ACIT, BARMER V. M/s. Jain Construction Company, BARMER

ITA 3/JODH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62074 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 04-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R KOKANI
• Assessee Lawyers: U C JAIN
• Keywords: Business income; Depreciation; Non-deduction of tax
• Section: 40A(3); 234B; 194C; 145; 56; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.532/JODH/2010 ASSESSMENT YEAR: 2007-08 M/S. JAIN CONSTRUCTION COMPANY, VS. ADDL. COMMISSIO NER OF INCOME TAX, C/O. SHRI U.C. JAIN, ADVOCATE, RANGE, BARMER. SHATRUNJAY, HARI SINGH NAGAR, PALI ROAD, JODHPUR. (PAN: AAEFJ 1736 G). ITA NO.03/JODH/2011 ASSESSMENT YEAR: 2007-08 ADDL. COMMISSIONER OF INCOME TAX, VS. M/S. JAIN CO NSTRUCTION COMPANY, CIRCLE, BARMER. SARDARPURA, BARMER. (PAN: AAEFJ 1736 G). (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI U.C. JAIN & SHRI RAJENDRA JAIN, A.R. REVENUE BY : SHRI G.R. KOKANI, D.R. DATE OF HEARING : 11.07.2012 DATE OF PRONOUNCEMENT OF ORDER : 25.07.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER DATED 29.10.2010 PASSED BY THE LD. CIT(A), JODHPUR FOR TH E ASSESSMENT YEAR 2007-08. ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) GROSSLY ERRED IN SUSTAINING AN ADDITION OF R S.35,85,548/- IN CONTRACT A/C. 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) GROSSLY ERRED IN TREATING THE INCOME FROM IN TEREST DERIVED FROM FDRS & NSC PLEDGED WITH THE GOVERNMENT WHILE OBTAI NING CONTRACTS FROM THE GOVERNMENT DEPARTMENTS AS INCOME FROM OTHE R SOURCES WHEREAS THE SAME IS TO BE ASSESSED AS INCOME FROM B USINESS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING CHARGING OF INTER EST U/S 234B & 234D. 4) THAT THE PETITIONER MAY KINDLY BE PERMITTED TO R AISE ANY ADDITIONAL OR ALTERNATIVE GROUND AT OR BEFORE THE T IME OF HEARING. 5) THE PETITIONER PRAYS FOR JUSTICE & RELIEF. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :_ ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.31, 27,950/- MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TAX AS REQUIR ED BY PROVISION OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. THAT THE APPELLANT RESERVES ITS RIGHTS TO ADD, AME ND OR ALTER THE GROUND ON OR BEFORE DATE APPEAL IS FINALLY HEARD. ITA NO.532/JODH/2010 BY THE ASSESSEE ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 3 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN CONTRACTOR BUSINESS FOR CONSTRUCTION OF ROADS AND BUILDINGS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O.) NOTICED T HAT THE ASSESSEE HAS SHOWN CONTRACT RECEIPTS OF RS.21,49,39,150/- ON WHICH NET PROFIT (N.P.) IS SHOWN AT RS.1,18,51,627/- GIVING N.P. RATE OF 5.51% IN COMPA RISON TO LAST YEARS NET PROFIT RATE OF 4.83%. THE A.O. FURTHER NOTICED THAT THE A SSESSEE HAS DEBITED VARIOUS EXPENSES AND ON TEST CHECK OF THOSE EXPENSES, THE A .O. FOUND VARIOUS DEFICIENCIES WHICH HAS BEEN NOTED BY HIM AT PAGE NO.2 AS UNDER : - I. ASSESSEE DOES NOT MAINTAIN STOCK REGISTER OF THE MATERIAL, SO CONSUMPTION OF MATERIAL COULD NOT BE VERIFIED. II. EXPENSES ARE NOT FULLY SUPPORTED BY VOUCHERS. III MOST OF VOUCHERS ARE INTERNAL VOUCHERS, SOME OF ARE UNSIGNED. IV ASSESSEE DOES NOT MAINTAIN PROPER LABOUR REGISTE R. V ASSESSEE DOES NOT MAINTAIN LOG BOOK FOR USE OF VE HICLES. VI NO WORK IN PROGRESS HAS BEEN DECLARED AT THE YEA R END. VII NO SEPARATE ACCOUNTS MAINTAINED TO VERIFY THE W ORK DONE, MATERIAL CONSUMED AND OTHER EXPENSES AT VARIOUS SIT ES. VIII NO OPENING AND CLOSING STOCK DECLARED. 5. THE A.O. REJECTED THE BOOKS OF ACCOUNT INVOKING SECTION 145(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER). AFTE R REJECTING THE BOOKS OF ACCOUNT, THE A.O. ESTIMATED INCOME OF THE ASSESSEE APPLYING GROSS PROFIT AND THEREAFTER ALLOWED DEDUCTION ON ACCOUNT OF DEPRECIA TION AND INTEREST AND SALARY TO PARTNERS. THE A.O. CALCULATED THE AMOUNT OF ADDITI ON OF RS.35,85,548/- AS UNDER :- IN VIEW OF THIS, THE NET PROFIT OF THE ASSESSEE IS COMPUTED AS UNDER ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 4 NET CONTRACT RECEIPTS RS.21,49,39,150/- NET PROFIT @ 12.5% RS. 2,68,67,394/- LESS: DEPRECIATION 40,40,937/- INTEREST TO THIRD PARTIES 49,49,261/- INTEREST TO PARTNERS 19,40,021/- REMUNERATION TO PARTNERS 5,00,000/- RS.1,14,30 ,219/- BALANCE RS.1,54,37,175/- THE ASSESSEE HAS ALSO CLAIMED BANK COMMISSION OF RS .8,62,787/- AND TELEPHONE EXPENSES OF RS.22,829/-. HOWEVER, THESE TWO ARE AL SO PAT OF OVERALL EXPENSES SO THESE EXPENSES ARE NOT BEING ALLOWED SEPARATELY. THE ASSESSEE HAS DECLARED NET PROFIT OF RS.1,18,51, 627/-. THIS WILL RESULT IN TRADING ADDITION OF RS.35,85,548/-. 6. THE CIT(A) CONFIRMED THE ACTION OF THE A.O. OF R EJECTION OF BOOKS OF ACCOUNT. THE CIT(A) REJECTED THE GROUND OF APPEAL OF THE ASSESSEE OBSERVING THAT THE ESTIMATION MADE BY THE A.O. BY APPLYING N.P. RA TE OF 12.5% ON TOTAL CONTRACT RECEIPT OF RS.21,49,39,150/- WAS SUBJECT TO ALLOWAN CE OF DEPRECIATION, INTEREST TO THIRD PARTIES AND INTEREST AND REMUNERATION TO PART NERS. 7. THE LD. AUTHORISED REPRESENTATIVE DID NOT MAKE A NY SUBMISSION IN RESPECT OF REJECTION OF THE BOOKS OF ACCOUNT, AS SUCH, NO GROU ND OF APPEAL IS ALSO TAKEN IN THE GROUNDS OF APPEAL. HOWEVER, ON MERIT, THE LD. AUTH ORISED REPREHENSIVE DREW OUR ATTENTION TO PAGE NO.89 OF ASSESSEES PAPER BOOK WH ERE STATEMENT SHOWING COMPARATIVE POSITION OF CONTRACT RECEIPTS, PROFIT R ATE DISCLOSED AND NET PROFIT RATE FINALLY ASSESSED. THE SAID STATEMENT IS REPRODUCED AS BELOW :- ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 5 AS PER ITAT DECISION A.Y. CONTRACT RECEIPTS PROFIT BEFORE DEDUCTION RATE OF PROFIT BEFORE DEDUCTION NET PROFIT AFTER DEDUCTION PROFIT RATE APPLIED BY AO BEFORE DEDUCTION ADDITION MADE BY LD AO ADDITION SUSTAINED BY CIT(A) SUSTAINED RELIEF N.P. RATE FINALLY ASSESSED 2003- 04 43762856 5370078 12.21% 1.03% 12.50% 100279 100279 NO APPEAL 1.26% 2004- 05 45007549 5498488 12.22% 0.89% 12.50% 127456 127456 NO APPEAL 1.17% 2005- 06 54846737 6526761 11.90% 0.84% 12.50% 329081 329081 NO APPEAL 1.44% 2006- 07 140179045. 17115840 12.21% 5.00% 12.50% 406547 4065 47 203000 203547 5.15% 2007- 08 214939150 24062437 11.19% 5.51% 12.50% 3585548 3585 548 UNDER APPEAL 7.18% 8. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IF THE N.P. RATE IS COMPARED WITH PREVIOUS YEAR, IT IS BETTER THAN N.P. RATE DISCLOSED IN ALL THE PRECEDING YEARS AND, AS SUCH, NO ADDITION IS CALLED FOR. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE N.P. RATE IN THE YEAR UNDER CONSIDERATION IS 7.18% AS AGAINST N.P. RATE OF 5.15% WORKED OUT AFTE R ADDITION OF RS.2,03,000/- SUSTAINED BY THE TRIBUNAL IN A.Y. 2006-07. N.P. RA TE OF 1.44 % TO 1.17% WORKED OUT IN A.Y. 2002-03 TO 2005-06. LD. AUTHORISED REP RESENTATIVE SUBMITTED THAT THE N.P. RATE DISCLOSED IS BETTER THAN OTHER YEARS, THE REFORE, THERE WAS NO JUSTIFICATION TO MAKE FURTHER ADDITION ON ACCOUNT OF SLIGHT FALL IN G.P. RATE. IT WAS ALSO SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE THAT THE I.T.A .T. IN IMMEDIATELY PRECEDING YEAR A.Y. 2006-07, ON SAME FACTS, CONFIRMED THE ADD ITION OF RS.2,03,000/- WHEN THE GROSS CONTRACT RECEIPT WAS RS.14,01,79,045/-. IN THE YEAR UNDER CONSIDERATION GROSS CONTRACT RECEIPTS IS RS.21,49,39,150/-. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED WITH REFERENCE TO C.B.D.T. INSTRUCTION DA TED 25 TH OCTOBER, 2005 AND ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 6 SUBMITTED THAT IN CASE OF CONTRACTORS IN WHICH CONT RACT RECEIPTS ARE MORE THAN RS.2 CRORES AND N.P. RATE SHOWN IS 5% OR ABOVE, THE CASE SHOULD NOT BE SELECTED FOR SCRUTINY. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS INSTRUCTION SHOWS THAT N.P. RATE OF 5% CONSIDERED IS MOST REASONABLE IN CA SES OF CONTRACTOR IN WHICH N.P. RATE SHOWN IS 5% OR ABOVE. 9. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, RELIED UPON THE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND G INS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES HAS TO BE COMPUTED I N ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, U NLESS IN THE OPINION OF THE INCOME-TAX OFFICER, THE INCOME, PROFITS AND GAINS C ANNOT PROPERLY BE DEDUCED THEREFROM OR THE INCOME-TAX OFFICER IS NOT SATISFIE D ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. THE INCOME-TAX OFFICER MAY MAKE THE ASSESSMENT IN THE MANNER PROVIDED IN SECTION 14 4. IN OTHER WORDS, SECTION 145 ENACTS THAT FOR THE PURPOSE OF SECTION 28 (PROFITS AND GAINS OF BUSINESS, PROFESSION OR VOCATION) AND SECTION 56 (INCOME FROM OTHER SOUR CES), INCOME, PROFIT AND GAINS MUST BE COMPUTED IN ACCORDANCE WITH THE METHOD OF A CCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, IF THE ASSESS EE REGULARLY EMPLOYS A PARTICULAR ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 7 METHOD OF ACCOUNTING AND IF NO DEFECTS ARE FOUND IN THE METHOD OR MAINTENANCE OF ACCOUNTS, THE TAXING AUTHORITY IS BOUND TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION OR VOCATION IN ACCORDANCE WITH THE ME THOD EMPLOYED BY THE ASSESSEE. THEREFORE, IN CASE WHERE THE INCOME-TAX OFFICER OR THE TAXING AUTHORITY FINDS THAT IN MAINTAINING ACCOUNTS, THE ASSESSEE HAS REGULARLY EMPLOYED A PARTICULAR METHOD AND DOES NOT MAKE ANY INVESTIGATION TO FIND OR DOES NOT FIND ANY DEFECT IN THE ACCOUNTS AND ACCEPT THE ACCOUNTS AS THEY ARE, HE IS BOUND TO COMPUTE THE INCOME IN ACCORDANCE WITH THE ACCOUNTS MAINTAINED BY THE ASSE SSEE. 11. IN THE LIGHT OF THE ABOVE DISCUSSIONS, IF WE CO NSIDER THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT THERE IS NO DISPU TE ABOUT THE REJECTION OF BOOKS OF ACCOUNT. AFTER REJECTING BOOKS OF ACCOUNT, THE A.O . IS TO MAKE THE BEST JUDGMENT IN ACCORDANCE WITH SECTION 144 OF THE ACT. THE BES T JUDGEMENT IS A FACTUALLY DECIDED MATTER WITH THE WISDOM TRULY AND LEGALLY. JUDGEMENT DOES NOT DEPEND UPON THE ARBITRARY CAPRICE OF JUDGE BUT ON SELECTED INVARIABLE PRINCIPLE OF JUSTICE. THOUGH THERE IS AN ELEMENT OF GUESS WORK IN THE BES T JUDGEMENT ASSESSMENT, IT SHOULD NOT BE A WILLED ONE WHO SHALL HAVE REASONABL E NEXUS TO THE AVAILABLE MATERIAL AND THE SITUATION OF EACH CASE. THE HON'B LE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. GOTAN LIME KHANIJ UDYOG, 256 ITR 24 3 (RAJ.) HELD THAT THE PROVISIONS OF THE ACT DO NOT ENVISAGE THAT BY RESOR TING TO BEST JUDGMENT ASSESSMENT, THE A.O. MUST REACH DIFFERENT FIGURE OF INCOME AND PROFIT THAN WHAT ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 8 HAS BEEN DISCLOSED BY THE ASSESSEE. BEST JUDGEMENT IS TO BE BASED ON MATERIAL AVAILABLE ON RECORD. THEREFORE, NOTWITHSTANDING T HE REJECTION OF THE BOOKS OF ACCOUNT, THE MATERIAL DISCLOSED BY THE ASSESSEE ALO NG WITH OTHER MATERIAL THAT MAY BE COLLECTED BY THE INCOME TAX OFFICER FORM THE BAS IS OF COMPUTATION OF INCOME. ON THAT BASIS WHAT CONCLUSIONS ARE TO BE REACHED IS INDEPENDENT OF THE RESULT SHOWN IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY THE ASSESSEE. THE COURT FURTHER HELD THAT SECTION 145 ONLY PROVIDES THE BASIS ON WHICH C OMPUTATION OF INCOME IS TO BE MADE FOR THE PURPOSE OF DETERMINING AMOUNT OF TAX P AYABLE BY THE ASSESSEE. THE PROVISION BY ITSELF DOES NOT DEAL WITH DELETION OR ADDITION IN THE INCOME. IF WE CONSIDER THE MATERIAL AVAILABLE ON RECORD INCLUDING COMPARATIVE POSITION OF THE N.P. RATE, WE FIND THAT IN THE A.Y. 2006-07 THE I.T .A.T. SUSTAINED THE ADDITION OF RS.2,03,000/- AND AFTER CONSIDERING THAT ADDITION T HE CALCULATION OF N.P. RATE COMES TO 5.15% WHEREAS IN THE YEAR UNDER CONSIDERATION TH E RATE OF CALCULATION OF N.P. COMES TO 7.18% (5.51% AS PER SUBMISSION OF THE ASSE SSEE) ON COMPARISON OF N.P. RATE WHICH IS BETTER THAN OTHER YEARS. THERE IS NO CONTRARY MATERIAL AVAILABLE ON RECORD NOR THE SAME HAS BEEN POINTED OUT BY THE LD. DEPARTMENTAL REPRESENTATIVE AT THE TIME OF HEARING. IN THE LIGHT OF THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT NO ADDITION IS WARRANTED IN THE LIGHT TO FACTS. ADDITION MADE BY THE A.O. AND SUSTAINED BY THE CIT(A) OF RS.35,85,548/- IS LI ABLE TO BE DELETED. HOWEVER, IN A.Y. 2006-07, THE I.T.A.T. SUSTAINED RS.2,03,000/- TO COVER PETTY LAPSES & OTHERS WHERE TURNOVER WAS RS.14,01,79,045/-. IN THE YEAR UNDER CONSIDERATION, THE GROSS ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 9 TURNOVER IS RS.21,49,39,150/-. TO MAINTAIN CONSIST ENCY, WE FOLLOW THE ORDER OF I.T.A.T. FOR THE A.Y. 2006-07 AND APPLYING PROPORTI ONATE FORMULA, WE FIND THAT ADDITION TO THE EXTENT OF RS.3,11,263/- (2,03,000 X 21,49,39,150/- DIVIDED BY RS.14,01,79,045/-) IS WARRANTED TO COVER UP MISCELL ANEOUS & PETTY LAPSES AND BALANCE ADDITION OF RS.32,74,285/- IS DELETED. 12. THE BRIEF FACTS OF 2 ND GROUND ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE RECEIVED AN MOUNT OF RS.80,468/- FROM F.D.R. IN BANK. THE A.O. WAS OF THE VIEW THAT THIS IS A SEPA RATE INCOME AND IT IS TO BE CONSIDERED IN ADDITION TO THE ESTIMATION MADE FOR T HE PURPOSE OF INCOME FROM BUSINESS. THE A.O., THEREFORE, TAKEN THE INCOME FR OM OTHER SOURCES RS.80,468/- AND ADDED AS INCOME FROM OTHER SOURCES IN ADDITION TO INCOME ESTIMATED FROM BUSINESS. THE CIT(A) CONFIRMED THE ORDER OF THE A. O. 13. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ON IDENTICAL SET OF FACTS THE I.T.A.T. IN ASSESSEES OWN CASE IN ITA NO.537/JU/20 09 FOR A.Y. 2006-07 WHILE DECIDING APPEAL DATED 09.12.2011 HELD THAT INTEREST WILL BE TREATED AS INCOME FROM BUSINESS. THE RELEVANT FINDING FROM THE SAID ORDER POINTED OUT BY THE LD. AUTHORISED REPRESENTATIVE IS REPRODUCED AS BELOW FR OM PAGE NO.31 OF ASSESSEES PAPER BOOK:- ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 10 WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE ASSESSEE HAS DECLARED INTEREST PAID TO THIRD PARTIES AMOUNTI NG TO RS.35,83,211/-. INTEREST RECEIVED TO THE EXTENT OF RS.3,00,681/- WAS REDUCED FROM THE INTEREST FOR CLAIMING DEDUCTION IN RESPECT OF THE INTEREST PAID TO THIRD PARTIES. IN CASE INTEREST I S TO BE TREATED AS INCOME FROM OTHER SOURCES THEN DEDUCTION OUT OF NET PROFIT RATE ON ACCOUNT OF INTEREST TO THIRD PARTIES WILL HAVE TO B E ALLOWED TO THE EXTENT OF RS.35,38,211/-. THUS IT IS ONLY A REVENU E NEUTRAL ISSUE. THE ITAT, JODHPUR BENCH IN THE CASE OF RADHA KRISHAN BE NIWAL VS. ACIT (ITA NO.115/JU/09 DATED 09.07.2009) HELD THAT INTER EST IS TO BE TREATED AS BUSINESS INCOME BECAUSE FDRS AND NSCS WE RE PURCHASED IN SUPPORT OF TENDERS TO BE CONSIDERED FOR ACCEPTAN CE. THE AO IN HIS ORDER HAS NOWHERE MENTIONED THAT SUCH FDRS AND NSCS WERE NOT PURCHASED FOR SUBMITTING THE TENDERS. HENCE, WE HO LD THAT INTEREST SHOULD BE TREATED AS INCOME FROM BUSINESS IN VIEW O F THE ORDER OF THE JODHPUR TRIBUNAL. 14. SINCE ON IDENTICAL SET OF FACTS, THE I.T.A.T. H AS HELD THAT INTEREST RECEIVED FROM F.D.RS. AND N.S.CS. PLACED WITH GOVERNMENT WHI LE OBTAINING CONTRACT FROM GOVERNMENT IS REQUIRED TO BE ASSESSED AS INCOME FRO M BUSINESS. SINCE THIS INTEREST INCOME IS BUSINESS INCOME WHICH HAS BEEN CONSIDERED IN ESTIMATION OF INCOME BY APPLYING N.P. RATE, WE, THEREFORE, ARE OF THE CONSI DERED VIEW THAT NO SEPARATE ADDITION IS WARRANTED. THEREFORE, ADDITION OF RS.8 0,468/- MADE BY THE A.O. AND CONFIRMED BY THE CIT(A) IS DELETED. 15. GROUND NO.3 IS IN RESPECT OF CHARGING OF INTERE ST UNDER SECTION 234B & 234D OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE. THE A .O. IS DIRECTED ACCORDINGLY. ITA NO.03/JODH/2011 BY THE REVENUE ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 11 16. THE BRIEF FACTS IN RESPECT OF THE GROUNDS RAISE D BY THE REVENUE ARE THAT THE A.O. DURING THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE MADE PAYMENTS WHICH RELATED TO MASON, SUPERVISOR, LABOUR, ROAD KU TAI PARTY, JCB OPERATOR ETC. THE A.O. WAS OF THE VIEW THAT THESE PAYMENTS WERE L IABLE FOR T.D.S. BUT THE ASSESSEE DID NOT DEDUCT THE TAX AT SOURCE. THEREFO RE, PROVISIONS OF SECTION 194-I OF THE ACT IS CLEARLY APPLICABLE. SIMILARLY, CERTAIN PAYMENTS HAVE BEEN NOTICED BY THE A.O. THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURC E UNDER SECTION 194-C OF THE ACT ON PAYMENT OF RS.34,27,950/- OF WHICH DETAILS HAVE BEEN GIVEN BY THE A.O. IN HIS ORDER. AFTER CONSIDERING THE ASSESSEES SUBMISSION , THE A.O. DISALLOWED THE SAME UNDER SECTION 40(A)(IA) OF THE ACT AS UNDER:- HOWEVER THE EXPLANATION IS NOT SATISFACTORY AS THI S IS A TECHNICAL PROVISION AND SUCH AMOUNT IF LIABLE TO BE DISALLOWED AS PROVISIONS OF SEC 40(A)(IA). THERE ARE NO EXCEPTIO NS AS IS THE CASE WITH DISALLOWANCE U/S 40A(3) OF I.T. ACT 1961. FUR THER, THE ASSESSEE CAN CLAIM THESE EXPENSES IN THE YEAR WHEN HE CHOOSE S TO DEDUCT TDS. IN VIEW OF THIS AN AMOUNT OF RS.31,27,950/- (RS.4,5 0,000 + RS.26,77,950) IS BEING MADE TO THE INCOME OF THE AS SESSEE. 17. THE CIT(A) DELETED THE ADDITION OF RS.26,77,950 /- UNDER SECTION 40(A)(IA) OF THE ACT WHERE THE A.O. HELD THAT SECTION 194C OF TH E ACT IS APPLICABLE. THE CIT(A) HAS GIVEN DETAILED FINDING IN HIS ORDER AT P ARAGRAPH NO.7.4 WHICH READS AS UNDER :- ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 12 I HAVE GONE THROUGH THE FACTS OF THE CASE AND IT I S OBSERVED THAT OUTSTANDING PAYMENT OF LABOUR CHARGES SHOWN IN THE BALANCE SHEET IN THE NAME OF VARIOUS SUPERVISOR/JAMADAR ARE NOT LIABLE FOR DEDUCTION OF TDS UNDER PROVISIONS OF SEC. 194C. TH ERE IS NO CONTRACT BETWEEN PAYER AND PAYEE EITHER ORALLY OR IN WRITING . FOR SAKE OF CONVENIENCE, NAME OF SUPERVISOR THROUGH WHOM THE WA GES WERE TO BE DISTRIBUTED IS MENTIONED IN THE VOUCHER IN RESPECT OF LABOUR CHARGES PAYABLE TO THE WORKERS. THERE IS NO DISPUTE THAT T HE PAYMENTS WERE NOT PAYABLE TO A SINGLE PERSON BUT WERE TO BE DISTR IBUTED TO VARIOUS LABOURERS ENGAGED AT DIFFERENT SITE UNDER THE SUPER VISION OF PARTICULAR EMPLOYEE. THE SAID SUPERVISOR/JAMADAR CANNOT BE CO NSIDERED THE PERSON TO WHOM A CONTRACT FOR SUPPLY OF LABOUR TO T HE APPELLANT WAS GIVEN. THE SUPERVISOR HIMSELF IS A WORKER WHO IS W ORKING AT THE PARTICULAR SITE ALONG WITH OTHER LABOURERS. HIS NA ME WAS MENTIONED IN THE VOUCHER FOR SAKE OF CONVENIENCE OTHERWISE, I T WOULD BE VERY DIFFICULT TO WRITE NAME OF HUNDREDS LABOURERS ON AC COUNT OF LABOUR CHARGES PAYABLE. UNDER THE SIMILAR CIRCUMSTANCES A ND FACTS, IN CASE OF SAMANWAYA VS. ACIT (SUPRA) HELD THAT THE LABOUR SARDARS IN THE INSTANT CASE CANNOT BE SAID TO BE LABOUR CONTRACTOR S WITHIN THE MEANING OF THE PROVISIONS OF SEC 194C(2). IN THE C IRCUMSTANCES, THERE IS NO REQUIREMENT IN LAW TO DEDUCT TAX AT SOURCE BY THE ASSESSEE UNDER THE PROVISIONS OF SEC. 194C(2). IN THE PRESENT CAS E, THE ASSESSING OFFICER HAS BROUGHT NO MATERIAL OR EVIDENCES ON REC ORD TO SUGGEST THAT THERE WAS ANY CONTRACT BETWEEN THE APPELLANT A ND THE SUPERVISOR/ROAD KUTTAI PARTY/MASON/SUB-CONTRACTORS. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE APPELLANT FILED VOUCHERS FOR PAYMENT OF OUTSTANDING LABOUR CHARGES PAID IN SUBSE QUENT FINANCIAL YEAR WHICH CLEARLY BRINGS OUT THE FACT THAT THE PAY MENT OF LABOUR CHARGES WAS THROUGH LABOUR SARDAR TO VARIOUS LABOUR ERS WHOSE PAYMENTS WERE OUTSTANDING AT END OF THE ACCOUNTING YEAR. SINCE, THESE VOUCHERS WERE NOT PRODUCED BEFORE THE ASSESSI NG OFFICER FOR VERIFICATION OF FACTS AS MENTIONED ABOVE. I THEREF ORE, DIRECT THE ASSESSING OFFICER TO EXAMINE WHETHER THE OUTSTANDIN G LABOUR CHARGES OF RS.26,77,950/- WAS PAID THROUGH LABOUR SADAR TO DIFFERENT LABOURERS AND THE LABOUR SARDAR IS ALSO ONE AMONGST THEM. IF HE SATISFIES THAT THE LABOUR SARDAR WAS ONE AMONGST TH EM AND THE OUTSTANDING PAYMENT WAS MADE THROUGH HIM THEN PROVI SION OF SEC. 194C WILL NOT BE APPLICABLE AND NO ADDITION U/S 40( A)(IA) IS REQUIRE TO BE MADE. ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 13 18. IN RESPECT OF PAYMENT TO TRACTOR HIRE CHARGES A ND JCB OPERATOR CHARGES, THE CIT(A) HELD THAT THE DISALLOWANCE UNDER SECTION 40( A)(IA) OF THE ACT IS WARRANTED. HOWEVER, THE CIT(A) ACCEPTED THE ASSESSEES ALTERNA TE CONTENTION THAT AFTER REJECTING BOOKS OF ACCOUNT, SEPARATE ADDITION IS NO T WARRANTED. 19. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE FIND THAT THE CIT(A) HAS DELETED THE ADDITION AF TER DETAILED DISCUSSIONS ACCEPTING THE ASSESSEES CONTENTION THAT THE OUTSTA NDING LIABILITIES OF LABOUR CHARGES SHOWN IN THE BALANCE SHEET IN THE NAME OF VARIOUS S UPERVISOR/JAMADAR ARE NOT LIABLE FOR DEDUCTION OF T.D.S. UNDER SECTION 194C O F THE ACT AS THE SAID PAYMENT WAS NOT A PAYMENT OF CONTRACT FOR WHICH SECTION 194 C OF THE ACT IS APPLICABLE. THE LIABILITIES WAS OF INDIVIDUAL LABOUR ENGAGED AT DIFFERENT SITES. WE ALSO FIND THAT THE CIT(A) HAS RIGHTLY ACCEPTED THE ASSESSEES CONT ENTION THAT IN CASE OF REJECTION OF BOOKS OF ACCOUNT, NO SEPARATE ADDITION UNDER SEC TION 40(A)(IA) OF THE ACT IS WARRANTED. THE CIT(A) HAS RIGHTLY RELIED UPON VARI OUS DECISIONS WHICH ARE MENTIONED IN HIS ORDER. THE REVENUE HAS FAILED TO POINT OUT ANY CONTRARY MATERIAL TO THE FINDING OF THE CIT(A). IN THE LIGHT OF THE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ORDER OF THE CIT(A) IS CONFIRMED. ITA NOS.532/JODH/2010 & 03/JODH/2011 A.Y. 2007-08 14 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLAT E TRIBUNAL, JODHPUR TRUE COPY