Appeal Details
Counselvise Citation
255020514 RSA 2005
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 9 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-09-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
05-09-2011
Assessment Year
2002-2003
Appeal Filed On
06-12-2005
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G. D. AGARWAL, VP AND SHRI BHAVNESH SA INI, JM) ITA NO.2550/AHD/2005 A. Y.: 2002-03 THE A. C. I. T., CIRCLE-9, VASUPUJYA CHAMBERS, A-WING, ASHRAM ROAD, AHMEDABAD VS M/S. G. K. PATEL & CO., 14-A, SHARDA SOCIETY, SHARDA MANDIR ROAD, PALDI, AHMEDABAD PA NO. AABFG 3658 F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. K. GUPTA, CIT DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 05-09-2011 DATE OF PRONOUNCEMENT:09-09-2011 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XV , AHMEDABAD DATED 12 TH SEPTEMBER, 2005 FOR THE ASSESSMENT YEAR 2002-03, O N THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.10,997/- MADE ON ACCOUNT OF TDS RECONCILIATION. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.28,77,867/- I.E. 5% OF RS.5,75,57,344/- MADE U/S 40A (2) (B) IN RESPECT OF PAYMENT MADE TO G. K. ENGG. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 2 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.86,020/- MADE OUT OF TOTAL DISALLOWANCE OF RS.1,86,020/- ON ACCOUNT OF INFLATI NG EXPENSES BY THE ASSESSEE. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.6,37,504/- MADE ON ACCOUNT O F VEHICLE/DIESEL OIL-GREASE EXPENSES. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.4,79,165/- MADE ON ACCOUNT O F MACHINERY HIRE EXPENSES. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,24,831/- MADE ON ACCOUNT O F MACHINERY REPAIRS/SPARES EXPENSES. 7. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING 20% OF THE EXPENSES DISALLOWED FROM SITE EXPENSES O F RS.2,27,559/- AND SITE RASODA EXPENSES OF RS.2,04,3 62/- 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.32,68,650/- MADE ON ACCOUNT OF DIFFERENCE OF 60%. 9. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.44,44,787/- OUT OF TOTAL ADDITIO N OF RS.56,44,787/- MADE ON ACCOUNT OF POST-SURVEY INQUI RIES IN RESPECT OF LABOUR CONTRACTORS. 10. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.36,75,572/- OUT OF TOTAL ADDITIO N OF RS.46,75,572/- MADE IN RESPECT OF PAYMENTS MADE TO THREE TRANSPORT CONTRACTORS. 11. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.38,12,667/- MADE ON ACCOUNT OF CLAIM OF EXPENDITURE FOR RENDERING TRANSPORTATION S ERVICES TO SHRI MANOJ K. AGARWAL. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 3 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND CONSI DERED THE FINDINGS OF THE AUTHORITIES BELOW. 3. THE FIRST GROUND OF APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.10,997/- CONSIDERING THE SAME AS SUPPRESSION OF CONTRACT RECEIPTS. ON RECONCILIATION OF RECEIPTS AS PER TDS CERTIFICATES WITH RECEIPTS SHOWN IN PROFIT AND LOSS ACCOUNT, THE AO O BSERVED THAT THERE WAS A DIFFERENCE OF RS.5,49,849/- WHICH WAS EXPLAIN ED BY THE ASSESSEE AS REPRESENTING THE WORK DONE BY M/S. K.M. PATEL & CO., A PARTY TO JOINT VENTURE WITH THE ASSESSEE BUT ACCOUN TED FOR IN ITS ACCOUNTS AND AS THE WORK WAS DONE BY M/S. K.M. PATE L & CO., IT WAS TRANSFERRED TO THE LATTER'S ACCOUNT. THE AO OBTAINE D A COPY OF ACCOUNT OF THE ASSESSEE FROM THE BOOKS OF ACCOUNTS OF M/S. K.M. PATEL & CO. WHEREIN AN AMOUNT OF RS. 5,38,852/- HAD BEEN DEBITE D IN THE NAME THE ASSESSEE . THUS, THE AO FOUND THAT THERE WAS A DIFFERENCE OF RS.10,997/- WHICH HE ADDED TO THE INCOME OF THE ASS ESSEE TOWARDS SUPPRESSION OF INCOME FROM KADI SITE. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND THE ASSESSEE SUBMITTE D THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAD CALLED FOR RECONCILIATION OF TDS WITH THE CONTRACT RECEIPTS. I T WAS OBSERVED THAT IN CASE OF KADI SITE WHERE THE ASSESSEE WAS DOING W ORK FOR SARDAR SAROVAR NANNADA NIGAM LTD. (HEREAFTER TO BE REFERRE D AS SSNNL) THERE WAS DIFFERENCE IN THE RECEIPTS SHOWN IN THE P ROFIT AND LOSS ACCOUNT AND THE PAYMENTS MADE BY SSNNL AS UNDER: AS PER P & L ACCOUNT THE KADI RECEIPTS SHOWN WERE R S.3,21,61,536/- AS PER TDS VOUCHERS OF SSNNL THE RECEIPTS WERE R S.3,27,11,435 /- ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 4 DIFFERENCE RS. 5,49,849/- THE ASSESSEE INFORMED THE AO THAT THE DIFFERENCE IN THE RECEIPTS WAS DUE TO THE FACT THAT THE RECEIPT OF RS.5,49,849/- ( INCLUDING SECURITY DEPOSIT OF RS.10,997/- BEING 2% OF RS.5,49,849/-) P ERTAINED TO THE WORK DONE BY M/S K. M. PATEL & CO WHICH WAS WRONGLY INCLUDED BY SSNNL IN THE R.A. BILL OF THE ASSESSEE AND THEREFOR E THE ASSESSEE HAD RECEIVED A BILL FROM K. M. PATEL & CO AND THEIR ACCOUNT WAS CREDITED. IT WAS SUBMITTED THAT SSNNL HAD DEDUCTED 2% SECURITY DEPOSIT ON THIS AMOUNT OF RS.5,49,849/- I.E. RS.10, 997/-. THIS AMOUNT OF RS.10,997/- WAS TAKEN TO SSNNL SECURITY DEPOSIT ACCOUNT AND WAS TO BE RETURNED TO K. M. PATEL & CO. AS AND WHEN REC EIVED FROM SSNNL. AS THIS AMOUNT BELONGED TO K. M. PATEL & CO. , THE ASSESSEE DID NOT CONSIDER THE SAME AS ITS RECEIPTS. HOWEVER, THE AO HAS NOT APPRECIATED THIS FACT AND HAS MADE AN ADDITION OF R S.10,997/- BEING THE SECURITY DEPOSIT ON THE WORK DONE BY M/S. K. M. PATEL & CO. THE ASSESSEE SUBMITTED THAT IT HAS FAILED TO UNDERSTAND AS TO WHY THE DEPOSIT ON THAT AMOUNT SHOULD BE CONSIDERED TO BE T HAT OF THE ASSESSEE, WHEN THE AO ACCEPTS THAT THE AMOUNT BELON GS TO K. M. PATEL & CO. THE ASSESSEE THEREFORE SUBMITTED THAT T HE ADDITION MADE ON THIS ACCOUNT BE DELETED. THE LEARNED CIT(A) CONS IDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION. H IS FINDINGS ARE REPRODUCED AS UNDER: 2.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTH ORIZED REPRESENTATIVE CAREFULLY AND HAVE ALSO GONE THROUGH THE DETAILS FILED BY THE AUTHORIZED REPRESENTATIVE. FROM THE SU BMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE IT IS FOUND T HAT RS.10,997/- IS 2% OF RS.5,49,849/- WHICH IS THE SEC URITY DEPOSIT ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 5 RELATING TO THE WORK DONE BY M/S. K.M. PATEL & CO. THE SARDAR SAROVAR NANNADA NIGAM LTD. HAD DEDUCTED 2% OF SECURITY DEPOSIT AND THE AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE SAME WOULD BE RETURNED TO K.M. PATEL & CO. AS AND W HEN THE SECURITY DEPOSIT WAS RECEIVED FROM SSNNL. THUS, AS THIS AMOUNT IS RELATED TO K.M. PATEL & CO. AND IS TO BE TRANSFERRED TO K.M. PATEL & CO. ON THE RECEIPT OF THE SECURITY DEP OSIT FROM SSNNL, I DO NOT FIND ANY JUSTIFICATION FOR ADDITION OF SAID AMOUNT IN THE HANDS OF THE APPELLANT. ACCORDINGLY, THE ADDITION OF RS.10,997/- IS DELETED. 3.1 THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE RECEIPT FILED BEFORE THE LEARNED CIT(A) WA S NOT BEFORE THE AO. THEREFORE, IT COULD NOT BE SUBJECT TO VERIFICATION. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES AND SUBMITTED THAT THE RECEIPT WAS FILED BEFORE THE AO AS WELL. HE HAS REFERRED TO COPY OF A CCOUNT OF M/S. K. M. PATEL & CO. (PB-187) TO SHOW THAT AMOUNT OF RS.1 0,997/- IS ADJUSTED IN THEIR ACCOUNT. 3.2 ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE FACTS NOTED ABOVE ARE NOT IN DISPUTE. THE AMOUNT IN QUESTION IS TRANS FERRED IN THE ACCOUNT OF M/S. K. M. PATEL & CO. WHICH IS EVIDENT FROM PB- 187(SUPRA). SINCE THE LEARNED CIT(A) VERIFIED THE D ETAILS FROM THE RECORD IN WHICH NO INFIRMITY HAS BEEN POINTED OUT W OULD PROVE THAT DISCREPANCY IS EXPLAINED, WE DO NOT FIND ANY JUSTIF ICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). THIS GROUND H AS NO MERIT AND IS DISMISSED. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 6 4. THE SECOND GROUND OF APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS.28,77,867/- U/S 40A(2)(B) OF THE ACT BEING 5% OF THE PAYMENTS MADE TO G. K. ENGINEERING AS EXCESSIVE OR UNREASONABLE. THE AO FOUND THAT THE ASSESSEE HAS MA DE PAYMENT OF RS.5,75,57,344/- TO ITS SISTER CONCERN M/S. G.K. EN GINEERING. THE AO ASKED THE ASSESSEE TO JUSTIFY THE REASONABLENESS OF PAYMENT MADE TO M/S. G. K. ENGINEERING CO. WITH REFERENCE TO RA TES PREVAILING IN THE MARKET. THE ASSESSEE EXPLAINED THAT M/S. G.K. ENGIN EERING IS DOING STRUCTURAL CEMENT WORK AT SITE AND DURING THE YEAR NO OTHER CONTRACTOR HAS DONE THIS WORK. BUT AS THE ASSESSEE'S STATEMENT WAS WITHOUT ANY SUPPORTING EVIDENCES AND THE ASSESSEE FAILED TO JUS TIFY THE PAYMENT, THE AO DISALLOWED 5% OF THE PAYMENTS WHICH CAME TO RS.28,77,867/-. ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE ASSESSEE HAD GIVEN TH E ENTIRE STRUCTURAL WORK OF VALBHIPUR SITE OF SSNNL TO ITS SISTER CONCE RN M/S G.K. ENGINEERING CO. THE ASSESSEE HAD REPLIED BEFORE THE AO THAT THE PAYMENT TO SUB-CONTRACTOR M/S G. K. ENGINEERING WAS REASONABLE AND NOT EXCESSIVE. M/S G.K. ENGINEERING IS DOING ST RUCTURAL CEMENT WORK AT SITE AND DURING THE YEAR NO OTHER CONTRACTO R FROM WHOM THE ASSESSEE HAD TAKEN SERVICE HAS DONE THIS WORK. SINC E THIS IS VERY SENSITIVE MATTER IT REQUIRES LOT OF CARE AND THE SA ME WAS AWARDED TO THEM. THE AO INSTEAD OF APPRECIATING THE FACT THAT THE WORK ASSIGNED TO THE SISTER CONCERN WAS VERY SENSITIVE AND IF THE WORK WAS NOT CARRIED OUT PROPERLY THE ASSESSEE WOULD HAVE TO SUF FER ITS CONSEQUENCES, HAS CONSIDERED THE SAME AS UNREASONAB LE AND HAS DISALLOWED 5% OF THE JOB EXPENDITURE AS EXCESSIVE O N THE GROUND THAT THE ASSESSEE HAD ONLY MADE A STATEMENT AND DID NOT SUPPORT IT WITH ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 7 ANY EVIDENCE. THE ASSESSEE SUBMITTED THAT IT DID NO T UNDERSTAND AS TO WHAT TYPE OF EVIDENCE THE AO REQUIRED WHEN ALL B ILLS WERE AVAILABLE AND THE SAME HAVE BEEN VERIFIED BY HIM DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. FURTHER IT WAS NOT POSSIBLE FOR THE ASSESSEE TO GIVE COMPARABLE FIGURES OF SIMILAR WORK CARRIED OUT BY OTHER CONTRACTORS WHEN THE SAME HAS NOT BEEN DONE B Y ANY OTHER CONTACTOR. THE FIRM OF M/S G. K. ENGINEERING IS ALS O ASSESSED TO TAX SINCE THE LAST SO MANY YEARS AND HAS ALSO BEEN DOIN G SUB-CONTRACT WORK OF THE ASSESSEE SINCE ITS INCEPTION. THE ASSES SEE SUBMITTED THAT DURING THE COURSE OF SURVEY ALL THE BILLS, VOU CHERS ETC. WERE IMPOUNDED AND WERE IN THE CUSTODY OF THE AO. THE AO HAS VERIFIED ALL THESE BILLS AND DID NOT COME ACROSS ANY DISCREP ANCY. STILL THE AO HAS PRESUMED THAT THE EXPENDITURE IS EXCESSIVE AND HAS DISALLOWED 5% OF THE SAME WITHOUT ANY JUSTIFICATION. SINCE THE ADDITION IS MADE ON THE BASIS OF PRESUMPTION, THE ASSESSEE SUBMITTED THAT THE ADDITION OF RS.28,77,867/- BE DELETED. THE LEARNED CIT(A) DE LETED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTH ORIZED REPRESENTATIVE CAREFULLY AND HAVE ALSO GONE THROUGH THE DETAILS FILED BY THE AUTHORIZED REPRESENTATIVE. I HAVE ALSO CONSIDERED THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN T HE ASSESSMENT ORDER. I FIND THAT THE APPELLANT HAS ENG AGED M/S. G. K. ENGINEERING AS SUB-CONTRACTOR FOR THE STRUCTURAL WORK OF VALBHIPUR SITE OF SSNNL AND THE WORK HAS BEEN GIVEN ON RATE TO RATE. THE APPELLANT HAS RETAINED 7% AS SERVICE C HARGES OR PROFIT AND HAS TRANSFERRED THE BALANCE AMOUNT OF CO NTRACT RECEIPT TO THE ACCOUNT OF M/S. G.K, ENGINEERING. IT IS ALSO FOUND THAT FOR SIMILAR SORT OF WORK THE APPELLANT HAS MAD E PAYMENTS TO M/S. G.K. ENGINEERING AFTER DEDUCTING 7% OF BILL AM OUNT IN A.Y. 2000-01 AND 2001-02 AND THE SAME HAS BEEN ACCEPTED BY THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 8 ASSESSING OFFICER IN EARLIER TWO ASSESSMENT YEARS. FURTHER THE ASSESSING OFFICER HAS NOT REFERRED TO ANY COMPARABL E CASE TO FIND OUT WHAT IS THE FAIR MARKET VALUE OF SIMILAR S ERVICE AND WHAT IS REASONABLE AMOUNT FOR THIS WORK. THEREFORE, THER E IS NO JUSTIFICATION FOR DISALLOWANCE OF 5% OF THE PAYMENT S MADE TO M/S. G.K. ENGINEERING. ACCORDINGLY THE DISALLOWANCE OF RS,28,77,867/- IS DELETED. 4.1 THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 4.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE ASSESSEE HAS EXPLAINED BEFORE THE AUTHORITIES BELOW THE CIRCUMST ANCES IN WHICH PAYMENTS HAVE BEEN MADE TO THE SISTER CONCERN. THER E IS NOTHING UNREASONABLE IN THIS REGARD. IN ANY CASE, EVEN FOR APPLYING THE PROVISIONS OF SECTION 40A (2) (B) OF THE IT ACT, IT IS FOR THE AO TO MAKE OUT A CASE THAT THE EXPENDITURE INCURRED IS EXCESSI VE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF SUCH SERVICES . THE AO ACCEPTED THE SAME PAYMENTS IN EARLIER YEARS AND NO EFFORTS H AVE BEEN MADE IN THIS REGARD TO BRING ANY COMPARABLE CASE AS TO WHAT WAS THE FAIR MARKET VALUE OF SIMILAR SERVICES. THEREFORE, THERE WAS NO JUSTIFICATION TO MAKE THE ADDITION. WE RELY UPON DECISION OF HON BLE SUPREME COURT IN THE CASE OF UPPER INDIA PUBLISHING HOUSE P VT. LTD., 117 ITR 569 IN WHICH IT WAS HELD BEFORE SECTION 40A (2) IS APPLIED, AO SHOULD HAVE PROVED EXPENDITURE IS EXCESSIVE OR UNREASONABL E. THIS GROUND HAS NO MERIT AND IS REJECTED. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 9 5. THE THIRD GROUND OF APPEAL IS AGAINST DELETION O F ADDITION OF RS.86,020/- OUT OF RS.1,86,020/- IN RESPECT OF SH ORTAGE/SPOILAGE IN CEMENT PURCHASE. THE AO FOUND THAT THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER. WHILE WORKING OUT THE CE MENT CONSUMPTION, IT WAS FOUND THAT THERE WAS A SHORTAGE OF 1420 BAGS PLACEMENT WHICH THE AO VALUED @ RS.131/- PER BAG AN D DISALLOWED AN .AMOUNT OF RS.L,86,020/- TOWARDS SHORTAGE IN CEM ENT. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A). IT WAS SU BMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED FOR THE DETAILS OF PURCHASES AND CONSUMPTION OF CEMENT DURI NG THE YEAR. THE ASSESSEE FILED THE DETAILS AS UNDER: OPENING STOCK OF CEMENT 220 BAGS ADD: PURCHASES DURING THE YEAR 51,420 BAGS 51,640 BAGS LESS: CONSUMPTION DURING THE YEAR 4 7,420 BAGS 4,220 BAGS LESS: WASTAGE / SPOILAGE ETC. 1,420 BAGS CLOSING STOCK OF CEMENT 2,800 BAGS THE AO HAS CONSIDERED THE WASTAGE /SPOILAGE AS UNRE ASONABLE AND HAS MADE ADDITION OF RS1,86,020/- (1,420 X RS.131). IT WAS SUBMITTED THAT THE AO HAS ERRED IN NOT APPRECIATING THE FACT THAT IN THIS LINE OF TRADE WHERE CEMENT WORK IS INVOLVED, THERE IS BOUND TO BE PILFERAGE AND SPOILAGE. MOREOVER THE WORK OF THE ASSESSEE IS CARRIED OUT THROUGHOUT THE YEAR AND CEMENT IS SUCH AN ITEM THAT IT ABSORBS MOISTURE AT ONCE IF IT IS EXPOSED TO SKY. ONCE IT G ATHERS MOISTURE IT BECOMES UNUSABLE. IT IS FOR THIS REASON THAT DURING THE YEAR THERE WAS SHORTAGE, SPOILAGE PILFERAGE AND /OR WASTAGE OF 142 0 BAGS OF CEMENT. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 10 HENCE THEY WERE NEITHER CONSUMED NOR TAKEN IN STOCK . IT MAY NOT BE OUT OF PLACE TO MENTION HERE THAT CEMENT IS SUCH A RAW MATERIAL WHICH IS HANDLED BY UNSKILLED WORKERS AND THAT AT THE TIM E OF LOADING AND UNLOADING THEY JUST THROW THE CEMENT BAG ON THE GRO UND CAUSING PILFERAGE. SIMILARLY AT THE SITE THE WORKERS DO NOT CARE ABOUT THE WASTAGE IN CEMENT WHILE HANDLING THE ASSIGNMENT. TH E WASTAGE OF 2.75% IS BOUND TO BE THERE IN CEMENT IN CIVIL CONST RUCTION. AS THE ADDITION IS MADE ON THE BASIS OF ASSUMPTION, THE AS SESSEE SUBMITTED THAT THE SAME BE DELETED. THE LEARNED CIT(A) DELETE D THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE CAREFULLY AND HAVE ALSO GONE THROUGH THE DETAILS FILED BY THE AUTHORIZED REPRESENTATIVE. I FIND SOME FORCE IN THE CONTENTION OF THE AUTHORIZED REPRESENTATIVE THAT TH ERE IS BOUND TO BE SOME PILFERAGE AND SPOILAGE IN CEMENT DUE TO HANDLING BY UNSKILLED WORKERS AT SAME TIME OF LOADING AND UNLOA DING AND FOR NOT TAKING PROPER CARE AT THE SITES. HOWEVER, I FIN D THAT THE WASTAGE OF 2.5% CLAIMED BY THE APPELLANT IS QUITE HIGH. CONSIDERING THAT THERE IS BOUND TO BE SOME PILFERAG E AND WASTAGE, THE DISALLOWANCE IS SUSTAINED TO THE TUNE OF RS. 1 LAC AS AGAINST DISALLOWANCE OF RS.1,86,020/- MADE BY TH E ASSESSING OFFICER. THUS, THE APPELLANT GETS PART RE LIEF OF RS.1,86,020/-. 5.1 THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT NO REASON HAS BEEN GIVEN FOR DELETING THE PART ADDITION AND ADDITION WAS MADE ON FINDING DISCREPANCY. ON THE OT HER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED WASTAGE WAS CLAIMED WHICH WAS RIGHTLY PARTLY ALLOWED BY THE LEARNED CIT (A). ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 11 5.2 ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE EXPLANATION GIVEN BY THE ASSESSEE CLEARLY SUPPORTS THE FINDINGS OF TH E LEARNED CIT(A) THAT THERE IS BOUND TO BE PILFERAGE AND WASTAGE WHI LE DEALING WITH CEMENT. THE LEARNED CIT(A) HAS GRANTED REASONABLE D EDUCTION ON ACCOUNT OF WASTAGE/PILFERAGE IN CEMENT. THIS GROUND HAS NO MERIT. SAME IS ACCORDINGLY DISMISSED. 6. THE FOURTH GROUND OF APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS.6,37,504/- OUT OF DIESEL, OIL AND GREASE EXPE NSES. THE AO OBSERVED FROM POST SURVEY INQUIRY THAT THE ASSESSEE HAS BEEN INFLATED EXPENSES PERTAINING TO LABOUR AND TRANSPOR T AND AS THE ASSESSEE WAS UNABLE TO FILE THE DETAILS OF DEPLOYME NT OF VEHICLES, THE GENUINENESS OF VEHICLE EXPENSES WAS NOT PROVED AND; THE ASSESSEE HAS NOT PRODUCED LOG BOOK. THEREFORE, THE AO DISALL OWED 10% OF THE OIL AND GREASE EXPENSES. THE ADDITION WAS CHALLENGE D BEFORE THE LEARNED CIT(A). IT WAS SUBMITTED BY THE ASSESSEE TH AT DIESEL, OIL AND GREASE ARE USED IN MACHINERY DEPLOYED BY THE ASSESS EE AT THE DIFFERENT SITES. THE MACHINERIES ARE DUMPER, EXCAVA TORS, BULL DOZERS ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E AO ASKED FOR THE LOG BOOK, IF ANY, MAINTAINED AT DIFFERENT SITES . THE ASSESSEE SUBMITTED THAT IT IS PRACTICALLY IMPOSSIBLE TO MAIN TAIN LOG BOOK. THE ASSESSEE USED TO MAKE PURCHASES OF DIESEL ETC. FROM REGISTERED DEALERS AND ISSUE THEM AT DIFFERENT SITES AS PER TH EIR REQUIREMENTS. THIS HAS BEEN THE NORMAL PROCEDURE FOLLOWED BY THE ASSESSEE SINCE THE INCEPTION OF THE FIRM. ALL THE PURCHASES ARE VO UCHED AND ARE IN THE IMPOUNDED MATERIAL. THE AO HAS ALSO APPRECIATED THE FACT THAT ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 12 THE ASSESSEE HAS EVEN TAKEN CREDIT OF DIESEL AMOUNT ETC. IN THE BILL IF IT HAS SUPPLIED THE SAME TO THE SUB-CONTRACTOR. ACC ORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSUMPTION OF THE AO THAT IN THE POST SURVEY INQUIRY THE MODUS OPERANDI OF INFLA TING THE LABOUR AND TRANSPORT EXPENSES BY THE ASSESSEE WAS ESTABLIS HED IS TOTALLY AGAINST THE FACTS OF THE CASE. ON THE BASIS OF THIS ASSUMPTION THE AO HAS DISALLOWED 10% OF THE DIESEL, OIL AND GREASE EX PENSES. THE ASSESSEE SUBMITTED THAT THE EXPENSES ARE AS UNDER: TOTAL EXPENSE OF DIESEL, OIL & GREASE RS.85,45, 302/- LESS: RECOVERED FROM SUB-CONTRACTORS RS .21,70,259/- DEBITED TO PROFIT & LOSS ACCOUNT RS.63,75,043/- THE ASSESSEE SUBMITTED THAT THE BILLS WERE IMPOUNDE D DURING THE COURSE OF SURVEY AND EACH BILL HAS BEEN VERIFIED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND NO DISCREPANCY WAS NOTICED. IT WAS THEREFORE INCORRECT ON THE PART OF THE AO TO PRESUME THAT 10% OF THE EXPENSES CLAIMED UNDER THIS HEAD ARE INFLATE D. AS THIS ADDITION HAS BEEN MADE ON THE BASIS OF ASSUMPTION, ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF RS.6,37,504/- BE DELETED. THE A DDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A).THE LEARNED CI T(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE DISALLO WANCE. HIS FINDINGS ARE REPRODUCED AS UNDER: 5.2 I HAVE CONSIDERED THE SUBMISSION OF THE AUTHORISED REPRESENTATIVE CAREFULLY. THE APPELLANT HAS CONTEND ED THAT IT IS IMPOSSIBLE TO MAINTAIN LOG BOOK. THE APPELLANT HAS PURCHASED DIESEL FROM REGISTERED DEALERS. THE APPELLANT HAS A LSO RECOVERED RS.21,70,259/- FROM THE SUB-CONTRACTORS. THE BILLS ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 13 FOR THESE EXPENSES WERE IMPOUNDED DURING THE COURSE OF SURVEY AND THE SAME HAVE BEEN VERIFIED BY THE ASSES SING OFFICER. THE EXPENSES OF DIESEL, OIL IN THE YEAR IN APPEAL HAVE DECREASED TO RS.63.75 LAKHS FROM RS.142 LAKHS OF TH E PRECEDING YEAR. THEREFORE, IN ABSENCE OF ANY SPECIF IC MATERIAL, IT IS NOT JUSTIFIED TO DISALLOW 10% OF THE EXPENSES ON ACCOUNT OF INFLATION OF EXPENSES. AS THERE IS NO EVIDENCE IN S UPPORT OF THE SAID DISALLOWANCE, THE DISALLOWANCE OF RS.6,37, 5047- MADE BY THE ASSESSING OFFICER IS DELETED. 6.1 THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 6.2 ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO ACCEPTED THE AMOUNT RECOVERED BY THE ASSESSEE FROM THE SUB-CONTR ACTORS AND ALL THE VOUCHERS HAVE BEEN MAINTAINED FOR EXPENSES. THE AO WITHOUT POINTING ANY SPECIFIC DEFECTS IN THE BILLS AND VOUC HERS MADE THE AD HOC ADDITION. THE LEARNED CIT(A) ON PROPER APPRECIA TION OF FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. IN THE RESULT, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. THE FIFTH GROUND OF APPEAL IS AGAINST DELETIO N OF DISALLOWANCE OF RS.4,79,165/- BEING MACHINERY HIRE EXPENSES. THE MA CHINERY HIRE EXPENSES CONSISTED OF EXPENSES UNDER VARIOUS HEADS LIKE TRACTOR HIRE, DOZER HIRE, ROLLER HIRE, JEEP HIRE ETC. THE A O ASKED THE ASSESSEE TO FURNISH ADDRESS, PLACES OF DEPLOYMENT AND WORK E XECUTED BY SUCH MACHINERY AND CONFIRMATION FROM THE PARTIES FROM WH OM MACHINERIES WERE HIRED. THE ASSESSEE EXPLAINED BEFORE THE AO TH AT THE ADDRESSES OF THE PARTIES WERE GIVEN IN THE BILLS AN D THAT THE BILLS OF THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 14 PARTIES ARE AS GOOD AS CONFIRMATION LETTERS. HOWEVE R, THE AO OBSERVED THAT THE ASSESSEE FAILED TO PROVE THE GENU INENESS OF TRANSACTION BY NOT ESTABLISHING THEIR IDENTITY AND FAILED TO PROVE THEIR CAPACITY TO RENDER SERVICES BY NOT PRODUCING PROOF OF OWNERSHIP OF MACHINERY HIRED AND CONFIRMATION LETTER. THEREFORE, HE DISALLOWED THE ENTIRE AMOUNT OF RS.4,79,165/-. THE ADDITION WAS CH ALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THAT T HE ASSESSEE HAD TAKEN ON HIRE BULL DOZER, JEEP, DOZER, TRACTOR WITH WATER TROLLEY AND ROLLER AT ITS DIFFERENT SITES FOR FAST IMPLEMENTATI ON OF WORK. DURING THE COURSE OF SURVEY THE BILLS OF THESE PARTIES WERE FO UND AND ARE IN THE IMPOUNDED MATERIAL IN RESPECT OF WORK CARRIED OUT P RIOR TO THE SURVEY. AFTER THE SURVEY THE BILLS OF THESE PARTIES WERE VE RIFIED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO HAS MADE THIS ADDITION BECAUSE THE ASSESSEE DID NOT GIVE THE ADDR ESS OF THE PARTIES AND THE PLACE OF DEPLOYMENT OF THE WORK EXECUTED BY SUCH MACHINERY. THE ASSESSEE INFORMED THE AO THAT THE NA MES, ADDRESSES AND THE PLACE OF DEPLOYMENT OF MACHINERY WERE ALREADY MENTIONED IN THE BILLS OF THE PARTIES WHICH WERE IM POUNDED AS WELL AS THOSE PRODUCED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. THE ASSESSEE FILED THE DETAILS OF MACHINERY HIRE CHARGE S BEFORE THE AO AND REQUESTED THE AO TO TREAT THE BILLS OF THE PART IES AS THEIR CONFIRMATION LETTERS BECAUSE THE BILLS PRIOR TO THE SURVEY WERE IMPOUNDED AND IF THE AO HAD ANY DOUBT ABOUT THE GEN UINENESS OR OTHERWISE OF THE BILLS THEN NECESSARY VERIFICATION COULD HAVE BEEN DONE AT HIS END. THE FACT REMAINS THAT WITHOUT SUCH SERVICES THE WORK CANNOT BE COMPLETED. SINCE THE ADDITION HAS BEEN MA DE ON THE BASIS OF PRESUMPTION, THE ASSESSEE SUBMITTED THAT THE DIS ALLOWANCE OF ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 15 RS.4,79,165/- BE DELETED. THE LEARNED CIT(A) CONSID ERING THE EXPLANATION OF THE ASSESSEE DELETED THE DISALLOWANC E. HIS FINDINGS ARE REPRODUCED AS UNDER: 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUT HORISED REPRESENTATIVE CAREFULLY. I FIND THAT THE APPELLANT HAS INFORMED THE ASSESSING OFFICER THAT THE NAMES, ADDRESSES AND THE PLACE OF DEPLOYMENT OF MACHINERY WERE ALREADY MENTIONED I N THE BILLS OF PARTIES WHICH HAVE BEEN IMPOUNDED BY THE ASSESSI NG OFFICER DURING SURVEY PROCEEDINGS AND THAT IF THE ASSESSING OFFICER HAD ANY DOUBT HE COULD HAVE VERIFIED THE GENUINENESS OF THE SAID EXPENDITURE. THE EXPENSES UNDER THIS HEAD HAVE DECR EASED TO RS.4.79 LAKHS IN THE YEAR IN APPEAL FROM RS.10.32 L AKHS OF THE PRECEDING YEAR. IT IS FOUND THAT THERE IS BOUND TO BE EXPENDITURE ON HIRE OF MACHINERY WITHOUT WHICH THE CONTRACT WOR K COULD NOT HAVE BEEN COMPLETED BY THE APPELLANT. THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE MACHINERY CHARGES WITHOUT ANY CONCRETE EVIDENCE THAT THE APPELLANT HAD NOT HIRED MACHINERY AND AS IT IS NOT POSSIBLE FOR THE APPELLANT TO HAVE CARRIED OUT WORK WITHOUT HIRING OF MACHINERY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED AND THE SAME IS DELETED. 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 7.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO ACCEPTED ALL THE VOUCHERS HAVE BEEN MAINTAINED FOR EXPENSES. THE AO WITHOUT POINTING ANY SPECIFIC DEFECTS IN THE BILLS AND VOUC HERS MADE THE AD HOC ADDITION. THE LEARNED CIT(A) RIGHTLY NOTED THAT WITHOUT SUCH SERVICES THE WORK ASSIGNED TO THE ASSESSEE COULD NO T HAVE BEEN COMPLETED. THE LEARNED CIT(A) ON PROPER APPRECIATIO N OF FACTS AND ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 16 MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. IN THE RESULT, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. THE SIXTH GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF RS.1,24,831/- OUT OF MACHINERY REPAIRING AND SPARE PART EXPENSES. THE AO OBSERVED THAT ALTHOUGH THE ASSESSEE HAS PROD UCED THE VOUCHERS FOR VERIFICATION IT HAS FAILED TO PROVE TH AT THE SAID EXPENSES WERE MEANT FOR ITS BUSINESS AND SOME OF THE EXPENSE S WERE INCURRED IN CASH AND HAVE BEEN CLAIMED ON THE BASIS OF SELF SUPPORTING VOUCHERS. THEREFORE, THE AO DISALLOWED 10% OF THE SAID EXPENS ES. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT( A). IT WAS SUBMITTED THAT THE ASSESSEE HAD DEBITED RS.2,04,527 /- AS MACHINERY REPAIRS AND RS.10,43,785/- AS MACHINERY SPARES. THE AO HAS DISALLOWED 10% OF RS.12,48,312/- (RS.204527/- + RS. 1043785/-) STATING THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDE NCE OF CONSUMPTION OF MATERIAL AND SECONDLY THE ASSESSEE D ID NOT SHOW INCOME FROM SALE OF SCRAP. IT WAS SUBMITTED THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD PRODUCED A LL THE BILLS WITH RESPECT TO THE ABOVE EXPENDITURE FROM THE IMPO UNDED MATERIAL AS WILL AS THOSE AVAILABLE WITH IT. THESE BILLS WER E VERIFIED BY THE AO AND THE NATURE OF EXPENDITURE WAS ALSO VERIFIED. MO ST OF THE EXPENDITURE RELATES TO DAY TO DAY REPAIRS/ WELDING ETC. THE ASSESSEE SUBMITTED THAT IT COULD NOT UNDERSTAND AS TO WHAT K IND OF EVIDENCE THE AO REQUIRED IN RESPECT OF REPAIRS TO MACHINERY. THE FACT IS THAT, THE EXPENDITURE IS SUPPORTED BY BILLS AND BILLS UP TO T HE DATE OF SURVEY ARE IN THE IMPOUNDED MATERIAL AND THAT THE BILLS CONTAI N DESCRIPTION OF THE ITEM / WORK DONE. BILLS THEMSELVES ARE, SELF SUFFIC IENT TO JUSTIFY THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 17 EXPENDITURE. AS REGARDS SALE OF SCRAP, THE ASSESSEE SUBMITTED THAT THESE REPAIRS ARE DONE AT DIFFERENT SITES AND SINCE THE ITEMS REPLACED ARE PETTY ITEMS THE ASSESSEE HAS TO KEEP A BROAD VI EW AND NOT A CONSERVATIVE VIEW. IF ANY BUSINESS MAN IS VERY CONS ERVATIVE THEN THERE IS NO TRUST WORTHY RELATIONSHIP BETWEEN THE E MPLOYER AND EMPLOYEE AND CONSEQUENTLY THE WORK SUFFERS. IT IS A LSO NOT KNOWN AS TO ON WHAT BASIS THE AO HAS ESTIMATED 10% OF THE SA ID EXPENDITURE TO BE EXCESSIVE. THE MACHINERY HAS TO UNDERGO NORMA L WEAR AND TEAR DURING THE YEAR. THE MACHINERY IS DEPLOYED ON SMOOT H / ROUGH AS WELL AS HARD ROCKY SURFACES. HENCE THERE IS BOUND TO BE BREAK DOWN. SINCE THE EXPENDITURE HAS BEEN INCURRED FOR THE PUR POSE OF BUSINESS AND IS SUPPORTED BY BILLS AND VOUCHERS THE GENUINEN ESS OF THE EXPENDITURE CANNOT BE DOUBTED. SINCE THE DISALLOWAN CE HAS BEEN MADE ON THE BASIS OF PRESUMPTION, THE ASSESSEE SUBM ITTED THAT THE DISALLOWANCE OF RS.1,24,831/- BE DELETED. THE LEARN ED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE DISALLOWANCE. HIS FINDINGS ARE REPRODUCED AS UNDER: 7.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RISED REPRESENTATIVE CAREFULLY. I FIND THAT THE APPELLANT HAS KEPT VOUCHERS FOR ALL THE EXPENSES WHICH IN FACT WERE PR ODUCED BEFORE THE ASSESSING OFFICER AS STATED BY HIM IN TH E ASSESSMENT ORDER. THE BILLS HAVE BEEN IMPOUNDED BY THE ASSESSING OFFICER AND THE BILLS CONTAINED THE DETAI LS OF WORK DONE. THE APPELLANT HAS TO MAINTAIN THE MACHINERY A ND DO THE REPAIRS AS THE MACHINERY WAS DEPLOYED ON THE SMOOTH AS WELL AS HARD ROCKY SURFACES AND AS THE EXPENDITURE HAS B EEN INCURRED FOR THE PURPOSE OF BUSINESS, THERE IS NO J USTIFICATION FOR MAKING ESTIMATED ADDITION. FURTHER THE EXPENSES UND ER THE HEAD MACHINERY PAIRS-HAVE DECREASED TO RS.2,04,527/ - IN THE YEAR IN APPEAL FROM RS.3,98,304/- OF THE PRECEDING YEAR AND THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 18 EXPENSES UNDER THE HEAD MACHINERY SPARES HAVE DECRE ASED TO RS.10,43,785/- IN THE YEAR IN APPEAL FROM RS.15,92, 474/- OF THE PRECEDING YEAR. HENCE THE DISALLOWANCE OF RS.1,24,8 31/- MADE BY THE ASSESSING OFFICER IS DELETED. 8.1 THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 8.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. IT I S ADMITTED FACT THAT ASSESSEE MAINTAINED VOUCHERS FOR THESE EXPENSES WHI CH WERE EXAMINED BY THE AO BEING IMPOUNDED DURING SURVEY. T HE BILLS CONTAIN THE DETAILS OF THE WORK DONE IN WHICH THE A O HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE VOUCHERS AND WITHOUT POINTING OUT WHICH OF THE EXPENSES WERE NOT ADMISSIBLE MADE THE AD HOC ADDITION. THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE FACTS AND EVIDENCE ON RECORD RIGHTLY DELETED THE ADDITION. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 9. THE SEVENTH GROUND OF APPEAL IS AGAINST DELET ION OF DISALLOWANCE OF RS.86,384/- OUT OF SITE EXPENSES AND SITE RASO DA EXPENSES. THE AO OBSERVED FROM THE AUDITOR'S REMARK THAT WHEREVER AND WHENEVER, EXTERNAL SUPPORTING/EVIDENCES ARE NOT AVAILABLE THE AUDITORS HAVE RELIED ON ENTRIES PASSED OR INTERNAL SUPPORTING VOU CHERS PREPARED BY THE FIRM. THE AO FOUND THAT ALMOST 50% OF THE EXPEN DITURE WAS INCURRED IN CASH AND WAS BASED ON SELF SUPPORTING V OUCHERS. THEREFORE, THE AO DISALLOWED 20% OF THE SAID EXPEND ITURE. IT WAS SUBMITTED THAT THE HAS TO INCUR DIFFERENT TYPES OF EXPENDITURE AT ITS ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 19 DIFFERENT SITES, FOR EXAMPLE PURCHASE OF NAILS, LIM ESTONE, COLOUR, REPAIRS TO SHED, DUSTER, ACID, PENCIL, XEROX ETC. F OR ITS SITE OFFICE. THIS TYPE OF EXPENDITURE HAS BEEN DEBITED TO SITE EXPENS ES. THE TOTAL OF THIS EXPENDITURE DURING THE YEAR IS RS,2,27,559/- FOR FOUR SITES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE P RODUCED BEFORE THE AO ALL THE BILLS OF THESE SITES. THE AO VERIFIE D THE SAME WITH THE IMPOUNDED BOOKS AND NO DISCREPANCY WAS NOTED. SIMIL ARLY THE ASSESSEE WAS MAINTAINING KITCHEN (RASODA) FOR ITS S TAFF AT THE DIFFERENT SITES, THE RASODA EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT IS RS.2,04,362/-. IT WAS SUBMITTED THAT THE SITE WHERE THE WORK IS EXECUTED BY THE ASSESSEE IS NOT DEVELOPED A REA AND IS TOTALLY BARREN LAND WHERE FOR MILES TOGETHER NO FACILITY IS AVAILABLE. IN SUCH CIRCUMSTANCES THE ASSESSEE WAS DUTY BOUND TO PROVID E TO ITS STAFF THE NECESSARY FOOD AND SHELTER FOR THOSE WHO GO AND STA Y AT THE DIFFERENT SITES FOR NUMBER OF DAYS OR ELSE NOBODY WILL BE REA DY TO STAY OVERNIGHT AND CONSEQUENTLY THE WORK WILL SUFFER. TH US THE ASSESSEE INFORMED THE AO THAT BILLS OF THE SAID EXPENDITURE ARE SELF EXPLANATORY. THE ASSESSEE SUBMITTED THAT AS THE E XPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND WAS D ULY SUPPORTED BY VOUCHERS, THE DISALLOWANCE IS HIGHLY UNJUSTIFIABLE. THE ASSESSEE SUBMITTED THAT AS THE DISALLOWANCE OF RS.86,384/- H AS BEEN MADE ON THE BASIS OF PRESUMPTION, HENCE, THE SAME BE DELETE D. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 8.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AU THORISED REPRESENTATIVE CAREFULLY. I AGREE WITH THE AUTHORIS ED REPRESENTATIVE THAT THE ASSESSEE HAS TO INCUR DIFFE RENT TYPES OF ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 20 EXPENDITURE AT ITS DIFFERENT SITES AND THE KITCHEN EXPENDITURE IS RS.2,04,362/-. AS THE SITES ARE AT REMOTE PLACES NO FACILITY WAS AVAILABLE. THEREFORE, THE APPELLANT WAS BOUND TO PR OVIDE FOOD AND SHELTER TO THE WORKERS. FURTHER THE APPELLANT H AD TO INCUR EXPENSES AT SITE FOR WHICH DETAILS WERE FILED BEFOR E THE ASSESSING OFFICER AND BILLS WERE PRODUCED BEFORE TH E ASSESSING OFFICER. AS THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND IT IS SUPPORTED BY BILLS AND VOUCHE RS, I DO NOT FIND ANY JUSTIFICATION FOR AD-HOC DISALLOWANCE OF 2 0% OF SAID EXPENSES. FURTHER THE EXPENSES UNDER THESE HEADS HA VE DECREASED FROM THAT OF THE PRECEDING YEAR. ACCORDIN GLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.86 ,384/- IS DELETED. 9.1 THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 9.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE EXPLANATION GIVEN BY THE ASSESSEE WAS SUPPORTED BY THE EVIDENCES ON R ECORD AND ASSESSEE PRODUCED ALL THE BILLS AND VOUCHERS BEFORE THE AO WHICH WERE VERIFIED IN WHICH NO DISCREPANCY HAS BEEN POIN TED. AT THE REMOTE SITES OF WORK, THE ASSESSEE PROVIDED FOOD AN D SHELTER TO THE WORKERS WHICH WERE ALSO SUPPORTED BY BILLS AND VOUC HERS WOULD PROVE THAT EXPENSES WERE INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS. THE LEARNED DR DID NOT PRODUCE ANY CONTRARY MATERIAL ON RECORD AND HAS NOT POINTED OUT ANY INFI RMITY IN THE ORDER OF THE LEARNED CIT(A). THIS GROUND OF APPEAL IS ACCORD INGLY DISMISSED. 10. THE EIGHTH GROUND OF APPEAL IS AGAINST DELETION OF ADDITION OF RS.32,68,650/- AS SUPPRESSION OF RECEIPTS. THE AO H AS DISCUSSED IN ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 21 PARA 7 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HA S CREATED A JOINT VENTURE WITH M/S. K.M. PATEL & CO. FOR WHICH A C OPY OF JOINT VENTURE AGREEMENT DATED 22 ND DECEMBER, 2000 WAS PRODUCED BEFORE THE AO. ACCORDING TO THE TERMS AND CONDITIONS OF THE SAID J OINT VENTURE AGREEMENT BOTH THE PARTIES I.E. THE ASSESSEE AND M/ S. K.M. PATEL & CO. HAVE ENTERED INTO A JOINT VENTURE IN THE NATURE OF PARTNERSHIP FOR THE SPECIFIC PURPOSE OF EXECUTION OF THE WORK OF CO NSTRUCTING, PROVIDING AND LAYING DOUBLE LAYER BURNT CLAY TILES LINING AND CONSTRUCTING CANAL SERVICE ROAD , CATCH WATER DRAIN S ON SAURASHTRA BRANCH CANAL ON BEHALF OF SSNNL AND BOTH THE PARTIE S HAVE AGREED TO MAKE FINANCIAL PARTICIPATION AND THE RATIO OF PA RTICIPATION IS 60 : 40 FOR THE ASSESSEE AND M/S. K.M. PATEL & CO. RESPECT IVELY. THE AO FOUND THAT THE TOTAL RECEIPT OF M/S. K.M. PATEL & C O. OUT OF 4 TH R.A. BILLS WAS OF RS. 2,72,55,374/- IN RESPECT OF EXECUT ION OF WORK OF KADI PROJECT AND FOR THE ASSESSEE IT WAS RS.3,27,11,435/ -. THUS THE TOTAL WORK DONE BY THE PARTIES WAS OF RS.5,99,66,809/- AN D 60% THEREOF AS PER THE CONDITION OF JOINT VENTURE AGREEMENT WAS RS .3,59,80,085/- WHEREAS THE ASSESSEE HAS SHOWN RECEIPT OF RS.3,27,1 1,435/-. THUS, THERE WAS A SHORT RECEIPT OF RS.32,68,650/-. THEREF ORE, THE AO MADE ADDITION OF THE SAID AMOUNT AS SUPPRESSION OF RECEI PT BY THE ASSESSEE. THE ADDITION WAS CHALLENGED BEFORE THE LE ARNED CIT(A) AND IT WAS SUBMITTED THAT THE ABOVE ADDITION HAS BE EN MADE ON THE BASIS OF PRESUMPTION. THE FACTS ARE THAT THE ASSESS EE HAD FOR THE PURPOSE OF SUBMITTING PRE-QUALIFICATION APPLICATION / TENDER OF SSNNL ENTERED IN TO JOINT VENTURE WITH K. M. PATEL & CO F OR THE KADI SITE OF SSNNL. THIS FACT IS ALSO MENTIONED IN THE ASSESSMEN T ORDER AT PAGE 6-7. IT WAS CLEARLY UNDERSTOOD BETWEEN THE PARTIES THAT THEY ARE NOT ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 22 ENTERING INTO AN AGREEMENT OF ANY PERMANENT PARTNER SHIP OF JOINT VENTURE AS DISCUSSED IN PAGE 7 OF THE ASSESSMENT OR DER. AS PER THE SAID AGREEMENT THE ASSESSEE WAS TO DO 60% OF THE WO RK ASSIGNED BY SSNNL AND 40% OF WORK WAS TO BE DONE BY K. M. PATEL & CO. THE WORK AND AREA ASSIGNED TO BOTH THE PARTIES ARE CLEA RLY IDENTIFIABLE AND NOBODY CAN INTERFERE IN THE AFFAIRS OF OTHER. BOTH THE PARTIES HAVE TO CARRY OUT THEIR ASSIGNED WORK WITH THEIR OWN MANPOW ER, SKILL, FINANCE ETC. AND EVEN THE. TDS ON THE WORK DONE BY EACH PAR TY IS SEPARATELY DEDUCTED ON RESPECTIVE RA BILLS. ACCORDING TO THE A O, THE DIFFERENCE OF RS.32,68,650/- WAS SUPPRESSED RECEIPT. IT WAS SU BMITTED THAT THE COMPARISON MADE BY THE AO IS UNJUSTIFIABLE BECAUSE THE ASSESSEE HAS DONE WORK FOR SEMI-GOVERNMENT CORPORATION I. E. SSNNL FOR CANAL WORK AND THE RA BILL WAS PREPARED BY THE ENGI NEERS OF SSNNL ON THE BASIS OF THE MEASUREMENT TAKEN BY THEM AND N OT BY THE ASSESSEE OF ITS OWN SO THERE COULD NOT BE ANY UNDER STATEMENT OF THE CONTRACT RECEIPTS BECAUSE THE SEMI-GOVERNMENT CORPO RATION WILL NEVER MAKE ANY UNACCOUNTED CASH PAYMENTS. SECONDLY THE AREA AND PLACE OF DOING THE WORK OF BOTH THE PARTIES ARE DIF FERENT. THE FACT THAT K. M. PATEL & CO. HAS DONE MORE WORK I.E. FAST WORK SHOWS THEIR EFFICIENCY. THIS MAY BE DUE TO THE FACT THAT THE SO IL WHERE THEY ARE DOING THE WORK MAY BE GOOD AND NOT ROCKY, LABOUR MA Y BE FREELY AVAILABLE, THEY MAY HAVE MORE MANPOWER AS COMPARED TO ASSESSEE AND ABOVE ALL THEY HAVE MORE LIQUID FUNDS THEN THE ASSESSEE. FURTHER IN CASE OF CIVIL CONSTRUCTION LAW OF AVERAGES CANNO T BE APPLIED. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S HAD INFORMED THE ASSESSING OFFICER THAT IF HE HAD ANY DOUBT IN R ESPECT OF RECEIPTS SHOWN THEN NECESSARY ENQUIRIES COULD ALSO BE CONDUC TED FROM THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 23 CORPORATION. IF THE ASSESSEE HAD REALLY SUPPRESSED ITS RECEIPTS THEN THERE WOULD HAVE BEEN DIFFERENCE BETWEEN THE TDS AN D THE RECEIPTS SHOWN BY THE ASSESSEE. IT WAS, THEREFORE, SUBMITTED THAT ADDITION CANNOT BE MADE BY COMPARING THE EFFICIENCY OF TWO F IRMS. SINCE THE AO HAS MADE THIS ADDITION OF RS.32,68,650/- ON THE BASIS OF PRESUMPTION, THE ASSESSEE SUBMITTED THAT THE SAME B E DELETED. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE A SSESSEE DELETED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 9.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RISED REPRESENTATIVE CAREFULLY AND HAVE ALSO GONE THROUGH THE DETAILS FILED BY THE AUTHORISED REPRESENTATIVE. IT WAS SUBM ITTED BY THE AUTHORISED REPRESENTATIVE THAT BY THE TIME THE ENTI RE WORK OF KADI PROJECT GETS COMPLETED THE RATIO OF RECEIPTS F OR THE APPELLANT AND K. M. PATEL & CO. WOULD WORK OUT TO 6 0:40. AS THE WORK WAS INCOMPLETE DURING THE YEAR IN APPEAL, THE PROPORTION OF THE RECEIPTS CANNOT BE WORKED OUT AND WHEN THE S SNNL HAS CONFIRMED THAT IT HAD PAID RECEIPTS OF RS.3,27,11,4 35/- TO THE ASSESSEE, THERE IS NO QUESTION OF ASSUMING AND PRE SUMING THAT THE ASSESSEE HAS RECEIVED MORE RECEIPTS AND SU PPRESSED RECEIPTS OF RS.32,68,650/-. THE R.A. BILLS HAVE BEE N PREPARED BY THE ENGINEERS OF SSNNL ON THE BASIS OF MEASUREME NTS TAKEN BY THEM SO THERE CANNOT BE UNDERSTATEMENT OF CONTRACT RECEIPTS BECAUSE SSNNL BEING A SEMI-GOVERNMENT CORPORATION WOULD NOT BE MAKING PAYMENTS IN CASH. I N VIEW OF THE ABOVE FACTS IT IS FOUND THAT THE ADDITION HAS B EEN MADE ON PRESUMPTION BASIS ON THE MATHEMATICAL CALCULATION W HEREAS THE PAYMENTS HAVE BEEN RECEIVED BY THE APPELLANT FROM S SNNL BY CHEQUES TOWARDS CONTRACT RECEIPTS AND ALSO THERE IS NO SCOPE FOR SUPPRESSION OF RECEIPTS. THEREFORE, THE ADDITIO N OF RS.32,68,650/- MADE BY THE ASSESSING OFFICER IS DEL ETED. 11. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE SHARE RATIO OF JOINT VENTURE AGREEMENT WAS 60% AND 40%. THEREFORE, PARTIES ARE BOUND BY THE SAME AGREEMENT. THE LEARNED ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 24 DR REFERRED TO PAGE 10 OF THE ASSESSMENT ORDER AND SUBMITTED THAT FULL DETAILS OF THE JV AGREEMENT SHOULD BE TAKEN IN TO CONSIDERATION. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND REFERRED TO PB-80 WHICH IS REPLY FILED BEFORE THE AO IN WHICH I T WAS EXPLAINED THAT THE ASSESSEE AND M/S. K. M. PATEL & CO. WERE R EQUIRED TO DO THE WORK INDEPENDENTLY AND OTHER PARTY HAS DONE MORE WO RK, THEREFORE, IT HAS CORRECTLY SHOWN MORE RECEIPTS. THE AMOUNTS RECE IVED BY BOTH THE PARTIES FROM SSNNL HAVE NOT BEEN DISPUTED BY THE AO . THEREFORE, ADDITION WAS RIGHTLY DELETED BY THE LEARNED CIT(A). 11.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, W E DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO REFERRED TO THE TERMS OF THE JV AGREEMENT IN THE ASSESSMENT ORDER I N WHICH IT WAS ALSO PROVIDED THAT THE DIVISION OF INDIVIDUAL SCOPE OF WORK MAY BE WORKED OUT MUTUALLY BY BOTH THE PARTIES TO THE JV A GREEMENT THOUGH BOTH ARE JOINTLY AND SEVERALLY LIABLE TO THE EMPLOY ER FOR THE WHOLE WORK. BOTH THE PARTIES SPECIFICALLY UNDERTAKEN TO C ARRY OUT SEPARATE WORK AND SHALL BE RESPONSIBLE FOR THEIR ACTS. THE I NFORMATION SUPPLIED BY M/S. K. M. PATEL & CO. SUPPORTS THE VERSION OF T HE ASSESSEE THAT M/S. K. M. PATEL & CO. THROUGH THE BILLS RECEIVED R S.2,71,55,374/-. THEREFORE, THE BALANCE WAS RIGHTLY ACCOUNTED FOR BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS ON THE BASIS OF THE BILLS PRO VIDED TO THE EMPLOYER AND THE AMOUNT SETTLED. THE AO MERELY ON P RESUMPTION COMBINED THE RECEIPTS OF THE ASSESSEE AND M/S. K. M . PATEL & CO. AND WRONGLY DIVIDED IN THE RATIO OF 60% AND 40% FOR MAKING THE ADDITION. SINCE, BOTH THE PARTIES COULD HAVE WORKED OUT THE WORK ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 25 MUTUALLY DECIDED BY THEM AS PER JV AGREEMENT; THERE WAS NOTHING WRONG IF THE PARTIES MUTUALLY AGREED TO DIVIDE THE WORK ACCORDINGLY. THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSEE AC TUALLY UNDERSTATED OR SUPPRESSED THE RECEIPTS. THERE IS NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITIO N. WE CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE R EVENUE. 12. THE NINTH GROUND OF APPEAL IS AGAINST DELE TION OF DISALLOWANCE OF RS.44,44,787/- OUT OF LABOUR CONTRACT EXPENSES O F RS.56,44,787/-. A SURVEY OPERATION U/S 133A OF THE IT ACT WAS CARRI ED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 07-02-2002, DU RING THE COURSE OF WHICH PAPERS WERE FOUND RELATED TO CONSTRUCTION OF GODOWN AT ASLALI, WHEREIN AROUND RS.35 TO 40 LAKHS HAD BEEN I NVESTED BY THE ASSESSEE AND N. G. PATEL AND STATEMENT OF PARTNER S HRI G. K. PATEL WAS RECORDED WHEREIN HE DISCLOSED AN AMOUNT OF RS.2 2 LAKHS ON ACCOUNT OF BOGUS EXPENSES DEBITED IN THE PROFIT & L OSS ACCOUNT UNDER THE HEAD LABOUR AND TRANSPORTATION EXPENSES. THE AO FOUND THAT THE ASSESSEE HAD NOT DISCLOSED THIS AMOUNT FOR TAXATION EITHER IN THE PROFIT & LOSS ACCOUNT OR IN THE STATEMENT OF INCOME FILED ALONG WITH THE RETURN OF INCOME. THE AO ASKED THE ASSESSEE TO CLAR IFY WHY THE DISCLOSED AMOUNT OF RS.22 LAKHS HAS NOT BEEN SHOWN IN THE RETURN OF INCOME. THE ASSESSEE REPLIED BEFORE THE AO THAT ALL THE LABOUR CONTRACTORS HAVE ADMITTED TO HAVE DONE THE WORK AND NO ONE HAS DENIED AND THE PAYMENTS HAVE BEEN MADE TO THEM IN S UBSEQUENT YEAR AS AND WHEN PAYMENTS WERE RELEASED BY SSNNL. T HE LABOUR CONTRACTORS HAVE BEEN EXAMINED BY THE AO AND THEY H AVE CONFIRMED HAVING DONE THE WORK FOR THE ASSESSEE. THEREFORE, T HE GENUINENESS ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 26 OF THE EXPENDITURE HAS BEEN PROVED. THE ASSESSEE ST ATED BEFORE THE AO THAT THE STATEMENT OF SHRI G. K. PATEL SHOULD NO T BE RELIED ON THE FACE VALUE BUT ONLY TO THE EXTENT IT WAS IN CONFORM ITY WITH LAW AND FACTS OF ITS CASE. FURTHER, IT WAS ALSO CONTENDED T HAT THE ASSESSEE HAD FILED AN APPLICATION U/S 245C BEFORE THE HONBL E SETTLEMENT COMMISSION FOR ASSESSMENT YEAR 1993-94 TO 1996-97 A ND IN THE HONBLE SETTLEMENT COMMISSIONS ORDER DATED 27-11-2 001 THE FIRM WAS ALLOWED CASH CAPITALIZATION OF RS.15 LAKHS. THE AO THEN DISCUSSED THE PAYMENTS MADE TO THE LABOUR CONTRACTO RS IN PAGE 13 TO 27 OF THE ASSESSMENT ORDER. THE AO ASKED THE ASSESS EE TO ESTABLISH THE GENUINENESS OF THE TRANSACTIONS WITH THE LABOUR CONTRACTORS BY PRODUCING THEM AS ITS WITNESS OF PROVING THE GENUIN ENESS OF TRANSACTION BY ESTABLISHING THEIR IDENTITY, CAPACIT Y TO RENDER THE SERVICES AND PROOF OF PAYMENT MADE TO THEM. THE SHO W CAUSE NOTICE ISSUED BY THE AO IN RESPECT OF THESE LABOUR CONTRAC TORS AND THE EXPLANATION RECEIVED FROM THE ASSESSEE AND THE CONC LUSION OF THE AO HAS BEEN DISCUSSED IN THESE PAGES. THE AO CONCLUDED THAT THE TRANSACTIONS IN RESPECT OF THESE PARTIES ARE GENUIN E AS THE ASSESSEE HAS NOT PRODUCED PARTIES LIKE VIRAG C. PATEL, JITES HKUMAR BHAILAL DESAI AND OTHER LABOUR CONTRACTORS LIKE MAYURBHAI S HANTIBHAI PATEL, CHATURBHAI NARANDAS PATEL AND OTHERS. THE AO CONCLU DED THAT THE ASSESSEE HAS FAILED TO DISCHARGE PRIMARY ONUS CAST UPON IT. THE AO HELD THAT THESE PARTIES WERE NOT PRODUCED BY THE A PPELLANT WITH THEIR PROOF OF IDENTITY AND THAT IN RESPOND TO SUMMONS SO ME PERSONS CLAIMING TO BE THESE PERSONS APPEARED BEFORE THE AO WITHOUT BOOKS OF ACCOUNTS AND OTHER EVIDENCES AND THEIR STATEMENT S WERE RECORDED PRESUMING THAT THE PERSONS WERE THE LABOUR CONTRAC TORS WHOSE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 27 NAMES APPEARED AS LABOUR CONTRACTOR AND THAT THE AO WHO HAS RECORDED THE STATEMENT I.E. THE PREDECESSOR OF THE AO HAD NOT VERIFIED THE IDENTITY OF THE PERSONS BY CALLING THE PHOTO IDENTITY CARD, DRIVING LICENCE OR PHOTO IDENTITY CARD ISSUED BY EL ECTION COMMISSION ETC. THEREFORE, THE AO HAD AGAIN ASKED THE ASSESSEE TO PRODUCE THESE PERSONS WITH PROOF OF THEIR IDENTITY. BUT THE Y WERE NOT PRODUCED. THEREFORE, THE AO MADE DISALLOWANCE OF THE EXPENSES . THE TOTAL EXPENDITURE DISALLOWED WAS RS.56,44,787/- IN RESPEC T OF HIRE LABOUR CONTRACTORS AND RS.46,75,572/- IN RESPECT OF THREE TRANSPORT CONTRACTORS AND RS.38,12,667/- IN RESPECT OF ONE EN GINEER AND CONTRACTOR MANOJ K. AGRAWAL. BEFORE THE LEARNED CIT (A) IT WAS SUBMITTED THAT THERE WAS A SURVEY CONDUCTED ON 7-2- 2002 BY THE LNCOME TAX DEPARTMENT AT THE OFFICE PREMISES OF THE ASSESSEE AND DURING THE COURSE OF SURVEY STATEMENTS ON OATH WERE RECORDED FROM PARTNER GIRISHBHAI PATEL AND JASUBHAI PATEL, SON OF PARTNER JAYANTIBHAI. DURING THE COURSE OF SURVEY A LOOSE PA PER WAS FOUND FROM THE PURSE OF JASUBHAI PATEL CONTAINING JOTTING S ABOUT THE INVESTMENT MADE IN THE GODOWN AT ASLALI BY THE GROU P. ON THE BASIS OF THIS LOOSE PAPER JASUBHAI ADMITTED TO HAVE INVES TED RS.12,87,142/- IN CASH BY THEIR GROUP AND RS.10,39, 400/- BY THE OTHER GROUP. HE ALSO DEPOSED THAT THE INVESTMENT WAS MADE IN FINANCIAL YEAR 2000-01 AND HENCE THE RELEVANT ASSESSMENT YEAR WAS 2001-02. IMMEDIATELY AFTER THE SURVEY THE APPELLANT ASKED FO R THE COPY OF THE STATEMENT FROM THE AO VIDE LETTER DATED 9-2-2002 AN D ALSO REQUESTED THE AO NOT TO RELY ON THE STATEMENTS ON THE FACE VA LUE BUT ONLY TO THE EXTENT IT WAS IN CONFORMITY WITH LAW AND FACTS OF T HE ASSESSEE. THE AO IN ORDER TO JUSTIFY THE DISCLOSURE MADE BY PART NER AND ALSO TO ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 28 ESTABLISH THAT THE ASSESSEE HAD INFLATED THE EXPENS ES, ISSUED SUMMONS TO VARIOUS PARTIES WHO WERE RENDERING LABOU R, TRANSPORT ETC. SERVICES. ALL THESE STATEMENTS WERE RECORDED BEHIND THE BACK OF THE ASSESSEE AND THE ASSESSEE WAS NOT INFORMED ABOUT IT . IT WAS SUBMITTED THAT THE ASSESSEE HAD NO KNOWLEDGE OF THE SE STATEMENTS TILL AS LATE AS ON 11 TH MARCH 2005 WHEN THE AO SUPPLIED TO IT THE COPIES OF THE STATEMENTS OF DIFFERENT PARTIES. THE ASSESSEE VIDE LETTER DATED 15 TH MARCH 2005 INFORMED THE AO THAT ALL THE PARTIES WH OSE STATEMENTS HAVE BEEN RECORDED BEHIND THE BACK OF TH E ASSESSEE HAVE ADMITTED TO HAVE DONE WORK FOR THE ASSESSEE AN D SINCE THEY HAVE ALREADY BEEN INTERROGATED BY THE THEN AO THE I DENTITY OF THE PARTIES HAS ALREADY BEEN PROVED. HOWEVER, THE AO MA KING ASSESSMENT HAS NOT ACCEPTED THE EXPLANATION AND HAS MADE THE ADDITION AS IF THE EXPENSES ARE BOGUS. AS THE REPLY OF THE ASSESSEE IS ALREADY REPRODUCED IN THE ASSESSMENT ORDER, THE ASS ESSEE MADE SUBMISSION AS UNDER ON THE FINDINGS OF THE AO: 'A, VIRAG C.PATEL : (RS.7,48,440/-) THE AO HAS MAD E THE ADDITION DUE TO THE FOLLOWING REASONS : 1. WHY THE STATEMENT WAS RECORDED BY THE THEN AO O N 25 TH FEBRUARY, 2002 FOR THE WORK DONE BY AN UNEMPLOYED Y OUTH IN THE MONTH OF OCTOBER AND NOVEMBER 2001 RUNNING IN LAKHS OF RUPEES.(PAGE 15 OF THE ORDER) 2. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON TO BE MR. VIRAG C. PATEL. (PAGE 14) ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 29 3. AT ANY POINT OF TIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 14) 4. VIRAG C. PATEL DID NOT HAVE CAPACITY TO RENDE R SERVICE BECAUSE HE HAD TAKEN ON HIRE 6 TRACTORS AND ONE JCB MACHINE ON HIRE TO DO THE RAIN CUT SOIL FILLING WORK AND HE WAS NOT AWARE OF THE OWNERSHIP OF THREE TRACTORS AS THEY WERE MANAGED BY DRIVERS. (PA GE 14) 5. EVEN IF IT IS PROVED THAT HE HAS RECEIVED PAYM ENTS FROM G. K. PATEL & CO. IT CANNOT BE CONSIDERED AS MADE AGAINST THE ALLEGED SERVICES RENDERED BY HIM. (PAGE 15) THE ASSESSEE SUBMITTED THAT THE REASONS MENTIONED B Y THE AO IN REJECTING THE EXPLANATION OF THE ASSESSEE ARE HIGHL Y UNJUSTIFIABLE AND WITHOUT CONSIDERING THE FACTS OF THE CASE AND EVIDE NCES ON RECORD. AS REGARDS THE FIRST OBSERVATION OF THE AO THAT THE AS SESSEE SUBMITTED THAT THE STATEMENT WAS RECORDED BY THE THEN AO BECA USE THE SURVEY WAS CONDUCTED ON 7-2-2002 AND THE DEPARTMENT WANTED TO ESTABLISH THAT THERE WAS INFLATION OF EXPENSES TO JUSTIFY THE DISCLOSURE MADE BY THE PARTNER OF THE ASSESSEE AND THE ASSESSMENT PROC EEDINGS FOR AY 2000-01 WAS ALSO IN PROCESS. AS REGARDS THE SECOND OBSERVATION OF THE AO MENTIONED IN THE ASSESSMENT ORDER IT SEEMS T HAT THE AO DOUBTED THE THEN AO. IT MAY BE NOTED THAT THE STATE MENTS WERE RECORDED BEHIND THE BACK OF THE ASSESSEE AND THE AS SESSEE WAS NEVER AWARE OF THIS. AS REGARDS THE THIRD OBSERVATI ON OF THE AO, THE AO IS AGAIN TRYING TO FIND OUT MISTAKE OF THE THEN AO. AS REGARDS THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 30 FOURTH OBSERVATION OF THE AO MENTIONED ABOVE, THE A SSESSEE SUBMITTED THAT NORMALLY WHEN THE ASSESSEE HIRE SOME VEHICLE LIKE RIXA / TAXI / TRACTOR FOR DAY TO DAY USE ETC. THE A SSESSEE DISCUSS THE RENT WITH THE DRIVER OF THE SAID VEHICLE AND THE AS SESSEE ARE NOT CONCERNED WITH THE OWNERSHIP OF THE VEHICLE AND THE ASSESSEE DO NOT ASK THE DRIVER AS TO WHO IS THE OWNER OF THE VEHICL E. THE ASSESSEE WAS CONCERNED WITH THE SERVICES AND THE RENT TO BE PAID. HERE ALSO THE CONTRACTOR DID EXECUTE THE WORK BY TAKING ON HI RE TRACTORS AND THERE IS NOTHING WRONG IN TAKING VEHICLE ON HIRE IF IT SUITED THE ASSESSEE. SIMILARLY THE AO SHOULD HAVE APPRECIATED THE FACT THAT THE SERVICES WERE TAKEN IN THE REMOTE AREA AND NOT DEVE LOPED AREA LIKE OURS. AS REGARDS THE FIFTH OBSERVATION OF THE AO TH E FINDING OF THE AO IS UNREALISTIC TO PRESUME THAT THE PAYMENTS MADE TO VIRAG C.PATEI MAY BE FOR SOME OTHER PURPOSE AND NOT FOR RENDERING CONTRACTUAL SERVICE. THIS WAS ONLY A PRESUMPTION BECAUSE NO PRU DENT BUSINESSMAN WOULD BE DOING CHARITY WITHOUT SERVICES . IN VIEW OF THE ABOVE THE ASSESSEE SUBMITTED THAT THE EXPLANATION O F THE ASSESSEE AND THE VERSION OF THE CONTRACTOR BE ACCEPTED AND T HE ADDITION MADE ON THIS ACCOUNT BE DELETED. B). JITENDRA B. DESAI (RS.44,175)/- :THE AO HAS MA DE THIS ADDITION BECAUSE : 1. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON AS MR. JITENDRA DESAI (PAGE 15 OF THE ORDER) ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 31 2. AT ANY POINT OF TIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON B/CALLING FOR PHOTO IDENTITY LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 15) 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BEF ORE THE AO. (PAGE 16) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY STATED HERE IN ABOVE IN THE CASE OF VIRAG C . PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE T HE CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WORK FOR THE ASSE SSEE, THE ONUS WAS DISCHARGED AND MOREOVER IT WAS THE DEPARTMENT W HO HAD ISSUED SUMMONS U/S 131 AND NOT THAT THE ASSESSEE HAD PRODU CED THEM AS ITS WITNESS. C). MAYURBHAI S. PAID (RS.7,19,928/-): THE AO HAS M ADE THIS ADDITION BECAUSE : 1. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON AS MAYURBHAI PALEL (PAGE 16 OF THE ORDER) 2. AT ANY POINT OF LIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 16) ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 32 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BE FORE THE AO. (PAGE 16) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY DISCUSSED HERE IN ABOVE IN THE CASE OF VIRA G C. PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE THE CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WO RK FOR THE ASSESSEE, THE ONUS WAS DISCHARGED AND MOREOVER IT W AS THE DEPARTMENT WHO HAD ISSUED SUMMONS U/S 331 AND NOT T HAT THE ASSESSEE HAD PRODUCED THEM AS ITS WITNESS. D). CHATURBHAI N. PATEL (RS.4,43,750/-) : THE AO H AS MADE THIS ADDITION BECAUSE : 1. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE LO THE SAID SUMMONS PRESUMING THAT PERSON AS CHATURBHAI PATEL (PAGE 17 OF THE ORDER) 2. AT ANY POINT OF TIME (HE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 17) 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BEFORE THE AO. (PAGE 17) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY DISCUSSED HERE IN ABOVE IN THE CASE OF VIRA G C. PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 33 CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WO RK FOR THE ASSESSEE, THE ONUS WAS DISCHARGED AND MOREOVER IT W AS THE DEPARTMENT WHO HAD ISSUED SUMMONS 131 AND NOT THAT THE ASSESSEE HAD PRODUCED THEM AS ITS WITNESS. E) UDAY G. PATEL (RS.7,33,194/-) : THE AO MADE THI S ADDITION BECAUSE 1. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON AS UDAY PATEL (PAGE 18) 2. AT ANY POINT OF TIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTI TY LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 18) 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BE FORE THE AO. (PAGE 18) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY DISCUSSED HERE IN ABOVE IN THE CASE OF VIRA G C. PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE THE CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WO RK FOR THE ASSESSEE, THE ONUS WAS DISCHARGED AND MOREOVER IT W AS THE DEPARTMENT WHO HAD ISSUED SUMMONS U/S 131 AND NOT T HAT THE ASSESSEE HAD PRODUCED THEM AS ITS WITNESS. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 34 F). RAJNIBHAI S. PATEL (RS.7,04,755/-) : THE AO HA S MADE THIS ADDITION BECAUSE : 1 . THE THEN AO RECORDED THE STATEMENT ON OATH OF A PER SON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON AS RAJNIBHAI PATEL (PAGE 19 OF THE ORDER) 2. AT ANY POINT OF TIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 19) 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BEF ORE THE AO. (PAGE 19) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY STATED HERE IN ABOVE IN THE CASE OF VIRAG G . PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE T HE CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WORK FOR THE ASSE SSEE, THE ONUS WAS DISCHARGED AND MOREOVER IT WAS THE DEPARTMENT W HO HAD ISSUED SUMMONS U/S 131 AND NOT THAT THE ASSESSEE HAD PRODU CED THEM AS ITS WITNESS. G). JASUBHAI P. PATEL (RS.7,43,400/-) : THE AO HAS MADE THIS ADDITION BECAUSE : 1 . THE THEN AO RECORDED THE STATEMENT ON OATH OF A PER SON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMO NS PRESUMING THAT PERSON AS JASUBHAI PATEL (PAGE 20) ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 35 2. AT ANY POINT OF TIME THE THEN AC HAS NUT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 20) 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BE FORE THE AO. (PAGE 20) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY DISCUSSED HERE IN ABOVE IN THE CASE OF VIRA G C. PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE THE CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WO RK THE ASSESSEE, THE ONUS WAS DISCHARGED AND MOREOVER IT WAS THE DEP ARTMENT WHO HAD ISSUED SUMMONS U/S 131 AND NOT THAT THE ASSESSE E HAD PRODUCED THEM AS ITS WITNESS. H). NARANBHAI R. PRAJAPATI (RS.7,92,000/-) : THE A O HAS MADE THIS ADDITION BECAUSE : 1. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON AS NARANBHAI PRAJAPATI (PAGE 21 OF THE ORDER ) 2. AT ANY POINT OF TIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 21) ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 36 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BEF ORE THE AO. (PAGE 21) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY STATED HERE IN ABOVE IN THE CASE OF VIRAG C . PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE T HE CONTRACTOR HAD ALREADY ACCEPTED THAT HE HAS DONE WORK FOR THE ASSE SSEE, THE ONUS WAS DISCHARGED, AND MOREOVER IT WAS THE DEPARTMENT WHO HAD ISSUED SUMMONS U/S 131 AND NOT THAT THE ASSESSEE HAD PRODU CED THEM AS ITS WITNESS. I). PRAFUL B. PATEL (RS.7,15,145/-) : THE AO HAS M ADE THIS ADDITION BECAUSE : 1. THE THEN AO RECORDED THE STATEMENT ON OATH OF A PERSON WHO ATTENDED BEFORE HIM IN RESPONSE TO THE SAID SUMMONS PRESUMING THAT PERSON AS PRAFUL B PATEL (PAGE 22) 2. AT ANY POINT OF TIME THE THEN AO HAS NOT TRIED TO VERIFY THE IDENTITY OF THE PERSON BY CALLING FOR PHOTO IDENTIT Y LIKE DRIVING LICENSE, PHOTO IDENTITY CARD ISSUED BY ELECTION COMMISSION O R ANY OTHER PROOF OF THAT PERSONS IDENTITY.(PAGE 22) 3. THE ASSESSEE HAS NOT PRODUCED THE CONTRACTOR BEFORE THE AO. (PAGE 22) AS REGARDS THE FIRST TWO OBSERVATIONS OF THE AO, TH E ASSESSEE HAS ALREADY STATED HEREIN ABOVE IN THE CASE OF VIRAG C. PATEL. AS REGARDS THE THIRD ISSUE THE ASSESSEE SUBMITTED THAT SINCE THE CONTRACTOR HAD ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 37 ALREADY ACCEPTED THAT HE HAS DONE WORK FOR THE ASSE SSEE THE ONUS WAS DISCHARGED AND MOREOVER IT WAS THE DEPARTMENT W HO ISSUED SUMMONS U/S 131 AND NOT THAT THE ASSESSEE HAD PRODU CED THEM AS ITS WITNESS. THUS THE AO DID NOT ACCEPT THE EXPLANATION OF THE A BOVE (A TO I) LABOUR CONTRACTORS AND HAS MADE AN ADDITION OF RS.5 6,44,787/- ON THIS ACCOUNT. SINCE THE ADDITION HAS BEEN MADE ON T HE BASIS OF ASSUMPTION AND PRESUMPTION, THE ASSESSEE SUBMITTED THAT THE ADDITION BE DELETED. THE LEARNED CIT(A) CONSIDERING THE EXPLANATIONS OF THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 10.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORISED REPRESENTATIVE CAREFULLY AND HAVE ALSO CONSIDERED T HE OBSERVATIONS OF THE ASSESSING OFFICER. IT IS FOUND THAT THE ASSESSING OFFICER HAD ISSUED SUMMONS TO THE LABBOUR CONTRACTORS AND TRANSPORT CONTRACTORS AT THE TIME O F ASSESSMENT PROCEEDINGS FOR A.Y. 2000-01 AND THEY WERE EXAMINED . THEY HAVE ADMITTED THAT THEY HAVE DONE WORK FOR THE APPE LLANT. THEIR STATEMENTS WERE RECORDED WITHOUT THE KNOWLEDGE OF T HE APPELLANT. IT IS FOUND THAT THE PRESENT ASSESSING O FFICER HAS PROCEEDED ON THE PRESUMPTION THAT PROPER PERSONS WE RE NOT PRODUCED BEFORE HIS PREDECESSOR AS THEIR IDENTITIES WERE NOT PROVED. AS THE STATEMENTS OF THE LABOUR CONTRACTORS HAD BEEN TAKEN BY THE ASSESSING OFFICER ALTHOUGH HE IS NOT T HE SAME ASSESSING OFFICER WHO HAS PASSED THE ASSESSMENT ORD ER, THE GENUINENESS OF THE STATEMENTS CANNOT BE DOUBTED AND AS THE LABOUR CONTRACTORS HAVE CONFIRMED HAVING DONE THE W ORK FOR THE APPELLANT AND IT IS ,NOT THE CASE OF THE ASSESSING OFFICER THAT THE APPELLANT WAS ASKED TO PRODUCE THESE LABOUR CONTRAC TORS BUT THE SUMMONS WERE ISSUED TO THE LABOUR CONTRACTORS W HO APPEARED ON THEIR OWN BEFORE THE ASSESSING OFFICER FOR EXAMINATION, THE GENUINENESS OF THE\SAID STATEMENTS CANNOT BE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 38 DOUBTED. THEREFORE, AS THE PARTIES HAVE CONFIRMED O F HAVING DONE THE WORK FOR THE APPELLANT AND THE PAYMENTS WE RE MADE TO THEM DURING THE SUBSEQUENT YEAR BY THE APPELLANT , THE DISALLOWANCE OF PAYMENTS MADE TO LABOUR CONTRACTORS CANNOT BE CONFIRMED IN FULL. HOWEVER, CONSIDERING THE FACT THAT THE APPELLANT HAD DISCLOSED ADDITIONAL INCOME OF RS. 22 LACS ON ACCOUNT OF INFLATION OF LABOUR EXPENSES AND TRANSPO RT EXPENSES DURING THE COURSE OF SURVEY, DISALLOWANCE OF RS.22 LAKHS IS SUSTAINED OUT OF BOTH THE DISALLOWANCES I.E. PARTLY OUT OF LABOUR EXPENSES CONSIDERED IN THIS GROUND AND PARTLY OUT O F TRANSPORT EXPENSES CONSIDERED IN THE NEXT GROUND AND THE AMOU NT SUSTAINED IS RS.12 AKHS FROM DISALLOWANCE OF LABOUR EXPENSES AND RS. 10 LAKHS FROM DISALLOWANCE OUT OF TRANSPORT EXPENSES, THUS, THE APPELLANT GETS RELIEF OF RS.44,44,787/- F ROM DISALLOWANCE OF LABOUR EXPENSES. 13. THE LEARNED DR RELIED UPON THE ORDER OF THE A O AND READ OUT THE RELEVANT PARA 8 FROM THE ASSESSMENT ORDER AND SUBMI TTED THAT POST SURVEY ENQUIRY WAS CONDUCTED BY THE AO IN WHICH SEV ERAL STATEMENTS WERE RECORDED BUT THE AO DOUBTED THEIR STATEMENTS. NO PROOF OF RENDERING SERVICES AND NO PROOF OF PAYMENT OR WORK DONE WAS FILED. NO PROOF OF HIRING OF MACHINE WAS FILED. THEREFORE, ADDITION WAS RIGHTLY MADE BY THE AO. ON THE OTHER HAND, THE LEAR NED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO PB-75 WHICH IS REPLY FILED BE FORE THE AO. HE HAS SUBMITTED THAT STATEMENTS OF ALL THE CONTRACTOR S WERE RECORDED IN WHICH THEY HAVE ADMITTED TO HAVE DONE WORK FOR THE ASSESSEE AND NO ONE DENIED DOING WORK FOR THE ASSESSEE. PAYMENTS WE RE MADE IN SUBSEQUENT YEAR, THEREFORE, ASSESSEE PROVED GENUINE NESS OF THE PAYMENT IN THE MATTER. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 39 13.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, W E DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. IT I S UNDISPUTED FACT THAT THE AO RECORDED STATEMENTS OF ABOVE PERSONS IN POST SURVEY ENQUIRY IN WHICH THEY HAVE ADMITTED TO HAVE DONE WORK FOR T HE ASSESSEE. THE ASSESSEE PRODUCED SUFFICIENT MATERIALS BEFORE THE A UTHORITIES BELOW TO PROVE THAT GENUINE PAYMENTS HAVE BEEN MADE FOR T HE PURPOSE OF BUSINESS. THE LEARNED CIT(A) THEREFORE, RIGHTLY APP RECIATED THAT THE AO PROCEEDED MERELY ON PRESUMPTION THAT PROPER PERS ONS WERE NOT PRODUCED BEFORE THE THEN AO. SINCE THE PARTIES ACCE PTED THE PAYMENTS AND SUFFICIENT MATERIAL WAS PRODUCED BEFOR E THE AUTHORITIES BELOW TO JUSTIFY THE PAYMENT FOR THE BUSINESS PURPO SES, THEREFORE, THE LEARNED CIT(A) ON PROPER CONSIDERATION OF FACTS AND MATERIAL RIGHTLY DELETED THE PART OF THE ADDITION. NO INFIRMITY HAS BEEN POINTED OUT IN THE ORDER OF THE LEARNED CIT(A) THROUGH ANY CONTRAR Y MATERIAL OR EVIDENCE ON RECORD. IN THE ABSENCE OF ANY MATERIAL IN FAVOUR OF THE REVENUE ON RECORD, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 14. THE TENTH GROUND OF APPEAL IS AGAINST DELETION OF DISALLOWANCE OF RS.36,75 ,572/- OUT OF TRANSPORT CONTRACTOR EXPENSES OF RS.46,75,572/-. THE REASONS FOR DISALLOWANCE OF THE SAID EXPENSES HAVE BEEN DISCUSSED BY THE AO IN PARA 8 OF THE ASSE SSMENT ORDER. THE AO ISSUED SUMMONS TO THE TRANSPORT CONTRACTORS CALLING FOR CERTAIN INFORMATION. THEY DID NOT ATTEND IN PERSON, BUT SUBMITTED DETAILS THROUGH POST. THE AO OBSERVED THAT THE CAPA CITY TO RENDER SERVICE BY THESE PERSONS WAS NOT PROVED, SO HE ASKE D THE ASSESSEE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 40 TO ESTABLISH THE CAPACITY OF THESE PERSONS TO RENDE R SERVICES. THE AO OBSERVED THAT FILING OF INCOME TAX RETURN BY THESE PERSONS AND OFFERING OF INCOME BY THEM DID NOT CONSTITUTE PROOF OF CAPACITY TO RENDER SERVICE. THE AO CONCLUDED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THEIR CAPACITY TO RENDER THE SERVICE AND THEREBY GENUINENESS OF TRANSACTIONS. THE AO DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE FOR THE FOLLOWING REASONS: I) SUMMONS WAS ISSUED FOR PERSONAL ATTENDANCE AND N OT FOR SENDING LETTERS. II) FILING OF AN INCOME TAX RETURN AND OFFERING INC OME UNDER PRESUMPTIVE TAX PROVISION DOES NOT CONSTITUTE PROOF OF CAPACITY TO TENDER THE SERVICE. III) THE ENCLOSED BILLS ARE COMPUTER GENERATED AND NO EVIDENCE OF IT BEING AN EVIDENCE TO ESTABLISH CAPACITY TO RE NDER SERVICE HAS BEEN ENCLOSED BY THE ASSESSEE. IV) WHEN THE ASSESSEE CAN GET FROM THEM THE PAPERS RELATED TO RETURN OF INCOME FILED FOR A.Y. 2004-05 AS ALLEGED, IT WAS NOT CLEAR WHAT PREVENTED IT FROM PRODUCING THEM BEFORE- UNDERSIGNED. V) THE PAPERS ENCLOSED BY THE ASSESSEE IN NO WAY PROVE THE CAPACITY TO RENDER THE SERVICE. VI) THE REASONS FOR LATE FILING OF REPLY BEING COMM UNAL DISTURBANCES IN GUJARAT, IS A LAME EXCUSE. WHEN THE ABOVE REFERRED NINE LABOUR CONTRACTORS CAN ATTEND IN PERS ON WHAT HAS PREVENTED THESE TRANSPORTERS FROM ATTENDING IN PERSON PROVING THEIR CAPACITY TO RENDER THE SERVICE AND TH EREBY, PROVE THE GENUINENESS OF TRANSACTION. VII) FILING OF PAPERS RELATED TO INCOME TAX RETURN FOR A.Y. 2004- 05, IN ITSELF IS AN INDICATION ITSELF THAT THE ASSE SSEE HAS ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 41 DELIBERATELY NOT PRODUCED THEM, WITH A VIEW TO AVOI D ANY POSSIBLE DAMAGE. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT( A) AND IT WAS SUBMITTED THAT THE AO HAS MADE THE ABOVE DISALLOWAN CE REPRESENTING TRANSPORT SERVICES TAKEN FROM THE FOLLOWING PARTIES : VARDHAMAN TRANSPORT RS. 5,96,820/- SONAL TRANSPORT RS. 9,60,932/- AMIT B. BHAVSAR : RS.31,17,820/- THE REASONS MENTIONED BY THE AO IN THE ASSESSMENT O RDER FOR JUSTIFYING THE ABOVE ADDITION ARE COMMON FOR ALL TH E THREE CONTRACTORS AND HENCE THE LEARNED COUNSEL FOR THE ASSESSEE MADE COMMON SUBMISSION. IT WAS SUBMITTED THAT THE AO IN HIS SHO W CAUSE NOTICE ENCLOSED THE DETAILS OF ONLY TWO PARTIES I.E. VARDH MAN TRANSPORT AND SONAL TRANSPORT ALTHOUGH THE AO MENTIONED THE NAME OF AMIT BHAVSAR IN THE NOTICE; NO DETAILS PERTAINING TO HIM WERE FURNISHED TO THE ASSESSEE SO AS TO COMMENT ON IT. AS REGARDS THE FIRST OBSERVATION OF THE AO THAT ALTHOUGH SUMMONS WERE ISSUED FOR PER SONAL PRESENCE, THE PARTY FILED LETTER ALONG WITH ENCLOSURES, THE A SSESSEE SUBMITTED THAT THIS WAS THE PERIOD OF COMMUNAL DISTURBANCE IN GUJARAT WHICH STARTED FROM THE LAST WEEK OF FEBRUARY 2002 TILL MA Y 2002. ALL THE TRANSPORTERS ARE FROM OUTSTATIONS AND AT THAT TIME NOBODY DID TAKE RISK OF GOING OUT OF TOWN. THIS FACT WAS KNOWN TO EVERYB ODY AND THE AO IN HIS REASON (VI) CONSIDERED THIS TO BE A LAME EXCUSE KNOWING THAT THE RIOTS OF THAT TIME WERE INTERNATIONALLY FAMOUS AND THE WHOLE WORLD WAS AWARE OF IT. AS REGARDS THE SECOND OBSERVATION THAT MERE FILING OF THE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 42 RETURN DOES NOT PROVE GENUINENESS OF THE TRANSACTIO N, THE ASSESSEE SUBMITTED THAT FILING OF INCOME TAX RETURN IS MANDA TORY FOR ALL THOSE WHO HAVE TAXABLE INCOME OR WHO WANT TO CLAIM REFUND . IN SUCH A CASE, HOW COULD THE AO DOUBT THE GENUINENESS OF THE TRANSACTION WHEN THE COMPUTATION OF INCOME ITSELF SHOWS THAT TH ERE WERE TRANSPORT RECEIPTS FROM THE ASSESSEE? MOREOVER ALL THE TRANSPORTERS ARE ASSESSED TO TAX AND THEIR ORDERS IN THE FORM OF INTIMATION LETTERS WERE ENCLOSED BY THEM ALONG WITH THE LETTER TO JUST IFY THE TRANSACTION. AS REGARDS THE THIRD REASON, THE ASSESSEE HAS TO SU BMIT THAT THE BILLS ENCLOSED ALONG WITH THEIR LETTERS BELONG TO THE CON TRACTOR AND THE ASSESSEE HAS NOTHING TO DO WITH THE SAME EXCEPT THE FACT THAT THE SAID BILLS ARE ALSO IN THE IMPOUNDED MATERIAL AND T HE PAYMENTS HAVE ALSO BEEN MADE ON THE BASIS OF THESE BILLS. AS REGA RDS THE FOURTH OBSERVATION, THE ASSESSEE SUBMITTED THAT IN THE LET TER DATED 21-03-2005, NO WHERE THE AO HAS MENTIONED TO PRODUC E THE ABOVE THREE PARTIES. FOR THE SAKE OF CONVENIENCE PARA 3 O F THE SAID LETTER WAS REPRODUCED BY THE ASSESSEE WHICH READS AS UNDER : 3. ALL THE THREE PERSONS HAVE NOT ATTENDED IN PER SON BUT THEY HAVE SUBMITTED PAPERS THROUGH POST. ON GOING THROUG H THE CONTENT OF THE PAPERS SUBMITTED BY THEM, THEIR CAPA CITY TO RENDER SERVICE IS NOT ESTABLISHED. HENCE YOU ARE REQUESTED TO ESTABLISH THEIR CAPACITY TO RENDER SERVICE BY ADDUC ING NECESSARY EVIDENCE WITHIN THREE DAYS FROM THE RECEI PT OF THIS LETTER.' IT CAN THUS BE SEEN THAT NOWHERE IN THE LETTER THE AO HAS ASKED THE ASSESSEE TO PRODUCE THE ABOVE THREE PARTIES FOR INT ERROGATION. THE ONLY REQUIREMENT WAS TO ESTABLISH THEIR CAPACITY TO RENDER SERVICE AND ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 43 FOR WHICH THE ASSESSEE REQUESTED THEM TO SEND THEIR LATEST INCOME TAX RETURNS I.E. FOR ASSESSMENT YEAR 2004-05 TO SHO W THAT THEY ARE EVEN TILL THEN ASSESSED TO TAX IRRESPECTIVE OF THE FACT THAT THEY HAVE OR HAVE NOT DONE ANY WORK FOR THE ASSESSEE. THE FIFTH OBSERVATION OF THE AO FOR NOT ACCEPTING THE GENUINENESS OF THE EXPENDI TURE IS ROUTINE IN NATURE. AS REGARDS THE SIXTH OBSERVATION THAT THE R EASON OF COMMUNAL DISTURBANCE FOR LATE FILING OF REPLY IS A LAME EXCU SE, THE ASSESSEE HAS ALREADY STATED IN THE FIRST COMMENT MENTIONED HERE IN ABOVE. THE LAST AND SEVENTH OBSERVATION IS AGAIN REPETITIVE OF THE FOURTH ONE. THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSMENT FOR ASSESSMENT YEAR 2000-01 WAS MADE ON 13-12-2002 WHILE THE SURVEY WAS CONDUCTED ON 7-2-2002. IT IS THUS CLEAR THAT THE ASSESSMENT F OR ASSESSMENT YEAR 2000-01 WAS MADE 10 MONTHS AFTER THE SURVEY WAS CON DUCTED BY THE SAME AO WHO MADE THE ASSESSMENT FOR YEAR 2000-01. T HE THEN AO HAD ISSUED SUMMONS ON VARIOUS PARTIES INCLUDING VAR DHMAN TRANSPORT, SONAL TRANSPORT, AMIT B. BHAVSAR AND MAN OJ K. AGARWAL. ALL THE FOUR PARTIES HAD ALSO DONE WORK FOR THE ASS ESSEE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2000-01. THESE FOUR PARTIES WHICH ARE NOW CONSIDERED AS BOGUS HAVE ALRE ADY BEEN CONSIDERED AS GENUINE DURING ASSESSMENT YEAR 2000-0 1. THE ASSESSEE THEREFORE SUBMITTED THAT THE ADDITION MADE WITH RESPECT TO TRANSPORT CONTRACTORS EXPENSES BE DELETED SINCE THE ADDITION HAS BEEN MADE WITHOUT APPRECIATING THE FACT AND ON THE BASIS OF PRESUMPTION. THE LEARNED CIT(A) CONSIDERING THE EXP LANATION OF THE ASSESSEE DELETED THE PART ADDITION. HIS FINDINGS AR E REPRODUCED AS UNDER: ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 44 ''11.2 I HAVE CONSIDERED THE SUBMISSIONS OF TH E AUTHORISED REPRESENTATIVE CAREFULLY AND HAVE ALSO CONSIDERED T HE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER. AS REGARDS THE PAYMENT MADE TO TRANSPORT CON TRACTORS, THERE ARE THREE TRANSPORT CONTRACTORS WHO DID NOT A PPEAR BEFORE THE ASSESSING OFFICER DUE TO COMMUNAL RIOTS IN GUJA RAT WHICH LOOK PLACE IN 2002. SUBSEQUENTLY, THE ASSESSING OFFICER DID NOT SUMMON THESE TRANSPORT CONTRACTORS BUT THESE TR ANSPORT CONTRACTORS HAVE CAN FIND OUT WORK FOR THE APPELLAN T IN THE EARLIER YEARS AND THE PAYMENTS MADE TO THEM HAVE BE EN ACCEPTED IN THOSE YEARS AND THESE TRANSPORT CONTRAC TORS ARE ASSESSEES WHO HAVE FILED THEIR RETURNS OF INCOME, C OPIES OF WHICH HAD BEEN FILED BEFORE THE ASSESSING OFFICER. THESE TRANSPORT CONTRACTORS HAVE BEEN CARRYING ON THE WOR K FOR THE APPELLANT FROM THE PREVIOUS YEAR RELEVANT TO A.Y. 2 000-01 AND THE PAYMENTS MADE TO THEM HAVE BEEN ACCEPTED AS GEN UINE IN THE EARLIER ASSESSMENT YEARS. THEREFORE, THERE IS N O JUSTIFICATION FOR DISALLOWANCE OUT OF THE SAID EXPENSES .HOWEVER CONSIDERING THE ADMISSION OF THE PARTNER REGARDING INFLATION OF LABOUR AND TRANSPORT EXPENSES AS DISCUSSED IN EARLIER GROUND, I CONFIRM DISALLOWANCE OF RS.10 LAKHS OUT OF PAYMENTS, MADE T O TRANSPORT CONTRACTORS I.E. OUT OF RS.46,75,572/-. THUS DISALL OWANCE OF RS.L0,00,000/- IS SUSTAINED. THESE TWO DISALLOWANCE S I.E. OUT OF PAYMENTS MADE TO THE TRANSPORT CONTRACTORS AND LABO UR CONTRACTORS COVER UP THE DISCLOSURE OF RS. 22 LAKHS MADE BY THE APPELLANT. THUS THE APPELLANT GETS RELIEF OF RS.36, 75,572/- IN RESPECT OF THIS GROUND. 15. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND ALSO REFERRED TO THE RELEVANT PARA OF THE ASSESSMENT ORD ER AND SUBMITTED THAT THE AO CONDUCTED ENQUIRY IN WHICH NO PROOF OF SERVICES RENDERED BY THESE PARTIES WAS ESTABLISHED. THEREFORE, ADDITI ON WAS JUSTIFIED. HE HAS SUBMITTED THAT THIS ISSUE IS SAME AS IS ARGU ED ON GROUND NO.9 ABOVE. ON THE OTHER HAND, THE LEARNED COUNSEL FOR T HE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND REFERRED TO PB-91 TO 147 WHICH ARE THE DETAILS FILE D ON THIS ISSUE ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 45 WHICH ARE IN THE NATURE OF COMPUTATION OF INCOME, A CKNOWLEDGEMENT OF FILING OF RETURN, BILLS/INVOICES, BANK STATEMENT S ETC. OF THE TRANSPORTERS TO ESTABLISH GENUINE PAYMENTS MADE TO THEM. HE HAS SUBMITTED THAT IF THE TRANSPORTERS HAVE FILED THEIR RETURN OF INCOME UNDER PRESUMPTIVE TAX UNDER THE INCOME TAX ACT, NO INFIRMITY COULD BE MADE AGAINST THEM. 15.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THOU GH THE AO SUMMONED ALL THE TRANSPORTERS BUT DUE TO THE DISTUR BANCE ON ACCOUNT OF RIOTS, THE PARTIES DID NOT APPEAR BEFORE THE AO BUT THEY HAVE FILED THEIR CONFIRMATION DIRECTLY BEFORE AO AND SUPPORTED THE VERSION OF THE ASSESSEE. THE LEARNED CIT(A) FOUND THAT THE SAME PA RTIES HAD WORKED FOR THE ASSESSEE IN WHICH THE AO FOUND THE W ORK TO BE GENUINE. ON THE FACE OF THESE FINDINGS, IT IS DIFFI CULT TO BELIEVE THAT THE ASSESSEE WOULD HAVE INFLATED THE EXPENSES. MERELY B ECAUSE TRANSPORTERS HAVE FILED RETURN OF INCOME AS PER PRO VISIONS OF SECTION 44AE OF THE IT ACT IS NO GROUND TO DISBELIEVE THE E XPLANATION OF THE ASSESSEE BECAUSE SUCH COURSE IS PERMISSIBLE UNDER T HE INCOME TAX ACT. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE EVIDENCES AND RECORD AS HAS BEEN POINTED OUT BY THE LEARNED C OUNSEL FOR THE ASSESSEE, WE DO NOT FIND ANY JUSTIFICATION TO INTER FERE WITH THE FINDINGS OF THE LEARNED CIT(A) IN DELETING PART OF THE ADDIT ION. THIS GROUND OF APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 16. THE ELEVENTH GROUND OF APPEAL IS AGAINST DELE TION OF DISALLOWANCE OF RS.38,12,667/- OUT OF SUB-CONTRACT EXPENSES. THE AO ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 46 ISSUED SUMMONS TO THE SUBCONTRACTOR SHRI MANOJ K. A GRAWAL BUT HE DID NOT MAKE ANY COMPLIANCE. THE AO THEN ASKED THE ASSESSEE TO ESTABLISH CAPACITY OF SHRI MANOJ K. AGRAWAL TO REND ER THE SERVICE BY ADDUCING NECESSARY EVIDENCES. THE AO OBSERVED THAT THE ASSESSEE MADE SUBMISSION IN CASE OF TRANSPORTERS BUT DID NOT UTTER A SINGLE WORD ABOUT SHRI AGRAWAL. HENCE, HE CONCLUDED THAT T HE SAID TRANSACTION IS NON-GENUINE AND THAT THE ASSESSEE HA S FAILED TO ESTABLISH CAPACITY OF THE SAID PERSON TO RENDER THE SERVICE AND HE DISALLOWED SUB-CONTRACT EXPENSES OF RS.3,8,12,667/- . THE DISALLOWANCE WAS CHALLENGED BEFORE THE LEARNED CIT( A) AND IT WAS SUBMITTED THAT THE AO HAS MADE ADDITION OF RS.38,12 ,667/- OUT OF SUB-CONTRACT EXPENSES IN RESPECT OF BILL OF MANOJ K . AGRAWAL, CONTRACTOR, ON THE GROUND THAT THE ASSESSEE DID NOT ESTABLISH HIS CAPACITY TO RENDER SERVICE AND THEREBY GENUINENESS OF THE TRANSACTION SINCE THE ASSESSEE IN REPLY TO THE LETTER DATED 21S T MARCH, 2005 OF THE AO DID NOT UTTER A SINGLE WORD ABOUT SHRI AGRAWAL. IN THIS REGARD THE ASSESSEE SUBMITTED THAT THE AO IS UNDER WRONG IMPRE SSION THAT VIDE HIS LETTER DATED 21ST MARCH, 2005 HE HAD REQUESTED THE ASSESSEE PROVE THE GENUINENESS OF THE ABOVE MENTIONED PARTY. IF THE LETTER IS READ IN TOTO ALONG WITH ITS ANNEXURE, IT CAN BE SEE N THAT THE AO HAD NOT ENCLOSED ANYTHING ABOUT THE ABOVE MENTIONED PAR TY IN HIS LETTER, SO HOW COULD THE ASSESSEE KNOW WHETHER SHRI AGRAWAL HAS OR HAS NOT REPLIED TO THE SUMMONS ISSUED ON HIM BY THE THE N AO AND SECONDLY THE LETTER ITSELF SPEAKS ABOUT THREE TRANS PORT CONTRACTORS AND NOTHING ABOUT SHRI MANOJ AGRAWAL. AS REGARDS THE ID ENTITY OF THE PARTY, THE ASSESSEE SUBMITTED THAT IF THE AO HAD AN Y DOUBT ABOUT IT, SUMMONS COULD HAVE BEEN ISSUED TO HIM TO ATTEND. TH E AO WAS ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 47 ALREADY HAVING BEFORE HIM ALL THE BILLS IN THE IMPO UNDED MATERIAL. IT WAS SUBMITTED THAT SHRI MANOJ AGRAWAL IS NOT A LOCA L PARTY BUT AN OUTSTATION PARTY OF RAJPIPLA AND SINCE HE IS A CONT RACTOR IT IS DIFFICULT TO LOCATE HIM IMMEDIATELY. SINCE THIS ADDITION IS ALSO BASED ON PRESUMPTION, THE ASSESSEE SUBMITTED THAT THE ADDITI ON OF THE AMOUNT OF RS.38,12,667/- BE DELETED. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION. H IS FINDINGS ARE REPRODUCED AS UNDER: 12.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTH ORISED REPRESENTATIVE CAREFULLY AND HAVE ALSO CONSIDERED T HE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER. THE ENGINEER SHRI MANOJ K. AGRAWAL HAD CARRI ED ON THE WORK FOR THE APPELLANT DURING THE PREVIOUS YEAR REL ATING TO A.Y. 2000-01 AND THE PAYMENTS MADE TO HIM HAVE BEEN ACCE PTED AS GENUINE IN THE EARLIER ASSESSMENT YEAR. SRI MANO J K. AGRAWAL HAS BEEN DOING THE WORK FOR THE APPELLANT E VEN AS ON DATE AND HE IS ALSO ASSESSED TO INCOME TAX, THEREFO RE, THE ASSESSING OFFICER COULD HAVE VERIFIED THE PAYMENTS MADE TO HIM AND AS THE EXPENDITURE HAS BEEN GENUINELY INCUR RED BY GIVING SUB-CONTRACT WORK TO THE ENGINEER SHRI MANOJ K. AGRAWAL, THERE IS NO JUSTIFICATION TO MAKE ANY DISALLOWANCE FOR THE PAYMENT MADE TO HIM. THEREFORE, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER OF RS.38,12,667/-- IS DELETED. 17. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THIS GROUND IS SAME AS IS CONSIDERED ON GROUND NO.10. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT NO NOTICE WAS GIVEN TO THE ASSESSEE ON THIS ISSUE BEFO RE MAKING THE ADDITION. ITA NO. 2550/AHD/2009 THE ACIT, CIRCLE-9, AHMEDABAD VS M/S. G. K. PATEL & CO. 48 17.2 ON CONSIDERATION OF THE RIVAL SUBMISSION, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED CIT(A) FOUND THAT THE SAME PARTY CARRIED OUT WORK FOR THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR AND PAYMENT MADE TO HIM W AS FOUND TO BE GENUINE. HE IS ASSESSED TO TAX AND ALL DETAILS H AVE BEEN NOTED WITH REGARD TO THE SAME PARTY. THEREFORE, SUCH PART Y CANNOT BE TREATED AS NON-GENUINE. THE LEARNED CIT(A) ON PROPE R APPRECIATION OF THE FACTS RIGHTLY DELETED THE ADDITION. THIS GROUND IS ACCORDINGLY DISMISSED. 18. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- 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 DY. REGISTRAR, ITAT, AHMEDABAD
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