The ITO, Ward-5(4), Surat V. Shri Sandip S.Nanavati, Surat

ITA 2971/AHD/2008

• Counselvise Citation: 297120514 RSA 2008
• Duration Of Justice: 3 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS PRAKRUTI UPADHYAY
• Keywords: Business expenditure

Judgement Text

ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH,AHM EDABAD. (BEFORE SHRI D. K. TYAGI AND SHRI A.K. GARODIA) I.T.A. NO. 2971/AHD/2008 (ASSESSMENT YEAR 2005- 06) INCOME TAX OFFICER, WARD 5 (4) ROOM NO.316, 3 RD FLOR, AAYAKAR BHAVAN, MAJURA GATE SURAT. (APPELLANT) VS. SANDIP S. NANAVATI 1 ST FLOOR, YARN CENTER, NANI BEGAMWADI, SALABATPURA,SURAT. (RESPONDENT) PAN: AAOPN 1000 D APPELLANT BY : SHRI MAHESH KUMAR, SR.D.R. RESPONDENT BY : MRS. PRAKRUTI UPADHYAY. DATE OF HEARING : 19-08-2011 DATE OF PRONOUNCEMENT : 30-08-2011 ( (( ( )/ )/)/ )/ ORDER PER: SHRI D.K. TYAGI, J.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT (A)-III, SURAT DATED 30-6-2008 FOR THE ASSESSMENT Y EAR 2005-06. 2. THE REVENUE IN ITS APPEAL RAISED THE FOLLOWING G ROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) III, SURAT HAS ERRED IN RESTRICTING TH E ADDITION OF RS.18,91,325/- TO RS.2,00,000/- MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF DISALLOWED LABOUR EXPENSES. ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A)-III, SURAT HAS ERRED IN DELETING TH E ADDITION OF RS. 9,37,483/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF 5% OF THE GROSS RECEIPTS OF THE PANIPAT BRANCH OF THE ASSESSE E. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) III, SURAT HAS ERRED IN DELETING THE AD DITION OF RS. 11,78,973/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF STAFF SALARY EXPENSES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO DISA LLOWED 20% OF LABOUR EXPENSES. THE A.O. OBSERVED THAT THE ASSESSEE HAD CLAIMED LABOUR WAGES AT RS.94,56,626/- AND A COPY OF THE WAGES REGISTER WAS FILED BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE A. O. WAS OF THE VIEW THAT EACH MONTHS WAGE REGISTER WAS A DUPLICATE COPY OF ANOTHER MONTHS WAGE REGISTER AND THE PHOTOSTATE COPIES WERE OBTAINED BY AFFIXING THE STICKER ON THE MONTH AND BY WRITING ANOTHER MONTH ON SUCH COPI ES. THE A.O. ALSO FOUND THAT CONFIRMATION OF LABOURERS ALSO DID NOT T ALLY WITH THE WAGE REGISTER AND MOST OF THE DECLARATIONS WERE MARKED WITH THUMB IMPRESSIONS. THE A. O. THEREFORE, HELD THAT THE WAGES WERE NOT VERIFIAB LE AND DISALLOWED 20% OF THE EXPENDITURE AND MADE AN ADDITION OF RS. 18,91,3 25/-. 4. BEFORE THE CIT (A), THE LD. A.R. SUBMITTED ALL B OOKS OF ACCOUNTS WERE PRODUCED BEFORE THE A.O. THE MAJOR BOOKS OF ACCOUNT S WERE DESTROYED IN FLOODS IN THE CITY BUT PHOTOSTAT COPIES OF THE WAGE S AND LABOUR REGISTERS WERE OBTAINED. THE A.R. SUBMITTED THAT THE REGISTERS WER E MAINTAINED AT VADODARA AS THE WORKERS WERE MADE PAYMENT FROM THERE DUE TO WORKSITE ALLOTTED TO THEM LOCATED ION AN AROUND VADODARA. THE LD. A. R . FILED COPIES OF REGISTERS BEFORE THE CIT (A) AND THE ISSUE WAS SENT TO THE A.O. FOR VERIFICATION. THE A.O. IN HIS REMAND REPORT DATED 9-5-2008 STATED THAT IF THE ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 3 BOOKS WERE DESTROYED IN THE FLOODS, HOW COULD PHOTO STAT COPIES WERE PRODUCED BY THE ASSESSEE AND THE WAGES WERE INFLATE D BY WAY OF FURNISHING DUPLICATE RECORDS. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE A.R. OF THE ASSESSEE, THE CIT (A) HAS OBSERVED AS UNDER:- I HAVE GONE THROUGH THE SUBMISSIONS AND FIND THAT THE AOS OBJECTION IS AS TO HOW XEROX COPIES OF REGISTERS CO ULD BE PRODUCED, IF THE ORIGINAL REGISTERS WERE CLAIMED TO HAVE BEEN DE STROYED IN FLOODS. IN THIS REGARD, I FIND THAT THE APPELLANTS SUBMISS ION THAT SINCE THE WAGES WERE PAID AT VADODARA AND ORIGINAL BOOKS WERE SENT TO SURAT AFTER RETAINING XEROX COPY THERE, IS BELIEVABLE. IT IS ALSO ARGUED THAT THE MONTH TO MONTH WAGE REGISTER WERE BEARING THE N AMES OF THE SAME LABOURERS BECAUSE MOST OF THEM WERE WORKING WITH TH E ASSESSEE THR4OUGHOUT THE YEAR. I FIND THAT THE APPELLANTS S UBMISSION IS AGAIN APPARENTLY IN ORDER WHICH IS EVIDENT FROM THE COPIE S OF THE WAGES REGISTER. THE ASSESSEE HAS ALSO FURNISHED CONFIRMAT ION OF SOME OF THE LABOURERS INDICATING THAT THEY WERE WORKING WITH IO CL, VADODARA. IT WAS ALSO SUBMITTED THAT THE PAYMENT TO LABOURERS WA S MADE ON THE BASIS OF THE JOB CARDS ISSUED BY THE IOCL AND THEY WERE PAID ACCORDING TO ATTENDANCE AT THE SAID PREMISES. IF TH E RECORDS ARE DEFECTIVE, THE AO MAY INQUIRE THE ISSUE IN DETAIL B UT GENUINE BUSINESS EXPENDITURE CANNOT BE DISALLOWED. IT IS ALSO SEEN T HAT THE LABOUR EXPENSES ARE APPROXIMATELY19% OF THE CONTRACT RECEI PTS WHICH APPEARS TO BE REASONABLE. THE ASSESSEE ALSO FURNISH ED COPIES OF THE APPLICATIONS FOR GATE PASSES INDICATING THEIR ENGAG EMENT WITH THE IOCL. I AM OF THE CONSIDERED VIEW THAT THE AD HOC DISALLOWANCE OF 20% OF THE LABOUR EXPENSES HAS BEEN MADE BY THE AO WITHOUT MAKING ANY INQUIRIES ONLY ON THE SUSPICION THAT THE WAGES REGISTERS WERE NON- GENUINE. THIS KIND OF DISALLOWANCE IS NOT JUSTIFIED IN THE CASE OF A LABOUR CONTRACTOR. HOWEVER, IT IS LIKELY THAT A POR TION OF THE EXPENDITURE COULD NOT BE JUSTIFIED AND THEREFORE, I T WOULD BE REASONABLE, IF A TOKEN DISALLOWANCE OF RS.2 LACS IS MADE OUT OF THE CLAIM OF LABOUR CHARGES. THE A.O. SHALL RESTRICT TH E DISALLOWANCE TO RS. 2 LACS ONLY. ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 4 6. AGGRIEVED BY THIS ORDER OF THE LD. CIT (A), NOW THE REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING, THE LD. D .R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBM ITTED THAT THE LD. CIT (A) HAS ACCEPTED THE EXPLANATION OFFERED BY THE ASSESSE E WHILE GIVING RELIEF TO THE ASSESSEE BY RESTRICTING THE ADDITION TO RS.2 LA CS. CONCLUDING HIS ARGUMENTS HE SUBMITTED THAT THE ORDER OF THE LD. CI TA (A) MAY KINDLY BE SET ASIDE AND THAT OF AO BE RESTORED. 7. THE LD. A.R. ON THE OTHER HAND RELIED ON THE ORD ER OF THE LD. CIT (A). 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT AO DISALLOWED 20% OF EXPENDITURE CLAIMED BY THE ASS ESSEE UNDER THE HEAD LABOUR EXPENSES AS HE FOUND THAT THESE EXPENSES WER E NOT VERIFIABLE. THE A.O. ALSO FOUND THAT CONFIRMATION OF LABOURERS DID NOT TALLY WITH WAGE REGISTER PRODUCED BEFORE HIM DURING THE ASSESSMENT PROCEEDINGS. THE LD. CIT (A) ON THE OTHER HAND FOR THE REASONS GIVEN BY HIM IN HIS ORDER WAS OF THE VIEW THAT THIS DISALLOWANCE OF 50% OF THE LABOU R EXPENSES CLAIMED BY THE ASSESSEE WITHOUT MAKING ANY INQUIRIES BY THE A.O. W AS ON HIGHER SIDE. HOWEVER, TAKING INTO CONSIDERATION THE FACT THAT AS SESSEE FAILED TO PRODUCE BOOKS OF ACCOUNTS IN SUPPORT OF HIS CLAIM HE RESTRI CTED THIS ADDITION TO RS.2 LACS. WE FIND NO INFIRMITY IN THE ORDER PASSED BY T HE LD. CIT (A) AND THE SAME IS HEREBY UPHELD. 9. THE SECOND GROUND OF THE REVENUE RELATES TO THE CLAIM OF LOSS INCURRED AT PANIPAT SITE ON THE GROUND THAT THE AUDITOR HAD NOT ATTACHED PART-B ASND TURNOVER AND RATIO ANALYSIS IN HIS REPORT. THE ASSE SSEE STATED THAT SOME CIVIL CONSTRUCTION WAS CARRIED OUT BY HIM AT PANIPAT AND HAD PREPARED SEPARATE ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 5 BALANCE SHEET AND P & L ACCOUNT ALTHOUGH THE SAME W AS PART OF SURAT OFFICE ACTIVITIES AND THE BALANCE AT THE END OF THE YEAR W AS MERGED WITH BALANCE SHEET OF SURAT OFFICE. THE A.O. DID NOT ALLOW THE C LAIM ON THE GROUND THAT PART-B OF THE AUDIT REPORT WAS NOT FILED AND ESTIMA TED THE PROFIT OF PANIPAT OFFICE AT 5% OF THE TURNOVER AND MADE AN ADDITION O F RS. 9,37,483/-ON THIS ACCOUNT. 10. BEFORE THE LD. CIT (A), THE A.R. OF THE ASSESS EE FURNISHED CERTIFICATE FROM THE AUDITOR DATED 18-4-2008 STATING THAT ANNEX URE-I AND PART- A & B WERE ALSO PREPARED BUT DUE TO THE OVERSIGHT THE SAM E WAS NOT SUBMITTED ALONG WITH THE AUDIT REPORT BUT WERE FILED BEFORE T HE A.O. AT THE TIME OF ASSESSMENT. THIS MATTER WAS REMANDED TO THE A.O. F OR VERIFICATION. THE A.O. VIDE HIS REMAND REPORT DATED 9-5-2008 STATED T HAT IT WAS A CLEAR VIOLATION OF PROVISIONS OF SECTION 44AB OF THE I.T. ACT SINCE ANNEXURES FORMING PART OF THE AUDIT REPORT WERE NOT ATTACHED WITHIN THE PRESCRIBED TIME LIMIT. 11. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND THE REMAND REPORT OF THE A.O., THE LD. CIT(A) DELETED THE ADD ITION. 12. AGGRIEVED BY THIS ORDER OF THE LD. CIT (A), NOW THE REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING THE LD. D. R., PLACING RELIANCE ON THE ORDER OF THE AO SUBMITTED THAT ORDER PASSED BY LD. CIT (A) MAY KINDLY BE SET ASIDE AND THAT OF AO MAY BE RESTORED. 13. THE LD. COUNSEL OF THE ASSESSEE, OH THE OTHER H AND RELIED ON THE ORDER OF THE LD. CIT (A). ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 6 14. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT AO DISALLOWED ASSESSEES CLAIM OF LOSS INCURRED AT PAN IPAT SITE AND ESTIMATED THE PROFIT AT 5% OF THE TURNOVER AND MADE AN ADDITION O F RS.9,37,483/- ON THIS ACCOUNT ON THE GROUND THAT AUDITOR DID NOT ATTACH P ART-B OF THE AUDITOR REPORT, TURNOVER AND RATIO ANALYSIS IN HIS REPORT. IT IS A WELL SETTLED POSITION OF LAW THAT ANNEXURES TO THE AUDIT REPORT CAN BE FI LED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND SINCE IN THIS CASE, THE AUDITOR HAD CERTIFIED THAT THE PART-B OF THE REPORT COULD NOT BE FILED DUE TO OVERSIGHT ALONG WITH THE ORIGINAL REPORT, NO ADVERSE INFERENCE SHOULD HAVE B EEN DRAWN BY THE AO. A TECHNICAL VIOLATION OF SECTION 44AB OF THE ACT SHOU LD NOT BE THE REASON FOR IGNORING THE CLAIM OF LOSS DULY CERTIFIED BY THE AU DITOR AND MAKING AN ADDITION. THEREFORE, THE LD. CIT (A) HAS RIGHTLY DE LETED THE ADDITION MADE BY THE A.O. ON THIS ACCOUNT AND THE ORDER PASSED BY HI M IS HEREBY UPHELD. 15. THE NEXT GROUND OF THE REVENUE RELATES TO THE D ISALLOWANCE OF STAFF SALARY EXPENSES AMOUNTING TO RS. 11,78,973/-. THE A O MADE THE DISALLOWANCES ON THE GROUND THAT THE VOUCHERS OF EX PENSES FURNISHED DID NOT TALLY WITH THE PAYMENTS CLAIMED TO HAVE BEEN MADE I N THIS REGARD AND ACCORDINGLY DISALLOWED THE DIFFERENCE BETWEEN THE E XPENSES CLAIMED AND THE DETAILS FURNISHED BY THE ASSESSEE UNDER ALL THESE H EADS. 16. THE A.R. OF THE ASSESSEE SUBMITTED THAT THE REA SONS THAT COMPLETE VOUCHERS FOR THE EXPENDITURE CLAIMED COULD NOT BE F ILED BEFORE THE A.O. WAS THAT MOST OF THE BOOKS OF ACCOUNTS WERE DESTROYED D URING THE FLOODS IN THE CITY BUT ALL OTHER DETAILS WERE PRODUCED BEFORE THE A.O. THE PAYMENTS WERE DULY REFLECTED IN THE ACCOUNT BOOKS AND STATEMENTS OF THE SOME OF THE EMPLOYEES WERE ALSO PRODUCED BEFORE THE A.O. THE EN TIRE CLAIM OF ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 7 EXPENDITURE WAS GENUINE AND WAS INCURRED FOR CIVIL CONSTRUCTION ACTIVITY OF THE ASSESSEE. THE ENTRIES AND BOOKS OF ACCOUNTS WER E DULY AUDITED BY THE CHARTERED ACCOUNTANT AND THE EXPENDITURE WAS PURELY FOR BUSINESS PURPOSES. 17. AFTER CONSIDERING THE SUBMISSIONS OF THE A.R., THE LD. CIT (A) HAS OBSERVED AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT T HE ONLY REASON THAT THE A.O. HAS MADE THE DISALLOWANCE IS BECAUSE ALL THE VOUCHERS COULD NOT BE SUPPLIED TO THE A.O. ON THAT THAT THE SAME WERE DESTROYED DURING THE FLOODS. IF THE AO HAD ANY RESERVATIONS A BOUT THE GENUINENESS OF THE CLAIM, HE COULD HAVE ASKED THE A PPELLANT TO PRODUCE THE EMPLOYEES FOR VERIFICATION.. MERELY BEC AUSE THERE IS A DIFFERENCE BETWEEN THE EXPENSES CLAIMED AND THE VOU CHERS FURNISHED BY THE ASSESSEE DUE TO LOSS OF VOUCHERS DURING FLOO DS, DISALLOWANCE OF SUCH A HUGE AMOUNT OF EXPENDITURE SHOULD NOT HAVE B EEN MADE. THEREFORE, LOOKING INTO THE SUBMISSIONS OF THE ASSE SSEE AND THE FACT THAT THE AUDITOR HAS NOT MADE ANY ADVERSE COMMENTS IN RESPECT OF THESE EXPENDITURES, DISALLOWANCE MADE IN RESPECT OF STAFF EXPENSES IS DIRECTED TO BE DELETED. 18. AGGRIEVED BY THE ORDER OF LD. CIT(A), NOW THE R EVENUE IS IN APPEAL BEFORE US. 19. AT THE TIME OF HEARING THE LD. D.R. RELIED ON T HE ORDER OF THE AO WHILE ASSESSEES COUNSEL RELIED ON THE ORDER OF LD. CIT (A). 20. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT AN AMOUNT OF RS. 11,78,973/- HAS BEEN DISALLOWED BY TH E AO OUT OF STAFF SALARY EXPENSES CLAIMED BY THE ASSESSEE ON THE GROUND THAT ALL THE VOUCHERS IN RESPECT OF THESE EXPENSES WERE NOT PRODUCED BY THE ASSESSEE BEFORE HIM. THE EXPLANATION OF THE ASSESSEE THAT THESE VOUCHERS WER E DESTROYED DURING THE ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 8 FLOOD WAS NOT ACCEPTABLE TO THE A.O. THE LD. CIT (A ) HAS DELETED THIS ADDITION AS HE WAS OF THE VIEW THAT AO WAS NOT JUST IFIED IN MAKING SUCH HUGE DISALLOWANCE MERELY BECAUSE THERE WAS A DIFFER ENCE BETWEEN THE EXPENSES CLAIMED AND THE VOUCHERS FURNISHED BY THE ASSESSEE DUE TO LOSS OF VOUCHERS DURING FLOOD. HE WAS OF THE VIEW THAT IF AO WAS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE, HE COULD H AVE MADE FURTHER INQUIRIES BY ASKING THE ASSESSEE TO PRODUCE THE EMPLOYEES FOR VERIFICATION. SINCE NO SUCH EXERCISE WAS CARRIED OUT BY THE AO BEFORE MAKI NG THIS DISALLOWANCE, THE LD. CIT (A) DID NOT APPROVE THE ACTION OF THE A .O. HE ALSO OBSERVED IN HIS ORDER THAT SINCE AUDITORS HAVE NOT MADE ANY ADV ERSE COMMENT IN RESPECT OF THIS EXPENDITURE THE DISALLOWANCE MADE IN RESPEC T OF STAFF EXPENSES WAS NOT PROPER AND THEREFORE, THE ADDITION MADE BY THE A.O. WAS DIRECTED TO BE DELETED BY HIM. THIS FINDING OF FACT BY THE LD. CIT (A) REMAINED UN- CONTROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. THEREFORE, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. 21. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN OPEN COURT ON 30 08 - 2011. SD/- SD /- (A. K. GARODIA) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD. DATED: 30 -08 - 2011. S.A.PATKI ITA NO.2971/AHD/2 008 ASSESSMENT YEAR 2 005-06 9 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-III,SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 24 - 8 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 24 / 8 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 26 - 8 -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT -08 -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..