The DCITPatan Circle, Patan V. M/s. Gayatri Construction Co., Mehsana

ITA 25/AHD/2013

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1520 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-04-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Depreciation; Additional evidence; Corroborative evidences; TDS
• Section: 143(3); 40(a)(ia); 133(6); 194A; 13; 145(3); 22; 131; 68; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (VIRTUAL COURT) BEFORE: SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEM BER DCIT, PATAN CIRCLE, 1 ST FLOOR SANTOKBA HALL, RAJMAHAL ROAD, PATAN (APPELLANT) VS M/S. GAYATRI CONSTRUCTION CO. C/O. RAMJIBHAI & CO., HIGHWAY ROAD, KHERALU, MEHSANA-384001 PAN: AABFG5422D (RESPONDENT) M/S. GAYATRI CONSTRUCTION CO. C/O. RAMJIBHAI & CO., HIGHWAY ROAD, KHERALU, MEHSANA-384001 PAN: AABFG5422D (APPELLANT) VS DCIT, PATAN CIRCLE, 1 ST FLOOR SANTOKBA HALL, RAJMAHAL ROAD, PATAN (RESPONDENT) REVENUE BY: SHRI LALIT P. JAIN, SR. D.R. ASSESSEE BY: SHRI MEHUL K. PATEL, A .R. DATE OF HEARING : 23-10-2020 DATE OF PRONOUNCEMENT : 11-12-202 0 /ORDER ITA NO. 25 /AHD/2013 ASSESSMENT YEAR 2009-10 ITA NO. 2816/AHD/2012 ASSESSMENT YEAR 2009-10 I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 2 PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE TWO APPEALS FILED BY REVENUE AND ASSESSEE FOR A.Y. 2009-10, ARISE FROM ORDER OF THE CIT(A), GANDHINAGAR, AHMED ABAD DATED 03-10- 2012, IN PROCEEDINGS UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961; IN SHORT THE ACT. SINCE SIMILAR ISSUES INVOLVED IN THESE GROUND OF APPEAL DIRECTED AGAINST THE ORDER OF LD. CIT(A) THEREFORE FOR THE SAKE OF CONVENIENCE BOTH THESE APPEALS ARE ADJUDICATED TOGETHER AS UNDE R. ITA NO. 25/AHD/2013 A.Y. 2009-10 FILED BY REVENUE A ND ITA NO. 2816/AHD/2012 FILED BY THE ASSESSEE 2. THE ASSESSEE HAS FILED RETURN OF INCOME ON 30 TH SEP, 2009 DECLARING TOTAL INCOME OF RS. 7,67,740/-. THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF GOVT. CONTRACTOR FOR CIVIL CONSTRUCTION WORK. THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING OF NOTICE U/S. 143 (2) OF THE ACT ON 18 TH AUGUST, 2010. THE RELEVANT FACTS RELATING TO THE ISSUES CONTESTED IN THE GROUNDS OF APPEALS ARE DISCUSSED AS UNDER:- GROUND NO. 1 (DELETING ADDITION OF RS. 2,22,175/- U /S. 40(A)(IA) FOR NON- DEDUCTION OF TAX) 3. AT THE TIME OF ASSESSMENT, THE ASSESSING OFF ICER NOTICED THAT ASSESSEE HAS MADE INTEREST PAYMENT TO GE CAPITAL AND TATE MO TORS LTD. WITHOUT DEDUCTION OF TAX AS PRESCRIBED U/S. 194A OF THE ACT , THEREFORE, AMOUNT OF RS. 2,22,175/- WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 3 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DELETED THE ADDITION FOLLOWING THE DECIS ION OF MERILLYN SHIPPING AND TRANSPORT ITAT SPECIAL BENCH 20 TAXMAN.COM 244 HOLDING THAT ONCE THE PAYMENTS ARE MADE AND NO AMOUNT IS PAYABLE AS O N 31/03 OF THE RELEVANT PREVIOUS YEAR, NO DISALLOWANCE U/S. 40(A)(IA) CAN B E MADE. 5. DURING THE COURSE OF APPELLATE PROCEEDING BEFORE US, BOTH THE LD. COUNSEL AND LD. DEPARTMENTAL REPRESENTATIVE HAVE AG REED THAT AFORESAID ISSUE OF NON-DEDUCTION OF TDS IS COVERED BY THE DEC ISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF SIKANDAR TUNWAR 33 TAXMAN.COM 133 AND THE SAME MAY BE RESTORED TO THE FILE OF ASSESSING O FFICER FOR ADJUDICATING AFRESH. 6. HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THR OUGH THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT-IV V. SIKANDERKHAN N. TANWAR WHEREIN IT IS HELD THAT SECTION 40(A)(IA) WO ULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. ACC ORDINGLY, THIS ISSUE IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATING AFRESH AS PER THE DIRECTION LAID DOWN IN THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SIKANDAR TUNWAR SUPRA. THEREFORE THIS GROUN D OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 (DELETING DISALLOWANCE OF INTEREST EXP ENSES OF RS. 7,63,307/-) OF REVENUES APPEAL AND GROUND NO. 1 OF ASSESSEES APPEAL (CONFIRMING THE DISALLOWANCE OF RS. 3,98,436/-) I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 4 7. DURING THE COURSE OF ASSESSMENT THE ASSES SING OFFICER NOTICED THAT ASSESSEE HAS MADE ADVANCES TO M/S. RAMJIBBAI & COM PANY ON ACCOUNT OF DIESEL AND PETROL EXPENSES. M/S. RAMJIBHAI & COMP ANY WAS OWNED BY ONE OF THE PARTNERS AND NO INTEREST WAS CHARGED FROM TH E SAID PARTNERSHIP FIRM. IN THE SAID ACCOUNT, DEBIT BALANCE AS ON 1 ST APRIL, 2008 WAS RS. 61,14,436/- AND THE CLOSING DEBIT BALANCE WAS RS. 59,31,445/-. AS PER THE P & L ACCOUNT THERE WAS INTEREST PAYMENT OF RS. 41,82,598 /- WHICH WAS PAID TO BANKS AND PRIVATE FINANCE COMPANIES. ON THE BASIS OF AFORESAID INFORMATION THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS PA ID SUBSTANTIAL AMOUNT OF INTEREST ON THE LOAN TAKEN FROM OUTSIDE PARTIES HOW EVER NO INTEREST HAS BEEN CHARGED ON THE AMOUNTS ADVANCED TO THE RELATED CONC ERN. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT ASSESSEE HAS PAID INTEREST @ 19% TO THE OUTSIDE PARTIES THEREFORE HE HAS COMPUTED INTEREST @ 19% ON THE INTEREST FREE ADVANCES OF RS. 61,14,436/- PROVIDED TO AFORESAID R ELATED CONCERN. ACCORDINGLY, AN AMOUNT OF RS. 11,61,743/- WAS DISAL LOWED OUT OF THE INTEREST EXPENSES. 8. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS RESTRICTED DISALLOWANCE OUT OF INTEREST EXPENSES TO THE AMOUNT OF RS. 3,98,436/-. THE RELEVANT PART OF THE DISCUSSIO N MADE BY THE LD. CIT(A) ON THIS ISSUE IS AS UNDER:- 6.3 I HAVE GONE THROUGH THE FACTS OF THE CASE. THE APPELLANT IS T ALL DISPUTING THE FINDING OF THE AO THAT THE AMOUNT HAS BEEN DIVERTED FOR NON-BU SINESS PURPOSE. AS FAR AS THE CLAIM OF NON- INTEREST BEARING FUNDS AVAILABLE WITH THE APPELLANT IS CONCERNED, THE FOLLOWING FACTS AR E VERY PERTINENT: I) THE ADVANCE HAS BEEN GIVEN TO A PARTNER'S PROPRIETARY CONCERN WHO RUNS A PETROL PUMP. NO COMMENSURATE PURCHASES OF FUEL ARE THERE. THE APPEL LANT IS NOT EVEN DISPUTING IT. IT IS THEREFORE, IN NATURE OF WITHDRAWAL OF FUNDS BY PARTNER FROM HIS C APITAL AND EVEN OVER AND ABOVE IT. ON THE ONE HAND THE PARTNER SHRIRAMJIBHAICHAUDHARY IS BEING PA ID INTEREST ON HIS CAPITAL OF RS.24.45 LAC I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 5 AND ON THE OTHER HAND HE HAS WITHDRAWN OVER RS. 60 LAC AND NO INTEREST HAS BEEN CHARGED FROM HIM. II) ALL THESE CREDITS WHICH ARE CLAIMED AS INT EREST FREE FUNDS; ARE VERY OLD AND THERE WERE HUGE INVESTMENTS AT THAT TIME IN THE BUSINESS AS WELL AS THERE WAS SUBSTANTIAL SUNDRY DEBTORS OUTSTANDING. THERE WERE NO FUNDS AVAILABLE FROM THE SE CREDITS WHEN THE FUNDS HAVE BEEN DIVERTED TO THE PARTNER'S CONCERN. III) THEREFORE, IT CAN BE SAFELY SAID THAT LOAN S TAKEN ON INTEREST MIXED WITH OTHER FUNDS HAVE BEE N DIVERTED FOR NON-BUSINESS PURPOSE. IN THE LIGHT OF THE ABOVE FACTS, ON THE ONE HAND BY MANIPULATION OF ACCOUNT, INTEREST HAS BEEN PAID TO THE PARTNER SHRIRAMJIBHAICHAUDHARY TO THE EXTENT OF RS.2,23,486/- WHEREAS, IN EFFECT HE WAS HAVING HUGE FUNDS TAKEN FROM THE FIRM FOR HI S OWN PURPOSE AND THERE WAS A NET DEBIT BALANCE IN HIS ACCOUNT. FURTHER, THE CASE IS NOT OF SIMPLE INTEREST FREE FUNDS BEING MORE THAN NON- BUSINESS ADVANCE, IN THE LIGHT OF THE ABOVE OBSERVA TIONS OF THE FACT THAT SUCH FUNDS WERE ALREADY LYING UTILIZED FOR OTHER PURPOSES. THE CASES RELIED UPON BY THE APPELLANT ARE THEREFORE DISTINGUISHABLE ON FACTS. THE TOTAL INTEREST PAID I S RS.41,92,598/- AND THE TOTAL INVESTMENTS INCLUDING THAT DIVERTED TO THE PARTNER IS RS.6.43 C RORE. ON PRO-RATA BASIS, CONSIDERING THE MIXED FUNDS THE INTEREST IS DISALLOWED AS COMPUTED HEREUN DER: DISALLOWANCE OF INTEREST RS. 41,92,598 X 61.14.736 6,43,43,095 = RS. 3,98,436/- THEREFORE, RELYING ON THE JUDGMENT OF HON'BLE ITAT, MUMBAI IN THE CASE OF SANGHVI SWISS REFILLS (P.) LTD (85 ITD 59), WHICH HAS DECID ED THE CASE ON SIMILAR FACTS, THE DISALLOWANCE OF INTEREST CLAIMED TO THE EXTENT OF RS. 3,98,436/- IS CONFIRMED. THIS WOULD INCLUDE THE ABSOLUTELY NON-ALLOWABLE INTEREST PAID TO PARTNER, SHRIRAMJIBH AICHAUDHARY TO THE EXTENT OF RS.2,23,486/- WHEREAS, IN EFFECT HE WAS HAVING HUGE FUNDS TAKEN F ROM THE FIRM FOR HIS OWN PURPOSE AND THERE WAS A NET DEBIT BALANCE IN HIS ACCOUNT. TO SUM UP, THE DISALLOWANCE OF RS. 3,98,436/- IS CONFIRMED AND THE REMAINING DISALLOWANCE IS DIRECTED TO BE DE LETED. 9. DURING THE COURSE OF APPELLATE PROCEEDINGS BEF ORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL HAS SUBMITTED TH AT ADVANCES WERE GIVEN TO RAMJIBHAI AND COMPANY FOR BUSINESS PURPOSE AND PETR OL AND DIESEL WAS ALSO PURCHASED FROM THEM. THE LD. COUNSEL HAS ALSO CONT ENDED THAT ASSESSEE WAS HAVING INTEREST FREE FUND OF RS. 64,75,145/-. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE JUDICIAL PRONOUNCEMENT OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES 313 ITR 340 (BOM) . 10. HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT AFORESAID HUGE AMOUNT OF ADVANCE WAS EXTENDED TO RAMJIBHAI AN D COMPANY I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 6 EXCLUSIVELY FOR THE PURPOSE OF PETROL AND DIESEL. THE LD. DEPARTMENTAL REPRESENTATIVE HAS POINTED OUT THAT LOAN AMOUNT WAS VERY OLD WHICH WAS GIVEN IN THE EARLIER YEARS AND THERE WAS NO SUFFICI ENT INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE. DURING THE COURSE OF COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS STATED T HAT OPENING DEBIT BALANCE WAS RS. 61,14,336/- AND CLOSING DEBIT BALANCE WAS R S. 59,31,445/- AND THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE WAS RS. 64,75,145/-. HOWEVER, TO CONTROVERT THE SUBMISSION OF THE LD. DEPARTMENTA L REPRESENTATIVE THE LD. COUNSEL HAS NOT FURNISHED ANY INFORMATION AND MATER IAL TO DISPROVE THE CLAIM OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE LO AN AMOUNT WAS PERTAINED TO EARLIER YEARS WHEN THE ASSESSEE WAS NOT HAVING S UFFICIENT INTEREST FREE FUND. THE CASES RELIED UPON BY THE ASSESSEE ARE D ISTINGUISHABLE ON FACTS. WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL OF REVENUE AFTER CONSIDERING THAT THE LD. CIT(A) HAS JUDICIOUSLY RES TRICTED THE DISALLOWANCE TO THE EXTENT OF RS. 3,98,436/- ON PRO-RATA BASIS AS E LABORATED IN HIS FINDING SUPRA IN THIS ORDER AFTER FOLLOWING THE DECISION OF SANGHIV SWISS REFILLS PVT. LTD. 85 (ITD) 59. IN THE LIGHT OF THE ABOVE FACT S AND FINDINGS, BOTH THE APPEALS OF THE REVENUE AND ASSESSEE ON THIS ISSUE A RE DISMISSED. GROUND NO. 3 (REVENUES GROUND OF APPEAL AGAINST DE LETING ADDITION U/S. 41(1) IN RESPECT OF OUTSTANDING CREDITORS SHOWN IN BALANCE SHEET OF RS. 3,75,18,118/-) AND ASSESSEES 2 ND GROUND OF APPEAL IN RESPECT OF CONFIRMING ADDITION U/S. 41(1) OF RS. 8,39,727/- 11. DURING THE COURSE OF ASSESSMENT, THE ASSE SSING OFFICER NOTICED THAT AS PER BALANCE SHEET THERE WAS OUTSTANDING SUNDRY C REDIT BALANCE TO THE AMOUNT OF RS. 3,83,57,845/-. THE ASSESSING OFFICE R HAS STATED THAT ASSESSEE I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 7 HAS FAILED TO PROVE THE GENUINENESS OF THE OUTSTAND ING LIABILITY. HE HAS FURTHER SUBMITTED THAT BECAUSE OF DELAY IN FURNISHI NG THE INFORMATION THERE WAS NO TIME TO VERIFY THE GENUINENESS OF THE CONFIR MATIONS FILED BY THE ASSESSEE. THEREFORE, TREATING THE OUTSTANDING CRED ITORS AS CESSATION OF LIABILITY, THE ASSESSING OFFICER HAS MADE ADDITION OF RS. 3,83,57,845/- TO THE TOTAL INCOME OF THE ASSESSEE. 12. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ADMITTED ADDITIONAL EVIDENCES UNDER RULE 46A OF THE I.T. RULE COMPRISING CONFIRMATIONS/COPIES OF DETAILS ETC. FUR NISHED BY THE ASSESSEE TO PROVE THE GENUINENESS OF THE OUTSTANDING SUNDRY CRE DITORS. THE LD. CIT(A) HAS ALSO CALLED REMAND REPORT FROM THE ASSESSING OF FICER WITH DIRECTION TO EXAMINE THE SUNDRY CREDITORS FROM THE ANGLE (I) CRE DIT U/S. 68 INCLUDING GENUINENESS AND PAYING CAPACITY (B) ALLOWBILITY OF EXPENSES CLAIMED BY ASSESSEE DURING THE YEAR BEING ADMITTED BY THE CRED ITORS SHOWN IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAS SUBMITTED R EMAND REPORT TO THE LD. CIT(A) ALONG WITH REMARKS REPRODUCED AT PAGE NO. 19 TO 22 IN THE ORDER OF CIT(A). THE COPY OF REMAND REPORT WAS ALSO FORWARDE D TO THE ASSESSEE AND ASSESSEE HAS REPORTED THAT THE ASSESSING OFFICER HA S NOT CORRECTLY REPORTED THE FACTS IN THE REMAND REPORT AND STATED THAT ALL THE CREDITS WERE GENUINE AND THE ADDITION CANNOT BE MADE U/S. 41(1) UNLESS THERE WAS A BENEFIT OF CESSATION OF LIABILITY. THE LD. CIT(A) HAS DELETED THE ADDITION EXCEPT IN THE CASE OF SHRI BHEMJIBHAI L CHAUDHARY TO WHOM ASSESSE E HAS SHOWN PAYABLE AMOUNT OF RS. 8,39,727/- AS UNSECURED LOAN INADVERT ENTLY REPORTED UNDER THE HEAD SUNDRY CREDITORS. AFTER EXAMINATION OF THE ST ATEMENT U/S. 131 OF THE ACT AND OTHER MATERIAL, THE LD. CIT(A) OBSERVED THA T BHEMJIBHAI L. I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 8 CHAUDHARY WAS A PERSON OF SMALL MEANS, CLOSELY RELA TED TO THE ASSESSEE AND HAD NEVER FILED INCOME TAX RETURN. CONSIDERING THE FACTS AND CIRCUMSTANCES, THE LD. CIT(A) HAS CONFIRMED THE ADDITION TO THE UN SECURED LOAN AMOUNT OF RS. 8,39,727/- AND DELETED THE REMAINING ADDITION O F RS. 3,75,18,118/- (RS. 3,83,57,845/- - RS. 8,39,727/-) HOLDING THAT LOOKI NG TO THE DETAILS FILED SUCH ADDITION IS NOT JUSTIFIED U/S. 41(1) OF THE ACT. RE LEVANT PART OF THE DECISION OF LD. CIT(A) IS AS UNDER:- 7.5 I HAVE GONE THROUGH THE FACTS OF THE CASE CARE FULLY. THE AO 'HAS CONDUCTED VERIFICATION AND ENQUIRIES WITH RESPECT TO ALL 25 CREDITORS WHOS E BALANCE AT THE END OF THE YEAR WAS MORE THAN RS.5 LAC. NOTICES U/S 133(6) WERE ISSUED BY THE AO AT THE NEW ADDRESSES GIVEN BY THE APPELLANT. THEY WERE DELIVERED IN MOST CASES EXCEPT 4. ACCORDI NG TO THE AO, EVEN OUT OF THESE 3 HAVE SUBMITTED CONFIRMATIONS BY TAPAL. FROM THE REPORT I T IS FOUND THAT MOST OF THE CREDITORS HAVE CONFIRMED THE BALANCES AND THE FACT THAT THE MONEY IS DUE TO THEM. AS DECIDED BY THE SUPREME COURT IN THE CASE OF SUGUALI SUGAR WORKS PVT. LTD. (1999) 236 ITR 518 (SC ) IN THE ABSENCE OF THE CREDITOR, IT IS NOT POSSIBLE FOR THE AUTHORITY TO C OME TO A CONCLUSION THAT THE DEBT WAS BARRED AND HAD BECOME UNENFORCEABLE. I HAVE ALSO NOTED THE REC ENT DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF SHRIVARDHMAN OVERSEAS LTD ,343 ITR 408 WHER EIN THE CASE WAS DECIDED IN ASSESSEE'SFAVOUR ON SAME PRINCIPALS THOUGH IN CASE OF MANY CLAIMED CREDITORS EVEN THE ADDRESS OR TRAIL WAS NOT AVAILABLE. NOW, I WILL PROCEED TO DIS CUSS THE CASES OF THE CLAIMED CREDITORS IN GROUPS, ACCORDING TO THE FACTS OF THE CASES SI. NO. AS PER REMAND REPORT REPRODUCED EARLIER COMMENTS OF THE AO IN THE REPORT OBSERVATIONS OF THE UNDERSIGNED. 13,17 ,21, 22 24 AO IS SATISFIED WITH EVIDENCES LIKE COPY OF BILLS, BOOKS OF ACCOUNTS AND BANK STATEMENTS ETC. SUBMITTED BY THE CREDITORS IN RESPONSE TO 133(6) NOTICES NO DOUBT REMAINS ON THE GENUINENESS. 20,23& 25 AO SUBMITS THAT EITHER REPLY TO 133(6) NOT RECEIVED OR EVIDENCE NOT SUBMITTED IN SUPPORT. THESE ARE ALL NEW TRADE CREDITS. CONFIRMATION FROM THESE PARTIES, COPIES OF BILLS WITH ADD RESSES AND DETAILS OF PAYMENT BY CHEQUES WAS ALREADY SUBMITTED BY ASSESSEE. THERE IS NEITHER REASON TO DISBELIEVE THE CREDITS NOR THERE IS ANY CESSATION OF LIABILITY. 1,4,5,6,10,11, 14,16,18,19 CONFIRMATIONS FILED BUT EVIDENCES NOT PRODUCED IN SUPPORT THESE ARE ALL VERY OLD CREDITS. NO ONE HAS CLAIMED THAT THE LIABILITY IS BOGUS OR NOT EXISTENT. THE CONFIRMATION OF BALANCE BY CREDITORS ITSELF TAKES OUT THE CASE FROM AMBIT OF 41(1). NO ADDITION IS JUSTIFIED. BESIDES CREDIT AT 1, IS CAPITAL OF EX PARTNER AND THERE I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 9 IS NO QUESTION OF APPLICATION OF 41(1) 3 IN STATEMENT U/S 131 THE PARTNER STATED THAT HE WILL NOT TAKE THE MONEY, ALTHOUGH SUBSEQUENTLY HE SUBMITTED THAT THE MONEY IS TO BE RECOVERED. THE AMOUNT IS ACTUALLY A LOAN AND HAS NOT BEEN ALLOWED AS E XPENSE. NO QUESTION OF APPLICATION OF 41(1) 7,8 ,9,15 AO SUBMITS THAT REPLY TO 133(6) NOT RECEIVED ADDRESSES GIVEN BY THE APPELLANT. HE HAS SUBSEQUENTLY GIVEN PROOF OF SUBMISSION OF REPLY BY CREDITOR BEFORE AO IN CASE OF SI. NO 7 AND SHOWN COURT CASE F OR RECOVERY FILED BY CREDITOR AT SNO 15 (NOT ADMITTED AS NEW EVIDENCE, FILED AFTER REMAND REPORT RECEIVED). AS PER THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF SUGUALI SUGAR WORKS PVT. LTD. IN THE ABSENCE OF THE CREDITOR, IT IS NOT POSSIBLE FO R THE AUTHORITY TO COME TO A CONCLUSION THAT THE DEBT WAS BARRED AND HAD BECOME UNENFORCEABLE. ADDITION UNJUSTIFIED ALSO FOLLOWING THE RECENT DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF SHRIVARDHMAN OVERSEAS LTD ,343 ITR 408.NONE OF THE CREDITS HAS BEE N PROVED NOT GENUINE OR BOGUS. WHEN LETTERS ARE SENT TO 25 PERSONS , SOME NON - RESPONSES ARE NATURAL OUT OF THE CASES TEST CHECKED BY THE AO, IN ALL CAS ES EXCEPT AS PER SI.NO.2 OF THE REMAND REPORT, IT HAS BEEN HELD UNDER THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE THAT NO ADDITION IS JUSTIFIED UNDER LAW U/S 41(1) OF THE IT ACT. THE REMAINING CA SE IS THAT OF BHEMJIBHAI L. CHAUDHARY. THE APPELLANT HAS IN HIS SUBMISSIONS CLAIMED THAT THE A MOUNT OF RS.8,39,7277- IS DUE TO HIM AND IS AN UNSECURED LOAN WHICH WAS INTEREST FREE AND HAS BEEN GROUPED UNDER SUNDRY CREDITORS INADVERTENTLY. HOWEVER, HIS STATEMENT WAS TAKEN UND ER SECTION 131 AND BHEMJIBHAI L. CHAUDHARY HAS STATED THAT THE PAYMENT WAS DUE FOR JOBWORK. HE DIDN'T EVEN REMEMBER THE PERIOD TO WHICH IT PERTAINED. THE PERSON CONCERNED IS CLOSELY RELATED TO THE PARTNERS OF THE FIRM. EVEN OTHERWISE, BHEMJIBHAI L. CHAUDHARY APPEARS TO BE A PERSON OF S MALL MEANS AND HAS ADMITTED THAT HE HAS NEVER FILED HIS INCOME-TAX RETURN. WHY, IN THESE CI RCUMSTANCES HE WOULD LEND SUCH A BIG AMOUNT INTEREST FREE FOR YEARS TOGETHER WITHOUT EVEN BOTHE RING TO RECOVER, CANNOT BE BELIEVED. THE ASSESSEE ITSELF HAS CLUBBED THE CREDIT WITH SUNDRY CREDITORS AND NOT UNSECURED LOANS. THEREFORE, IN THE ENTIRETY OF CIRCUMSTANCES AND FACTS, I HAVE REA SON TO HOLD THAT IN FACT NO AMOUNT IS OUTSTANDING TO BE PAID TO BHEMJIBHAI L. CHAUDHARY AND THE STATE MENT HAS BEEN GIVEN TO SUPPORT HIS RELATIVES UNDER SOCIAL PRESSURE; AND STILL SUFFERS FROM INCON SISTENCIES MENTIONED EARLIER. THE ADDITION OF RS. 8397277-IS THEREFORE, CONFIRMED. THE REMAINING ADDI TION OF RS. 375181187- (38357845 MINUS 839727) IS DIRECTED TO BE DELETED. 13. DURING THE COURSE OF APPELLATE PROCEEDINGS BE FORE US, THE LD. DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE LD. CIT(A) HAS ALSO DELETED THE ADDITION IN RESPECT OF THOSE CASES WHEREIN ON D ETAIL WAS AVAILABLE AS I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 10 REPORTED IN THE REMAND REPORT. BOTH THE DEPARTMENT AL REPRESENTATIVE AND LD. COUNSEL AGREED THAT SUCH SIX CASES BE RESTORED TO T HE FILE OF ASSESSING OFFICER FOR NECESSARY VERIFICATION AND EXAMINATION. 14. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. DURING THE COURSE OF ASSESSMENT THE ASSESSING OFFICER HAS TREA TED THE OUTSTANDING SUNDRY CREDITORS AS CESSATION OF LIABILITY ON THE G ROUND THAT ASSESSEE HAS FAILED TO PROVE GENUINENESS OF THE TRADE CREDITORS. THE LD. CIT(A) HAS RESTRICTED THE ADDITION TO THE EXTENT OF OUTSTANDIN G BALANCE OF RS. 8,39,727/- PERTAINING TO SHRI BHEMJIBHAI L. CHAUDHARY WRONGLY CLASSIFIED AS SUNDRY CREDITOR AS THE SAME WAS PERTAINED TO UNSECURED LOA N AND THAT PERSON HAD NEVER FILED INCOME TAX RETURN AND CREDITWORTHINESS REMAINED UNPROVED. IN RESPECT OF REMAINING CASES, THE LD. CIT(A) HAS DELE TED THE ADDITION HOLDING THAT MOST OF THE CREDITORS HAVE CONFIRMED THE OUTST ANDING BALANCE AND THE MONEY WAS DUE TO THEM. DURING THE COURSE OF APPE LLATE PROCEEDINGS, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT LD. CIT(A) HAS NOT CONSIDERED THAT NO DETAILS WERE AVAILABLE AS PER RE MARK COLUMN IN THE REMAND REPORT IN RESPECT OF CASES LISTED AT SERIAL NO. 7 TO 9, 12,15 AND 23. THE DETAILS OF SUCH CASES ARE AS UNDER:- SR. NO. NAME AMOUNT REMARKS 7 HIRABHAI HANJABHAI ROT 1028014 NOTICE U/S. 133(6) OF THE ACT WAS ISSUED ON 16.07.2012, IN RESPONSE NO REPLY IS RECEIVED TILL NOW FROM HIRABHAI HANJABHAI ROT 8 JADAVBHAI LAXMANBHAI 845874 NOTICE U/S. 133(6) OF THE ACT WAS ISSUED ON 16.07.2012 FOR CONFIRMATION OF 1 TRANSACTION OCCURRED WITH THE ASSESSEE COMPANY BUT THE SAME WAS RETURNED UNDELIVERED 9 JIVABHAI LAXMANBHAI 981774 NOTICE U/S. 133(6) OF THE ACT WAS ISSUED ON 16.07.2012, IN RESPONSE NO REPLY IS RECEIVED TILL NOW FROM I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 11 JIVABHAI LAXMANBHAI 12 MOHANBHAI NATHABHAI PAGI 644301 IN RESPONSE TO T HE SUMMON U/S. 131 OF THE I.T ACT, SHRI MOHAN NATHABHAI PAGI HAS ATTENDED THIS OFFICE AND IN HIS STATEMENTS HE CONFESSED THAT HE WORKED AS SUPERVISOR IN GAYATRI CONSTRUCTION TILL 2007 AND WORKED AS A SALARIED EMPLOYEE ONLY 15 NEW MEHSANA AUTO PARTS 632690 NOTICE U/S. 133(6) OF THE ACT WAS ISSUED ON 16.07.2012, IN RESPONSE NO REPLY IS RECEIVED TILL NOW FROM NEW MEHSANA AUTO PARTS 23 NAVDURGA QUARY WORKS 527724 NOTICE U/S. 133(6) O F THE ACT WAS ISSUED ON 16.07.2012, IN RESPONSE NO REPLY IS RECEIVED TILL NOW FROM NAVDURGA QUARY WORKS AFTER PERUSAL OF THE INFORMATION IN RESPECT OF THE AFORESAID CASES IT IS CLEAR THAT COMPLETE INFORMATION HAS NOT BEEN FURNISHED. ON THIS ISSUE BOTH THE REPRESENTATIVES AGREED TO RESTORE THESE CASES TO TH E FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH AFTER EXAMINATION/VERIF ICATION OF THE INFORMATION. THEREFORE, WE RESTORE THESE CASES TO THE FILE OF AS SESSING OFFICER FOR DECIDING AFRESH AFTER VERIFICATION AND EXAMINATION OF THE DETAILS TO BE PRODUCED BY THE ASSESSEE. THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. IN RESPECT OF GROUND 2 OF THE ASSESSEE O F SUSTAINING THE ADDITION TO THE EXTENT OF RS. 8,39,727/- , THE LD. COUNSEL HAS SUBMITTED THAT THE SAID PERSON HAS CONFIRMED THAT THIS AMOUNT WAS DUE TO HI M AND LATER THE AMOUNT WAS PAID TO THE LENDER IN THE SUBSEQUENT YEAR. IN THE LIGHT OF THE ABOVE FACT AND CIRCUMSTANCES, WE ALSO RESTORE THIS ISSUE TO TH E ASSESSING OFFICER FOR DECIDING THIS ISSUE AFRESH AFTER VERIFICATION OF TH E CLAIM OF THE ASSESSEE THAT THE AMOUNT WAS REPAID TO THE LENDER IN THE SUBSEQUE NT YEAR. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO ALLOW ED FOR STATISTICAL PURPOSES. GROUND NO. 4 (DELETING ADDITION ON DEPRECIATION OF RS. 3,90,458/-) OF REVENUE I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 12 15. DURING THE COURSE OF ASSESSMENT, THE ASSES SING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON THE PAVER MACH INE @ 15% FOR THE YEAR UNDER CONSIDERATION. ON VERIFICATION OF THE COPIES OF BILL, THE ASSESSING OFFICER NOTICED THAT THE SAID ASSET WAS IN THE NAME OF HMS CONSTRUCTION PVT. LTD. AND SAME WAS NOT OWNED BY THE ASSESSEE. THERE FORE, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF DEPRECIATION OF RS. 2,25,264/-. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE AFORES AID ASSET WAS PURCHASED BY HMS CONSTRUCTION PVT. LTD. THEREFORE HE HAS COMP UTED INTEREST OF RS. 1,65,194/- ON THE LOAN AMOUNT AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. 16. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD . CIT(A). THE LD. CIT(A) HAS ALLOWED THE CLAIM OF ASSESSEE AFTER FOLLOWING T HE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DEEPAK NITRATE LT D. (2000) 249 ITR 825 AND VARIOUS DECISIONS REFERRED BY THE ASSESSEE. 17. HEARD BOTH THE SIDES AND PERUSED THE MATERIA L ON RECORD. IT IS UNDISPUTED FACT THAT HMS CONSTRUCTION PVT. LTD. HA D GIVEN THE POSSESSION OF THE PAVER MACHINE AND STOCK TRANSFER OF PAVER MA CHINE WAS DONE IN FAVOUR OF GAYATRI CONSTRUCTION CO. (ASSESSEE) AND MACHINE WAS USED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS MADE PAR T PAYMENT OF RS. 7,61,533/- BY VARIOUS CHEQUES AND THE AMOUNT DUE AS ON 31-03-2009 WAS RS. 7,40,230/- AS IT WAS DECIDED BETWEEN THEM THAT THE OWNERSHIP PAPER WOULD BE PROVIDED TO THE ASSESSEE AFTER MAKING FULL PAYME NT OF THE CONSIDERATION. IN THE LIGHT OF FACTS AND CONSIDERING THE FINDING OF LD. CIT(A) BASED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. DEEPAK NITRATE WHEREIN IT IS HELD THAT SINCE ASSESSEE ACQU IRED POSSESSION AND WAS I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 13 RUNNING FACTORY ON PAYMENT OF A SUBSTANTIAL PART OF PRICE, ASSESSEE WAS ENTITLED TO GRANT OF DEPRECATION. IN VIEW OF THE A BOVE FACTS AND FINDINGS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. GROUND NO. 5 (RESTRICTING GP ADDITION @ 1.5 OF GP O UT OF 3.27% OF GP) OF REVENUE AND GROUND NOS. 3 & 4 OF ASSESSEE CONFI RMING THE REJECTION OF BOOKS OF A/C U/S. 145 & CONFIRMING ADDITION OF G .P. @ 1.5 THEREBY CONFIRMING ADDITION OF RS. 19,20,000/- 18. DURING THE COURSE ASSESSMENT, THE ASSESSIN G OFFICER NOTICED THAT ASSESSEE HAS SHOWN GROSS PROFIT AT 7.27% ON TURNOVE R OF RS. 12,74,56,609/- AS AGAINST GROSS PROFIT AT 10.54% ON TURNOVER OF RS . 762,19,534/- IN THE PRECEDING YEAR. THE ASSESSING OFFICER OBSERVED TH AT THERE WAS SHARP REDUCTION IN THE GROSS PROFIT COMPARED TO THE EARL IER YEAR, THEREFORE, THE ASSESSEE WAS ASKED TO JUSTIFY THE REDUCTION IN THE GROSS PROFIT AND PROVIDE DETAIL OF VARIOUS PROJECTS, PROJECT WISE INCOME AND EXPENSES, DETAIL OF LABOUR EXPENSES, DETAIL OF DIESEL EXPENSES AS BOTH THESE E XPENSES WERE INCURRED IN CASH. THE ASSESSEE WAS UNABLE TO PROVIDE PROJECT W ISE INCOME AND EXPENDITURE. REGARDING REDUCTION IN GOODS PROFIT, THE ASSESSEE EXPLAINED THAT THE NET INCOME HAS BEEN INCREASED COMPARED TO LAST YEAR. IT IS ALSO SUBMITTED THAT DURING THE YEAR THE WORK WAS CARRIE D OUT AT BELOW THE AMOUNT OF TENDER PRICE AND COST OF LABOUR EXPENSES WAS ALS O INCREASED COMPARED TO THE LAST YEAR. THE ASSESSING OFFICER HAS NOT ACCEP TED THE REPLY OF THE ASSESSEE STATING THAT ASSESSEE HAS REDUCED SUB-CONT RACT EXPENSES IN THE REVISED WORKING OF G.P. BUT THE CORRESPONDING SUB-C ONTRACT INCOME WAS NOT REDUCED. THE ASSESSING OFFICER HAS STATED THAT A SSESSEE WAS A CONTRACTOR AND IN SUCH CASES THE MINIMUM AMOUNT OF PROFIT PRES CRIBED SHOULD BE 8% OF THE GROSS PROFIT. THE ENTIRE LABOUR EXPENSES AND D IESEL/PETROL EXPENSES WERE I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 14 INCURRED IN CASH AND NO LINKING UP OF THESE EXPENSE S PROJECT WISE DONE BY THE ASSESSEE. THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF SUCH EXPENSES. THE ASSESSING OFFICER HAS REJECTED THE B OOKS OF ACCOUNT U/S. 145(3) AND MADE GP ADDITION OF 3.27% AFTER TAKING THE GP RATIO OF 10.54% SHOWN IN THE EARLIER YEAR AND MADE ADDITION OF RS. 41,67,831/- TO THE TOTAL INCOME OF THE ASSESSEE. ON VERIFICATION, THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED SUB-CONTRACT EXPENSES OF R S. 2,45,10,477. THE ASSESSEE COULD NOT LINK THE SUB-CONTRACT EXPENSES T O THE VARIOUS PROJECTS. THE ASSESSING OFFICER HAS FURTHER NOTICED THAT ASSE SSEE HAS CLAIMED SUB- CONTRACT EXPENSES OF RS. 92,518/- ON 04-04-2008, RS . 10,61,545/- ON 04-04- 2006 AND RS. 2,84,551/- ON 07-04-2008. THE ASSESSE E WAS SPECIFICALLY ASKED TO PROVIDE NATURE OF THESE EXPENSES AND DETAIL OF W ORK CARRIED ALONG WITH CORRESPONDING INCOME CREATED IN THE P & L ACCOUNT. THE ASSESSING OFFICER STATED THAT THE ASSESSEE HAS NOT SUBMITTED THE REQU IRED DETAILS AND EVEN THE ADDRESSES OF THE SUB-CONTRACTORS WERE NOT FURNISHED . CONSEQUENTLY, THE ASSESSING OFFICER HAS TREATED THE AFORESAID SUB-CON TRACT EXPENSES OF RS. 92,518+ 16,61,545+ 2,84,551 TOTALING TO RS. 14,38,6 10/- AS UNEXPLAINED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 19. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS RESTRICTED THE ADDITION ON ACCOUNT OF GP ADDITION TO THE EXTENT OF 1.5% OF THE TURN OVER ALSO COVERING THE ADDITION ON ACCOUNT OF SUB-CONTRACT EXPENSES OF RS. 14,38,610/-. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER:- 9.3 I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS OBSERVED THAT MAJOR EXPENSES LIKE LABOUR, PETROL & DIESEL AND SUB-CONTRACT EXPENSES WHICH ARE TO THE EXTENT OF RS.3.57 CRORE. 2.22 CRORE AND 2.45 CRORE RESPECTIVELY CANNOT BE VERIFIED AT ALL V IS-A-VIS THE ACTUAL CONTRACT WORK DONE. THIS IS A VERY MAJOR SHORTCOMING IN THE BOOKS OF ACCOUNT. THE FIRST TWO EXPENSES ARE IN CASH. IN THE CASE OF I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 15 LABOUR EXPENSES, EVEN THE PAYEES CANNOT BE TRACED F ROM THE RECORD AND THEREFORE, THERE CANNOT BE ANY INDEPENDENT CHECK. THE APPELLANT HIMSELF IS SAY ING THAT SUB-CONTRACT EXPENSES IS BOOKED ON THE DATE OF PAYMENT TO PARTIES TO WHOM SUB CONTRACT WORK WAS ALLOTTED. THERE IS NO CHECK EVEN WHETHER THE PAYMENTS MADE IN APRIL ARE PAYMENTS IN ADVANCE OR OTHERWISE OF WORK DONE EARLIER. WHEN EVEN THE DETAI LS OF SUB-CONTRACT WORK DONE IS NOT KNOWN AND WHEN THE EXPENSES ARE BEING BOOKED ON CASH BASIS WH EN THE METHOD OF ACCOUNTING OF THE ASSESSEE IS MERCANTILE, I HAVE GOT NO DOUBT THAT ACCOUNTS OF THE APPELLANT ARE NOT CORRECT AS TO GIVE A REASONABLE PICTURE OF THE PROFITS AND STATE OF AFFA IRS AND BY ADMITTEDLY FOLLOWING MIXED SYSTEM OF ACCOUNTING AT LEAST IN RESPECT OF ONE MAJOR EXPENSE I.E. SUB-CONTRACT EXPENSES, IT IS NOT FOLLOWING CORRECT SYSTEM OF ACCOUNTING. THE REJECTION OF THE BOOKS OF ACCOUNT U/S 145(3) OF THE IT ACT IS UPHELD IN THE FACTS AND CIRCUMSTANCES OF THE CASE. NOW, COMING TO THE ESTIMATION OF PROFITS. I AGREE T HAT SOME PART OF FALL IN GP RATE CAN BE EXPLAINED BECAUSE OF MORE PERCENTAGE OF WORK DONE B EING GOT DONE FROM OUTSIDE ON SUBCONTRACTS AND INCREASE IN PERCENTAGE OF EXPENSES DEDUCTED BY PARTIES FOR WHOM THE WORK HAS BEEN DONE. STILL, THE NET PROFIT RATES EVEN AFTER ADDING INTER EST AND REMUNERATION TO PARTNERS AND ADDING BACK DEPRECIATION IS ONLY 3.42% WHICH IS NOT UP TO THE M ARK WITH THE STANDARDS OF THE TRADE. IT WILL BE STILL LOWER AND BELOW EVEN 1 % IF DEPRECIATION IS N OT ADDED BACK. THE HON'BLE HYDERABAD BENCH OF ITAT HAS BEEN CONSISTENTLY HOLDING, AS IN ITS RE CENT DECISION IN 1TA NO.LL91/HYD.2011 IN ACIT V/S. TEJA CONSTRUCTIONS, SECUNDERABAD FOR THE ASSES SMENT YEAR 2006-07 VIDE ORDER DATED 17TH FEBRUARY, 2012, THAT ESTIMATION OF INCOME AT 9% IN RESPECT OF THE CONTRACTS TAKEN BY THE ASSESSEE ITSELF AND EXECUTED BY IT; AT 8% IN RESPECT OF RECE IPTS FROM SUB-CONTRACT WORKS TAKEN FROM OTHERS AND EXECUTED BY THE ASSESSEE; AND 4% OF THE GROSS R ECEIPTS IN RESPECT OF CONTRACTS GIVEN BY THE ASSESSEE TO THIRD PARTIES ON SUB-CONTRACT BASIS, AS REASONABLE. EVEN THE AHMEDABAD SMC BENCH OF ITAT IN THE CASE OF PARAS CONSTRUCTION, GANDHINA GAR IN ITA NO. 2742/AHCL/2004 VIDE ORDER DATED 15/5/2009 HAS ACCEPTED 4% NET PROFIT ON ALL RECEIPTS WHERE OVER 70% OF THE WORK WAS GIVEN ON SUB-CONTRACTS. LOOKING TO THE ENTIRETY OF CIRCUM STANCES, AN ADDITION OF 1.5 % IN GP RATE (OR N P RATE ,AS BOTH WOULD NATURALLY WORK AS SAME) IS DE EMED REASONABLE IN THE TOTALITY OF CIRCUMSTANCES, IT WOULD PARTLY COVER THE FALL IN G P RATE CLAIMED. THE ADDITION CONFIRMED WOULD BE RS.19,20,000/- (1.5 % OF 12,74,56,608). AS TOTAL RECEIPTS HAVE BEEN CONSIDERED AFTER REJECTING BOOKS TO ESTIMATE THE PROFITS, IT COVERS ADDITION R EQUIRED ON SUB CONTRACT EXPENSES ALSO. THEREFORE, INSTEAD OF THE ADDITIONS OF RS.41,67,831/- AND DISA LLOWANCE OF RS.14,38,610/- MADE BY THE AO; THE ADDITION IS CONFIRMED TO THE EXTENT OF RS.19,20,000 /-. THEREFORE, THE APPELLANT GETS A RELIEF OF RS.36,86,441/- ON THE TWO GROUNDS OF APPEAL. 20. DURING THE COURSE OF APPELLATE PROCEEDINGS BE FORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE ASSESSEE HAS FAILED TO FURNISH THE PROJECT WISE INCOME/EXPENDITURE DETAILS AND ALSO FAILED TO PROVE THE GENUINENESS OF LABOUR AND DIESEL/PETROL EXPENSE S WITH RELEVANT SUPPORTING EVIDENCES. REGARDING SUB-CONTRACT EXPEN SES, HE HAS POINTED THAT THE ASSESSEE WAS UNABLE TO PROVE THE GENUINENESS OF SUCH EXPENSES AND NO REQUIRED SUPPORTING DETAILS/INFORMATION FURNISHED. THE LD. DEPARTMENTAL REPRESENTATIVE SATED THAT FULL AMOUNT OF SUB-CONTRA CT EXPENSES BE DISALLOWED. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIVE HAS I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 16 SUBMITTED THAT THE MAIN REASON FOR FALL IN THE GP W AS DUE TO INCREASED SUB- CONTRACT EXPENSES AND THE DETAILED REASON FOR FALL IN GP WAS GIVEN AT PAGES 30 TO 34 OF THE ORDER OF THE LD. CIT(A). HE FURTHE R STATED THAT THE LD. CIT(A) HAS CONFIRMED THE G.P. @ 1.5% ONLY ON THE ESTIMATED BASIS. REGARDING SUB- CONTRACT EXPENSES HE HAS REFERRED PAGE 18 OF THE PA PER BOOK AND PAGES 87 TO 89 OF THE PAPER BOOK. THE LD. AUTHORIZED REPRESENT ATIVE HAS SUBMITTED THAT G.P. ADDITION MAY BE REDUCED TO 1%. 21. HEARD BOTH THE SIDES AND PERUSED THE MATERI AL ON RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED SHORT FALL IN THE GROSS PROFIT DECLARED DURING THE YEAR AS COMPARED TO THE LAST YEAR. THE ASSESSING OFFICER HAS NOTICED SUBSTANTIAL INCREASED IN THE LA BOUR EXPENSES AND DIESEL/PETROL EXPENSES. ENTIRE AMOUNT OF LABOUR EX PENSES OF RS. 3.57 CRORES AND DIESEL/PETROL EXPENSES OF RS. 2.22 CRORES WERE INCURRED IN CASH. THE ASSESSEE HAS SHOWN THEIR INABILITY TO FURNISH THE D ETAILS OF INCURRING OF THESE EXPENSES PROJECT-WISE AND ALSO FAILED TO SUBMIT REL EVANT SUPPORTING EVIDENCES EXCEPT SELF-MADE VOUCHERS TO PROVE THE GE NUINENESS OF INCURRING ENTIRE THESE EXPENSES. BECAUSE OF THE AFORESAID IN FIRMITY IN THE SUBMISSION OF THE ASSESSEE THE ASSESSING OFFICER COULD NOT VER IFY AND EXAMINE THE CORRECTNESS AND GENUINENESS OF THE CLAIM OF THE ASS ESSEE. REGARDING SUB-CONTRACT EXPENSES TO THE AMO UNT OF RS. 92518/- ON 04- 04-2018, RS. 10,61,545/- ON 07-04-2018 AND RS. 2,8 4,551/-, THE ASSESSING OFFICER HAS OBSERVED THAT ASSESSEE HAS DEBITED THES E EXPENSES ON THE INITIAL DAYS OF F.Y. 2008-09 IN THE MONTH OF APRIL, HOWEVE R, THE ASSESSEE HAS FAILED TO EXPLAIN THE NATURE OF EXPENSES, DETAILS O F WORK CARRIED OUT AND I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 17 CORRESPONDING INCOME CREDITED IN THE P & L A/C. EV EN THE ASSESSEE HAS FAILED TO FURNISH THE ADDRESSES OF THESE SUBCONTRAC TORS. BECAUSE OF THE AFORESAID LACUNA IN THE COMPLI ANCE OF THE ASSESSEE, THE ASSESSING OFFICER COULD NOT VERIFY THE GENUINENESS OF THE CLAIM OF THE ASSESSEE. KEEPING IN VIEW THE BRIEFLY STATED FACTS AS ABOVE AND THE SUBMISSION OF THE ASSESSEE MADE BEFORE THE LD. CIT(A), THE LD. CI T(A) HAS RIGHTLY OBSERVED THAT MAJOR EXPENSES LIKE LABOUR, PETROL DIESEL AND SUB-CONTRACT EXPENSES TO THE EXTENT OF RS. 3.57 CRORE, 2.22 CRORE AND 2.45 C RORE CANNOT BE VERIFIED AT ALL VIS--VIS THE ACTUAL CONTRACT WORK DONE. EVEN THE DETAILS OF SUB-CONTRACT EXPENSES WERE NOT FURNISHED WHICH DEMONSTRATE THAT CORRECTNESS OF THE CLAIM OF THE AS SESSEE WAS NOT ESTABLISHED. WE HAVE GONE THROUGH THE PAGE NO. 18 OF THE P APER BOOK PERTAINING TO THE SUBMISSION OF THE ASSESSEE ON SUB-CONTRACT EXPE NSES OF RS. 14,38,610/-. IN THE SUBMISSION, THE ASSESSEE HAS SIMPLY STATED T HAT THE PAYMENT TO THE SUB-CONTRACTORS WERE MADE IN ADVANCE AND THE WORK W AS COMPLETED LATER ON. WE HAVE ALSO GONE THROUGH THE PAGES 87 TO 89 OF THE PAPER BOOK SHOWING ONLY ENTRIES OF PAYMENT MADE TO THE SUB-CONTRACTORS IN THE MONTH OF APRIL 2008 OF THE FINANCIAL YEAR BUT THE ASSESSEE HAS FAI LED TO FURNISH THE PRIMARY DETAILS OF NATURE OF WORK AND THE INCOME EARNED FRO M THESE SUB-CONTRACTS TILL 31-03-2009. EVEN THE ASSESSEE HAS FAILED TO FURNIS H THE ADDRESSES OF THESE SUB-CONTRACTORS AND OTHER RELEVANT DETAILS OF THEIR EXISTENCE FROM WHICH THE ASSESSING OFFICER COULD HAVE VERIFIED THE GENUINENE SS OF THE CLAIM OF THE ASSESSEE. IN THE LIGHT OF THE AFORESAID FACTS AND CIR CUMSTANCES THE LD. CIT(A) HAS MADE ADDITION OF 1.5% IN GP RATE AFTER PLACING RELI ANCE ON THE COMPARABLE I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 18 JUDICIAL CASES FOR ESTIMATING THE INCOME IN RESPECT OF CASES OF CONTRACTS AND SUB-CONTRACTS AS ELABORATED SUPRA IN THE FINDINGS O F THE LD. CIT(A). CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES , WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE ON THIS ISSUE AS THE L D. CIT(A) HAS JUDICIALLY RESTRICTED THE ADDITION TO THE EXTENT OF 1.5 % G.P . RATE AFTER FOLLOWING THE DIRECTION LAID DOWN IN THE VARIOUS JUDICIAL FINDING S RELEVANT TO THE FACTS AND CIRCUMSTANCES PERTAINED TO THE CASE OF THE ASSESSEE . IT IS OBSERVED THAT NO SEPARATE ADDITION FOR S UB-CONTRACT EXPENSES IS JUSTIFIED SINCE THESE EXPENSES ULTIMATELY ALSO AFFE CT THE GROSS PROFIT THEREFORE THE LD. CIT(A) HAS RIGHTLY HELD THAT ADDITION OF 1. 5% IN G.P. WOULD ALSO COVERED ADDITION OF SUB-CONTRACT EXPENSES. WE ALSO DO NOT FIND ANY MERIT IN THE APPEAL AND ALTERNATIVE CONTENTION OF THE ASSESSEE BECAUSE OF THE FOLLOWING FACTS:- (I) THE ASSESSEE HAS FAILED TO CO-RELATE THE INCU RRING OF ENTIRE EXPENSES IN CASH TO THE DIFFERENT PROJECTS THEREFORE LABOUR EXP ENSES OF RS. 3.57 CRORES AND DIESEL/PETROL EXPENSES OF RS. 2.20 CRORES COULD NOT BE VERIFIED. (II) THE ASSESSEE HAS FAILED TO FURNISH BASIC DET AIL I.E. PROJECT WISE DETAILS CORRESPONDING INCOME AND EXPENDITURE. (III) TO PROVE THE GENUINENESS OF THE SUB-CONTRAC T EXPENSES CLAIMED TO BE PAID TO THE THREE SUB-CONTRACTORS IN THE INITIAL PE RIOD OF F.Y. 2008-09 THE ASSESSEE HAS NOT EVEN FURNISH THE PRIMARY DETAIL AS ADDRESSES OF THE SUB- CONTRACTORS. THE COPIES OF THESE LEDGER ACCOUNTS O F THESE SUB-CONTRACTORS PLACED AT PAGES NO. 87 TO 88 CONTAINED ONLY THE ENT RIES OF INITIAL PAYMENT MADE IN THE MONTH OF APRIL 2008. THERE WAS NO FURT HER DETAILS OF NATURE OF CONTRACT WORK AND INCOME RECEIVED FROM SUCH SUB-CON TRACT. THERE ARE NO ENTRIES FOR THE REMAINING PERIOD FROM APRIL 2008 TO 31 ST MARCH 2009. THESE I.T.A NOS. 25/AHD/2013 & 2816/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. M/S. GAYATRI CONSTRUCTION CO. & M/S. GAY ATRI CONSTRUCTION CO. VS. DCIT 19 FACTS DEMONSTRATE THAT THE ASSESSEE HAS FAILED TO S UBSTANTIATE THE GENUINENESS OF THIS CLAIM. CONSIDERING THE AFORESAID FACTS AND FINDINGS OF THE LD. CIT(A), WE DO NOT FIND ANY ERROR IN THE DECISION OF LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. IN THIS RESULT, THE GROUND OF APPEAL OF THE REVENUE AND ASSESSEE ON THIS ISSUE ARE DISMISSED. 22. IN THE RESULT, APPEAL ITA 25/AHD/2013 FILED BY REVENUE AND APPEAL ITA 2816/AHD/2012 FILED BY ASSESSEE ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11-12-2020 SD/- SD/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD : DATED 11/12/2020 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,