M/s.P.T.Chacko & Co., Pathanapuram V. ACIT, Kollam

ITA 457/COCH/2005

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69059 (ITAT-COCHIN)
• Duration Of Justice: 8 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 30-09-2013
• Assessment Year: 1985-1986
• Appeal Filed On: 13-04-2005
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: T V HARIHARAN
• Keywords: Unexplained investment
• Section: 143(3); 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 457/COCH/2005 ASSESSMENT YEAR : 1985-86 M/S. P.T. CHACKO & CO., CONTRACTORS, SANTHA BHAVAN, KALANJOOR P.O., PATHANAPURAM. [PAN: AABFP 9694E] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI T.V. HARIHARAN, CA REVENUE BY SMT. LATHA V. KUMAR, JR. DR DATE OF HEARING 30/09/2013 DATE OF PRONOUNCEMENT 13/11/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 01-12-2004 PASSED BY THE LD. CIT(A)-III, TRIVANDRUM CONFIRMING THE PENALTY OF RS.5.00 LAKHS LEVIED BY THE ASSESSING OFFICER U/S. 271(1)(C) OF THE ACT AND IT RELATES TO THE ASSESSMENT YEAR 1985-86. 2. THIS APPEAL WAS ORIGINALLY DISPOSED OFF BY THE T RIBUNAL VIDE ITS ORDER DATED 23- 05-2008, WHEREIN THE PENALTY WAS DELETED ON REASONI NG THAT THE ASSESSING OFFICER WAS NOT ABLE TO MAKE OUT A CASE OF CONCEALMENT. THE DEP ARTMENT PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT OF KERALA AND THE HON BLE HIGH COURT, VIDE ITS ORDER DATED 9 TH NOVEMBER, 2009, REVERSED THE ORDER OF THE TRIBUNAL ON THE REASONING THAT THE TRIBUNAL WENT WRONG IN COMPLETELY CASTING BURDEN ON THE DEPARTMENT TO PROVE CONCEALMENT OF INCOME AND IN THIS REGARD, THE HONB LE HIGH COURT CONSIDERED THE DECISION OF DIVISION BENCH OF THE HONBLE KERALA HI GH COURT IN THE CASE OF CIT VS. I.T.A. NO. 457/COCH/2005 2 GURUVIJAYA KURI CO. LTD., 302 ITR 239 AND THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILES PROCESSORS, 306 ITR 277. SINCE THE TRIBUNAL HAD NOT ADJUDICATED THE ISSUE ON MERITS, T HE HONBLE HIGH COURT REMANDED THE MATTER BACK TO THE TRIBUNAL FOR RE-CONSIDERATION OF THE ISSUE ON MERITS. ACCORDINGLY, THE APPEAL WAS POSTED FOR HEARING BEFORE THE TRIBUNAL. 3. THE FACTS RELATING TO THE IMPOSITION OF PENALTY ARE STATED IN BRIEF. THE ASSESSEE- FIRM IS ENGAGED IN THE BUSINESS OF UNDERTAKING CIVI L CONTRACT WORKS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON ON 27-08-1987 DECLARING A TOTAL INCOME OF RS. 1,65,190/- IN THE STATUS OF REGISTERE D FIRM. THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT ON 08-03-1988. SUBSEQUENTLY , THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED CONTRACT AMOUNT OF RS.9,68,366/- ON 03 .04.1985 IN RESPECT OF TWO WORKS NAMED (A) NO.VII/RWSS KONNI ARAVIPALAM AND (B) NO . IV/QWSS PATHANAMTHITTA. THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESS EE SHOULD HAVE COMPLETED BOTH THE WORKS BEFORE 31.3.1985, SINCE THE ENTIRE CONTRACT A MOUNT ITSELF WAS RECEIVED ON 03-04- 1985. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE EN TIRE AMOUNT OF RS.9,68,366/- SHOULD HAVE BEEN DECLARED BY THE ASSESSEE AS WORK-IN-PROGR ESS AS ON 31-03-1985. SINCE THE ASSESSEE DID NOT DECLARE THE SAME, THE ASSESSING OF FICER BELIEVED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND ACCORD INGLY, THE REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S. 148 OF THE ACT ON 12-03-1991. THE RE-OPENED ASSESSMENT WAS COMPLETED ON 29-03-1993 BY MAKING AD DITION OF RS. 6,69,992/-. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) QUA SHED THE ASSESSMENT FOR SOME TECHNICAL REASONS. HENCE, THE ASSESSING OFFICER AG AIN ISSUED RE-ASSESSMENT NOTICE U/S. 148 OF THE ACT ON 08-03-1996. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT IT HAS RECEIVED MATERIALS FROM THE DEPARTMENT AND HENCE, IT HAS INCURRED ONLY LABOUR CHARGES. IT WAS FURTHER SUBMITTED THAT THE LABOUR CHARGES WERE PAID ONLY AFTER RECEIPT OF CONTRACT AMOUNT FROM THE DEPARTMENT AND HENCE, THERE WAS NO NECESSITY TO ACCOUNT FOR THE WORK-IN-PROGRESS AS OBSERVED BY THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE SAID CONTE NTIONS. HE NOTICED THAT IN RESPECT OF THE WORK NAMED QWSS - PATHANAMTHITTA, THE ASSESSEE HAS INCURRED A SUM OF I.T.A. NO. 457/COCH/2005 3 RS.2,74,404 TOWARDS MATERIALS AND RS. 3,43,179/- TO WARDS LABOUR CHARGES. IN RESPECT OF RWSSKONNI- ARUVIPALAM WORK, THE ASSESSEE HAD IN CURRED RS. 3,10,204/- AS LABOUR CHARGES. THE ASSESSING OFFICER HELD THAT THE EXPLA NATION OF THE ASSESSEE THAT THE LABOUR PAYMENTS WERE MADE ONLY AFTER RECEIPT OF THE CONTRACT AMOUNT WAS HARD TO BELIEVE AND THE NORMALLY PREVAILING TRADE PRACTICE WAS TO SETTLE WAGES EVERY WEEK END. HOWEVER, TAKING A LIBERAL VIEW, THE ASSESSING OFFIC ER TOOK THE VIEW THAT THE ASSESSEE COULD HAVE POSTPONED THE PAYMENT OF WAGES TO THE EX TENT OF 1/3 RD OF THE AMOUNT. ACCORDINGLY, THE ASSESSING OFFICER DETERMINED THE A MOUNT OF EXPENSES THAT COULD HAVE BEEN INCURRED BY THE ASSESSEE PRIOR TO 31-03-1985 A S UNDER: 1) IV-QWSS/PATHANAMTHITTA . A) COST OF MATERIALS PURCHASED : RS. 2,74,404/- B) 2/3RD LABOUR CHARGES OF RS. 3,43,179 CLAIMED : RS . 2,28,786/- 2) VII/RWSS-KONNI-ARUVIPALAM 2/3 RD OF LABOUR CHARGES OF RS. 3,10,204/- : RS. 2,06,802/- TOTAL : RS. 7,09,992/- ACCORDINGLY, THE ASSESSING OFFICER TREATED THE AMOU NT OF RS. 7,09,992/- AS EXPENSES INCURRED OUT OF UNEXPLAINED SOURCES AND ACCORDINGLY , BROUGHT THE SAME TO TAX AS PER THE PROVISIONS OF SECTION 69 OF THE ACT. 5. IN THE QUANTUM APPELLATE PROCEEDINGS, BOTH THE L D. CIT(A) AND THE TRIBUNAL CONFIRMED THE IMPUGNED ADDITION. 6. SUBSEQUENTLY, THE ASSESSING OFFICER INITIATED PE NALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. IN THE PENALTY PROCEEDINGS, THE ASSESS EE SUBMITTED THAT THE ASSESSING OFFICER COULD NOT ESTABLISH WITH SUFFICIENT PROOF T HAT IT HAS EFFECTED PAYMENTS FOR WORK- IN-PROGRESS AND HENCE, THE CONCEALED THE INCOME IN THE ASSESSMENT YEAR 1985-86 WAS NOT ESTABLISHED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS FOLLOWING MIXED SYSTEM OF ACCOUNTING AND ALL THE DIRECT CONTRACT EXPENSES WERE ACCOUNTED ONLY ON CASH BASIS. I.T.A. NO. 457/COCH/2005 4 ACCORDINGLY, IT WAS SUBMITTED THAT THE ADDITION HAS BEEN MADE ON THE BASIS OF ASSUMPTIONS, WITHOUT BRINGING ANY MATERIAL TO PROVE THAT THE ASSESSEE HAS INVESTED FUNDS IN THE PAYMENT OF LABOUR CHARGES AND PURCHASE OF MATERIALS, WHICH WOULD HAVE NECESSITATED ACCOUNTING OF WORK-IN-PROGRESS. ACCOR DINGLY, IT WAS CONTENDED THAT THE PENALTY CANNOT BE LEVIED. IT WAS ALSO SUBMITTED TH AT, MERELY DISBELIEVING THE EXPLANATION GIVEN BY THE ASSESSEE WOULD NOT GIVE RI SE TO LEVYING PENALTY U/S. 27(1)(C) OF THE ACT. IN THIS REGARD, THE ASSESSEE PLACED RELIA NCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. V. RAMASWA MY NAIDU, 208 ITR 377. 7. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVI NCED WITH THE SAID EXPLANATION. THE AO OBSERVED THAT THE ADDITION MADE TOWARDS UNEXPLAI NED INVESTMENT OF RS.7,09,992/- WAS CONFIRMED BY THE TRIBUNAL ALSO. FURTHER THE AO HELD THAT ASSESSEE HAS ALSO FAILED TO FURNISH ANY SATISFACTORY EXPLANATION. ACCORDING LY HE HELD THAT THE PENALTY IS LIABLE TO IMPOSED U/S 271(1)(C) OF THE ACT. HE NOTICED THAT THE AMOUNT OF TAX SOUGHT TO BE EVADED WORKED OUT TO RS.4,39,306/- AND ACCORDINGLY, HE LEVIED A PENALTY OF RS. 5.00 LAKHS, WHICH WAS JUST ABOVE THE MINIMUM PENALTY LEV IABLE. THOUGH THE ASSESSEE CHALLENGED THE PENALTY ORDER BY FILING THE APPEAL B EFORE THE LD. CIT(A), IT COULD NOT SUCCEED. HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 8. THE LD COUNSEL FOR THE ASSESSEE FURNISHED FO LLOWING WRITTEN SUBMISSIONS AND CONTENDED THAT THE PENALTY IMPOSED IN THIS CASE IS LIABLE TO BE DELETED. WHEN THE APPELLANT WAS FOLLOWING THE CASH BASIS OF ACCOUNTING, ENTRIES RELATING TO WAGES PAYABLE AND PURCHASES OF MATERIALS MADE ON CREDIT WERE NOT MADE, AND HENCE ENTRY TOWARDS WORK-IN-PROGRESS ALSO COULD NOT BE MADE. THERE WAS THUS ACTUALLY NO SUPPRESSION OF THE SUM OF RS. 7,09 ,992/- OF THE ACT, AS APPREHENDED BY THE OFFICER. THUS ASSESSEE DISCHARG ED ITS ONUS OF PROVING NO CONCEALMENT. ASSESSING OFFICER COULD NOT SUBSTANTI ATE WITH EVIDENCE THAT EXPENDITURE ESTIMATED BY HIM TO THE TUNE OF RS. 7.0 9 LAKHS WAS IN FACT INCURRED BY THE ASSESSEE BEFORE 31-03-1985. A.O. FAILED TO APPRECIATE THE BASIS OF ACCOUNTING REGULARLY FOLLOWED BY ASSESSEE AND ITS I MPACT ON RESULTS. REVENUE FAILED TO PROVE A POSITIVE ACT OF CONCEALMENT AS AN ESTIMATE ON CONJECTURES DOES NOT LEAD TO PENALTY IPSO FACTO (2002) 256 ITR 447 ( P&H). WHEN THE DEPARTMENT FAILED TO DISCHARGE ITS BURDEN OF PROVING CONCEALME NT, PENALTY U/S. 271(1)(C) IS NOT WARRANTED. (2009) 18 DTR (CHENNAI) (TRIB) 358 I.T.A. NO. 457/COCH/2005 5 ON AN ADDITION MADE ON AN ESTIMATE, PENALTY U/S. 271(1)(C) DOES NOT SURVIVE (2009) 308 ITR (ST) 18 (SC) APPROVING 303 ITR 53 (P &H). THERE WAS NO RECORDING OF SATISFACTION BY A.O. A S CONTEMPLATED U/S. 271(1)(C) WHILE COMPLETING THE ASSESSMENT U/S. 143(3) RWS 147 . HENCE PENALTY U/S. 271(1)(C) IS NOT LEVIABLE (2009) 310 ITR (ST) 6 (SC ). ADDITIONS ON PRESUMPTIONS & GUESS WORK THOUGH SU STAINED BY ITAT, & HIGH COURT DID NOT POINT TO CONCEALMENT. EVERY ADDITION CONFIRMED IN QUANTUM APPEAL CANNOT IPSO FACTO LEAD TO INFERENCE OF CONCEALMENT (2012) 137 ITD 53 (MUM) TM RELYING ON (2010) 322 ITR 158 (SC) CIT VS. RELIAN CE PETRO. PENALTY U/S. 271(1) (C) IS NOT AUTOMATIC. INGR EDIENTS OF EXPL 1 TO 271(1)(C) SHOULD BE SATISFIED - ITO VS. BATA STEEL(P) LTD (2010 ) 33 DTR (CHD) (TRIB) 219. P.K. NARAYANAN VS. ACIT, INV. CIRCLE-1, DIVISIO N 1, ERNAKULAM (2009) 117 ITD 151 (COCHIN). (2011) 332 ITR 334 (DEL). THE HONBLE SUPREME COURT HAS ENDORSED THE ABOVE VIEW OF THE TWO BENCHES & HIGH COURT BY DISMISSING SLP IN CIT VS. SPENCER LTD (2009) 313 ITR (ST) 30 AND (2009) 319 ITR (ST) 9. NON ACCEPTANCE OF ASSESSEES EXPLANATIONS DOES N OT MEAN CONCEALMENT BEING HIT BY EXPLANATION 1 TO 271(1)(C) (2009) 309 ITR (ST ) 54 (SC) & (2013) 89 DTR (DEL) 169 RELYING ON SC IN RELIANCE PETRO. H.C. NOW REMITTING THE MATTER BACK TO ITAT RELIE D ON DHARMENDRA TEXTILES WHICH STANDS DISTINGUISHED IN A SLEW OF SC/H.C. DEC ISIONS AS WELL AS ITAT JUDGMENTS. IN SHORT, THE CASE OF THE ASSESSEE IS THAT IT HAS F OLLOWED CASH SYSTEM OF ACCOUNTING AND SINCE IT GOT THE MATERIALS AS WELL A S LABOUR ON CREDIT TERMS, IT DID NOT ACCOUNT THE SAME BEFORE 31.3.1985. ALL THESE P AYMENTS WERE MADE SUBSEQUENT TO THE RECEIPT OF CONTRACT AMOUNT AND HE NCE IT HAS ACCOUNTED THEM IN THE SUCCEEDING YEAR AS PER THE CASH SYSTEM OF AC COUNTING. THE AO HAS MADE THE ADDITION ONLY BY MAKING AN ESTIMATE AND HE HAS NOT PROVED THAT THE ASSESSEE HAS ACTUALLY INCURRED THAT AMOUNT PRIOR TO 31.3.1985. ACCORDINGLY, IT IS CONTENDED THAT THE PENALTY IS NOT LEVIABLE (A) ON R EJECTION OF EXPLANATION AND (B) ON THE ADDITION MADE ON ESTIMATE BASIS. IT IS ALSO SUBMITTED THAT THE AO HAS NOT RECORDED SATISFACTION. THE LD A.R ALSO PLACED RELI ANCE ON THE CASE LAW MENTIONED IN HIS WRITTEN SUBMISSIONS. I.T.A. NO. 457/COCH/2005 6 9. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE AO HAS MADE THE IMPUGNED ADDITION ON NOTICING THAT THE ASSESSEE DID NOT DECL ARE THE EXPENDITURE INCURRED ON THE CONTRACTS EXECUTED BEFORE 31.3.1985. SINCE THE CO NTRACT AMOUNT WAS RECEIVED ON 3.4.1985, THE ASSESSEE SHOULD HAVE INVESTED ITS UNA CCOUNTED MONEY IN MAKING PAYMENTS FOR PURCHASE OF MATERIALS AND PAYMENT OF L ABOUR. THE ADDITION SO MADE HAS BEEN CONFIRMED BY THE TRIBUNAL IN THE QUANTUM PROCE EDINGS. FURTHER THE ASSESSEE HAS NOT GIVEN ANY CONVINCING EXPLANATIONS WITH REGARD T O THE UNEXPLAINED INVESTMENT MADE IN THE EXECUTION OF THE TWO CONTRACT WORKS. ACCORD INGLY, THE LD D.R SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE PENALTY. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. SINCE THE ASSESSEE HAS RECEIVED THE CONTRACT AMOUNTS ON 03.04.1985, TH ERE SHOULD NOT BE ANY DOUBT THAT THE ASSESSEE SHOULD HAVE EXECUTED BOTH THE WORKS PR IOR TO 31.3.1985. IT IS ALSO A FACT THAT THE ADDITION OF RS.7,09,992/- HAS BEEN CONFIRM ED BY THE TRIBUNAL ALSO IN THE QUANTUM APPEAL PROCEEDINGS. THE CASE OF THE ASSESS ING OFFICER IS THAT THE ASSESSEE HAS INVESTED ITS UNEXPLAINED INCOME IN INCURRING EXPEND ITURE OF RS.7,09,992/- PRIOR TO 31.3.1985. THE CONTENTION OF THE ASSESSEE IS THAT IT HAS RECEIVED THE MATERIALS AS WELL AS THE LABOUR ON CREDIT TERMS AND THE RELEVANT PAYM ENTS WERE DISBURSED ONLY AFTER THE RECEIPT OF THE CONTRACT AMOUNT. ACCORDING TO THE A SSESSEE, THE AO HAS MADE THE ADDITION WITHOUT BELIEVING THE EXPLANATION GIVEN BY IT AND FURTHER HE HAS MERELY ESTIMATED THE POSSIBLE AMOUNT OF INVESTMENT MADE BY THE ASSESSEE PRIOR TO 31.3.1985 AND ACCORDINGLY MADE THE ADDITION. ACCORDING TO TH E ASSESSEE, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT HIS VIEWS. IT WA S FURTHER SUBMITTED THAT THE ADDITION MADE IN THE QUANTUM PROCEEDING DOES NOT AUTOMATICAL LY GIVE RISE TO PENALTY. ACCORDINGLY, IT WAS CONTENDED THAT THE MERE REJECTI ON OF THE EXPLANATION GIVEN BY THE ASSESSEE AND ALSO MERE ESTIMATION OF POSSIBLE INVES TMENT WITHOUT BRINGING ANY MATERIAL ON RECORD WOULD NOT GIVE RISE TO PENALTY U/S 271(1) (C) OF THE ACT. 11. HOWEVER, IN OUR VIEW, THE MAIN POINT TO BE C ONSIDERED IS WHETHER THE EXPLANATION GIVEN BY THE ASSESSEE THAT IT HAD RECEIVED THE MATE RIALS AND LABOUR ON CREDIT TERMS IS CORRECT OR NOT. THE RESULT OF THIS QUESTION SHALL DETERMINE THE VALIDITY OF PENALTY LEVIED I.T.A. NO. 457/COCH/2005 7 IN THE HANDS OF THE ASSESSEE. IT IS TO BE NOTED HE RE THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS ABOUT BOTH THE CONTRACTS VIZ., THE PERI OD OF COMMENCEMENT AND COMPLETION OF CONTRACT, THE DATE ON WHICH THE MATERIALS WERE R ECEIVED ON CREDIT, THE DATE ON WHICH THE LABOUR WAS RECEIVED ON CREDIT ETC., EITHER DURI NG THE COURSE OF ASSESSMENT PROCEEDING OR DURING THE COURSE OF PENALTY PROCEEDI NG. ON THE OTHER HAND, THE AO HAS POINTED OUT THAT, AS PER THE TRADE PRACTICE PREVAIL ING IN CONSTRUCTION SECTOR, THERE IS NO CREDIT FACILITY AVAILABLE IN RESPECT OF LABOUR PAYM ENTS AND NORMALLY THE WAGES ARE PAID EVERY WEEK END. AS STATED EARLIER, THE ASSESSEE HA S FAILED TO CONTROVERT THIS OBSERVATIONS MADE BY THE AO. 12. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE ADDITIONS MADE IN THE ASSESSMENT PROCEEDING SHALL NOT AUTOMATICALLY GIVE RISE TO PEN ALTY. IN THE PENALTY PROCEEDINGS, ENTIRE ADDITIONS HAVE TO BE LOOKED AFRESH AND THE D ISCUSSIONS MADE IN THE ASSESSMENT ORDER WITH REGARD TO THE ADDITIONS CAN ONLY ACT AS A GUIDE IN THE PENALTY PROCEEDINGS. FURTHER, THE EXPLANATION 1 TO SEC. 271 OF THE ACT PL ACES THE BURDEN ON THE ASSESSEE (A) TO OFFER AN EXPLANATION, WHICH SHOULD NOT BE FO UND TO BE FALSE BY THE TAX AUTHORITIES OR (B) EVEN IF THE ASSESSEE IS NOT ABLE TO SUBSTANTIAT E HIS EXPLANATION, HE SHOULD PROVE THAT SUCH EXPLANATION IS BONAFIDE AND THAT AL L FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS INCOME SHOULD HA VE BEEN DISCLOSED BY HIM. 13. WE NOTICE THAT THE ADDITION OF RS.7,09,992/ - MADE BY THE ASSESSING OFFICER CONSISTED OF ADDITION TOWARDS MATERIAL PURCHASE RS. 2,74,404/- AND THE ADDITION TOWARDS LABOUR PAYMENTS RS.4,35,588/-. AS STATED EARLIER, THE ASSESSEE HAS FAILED TO BRING ANY MATERIAL TO SUBSTANTIATE ITS CLAIM THAT IT HAD RECE IVED ALL THE ABOVE ITEMS ON CREDIT TERMS. THE AO HAS POINTED OUT THAT THE PREVAILING TRADE PRACTICE IS TO SETTLE THE LABOUR PAYMENTS EVERY WEEK END. HENCE, THE CLAIM OF THE A SSESSEE THAT HE ALSO RECEIVED LABOUR SERVICES ALSO ON CREDIT AND THAT HE MADE THE PAYMENT TO THEM ONLY AFTER THE RECEIPT MONEY AGAINST HIS CONTRACT BILL IS AGAINST THE PREVAILING TRADE PRACTICE AND ACCORDINGLY IN OUR VIEW, THE ASSESSEE HAS FAILED TO PROVE THAT HIS EXPLANATION IS BONAFIDE ONE IN RESPECT OF THE ADDITION MADE TOWARDS LABOUR CHARGES. ACCORDINGLY, IN OUR VIEW, I.T.A. NO. 457/COCH/2005 8 THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE PENAL TY LEVIED IN RESPECT OF THE ADDITION OF RS.4,35,588/- MADE TOWARDS LABOUR CHARGES. 14. HOWEVER, IN RESPECT OF THE ADDITION OF RS.2, 74,404/- RELATING TO MATERIAL PURCHASE, WE NOTICE THAT THE ASSESSING OFFICER HAS NOT FOUND THE EXPLANATION GIVEN BY THE ASSESSEE TO BE FALSE. WE ALSO NOTICE THAT THE ASSE SSING OFFICER DID NOT EXAMINE THE MATERIALS SUPPLIERS, DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, IN ORDER TO PROVE THAT THE ASSESSEE DID NOT RECEIVE THE MATERIALS ON CREDI T TERMS. HENCE, IN OUR VIEW, THE EXPLANATION GIVEN BY THE ASSESSEE IN RESPECT OF MAT ERIALS PURCHASED MIGHT NOT HAVE BEEN ACCEPTED IN THE QUANTUM PROCEEDINGS, BUT, IN O UR VIEW, THE SAME WILL NOT GIVE RISE TO LEVY OF PENALTY, SINCE THE RECEIPT OF MATERIALS ON CREDIT, AS CLAIMED BY THE ASSESSEE, CANNOT BE ALTOGETHER RULED OUT. ACCORDINGLY, IN O UR VIEW, THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE PENALTY IN RESPECT OF M ATERIALS PURCHASE AMOUNTING TO RS.2,74,404/-. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) IN RESPECT OF THE ABOVE SAID ADDITION. 15. THE AO HAS LEVIED PENALTY OF RS.5,00,000/- O N THE ENTIRE ADDITION OF RS.7,09,992/- AND THE SAME WAS MORE THAN THE MINIMUM AMOUNT OF PE NALTY LEVIABLE U/S 271(1)(C) OF THE ACT. WE HAVE, IN THE PRECEDING PARAGRAPHS, HEL D THAT THE PENALTY IS LEVIABLE ONLY IN RESPECT OF THE ADDITION OF RS. 4,35,588/- RELATING TO LABOUR CHARGES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO LEVY MINIMUM PENALT Y ON THE ABOVE SAID ADDITION. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 13-11-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 13TH NOVEMBER, 2013 I.T.A. NO. 457/COCH/2005 9 GJ COPY TO: 1. M/S. P.T. CHACKO & CO., CONTRACTORS, SANTHA BHAV AN, KALANJOOR P.O., PATHANAPURAM. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1, KOLLAM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-III, TRIV ANDRUM. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN