Laxmikant D.Barewar, Gondia V. The Dy.commissioner of Income Tax,Circle-8, Nagpur

ITA 54/NAG/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9602 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMESH DAWANDE
• Assessee Lawyers: R G AGRAWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 54/NAG/2010 ASSESSMENT YEAR: 2006-2007 SHRI LAXMIKANT D. BAREWAR, PROP. LAXMI CONSTRUCTION COMPANY, GOREGAON, DIST. GONDIA, GOREGAON-441801 (M.S.) PAN:AAVPB0438Q VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, NAGPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.G. AGRAWAL, ADVOCATE RESPONDENT BY : S HRI RAMESH DAWANDE, SR. DR DATE OF HEARING: 11.12.2012 DATE OF ORDE R: 14.12.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 4.5.2010 IS AG AINST THE ORDER OF CIT (A)- II, NAGPUR DATED 29.1.2010 FOR THE ASSESSMENT YEAR 20 06-2007. 2. GROUNDS ARE ARGUMENTATIVE AND THE ISSUE THAT ARI SES FROM THE SAME RELATES TO THE DISALLOWABILITY OF A PORTION OF THE PAYMENT TO THE LABOUR APPLYING A FLAT RATE WHEN THE PAYMENTS IN QUESTION ARE CASH AND THEY ARE NOT ENTIRELY SUPPORTED BY THIRD PARTY VOUCHERS. 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE AR E THAT THE ASSESSEE IS CIVIL GOVERNMENT CONTRACTOR, MAINLY DOING PWD CONTRACTS. ASSESSEE FILED THE RETURN OF INCOME DECLARING INCOME OF RS. 7,07,430/- ON THE TU RNOVER OF RS. 2.16 CR FOR THE YEAR UNDER CONSIDERATION. THE NET PROFIT IS RS. 8. 08 LAKHS WHICH WORKS OUT TO RS.3.74% OF NET PROFIT AND THE SAME IS MORE OR LESS EQUAL TO THE NET PROFIT OF THE EARLIER ASSESSMENT YEAR 2005-2006 AND SUBSTANTIALLY MORE THAN THE NET PROFIT OF THE ASSESSMENT YEAR 2004-2005. AO OBSERVED THAT THE AS SESSEE BOOKED RS. 87,91,138/- UNDER LABOUR EXPENDITURE AND THE SAME WORKS OUT TO 40% OF THE TOTAL TURNOVER OF 2 RS. 2.16 CR. AO IS OF THE OPINION THAT THE LABOUR EXPENDITURE IS NOT PROPORTIONATE TO THE TURNOVER OF THE ASSESSEE. ON EXAMINATION OF TH IS ACCOUNT, AO NOTICED THAT ASSESSEE MADE THE PAYMENTS OF RS. 40 LAKHS IN CASH TO VARIOUS LABOUR LEADERS FOR DISBURSEMENT AMOUNT THE INDIVIDUAL LABOURERS. THE PAYMENTS IN CASH NEVER INCREASE THE STIPULATED INCOME OF RS. 20,000/- ON ANY OCCASI ON. AO NOTICED THAT THE ASSESSEE HAS NOT MAINTAINED THE FOLLOWING REGISTERS / DETAIL S WHICH READ AS UNDER: 1. HE HAS NOT DONE PF OF ANY LABOUR. THERE IS NO ANY RECORD OF INDIVIDUAL LABOUR. 2. A SUM OF RS. 87,91,138/- LABOUR CHARGES CLAIMED FOR THE FY 2005-2006 BY THE ASSESSEE. 3. ASSESSEE DO NOT KEEP INDIVIDUAL LABOUR ATTENDANC E REGISTER. 4. INDIVIDUAL LABOR SIGN PAYMENT RECEIPT IS NOT AVAI LABLE NEITHER MAINTAINED BY THE ASSESSEE. 5. HE DO NOT HAVE BILLS RAISED BY THESE PERSONS, SI NCE THEY DO NOT GIVE BILLS. 6. ASSESSEES SUPPORTING DO NOT CONTAIN QUANTUM OF WORK IN TERM OF BRASS. 7. ASSESSEES SUPPORTING DO NOT CONTAIN NAMES AND A TTENDANCE DETAILS OF INDIVIDUAL LABOURERS. 8. PAYMENTS ARE MADE IN CASH BELOW RS. 20,000/- ON EACH OCCASION. 4. SUBSEQUENTLY, AO RECORDED A STATEMENT ON 23.12.2 008 FROM SHRI LAXMIKANT S/O DAULAT BAREWAR AND IT IS EVIDENT FROM THE ANSWE RS TO QUESTIONS FROM 13 TO 20 WHICH CONFIRM THE ABOVE FINDINGS OF THE AO IE INDIV IDUAL LABOUR ATTENDANCE REGISTER WAS NOT MAINTAINED, CASH VOUCHERS ARE NOT MAINTAINE D, BILLS ARE NOT MAINTAINED, BILLS DO NOT CONTAIN DETAILS ETC. AT THE END, THE AO EST IMATED THE DISALLOWANCE ON THIS AMOUNT OF LABOUR PAYMENTS APPLYING FLAT RATE OF 20% AND THE AMOUNT ADDED ON THIS ACCOUNT WORKS OUT TO RS. 17,58,228/-. AGGRIEVED WI TH THE ABOVE, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 5. THE CIT (A) ANALYZED THE TURNOVER AS WELL AS NET PROFIT FIGURES OF AYS 2004- 05, 2005-06 & 2006-07 AND FINALLY CONCLUDED THAT RE STRICTING THE DISALLOWANCE TO 10% OF THE CLAIM SHALL BE REASONABLE. ACCORDINGLY, THE DISALLOWANCE WORKS OUT TO RS. 8,79,114/-. REVENUE ACCEPTED THE FINDING OF TH E CIT (A), HOWEVER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE DISALL OWANCE OF RS. 8,79,114/-. 