Jay Construction, Anand V. The Income tax Officer,Ward-1, Anand

ITA 3345/AHD/2009

• Counselvise Citation: 334520514 RSA 2009
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B T THAKKAR
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' [BEFORE SHRI G D AGARWAL VICE-PRESIDENT] [AND SHRI T K SHARMA - JUDICIAL MEMBER] ITA NO.3345/AHD/2009 (ASSESSMENT YEAR:-2006-07) M/S JAY CONSTRUCTION, NEAR SHIV VADI, BALKRISHNA SOCIETY, B/H C P COLLEGE, ANAND V/S THE INCOME-TAX OFFICER, WARD-1, ANAND PAN: AAEFJ 7695 Q [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI B T THAKKAR, AR RESPONDENT BY:- SHRI SAMIR TEKRIWAL, SR. DR DATE OF HEARING:- 11-10-2011 DATE OF PRONOUNCEMENT:- -10-2011 O R D E R PER T K SHARMA (JM) :- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF LEARNED CIT(A)-IV, BARODA, DATED 07-09-200 9, CONFIRMING THE DISALLOWANCE OF LABOUR EXPENSES OF RS.3,48,710/ -. 2 BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED A RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.66,963/-. IN THE ASSESSMENT ORDER, THE ASSESS ING OFFICER [AO] OBSERVED THAT THE ASSESSEE HAS SHOWN LABOUR EXPENSE S OF RS.69,74,199/- IN HIS P&L ACCOUNT. FOR THIS LABOUR PAYMENT, THE ASSESSEE HAS MAINTAINED ONE REGISTER AND THUMB IMPR ESSIONS / INITIALS WERE TAKEN OF THE LABOURERS. LOOKING TO TH E NATURE OF WORK AND VARIOUS SITES OPERATED SIMULTANEOUSLY BY THE AS SESSEE, IT IS IMPOSSIBLE TO CARRY ONE REGISTER TO ALL PLACES AT A TIME. THE AO FRAMED THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], WHEREIN HE DISALLOWED 2 ITA NO.3345/AHD/2009 RS.3,48,710/- OUT OF LABOUR EXPENSES FOR THE DETAIL ED REASONS GIVEN IN PARA-6 OF THE ASSESSMENT ORDER, WHICH READS AS U NDER:- 6. DISALLOWANCE OF RS.3,48,710/- ON ACCOUNT OF LABO UR EXPENSE : THE ASSESSEE HAS SHOWN LABOUR EXPENSE RS.69,74,199/ -IN HIS P & L ACCOUNT. AS REGARD THE LABOUR PAYMENT, THE ASSESSEE HAS MAINTAINED ONE REGISTER AND THGMB IMPRESSIONS/INITIALS WERE TAKEN OF THE LABOURES. LOOKING TO THE NATURE OF THE WORK AND VARIOUS SITES OPERATED SIMULTANEOUSLY BY THE ASSESSEE, IT IS JUST IMPOSSIB LE TO CARRY ONE REGISTER TO ALL PLACES AT A TIME. THEREFORE, THE PROOF OF PA YMENT OF LABOUR CAN NOT BE TREATED AS GENUINE. THE ASSESSEE HAS STATED THAT THE REGISTER IS PREPARED IN THE OFFICE AT ANAND AND THEN EMPLOYEE O F THE FIRM VISITS DIFFERENT SITES FOR MAKING WAGE PAYMENTS. WHILE MAK ING PAYMENTS ON SITE, SIGNATURE/THUMB IMPRESSIONS OF LABOURERS ARE OBTAIN ED. BECAUSE OF THIS CENTRAL CONTROL, THERE IS ONLY ONE REGISTER FOR DIF FERENT SITES. THE ARGUMENT OF THE ASSESSEE IS NOT BASED ON THE FA CT OF THE CASE, THE AVAILABILITY OF THE LABOURERS IS VERY UNCERTAIN IN THIS TYPE OF BUSINESS THEREBY THE NAME OF THE LABOURERS AND THE AMOUNT OF PAYMENT CAN NOT BE DECIDED FROM THE ASSESSEE'S OFFICE SITUATED AT ANAN D AS THE AMOUNT OF THE LABOURERS DEPENDS UPON THE NUMBER OF DAYS. THE VERI FICATION OF LABOUR REGISTER ALSO CONFIRMS THE SAME, AS THE AMOUNT OF P AYMENT IS VARY FROM LABOUR TO LABOUR. THE THUMB IMPRESSION/SIGNATURE OF THE LABOURERS IS ALSO DOING NOT CONFIRM THE IDENTITY OF THE LABOURERS. IT IS ALSO NOTICE THAT THE LABOUR EXPENSE IN THE MONTHS OF RAINY SEASON DOES N OT FALL, HOWEVER, THE NATURE OF CONTRACT IS SUCH THAT THE WORK CAN NOT BE CARRIED OUT IN RAINY DAYS. LOOKING TO THE ABOVE ASPECTS A DISALLOWANCE O F RS.3,48,710/- BEING NEARLY 5% OF THE TOTAL LABOUR EXPENSES IS MADE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3 ON APPEAL BEFORE THE LEARNED CIT(A), THE ASSESSEE EXPLAINED THAT IT HAS MAINTAINED CENTRAL CONTROL AND EVERY MO NTH, LABOUR REGISTER WAS PREPARED AT ANAND AND EMPLOYEES OF THE ASSESSEE THEN VISITED SITES FOR MAKING PAYMENTS. SIGNATURES OF TH E LABOURERS WERE OBTAINED WHILE MAKING THE PAYMENTS AND THUS, THERE WAS DIRECT CONTROL OVER LABOUR PAYMENTS. REGARDING AOS OPINIO N THAT NATURE OF WORK WAS SUCH THAT IT COULD NOT BE CARRIED OUT IN T HE MONTHS OF RAINY SEASON, THE ASSESSEE EXPLAINED THAT IT HAD UNDERTAK EN MAINTENANCE CONTRACTS OF EXPRESSWAY. DURING THE MONTHS OF RAINY SEASON, THE MAINTENANCE WORK THEREFORE, CONTINUED. IN SUPPORT O F THIS, THE ASSESSEE FILED DEBIT NOTES FOR MATERIAL ISSUED TO M AIN CONTRACTORS 3 ITA NO.3345/AHD/2009 LGE & C NCC (JV) AND SHRI SAI CONSTRUCTION WHICH WERE SUBMITTED BEFORE THE AO DURING THE COURSE OF ASSESS MENT PROCEEDINGS. IT WAS EXPLAINED THAT THIS CLEARLY SHO WS THAT THE CONSTRUCTION MATERIALS WERE ISSUED DURING THE MONTH S OF JULY, AUGUST AND SEPTEMBER, 2005 BEING RAINY SEASON MONTH S. THE ASSESSEE ALSO POINTED OUT THAT QUANTITY OF CEMENT I SSUED DURING JUNE, JULY AND AUGUST, 2005 WAS HIGHER AS COMPARED TO OTHER MONTHS DUE TO ROAD MAINTENANCE WORK BEING HIGHER IN THESE MONTHS AND SUCH WORK COULD NOT BE CARRIED OUT WITHOUT LABO UR PAYMENTS. IT WAS SUBMITTED THAT CONTRACT BILL OF RS.56,06,000/- WAS RAISED IN THE MONTH OF AUGUST, 2005. THE BOOKS OF ACCOUNTS WERE A UDITED U/S 44AB OF THE ACT AND THE AO HAS NOT REJECTED THE BOO KS OF ACCOUNTS. IT WAS FURTHER SUBMITTED THAT COMPARATIVE FIGURES O F LABOUR PAYMENTS FOR AY 2006-07 AND 2005-06 AND EXPLAINED THAT HIGHE R LABOUR PAYMENTS FOR AY 2006-07 AS ATTRIBUTABLE TO HIGHER M ATERIAL CONSUMPTION IN AY 2005-06. IN AY 2006-07, MORE MAIN TENANCE WORK WAS SAID TO BE INVOLVED. 4 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN T HE IMPUGNED ORDER, THE LEARNED CIT(A) UPHELD THE DISALLOWANCE O F LABOUR EXPENSES FOR THE DETAILED REASONS GIVEN IN PARA-3.2 OF THE ORDER, WHICH READS AS UNDER:- 3.2. I HAVE CAREFULLY CONSIDERED THE MATTER. FROM THE RECORD MAINTAINED BY THE APPELLANT REGARDING LABOUR EXPENSES, IT IS N OT POSSIBLE TO VERIFY THE GENUINENESS OF LABOUR PAYMENTS, WHICH ARE FULLY IN CASH. AS NOTED BY THE ASSESSING OFFICER, IDENTITY OF LABOURERS COULD NOT BE CONFIRMED. THE LABOUR EXPENSES WERE RS.69,74,199/- ON TOTAL CONTRACT RECE IPTS OF RS.1,53,66,767/-, I.E. 45% IN A.Y.2006-07 AS COMPAR ED TO RS.45,29,765/- ON CONTRACT RECEIPTS OF RS.1,22,14,066/-, I.E. 37% IN A.Y.2005-06. THUS, THERE WAS SIGNIFICANT INCREASE IN LABOUR EXPENSES I N A.Y.2006-07 VIS-A-VIS A.Y.2005-06. APPELLANT HAS ATTRIBUTED THE INCREASE TO HIGHER MAINTENANCE WORK IN A.Y.2006-07, STILL IT IS RELEVANT THAT THE NET PROFIT OF APPELLANT WAS ONLY RS.2,66,259/- ON CONTRACT RECEIPTS OF RS.1,53, 66,767/- BEFORE ALLOWING DEPRECIATION (RS.5,516), PARTNERS INTEREST (RS.97, 291) AND PARTNERS REMUNERATION (RS.1,50,000), I.E. 1.7% IN AY 2006-07 . THE SAME IS VERY LOW FOR THIS LINE OF BUSINESS. CONSIDERING ALL ASPE CTS, DISALLOWANCE OF RS.3,48,710/- IS UPHELD. 4 ITA NO.3345/AHD/2009 5 AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF H EARING BEFORE US ON BEHALF OF THE ASSESSEE SHRI B T THAKKAR APPEARED AN D POINTED OUT THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS. 3,48,710/- BEING 5% OF TOTAL LABOUR EXPENSES ON THE GROUND THAT THE LABOUR EXPENSES IN THE MONTHS OF RAINY SEASON DO NOT FALL, THE NATU RE OF CONTRACT IS SUCH THAT THE WORK CAN NOT BE CARRIED OUT IN RAINY DAYS. HE SUBMITTED THAT THE DISALLOWANCE IS MADE ON MERE OPI NION AND SURMISES WITHOUT VERIFYING THE FACTS ON RECORD AND WITHOUT ISSUING A SHOW CAUSE NOTICE TO THE ASSESSEE IN THIS REGARD. H E SUBMITTED THAT IN THE IMPUGNED ORDER, THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE MAINLY ON THE GROUND THAT THE NET PROF IT OF THE ASSESSEE IS ONLY RS.2,66,259/- ON CONTRACT RECEIPTS OF RS.1,53,66,767/- BEFORE ALLOWING DEPRECIATION, PART NERS INTEREST AND PARTNERS REMUNERATION I.E. 1.7%. HE SUBMITTED THAT THE LOW PROFIT CANNOT BE A GROUND FOR DISALLOWING 5% OF LABOUR EXP ENSES. IT WAS ALSO CONTENDED THAT THE BOOKS OF ACCOUNT ARE AUDITE D. DURING THE RAINY SEASON, CONSTRUCTION MATERIALS WERE ALSO ISSU ED WHICH CLEARLY INDICATES THAT EXTENSIVE REPAIRS OF ROADS WERE CARR IED OUT IN THE RAINY SEASON. 6 ON THE OTHER HAND, SHRI SAMIR TEKRIWAL, SENIOR DR ON BEHALF OF THE REVENUE, VEHEMENTLY SUPPORTED THE ORDER OF T HE LEARNED CIT(A). THE LEARNED DR POINTED OUT THAT LABOUR EXPE NSES ARE GENERALLY 30% WHEREIN THE CASE OF THE ASSESSEE, THE SE ARE 45% AS AGAINST 37% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS. LOOKING TO THESE FIGURES, THE DISALLOWANCE OF 5% OF LABOUR EXPENSES IS FAIR AND REASONABLE, THEREFORE, THE LEARNED CIT( A) IS LEGALLY AND FACTUALLY CORRECT IN UPHOLDING THE SAME. 7 AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINEN T TO NOTE THAT IN THE ASSESSMENT YEAR UNDER APPEAL, LABOUR EXPENSES ARE 4 5% OF TOTAL 5 ITA NO.3345/AHD/2009 CONTRACT RECEIPTS AS AGAINST 37% IN THE AY 2005-06. THE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION FOR ABNORMAL INCR EASE OF LABOUR EXPENSES IN THE ASSESSMENT YEAR UNDER APPEAL. AT TH E SAME TIME, IT CANNOT BE IGNORED THAT THE ASSESSEE HAS ISSUED CONS TRUCTION MATERIALS DURING RAINY SEASON WHICH IS NOT DISBELIE VED BY ANY OF THE DEPARTMENTAL AUTHORITIES BELOW. THE CONSUMPTION OF CONSTRUCTION MATERIALS DURING RAINY SEASON CLEARLY INDICATES THA T DURING THE RAINY SEASON ALSO THE PAYMENTS WERE MADE TO LABOURERS. BE THAT IT MAY BE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE DISALLOWANCE MADE IS EXCESSIVE. WE ARE, THEREFORE, OF THE VIEW THAT IT WILL MEET THE ENDS OF JUSTICE IF THE DISALLOWANC E IS RESTRICTED TO 2.5%. WE ACCORDINGLY RESTRICT THE DISALLOWANCE TO 2 .5% I.E. RS.1,74,355/- [69,74,199 X 2.5]. 8 IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 14-10-2011 SD/- SD/- (G D AGARWAL) VICE-PRESIDENT (T K SHARMA) JUDICIAL MEMBER DATE : 14-10-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S JAY CONSTRUCTION, NEAR SHIV VADI, BALKRISHNA SOCIETY, B/H C P COLLEGE, ANAND 2. THE INCOME-TAX OFFICER, WARD-1, ANAND 3. CIT CONCERNED 4. CIT(A)-IV, BARODA 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD