The ITO, Ward-8(3), Surat V. M/s. Gurukrupa Construction, Surat

ITA 2690/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8645 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 07-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Keywords: Gift; Opportunity of being heard; TDS; Set aside
• Section: 68; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.2690/AHD/2006 A. Y.: 2001-02 THE INCOME TAX OFFICER, WARD-8(3), SURAT ROOM NO.418, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. GURUKRUPA CONSTRUCTION, 210, MADHAVANAND SOCIETY, NEAR SADGURU VIDYALAYA, KATARGRAM, SANGRAMPURA ROAD, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY SHRI GOVIND SINGHAL, DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, SURAT DATED 04-08-2006 FOR ASSESSMENT YEAR 2001-02. 2. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FIN DINGS OF THE AUTHORITIES BELOW. EARLIER THE ASSESSEE WAS REPRESE NTED BY ITS COUNSEL WHO HAS HOWEVER, WITHDREW HIS POWER OF ATTORNEY. NO TICE WAS, THEREFORE, ISSUED AFRESH FOR THE DATE OF HEARING. FRESH NOTICE IS SERVED UPON THE ASSESSEE AS PER SERVICE REPORT AVAILABLE ON RECORD. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICES. THE ASSESSEE IS, THEREFORE, PROCEEDED EX-PARTE. 3. ON GROUND NO.1 THE REVENUE CHALLENGED THE DELETI ON OF ADDITION OF RS.4,58,945/-. THE AO FOUND THAT THE ASSESSEE WAS A GOVERNMENT APPROVED CONTRACTOR AND CARRIED OUT CIVIL CONSTRUCT ION WORK ON BEHALF OF THE GOVERNMENT AGENCIES. IT WAS SEEN THAT DURING TH E ASSESSMENT PROCEEDINGS, AFTER VERIFYING THE DETAILS AS SUBMITT ED BY THE ASSESSEE FIRM THAT THE ASSESSEE HAS CARRIED OUT WORK OF CONSTRUCT ION OF CAUSEWAY ON ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 2 KIM RIVER FOR RS.11,58,945/- BUT OUT OF THAT IT HAD ACCOUNTED FOR ONLY RS.7,00,000/- AS INCOME AND FOR THE REMAINING AMOUN T OF RS.4,58,945/-. THE ASSESSEE HAS STATED THAT SAME WAS WITHHELD BY T HE ABOVE AUTHORITY DUE TO TIME LIMIT. ACCORDING TO AO, THE ASSESSEE WA S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IT SHOULD HAVE INCLUDED TH E AMOUNT OF RS.4,58,945/- IN ITS INCOME AND OFFERED THE SAME FO R TAXATION PURPOSES. THE AO FURTHER OBSERVED THAT ALL THE EXPENSES INCUR RED FOR CARRYING OUT THE SAID WORK WAS DEBITED TO THE PROFIT AND LOSS AC COUNT. THEREFORE, THE AMOUNT NOT OFFERED AS INCOME BY THE ASSESSEE WAS NO T JUSTIFIED. IT WAS STATED BY THE ASSESSEE THAT WHATEVER AMOUNT IT HAS RECEIVED AGAINST THE WORK WAS OFFERED FOR TAXATION PURPOSES AND THE AMOU NT OF RS.4,58,945/- COULD NOT BE ACCOUNTED FOR AS THERE WAS SERIOUS DIS PUTE WITH THE ABOVE AUTHORITIES WITH REGARD TO COMPLETION OF THE PROJEC T AND FURTHER IT WAS ALSO NOT CERTAIN AT WHAT POINT OF TIME THE SAID AM OUNT WOULD BE RECEIVED FROM THE CONTRACTEE. THE AO WAS OF THE VIEW THAT SI NCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ALL E XPENSES INCURRED TO THE SAME INCOME WAS NOT OFFERED FOR TAXATION HAVE B EEN DEBITED IN THE PROFIT & LOSS ACCOUNT, THEREFORE, ENTIRE INCOME WA S TAXABLE. ACCORDINGLY, THE AMOUNT OF RS.4,58,945/- FOR THE CONTRACT RECEIP T INCOME ACCRUED WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IT WAS S UBMITTED BEFORE THE LEARNED CIT(A) THAT THE SAME AMOUNT WAS WITHHELD BY THE CONTRACTEE AS THERE WAS DELAY IN COMPLETING THE PROJECT. IT WAS S UBMITTED THAT THE ASSESSEE HAD SHOWN THE ABOVE REFERRED AMOUNT AS ITS INCOME IN THE SUBSEQUENT YEAR AS IT WAS RECEIVED IN THE SAID YEAR AND TDS WAS ALSO MADE BY THE CONTRACTEE IN THE SAID YEAR. IT WAS FUR THER EMPHASIZED OF THE FACT THAT EVEN AS PER THE ACCRUAL SYSTEM OF ACCOUNT ING, INCOME WOULD NOT BE SAID TO HAVE ACCRUED UNLESS AND UNTIL THERE WAS A REASONABLE CERTAINITY THAT IT WOULD BE RECEIVED AND THE TREATM ENT GIVEN BY THE ASSESSEE FIRM TO THE ABOVE INCOME WAS ALSO IN LINE WITH THE CONSERVATIVE PRINCIPLE OF ACCOUNTING WHICH SUGGESTS THAT THOSE I TEMS OF INCOME, OUT COME OF WHICH WAS DEPENDENT ON FUTURE CONTINGENCIES SHOULD NOT BE ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 3 CONSIDERED AS INCOME FOR THE YEAR WHEREIN SUCH UNCE RTAINTY EXISTS. THE ASSESSEE RELIED UPON THE DECISIONS OF THE HONBLE M ADRAS HIGH COURT IN THE CASE OF CIT VS EAST COST CONSTRUCTION & INDUSTR IES LTD. 283 ITR 297 (MAD) IN WHICH 10% OF THE CONTRACT AMOUNT WAS RETAI NED BY THE PARTY AS RETENTION MONEY TO BE PAID AFTER COMPLETION OF THE PROJECT AFTER INSPECTION. IT WAS SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT PART OF THE CONTRACT AMOUNT WAS RETAINED BY THE PAR TY AS RETENTION MONEY TO BE PAID AFTER COMPLETION OF THE CONTRACT A ND AFTER INSPECTION DO NOT ACCRUE TO THE ASSESSEE AS SOON AS THE JOB WAS D ONE EVEN THOUGH THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. THE ASSESSEE ALSO RELIED UPON OTHER DECISIONS IN SUPPORT OF THE CONTENTION. IT WAS, THEREFORE, SUBMITTED THAT ADDITION MADE BY THE AO I S NOT JUSTIFIED AND MAY BE DELETED PARTICULARLY WHEN IT WAS SHOWN AS IN COME IN THE SUBSEQUENT ASSESSMENT YEAR IT WOULD AMOUNT TO DOUBL E TAXATION OF THE INCOME. THE LEARNED CIT(A) CONSIDERING THE FACT THA T THE SAID AMOUNT WAS NOT RECEIVED BY THE ASSESSEE DURING THE YEAR ON ACCOUNT OF CERTAIN DISPUTES, DELETED THE ADDITION. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. 5. ON CONSIDERATION OF THE ABOVE FACTS AND SUBMISSI ON OF THE LEARNED DR, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RE- CONSIDERATION BY THE LEARNED CIT(A). IT IS ADMITTED FACT THAT THE ASSESS EE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE ASSESSEE SHALL HAVE TO OFFER ALL THE RECEIPTS FOR THE PURPOSE OF TAXATION ON COMPLETION OF THE WORK CONTRACT. THE AO SPECIFICALLY NOTED THAT ASSESSEE CARRIED OUT WORK OF CONSTRUCTION FOR RS.11,58,945/- IN RESPECT OF CAUSEWAY ON KIM RI VER AT SURAT. IT WOULD, THEREFORE, SHOW THAT THE ASSESSEE COMPLETED THE CONTRACT OF THE AFORESAID AMOUNT. THE ASSESSEE HOWEVER, RELIED UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF EAST COAST CONSTRUCTION & INDUSTRIES LTD. (SUPRA) IN WHICH RETENTION MONEY WA S TO BE PAID AFTER ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 4 COMPLETING OF THE CONTRACT AFTER INSPECTION. THEREF ORE, IN THAT PREMISE THAT AMOUNT WHICH WAS NOT PAID WAS NOT THE INCOME A CCRUED TO THE ASSESSEE EVEN IF FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING. HOWEVER, THE ASSESSEE HAS NOT MADE UP ANY SUCH CASE BEFORE THE A O AND EVEN NO DETAILS OF THE TERMS OF THE CONTRACT ARE MENTIONED OR CONSIDERED EITHER BY THE AO OR BY THE LEARNED CIT(A). IT IS FURTHER NOTI CED THAT THE ASSESSEE HAS SHOWN REMAINING RECEIPTS IMMEDIATELY IN THE NEX T YEAR. IT WOULD THEREFORE, SUPPIRT THE FINDING OF THE AO THAT THE T OTAL RECEIPT OF RS.4,58,945/- ACCRUED TO THE ASSESSEE IN THE ASSESS MENT YEAR UNDER APPEAL ON FOLLOWING MERCANTILE SYSTEM OF ACCOUNT. T HE ASSESSEE ALSO CLAIMED EXPENDITURE AGAINST THE SAME RECEIPT BY DEB ITING THE SAME IN THE PROFIT & LOSS ACCOUNT. MERELY BECAUSE THE ASSESSEE HAS SHOWN THE RECEIPT IN THE SUBSEQUENT YEAR WOULD NOT ABSOLVE THE ASSESS EE FROM OFFERING ACCRUED INCOME FOR THE PURPOSE OF TAXATION IN THE Y EAR UNDER APPEAL. THE LEARNED CIT(A) WITHOUT CONSIDERING THE ISSUE IN PRO PER PERSPECTIVE AND WITHOUT PASSING ANY SPEAKING ORDER DELETED THE ADDI TION. WE, THEREFORE, ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS NOT JUS TIFIED IN DELETING THE ADDITION. THE LEARNED CIT(A) SHOULD HAVE SEEN THE E NTIRE CONTRACT AND THE FACT OF COMPLETION OF THE CONTRACT IN THE ASSESSMEN T YEAR BY VERIFYING THE FACTS. THE LEARNED CIT(A) HAS NOT VERIFIED THE FACT S AND WRONGLY PLACED RELIANCE UPON THE DECISION OF THE HONBLE MADRAS HI GH COURT WITHOUT CONSIDERING WHETHER THERE WAS ANY RETENTION CLAUSE IN THE AGREEMENT OF THE ASSESSEE. WE, ACCORDINGLY SET ASIDE THE ORDER O F THE LEARNED CIT(A) AND RESTORE THIS ISSUE TO HIS FILE WITH DIRECTION T O RE-DECIDE THE ISSUE IN THE LIGHT OF THE OBSERVATIONS ABOVE BY GIVING REASO NABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THE AO. AS A RESULT, GROUND NO.1 OF THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 6. ON GROUND NO.2, THE REVENUE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN REDUCING THE ADDITION ON ACCOUNT OF LABOU R CHARGES TO THE TUNE OF RS.1,91,122/-. THE AO FOUND THAT THE ASSESSEE HA D CLAIMED AN ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 5 AMOUNT OF RS.80,56,019/- UNDER LABOUR CHARGES. THE AO OBSERVED FROM THE DETAILS AND VOUCHERS OF THE EXPENDITURE THAT SO ME ARE STAMPED VOUCHERS BEARING ONLY THUMB IMPRESSIONS. THE NAME O F THE RECIPIENT IS NOT MENTIONED. THE ASSESSEE WAS ASKED TO IDENTIFY A ND PRODUCE THOSE PERSONS SO THAT PAYMENTS CAN BE VERIFIED. THE AO AL SO OBSERVED THAT IN THE PROCEEDINGS U/S 263 OF THE IT ACT ALSO THE ASSE SSEE HAS EXPRESSED HIS INABILITY TO PRODUCE THEM. THE AO ACCORDINGLY DISAL LOWED RS.3,82,245/- OUT OF LABOUR CHARGES. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO MADE ADDITION MERELY ON TECHNICAL GROUNDS AND TH AT THE ASSESSEE CARRIED OUT CONTRACT WORK AT REMOTE PLACE AND IT WA S NOT POSSIBLE TO EMPLOY THE LABOURERS ON PERMANENT BASIS. THE NATURE OF WORK AT DISTANT PLACES ALSO SHOWS THAT THE ASSESSEE HAD TO MADE PAY MENTS THROUGH MOKADAMS FOR EMPLOYMENT OF THE LABOURERS. THEREFORE , THE MATTER SHOULD BE ADJUDICATED CONSIDERING THE NATURE OF BUSINESS O F THE ASSESSEE AND CONSIDERING THE WORK DONE AT REMOTE PLACES. IT WAS ALSO SUBMITTED THAT RATIO OF LABOUR EXPENSES TO CONTRACT RECEIPT WAS 37 .65% AS AGAINST 38.78% FOR THE PRECEDING ASSESSMENT YEAR 2000-01 IN WHICH THE DEPARTMENT ACCEPTED THE LABOUR EXPENSES. THE LEARNE D CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE AND MAT ERIAL ON RECORD NOTED THAT IN THE ORIGINAL ASSESSMENT ORDER ADDITION OF R S.1,58,459/- WAS MADE. THE LEARNED CIT(A) CONSIDERING THE ISSUE AND THE FACT THAT CONTRACT WORKS ARE COMPLETED IN REMOTE AREA WHERE LOCAL LABO URERS ARE ENGAGED THOROUGH MOKADAMS, THEREFORE, IT MAY NOT BE POSSIBL E TO GET VERIFICATION. THE LEARNED CIT(A) HOWEVER, CONSIDERING OVER ALL VI EW OF THE MATTER RESTRICTED THE DISALLOWANCE TO 50% AND DELETED THE ADDITION IN A SUM OF RS.1,91,122/-. 7. ON CONSIDERATION OF THE SUBMISSIONS OF THE LEARN ED DR AND PERUSAL OF THE FINDINGS OF THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE LEARN ED CIT(A) ON THE BASIS OF ORIGINAL ORDER RESTRICTED THE PART ADDITION. IT IS A FACT THAT ASSESSEE ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 6 COMPLETED THE CONTRACT WORKS IN REMOTE AREA WHERE L OCAL LABOURERS ARE ENGAGED THROUGH MOKADAMS. THE ASSESSEE PRODUCED ALL THE LABOUR BILLS AND VOUCHERS WHICH ARE HAVING THUMB IMPRESSIONS. EM PLOYMENT OF THE LABOURERS IS THE ESSENTIAL COMPONENT FOR EXECUTION OF THE WORK CONTRACT. THE AO DISALLOWED PART OF THE EXPENDITURE BECAUSE N O NAMES OF THE RECIPIENTS ARE MENTIONED IN THE VOUCHERS. EXACT QU ANTUM IS NOT GIVEN AS TO HOW MANY VOUCHERS ARE NOT HAVING NAMES OF THE RE CIPIENT. BUT ACCORDING TO THE ASSESSEE THE SAME WERE OF LABOURER S ONLY. CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND EMPLOYME NT OF THE LABOURERS BEING FROM UN-ORGANIZED SECTOR, THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING PART OF THE ADDITION CONSIDERING THE HISTO RY OF THE ASSESSEE AND PARTICULARLY WHEN NO DISALLOWANCE WAS MADE IN THE E ARLIER YEAR. WE ACCORDINGLY DO NOT FIND ANY JUSTIFICATION TO INTERF ERE WITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 8. ON GROUND NO.3 THE REVENUE CHALLENGED THE DELETI ON OF ADDITION ON ACCOUNT OF CAPITAL INTRODUCED BY THE PARTNERS OF TH E ASSESSEE FIRM TO THE TUNE OF RS.18,53,000/-. IT WAS SEEN THAT SIX PARTNE RS IN THE ASSESSEE COMPANY HAD INTRODUCED THE CAPITAL OF RS.5,68,000/- , RS.3,00,000/-, RS.2,22,000/-, RS.2,75,000/-, RS.2,88,000/- AND RS. 2,00,000/-. IT WAS SUBMITTED BY THE ASSESSEE THAT ALL THE PARTNERS HAV E ARRANGED THE RESPECTIVE CAPITAL AMOUNTS AS STOOD AGAINST THEIR N AMES BY WAY OF GIFTS RECEIVED AND ALSO OUT OF THEIR AGRICULTURAL INCOME. IT WAS FOUND THAT THE AO HAD FURTHER ASKED THE ASSESSEE TO SUBMIT THE DET AILS OF GIFTS AND THE AGRICULTURAL INCOME ETC. THE ASSESSEE DID NOT FURNI SH ANY EVIDENCE IN THIS REGARD BEFORE THE AO FOR HIS EXAMINATION. NONE OF THE PARTNERS WERE PRODUCED BEFORE THE AO FOR CROSS EXAMINATION. THE A O ACCORDINGLY MADE ADDITION OF RS.18,53,000/- BEING UNEXPLAINED CAPITA L INTRODUCED BY THE PARTNERS. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A ) THAT ASSESSEE FILED COMPLETE DETAILS IN RESPECT OF CAPITAL INTRODUCED B Y THE PARTNERS AND SHRI ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 7 CHANDUBHAI, PARTNER WAS ALSO ASSESSED TO TAX AND TH E AMOUNT OUTSTANDING IN HIS BALANCE SHEET AS ON 31 ST MARCH HAD REFLECTED THE SAID AMOUNT OF CAPITAL BROUGHT BY HIM. THE ASSESSEE RELI ED UPON T4HE DECISION OF HONBLE GAUAHTI HIGH COURT IN TH4E CASE OF JALAN TIMBERS 223 ITR 11 (GAU) IN WHICH IT WAS HELD THAT THE ASSE SSEE AND THE CREDITORS BOTH HAVE SHOWN THE IMPUGNED AMOUNT IN THEIR INCOME TAX RETURNS. THEREFORE, NO ADDITION U/S 68 OF THE IT ACT CAN BE MADE. ACCORDING TO THE ASSESSEE THE AO HAD DISBELIEVED THE CAPITAL INTRODU CTION MAINLY ON THE GROUND THAT THE SAID PARTNERS COULD NOT SATISFACTOR ILY EXPLAIN THE SOURCE FROM WHICH AMOUNT WAS INTRODUCED AS CAPITAL IN THE ASSESSEE FIRM IN WHICH HE WAS THE PARTNER. IT WAS SUBMITTED THAT THE ASSESSEE IS NOT REQUIRED TO PROVE THE SOURCE OF THE SOURCE. AS REGA RDS THE REMAINING CAPITAL INTRODUCED BY OTHER PARTNERS, IT WAS SUBMIT TED THAT ALL THE PARTNERS WERE DERIVING INCOME FROM AGRICULTURAL ACT IVITIES AND INTRODUCED THEIR CAPITAL OUT OF SAID AGRICULTURAL INCOME. THE AGRICULTURAL RECORDS AND RECORD OF LAND HOLDING WERE SUBMITTED BUT IT WAS NO T ACCEPTED BY THE AO. IT WAS FURTHER SUBMITTED THAT ADDITION SHOULD NOT B E MADE IN THE HANDS OF THE ASSESSEE IN VIEW OF THE FACT THAT THE PARTNE RS HAVE DULY CONFIRMED THEIR CAPITAL INTRODUCTION IN THE COMPANY. THEREFOR E, IT CANNOT BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS JAISWAL MOTORS 141 ITR 706 (ALL.) A ND THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CI T VS METACHEM INDUSTRIES 245 ITR 160 (MP) IN WHICH IT WAS HELD TH AT WHEN IT WAS FOUND AS A FACT THAT THE CASH WAS RECEIVED BY THE COMPANY FROM THE PARTNERS, IT CANNOT BE ASSESSED IN THE HANDS OF THE COMPANY. THE LEARNED CIT(A) CONSIDERING THE FACTS AND MATERIAL ON RECORD IN THE LIGHT OF THE ABOVE DECISIONS NOTED THAT THE ASSESSEE HAS CLEARLY EXPLA INED BEFORE THE AO ABOUT THE DETAILS OF CAPITAL INTRODUCED BY THE PART NERS. THE ASSESSEE ALSO EXPLAINED THE SOURCE FROM WHICH THE PARTNERS HAVE O FFERED THEIR CAPITAL ACCOUNT FOR INTRODUCTION IN THE ASSESSEE FIRM. THE LEARNED CIT(A) ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 8 CONSIDERING THE DECISION OF THE HONBLE M. P. HIGH COURT IN THE CASE OF CIT VS METACHEM INDUSTRIES (SUPRA) DELETED THE ADDI TION. THE AO WAS HOWEVER, DIRECTED TO INVESTIGATE AND TAKE NECESSARY ACTION IN THE CASES OF THE INDIVIDUAL PARTNERS AS PER LAW. ADDITION WAS AC CORDINGLY DELETED. 9. THE LEARNED DR SUBMITTED THAT 5 PARTNERS ARE NOT ASSESSED TO TAX AND THAT PARTNERS ALSO DID NOT APPEAR BEFORE THE AO FOR CROSS VERIFICATION. THEREFORE, CAPITAL INTRODUCTION BY THE PARTNERS IS NOT PROVED. THEREFORE, ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE. 10. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D DR AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. IN THE CASE OF CHANDUBHAI, PARTNER, THE ASSESSEE FILED COPY OF HIS BALANCE SHEET AND CO PIES OF THE GIFT DEEDS WERE ALSO PRODUCED. IN THE REMAINING CASES THE ASSE SSEE EXPLAINED THAT CAPITAL WAS INTRODUCED OUT OF AGRICULTURAL INCOME F OR WHICH RELEVANT AGRICULTURAL RECORDS WERE PRODUCED. THE ASSESSEE AL SO SPECIFICALLY SUBMITTED BEFORE THE LEARNED CIT(A) THAT SINCE ALL THE PARTNERS HAVE CONFIRMED THEIR CAPITAL INTRODUCTION BY THEM IN THE FIRM, THEREFORE, IT IS CLEARLY ESTABLISHED THAT PARTNERS HAVE INTRODUCED T HEIR CAPITAL IN THE FIRM OTHERWISE, THEY COULD NOT HAVE BECOME PARTNERS IN T HE ASSESSEE FIRM. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES IT IS CLEAR THAT THE ISSUE RELATES TO INTRODUCTION OF CAPITAL BY THE PARTNERS IN THE ASSESSEE FIRM. THE PARTNERS ARE KNOWN IN THE ASSESSEE FIRM AND THEY HA VE ADMITTED THEIR INTRODUCTION OF THE CAPITAL IN THE ASSESSEE FIRM. T HEREFORE, THE ISSUE WOULD BE SQUARELY COVERED BY THE JUDGMENT OF HONBL E ALLAHABAD HIGH COURT IN THE CASE OF CIT VS JAISWAL MOTORS (SUPRA) AS WELL AS THE DECISION OF THE HONBLE M. P. HIGH COURT IN THE CASE OF CIT VS METACHEM INDUSTRIES (SUPRA). CONSIDERING THE ABOVE DECISION, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) CORRECTLY DELETED THE ADDIT ION IN THE HANDS OF THE ASSESSEE FIRM ON ACCOUNT OF CAPITAL INTRODUCED BY THE PARTNERS BECAUSE THE CAPITAL INTRODUCTION BY THE PARTNERS COULD NOT BE TREATED AS ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 9 UNDISCLOSED INCOME OF THE ASSESSEE. THE LEARNED CIT (A), THEREFORE, RIGHTLY DIRECTED THE AO TO TAKE NECESSARY ACTION IN THE IND IVIDUAL CASES OF THE PARTNERS. WE ACCORDINGLY DO NOT FIND ANY MERIT IN T HIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. 11. ON GROUND NO.4, THE REVENUE CHALLENGED DELETION OF ADDITION ON ACCOUNT OF DISALLOWANCE OUT OF OUTSTANDING LABOUR C HARGES TO THE TUNE OF RS.8,06,250/-. THE AO MADE DISALLOWANCE OF RS.10,75 ,000/- BECAUSE THIS AMOUNT WAS SHOWN AS LABOUR CHARGES PAYABLE TO VARIOUS PERSONS. SOME PERSONS ALONG WITH DOCUMENTARY EVIDENCE WERE D IRECTED TO BE PRODUCED BUT THE ASSESSEE SHOWN INABILITY TO PRODUC E ANY OF T4HE LABOURERS FOR EXAMINATION. SOME VOUCHERS OF THE SIT E WERE PRODUCED WHICH WERE NOT SUBJECTED TO VERIFICATION. THE AO AC CORDINGLY MADE THE ADDITION. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A ) THAT SOME OF THE LABOUR CHARGES REMAINED UNPAID AT THE END OF THE YE AR. THEREFORE, THERE WAS NO JUSTIFICATION TO MAKE THE ADDITION. IT WAS F URTHER SUBMITTED THAT COMPLETE DETAILS WERE FILED TO SHOW THE PAYMENT AND THAT CASH PAYMENTS ARE MADE BECAUSE THE LABOURERS DO NOT HAVE THEIR BA NK ACCOUNT AT THE REMOTE PLACES. THE LABOURERS COULD NOT BE PRODUCED BECAUSE OF DIFFERENT LOCATIONS/SITES FOR EXECUTION OF THE WORK. IT WAS S UBMITTED THAT THE ASSESSEE CARRIED OUT DIFFERENT WORK AT DIFFERENT SI TES OF GOVERNMENT AGENCIES AND, THEREFORE, LABOUR CHARGES SHALL HAVE TO BE PAID FOR COMPLETING THE PROJECT. IT WAS SUBMITTED THAT FOR U NPAID LABOUR CHARGES IN THE ASSESSMENT YEAR UNDER APPEAL, NO ADDITION CO ULD BE MADE ON ACCOUNT OF OUTSTANDING LIABILITIES ON THE LAST DAY OF THE CLOSING OF THE ACCOUNTING YEAR. IT WAS FURTHER SU9BMITED THAT TOTA L LABOUR CHARGES ARE PAID AT RS.80,56,000/-. THEREFORE, DISALLOWANCE IS UNCALLED FOR IN THE MATTER. THE LEARNED CIT(A) IN PRINCIPLE ACCEPTED T HE CONTENTION OF THE ASSESSEE THAT LABOUR CHARGES ARE PAID FOR COMPLETIN G THE WORK AT REMOTE PLACES AND THE LABOURERS BEING HAVING NO BANK ACCOU NT AT REMOTE AREAS, CASH PAYMENT SHALL HAVE TO BE MADE. THE LEARNED CIT (A) HOWEVER, ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 10 CONSIDERING THE PILFERAGES AND LEAKAGES ETC. RESTRI CTED THE DISALLOWANCE TO RS.2,68,750/- BEING 25% OF THE OUTSTANDING LABOUR P AYMENT AND ACCORDINGLY DELETED THE ADDITION OF RS.8,06,250/-. 12. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT NO EVIDENCE OF OUTSTANDING PAYMENT WAS FILED. THERE FORE, THE AO WAS JUSTIFIED IN MAKING THE ADDITION. 13. ON CONSIDERATION OF THE SUBMISSION OF THE LEARN ED DR, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. WHILE CONSIDERING GROUND NO.2 WE HAVE CONFIRMED THE VIEW OF THE LEARN ED CIT(A) DELETING PART OF THE ADDITION ON ACCOUNT OF LABOUR CHARGES. THE SAME IS THE POSITION ON THIS ISSUE THAT ON OUTSTANDING LABOUR C HARGES AO MADE ADDITION. SINCE THE SAME WORK HAS TO BE COMPLETED I N THE CLOSE OF THE ACCOUNTING YEAR, THEREFORE, IT IS POSSIBLE THAT THE LABOUR CHARGES COULD NOT BE PAID IN THE END OF THE ACCOUNTING YEAR ITSEL F AND AS SUCH THE SAME WOULD BE PAID IN THE NEXT FINANCIAL YEAR. SUCH PRAC TICE ADOPTED BY THE ASSESSEE IS REASONABLE AND ACCEPTABLE. THE ASSESSEE ADMITTEDLY COMPLETED THE WORK CONTRACT AT REMOTE PLACES. THERE FORE, PRODUCTION OF LABOURERS SUBSEQUENTLY MAY NOT BE POSSIBLE. CASH PA YMENTS ARE MADE TO TH8E LABOURERS BECAUSE THEY DO NOT HAVE BANK ACCOUN T IN THE REMOTE AREAS. LABOUR PAYMENT IS THE ESSENTIAL COMPONENT FO R COMPLETING THE WORK CONTRACT. THE LEARNED CIT(A) CONSIDERING THE O VERALL FACTS AND CIRCUMSTANCES AND NATURE OF BUSINESS OF THE ASSESS EE RIGHTLY RESTRICTED THE ADDITION TO 25% OF THE ADDITION MADE BY THE AO. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE OR DER OF THE LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. ITA NO.2690/AHD/2006 M/S. GURUKRUPA CONSTRUCTION 11 14. AS A RESULT, THE DEPARTMENTAL APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 12-03-2010 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 12-03-2010 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 D Y. REGISTRAR, ITAT, AHMEDABAD