Dy. CIT, Circle-1(1), Hyderabad V. M/s Aparna Constructions and Estates Pvt Ltd., Hyderabad

ITA 266/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82513 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Section: 40A(3); 80G; 147; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 266/HYD/2014 ASSESSMENT YEAR 2007-08 THE DEPUTY CIT, CIRCLE-1(1), HYDERABAD VS. M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD., HYDERABAD PAN: AADCA1031D APPELLANT RESPONDENT APPELLANT BY: SHRI RAJAT MITRA RESPONDENT BY: SHRI MOHD. AFZAL DATE OF HEARING: 14 . 1 0.201 4 DATE OF PRONOUNCEMENT: 29.10.2014 O R D E R PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 12.12.2013 FOR TH E ASSESSMENT YEAR 2007-08. 2 THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN MENTIONING THE REASONS OF AO IN RESPECT OF THE DISALLOWANCE US. 40A(3). 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AO'S FINDINGS ON THE AMOUNT WHICH WERE PAID TO UNKNOWN LABOUR CONTRACTORS IN CASH WITH A VIEW TO INFLATE THE EXPENDITURE . 3 IN THIS CASE A SURVEY OPERATION WAS CONDUCTED ON TH E ASSESSEE'S BUSINESS PREMISES. ASSESSMENT PROCEEDIN GS WERE INITIATED U/S. 147 OF THE ACT. IN THE COURSE OF AS SESSMENT, THE ASSESSING OFFICER NOTICED THAT PAYMENTS WERE MADE I N VIOLATION OF PROVISIONS OF SECTION 40A(3) SUPPOSED TO BE IN C ASH. THE ASSESSING OFFICER CATEGORISED THEM INTO THREE GROUP S OF I.T .A. NO. 266/HYD/2014 M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD. ================================= 2 PAYMENTS. AN AMOUNT OF RS. 5,56,35,000 CONSIDERED AS PAYMENT MADE FOR LAND PURCHASE, LAND DEVELOPMENT AN D LAND SETTLEMENT WAS CONSIDERED AND DISALLOWED U/S. 40A(3 ) OF THE ACT. THE NEXT GROUP OF PAYMENTS AT RS. 1,03,44,285 WAS DISALLOWED ENTIRELY STATING THAT THEY ARE BOGUS IN NATURE AND FURTHER PROVISIONS OF SECTION 40(A)(IA) ARE ALSO AT TRACTED AS THE PAYMENTS WERE MADE TO LABOUR CONTRACTOR. THE THIRD CATEGORY OF EXPENDITURE IS WITH REFERENCE TO DEDUCTION U/S. 80G AND 40A(3) WHICH IS NOT IN DISPUTE. 4 THE LEARNED CIT(A) AFTER CONSIDERING THE RIVAL SUBM ISSIONS HELD THAT, AS FAR AS PAYMENTS FOR PURCHASE OF PROPE RTIES CONCERNED, THE ITAT CONSIDERED SIMILAR ISSUE IN ASS ESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO. 1255/HYD/2011 DATE D 10.12.2012 AND CONSEQUENT TO THAT THE INSPECTOR HAS VERIFIED AND FOUND THAT THE VILLAGES OF TELLAPUR, NALLAGANDL A AND GUNDLAPOCHAMPALLY WERE NOT HAVING ANY BANKING FACIL ITIES TILL THE FY 2007-08 AND THEREFORE, RULE 6DD WILL APPLY T O SUCH PAYMENTS. HOWEVER, HE ALSO NOTED THAT FOR THE LAND S ACQUIRED AT KOMPALLY VILLAGE AN AMOUNT OF RS. 7,30,000 WAS P AID IN CASH WHICH CANNOT BE ALLOWED AS SUCH AND SO HE CONFIRMED 20% OF THAT AMOUNT WHICH COMES TO RS. 1,46,000 AND CONFIRM ED THE SAME, SUBJECT TO VERIFICATION BY THE ASSESSING OFFI CER OF THE AMOUNT INVOLVED. ON THIS ISSUE THE REVENUE AGGRIEV ED AND RAISED GROUND NO. 1 WHICH STATED ABOVE. 5 WE DO NOT SEE ANY REASON IN RAISING THE ABOVE GROUN D. FIRST OF ALL, WE ARE UNABLE TO UNDERSTAND WHAT IS T HE GRIEVANCE OF THE REVENUE. THE GROUND INDICATES THAT THE CIT(A) ERRED IN MENTIONING THE REASONS OF AO IN RESPECT OF THE DISA LLOWANCE U/S. 40A(34). THIS GROUND CANNOT BE ADJUDICATED AS RAISED BY THE REVENUE AS SUCH. I.T .A. NO. 266/HYD/2014 M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD. ================================= 3 6 BE IT AS IT MAY, WE CANNOT DIFFER FROM THE FINDINGS OF THE CIT(A) AS THERE IS A FINDING THAT THERE WERE NO BAN KING FACILITIES IN THESE VILLAGES. THEREFORE, THE ASSESSEE HAS TO PAY ONLY IN CASH FOR PURCHASE OF AGRICULTURAL LAND FROM THE ABO VE THREE VILLAGES. IN VIEW OF THE CLEAR FINDING OF THE LEAR NED CIT(A), WHICH ITSELF IS CONSEQUENTIAL TO THE ENQUIRY MADE BY THE AO/INSPECTOR IN THE IMMEDIATELY PRECEDING YEAR, WE UPHOLD THE OR DER OF THE CIT(A) ON THIS COUNT. 7 THE SECOND GROUND RAISED BY THE REVENUE IS WITH REG ARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 40(A)(IA) ON LABOUR PAYMENTS OF RS. 1,03,44,285 WHICH WAS MADE F OR THE FOLLOWING REASONS: (A) THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED THAT THE PAYMENTS WERE NOT MADE TO A SING LE PERSON, BUT WERE PAID TO SUPERVISORS AS A SINGLE PAYMENT. HOWEVER, THE ASSESSEE FAILED TO IDENTIFY THE PARTS OF THE SITES WHERE THE LABOUR HAD WORKED, THE ASSESSEE WAS ALSO REQUIRED TO PRODUCE THE SITE IN- CHARGES (SUPERVISORS) FOR VERIFICATION WHICH WAS NO T DONE. (B) PAYMENTS TO LABOUR ARE USUALLY MADE DAILY OR ONCE I N A WEEK. SOME OF THE PAYMENTS ARE VERY HIGH TO BELIEV E THAT LARGE CHUNKS OF WORK COULD BE COMPLETED IN A SINGLE DAY OR A WEEK. (C) THOUGH THE VOUCHERS WERE BROUGHT FOR VERIFICATION, THESE VOUCHERS WERE SELF-SERVING IN NATURE, HENCE, THEY WERE RETURNED BACK WITH A REQUEST TO SUBMIT THE DETAILS OF THE PERSONS TO WHOM THE PAYMENTS WERE MADE. HOWEVER, SUCH PERSONS WERE NOT PRODUCED FOR VERIFICATION. I.T .A. NO. 266/HYD/2014 M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD. ================================= 4 (D) THEREFORE, THE OBVIOUS INFERENCE IS THAT THE PAYMEN TS WERE MADE TO UNKNOWN LABOUR CONTRACTORS IN CASH OR THESE EXPENSES WERE BOOKED TO INFLATE THE EXPENDITU RE. 8 THE ASSESSING OFFICER ALSO MADE AN OBSERVATION THAT IF THE PAYMENTS ARE MADE TO LABOUR CONTRACTORS PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE AS NO TDS WAS DEDUCTED, TH E ENTIRE AMOUNT HAS TO BE DISALLOWED. HE ALSO OBSERVED THAT IF THE EXPENDITURE IS BOGUS THE SAME CANNOT BE ALLOWED U/S . 37. FROM THE ABOVE, IT IS EVIDENT THAT THE AO MADE HUGE ADDI TION OF RS. 1,03,54,285 AS THE ASSESSEE DID NOT PRODUCE THE SUP ERVISORS FOR HIS VERIFICATION. 9 THE COUNSEL OF THE ASSESSEE SUBMITTED BEFORE THE CI T(A) THAT THE ASSESSEE IS IN THE BUSINESS OF ACQUIRING L ANDS AND CONSTRUCTING RESIDENTIAL APARTMENTS THEREON. THE A SSESSEE HAS TO DEAL WITH LOT OF PEOPLE IN UNORGANISED SECTORS. ONE SUCH SECTOR IS LABOUR. THE ASSESSEE NEEDS LOT OF LABOUR FORCE FOR LEVELLING THE LAND, LAYING ROADS, DOFFING OF LANDS AND FOR OTHER ANCILLARY WORKS. THE LABOUR FORCE WHICH MIGRATES F ROM VARIOUS PLACES ARE CAMPED AT THE PROJECT BY PUTTING TEMPORA RY HUTS AT THE SITE. THE DAILY OR WEEKLY PAYMENTS ARE MADE IN THESE LABOUR BY THE SITE SUPERVISORS. THE COUNSEL SUBMITTED THA T IT IS NOT POSSIBLE TO EXPECT ALL THOSE LABOUR TO HAVE THE BAN K ACCOUNTS TO THE SATISFACTION OF THE INCOME-TAX DEPARTMENT. SIN CE MOST OF THE LABOUR ARE NOT EDUCATED AND ARE NOT LITERATE TH E VOUCHERS HAVE TO BE NECESSARILY SELF-MADE VOUCHERS. THE ASS UMPTION OF THE ASSESSING OFFICER THAT SECTION 40 (A)(IA) IS AP PLICABLE ON THE PAYMENTS MADE TO LABOUR IS INCORRECT AS THE SAID SE CTION IS APPLICABLE ONLY IF THE PAYMENT IS MADE TO THE CONTR ACTOR WHO SUPPLIES THE LABOUR. IN THE INSTANT CASE THE LABOUR IS ENGAGED DIRECTLY BY THE COMPANY. I.T .A. NO. 266/HYD/2014 M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD. ================================= 5 10 THE CIT(A) AFTER DISCUSSING ELABORATELY AT PARAS 6. 4 AND 6.4.1 OF HIS ORDER HELD THAT THE PAYMENTS WERE NOT MADE TO A LABOUR CONTRACTOR AND HENCE NOT LIABLE TO TDS. AFTE R GOING THROUGH THE IMPOUNDED MATERIAL, THE CIT(A) OBSERVED THAT IF THE PAYMENTS WERE MADE TO A LABOUR CONTRACTOR, THE NAME OF SUCH PERSON WOULD HAVE BEEN RECORDED IN THE IMPOUNDED MA TERIAL. IN THIS CASE SUCH NAME OF A CONTRACTOR WAS NOT RECORDE D. ON THE OTHER HAND, IT WAS CLEARLY RECORDED AS LABOUR CHARG ES. HOWEVER, THE CIT(A) APPLIED SECTION 40(A)(IA) TO THE AMOUNT OF RS. 3 LAKHS PAID TO ONE MR. V. SURENDER REDDY AS IT WAS CLASSIF IED AS LABOUR PAYMENT MADE THROUGH HIM. FURTHER THE CIT(A) OBSER VED THAT, THE ASSESSING OFFICER HIMSELF HAD CLEARLY RECORDED THAT VOUCHERS WERE PRODUCED FOR VERIFICATION DURING THE ASSESSMEN T PROCEEDINGS AND, THEREFORE, EXPENDITURE CANNOT BE D ISALLOWED U/S. 37 OF THE ACT MERELY ON THE GROUND THAT THE VO UCHERS WERE SELF-MADE. THE CIT(A) HELD THAT IN VIEW OF THE NAT URE OF BUSINESS OF THE ASSESSEE, ESPECIALLY AS THE PAYMENT S WERE MADE TO LABOUR, THERE IS NO OTHER WAY EXCEPT TO MAKE SEL F-MADE VOUCHERS AND, THEREFORE, THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER OF RS. 1,00,44,285 (RS. 1,03,44,2 85 RS. 3,00,000) WAS DELETED BY HIM. AGGRIEVED, THE REVEN UE IS IN APPEAL BEFORE US. 11 WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AS THE CIT(A) HAS CLEARLY STATED THAT THE PAYMENTS WERE NO T MADE TO ANY PARTICULAR PERSON AND AS A MATTER OF PRACTICAL CONVENIENCE, THE ASSESSEE HAD IDENTIFIED A LEADER OF THE GROUP A ND DISBURSED THE PAYMENTS THROUGH HIM INSTEAD OF MAKING LABOUR P AYMENTS TO HUNDREDS OF LABOURERS INDIVIDUALLY. THE CIT(A) ALSO APPRECIATED THE FACT THAT DUE TO SUBSTANTIAL TIME G AP BETWEEN EXECUTION OF THE PROJECT AND SCRUTINY ASSESSMENT, T HE ASSESSEE WAS NOT ABLE TO PRODUCE THE LEADERS OF THE GROUPS B EFORE THE I.T .A. NO. 266/HYD/2014 M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD. ================================= 6 ASSESSING OFFICER. THE CIT(A), THEREFORE, WAS OF T HE VIEW THAT SINCE THE PAYMENTS WERE NOT MADE TO A LABOUR CONTRA CTOR AND WERE RECORDED AS LABOUR CHARGES, PROVISIONS OF S. 4 0(A)(IA) CANNOT BE APPLIED. HOWEVER, IN THE CASE OF SRI V. SURENDER REDDY, SINCE THE PAYMENT WAS MADE TO HIM, THE CIT(A ) HELD THAT PROVISIONS OF S. 40(A)(IA) ARE APPLICABLE ONLY FOR THE AMOUNT OF RS. 3 LAKHS. WE FIND NO REASON TO INTERFERE WITH T HE ACTION OF THE CIT(A) AND UPHOLD HIS ACTION. THE GROUND RAISE D BY THE REVENUE ON THIS ISSUE IS ALSO DISMISSED. 12 IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 29 TH OCTOBER, 2014 TPRAO COPY FORWARDED TO: 1 . THE DEPUTY COMMISSIONER OF INCOME - TAX , CIRCLE - 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2 . M/S. APARNA CONSTRUCTIONS & ESTATES PVT. LTD., 802, ASTRAL HEIGHTS, ROAD NO. 1, BANJARA HILLS, HYDERABAD. 3. THE CIT(A) - II, HYDERABAD. 4 . THE CIT - I , HYDERABAD. 5 . THE DR B BENCH, ITAT, HYDERABAD