3 6. DURING THE E-BENCH PROCEEDINGS, SHRI R.G. AGRAWA L, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE MAINTAINED BOO KS OF ACCOUNT DULY AUDITED BY THE AUDITORS U/S 44AB OF THE ACT WAS DULY ENCLOSED TO THE RETURN OF INCOME AND THERE IS AN INTERNAL AUDIT SYSTEM FOR CONTROLLING T HE EXPENDITURE. IN THESE CIRCUMSTANCES, AO CANNOT MAKE A DISALLOWANCE WITHOU T REJECTING THE BOOKS OF ACCOUNT. LD COUNSEL VEHEMENTLY ARGUED STATING THAT CONTROLLING THE LABOUR INDIVIDUALLY IS NOT A PRACTICALLY WORKABLE PROPOSIT ION IN THIS LINE OF BUSINESS ACTIVITY, THEREFORE, ASSESSEE ALWAYS MAINTAINS AGENTS CALLED GANG LEADERS AND THE PAYMENTS ARE MADE THROUGH THEM AND ALSO MAINTAINED RELEVANT RECORDS IN SUPPORT OF THE TRANSACTIONS. FOR THE LABOUR, THE PAYMENTS HAVE TO BE MADE IN CASH AND THIRD PARTY VOUCHERS / EVIDENCES CANNOT BE MAINTAINED. R EGARDING NAMES, ADDRESSES AND SIGNATURES ETC OF THE INDIVIDUAL LABOURER IS NOT PR ACTICABLE TO MAINTAIN AS THEY ARE ENGAGED TO THE WORKS BY THE AGENTS. 7. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO AND MENTIONED THAT THE RESTRICTING THE DISALLOWANCE TO 10% IS REASONAB LE, AND THEREFORE, THE ADDITION SHOULD NOT BE DISTRIBUTED. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE MAINTAINED THE BOOKS OF ACCO UNT AND THE SAME ARE EXECUTED. HOWEVER, THE LABOUR ACCOUNTS DEBITED TO THE P & L A CCOUNT SUFFERS FROM CERTAIN INADEQUACIES AS MADE OUT BY THE REVENUE AUTHORITIES AND THEY INCLUDE NON- MAINTENANCE OF LABOUR-WISE ATTENDANCE REGISTER AND ABSENCE OF THEIR DETAILS LIKE NAMES, ADDRESSES AND SIGNATURES IN SUPPORT OF THE C LAIM. IT IS THE CASE OF THE ASSESSEE THAT IT IS NOT PRACTICABLE TO MAINTAIN SUC H DETAILS IN THIS CASE AS ASSESSEE DEPENDED ON GANG LEADERS WHO CONTROL THESE LABOURER S. ON THE OTHER HAND, IT IS THE CASE OF THE REVENUE THAT THE CLAIM OF EXPENDITURE O F RS. 87,91,138/- IS DISPROPORTIONATE TO THE TURNOVER OF RS. 2.16 CR AND EXPENDITURE IS INFLATED AS EVIDENT FROM THE FACT THAT THE EVIDENCES ARE NOT FULL PROOF AND THEY WILL NOT STAND. IT IS AN ADMITTED FACT THAT THE VOUCHERS ARE NOT SIGNED BY T HE INDIVIDUAL LABOUERS. ON CONSIDERING THE ABOVE DIVERGENT VIEWS, WE FIND THAT IT IS SETTLED PROPOSITION THAT THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE GENUINEN ESS OF THE EXPENDITURE WITH THE 4 CLAIM OF DEBIT IS MADE IN THE BOOKS OF ACCOUNT. TH E ISSUE IN QUESTION DOES NOT RELATE TO THE REJECTION OF THE BOOKS OF ACCOUNT OR OTHERWISE AND IT RELATES TO THE GENUINENESS OF THE LABOUR EXPENDITURE. CONSIDERING THE CASH PAYMENTS, THE LACUNA IN THE MAINTENANCE OF CONCERNED REGISTERS AND VOUCH ERS INVOLVING THE EXHAUSTIVE INFORMATION ABOUT THE LABOURERS, IN OUR OPINION, TH E REVENUE IS JUSTIFIED IN MAKING DISALLOWANCE. HAVING HELD SO, WE HAVE TO EXAMINE W HETHER THE DECISION OF ADOPTING A FLAT RATE OF 20% AS DONE BY THE AO OR 10% AS REST RICTED BY THE CIT (A) IS CORRECT OR NOT. WE ARE OF THE OPINION THAT IN BOTH THE CAS ES, THERE IS NO BASIS MENTIONED IN THE ORDERS OF THE REVENUE. IN THESE CIRCUMSTANCES, DISALLOWING A ROUNDED SUM SHOULD MEET THE ENDS OF JUSTICE. THEREFORE, IN OUR VIEW, DISALLOWING A SUM OF RS. 5 LAKHS SHOULD BE REASONABLE. ACCORDINGLY, THE GROUN DS RAISED IN THE APPEAL ARE PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED BY E-BENCH AT MUMBAI ON THIS 14 TH DAY OF DECEMBER, 2012. SD/- SD/- (R.K. GUPTA) (D. KARUNAKARA RAO) JUDICIAL MEMBER AC COUNTANT MEMBER DATE :14.12.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR , ITAT, NAGPUR. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR