ACIT RG 25(3), MUMBAI V. SHETH CONSTRUCTION COMPANY, MUMBAI

ITA 5074/MUM/2010

• Counselvise Citation: 507419914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: MATHURIA
• Keywords: Depreciation; Principle of natural justice
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL ME MBER ITA NO.5074/MUM/2010 (ASSESSMENT YEAR: 2007-08) ASSTT. COMMISSIONER OF INCOME TAX, RANGE 25(3), MUMBAI ....... APPELLANT VS M/S. SHETH CONSTRUCTION COMPANY, 5, PANCHAVATI, S.V. ROAD, KANDIVALI (WEST), MUMBAI -400 067 ..... RESPONDENT C.O. NO.91/MUM/2 010 ARISING OUT OF ITA 5074/M/2010 , A.Y. 2007-08 M/S. SHETH CONSTRUCTION COMPANY, 5, PANCHAVATI, S.V. ROAD, KANDIVALI (WEST), MUMBAI -400 067 ............ CROS S OBJECTOR ASSESSEE VS. ASSTT. COMMISSIONER OF INCOME TAX, RANGE 25(3), MUMBAI ... .... RESPONDENT PAN: AAPFS 0792 Q APPELLANT CROSS OBJECTOR BY: SHRI M.S. MATHURIA RESPONDENT REVENUE BY: SHRI V.V. SHASTRI DATE OF HEARING: 17.08.2011 DATE OF PRONOUNCEMENT: 31.10.2011 O R D E R ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 2 PER R.S. PADVEKAR, JM THE APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A), MUMBAI DATED 26.03.2010 F OR THE A.Y. 20070- 08. THE REVENUE HAS TAKEN THE FOLLOWING TWO EFFECT IVE GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND N LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE DISAL LOWANCE TO ` 2,50,000/- AS AGAINST THE DISALLOWANCE OF ` 95,59,328/- MADE IN THE CASE OF THE ASSESSEE ON ACCOUNT OF PAYM ENT TO FOUR CONTRACTORS VIZ (I) PANDURANG BULLKI (II) RISH I TANNA (III) CHANDRAKANT HENGORE AND (IV) AJAY G. SHAH WITHOUT APPRECIATING THE FACTS BROUGHT OUT AT THE TIME OF ASSESSMENT THROUGH INVESTIGATION AND ENQUIRY WHICH DEFINITELY REVEAL THE NON-GENUINENESS OF THE TRANSA CTIONS. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING TO ALLOW DEPRECI ATION CLAIMED ON THE TRANSIT MIXER WITHOUT APPRECIATING T HE FACT THAT ASSESSEE AT THE TIME OF ASSESSMENT HAD FAILED TO FURNISH ANY KIND OF DETAILS / PROOF WITH REGARD TO IT USAGE OF THE SAID TRANSIT MIXER. 2. THE FACTS PERTAINING TO THE ISSUE ARISING FROM G ROUND NO. L ARE AS UNDER. THE ASSESSEE IS A CIVIL CONTRACTOR. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE INCOME OF RS 46,68,7 51/- FOR THE A.Y. 2007-08, WHICH WAS SELECTED FOR SCRUTINY AND ASSESS MENT WAS COMPLETED U/S.143(3). THE A.O. VERIFIED THE BILLS IN RESPECT OF THE LABOUR CHARGES OF FOLLOWING FOUR PARTIES:- ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 3 NAME OF THE PARTY AMOUNT AJAY C SHAH 193493525 CHANDRAKANT HANGARE 12,35,653.00 PANDURANG BULLAKI 33,19,553.74 RISHI TANNA 30,69187.00 TOTAL 95,59,38.99 3. IT WAS NOTICED BY THE A.O. THAT THERE WERE COMMO N BILL NUMBERS IN RESPECT OF PANDURANG BULLAKI. HE WAS ONLY PROVI DING SERVICES TO THE ASSESSEE-FIRM AND WAS NOT HAVING OTHER BUSINESS.. THE A.O. ASKED THE ASSESSEE TO PRODUCE THE ABOVE FOUR LABOUR CONTRACTO RS. THE ASSESSEE PRODUCED THREE CONTRACTORS VIZ. I) PANDURANG BULLKA I, II) RISHI TANNA AND III) CHANDRAKANT HANGARE BUT HE DID NOT PRODUCE AJAY C. SHAH. THE A.O. RECORDED THE STATEMENT OF THE THREE LABOUR CONTRACTORS U/S.131 OF THE ACT. THE A.O. HAS SUMMARIZED THE ST ATEMENTS GIVEN BY THEM IN THE ASSESSMENT ORDER. THE A.O. CONFRONTED THE ASSESSEE WITH HIS OBSERVATIONS ON THE STATEMENTS GIVEN BY THREE C ONTRACTORS AND ALSO SOUGHT THE ASSESSEES REPLY. ASSESSE FILED HIS REPLY AS REQUIRED BY THE A.O. THE A.O. REJECTED THE REPLY OF THE ASSESS EE BY GIVING THE FOLLOWING REASONS:- 4.0 THE REPLY OF THE ASSESSEE IS CONSIDERED CAREF ULLY BUT NOT FOUND TO BE ACCEPTABLE BECAUSE OF THE FOLLOWING REASONS: (I) THE ASSESSEE HAS INFORMED THAT THE WORK CONTRA CT OF RS 16,91,15,384/- CAN NOT BE DONE WITHOUT ENGAGING LAB OUR. FURTHER THE ASSESSEE HAS RAISED AN ISSUE THAT WHO W ILL DO THE LABOUR (PHYSICAL) ACTIVITY IN THE EXECUTION OF THE WORK. ON PERUSAL OF THE LABOUR CHARGES / SUBCONTRACTOR PA YMENT FROM THE P&L ACCOUNT IT IS OBSERVED THAT THE ASSESS EE HAS ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 4 PAID RS 1.43 CRORE AND RS 6.03 CRORE OF LABOUR AND SUBCONTRACTOR HEADS. FURTHER THE PURCHASE OF RS 5.3 CRORE ALSO HAS A LABOUR PAYMENT PORTION IN IT. HENCE IT S NOT THAT THE ASSESSEE HAS ENGAGED ONLY THE PERSONS IN QUESTI ON FOR THE EXECUTION OF THE ENTIRE 16,91,1 5,384/-. IN FAC T THE TOTAL PAYMENT TO THE FOLLOWING PERSONS IN QUESTION ARE AS UNDER: AJAY C SHAH 19,34,935.25 CHANDRAKANT HAGARE 12,35,653.00 PANDURANG BULLAKI 33,19,553.74 RISHI TANNA 30,69,187.00 THE TOTAL AMOUNT PAID TO THESE PEOPLE IS JUST 5% (A PPROX.) OF THE CONTRACT RECEIPTS. THE NATURE OF WORK OF THE ASSESSEE IS PRI MARILY LABOUR BASED RI WHICH ONLY WORK OF 5/ OF VALUE IS IN DOUBT. FURTHER, THE ASSESSEE HAS DECLARED THE NET PROFIT O F 2.7% (NET OF PARTNERS INTEREST AND REMUNERATION) FOR TAXATION. T HE SAME IS TO KNOW WHERE THE STATUTORY 44AD MINIMUM VALUE IS 8% AND AS SESSEE ENJOYING THE ECONOMIES OF SCALE SHOULD HAVE EARNED MORE. (II) THE ASSESSEE HAS CONTENDED THAT THERE IS NO LE GAL REQUIREMENT FOR THE ABOUT CONTRACTORS TO BE KNOWLEDGEABLE ON THE IS SUE OF BILL NUMBERS AND THEIR SEQUENCING. THE REASON COULD HAVE BEEN AC CEPTABLE, HAD THE LABOUR CONTRACTORS MADE THE BILL ON THEIR OWN. HOW EVER IT IS ALREADY STATED ON OATH BY THE LABOUR CONTRACTOR OF THE ASSE SSEE, MR. PANDURANG BULLAKI THAT THE BILLS ARE PREPARED BY THE ASSESSEE HIMSELF. HENCE THE CONTENTION OF THE ASSESSEE THAT THE LABOUR CONTRACT OR NEED NOT BE LEGALLY REQUIRED TO KNOW THE BILL SEQUENCING IS NOT ACCEPTA BLE. (III) THE ASSESSEE HAS STATED THAT CAN A PRINCIPAL / MAIN CONTRACTOR DENY THE PAYMENT ONLY BECAUSE THE BILL IS NOT NUMBE RED IN A PARTICULAR ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 5 MANNER? AS DISCUSSED IN POINT NO. (II) ABOVE, THE C ONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AS THE BILLS ARE PREPARE D BY THE ASSESSEE ONLY. (IV) THE ASSESSEE HAS CONTENDED THAT THERE IS A NE XUS BETWEEN TO BE DONE AND WORK EXECUTED AS THE BILLS ALSO MENTION TH E SITE ADDRESS LIKE AW-43, W-222 ETC. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AS THERE IS NOT ALWAYS NEXUS BETWEEN WORK DONE AND WOR K TO BE DONE BECAUSE AS STATED IN PARA 2.3 (VI) THAT PANDURANG B ULLAKI HAS STATED THAT HE HAS DONE WORK IN SURAT AND MUMBAI AND RECEI VED PAYMENT IN SURAT AND MUMBAI ACCOUNT RESPECTIVELY. HOWEVER, ON PERUSAL OF THE BILLS RAISED BY PANDURANG BULLAKI, IT IS OBSERVED T HAT THE ALL THE BILLS ARE RAISED BY PANDURANG BULLAKI FOR MUMBAI SITE ONLY. A S PER THE STATEMENT OF LABOUR CHARGES SUBMITTED BY AUTHORIZED REPRESENT ATIVE, AN AMOUNT OF RS 3319553/- WAS CHARGED IN P&L A/C AGAINST PANDURA NG BULLAKI WHICH IS THE SAME AMOUNT WHICH IS THERE IN THE BILL S RAISED FOR MUMBAI SITE. WHAT HAPPENED TO THE BILLS OF THE WORK IN SUR AT SITE. THEREFORE, THERE S NO SANCTITY OF THE SITE NAME AND BILLS CLAI MED TO BE RAISED BY LABOUR CONTRACTORS. (V) THE ASSESSEE HAS CONTENDED THAT THE LABOUR CO NTRACTORS DO NOT KNOW HOW TO MAINTAIN BOOKS OF ACCOUNT. FOR MAINTAIN ING, LABOUR REGISTER, NAMES OF LABOUR, PAYMENTS MADE TO THE LAB OUR DOES NOT REQUIRE ANY SPECIALIZED KNOWLEDGE OF ACCOUNTS. IN ANY CASE, IGNORANCE CANNOT BE AN EXCUSE. (VI) THE ASSESSEE HAS CONTENDED THAT THEY HAVE DED UCTED TDS AND MADE CHEQUE PAYMENTS AND FURTHER THE LABOUR CONTRAC TORS ARE NOT REQUIRED TO MAKE ANY BOOKS OF ACCOUNT U/S 44AD. THE LABOUR CONTRACTORS ARE NOT REQUIRED TO MAINTAIN ANY BOOKS OF FOR THE PURPOSE OF THEIR OWN ASSESSMENT UNDER INCOME TAX ACT, HOWEVER, THIS PLEA CANNOT BE TAKEN BY THE ASSESSEE IN HIS OWN ASSESSMENT PROC EEDINGS. NOT EVEN A BASIC REGISTER, DIARY, LOOSE PAPER WAS PRODUCED B Y THEM TO DENOTE ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 6 THAT THEY ARE LABOUR CONTRACTORS. MAKING CHEQUE PAY MENT AND DEDUCTING TDS IS NOT A PANACEA OF EVERYTHING. (VII) REGARDING AJAY G SHAH, ASSESSEE HAS PROPOSED TO PRODUCE HIM AFTER 28.12.09. OWING TO THE FACT THAT ASSESSEE IS AWARE THAT IT IS A TIME BARRING MATTER WHICH IS GETTING TIME BARRED ON 31.1 2.09, IT CAN ONLY BE TERMED AS AVOIDANCE TECHNIQUE ADOPTED BY THE ASSESS EE FOR NOT PRODUCING HIM. (VIII) ALL THESE PEOPLE ARE RELATED IN CONNECTION O F EMPLOYMENT WITH THE ASSESSEE AND ON THESE HE HAS CLAIMED SALARY AND BY MANAGING THEIR ACCOUNTS UNDER SECTION 44AD OF INCOME TAX ACT. THE, ASSESSEE IS TRYING TO REDUCE NET PROFIT BY CLAIMING LABOUR PAYMENTS. 4. THE A.O. FINALLY CONCLUDED THAT THE PAYMENTS CLA IMED TO HAVE BEENMADE BY THE ASSESSEE TO S/SHRI PANDURANG BULLAK I, RISHI TANNA AND CHANDRAKANT HANGARE WERE NOT GENUINE. HE, THER EFORE, DISALLOWED THE ENTIRE PAYMENT MADE BY THE ASSESSEE TO THE ABOVE FOUR PERSONS AND MADE ADDITIONS TO THE INCOME OF THE ASS ESSEE. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT (A). THE LD. CIT (A) DELETED THE MAJOR ADDITION BUT ON THE AD-HOC BA SIS SUSTAINED THE ADDITION TO THE EXTENT OF RS 2,50,000/- OUT OF THE TOTAL ADDITION OF RS.95,59,329/-. THE REASONS GIVEN BY THE LD. CIT ( A) ARE AS UNDER :- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE AND THE STAND TAKEN BY THE AO. ADMIT TEDLY, THE LABOUR CHARGES PAID TO THE FOUR SUBCONTRACTOR W ERE MADE BY ACCOUNT PAYEE CHEQUES AND THE SAME ARE CLEA RED IN THE NAMES OF SUBCONTRACTORS, AS SEEN FROM THE BA NK STATEMENT OF THE APPELLANT THUS, THERE IS NO DOUBT THAT THE PAYMENTS WERE EFFECTED THOUGH ACCOUNT PAYEE CHEQUES AND THE SUBCONTRACTORS HAVE FILED THEIR RETURNS OF INCOME ADMITTING PROFIT U/S.44AD @8% AND THE APPELLANT HAS DEDUCTED THE TDS AT THE RATES APPLICABLE OH IS ALSO NOT ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 7 DISPUTED BY THE AO THE OBJECTIONS OF THE AO IS THAT AS PER STATEMENTS RECORDED FROM THEM, THEY WITHDREW THE MO NEY FROM THE BANK AS SOON AS THE CHEQUES ISSUED BY THE APPELLANT WERE CLEARED. THE A.O. COULD NOT BELIEVE THAT WITH THE AMOUNT WITHDRAWN ONCE IN A MONTH, THE CONT RACTOR COULD NOT HAVE PAID WEEKLY LABOUR CHARGES. HOWEVER, THE AMOUNT WITHDRAWN ONCE IN A MONTH COULD HAVE BEEN US ED BY THE SUBCONTRACTORS FOR PAYMENT OF WEEKLY LABOUR CHARGES AS THEY ARE NOT MAINTAINING BOOKS OF ACCOUN T AND IT IS NOT NECESSARY THAT AMOUNTS ARE TO BE WITHDRAW N ON WEEKLY BASIS. REGARDING OTHER MINOR DISCREPANCIES N THE STATEMENTS RECORDED FROM SUBCONTRACTORS, IT IS SEEN THAT THE A.O. HAS NOT PROVIDED OPPORTUNITY OF CROSS-EXAMINAT ION TO THE APPELLANT. IT IS TRUE THAT PANDURANG BULLAKI: S TATED HE CARRIED OUT WORK N MUMBAI AND SURAT BUT IT IS NOT K NC7N FOR WHICH PERIOD THE STATEMENT WAS APPLICABLE. MERELY BECAUSE SOME OF THE RELATIVES OF THE SUBCONTRACTORS WERE EMPLOYED WITH THE APPELLANT, IT CANNOT BE PRESUMED THAT THE LABOUR CHARGES CLAIMED WAS NOT GENUINE. AS CONT ENDED BY THE REPRESENTATIVE, WHEN THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES NO ADDITION COULD BE MADE UNL ESS IT IS PROVED THAT THE AMOUNT WAS RECEIVED BACK BY THE ASSESSEE AFTER WITHDRAWAL AND THIS VIEW IS SUPPORTE D BY THE DECISION OF HONBLE JABALPUR TRIBUNAL IN THE CA SE OF ADDL. CIT VS. RAM MANOHAR SINGH (178 TAXMAN 047(JAB)(MAG,) FIND THAT THE AC. HAS DISALLOWED LAB OUR CHARGES BASED ON SUSPICION DOUBT AND ASSUMPTION AND IN ANY CASE THE NET PROFIT ADMITTED BY THE APPELLANT I S REASONABLE AT 5.80% AND THE AC. ASSUMED THAT THE NET PROFIT ADMITTED WAS AT 207% (EXCLUDING REMUNERATION AND INTEREST TO PARTNERS). FURTHER IT IS SEEN FROM THE P&L ACCOUNT THAT THE APPELLANT HAD AWARDED, SUBCONTRACT WORK TO OTHERS FOR A SUM OF RS 03,21,685/- AND, THEREFOR E, IT ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 8 CANNOT BE EXPECTED THAT THE APPELLANT WOULD NET PRO FIT ON THE GROSS CONTRACT RECEIPTS. FURTHER EVEN IN THE EA RLIER WHEN THE SCRUTINY ASSESSMENTS WERE COMPLETED U/S143(3) T HE BOOK WERE ACCEPTED WITH LUMPSUM ADDITION OF RS. 2 L AKHS. FOR A.Y. 2006-07 I.E. APPELLANT ADMITTED NET PROFIT OF RS. 4274,435!- ON CONTRACT RECEIPTS OF RS. 7,67,3!137I- AND THE NET PROFIT WORKS OUT TO 557%. THUS, EVEN ASSUMING T HAT THE BOOKS OF ACCOUNTS WERE NOT CORRECT AND COMPLETE, TH E AU. COULD HAVE ONLY ENTRUSTED THE NET PROFIT BY COMPARI NG THE RESULTS ADMITTED IN THE EARLIER YEARS FOR AT. 2005- 05 THE APPELLANT ADMITTED NET PROFIT OF RS. 50,94762/- ON CONTRACT RECEIPTS OF RS. 9,14,74,524/- AND THE NET PROFIT COMES TO 5.56%. THUS, FIND THAT THE NET PROFIT ADMI TTED IN THIS YEAR IS NOT LESS THAN WHAT WAS ADMITTED THE EA RLIER ASSESSMENT YEARS WHICH WERE ACCEPTED U/S.143(3) WIT H LUMPSUM ADDITION RS.50000J- FOR AX. 2005-06 AND RS.1,00,000!- A.Y, 2006-07 TOWARDS LABOUR CHARGES. CONSIDERING THE INCREASE IN THE TURNOVER OF THE APP ELLANT, I FIND THAT LUMPSUM ADDITION OF RS.2,50,000/- WOULD B E JUSTIFIED. I, THEREFORE, RESTRICT THE ADDITION OF R S.2,50,000/-. 5. ASSESSEE HAS FILED A CROSS OBJECTION, WHICH WE W ILL DEAL WITH AT LATER STAGE OF THIS ORDER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. THE LD. D.R. VEHEMENTLY SUBMITS THAT THERE WERE SERIOUS CONTRADICTIONS IN THE DEPOSITIONS GIVEN BY THREE CONTRACTORS NAMELY, SHRI PANDURANG BULLAKI, SHRI RISHI TANNA AND SHRI CHANDRAKANT HANG ARE. BUT ALL THE CONTRADICTIONS WERE DISCARDED BY THE LD. CIT (A). HE SUBMITS THAT FATHER OF THE SHRI CHANDRAKANT HANGARE IS WORKING A S PEON WITH THE ASSESSEE-FIRM AND ASSESSEE USED HIS POSITION AND CR EATED THE BOGUS RECORD. HE SUBMITS THAT THOUGH ALL ARE CLAIMED TO BE THE LABOUR ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 9 CONTRACTORS BUT NOBODY HAS OBTAINED ANY LICENSE UND ER THE CONTRACT LABOUR (REGULATION AND ABOLITION) ACT,1970. HE SUB MITS THAT AMOUNTS PAID TO THOSE CONTRACTORS ARE WITHDRAWN ON THE SAME DAY THOUGH IT IS CLAIMED THAT THE WORKERS ARE PAID ON T HE WEEKLY BASIS. HE SUBMITS THAT ALL THE CONTRADICTIONS IN THE DEPOSITI ONS OF SO CALLED CONTRACTORS AND OTHER EVIDENCE REFERRED TO BY A.O. TO PROVE THAT THE BILLS WERE MANIPULATED AND EXPENSES ON LABOUR CONTR ACTORS WERE NOT GENUINE, BUT THE LD. CIT (A) WITHOUT DEALING WITH T HE FINDINGS AND CONCLUSIONS ARRIVED AT BY THE A.O., ALLOWED THE MAJ OR RELIEF TO THE ASSESSEE. WE HAVE ALSO HEARD THE LD. COUNSEL. 7.(I) ASSESSEE HAS FILED THE PAPER BOOK WHICH IS AL SO TAKEN INTO CONSIDERATION WHILE DECIDING THIS APPEAL. AS PER T HE DIRECTIONS OF THE BENCH, THE LD. D.R. HAS FILED THE COPIES OF THE STA TEMENTS RECORDED BY THE A.O. IN RESPECT OF THREE CONTRACTORS U/S.131 OF THE ACT NAMELY SHRI PANDURANG BULLAKI, SHRI RISHI TANNA AND SHRI CHANDR AKANT HANGARE. (II) NOW, LET US DEAL WITH THE DEPOSITIONS BY T HESE THREE PERSONS TO THE A.O. IN THE STATEMENT RECORDED U/S.131 OF THE A CT. SHRI CHANDRAKANT HANGARE STATES THAT HE HAS STUDIED, UP TO 12 TH AND HE WORKS AS LABOUR CONTRACTORS AND HE SUPPLIES THE LAB OURS/WORKERS TO THE ASSESSEE FIRM. HE FURTHER STATES THAT HE FILES THE RETURN OF INCOME AND HE OBTAINS THE PAN. HE FURTHER STATES THAT HE HAS BANK ACCOUNT IN BANK OF INDIA AND HE IS OPERATING WITH ONLY SAI D BANK ACCOUNT. HE FURTHER STATES THAT HE MAKES PAYMENTS TO THE LABOUR ERS/WORKERS ON THE WEEKLY BASIS AND AFTER PAYMENT OF THE SALARY/ C HARGES TO THE LABOURERS, HE DESTROYS THE ATTENDENCE CARDS GIVEN T O THEM. HE FURTHER STATES THAT HE MAKES THE ARRANGEMENT TO MAKE WEEKLY PAYMENT TO THE WORKERS BUT HE IS NOT KNOWING THE NAMES OF THE PERS ONS FROM WHOM HE TAKES THE MONEY FOR MAKING ARRANGEMENT TO MAKE P AYMENTS. THE A.O. HAS PUT THE QUESTION IN RESPECT OF THE AMOUNT DEBITED ON THE NAMES OF THE SOME OF THE FOLLOWING PERSONS:- ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 10 NAME AMOUNT DATE 1. SHRI A.N. PATEL RS 23,168/- 24.3.2009 2. SHRI P.K. DESAI RS 23,168/- 25.3.2009 3. SHRI V.G. DESAI RS 23,168/- 25.3.2009 4. SHRI V.K. REG.. RS 23,168/- 25.3.2009 5. SHRI P....SHAH RS 23,168/- 13.4.2009 6. SHRI SHAH RS.23,168/- 13.4.2009 SHRI CHANDRAKANT HANGARE REPLIED THAT HE DID NOT KN OW THE ABOVE PERSONS AND HE IS NOT AWARE ABOUT THE SAID TRANSACT IONS. (III) LET US SEE THE STATEMENT GIVEN BY , SHRI RISHI TANNA. HE STATES THAT HE HOLDS DIPLOMA IN CIVIL ENGINEERING A N LABOUR CONTRACTORS. HE SUPPLIES LABOUR TO THE ASSESSEE FI RM. HE IS HAVING THE PAN NUMBER AND HE IS ASSESSED BY THE DEPARTMENT . HE HAS ALSO DESCRIBES THE LABOUR WORK DONE BY HIM. HE STATES T HAT HE HAS NOT HAVING ANY RECORD TO SHOW PAYMENT MADE TO THE LABOU RERS/WORKERS AND HE RECEIVES ALL THE PAYMENTS BY CHEQUES. (IV) NOW, LET US SEE STATEMENT GIVEN BY SHRI P ANDURANG BULLAKI. HE SUBMITS THAT HE IS AN ILLITERATE PERSO N AND HE IS A LABOUR CONTRACTOR. HE SUPPLIES LABOUR TO M/S. SHETH CONST RUCTION FIRM. HE IS HAVING HE PAN AND HE FILES THE RETURN OF INCOME. HE SUPPLIES THE LABOUR TO THE ASSESSEE FIRM. HE ALSO STATES THAT HO W THE LABOUR CHARGES ARE DECIDED. HE STATES THAT HE SUPPLIES TH E LABOUR AT VARIOUS SITES IN SURAT AND IN MUMBAI AND PAYMENTS ARE RECEI VED BY CHEQUE AND SAME IS DEPOSITED IN THE BANK ACCOUNT AT SURAT. HE HAS NOT MAINTAINED ANY RECORD IN RESPECT OF THE PAYMENTS MA DE TO THE LABOURERS. 8.THE A.O. COULD NOT RECORD THE STATEMENT OF SHRI A JAY C SHAH. THE LD. COUNSEL TRIED TO JUSTIFY THE PERCENTAGE OF THE LABOUR CHARGES IN THE PRECEDING YEARS AND SUBMITS THAT IN NONE OF THE YEA RS, THE QUESTION WAS RAISED ON THE GENUINENESS OF THE LABOUR CHARGES PAID BY THE ASSESSEE THOUGH THE ASSESSMENT ARE COMPLETED U/S.14 3(3) OF THE ACT. ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 11 WE FIND THAT THE A.O. HAS POINTED CERTAIN CONTRADIC TIONS IN THE STATEMENT RECORDED OF THE THREE PERSONS, BUT WHILE DECIDING THE APPEAL THE SAME ARE NOT DEALT WITH BY THE LD. CIT (A). TH E LD. CIT (A) IS IMPRESSED WITH THE FACT THAT ALL THE PAYMENTS ARE M ADE BY THE ACCOUNT PAYEE CHEQUES BY THE ASSESSEE-FIRM. ALL TH E SUB-CONTRACTOR HAVE FILED THE RETURN OF THEIR INCOMES. IN THE OPIN ION OF THE LD. CIT (A) THERE WERE MINOR DISCREPANCY IN THE STATEMENTS RECO RDED OF ALL THE THREE CONTRACTORS AND THE A.O. DID NOT GIVE THEM AN Y OPPORTUNITY TO CROSS-EXAMINE. WE FIND THAT THE LD. CIT (A) HAS ON LY GONE ON THE REASONABLENESS OF THE NET PROFIT DECLARED BY THE AS SESSEE. WE ALSO FIND THAT IT IS CERTAINLY STRANGE WHEN THE CHEQUES ARE I SSUED THE CONTRACTOR IS UNAWARE ABOUT THE PERSONS TO WHOM THE PAYMENTS A RE MADE. WE FIND THAT ONE OF THE SUB-CONTRACTORS / CONTRACTORS SHRI AJAY C SHAH IS ALSO WORKING WITH THE ASSESSEE-FIRM. IN OUR OPINIO N, MERELY BECAUSE THE GENUINENESS OF A PARTICULAR EXPENDITURE IS NOT QUESTIONS BY THE A.O. IN THE PRECEDING YEAR THAT CANNOT BE THE REASO N TO BLINDLY ACCEPT THE VERSION OF THE ASSESSEE WHEN THE A.O. COLLECTED SOME EVIDENCE ON THE GENUINENESS OF A PARTICULAR EXPENDITURE. THE E NTIRE ISSUE NEEDS THE PROPER ADJUDICATION. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT (A) AND RESTORE THE ENTIRE ISSUE BACK TO HIS FI LE WITH A DIRECTION TO DECIDE THE ISSUE OF DISALLOWANCE AFTER CONSIDERING THE OBJECTIONS RAISED BY THE A.O. THE ASSESSEE SHOULD BE GIVEN AN OPPORTU NITY OF BEING HEARD AS PER THE PRINCIPLES OF NATURAL JUSTICE. AC CORDINGLY, GROUND 1 IS ALLOWED FOR THE STATISTICAL PURPOSES 9. SO FAR AS GROUND NO.2 IS CONCERNED, THAT ISSUE I S IN RESPECT OF DEPRECIATION ON THE MIXTURE IN TRANSIT. 10. IT WAS NOTICED BY THE A.O. THAT IN THE AUDIT RE PORT, THE DATE OF THE PURCHASE OF THE TRANSIT MIXTURE IS SHOWN AS ON 15.9.2006 AND THE DATE PUT TO USE HAS SHOWN AS 15.10.2006. IN THE OP INION OF THE A.O. THE ASSESSEE WAS ONLY ELIGIBLE FOR THE 50% OF THE D EPRECIATION ON THE PURCHASE OF THE TWO TRANSIT MIXTURES. THE ASSESSEE CONTENDED THAT IT ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 12 WAS A TYPING ERROR. THE ASSESSEE ALSO FILED THE REG ISTRATION AND INSURANCE PAPER OF THE SAID MIXTURES BEFORE THE A.O . BUT THE A.O. WAS NOT CONVINCED. THE ASSESSEE CARRIED THE ISSUE BEFO RE THE LD. CIT (A) WHO ACCEPTED THE PLEA OF THE ASSESSEE THAT IT WAS A TYPING ERROR. THE LD. CIT (A) ALSO CONSIDERED THE REGISTRATION AND IN SURANCE PAPER OF THOSE EQUIPMENTS. THE LD. CIT (A) DIRECTED THE A.O . TO ALLOW THE DEPRECIATION FULLY. 11. NOW THE REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. WE CONCUR WITH THE FINDINGS OF THE LD. CIT (A) THAT IT WAS ME RELY A MISTAKE IN THE AUDIT REPORT AND HENCE, THE ASSESSEE SHOULD NOT BE DEPRIVED OF THE FULL DEPRECIATION. IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT (A) AND WE ACCORDINGLY CONFIRM THE SAME. GROUND NO.2 IS DISMISSED. 13. NOW, WE TAKE-UP CROSS OBJECTION FILED BY THE AS SESSEE. THE ASSESSEE HAS FILED THE FOLLOWING EFFECTIVE GROUNDS, WHICH READ AS UNDER:- 1. ON THE FACTS AND IN LAW, LEARNED CIT (A) HAS ER RED IN SUSTENANCE OF DISALLOWANCE OF LABOUR CHARGES TO THE EXTENT OF ` . 2,50,000/- ON LUMP SUM BASIS. 2. ON THE FACTS AND IN LAW, LEARNED CIT (A) HAS ERR ED IN SUSTENANCE OF DISALLOWANCE U/S.40(A)(IA) TO THE EXT ENT OF ` 59,890/-. 14. THE ASSESSEE HAS RAISED THE GRIEVANCE FOR PARTL Y SUSTAINING THE DISALLOWANCE IN RESPECT OF THE LABOUR CONTRACTOR. WHILE DECIDING THE APPEAL OF THE REVENUE, WE HAVE RESTORE THE MATTER T O THE FILE OF THE LD. CIT (A). WE, THEREFORE, RESTORE GROUND TAKEN BY TH E ASSESSEE TO THE FILE OF THE LD. CIT (A) IN THE LIGHT OF OUR OBSERVATION AND DIRECTION GIVEN IN ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 13 REVENUES APPEAL. SO FAR AS GROUND NO. 2 IS CONCERN ED, THE LD. COUNSEL DID NOT SERIOUSLY PRESSED THE SAID GROUND, HENCE SAME IS DISMISSED. 15. IN THE RESULT, BOTH REVENUES APPEAL AS WELL AS ASSESSEES CROSS OBJECTION ARE PARTLY ALLOWED FOR STATISTICAL PURPOS E. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 31ST/10/2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE : 31ST OCTOBER, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-35, MUMBAI. 4) THE CIT-25, MUMBAI. 5) THE D.R. H BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ORDER PRONOUNCED BY: SD/- SD /- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( B.R. MITTAL ) JUDICIAL MEMBER ITA 5074/MUM/2010 C.O. NO.91/M/2010 M/S. SHETH CONSTRUCTION COMPANY 14 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 18.10.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 21.10.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER