M/s Naghel & Co., Sonebhadra V. Jt.CIT, Mirzapur

ITA 3/ALLD/2012

• Counselvise Citation: 320714 RSA 2012
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 05-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP CHAUHAN
• Assessee Lawyers: DR N C AGARWAL
• Keywords: Principle of natural justice
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.03/ALLD/2011 ASSESSMENT YEAR: 2005-06 M/S BAGHEL & COMPANY, VS. JOINT COMMISSIONER OF I NCOME TAX, P.O. CHOPAN, RANGE-III, MIRZAPUR. DISTT. SONEBHADRA. (PAN: AACFB 3409 L). (APPELLANT) (RESPONDENT) APPELLANT BY : DR. N.C. AGARWAL, C.A. RESPONDENT BY : SHRI SANDEEP CHAUHAN, CIT D.R. DATE OF HEARING : 09.11.2012 DATE OF PRONOUNCEMENT : 13.12.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 08.09.2011 PASSED BY THE LD. CIT(A), ALLAHABAD FOR THE ASSESSM ENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1.1 BECAUSE THE CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE DISALLOWANCE OF RS.89,72,375/- IN RESPECT OF EA RTH MOVING EXPENSES. 1.2 BECAUSE IN VIEW OF THE SUBMISSION MADE BY THE A PPELLANT, EARTH MOVING EXPENSES SHOULD HAVE BEEN ALLOWED AS BUSINES S EXPENSES AT RS.89,72,375/- ITA NO.03/ALLD/2011 A.Y. 2005-06 2 1.3 BECAUSE THE CIT(A) HAS ERRED IN LAW AND ON FACT S IN HOLDING AS UNDER : THE APPELLANT HAS NOT SUBMITTED ANY EVIDENCE TO PR OVE THAT THE ASSESSEE FIRM AND 14 PERSONS WERE IN THE RELATION O F EMPLOYER- EMPLOYEE. MERELY BY SAYING THAT THE PAYEES ARE EMP LOYEES, THE RELATIONSHIP BETWEEN THE TWO IS NOT PROVED. 1.4 BECAUSE THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE EVEN AFTER HOLDING THAT THERE IS NO DISPUTE ON THE FACT THAT THE PAYMENTS HAVE BEEN MADE FOR CARRYING OUT CERTAIN W ORK ON THE SITE. 1.5 BECAUSE THE CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE AFTER WRONGLY INTERPRETING THE PRO VISIONS OF LAW AS WELL AS FACTUAL POSITION AND CONFIRMING DISALLOWANC E OF EARTH MOVING EXPENSES. 1.6 BECAUSE THE DISALLOWANCE CONFIRMED BY CIT(A) AT RS.89,72,375/- IS EXCESSIVE. 2.1 BECAUSE THE CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE OF RS.2,98,656/-, BEING THE AMOUN T OF HIRE CHARGES, BY TREATING IT AS INTEREST. 2.2 BECAUSE THE PAYMENT MADE TO FINANCE COMPANIES A S HIRE CHARGES ARE NOT HIT BY SECTION 40(I)(IA) OF THE INC OME TAX ACT, 1961 2.3 BECAUSE THE CIT(A) HAS MISUNDERSTAND THE FACTUA L POSITION AND HELD THAT THE PAYMENT IS WITHIN THE PURVIEW OF SECT ION 194A OF THE INCOME TAX ACT, 1961 AND DISMISSED THE GROUND OF AP PEAL; 3.1 BECAUSE THE CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE OF SALARY AT RS.1,12,475/- BEING 2 5% OF RS.4,49,900/- 3.2 BECAUSE THE CIT(A) HAS WRONGLY RELIED UPON THE OBSERVATION OF ASSESSING OFFICER THAT EMPLOYEES CAN NOT WAIT FOR T HEIR PAYMENTS WHILE CONFIRMING THE DISALLOWANCE WHICH HAS OTHERWI SE GENUINELY BEEN INCURRED WHOLLY AND SOLELY FOR THE BUSINESS. ITA NO.03/ALLD/2011 A.Y. 2005-06 3 3.3 BECAUSE THE DISALLOWANCE OUT OF SALARY CONFIRME D BY CIT(A) IS EXCESSIVE. 4. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY T O LAW, FACTS AND PRINCIPLES OF NATURAL JUSTICE. 3. THE FIRST EFFECTIVE GROUND OF APPEAL PERTAINS TO ADDITION OF RS.89,72,375/-. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM IS A CIVIL CONTRACTOR. BOOKS OF ACCOUNT AND SUPPORTING DOCUMENTS/BILLS/VOUCHERS ETC . WERE PRODUCED BEFORE THE AO. DURING ASSESSMENT PROCEEDINGS THE A.O. NOTICED CERTAIN PAYMENTS, DETAILS OF WHICH NOTED AT PAGE NO.1 & 2 OF ASSESSMENT ORDER. THE TOTAL OF SUCH PAYMENT IS RS.89,375/-. THE A.O. ASKED THE ASSESSEE TO EXPLAI N THAT THESE PAYMENTS WERE OF NATURE OF PAYMENTS TO SUB-CONTRACTOR AND ARE COVERE D UNDER SECTION 194C OF THE ACT BUT NO TDS WAS MADE, THEREFORE, THE SAME IS DIS ALLOWABLE UNDER SECTION 40(I)(A) OF THE ACT. THE ASSESSEE EXPLAINED BEFORE THE A.O. THAT THESE EXPENSES WERE MADE IN ORDER TO CONDUCT CERTAIN WORKS DURING CONSTRUCTION OF ASHDYKE. SUCH CONSTRUCTION REQUIRES HEAVY VEHICLES TO MOVE EARTH. THE ASSESSEE SUBMITTED THAT NO CONTRACT WAS GIVEN AND THE WORK WAS DONE ON OWN. I N THE BOOKS THE PAYMENTS WERE MADE IN THE NAME OF A PERSON OR PARTY. AND TH E PAYMENTS WERE PAID ONCE OR TWICE A MONTH. IT MUST BE BROUGHT OUT THAT THE WOR K COULD NOT HAVE BEEN DONE BY A SINGLE MAN. THE A.O. NOTED THAT IT WAS IN THE NATU RE OF A SUB-CONTRACT THAT WAS GIVEN TO A GROUP OF PERSONS/PARTY TO CARRY OUT THE SAME. AND THE EXPENSES WERE NOT MADE ON DAILY BASIS. ITA NO.03/ALLD/2011 A.Y. 2005-06 4 4. THE A.O. ALSO NOTED THAT THE ASSESSEE MADE PAYME NTS OF MACHINES RENT. THE ASSESSEE DID NOT FURNISH DETAILS OF SUCH EXPENSES. THE A.O. WAS OF THE VIEW THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE. TH E A.O. MADE ADDITION OF RS.89,72,375/-. 5. THE CIT(A) CONFIRMED THE ORDER OF A.O. 6. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT RS.89,72,375/- WAS PAID ON ACCOUNT OF EARTH MOVING EXPENSES. THE EXPENSES WER E RELATED TO CERTAIN WORK CARRIED DURING CONSTRUCTION OF ASHDYKE. THE LD. AU THORISED REPRESENTATIVE SUBMITTED THAT THE PARTNER OF THE FIRM, SHRI RAJEND ER SINGH BAGHEL FURNISHED AN AFFIDAVIT STATING THAT PAYMENTS WERE MADE TO 14 PER SONS, WHO ARE EMPLOYEES OF ASSESSEE AND NOT SUB-CONTRACTOR. THIS FACT IS SUPP ORTED BY BOOKS OF ACCOUNT AND RECORDS MAINTAINED BY THE ASSESSEE. THE ASSESSEE G IVEN ADVANCES FROM TIME TO TIME TO THESE PERSONS FOR CARRYING OUT EARTH WORK A S DIRECTED TO THEM. THE EMPLOYEES WERE SENDING PERIODICAL STATEMENTS OF WOR K DONE AND PAYMENTS MADE. THE PAYMENTS ARE ACCORDINGLY ACCOUNTED FOR IN BOOKS OF ACCOUNT. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT PHOTOCOPIE S OF BILLS RECEIVED FROM THESE EMPLOYEES WERE FURNISHED ALONG WITH THEIR AFFIDAVIT S. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT OUT OF SAID PAYMENTS OF RS.89,73,375/-, RS.33,34,500/- WERE PAID TO FOUR PARTIES TOWARDS RE NT OF MACHINERIES. THE SALARY ITA NO.03/ALLD/2011 A.Y. 2005-06 5 PAYMENTS OF THESE 14 PERSONS WERE PAID BY FIRM SEPA RATELY. IN SUPPORT OF IT THE ASSESSEE FURNISHED SALARY REGISTER. THE LD. AUTHOR ISED REPRESENTATIVE SUBMITTED THAT COMPLETE DETAILS WERE FURNISHED BEFORE THE A.O . AND CIT(A). HE REFERRED CERTAIN ORDER SHEET ENTRIES OF WHICH COPIES HAVE BE EN PLACED IN PAPER BOOK. THE DETAILS IN THIS REGARD POINTED OUT BY THE LD. AUTHO RISED REPRESENTATIVE ARE AS UNDER :- (PAGE NO.2 WS) PHOTOCOPIES OF PERIODIC BILLS SUBMITTED BY 14 EMPL OYEES (I.E. SUPERVISORS) SUPPORTED BY THEIR AFFIDAVITS P AGE 18-135 OF PB DETAILS OF RENT PAID WITH BILLS/CERTIFICATES OF 4 P ARTIES WHO WORKED AT THE SITES PAGE136-163 OF PB HIGH PURCHASE AGREEMENTS AND COPIES OF THE ACCOUNTS OF THE PARTIES PAGE164-180 OF PB DETAILS OF PAYMENT MADE TO EMPLOYEES ETC. PAG E181-184 OF PB 7. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT CERTAIN EVIDENCES WERE FILED BEFORE CIT(A). THE CIT(A) ADMITTED THE SAME AND CALLED THE REMAND REPORT FROM THE A.O. 8. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED POIN T-WISE REPLY TO CIT(A)S OBSERVATIONS AS UNDER :- (PAGE NOS.3 TO 6 WS) ITA NO.03/ALLD/2011 A.Y. 2005-06 6 SL. NO. OBSERVATION/DECISION OF CIT(A) EXPLANATION OF THE APPELLANT 1. THERE SHOULD BE CONTROL BY THE EMPLOYER OVER THE EMPLOYEES. ALL THE 14 SUPERVISORS WERE UNDER THE CONTROL OF EMPLOYER/APPELLANT. 2. AS AGAINST THE STATUS OF AGENT AND INDEPENDENT CONTRACTOR AN EMPLOYEE IS UNDER OBLIGATION TO PERFORM HIS SERVICES AS PER THE WISHES OF HIS MASTER. ALL THE 14 SUPERVISORS WERE PERFORMING THEIR SERVICES AS PER THE WISHES OF THEIR MASTER/APPELLANT. THE EMPLOYER/APPELLANT DEPUTED THEM TO SUPERVISE THE WORK AT SITE FOR WHICH PERIODICAL BILLS WERE SUBMITTED WHICH WERE PAID BY THE APPELLANT AS IS EVIDENT FROM THE BILLS AND COPY OF ACCOUNT OF EACH OF THE SUPERVISOR SUBMITTED IN THE PAPER BOOK. 3 AS PER THE LAWS OF LAND THE MASTER HAS TO PAY THE EMPLOYEE THE REMUNERATION AS PER THE TERMS OF THE SERVICE AND THE PAYMENT OF BONUS ETC. DEPENDING UPON THE FACTS. THERE ARE ALSO STATUTORY REQUIREMENTS TO CONTRIBUTE TOWARDS PROVIDENT FUND BY THE EMPLOYER. THE REMUNERATION WAS PAYABLE/PAID TO ALL THE 14 SUPERVISORS AS IS EVIDENT FROM THE SALARY REGISTER. 4 A EMPLOYEE RENDERS THE SERVICES PERSONALLY, IT CANNOT BE SUB-CONTRACTED BY AN EMPLOYEE. THE SERVICES WERE RENDERED BY ALL THE 14 EMPLOYEES THEMSELVES. THE SERVICES WERE NOT SUB- CONTRACTED BY ANY OF THEM. 5 A CONTINUING RELATIONSHIP. THE RELATIONSHIP WAS CONTINUING ONE. 6 THE HOURS OF WORK ARE SET BY THE ESTABLISHMENT. THE HOURS OF WORK STANDS LAID DOWN BY THE ESTABLISHMENT. 7 EMPLOYER HAS THE RIGHT TO TERMINATE THE SERVICES AS PER THE TERMS AND CONDITIONS OF THE EMPLOYMENT. EMPLOYER HAD RIGHT TO TERMINATE THE SERVICES OF ANY OF THE SUPERVISORS. ITA NO.03/ALLD/2011 A.Y. 2005-06 7 WE FURTHER SUBMIT THAT ALL THE 14 SUPERVISORS WERE ONLY LITERATE SO THEY CAN NOT RENDER ANY PROFESSIONAL SERVICES. IN FACT, THEY WERE UNDER CONTRACT OF SERVICES AND RENDERED SERVICES AS WERE CALLED UPON TO DO, TO FULFILL THE CONTRACTUAL OBLIGATION OF THE APPELLANT TOWARDS NTPC, PWD, NCL ETC. SO FAR AS EVIDENCE TO PROVE THAT EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS, IT IS SUFFICIENT EVIDENCE THAT SALARY PAID TO THE SUPERVISORS STANDS ACCEPTED AND ALLOWED. THE NATURE OF WORK IN ITSELF SUGGEST THAT FORMAL R ECRUITMENT PROCESS IS NOT REQUIRED BY THE APPELLANT. THE AFFI DAVITS OF THE 14 SUPERVISORS ARE NO LESS THAN THE CONFIRMATION OF CO NTRACT BETWEEN THE EMPLOYER AND EMPLOYEE. THE PAYMENT OF SALARY TO SUP ERVISORS HAS BEEN MADE ON REGULAR BASIS WHICH STANDS CHARGED UND ER THE HEAD STAFF SALARY DEBITED TO THE PROFIT AND LOSS ACCOU NT (AT PAGE 3H OF THE PAPER BOOK) IN VIEW OF THE EMPLOYER-EMPLOYEE RELATIONSHIP AND PAYMENTS WERE MADE BY THE SUPERVISORS FOR WORK GOT DONE BY T HEM IN EXECUTION OF THE CONTRACT THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE. CONSEQUENTLY, NO DISALLOWANCE UNDER SEC. 40(A) (IA) NEEDS TO BE CONFIRMED. THAT REGARDING 4 PARTIES TO WHOM PAYMENT OF RS.33,3 4,500/- HAS BEEN MADE TOWARDS HIRING OF MACHINERY, WE SUBMI T THAT THE BILLS RAISED BY THE PARTIES AND THEIR COPY OF ACCOUNT IN THE BOOKS OF THE APPELLANT ARE AS UNDER: M/S A.B. SINGH & CO. PAGE 136-151 M/S B.K. TRANSPORT PAGE 152-155 M/S TASS ENTERPRISES PAGE 156-158 M/S VISHNU SHRI ENTERPRISES PAGE 159-163 THE MACHINES WERE HIRED ALONG WITH OPERATOR FROM TH ESE PARTIES. THE PERFORMANCE OF WORK, NAMELY, EARTH MO VING, REQUIRES USE OF SUCH MACHINES. THE BILLS OF PARTIES AS WELL AS CERTAINLY OF PERFORMANCE OF THE WORK GOES TO PROVE GENUINENESS O F THE EXPENSES. THE EXPENSES ARE CHARGED/DEBITED UNDER THE HEAD EA RTH MOVING EXPENSES THEREFORE, THE QUESTION OF SEPARATE HEAD AS RENTAL OF MACHINERY DO NOT ARISE AS ALLEGED. THE PROVISIONS OF SECTION 194C ITA NO.03/ALLD/2011 A.Y. 2005-06 8 ARE NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES O F THE CASE PARTICULARLY IN THE RELEVANT ASSESSMENT YEAR. THER E IS SEPARATE PROVISION FOR TDS ON RENT UNDER SECTION 194I OF TH E ACT. THE DEFINITION OF RENT HAS BEEN AMENDED UNDER SECTION 194-I W.E.F. 13.07.2006 TO INCLUDE RENT OF MACHINE. THEREFORE, THE PROVISIONS OF SECTION 194-I WERE ALSO NOT APPLICABLE. HENCE, TDS WAS NOT REQUIRED TO BE MADE IN THE RELEVANT YEAR I.E. ASSESSMENT YEA R 2005-06. IN VIEW OF THIS, DISALLOWANCE UNDER SECTION 40(A)( IA) FOR A SUM OF RS.33,34,500/- IS NOT LIABLE TO BE CONFIRMED. 9. THE LD. AUTHORISED REPRESENTATIVE RAISED ADDITIO NAL GROUND OF APPEAL BUT IN FACT THIS IS ALTERNATE SUBMISSIONS. THEREFORE, THE SAME ARE TAKEN ACCORDINGLY. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT EVEN A FTER REJECTION OF BOOKS OF ACCOUNT IF ONE CONSIDER COMPARATIVE POSITION OF NET PROFIT. HE SUBMITTED IN EARLIER YEARS AND LATER YEARS NET PROFIT DISCLOSED BY THE A SSESSEE REQUIRED TO BE ACCEPTED. THE ADDITIONS MADE BY THE A.O. IS ON EXCESSIVE. A C OMPARATIVE NET PROFIT STATEMENT SUBMITTED BY THE LD. AUTHORISED REPRESENT ATIVE IS AS UNDER :- (PAGE NO.25 PB) COMPARATIVE CHART OF TURNOVER AND GROSS PROFIT & N ET PROFIT FOR 2 PRECEDING YEARS AND 2 SUCCEEDING YEARS A.Y. TURNOVER GROSS PROFIT % NET PROFIT % 2003-04 CONSTRUCTION 72549605.56 25.62 4.86 2004-05 CONSTRUCTION 81150201.23 25.78 4.89 74919347.02 25.80 4.92 2005-06 (CONSTRUCTION) (PETROL PUMP) 49365758.25 1.79 0.38 96712625.36 25.87 5.08 2006-07 (CONSTRUCTION) (PETROL PUMP) 63316120.57 1.80 0.12 120954791.30 25.92 5.69 2007-08 (CONSTRUCTION) (PETROL PUMP) 78005453.44 1.86 0.24 ITA NO.03/ALLD/2011 A.Y. 2005-06 9 10. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, RELIED UPON THE ORDER OF CIT(A). 11. WE HAVE HEAD THE LD. REPRESENTATIVES OF PARTIES AND RECORDS PERUSED. THE SHORT ISSUE TO BE EXAMINED IS WHETHER PAYMENTS OF R S.89,73,375/- IS PAYMENT TO SUB-CONTRACTOR. THE CASE OF THE A.O. IS THAT IT IS PAYMENT OF SUB-CONSTRICTORS WHEREAS THE ASSESSEE SUBMITTED THAT THESE PAYMENTS WERE THROUGH THEIR EMPLOYEES AT SITE. ON PERUSAL OF RECORDS, WE FIND THAT THE A SSESSEE IS A CONTRACTOR CARRYING OUT CONTRACT WORK AT SITES. AS PER PREVAILING PRACTICE IN CASE OF WORK CONTRACT, THE ASSESSEE HAS TO APPOINT SOME SUPERVISORS TO CARRY O UT WORK AT SITE. ALL 14 PERSONS THROUGH WHOM PAYMENTS MADE ARE WORK SUPERVISORS OF THE ASSESSEE. THEY WERE BEING GIVEN ADVANCES AND AGAINST THAT EXPENDITURES INCURRED ON BEHALF OF ASSESSEE. THEY FURNISHED PERIODICAL STATEMENT ALONG WITH BILL S AND VOUCHERS. ON PERUSAL OF COPIES OF BILLS WE NOTICE THAT PAYMENTS WERE MADE T O RESPECTIVE PARTIES FOR EARTH MOVING, LOADING/UNLOADING ETC. THE BILLS CARRY DET AILS VEHICLE NUMBER/JCB NO. TOTAL TRIPS AND AMOUNT PER TRIP. THE ASSESSEE SUPP ORTED THIS FACT BY FURNISHING AFFIDAVITS OF RESPECTIVE EMPLOYEES, SITE IN-CHARGE AND PAYMENTS MADE THROUGH THEM. IN ADDITION TO THAT THIS FACT IS ALSO SUPPOR TED BY SALARY DETAILS AND BOOKS OF ACCOUNT. THE DETAILS OF SALARY PAID TO THESE EMPLO YEES HAVE BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. COPIES OF THESE DETAILS HAVE BEEN PLACED IN PAPER BOOK FILED BY THE ASSESSEE. FOR EXAMPLE, SHRI SUKH DEO SINGH, THE SALARY PAYMENTS WERE FOR ITA NO.03/ALLD/2011 A.Y. 2005-06 10 NOVEMBER RS.1400/-, DEC 2,500/-, JAN TO MARCH RS.4 2,500/-. THE REVENUE DID NOT DISPUTE ABOUT THIS FACT. THE CIT(A) DID NOT AC CEPT ASSESSEES CONTENTION ON TECHNICAL GROUND THAT THE ASSESSEE DID NOT DEDUCT P .F. ETC FROM SALARY. THE WHOLE CONFUSION ARISEN DUE TO A PARTICULAR METHOD OF ACCO UNTING FOLLOWED BY THE ASSESSEE. THERE ARE TWO TYPES OF METHOD OF ACCOUNTING FOR PAS SING ENTRY IN BOOKS OF ACCOUNT FOR SUCH TRANSACTIONS. THE ASSESSEE FOLLOWED ONE O F THE METHODS. THE ASSESSEE, INSTEAD OF OPENING ACCOUNTS OF INDIVIDUAL DIFFERENT PARITIES, HAS OPENED ACCOUNT IN THE NAME OF ITS EMPLOYEES WHO ARE SITE IN-CHARGE, B UT IN FACT THE AMOUNT ACCOUNTED IN THESE ACCOUNTS ARE ADVANCE GIVEN TO THEM AND ACC OUNTS RECEIVED FROM EXPENDITURES INCURRED BY THEM ON BEHALF OF ASSESSEE . THE OTHER METHOD OF ACCOUNTING FOR SUCH TRANSACTIONS IS TO OPEN ACCOUNT IN LEDGER FOR EACH INDIVIDUAL PARTIES. IF WE CONSIDER THE METHOD FOLLOWED BY THE ASSESSEE, THAT METHOD IS ALSO ACCEPTED METHOD OF ACCOUNTING AVOIDING OPENING OF N UMBER OF ACCOUNTS. MERELY THE FACT THAT THE ASSESSEE USED A PARTICULAR METHOD AND OPENED ACCOUNT IN THE NAME OF SITE IN-CHARGE THAT DOES NOT MAN THAT THEY ARE S UB-CONTRACTOR OF ASSESSEE. WE FIND THAT THE REVENUE AUTHORITIES FAILED TO APPRECI ATE THE PARTICULAR METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. ON APPRECIAT ION OF METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, WE FIND THAT THE AMOUNT W HICH WERE NOTED BY THE A.O. ARE PAYMENTS TO INDIVIDUAL PERSON WHO CARRIED THE W ORK AND PAYMENTS WERE MADE BY SITE IN-CHARGE ON BEHALF OF ASSESSEE. SUCH TRAN SACTIONS CANNOT BE SAID TO BE PAYMENTS OF SUB-CONTRACT. WE, THEREFORE, ARE OF CO NSIDERED VIEW THAT THESE ITA NO.03/ALLD/2011 A.Y. 2005-06 11 PAYMENTS DO NOT MAKE SUB-CONTRACT. THEREFORE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194C OF THE ACT. SINCE THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX, PROVISIONS OF SECTION 40(A)(IA) IS NOT APPLICABLE. 12. IF WE CONSIDER ALTERNATIVE SUBMISSION OF THE LD . AUTHORISED REPRESENTATIVE THAT THE ASSESSEE HAS DECLARED A REASONABLE NET PRO FIT RATE OF 4.92% IN COMPARISON TO EARLIER YEARS, IN THE LIGHT OF ABOVE DISCUSSION, WE FIND THAT ADDITION OF RS.89,72,375/- IS NOT WARRANTED. THEREFORE, THE SA ME IS DELETED. 13. THE SECOND EFFECTIVE GROUND OF APPEAL PERTAINS TO RS.2,98,656/-. DURING ASSESSMENT PROCEEDINGS, THE A.O NOTICED CERTAIN INT EREST PAYMENT IN WHICH THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A OF THE ACT. THE DETAILS NOTED BY THE A.O. IN HIS ORDER ARE AS UNDER :- (PAG E NO.3) SL. NO. NAME OF THE PARTY DATE OF PAYMENT/CREDIT AMOUNT OF PAYMENT/CREDIT (IN RS.) I) L&T FINANCE LTD. (TANDEM ROLLER) 31-03-2005 RS.75000/- II) L&T FINANCE LTD. HOT MIX PLANT 31-03-2005 RS.68344/- III) L&T FINANCE LTD. JCB 31-03-2005 RS.60524/- IV) SRI RAM TRANSPORT FINANCE COMPANY LTD. 31-03-2005 RS.94,788/- TOTAL RS.2,98,656/- ITA NO.03/ALLD/2011 A.Y. 2005-06 12 14. THE A.O. MADE ADDITION BY DISALLOWING UNDER SEC TION 40(A)(IA) OF THE ACT. THE CIT(A) CONFIRMED THE ACTION OF THE A.O. 15. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE CASE OF THE A.O. IS THAT THIS IS INTEREST PAYME NT WHEREAS SUBMISSION OF THE ASSESSEE THAT THERE WAS FINANCE CHARGES PAID ON ACC OUNT OF HIRE PURCHASE OF MACHINERIES. SUCH EXPENDITURE HAS BEEN ALLOWED BY THE A.O. HIMSELF IN EARLIER YEARS. WE FIND THAT THE FACTS REGARDING NATURE OF TRANSACTIONS DID NOT BRING ON RECORD AFTER EXAMINING RECORDS BY THE A.O. THE ISS UE RAISED IN THE GROUND CAN BE DECIDED ONLY AFTER RECORDING CORRECT NATURE OF TRAN SACTION. THE RELATED FACTS REQUIRE VERIFICATION. WE, THEREFORE, SEND BACK THIS MATTER TO THE FILE OF A.O. WITH THE DIRECTION TO DECIDE THE ISSUE IN ACCORDANCE WITH LA W AFTER RECORDING THE FACTS REGARDING CORRECT NATURE OF TRANSACTIONS AND AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 16. THE THIRD EFFECTIVE GROUND OF APPEAL PERTAIN TO RS.1,12,475/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE A SSESSEE HAS SHOWN OUTSTANDING ON ACCOUNT OF SALARY. THE A.O. HAS DISALLOWED 25% OF SALARY AT CHOPAN AND SIDHI SITE WHICH WAS NOT PAID TO THE EMPLOYEES AND THE SA ME WAS SHOWN AS OUTSTANDING. THE A.O. CALCULATED DISALLOWANCE AMOUNT OF RS.1,12, 475/- WHICH IS 25% OF RS.4,49,900/-. THE CIT(A) CONFIRMED THE ORDER OF A .O. ITA NO.03/ALLD/2011 A.Y. 2005-06 13 17. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE NOTICED THAT THE A.O. HAS MADE DISALLOWANCE ONLY ON THE GROUND THAT OUTSTANDING SALARY HAS BEEN SHOWN. THE SUBMISSIONS OF THE ASSESSEE ARE THAT THERE ARE ROUTINE OUTSTANDING SALARY AMOUNT WHICH WERE PA ID TO EMPLOYEES IN SUBSEQUENT YEAR. WE FIND SUBSTANCE IN THE SUBMISSION OF THE A SSESSEE THAT WHEN AN ASSESSEE MAINTAINED BOOKS OF ACCOUNT ON THE BASIS OF MERCANT ILE SYSTEM OF ACCOUNTING, SUCH OUTSTANDING ARE BOUND TO BE THERE IN CASE OF RUNNIN G BUSINESS. THE A.O. DISALLOWED ON PRESUMPTION BASIS WITHOUT BRINGING AN YTHING ON RECORD AFTER EXAMINING CONCERNED EMPLOYEES AND RECORDS. SUCH DI SALLOWANCE ON PRESUMPTION BASIS CAN NOT BE UPHELD. UNDER THE FACTS AND CIRCU MSTANCES, WE DELETE THE ADDITION OF RS.1,12,475/-. 18. IN THE RESULT, APPEAL IS ALLOWED AND PARTLY ALL OWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* ITA NO.03/ALLD/2011 A.Y. 2005-06 14 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY