Shri Kanhyalal Jivraj Lehru, Surat V. The ACIT.,Circle-3, Surat

ITA 501/AHD/2011

• Counselvise Citation: 50120514 RSA 2011
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMAR

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI T K SHARMA JUDICIAL MEMBER] [AND SHRI A K GARODIA, ACCOUNTANT MEMBER] ITA NO.501/AHD/2011 (ASSESSMENT YEAR:-2007-08) SHRI KANYALAL JIVRAJ LEHRU, PROP. OF LEHRU CONSTRUCTION, B-21, SURBHI HOUSE SOCIETY, NR. L P SAVANI SCHOOL, SURAT V/S THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3, SURAT PAN: AAUPL 1033 E [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI TUSHAR HEMANI, AR RESPONDENT BY:- SHRI JAYRAJ KUMAR, SR. DR DATE OF HEARING:- 07-10-2011 DATE OF PRONOUNCEMENT:- 14-10-2011 O R D E R PER T K SHARMA [JM] : THIS IS AN APPEAL FILED BY AN ASSESSEE AGAINST AN ORDER DATED 21-12-2010 PASSED BY LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II, SURAT [THE CIT(A)] FOR ASSESSMENT YEAR (AY) 2007-08. THE ONLY GROUND RAISE D BY THE ASSESSEE RELATES TO DISALLOWANCE OF LABOUR CHARGES. 2 BRIEFLY STATED THE FACTS ARE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS FOUND TO HAVE CLAIMED LABOUR EXPENSES TO THE TUNE OF RS.1,64,94,778/-. TO EXAMIN E THE GENUINENESS OF CLAIM, THE ASSESSEE WAS REQUIRED BY THE ASSESSING OFFICER [AO] TO PRODUCE THE BOOKS OF ACCOUNT INCL UDING ALL BILLS, VOUCHERS AND OTHER SUPPORTING DOCUMENTS / RECORDS A S A PROOF OF PAYMENT OF WAGES TO THE LABOURERS. THE AO NOTED THA T DURING THE COURSE OF VERIFICATION A NUMBER OF DISCREPANCIES WE RE NOTICED, POINTED OUT TO THE ASSESSEE AND THE ASSESSEE WAS AL SO CONFRONTED 2 ITA NO.501/AHD/2011 THEREWITH. THE AO NOTED THAT THE DETAILS OF DISCRE PANCIES AND THEIR IMPLICATIONS ARE BEING BROUGHT OUT WITH PERTINENT E VIDENCES. 3 THE AO OBSERVED THAT THE ASSESSEE DID NOT PRODUCE AN ATTENDANCE REGISTER OR JOB CARD OR MUSTER ROLL OR A NY SUCH RECORD. THE AO ALSO NOTED THAT DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO PRODUCE ATTENDANCE REGISTER OR MUSTER ROLL OR ANY SUCH RECORD IN SUPPO RT OF THE CLAIM OF EXPENSES OF WAGES. THE AO FURTHER NOTED THAT IN RES PONSE THE ASSESSEE DENIED TO HAVE MAINTAINED ANY SUCH REGISTE R OR RECORD. FURTHER, AS PER SEVERAL STATUTES THE MAINTENANCE OF THESE RECORDS IS MANDATORY AND A DEFAULT IN THIS REGARD CONSTITUTES AN OFFENCE. MAINTENANCE OF REGISTERS OF EMPLOYED PERSONS HAS BE EN PROVIDED FOR UNDER THE FOLLOWING ENACTMENTS: - CONTRACT LABOUR (R&A) ACT, 1970 AND CENTRAL RULES , 1971 - HE CHILD LABOUR (P&R) ACT, 1986 AND CENTRAL RULE S - THE EQUAL REMUNERATION ACT, 1976 AND CENTRAL RUL ES, 1977. - THE INTERSTATE MIGRANT WORKMEN (RE&CS) ACT AND CE NTRAL RULES, 1980. - BUILDING AND OTHER CONSTRUCTION WORKERS (RE&CS) A CT, 1996 AND CENTRAL RULES, 1988 EVEN THE LABOUR LAWS (EXEMPTION FROM FURNISHING RET URNS AND MAINTENANCE OF REGISTERS BY CERTAIN ESTABLISHMENTS) ACT, 1988 HAS PROVIDED FOR MAINTENANCE OF A COMBINED MUSTER ROLL CUM WAGE REGISTER IN LIEU OF THE ONES PROVIDED UNDER PAYMENT OF WAGES ACT, WEEKLY HOLIDAYS ACT, MINIMUM WAGES ACT, FACTORIES A CT, CONTRACT LABOUR (R&A) ACT, AND EQUAL REMUNERATION ACT. SOME OF THE ABOVE MENTIONED ENACTMENTS HAVE ALSO PRESCRIBED SEPARATE REGISTERS OF FINES, OT WAGES, ADVANCES ETC. DESPITE SUCH MANDATO RY REQUIREMENTS THE ASSESSEE HAS NOT BOTHERED TO MAINT AIN THE PRESCRIBED RECORDS OR DOCUMENTS IN A PROPER MANNER. THESE RECORDS CONSTITUTE EVIDENCE IN EXAMINING THE CORRECTNESS AN D GENUINENESS OF CLAIM OF EXPENDITURE OF WAGES. FOR WANT OF SUCH EVIDENCES, THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED AS TRUE. 3 ITA NO.501/AHD/2011 4 THE AO OBSERVED THAT THE ASSESSEE DID NOT MAINTAI N A RECORD OF SITE WISE EXPENSES AND IN ABSENCE OF SUCH RECORD S, THE SCOPE OF MANIPULATION, ADJUSTMENT AND ACCOMMODATION OF EXPEN SES CANNOT BE RULED OUT. THE AO ALSO OBSERVED THAT THE INK USED FOR TAKING THE THUMB IMPRESSIONS WAS ALSO APPARENTLY FRESH AND UNA BSORBED ON THE PAPER INASMUCH AS UPON RUBBING IT USED TO SPREAD OV ER. MOREOVER, THE BACK SIDE OF THE PRECEDING PAGE BORE ABUNDANT W ASH-OUTS OF THE INK USED ON THE SUCCEEDING ONES. ACCORDING TO THE A O, THE THUMB IMPRESSIONS WERE TAKEN VERY RECENTLY AND PERHAPS WI THIN A DAY OF THE DATE OF PRODUCTION BEFORE THE AO. THE AO FURTHE R OBSERVED THAT THE VOUCHERS PRODUCED BY THE ASSESSEE WERE CAREFULL Y AND CLOSELY EXAMINED AND ON VERIFICATION OF THE VOUCHERS IT REV EALED THAT SEVERAL VOUCHERS WHICH BELONGED TO DIFFERENT NAMES BORE THU MB IMPRESSIONS WHICH WERE, PRIMA FACIE, OF A SINGLE PERSON. IT WAS ALSO OBSERVED BY THE AO THAT AT SEVERAL PLACES THE SAME PERSON HAD P UT SIGNATURES OF DIFFERENT PERSONS FOR RECEIPT OF WAGES. ACCORDING T O THE AO, THIS INDICATES THAT THESE DOCUMENTS HAVE BEEN ARTIFICIAL LY CREATED ONLY FOR PRODUCTION BEFORE THE AO AND DO NOT BEAR ANY EV IDENTIARY MERIT. THE AO FURTHER NOTICED THAT THE SIGNATURES OF SAME PERSONS SHOWED DRASTIC CHANGES IN DIFFERENT MONTHS. THE AO, THEREF ORE, DISALLOWED RS.16,49,477/- WITH THE FOLLOWING OBSERVATIONS:- THUS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE I T IS A CONSPICUOUS FINDING THAT THE EVIDENCES PRODUCED IN SUPPORT OF T HE LABOUR EXPENSES CLAIMED BY THE ASSESSEE, ARE FALSE AND NOT CREDIBLE . THE CLAIM OF EXPENSES IS, THUS, TREATED AS NON-GENUINE. THE ASSESSEE WAS CONFRONTED WITH THESE DISCREPANCIE S THROUGH ORDER- SHEET ENTRY DATED 29/12/2009 AND WAS ASKED REQUESTE D TO SHOW CAUSE AS TO WHY THE ENTIRE CLAIM OF LABOUR EXPENSES BE NOT D ISALLOWED. TO THIS THE ASSESSEE REPLIED THAT HE ACKNOWLEDGES T HE DISCREPANCIES AND IRREGULARITIES AND THOUGH THE CLAIM OF EXPENSES CAN NOT BE PROVED WITH THE HELP OF THESE VOUCHERS/REGISTERS, STILL THE PAYMENT S HAVE ACTUALLY BEEN MADE TO THE SAID PARTIES WHICH IS CLEAR FROM THE WO RK DONE AND CORRESPONDING RECEIPTS. 4 ITA NO.501/AHD/2011 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED CAREF ULLY. HOWEVER, THE SAME DOES NOT HELP THE CASE OF THE ASSESSEE. THE AS SESSEE HAS NOT ONLY FAILED TO EXPLAIN OR REBUT THE DISCREPANCIES NOTICE D AND POINTED OUT BUT ALSO HAS ACKNOWLEDGED THE DEFECTS SO POINTED OUT. AS IS CLEAR FROM THE FOREGOING DESCRIPTION AND DISC USSION AFTER THE FULL APPRAISAL OF THE FACTS THE ENTIRE CLAIM OF THE LABO UR EXPENSES IS LIABLE FOR DISALLOWANCE AS THE SAME HAS BEEN FOUND TO BE BOGUS AND NON-GENUINE. THE BOOKS OF ACCOUNT ARE, THEREFORE, REJECTED FOR L IMITED PURPOSE. HOWEVER, CONSIDERING THE SUBSTANCE AND NATURE OF TH E ACTIVITY IN WHICH THE ASSESSEE IS ENGAGED AS ALSO THE NATURE OF PAYMENTS AND RECIPIENTS, AND GIVING THE ASSESSEE THE BENEFIT OF DOUBT, WITHOUT P REJUDICE TO ANYTHING STATED IN THE FOREGOING DISCUSSION, 10% OUT OF THE LABOUR EXPENSES OF RS.1,64,94,778/- WHICH WORKS OUT TO RS.16,49,477/- ARE HEREBY BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. 5 ON APPEAL, THE LEARNED CIT(A) UPHELD THE DISALLOW ANCE OF RS.16,49,477/- BEING 10% OF LABOUR CHARGES CLAIMED BY THE ASSESSEE IN THE P&L ACCOUNT, IN THE FOLLOWING MANNE R:- 3. THE FIRST GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF 16,49,4777- OUT OF LABOUR CHARGES CLAIMED IN THE P & L A/C, THI S DISALLOWANCE IS DISCUSSED IN PARA 5 OF THE ASSESSMENT ORDER. THE AS SESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE APPELLANT HAS CLAIMED LABOUR EXPENSES TO THE TUNE OF RS.1.64 CROR E. IN ORDER TO EXAMINE THE GENUINENESS OF THIS CLAIM, HE ASKED THE APPELLA NT TO PRODUCE ALL BILLS, VOUCHERS AND OTHER SUPPORTING DOCUMENTS RELATING TO THE SAME, AND FROM THE BILLS AND VOUCHERS EXAMINED BY HIM, HE NOTICED FOLLOWING DISCREPANCIES: (I) THE INK USED FOR TAKING THUMB IMPRESSIONS WAS Q UITE FRESH AT THE TIME OF VERIFICATION. (II) IDENTICAL THUMB IMPRESSIONS WERE PRESENT ON VO UCHERS IN DIFFERENT NAMES. (III) SIGNATURES FOR DIFFERENT NAMES WERE IN THE HA NDWRITING OF A SINGLE PERSON. . (IV) THE SIGNATURES OF THE PERSON CHANGED OVER A P ERIOD OF TIME. THE ASSESSING OFFICER HAS ALSO RECORDED THAT THE AP PELLANT DID NOT PRODUCE ATTENDANCE REGISTER OR JOB CARD OR MUSTER ROLL OR A NY SUCH RECORD AND ALSO DID NOT MAINTAIN ANY RECORD OF SITE WISE EXPEN SES. THE APPELLANT WAS ALSO CONFRONTED WITH THE ABOVE DISCREPANCIES, VIDE ORDER SHEET DATED 29- 12-2009 AND WAS ALSO SHOW-CAUSED, WHY ENTIRE CLAIM OF LABOUR EXPENSES BE NOT DISALLOWED. THE APPELLANT ACKNOWLEDGED THE A BOVE DISCREPANCIES AND IRREGULARITIES VIS-A-VIS RECORDS MAINTAINED BY HIM, BUT STATED THAT AIL 5 ITA NO.501/AHD/2011 PAYMENTS HAVE BEEN MADE TO THE PERSONS CONCERNED, A S PER THE CORRESPONDING RECEIPTS. THE ASSESSING OFFICER REJEC TED THE ABOVE SUBMISSION OF THE APPELLANT ON THE GROUND THAT THE ABOVE DISCREPANCIES HAVE NOT BEEN PROPERLY EXPLAINED, BUT CONSIDERING T HE NATURE OF ACTIVITY OF THE APPELLANT AND GIVING HIM BENEFIT OF DOUBT, HE M ADE DISALLOWANCE OF ? 16,49,477/-ONLY; I.E. @ 10% OF LABOUR EXPENSES OF R S.1,64 CRORE, IN THE STATEMENT OF FACT FILED ALONG WITH FORM NO, 35, THE APPELLANT HAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOWHERE POINTED OUT THAT PAYMENT FOR EXPENSES WERE NOT MADE TO GET THE WORK DONE, AND DI SCREPANCIES NOTICED BY HIM WERE MORE OF ADMINISTRATIVE IN NATURE THAN F INANCIAL.. HE HAS ALSO STATED THAT THE ASSESSING OFFICER HAS FOUND ONLY 4 DISCREPANCIES OUT OF PAYMENTS TO LABOUR FORCE OF AROUND 250. I HAVE DULY CONSIDERED THE ABOVE SUBMISSION OF THE APPELLANT, HOWEVER, 1 FIND THAT T HE APPELLANT HAS FAILED TO ADDRESS THE ISSUES RAISED BY THE ASSESSING OFFICER VIDE THE DISCREPANCIES NOTICED BY HIM, DUE OPPORTUNITY FOR WHICH WAS PROVI DED TO HIM. I ALSO FIND THAT THE ASSESSING OFFICER HAS AFFIXED PHOTOS OF TH E RELEVANT PAGES OF THE LABOUR PAYMENT REGISTERS, WHICH REVEAL THE ABOVE DI SCREPANCIES NOTICED BY HIM. THESE PHOTOS ARE APPEARING ON PAGES 4 TO 7, OF THE ASSESSMENT ORDER. IN THE LIGHT OF THESE DOCUMENTARY EVIDENCES, WHICH HAVE NOT BEEN REFUTED, I UPHOLD THE DISALLOWANCE OF RS.16,49,477/ - @ 10% FROM LABOUR EXPENSES OF RS.1.64 CRORE, WHICH I FIND IS MORE THA N REASONABLE. THE ABOVE ADDITION IS THEREFORE, CONFIRMED AND THE GROU ND OF APPEAL DISMISSED. 6 AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7 AT THE TIME OF HEARING BEFORE US ON BEHALF OF THE ASSESSEE, SHRI TUSHAR HEMANI APPEARED AND MADE THE FOLLOWING SUBMISSIONS:- - THE AO IN THE ASSESSMENT ORDER HAS POINTED OUT 4 DISCREPANCIES IN THE PAYMENT MADE TO THE LABOURERS OUT OF TOTAL 250 LABOURERS. - FROM PERUSAL OF THESE DISCREPANCIES IN THE ASSESS MENT ORDER (PG. 4 TO 7 OF PAPER BOOK), THE AMOUNT OF PAYMENT INVOLVE IS NOT MORE THAN 25,000/- TO 30,0007- OUT OF THE TOTAL LABOUR EXPEND ITURE OF RS.1,64,94,7787-. - LOOKING TO THE NATURE OF THE WORK AND LABOUR INVO LVED IN THE INDUSTRY IN WHICH ASSESSEE IS ENGAGED FEW DISCREPANCIES ARE UNAVOIDABLE. - NO WORK CAN BE DONE BY THE LABOURERS WITHOUT MAKI NG ANY PAYMENT TO THEM. - THE DISCREPANCIES POINTED OUT BY THE AO ARE ADMIN ISTRATIVE AND ON THAT GROUND NO DISALLOWANCE CAN BE MADE. 6 ITA NO.501/AHD/2011 - THE ASSESSEE HAS SUBMITTED THE AUDITED BOOKS OF A CCOUNTS, BILLS, VOUCHERS AND OTHER SUPPORTING DOCUMENTS AS A PROOF OF PAYMENT OF WAGES TO THE LABOURERS. MERELY, BECAUSE ATTENDANCE REGISTER IS NOT MAINTAINED THE AO IS NOT JUSTIFIED IN TREATING THE EXPENSES AS NON- GENUINE AND REJECTING THE BOOKS OF ACCOUNTS ON THAT COUNT. 8 ON THE OTHER HAND, SHRI JAYRAJ KUMAR, LEARNED SEN IOR DR APPEARED ON BEHALF OF THE REVENUE VEHEMENTLY SUPPOR TED THE ORDER OF THE LEARNED CIT(A). HE POINTED OUT THAT THOUGH I N THE ASSESSMENT ORDER, THE AO HAS MENTIONED FEW DISCREPANCIES ON TE ST-CHECK BUT THIS CLEARLY INDICATES THAT THE ASSESSEE HAS BOOKED SOME BOGUS EXPENSES UNDER THE HEAD LABOUR PAYMENT. THE ESTIM ATED DISALLOWANCE MADE BY THE AO IS FAIR AND REASONABLE, THEREFORE, THE SAME BE UPHELD. 9 HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GO NE THROUGH THE ORDER OF THE AUTHORITIES BELOW. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANPOWER SUPPLY FOR HAZIRA INDUSTRIAL B ELT LIKE ESSAR GROUP, RIL, S. KUMAR & CO., WHICH ARE LABOUR INTENS IVE AND THE EXPENSES BEING ARE DULY SUPPORTED BY THE P.F. AND E SI REGULATIONS ACT. IT IS TRUE THAT IN THE ASSESSMENT ORDER, THE A O HAS HIGHLIGHTED ONLY FOUR DISCREPANCIES. THIS CLEARLY INDICATES THA T THE ASSESSEE HAS BOOKED BOGUS EXPENSES. DURING THE COURSE OF HEARING , WE ASKED THE ASSESSEE TO FURNISH THE DETAILS OF LABOUR EXPENSES INCURRED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND TOTAL REC EIPTS FROM SUPPLY OF MANPOWER RECEIVED FROM HAZIRA INDUSTRIAL BELT LIKE ESSAR GROUP, RIL, S. KUMAR & CO. THE COUNSEL OF THE ASSES SEE ADMITTED THAT THESE ARE NOT AVAILABLE. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE CONVINCED THAT THE ASSESSEE HAS BOOKED BOGUS LABOUR PAYMENTS ALSO. AT THE SAME TIME, THE ESTIMAT ED DISALLOWANCE MADE BY THE AO IS ON HIGHER SIDE. LOOKING TO THE TO TALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW T HAT IT WILL MEET THE ENDS OF JUSTICE IF THE DISALLOWANCE IS RESTRICT ED TO 2.5% OF THE 7 ITA NO.501/AHD/2011 TOTAL LABOUR CHARGES. ACCORDINGLY, THE DISALLOWANC E IS RESTRICTED TO RS.4,12,369/- [2.5% OF RS.1,64,94,778/-]. WE ORDER ACCORDINGLY. 10 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 14-10-2011 SD/- SD/- (A K GARODIA) ACCOUNTANT MEMBER (T K SHARMA) JUDICIAL MEMBER DATE : 14-10-2011 COPY OF THE ORDER FORWARDED TO: 1. SHRI KANYALAL JIVRAJ LEHRU, PROP. OF LEHRU CONST RUCTION, B- 21, SURBHI HOUSE SOCIETY, NR. L P SAVANI SCHOOL, SU RAT 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3, SURAT 3. CIT CONCERNED 4. CIT(A)-II, SURAT 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD