The ACIT, Circle-1., Rajahmundry V. Sri R Subba Raju, Rajahmundry

ITA 287/VIZ/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2677 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T L PETER
• Keywords: Depreciation; Business expenditure; Period of limitation; Proportionate interest; Corroborative evidences; Notional interest; Time period of passing order; TDS; Set aside
• Section: 40A(3); 40(a)(ia); 194C; 32

Judgement Text

ITA 235 287 372 368/VIZ/2008, 09 R. SUBBA RAJU, RJY IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 235 /VIZAG/ 20 08 ASSESSMENT YEAR : 2005 - 06 R. SUBBA RAJU RAJ AHMUNDRY AD. CIT RANGE RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO.AAGFR 9133F ITA NO.287/VIZAG/2008 ASSESSMENT YEAR : 2005 - 06 ACIT, CIRCLE - 1 RAJAHMUNDRY R. SUBBA RAJU RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) ITA NO. 372 /VIZAG/200 9 ASSE SSMENT YEAR : 200 6 - 0 7 R. SUBBA RAJU RAJAHMUNDRY AD. CIT, RANGE RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) ITA NO.3 68 /VIZAG/2009 ASSESSMENT YEAR : 2006 - 07 AD. CIT, RANGE RAJAHMUNDRY R. SUBBA RAJU RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) APP ELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI T.L. PETER, DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER : - THESE CROSS APPEALS ARE PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A). SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE WERE HEARD TOGETHER AND ARE BEING ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 2 DISPOSED OFF THROUGH THIS CONSOLIDATED ORDER. WE HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. ITA NO.235 OF 2008: 2. THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH WERE REVISED DURING THE COURSE OF PENDENCY OF THE APPEAL. THE REVISED GROUNDS ARE AS UNDER : 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE TO THE FACTS OF THE CASE. 2. THE LD. CIT(A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION OF RS.45,62,992/ - TOWARDS DISALLOWANCE OF LABOUR CHARGES MADE BY THE ASSESSING OFFICER @ 25% INSTEAD OF SUSTAINING A SUM OF RS.35,58,754/ - BEING 10% OF THELABOUR CHARGES, AFTER REDUCING RS.82,09,582/ - TOWARD S VERIFIABLE EXPENDITURE. 3. THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSING OFFICER ERRED IN DISALLOWING LABOUR CHARGES OF RS.2,04,54,568/ - U/S 40(A)(IA) OF THE ACT. 4. THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE SAME EXPENDITURE CANNOT BE DISALLOWED TWICE UNDER THE SECTIONS 40(A)(3) AND 40(A)(IA) OF THE ACT. 5. ANY OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF APPEAL HEARING. 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEES HAS OPTED NOT TO PRESS GROUND NO.2, THEREAFTER THE GROUND NO.2 IS D ISMISSED BEING NOT PRESSED. 4. GROUND NO.1 IS OF GENERAL NATURE AND NEEDS NO COMMENTS. THE GROUND NOS.3&4 RELATE TO THE DISALLOWANCE OF LABOUR CHARGES OF RS.2,04,54,568/ - U/S 40(A)(IA) OF THE ACT WITH REGARD TO WHICH FACTS BORNE OUT FROM THE RECORD ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER HAS OBSERVED THAT CERTAIN PAYMENTS HAD BEEN MADE WITHOUT DEDUCTING TDS IN RESPECT OF WHICH TAX WAS OTHERWISE DEDUCTIBLE. THE A.O. ACCORDINGLY QUANTIFIED THE AGGREGATE OF EXPENDITURE AT RS. 2,71,08,378/ - AND REQUIRED THE ASSESSEE AS TO WHY THE DISALLOWANCE TO SUCH AN EXTENT SHOULD NOT BE MADE U/S 40(A)(IA) OF THE ACT. IT WAS EXPLAINED BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT ATTRACTED IN THE ASSESSEES CASE FOR THE RE ASON THAT PAYMENTS REPRESENTED PAYMENTS TO A COLLECTIVE GROUP OF PERSONS THROUGH A CONSOLIDATED VOUCHER IN RESPECT OF WHICH TDS PROVISION U/S ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 3 194C ARE NOT ATTRACTED. THE A.O. WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND HE HELD THAT EACH O F THE PAYMENTS INVOLVED, BEING IN THE NATURE OF CONTRACTUAL PAYMENTS, IN RESPECT OF WHICH TDS OUGHT TO HAVE BEEN MADE IN TERMS OF THE PROVISIONS OF SECTION 194C, BUT NO TDS HAVE BEEN MADE, THE AGGREGATE OF SUCH PAYMENT IS LIABLE FOR DISALLOWANCE U/S 40(A)( IA) AND THEREAFTER EFFECTED THE DISALLOWANCE OF RS.2,71,08,378/ - . 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE A.O. HAS ERRED IN INCLUDING FOR THE PURPOSE OF DISALLOWANCE U/S 40(A)(IA) THE PAYMENTS TO 3 PARTIES IN R ESPECT OF WHOM TDS HAS BEEN DEDUCTED AND THEREFORE SUCH PAYMENT TO THE EXTENT OF RS.18,92,125/ - OUGHT TO HAVE BEEN EXCLUDED FOR THE PURPOSE OF DISALLOWANCE U/S 40(A)(IA). IT WAS FURTHER CONTENDED THAT RESORTING TO THE SAID DISALLOWANCE U/S 40(A)(IA) HAS R ESULTED IN DOUBLE DISALLOWANCE ON CERTAIN EXPENDITURES THAT HAVE ALREADY BEEN COVERED BY THE DISALLOWANCE U/S 40A(3) OF THE ACT. 6. THE CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF RELEVANT PROVISIONS OF THE ACT AND HAS OBSERVED WITH REGARD TO THE DOUBL E DISALLOWANCE THAT THE DISALLOWANCE ENVISAGED U/S 40(A)(IA) IS IN THE NATURE OF COMPENSATORY DISALLOWANCE FOR FAILURE TO DISCHARGE OBLIGATION TO DEDUCT TDS AT SOURCE IN RESPECT OF PAYMENTS MADE TO OTHERS. ACCORDINGLY, THE SAME IS EXHIGIBLE DESPITE THE FA CT THAT SIMILAR PAYMENTS HAVE ALREADY BEEN SUBJECTED TO THE DISALLOWANCE U/S 40A(3) ON THE REASONING THAT ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF THE WHOLE OF SUCH DISALLOWANCE U/S 40(A)(IA) IN THE YEAR IN WHICH THE ASSESSEE DEDUCTS AND MAKES THE PAYMEN T OF TAX THEREOF OVER AND ABOVE THE NORMAL BUSINESS EXPENDITURE CLAIMED AND ALLOWABLE FOR THAT YEAR. SO FAR AS THE PAYMENT TO THE EXTENT OF RS.18,92,125/ - ON WHICH TDS HAS ALREADY BEEN DEDUCTED IS CONCERNED, THE CIT(A) WAS CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND HE ACCORDINGLY DIRECTED THE A.O. TO EXAMINE THE EVIDENCE IN SUPPORT OF THE TDS THERE OF , AND , AFTER SATISFYING HIMSELF ABOUT SUCH FACT EXCLUDES THE AMOUNT OF RS.18,92,125/ - FROM THE DISALLOWANCE OF RS.2,71,08,378/ - . ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 4 7 . AGGRIEVED, THE AS SESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS REITERATED ITS CONTENTIONS. THE LD. COUNSEL FOR THE ASSESSEE HAS EMPHATICALLY ARGUED THAT MAJOR PART OF PAYMENTS WERE MADE IN CASH TO A GROUP LEADER OF THE WORKERS/LABOURER UTILIZED IN CONSTRUCTIO N ACTIVITIES OF THE ASSESSEES ON THEIR BEHALF. FROM THE DETAILS OF THE PAYMENTS, IT IS ABUNDANTLY CLEAR THAT GENERALLY THESE PAYMENTS WERE MADE WEEKLY OR AFTER FEW DAYS. IT WAS NOT A REGULAR PAYMENT WHICH CAN BE CALLED TO HAVE BEEN MADE TO A ONE PERSON A GAINST THE CONTRACTUAL OBLIGATION. THE ASSESSEE IS ENGAGED IN THE CO NSTRUCTION ACTIVITY AND THE MAN POWER IS BEING ORGANIZED BY THE GROUP LEADERS TO ACCOMPLISH THE CONSTRUCTION WORK. THESE LABOURERS ARE GENERALLY MISTRIES/MASON AND HELPER/BELDARS WHO ARE ENGAGED IN CONSTRUCTION ACTIVITIES. THEREFORE, THE ENTIRE AMOUNT PAID CANNOT BE CALLED TO HAVE BEEN MADE TO ONE PERSON AGAINST A CONTRACTUAL OBLIGATIONS. THEREFORE, THERE WAS NO OBLIGATION UPON THE ASSESSEE TO DEDUCT THE TDS ON THESE PAYMENTS. IT IS NOT A CASE THAT REVENUE HAS DOUBTED THE GENUINENESS OF THE EXPENDITURES. THE VOUCHERS WERE ALREADY PLACED ON RECORD AND IF THE ASSESSING OFFICER HAS DOUBTED THE CONTENTION OF THE ASSESSEE, HE COULD HAVE MADE A PROPER ENQUIRY AND VERIFICATION FROM THE GROUP L EADERS OR THE PERSONS TO WHOM THE PAYMENTS WERE MADE. BUT IT WAS NOT DONE BY THE A.O. AND HE HAS TREATED THESE PAYMENTS TO BE MADE FOR SUB - CONTRACT TO MEET THE CONTRACTUAL OBLIGATIONS WITHOUT BRINGING ANYTHING ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE HA S ALSO ARGUED THAT THE PAYMENTS IN CASH WERE ALSO DISALLOWED BY THE A.O. U/S 40A(3) OF THE ACT. THEREFORE, IF IT IS DISALLOWED U/S 40A(IA) OF THE ACT IT AMOUNT TO A DOUBLE DISALLOWANCE WHICH IS NOT POSSIBLE UNDER THE LAW. 8 . THE LD. D.R. ON THE OTHER HAND , BESIDES PLACING A RELIANCE UPON THE ORDER OF THE CIT(A) HAS CONTENDED THAT THE ONUS WAS UPON THE ASSESSEE TO PROVE THAT THESE PAYMENTS WERE MADE TO THE GROUP LEADER OR THE THEKEDAR ON BEHALF OF THE VARIOUS LABOURERS WHO WERE INVOLVED IN CONSTRUCTION ACTIVITY. SINCE THE ASSESSEE COULD NOT PLACE ANY EVIDENCE ON RECORD, THE REVENUE HAS RIGHTLY HELD THAT THE PAYMENTS WERE MADE TO MEET THE CONTRACTUAL OBLIGATIONS AND DISALLOWED THE CLAIM OF EXPENDITURE ON NON - DEDUCTION OF TDS. ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 5 9 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUS ED THE ORDERS OF AUTHORITIES BELOW , DOCUMENTS PLACED ON RECORD AND THE DETAILS OF THE DISALLOWANCE MADE U/S 40A(3) AND 40A(IA) OF THE ACT GIVEN IN THE ASSESSMENT ORDERS AND FROM ITS CAREFUL PERUSAL, WE FIND THAT MAJOR PAYMEN TS WERE MADE UNDER THE HEAD `LABOUR CHARGES. MEANING THEREBY THAT THE PAYMENTS WERE MADE TO MEET THE LABOUR EXPENSES INCURRED IN CONSTRUCTION ACTIVITY. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN CONSTRUCTION ACTIVITY FOR WHICH HUGE LABOUR IS REQUIRED TO BE ENGAGED. IN SUCH TYPE OF LARGE CONSTRUCTION ACTIVITY, IT IS NOT POSSIBLE TO ARRANGE A HUGE LABOUR BY THE ASSESSEE. T HE GROUP LEADERS WERE ENGAGED TO ARRANGE THE LABOURS AND SAID TEAM LEADER COLLECTS THE PAYMENTS FROM THE CONTRACTORS ON THEIR BEHALF. T HE LABOUR I.E. MISTRIES OR THE BELDARS USED TO WORK AT THE SITE AT THE INSTRUCTION OF THE CONTRACTOR OR HIS AGENT. IT IS NOT A CASE THAT BY SIMPLY ENGAGING THE LABOUR THROUGH THEIR GROUP LEADERS THE CONTRACT IS ASSIGNED TO THEM. THEY ARE SIMPLY UTILIZED TO ACCOMPLISH THE WORK OF CONSTRUCTION. FROM THE DETAILS OF PAYMENTS, IT IS ALSO EVIDENT THAT THE PAYMENTS ARE NOT MADE REGULARLY . I T WAS MADE AFTER INTERVAL OF FEW DAYS. MEANING THEREBY, WHATEVER AMOUNT IS ACCRUED TO THE LABOURERS, IT WAS PAID THROUGH THEIR GROUP LEADERS OF WHICH VOUCHERS WERE OBTAINED BY THE ASSESSEES AND PLACED ON RECORD. 10. FROM A CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES, WE DO NOT FIND THAT REVENUE HAS EVER DOUBTED THE GENUINENESS OF THE PAYMENT TO THE LABOURERS. THEREFORE, THE ISSUE BEFORE US IS ; WHETHER SUCH TYPE OF PAYMENTS ATTRACTS THE DEDUCTION OF TDS U/S 194C OF THE ACT? N OTHING IS PLACED ON RECORD BY THE REVENUE TO ESTABLISH T HAT ASSESSEE HAS EVER SUB - LETTED OR ASSIGNED ITS CONTRACT TO THE PERSONS TO WHOM T HE PAYMENTS WERE MADE . I N THE ABSENCE OF TH E EVIDENCE, THE CONTENTION OF THE ASSESSEE THAT HE HAS MADE THE PAYMENT TO GROUP LEADERS OF THE LABOURERS I.E. MISTRIES OR THE BELDARS ON THEIR BEHALF AND THEY WERE WORKING AT THE INSTRUCTION OF THE CONTRACTOR I. E. ASSESSEE OR ITS AGENT CANNOT BE OUTRIGHTLY REJECTED . THEREFORE, PROVISIONS OF SECTION 194C ARE NOT ATTRACTED. WE ACCORDINGLY DO NOT FIND OURSELVES IN AGREEMENT WITH THE OBSERVATION OF THE CIT(A) MADE IN THIS REGARD. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO ALLOW THE PAYMENT MADE UNDER THE HEAD ` LABOUR CHARGES TO THE GROUP ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 6 LEADERS OF THE LABOURERS. FROM THE DETAILS AVAILABLE AT PG.NO.7&8 OF THE ASSESSMENT ORDER WITH REGARD TO THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT, W E FIND THAT ASSESSEE HAS ALSO MADE PAYMENT TO SOME OTHER PARTIES WHICH WERE ALSO DISALLOWED AFTER INVOKING THE PROVISIONS OF SECTION 194C OF THE I.T. ACT. BUT IN THIS REGARD NO ARGUMENT WAS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEES. WE THEREFORE CONF IRM THE ORDER OF THE CIT(A) ON THOSE ISSUES. ACCORDINGLY, THE MATTER IS RESTORED TO THE FILE OF THE A.O. FOR RECALCULATION OF THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT IN TERMS INDICATED ABOVE . 11 . WE HAVE ALSO EXAMINED THE ALTERNATE ARGUMENT OF THE ASSE SSEES THAT ONCE THE DISALLOWANCE U/S 40A(3) ARE MADE NO FURTHER DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. IN THE YEAR UNDER ACCOUNT THE ENTIRE EXPENSES COULD NOT BE DISALLOWED ON VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. ONLY 20% OF THE CLAIMED EXPENSES CAN BE DISALLOWED. IF THE PAYMENTS OF THE AFORESAID EXPENSES ARE ALSO MADE IN GROSS VIOLATION TO THE RELEVANT PROVISIONS FOR DEDUCTION OF TDS, THE REVENUE AUTHORITY CAN ALSO MA K E THE ENTIRE DISALLOWANCE FOR THE REASON THAT IT IS NOT A DISALLOWANCE FOR EVER. IT IS ONLY A DEFERMENT OF LIABILITY OF PAYMENT OF TDS. ONCE THE TDS IS DEDUCTED AND PAID IN SUBSEQUENT YEARS, THE ENTIRE PAYMENT IS TO BE ALLOWED. THEREFORE, IT IS NOT PROPER TO SAY THAT ONCE THE DISALLOWANCE ARE MADE U/S 40A(3), IT CANNOT BE DISALLOWED U/S 40(A)(IA) ON NON - DEDUCTION OF TDS. HAD I T BEEN A CASE OF ENTIRE DISALLOWANCE OF THE EXPENDITURE U/S 40A(3) OF THE ACT, THEN THE CONTENTION OF THE ASSESSEE C OULD BE ACCEPTED BECAUSE ONCE THE ENTIRE EXPENDITURE IS DISALLOWED FOR EVER U/S 40A(3) OF THE ACT, THERE CANNOT BE A LIABILITY OF DEDUCTION OF TDS U/S 40A(IA) OF THE ACT. BUT IN THE INSTANT CASE, THE DISALLOWANCE U/S 40A(3) WAS ONLY UP TO 20% OF THE TOTAL EXPENDITURE, THEREFORE, THE PROPOSITION ADVANCED BY THE ASSESSEE CANN OT BE ACCEPTED. WE ACCORDINGLY FIND NO MERIT IN THIS ARGUMENT OF THE ASSESSEE. ACCORDINGLY, TH IS ISSUE IS DISPOSED OFF. ITA NO.287 OF 2008: 12 . THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON A SOLITARY GROUND THAT CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF UNVOUCHED LABOUR CHARGES TO 10% WITHOUT GIVING ANY VALID REASONS. THE ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 7 FACTS BORNE OUT FROM THE RECORD ARE THAT BESIDES MAKING A DISALLOWANCE U/S 40A(3) OF THE ACT, THE A.O. HAS ALSO VERIFIED A CERTAIN PAYMENTS OF RS.3,4 2,12,499/ - TOWARDS LABOUR CHARGES. ASSESSEE WAS ASKED TO PRODUCE THE SUPPORTING VOUCHERS OF THESE EXPENSES AND THE ASSESSEE HAS PRODUCED THE VOUCHERS FOR RS.7,01,150/ - . FOR THE REMAINING EXPENDITURE, NO VOUCHERS WERE PRODUCED. THE A.O. PROPOSED TO DISAL LOW THE 25% OF THE ABOVE EXPENDITURE AS REDUCED BY THE AMOUNT ALREADY CONSIDERED FOR DISALLOWANCE U/S 40A(3) UNDER THE HEAD `LABOUR CHARGES AND A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE ABOVE DISALLOWANCE CANNOT BE MADE IN THE ABSENCE O F ANY SUPPORTING EVIDENCE. IN RESPONSE THERETO, IT WAS CONTENDED ON BEHALF OF THE ASSESSEES THAT LABOUR PAYMENTS WERE MADE TO THE INDIVIDUAL LABOURS AS PER THE ATTENDANCE SLIPS AND NO SEPARATE VOUCHERS ARE MAINTAINED FOR EACH PAYMENT MADE TO INDIVIDUAL LA BOURS. THE NATURE OF WORK PERFORMED BY THE M INCLUDES EARTHWORK, CONCRETE, MASONARY WORK INVOLVING LABOUR AND DAILY WAGES. WITH REGARD TO THE QUANTITY AND VOLUME OF TRANSACTIONS THE ASSESSEE MAINTAINED ATTENDANCE REGISTER OF THE NUMBER OF WORKS AND MADE T HE PAYMENTS OF THE NUMBER OF DAYS OF THEIR PERSONS. THEREFORE, NO SEPARATE VOUCHERS WERE MAINTAINED. 1 3 . BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF 25% OF THE TOTAL A M OUNT OF RS.1,82,51,961 / - . ACCORDINGLY, THE ADDITION OF RS.45,62,992/ - WAS MADE UNDER THIS HEAD. 1 4 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT ASSESSEE HAS PRODUCED THE VOUCHERS TO THE EXTENT OF RS.7,01,150/ - . WITH REGARD TO THE REMAINING AMO UNT, IT WAS EXPLAINED THAT LABOUR PAYMENTS HAVE BEEN RECORDED IN THE ATTENDANCE REGISTER FOR THE LABOURERS AND NO SEPARATE VOUCHERS WERE MAINTAINED FOR PAYMENT MADE TO EACH OF THE LABOUR ER S. THE CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF WORKING C ONDITI ONS AND HUMAN PROBABILITIES AND HE WAS OF THE VIEW THAT REASONABLE AMOUNT OF EXPENDITURES ARE INEVITABLE FOR UNDERTAKING AND IMPLEMENTING ANY CONTRACT PROJECT. MERELY BECAUSE BULK OF SUPPORTING EVIDENCE HAVE NOT BEEN PRODUCED, IT CANNOT BE INFERRED THAT A SSESSEE HAS ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 8 EARNED HUGE INCOME , NOT COMMENSURATE WITH THE PERCENTAGE OF PROFIT NORMALLY EARNED IN THE LINE OF CONTRACTUAL BUSINESS UNDERTAKEN BY THE ASSESSEES. HE THEREFORE ESTIMATED THE DISALLOWANCE AT 10% ON THE NET UNVOUCHED EXPENDITURE AFTER GIVING FUR THER CREDIT AS DIRECTED HEREIN ABOVE. THE A.O. WAS ACCORDINGLY DIRECTED TO RE - COMPUTE THE DISALLOWANCE. 1 5 . NOW THE REVENUE IS IN APPEAL BEFORE US AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. 1 6 . THE LD. COUNSEL FOR THE ASSESSEE HAS EMPHATICA LLY ARGUED THAT CIT(A) HAS TAKEN INTO ACCOUNT ALL RELEVANT FACTORS WHILE RESTORING THE MATTER BACK TO THE A.O. FOR RE - COMPUTATION OF DISALLOWANCE. 1 7 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM PERUSAL OF THE ORDER OF THE AUTHORITIES BELOW, WE FIND THAT A.O. HAS MADE AN ADHOC DISALLOWANCE BY ESTIMATING IT AT 25% OF THE TOTAL UNVOUCHED VOUCHER WHICH WAS REDUCED TO 10% BY THE CIT(A) , AF TER HAVING OBSERVED THAT MERELY BECAUSE A BULK OF SUPPORTING EVIDENCE HAVE NOT BEEN PRODUCED, IT CANNOT BE INFERRED THAT TH E ASSESSEE HAS EARNED HUGE INCOME NOT COMMENSURATE WITH THE PERCENTAGE OF PROFIT NORMALLY EARNED IN THE LINE OF CONTRACTUAL BUSINESS UNDERTAKEN BY THE ASSESSEE. IN THE ABSENCE OF EVIDENCE IN SUPPORT OF THE EXPENDITURES , THE EXPENDITURE CLAIMED BY THE ASSE SSEE CANNOT BE OUTRIGHTLY REJECTED UNLESS IT IS BROUGHT ON RECORD THAT SUCH TYPE OF EXPENDITURES WERE NEVER INCURRED BY THE ASSESSEE. ADMITTEDLY, ASSESSEE IS A CIVIL CONTRACTOR AND IN CONSTRUCTION BUSINESS, SOMETIMES THE SUPPORTING EVIDENCE ARE NOT AVAILA BLE FOR THE EXPENSES. BUT IT DOES NOT MEAN THE EXPENSES WERE NEVER INCURRED. THE A.O. HAS ESTIMATED A PARTICULAR PERCENTAGE OF DISALLOWANCE AND CIT (A) REDUCED IT. IT IS A QUESTION OF ESTIMATE ONLY AND WE ARE OF THE VIEW THAT THE ESTIMATION MADE BY THE C IT(A) IS REASONABLE AND FAIR. WE THEREFORE UPHOLD HIS ESTIMATION AND APPROVE HIS ORDER. ACCORDINGLY, THE REVENUES APPEAL IS DISPOSED OFF. ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 9 ITA NO.372 OF 2009: 1 8 . THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GR OUNDS WHICH ARE AS UNDER: 1. THE FIRST APPELLATE AUTHORITY VIZ., CIT(A) RAJAHMUNDRY RANGE, RAJAHMUNDRY SHOULD HAVE DELETED THE ENTIRE ADDITIONS MADE BY THE ADDITIONAL CIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY. 2. THE ASSESSING AUTHORITY VIZ., ADDITIONAL CIT, RAJAHMUN DRY RANGE, RAJAHMUNDRY SHOULD HAVE ACCEPTED THE BOOKS RESULTS. 3. THE LD. CIT(A) SHOULD HAVE ALLOWED ENTIRE EXPENDITURE CLAIMED UNDER THE HEAD LABOUR CHARGES, METAL PURCHASE, BLASTING MATERIAL, HIRE CHARGES AND SAND PURCHASE BY DISALLOWANCE OF 10% NET UNVOUCH ED EXPENDITURE AS AGAINST 20% DISALLOWED BY THE ASSESSING OFFICER. 4. THE LOWER AUTHORITY IS NOT CORRECT IN DISALLOWING EXPENDITURE OF RS.5,91,757/ - FOR NOT DEDUCTING TAX AT SOURCE BY APPLYING PROVISIONS U/S 40(A)(IA). 5. THE FIRST APPELLATE AUTHORITY VIZ., CIT( A) RAJAHMUNDRY RANGE, RAJAHMUNDRY SHOULD HAVE ALLOWED THE DEPRECIATION AS CLAIMED BY THE APPELLANT FIRM. 6. THE FIRST APPELLATE AUTHORITY VIZ., CIT(A) RAJAHMUNDRY RANGE, RAJAHMUNDRY IS NOT CORRECT IN PROPORTIONATE INTEREST DISALLOWANCE TO THREE PERSONS. THE LOWER AUTHORITY SHOULD NOT HAVE CHARGED ANY INTEREST ON THE SUCH ADVANCES. 7. DEPRECIATION CLAIMED SHOULD HAVE BEEN ALLOWED IN FULL. 8. ANY OTHER GROUNDS OF APPEAL THAT MAY BE URGED AT THE TIME OF HEARING. 1 9 . DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR T HE ASSESSEE HAS OPTED NOT TO PRESS GROUND NO.4. THEREFORE, THE GROUND NO.4 IS DISMISSED BEING NOT PRESSED. GROUND NOS.1&2 ARE OF GENERAL IN NATURE AS SUCH NO INDEPENDENT ADJUDICATION IS CALLED FOR. GROUND NO.3 RELATE TO THE DISALLOWANCE OF 10% OF NET UN VOUCHED EXPENDITURE AS AGAINST 20% DISALLOWED BY THE A.O. THIS ISSUE HAS ALREADY BEEN EXAMINED BY US IN FOREGOING APPEALS IN WHICH WE HAVE UPHELD THE ESTIMATION OF 10% MADE BY THE CIT(A). WE THEREFORE FOLLOWING THE SAME APPROVE THE ORDER OF THE CIT(A) WH O HAS ESTIMATED IT AT 10% OF NET UNVOUCHED EXPENDITURE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 10 20. NOW WITH REGARD TO THE GROUND NO.5, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT DEPRECIATION IS TO BE ALLOWED ON A BLOCK OF ASSE T AND INDIVIDUAL USE OF THE ASSET IS NOT REQUIRED TO BE EXAMINED THOUGH IT MAY BE INTRODUCED FIRST TIME IN THE BLOCK OF ASSET IN THAT YEAR. THE FACTS BORNE OUT FROM THE RECORD IN THIS REGARD ARE THAT THE ASSESSEE HAS PURCHASED ONE NEW MACHINERY ON 28.3.20 06 AT BENGALURU AND ANOTHER TWO MACHINES PURCHASED AFTER 16 HOURS ON 30 TH MARCH, 2006 AT DAHRWA D, KARNATAKA. THE ASSESSEE WAS ASKED TO EXPLAIN THAT HOW THESE MACHINER IES WERE USED FOR THE BUSINESS PURPOSE OF THE ASSESSEES. HAVING OBSERVED THAT IT WAS IMP OSSIBLE FOR THE ASSESSEE TO HAVE TRANSPORTED SUCH MACHINERIES FROM THE SAID PLACE IN KARNATAKA TO THE ASSESSEES WORK SITE IN ANDHRA PRADESH FOR PUTTING THE SAME TO USE BY 31 ST MARCH, 2006 FOR THE PURPOSE OF CLAIMING DEPRECIATION ON SUCH MACHINERIES. THE A.O. HAD DISALLOWED THE DEPRECIATION CLAIMED ON SUCH MACHINERIES AGGREGATING TO RS.9,52,015/ - . 2 1. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT EVEN IF IT IS ASSUMED THAT IT WAS HUMANLY IMPOSSIBLE TO TRANSPORT SUCH MACHINE RIES FROM FAR OFF PLACE LIKE BENGALURU AND DHARWAD IN KARNATAKA STATE TO THE INTERIOR WORK SITE OF THE ASSESSEE IN ANDHRA PRADESH, YET SINCE THE ASSESSEE HAS ALSO UNDERTAKEN CONTRACT WORKS IN THE STATE OF KARNATAKA, THE NEWLY PURCHASED MACHINERY WERE PUT T O USE IN KARNATAKA ITSELF. THEREFORE, THERE WAS NO CA U SE FOR DISALLOWANCE OF DEPRECIATION IN RESPECT OF SUCH MACHINERIES. THE CIT(A) WAS NOT CONVINCED WITH THE ARGUMENTS OF THE ASSESSEES. HE HAS CONFIRMED THE DISALLOWANCE AFTER MAKING THE FOLLOWING OBSE RVATIONS: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, IT MAY BE STATED THAT IT IS HEARTENING TO NOTE THAT IT HAS BEEN ADMITTED ON BEHALF OF THE APPELLANT THAT THE NEWLY PURCHASED MACHINERIES IN BENGALURU AND DHARWAD IN THE STATE OF KARNATAKA COULD NOT HAVE BEEN TRANSPORTED TO THE WORK SITE OF THE APPELLANT IN ANDHRA PRADESH STATE WITHIN SUCH SHORT TIME SO AS TO CLAIM THE USE OF SUCH MACHINERY BY 31.03.2006. SURELY, IT IS NOT ANYB ODYS CONTENTION THAT SUCH HEAVY - DUTY MACHINERIES COULD BE AIRLIFTED BY ANY TRANSPORT AIRCRAFT FROM EITHER BENGALURU OR DHARWAD IN KARNATAKA TO ANY AIRPORT IN ANDHRA PRADESH. EVEN IF IT IS ASSUMED THAT IT COULD HAVE BEEN AIRLIFTED TO AIRPORTS LIKE VISAKHA PATNAM OR ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 11 HYDERABAD WHICH ARE EQUIPPED WITH LAND FACILITIES FOR A LARGE AIRCRAFT, YET IT IS HUMANLY IMPOSSIBLE TO TRANSPORT SUCH MACHINERIES FROM EITHER OF THE PLACES TO WORK SITES IN LESS THAN 24 HOURS, WHICH LEAVES THE ONLY OPTION OF TRANSPORTATION OF SU CH MACHINERIES BY ROAD. AT THE EARLIEST ANY ROAD TRANSPORT VEHICLE COULD CARRY SUCH MACHINERIES AT THE FASTEST TIME OF 70+ HOURS, BY WHICH TIME THE ACCOUNTING YEAR WOULD HAVE EXPIRED. THE ALTERNATIVE EXPLANATION OF THE APPELLANT THAT MACHINERIES WERE USE D IN THE STATE OF KARNATAKA ITSELF, HAS REMAINED TOTALLY UNSUBSTANTIATED, AS THERE WAS NO PENDING PROJECTS IN THE STATE OF KARNATAKA AS ON THE DATE OF PURCHASE OF THE SAID MACHINERIES, AND ALSO FOR THE FACT THAT NO CONTRACT RECEIPTS FROM ANY SUCH PENDING P ROJECTS HAVE BEEN ADMITTED. IN THIS VIEW OF THE FACTS, THE CLAIM OF THE DEPRECIATION ALLOWANCE IN RESPECT OF SUCH MACHINERIES CAN BE SAID TO BE A PATENTLY ILLEGITIMATE AND OUTRAGEOUSLY SHOCKING. HENCE, THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING T HE DEPRECIATION OF RS.9,52,015/ - IS, HEREBY, STRONGLY UPHELD. 22 . NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND RAISED ALTOGETHER NEW ARGUMENTS THAT AFTER PURCHASING THESE MACHINERIES IT BECOMES THE PART OF BLOCK OF ASSET AND DEPRECIAT ION IS TO BE ALLOWED ON GROSS WRITTEN DOWN VALUE OF THE BLOCK OF ASSET AND NOT THE INDIVIDUAL ASSET THOUGH IT IS INTRODUCED IN THAT YEAR ITSELF. 23. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THAT THE CONDITION PRECEDENT FOR ALLOWING THE DEPRECIATION IS THAT THE ASSET SHOULD BE OWNED AND USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE. THE ONUS IS UPON THE ASSESSEE TO PROVE THAT THE ASSETS PURCHASED HA S BEEN USED FOR THE PURPOSE OF BUSINESS IN THAT FINANCIAL YEAR . I T FORMS A PART OF BLOCK OF ASSET FOR SUCCEEDIN G YEARS AND IN THOSE YEARS THE INDIVIDUAL USE OF THE ASSET IS NOT REQUIRED TO BE PROVED. BUT IN THE INITIAL YEAR ITS USE IS REQUIRED TO BE PROVED TO CLAIM DEPRECIATION THEREON . IN SUPPORT OF HIS CONTENTION, HE HAS PLACED A RELIANCE UPON THE JUDG EMENT IN THE CASE OF SWATHI SYNTHETIC LIMITED VS. ITO 38 SOT 208 AND THE JUDGEMENT OF THE APEX COURT IN THE CASE OF DCIT VS. N.K. INDUSTRIES 305 ITR 274 (SC). 24 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD. BEFORE THE LOWER AUTHORITIES, THE ASSESSEE HAS NOT RAISED THIS ARGUMENT . HE WAS ALTOGETHER RAISING AN ARGUMENT WITH REGARD TO THE ACTUAL USE OF THE MACHINERIES , ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 12 PURCHASED DURING THE IMPUGNED FINANCIAL YEAR. BEFORE US HE D ID NOT RAISE ANY ARGUMENT WITH REGARD TO THE USE OF THE ASSETS. HE HAS RAISED A NEW ARGUMENT THAT THE NEWLY PURCHASED ASSET BEING A PART OF THE BLOCK OF ASSETS , ITS USE IS NOT REQUIRED TO BE PROVED AND THE DEPRECIATION IS TO BE ALLOWED ON W.D.V. OF THE B LOCK OF ASSETS. 25. WE HAVE ALSO EXAMINED THE PROVISIONS OF SECTION 32 OF THE I.T. ACT AND ACCORDING TO ITS CLAUSE 1, THE DEPRECIATION IS TO BE ALLOWED ON BUILDING , MACHINERY , PLANT OR FURNITURE, BEING TANGIBLE ASSET , KNOW HOW , PATENTS, COPY RIGHTS, TRA DE MARKS, LICENSE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE FIRST DAY OF APRIL, 1998 IF OWNED WHOLLY OR PARTLY BY THE ASSESSEES AND USED FOR THE PURPOSE OF THE BUSINESS OR PROFE SSION AT THE RATE PRESCRIBED TIME TO TIME. THIS SECTION FURTHER DEALS WITH THE CONCEPT OF BLOCK OF ASSET AND SAYS THAT THE DEPRECIATION IS TO BE ALLOWED ON THE W.D.V. OF THE BLOCK OF ASSET AT A PRESCRIBED PERCENTAGE. THUS THE USE OF THE ASSETS WHICH FORM S PART OF THE BLOCK OF ASSET IS REQUIRED TO BE PROVED AT THE TIME OF ITS PURCHASE . THE CONDITION FOR ALLOWING A DEPRECIATION IS THAT THE ASSESSEE SHOULD OWN THE ASSET WHOLLY OR PARTLY AND IT SHOULD ALSO BE USED FOR THE PURPOSE OF ITS BUSINESS OR PROFESSIO N. THIS ISSUE WAS EXAMINED BY THE APEX COURT IN THE CASE OF N.K. INDUSTRIES (SUPRA) AND THEIR LORDSHIP HAVE HELD THAT ONCE THE ASSET FORMS PART OF THE BLOCK OF ASSETS ITS INDIVIDUAL USE IS NOT REQUIRED TO BE PROVED AND THIS CONDITION IS ONLY FOR THOSE ASS ETS WHICH ARE CARRY FORWARD FROM THE EARLIER YEARS. NOWHERE IT HAS BEEN STATED THAT A NEW ASSET WHICH HAS BEEN INTRODUCED IN THE BLOCK OF ASSET, ITS USE IS NOT REQUIRED TO BE PROVED. SIMILAR WAS THE POSITION IN THE CASE OF SWATHI SYNTHETIC LIMITED VS. IT O (SUPRA) IN WHICH IN THAT CASE THE TRIBUNAL HAS CATEGORICALLY HELD THAT IF IT IS NOT A FIRST YEAR OF ITS INTRODUCTION IN THE BLOCK OF ASSET ITS INDIVIDUAL USE IS NOT REQUIRED TO BE PROVED. DEPRECIATION IS TO BE ALLOWED ON THE W.D.V. OF THE BLOCK OF ASSET S, MEANING THEREBY THAT IF ANY ASSET IS INTRODUCED IN THE BLOCK OF ITS USE IN THE INITIAL YEAR IS REQUIRED TO BE PROVED, FOR CLAIMING THE DEPRECIATION THEREON. IN THE LIGHT OF THESE LEGAL PROPOSITIONS, WE ARE OF THE VIEW THAT NOTHING HAS BEEN PLACED ON RE CORD THAT THESE MACHINERIES PURCHASED IN THIS YEAR WERE EVER USED FOR THE PURPOSE OF BUSINESS OF THE ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 13 ASSESSEES, WE THEREFORE, AGREE WITH THE VIEW OF THE LOWER AUTHORITIES WHO HAVE RIGHTLY DISALLOWED THE CLAIM OF DEPRECIATION ON THE MACHINERIES PURCHASED DU RING THE IMPUGNED YEAR. 2 6 . WITH REGARD TO THE GROUND NO.6, THE LD. COUNSEL FOR THE ASSESSEE HAS ARGUED THAT REVENUE HAS ESTIMATED THE NOTIONAL INTEREST ON THE INTEREST FREE ADVANCES GIVEN TO 3 PERSONS. BUT FROM PERUSAL OF RECORD, WE FIND THAT THE ADDITI ON WAS NOT MADE ON ACCOUNT OF NOTIONAL INTEREST. IT WAS RATHER A DISALLOWANCE OF PROPORTIONAL INTEREST ON THE BORROWED FUNDS WHICH WERE DIVERTED FOR THE NON - BUSINESS PURPOSE. IT IS CLEAR FROM THE ORDER OF THE CIT(A) THAT FROM A BALANCE SHEET THE A.O. NOT ED THAT INTEREST FREE ADVANCES WERE GIVEN TO 3 PERSONS SRI K. GIRI DHAR BABU, SRI K.L. SUDHARKAR RAO, T.C.H. VENKATESWARA RAO TO THE TUNE OF RS.6 LAKHS, RS.1 LAKH AND RS.10 LAKHS RESPECTIVELY. IT WAS ALSO NOTED BY THE A.O. THAT THERE WAS NO BUSINESS TRANSA CTION BETWEEN SUCH PARTIES AND THE ASSESSEE DURING THE YEAR. CONSEQUENTLY, IT WAS INFERRED THAT INTEREST BEARING FUNDS FROM BANK IS TO BE DIVERTED TO SUCH PARTIES FOR WHICH INTEREST OUGHT TO HAVE BEEN CHARGED. WHEN THE ASSESSEE WAS ASKED TO PRODUCE ANY E VIDENCE TO SHOW THE BUSINESS NEXUS WITH THESE PERSONS THE ASSESSEE WAS FAILED TO DO SO. CONSEQUENTLY, THE A.O. HELD THAT THE INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR THE NON - BUSINESS PURPOSE AND HE ACCORDINGLY DISALLOWED THE PROPORTIONATE INTEREST EX PENDITURE RELATABLE TO SUCH AMOUNTS ADVANCED TO THESE PARTIES. BEFORE THE CIT(A), NOTHING WAS PLACED TO PROVE THE BUSINESS NEXUS WITH THESE PERSONS AND THE CIT(A) CONFIRMED THE DISALLOWANCE. 27. BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS RAISED ALTOGE THER NEW ARGUMENT THAT THE NOTIONAL INTEREST WAS ADDED BY THE REVENUE AUTHORITIES. WHEREAS THE FACTS ARE OTHERWISE AND FROM THE FACTS IT IS EVIDENT THAT THE DISALLOWANCE WAS MADE ON ACCOUNT OF DIVERSION OF BORROWED FUNDS FOR A NON - BUSINESS PURPOSE. SINCE THE ASSESSEE COULD NOT PLACE ANY EVIDENCE ON RECORD TO PROVE THE BUSINESS NEXUS WITH THOSE PERSONS, WE FIND OURSELVES IN AGREEMENT WITH THE ORDER OF THE CIT(A) HOLDING THAT THE BORROWED FUNDS WERE DIVERTED FOR THE NON - BUSINESS PURPOSE . WE ACCORDINGLY, CO NFIRM THE DISALLOWANCE. ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 14 ITA 368 OF 2009: 2 8 . THIS IS AN APPEAL OF THE REVENUE IN WHICH THE ORDER OF THE CIT(A) IS ASSAILED ON VARIOUS GROUNDS WHICH ARE AS UNDER: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS ON FACTS. 2. THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE ON UNVOUCHED LABOUR CHARGES TO 10% WITHOUT GIVING ANY VALID REASON. 3. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE TOWARDS THE FICTITIOUS BALANCES IN RESPECT OF 5 CREDITORS WITHOUT ANY CONFIRMATION LETTERS OR EXTRACT OF ASSESSEES ACCOUNT IN THE BOOKS OF CREDITORS. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 5. THE APPELLANT/AO CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS AS THE CASE MAY BE. 2 9 . WITH REGARD TO GROUND NO.1, THE IDENTICAL ISSUE HAS BEEN EXAMINED IN FOR EGOING APPEALS IN WHICH WE HAVE CONFIRMED THE ESTIMATION OF DISALLOWANCES AT 10% OF UNVOUCHED LABOUR CHARGES MADE BY THE CIT(A). WE THEREFORE, FOLLOWING THE SAME DECIDE THIS ISSUE AND CONFIRM THE ORDER OF THE CIT(A). 30 . WITH REGARD TO THE SECOND GROUND, IT IS NOTICED THAT THE CREDIT BALANCE IN RESPECT OF FOLLOWING PARTIES AGGREGATING TO RS.12, 90 ,000/ - WAS FOUND AND THE ASSESSING OFFICER HAS TREATED THE OUTSTANDING CREDIT BALANCE AS BOGUS AFTER HAVING OBSERVED THAT NECESSARY PROOF HAD NOT BEEN PLACED BEFO RE US BY THE ASSESSEE. 1. SHRI A. VENKANNA, LABOUR MASTRI RS.2,40,000 2. SHRI B. NARASIMHULU, MASTRI RS.2,50,000 3. SHRI CH. VENKAT RAO, REVITMENT RS.2,00,000 4. SHRI SHYAM, REVITMENT RS.3,00,000 5. SHRI P. RAMA RAO RS.3,00,000 --------------- TOTAL: RS.12,90,000 --------------- 31 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSIONS THAT HE HAS FURNISHED THE LEDGER EXTRACTS OF THE ACCOUNT COPIES OF THE SAID 5 PARTIES , WHO HAD PROVIDED LABOUR SERVICES FOR VARIOUS ITEMS OF CONSTRUCTION OF WORK AT THE ASSESSEES PROJECT SITE/WORK SITE AND PERUSAL OF THE LEDGER EXTRACT S OF THE SALE ACCOUNT COPIES , INDICATES THAT VARIOUS AMOUNTS ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 15 OF LABOUR CHARGES CREDITED AS AGAINST THE SMALL AMOUNT OF ADVA NCES IN THE CASE OF THESE CREDITORS. THE CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF RIVAL SUBMISSIONS AND BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, HE DELETED THE ADDITIONS AFTER MAKING THE FOLLOWING OBVERVATIONS: AFTER HEARING THE LEARN ED AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, THE FOLLOWING OBSERVATIONS MADE AND DECISIONS TAKEN: - (I) NO DOUBT, THE ASSESSING OFFICER HAS REQUISITIONED THE NECESSARY PROOF IN RESPECT OF THE OUTSTANDING CREDIT BALANCES OF THE SAID SIX CREDITORS VIDE HIS LETTER DATED 31.7.2007 AND, AS SUCH, THE APPELLANT WAS LEFT WITH SUFFICIENT TIME ON HAND TO COLLECT THE SUPPORTING EVIDENCES EITHER BY WAY OF CONFIRMATORY LETTERS OR OTHERWISE. THE APPELLANT, HOWEVER, HAS FURNISHED VIDE HIS LETTER DATED 17.11.2008 THE LEDGER EXTRACTS OF THE SAID PARTIES AS APPEARING IN ITS BOOKS OF ACCOUNTS AND ALSO PRODUCED THE BOOKS OF ACCOUNTS INCLUDING LEDGER IN WHICH SUCH ACCOUNTS ARE RECORDED. HOWEVER, THE ASSESSING OFFICER APPEARS TO HAVE GLOSSED OVER SUCH EXTRACTS OF THE ACCOUNTS OF THE SAID PARTIES THAT WERE FURNISHED TOGETHER WITH A BULK OF OTHER INFORMATION, AND, THEREAFTER, THE ASSESSING OFFICER APPEARS TO HAVE RENEWED HIS REQUISITION FOR EVIDENCES IN SUPPORT OF THE OUTSTANDING CREDIT BALANCES OF SUCH PARTIES. IF THE APPELLANT HAD DIFFICULTY IN CONTACTING SUCH PARTIES DURING THE FINAL STAGE OF THE ASSESSMENT PROCEEDINGS BEFORE THE EXPIRY OF LIMITATION PERIOD, BUT THEN THE APPELLANT HAS NOT INFORMED THE ASSESSING OFFICER TO THAT EFFECT. HOWEVER, KEEPING IN PERSPECTIVE THE FACT THAT THE SAID LABOUR CREDITORS, WHO HAVE HAD BUSINESS TRANSACTIONS WITH THE APPELLANT IN THE PAST YEARS AS WELL AS CONTINUED TO DO SO IN THE SUBSEQUENT ASSESSMENT YEARS, IT WOULD BE TOO HARSH TO HOLD THAT THE OUTSTANDING CREDIT BALANCES AGAINST SUCH PARTIES WERE BOGUS ONES, AS THOUGH SUCH PARTIES DO NOT EXIST AT ALL. SINCE THE DETAILED TRANSACTIONS IN RESPECT OF THE SAID PARTIES STAND DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT, WHICH HAVE BEEN PRODUCED DURING THE ASSESSMENT PROCEEDINGS, THE MERE FAILURE ON THE PART OF THE APPELLANT TO PRODUCE CONFIRMATORY LETTERS FROM SUCH PARTIES CANNOT RENDER THE OUTSTANDING CREDIT BALANCES BOGUS. HENCE, TAKING AN OVERALL VIEW OF THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, IT NEEDS TO BE STATED THAT THE AGGREGATE ADDITION OF A SUM OF RS.12,90,000 AS BOGUS CREDIT BALANCES IS NOT SUSTAINABLE, WHICH IS, HEREBY, DELETED. 32 . NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A.O. 33 . THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HAS SUBMITTED THAT THESE ARE TRADE CREDITORS AND NOT THE CASH CREDITORS. THEREFORE, THE A.O. HAS ITA 235 287 372 368/VIZ/20 08, 09 R. SUBBA RAJU, RJY 16 WRONGLY INVOKED THE PROVISIONS OF SECTION 68 FOR MAKING THE AFO RESAID ADDITIONS. IT WAS ALSO CONTENDED THAT BEFORE THE CIT(A), ASSESSEE HAS PRODUCED THE RELEVANT RECORDS TO DEMONSTRATE THAT THESE ARE THE CREDIT BALANCE FOR THE SERVICES RENDERED BY THESE PARTIES. 34 . WE HAVE CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS AND WE FIND THAT BEFORE THE A.O., THE ASSESSEE COULD NOT FILE THE REQUISITE EVIDENCE BUT BEFORE THE CIT(A) HE FILED THE RELEVANT EVIDENCE WHICH WERE EXAMINED BY THE CIT(A) BEFORE ACCEPTING THE CLAIM OF THE ASSE SSEES. SINCE THE CIT(A) HAS PROPERLY ADJUDICATED THE ISSUE AND NO INFIRMITY IS POINTED OUT BY THE REVENUE DURING THE COURSE OF HEARING OF THE APPEAL , WE CONFIRM TH E ORDER OF CIT(A) . 35 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.235 OF 2008 IS P ARTLY ALLOWED AND ITA NO.372 OF 2009 IS DISMISSED . BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 18.11 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 18 TH NOVEMBER , 20 10 COPY TO 1 M/S. R. SUBBA RAJU, CONTRACTORS, 79 - 2 - 1, PRASANTHI ESTATES, TILAK ROAD, RAJAHMUNDRY, E.G. DIST. 2 ADDITIONAL CIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM