIAL ON RECORD RIGHTLY SUSTAINED THE ADDITION OF RS.50,000/ - ON GROUND NO.2 OF THE APPEAL. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE NOTED ABOVE AND THE HISTORY OF THE ASSESSEE FOR EAR NING PROFIT OUT OF THE LABOUR CONTRACT, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE LEARNED CIT(A) IN DELETING THE SUBSTANTIAL ADDITION . WE, THEREFORE, DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE ON BOTH THE GROUNDS. BOTH THE GROUNDS OF APPEAL ARE ACCORDINGLY DISMISSE D. 6 IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 24-06-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 24-06-2011 LAKSHMIKANT/- ITA NO.2151/AHD/2009 DCIT CIR-9, SURAT VS M/S. FINTCH ENGINEERS 7 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD