A.C.I.T Cir - Suri, Birbhum V. M/s S.B. Construction., Birbhum

ITA 223/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4930 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2013
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: T P KAR
• Keywords: Business income; Non-deduction of tax; Corroborative evidences
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A, KO LKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM] ITA.223/KOL/2013 ASSESSMENT YEAR : 2007-08 A.C.I.T., CIRCLE-SURI -VERSUS- M/S.S.B.CONSTRUCTION BIRBHUM BIRBHUM (PAN:ABAFS1504L) (APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI PINAKI MUKHERJEE, JCIT, SR .DR FOR THE RESPONDENT : SHRI T.P.KAR, FCA DATE OF HEARING : 17.02.2016. DATE OF PRONOUNCEMENT : 02.03.2016. ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE DIREC TED AGAINST THE ORDER DATED 29.11.2012 OF CIT(A)-DURGAPUR RELATING TO A.Y.2007-08. 2. GROUND NO. 1 RAISED BY THE REVENUE READS AS FOLL OWS: 1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 74,31 ,156/- MADE OUT OF LABOUR CHARGES' IN ABSENCE OR PROPER SUPPORTING EVIDENCES. 3. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN EXECUTING CIVIL CONSTRUCTION CONTRACTS. FOR AY 2007-08, THE ASSESS EE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.19,13,142/-. THE AO N OTICED THAT THE ASSESSEE IN COMPUTING ITS BUSINESS INCOME HAD CLAIMED AS A DEDU CTION A SUM OF RS.3,71,57,835 ON ACCOUNT OF LABOUR CHARGES AND WAGES. INITIALLY THE AO EXPLORED THE QUESTION WHETHER ON THE PAYMENTS MADE AS AFORESAID TAX AT SOURCE OUG HT TO BE DEDUCTED U/S.194C OF THE INCOME TAX ACT, 1961(ACT). HE HOWEVER FOUND TH AT THE ASSESSEE WAS MAINTAINING A MUSTER ROLL AND THEREFORE IT WAS NOT A CASE WHERE ANY PAYMENTS WERE MADE TO A CONTRACTOR FOR CARRYING OUT ANY WORK BUT TO WORKERS DIRECTLY. THEREFORE THE PROVISIONS OF SEC.194C OF THE ACT WERE NOT APPLICABLE. CONSEQ UENTLY THE ATTEMPT MADE BY THE ITA NO.223/KOL/2013 M/S. S.B.CONSTRUCTION A.YR.2007-08 2 AO TO DISALLOW THE AFORESAID EXPENSES U/S.40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE DID NOT MATERIALISE. 4. THE AO THEREAFTER EMBARKED UPON AN ENQUIRY AS TO HOW THE ASSESSEE COULD MUSTER 1400 WORKMEN REQUIRED FOR EXECUTING WORKS TH AT WERE BEING CARRIED OUT AT DIFFERENT SITES WITHOUT THE HELP OF A CONTRACTOR. ACCORDING TO HIM IT WAS UNBELIEVABLE THAT 1400 WORKMEN WOULD BE READILY AVAILABLE TO CAR RY OUT CONSTRUCTION CONTRACTS AT VARIOUS SITES SPONTANEOUSLY. ACCORDING TO HIM IT C OULD NOT BE BELIEVED THAT REASONABLE COMMON MAN WOULD TAKE A CHANCE WHEREBY HE WOULD WAI T FOR 1400 WORKMEN TO COME AND REPORT SPONTANEOUSLY FOR WORK AT VARIOUS SITE. ACCORDING TO THE AO THE ASSESSEE COULD NOT EXPLAIN HIS CONDUCT. THEREAFTER THE AO O BSERVED THAT THE ASSESSEE HAS NOT PRODUCED ANY WAGE-SHEET AND THAT THE MUSTER ROLL PR ODUCED WAS NOT COMPLETE AND WAS NOT MAINTAINED PROPERLY. HE THEREAFTER CONCLUDED T HAT OVER BOOKING OF EXPENSE WAS A VERY COMMON PHENOMENON IN THE CONTRACT BUSINESS. H E ACCORDINGLY DISALLOWED 20% OF THE EXPENSES CLAIMED UNDER THE HEAD LABOUR CHARG ES AND WAGES, RESULTING IN AN ADDITION OF RS.74,31,156/- TO THE TOTAL INCOME OF T HE ASSESSEE. 5. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED TH E ADDITION MADE BY THE AO, OBSERVING AS FOLLOWS: IT IS OBSERVED THAT THOUGH THE A.O. HAD INITIALLY SOUGHT TO APPLY THE PROVISIONS OF SECTION 40(A)(IA) TO THIS CASE, ULTIMATELY HE HAS A BANDONED THAT AND MADE AN ESTIMATED DISALLOWANCE. WHILE DOING SO THE A.O. HAS OBSERVED THAT THE APPELLANT COULD NOT PRODUCE ANY WAGE SHEET AND MUSTER ROLL WAS ALSO NOT PROPERLY MAINTAINED. HOWEVER, THE A.O. IS SEEN TO CONTRADICT HIMSELF HERE. HE MENTION S THAT THE APPELLANT COULD NOT PRODUCE ANY WAGE SHEET, BUT AT THE SAME TIME, MENTI ONS THAT MUSTER ROLL WAS PRODUCED. SIMILARLY, HE HAS MENTIONED IN THE ASSESSMENT ORDER THAT NO DATES WERE MENTIONED IN THE MUSTER ROLL AND AT THE SAME TIME HE HAS MENTIONED T HAT PART OF THE MUSTER ROLL PERTAINED TO F.YR.2005-06. THESE CONTRADICTIONS ARE EVIDENT I N THE ASSESSMENT ORDER. IT IS ALSO NOTED THAT NO DISSATISFACTION OF THE A.O. IS NOTED IN THE ASSESSMENT ORDER REGARDING MAINTENANCE OF BOOKS OF ACCOUNTS BY THE APPELLANT. NOR HAS THERE BEEN ANY REJECTION OF SUCH BOOKS OF ACCOUNTS. IN MY OPINION, THE FIGURE O F 20% WHICH THE A.O. HAS APPLIED TO MAKE HIS DISALLOWANCE IS ENTIRELY ARBITRARY AS NO L OGIC FOR SUCH HAS BEEN ADVANCED IN THE ASSESSMENT ORDER. NEITHER, IT IS SEEN, HAS THE A.O. BROUGHT ANY MATERIAL ON THE RECORD TO ESTABLISH HIS SURMISE THAT THE APPELLANT HAS INFLAT ED HIS CLAIM OF EXPENSES. IT IS TO BE MENTIONED THAT THE APPELLANT HAD SUBMITTED DETAILS OF ITS CLAIMS DURING THE APPELLATE PROCEEDINGS WHICH WERE DULY FORWARDED TO THE A.O. B Y LETTER NO. CIT(A)/ ASL./2011- 12/44 DATED 29.04.2011. THE A.O'S REPORT AS CONTAIN ED IN HIS LETTER NO.DCIT/CIR- SURI/2011-12/215 SUBMITTED ON 19.08.2011 IS ON RECO RD. ON THIS ISSUE, THE A.O'S ITA NO.223/KOL/2013 M/S. S.B.CONSTRUCTION A.YR.2007-08 3 COMMENT IS 'LABOUR CHARGES OF RS.74,31,156/- @ 20% OF RS.3,71,57,857/- WAS ADDED BACK TO NET PROFIT U/S. 40(A)(IA) OF THE I.T.ACT. D URING THE COURSE OF HEARING SRI B. MUKHERJEE, A/R APPEARED AND PRODUCED MUSTER ROLL OF DIFFERENT SITES REGARDING PAYMENTS TO LABOURERS. THE THEN A.O. DISALLOWED @ 2 0% OF LABOUR CHARGES INSTEAD OF 100%. HOWEVER, AS THE ASSESSEE MAINTAINED MUSTER RO LL FOR PAYMENTS TO LABOUR, THE PROVISION OF SECTION 194C OF THE LT. ACT IS NOT APP LICABLE.' NO DISSATISFACTION ON THE MATERIAL SUBMITTED IS SEEN IN THE A.O'S REPORT. THE REFORE, IT IS ASSUMED THAT ON FACTS THE A.O. HAS NO ADVERSE COMMENTS TO MAKE ON THE APPELLA NT'S MAINTENANCE OF RECORDS. THE ISSUE OF APPLICATION OF SECTION 194C IS NOT RELEVAN T HERE, AS DISCUSSED EARLIER, SINCE THE DISALLOWANCE HAS NOT BEEN MADE U/S 40(A)(IA). UNDER THE CIRCUMSTANCES, IN MY VIEW, THE DISALLOWANCE MADE IS NOT JUSTIFIED. IT IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED DR WHO RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE A SSESSEE RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS RI GHTLY HELD BY THE CIT(A), THE AO HAS NOT FOUND ANY DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNTS BY THE ASSESSEE. THE REFERENCE BY THE AO IN THE ORDER OF ASSESSMENT ABOUT ABSENCE OF WAGE- SHEET IS IRRELEVANT AS THE MUSTER ROLL WAS ENOUGH T O FIND WHATEVER DETAILS THE AO WANTED. THE REFERENCE BY THE AO IN THE ORDER OF AS SESSMENT TO THE DEFECTS IN THE MUSTER ROLL ARE VAGUE AND THE AO HAS NOT SPELT OUT HIS DIFFICULTY IN FINDING OUT ANY ASPECT OF THE GENUINENESS OF THE CLAIM OF THE ASSES SEE FOR DEDUCTION ON ACCOUNT OF LABOUR CHARGES AND WAGES. THE PROVISIONS OF SEC.19 4C OF THE ACT ARE NOT APPLICABLE AND THE AO HAS ACCEPTED THIS FACT IN HIS REMAND REP ORT. IN THESE CIRCUMSTANCES, THE DISALLOWANCE MADE BY THE AO WAS RIGHTLY HELD TO BE BASED ON SURMISES AND CONJECTURES AND RIGHTLY DELETED BY THE CIT(A). WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A). CONSEQUENTLY GR.NO.1 RAIS ED BY THE REVENUE IS DISMISSED. 8. GR.NO.2 & 3 RAISED BY THE REVENUE READS AS FOLLO WS: 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) WAS NOT JUSTIFIED ILL DELETING THE DISALLOWANCE OR 'FOODING & LODGING EXPENSES' WHICH THE ASSESSEE HAD NOT BEEN ABLE TO SUBSTANTIATE WITH SUP PORTING EVIDENCES. ITA NO.223/KOL/2013 M/S. S.B.CONSTRUCTION A.YR.2007-08 4 3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. C IT(A) WAS NOT CORRECT IN LAW AS WELL AS IN FACT IN HOLDING THAT SELF-MADE VOUCHERS WERE ACCEPTABLE DOCUMENTS/EVIDENCES AND THAT COMPARISON WITH EARLIE R OR SUBSEQUENT YEAR CANNOT MAKE A CLAIM FOR THE CURRENT YEAR INVALID. 9. THE ASSESSEE HAD CLAIMED AS A DEDUCTION IN COMPU TING ITS BUSINESS INCOME A SUM OF RS.9,76,963/- BEING EXPENDITURE INCURRED IN PROVIDING FOODING AND LODGING. THE ASSESSEE EXPLAINED THAT IT WAS PROVIDED TO OFFI CE STAFF, PARTNERS WHO WERE SUPERVISING WORK AND SOMETIMES IT WAS PROVIDED TO D AILY WAGE LABOURERS ALSO AS KHORAKI AFTER COMPLETION OF THE FINAL WORK. THE ASSESSEE EXPLAINED THAT THERE WERE NO HOTELS NEAR SOME OF THE WORK SITES AND THE STAFF AND PARTNERS AND WORKERS WERE PROVIDED WITH MEAL. A DECISION WAS THEREFORE TAKEN TO COOK MEALS AND HENCE THE AFORESAID EXPENDITURE WERE INCURRED. 9.1. THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR TWO REASONS (I) THAT THERE WAS NO COPY OF MANAGEMENT DECISION TO COOK MEAL THAT WAS P RODUCED. (II) IN THE EARLIER YEAR AND THE SUBSEQUENT YEAR NO SUCH EXPENDITURE WAS INC URRED BY THE ASSESSEE. THE AO DISALLOWED THE ENTIRE SUM AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 10. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED T HE ADDITION MADE BY THE AO FOR THE FOLLOWING REASONS: IN THIS GROUND THE APPELLANT IS DISPUTING THE A.O' S ACTION IN DISALLOWING ITS CLAIM OF EXPENSES ON PROVIDING FOOD AND LODGING TO ITS LABOU RERS. THE A.O'S CASE IS THAT THE APPELLANT COULD NOT SUBMIT COPY OF THE DECISION BY THE MANAGEMENT TO PROVIDE SUCH AMENITIES AND FURTHERMORE THE ACCOUNTS OF THE PREVI OUS AND SUBSEQUENT YEAR SHOWS THAT NO SUCH EXPENDITURE HAS BEEN INCURRED. THE APPELLAN T'S CASE IS THAT IT IS NOT MANDATORY FOR MANAGEMENT TO RECORD ALL DECISIONS TAKEN FROM T IME TO TIME AND FOR THE PURPOSES OF BUSINESS EVEN AN ORAL DECISION CAN BE TAKEN AND IMP LEMENTED. THE APPELLANT HAS ALSO RELIED ON A NUMBER OF CASE LAWS LIKE (IT V. GACKWAR MILLS LTD. (1991) 99 CTR 19; (1992) 193 ITR 734, 738(GUJ) AND IN THE CASE OF CIT V. CENTRAL INDIA BUILDERS (1987) 61 CTR 203, WHICH STATES THAT EXPENDITURE INCURRED BY AN ASSESSEE TO PROVIDE MESSING FACILITIES TO ITS EMPLOYEES, WHICH WERE NEITHER LAV ISH NOR EXTRAVAGANT COULD NOT BE DISALLOWED. IN MY OPINION, THE AMOUNT CLAIMED AS FO OD EXPENSES CANNOT BE CALLED EXTRAVAGANT GIVEN THE VOLUME OF WORK UNDERTAKEN BY THE APPELLANT. THE A.O. IN HIS REMAND REPORT IN NO. DCIT/CIR-SURI/20 11-12/215 DT. NIL WHICH WAS RECEIVED IN THE OFFICE OF CIT(A), ASANSOL, ON 19.08.2011 HAS MENTIO NED THAT THE APPELLANT COULD NOT PRODUCE ANY VOUCHERS FOR THESE EXPENSES. HOWEVER, T HE A.O. APPEARS TO HAVE MISSED THE POINT THAT THESE VOUCHERS WERE ATTACHED TO THE APPE LLANT'S SUBMISSION ON THE BASIS OF WHICH REMAND REPORT WAS CALLED FOR. ADMITTEDLY, THE SE ARE SELF-MADE VOUCHERS BUT THEN ITA NO.223/KOL/2013 M/S. S.B.CONSTRUCTION A.YR.2007-08 5 FOR THESE EXPENSES WHICH ARE ESSENTIALLY OF A PETTY NATURE ONE CANNOT EXPECT PROPER BILLS. IT IS ALSO SEEN THAT THE EXPENDITURE HAS BEEN MADE IN RURAL AREAS AND THEREFORE WOULD ENTAIL PURCHASES FROM LOCALS. UNDER THE CIRCUMSTANC ES, I DO NOT SEE HOW PROPER BILLS FOR EXPENSES WOULD BE AVAILABLE IN SUCH A CASE. IT IS A LSO OBSERVED THAT NON-APPEARANCE OF A DEBIT IN THE PREVIOUS YEAR OR A SUBSEQUENT YEAR CAN NOT MAKE A CLAIM FOR THE CURRENT YEAR INVALID. THE APPELLANT IS A CONTRACTOR AND HAS BEEN ENGAGED IN THE CONSTRUCTION OF RURAL ROADS. AS PER THE ASSESSMENT ORDER ITSELF A SUBSTAN TIAL NUMBER OF LABOURERS HAVE BEEN HIRED. GIVEN THOSE FACTS, IN MY OPINION, THE AMOUNT CLAIMED IS NOT EXCESSIVE OR UNJUSTIFIED. THE DISALLOWANCE MADE IS THEREFORE DIR ECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GR.NO.2 & 3 BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSION S OF THE LEARNED DR WHO RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE A SSESSEE RELIED ON THE ORDER OF THE CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN O UR VIEW THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. THE ASSESSEE H AS PRODUCED EVIDENCING INCURRING OF THESE EXPENSES. THE FACT SOME OF THE VOUCHERS WERE SELF-MADE DOES NOT RENDER THE EXPENDITURE IN QUESTION AS NOT A GENUINE EXPENDITUR E. KEEPING IN MIND THE NATURE OF ASSESSEES BUSINESS WHICH CALLS FOR WORKING IN REMO TE AREAS, SUCH DEFICIENCIES CANNOT BE SAID TO BE FATAL CALLING FOR DISALLOWANCE OF THE ENTIRE EXPENDITURE. THE REASON THAT THERE WAS NO MANAGEMENT RESOLUTION FOR PROVIDING FO OD AND THAT IN EARLIER AND SUBSEQUENT YEARS SUCH EXPENDITURE WAS NOT CLAIMED C ANNOT BE CONCLUSIVE TO HOLD THAT THE EXPENDITURE CLAIMED WAS NOT GENUINE. WE THEREF ORE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GR.NO.2 & 3 RAISED BY THE REVENU E. 13. IN THE RESULT APPEAL BY THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 02.03.2016. SD/- SD/- [M.BALAGANESH] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 02.03.2016. R.G.(.P.S.) ITA NO.223/KOL/2013 M/S. S.B.CONSTRUCTION A.YR.2007-08 6 COPY OF THE ORDER FORWARDED TO: 1. M/.S. S.B.CONSTRUCTION, NABAPALLY, P.O. + P.S.-R AMPURHAT BIRBHUM, PIN- 7731224. 2 THE A.C.I.T., CIRCLE-SURI. 3. THE CIT-DURGAPUR. 4. THE CIT(A)-DU RGAPUR. 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES