M/s. M.R. Mutha, Ahmednagar V. DCIT, Ahmednagar Circle, Ahmednagar

ITA 554/PUN/2013

• Counselvise Citation: 55424514 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.554/PN/2013 (A.Y: 2008-09) M/S. M.R. MUTHA SECTOR NO.1A, M.R. TRADE CENTRE, WADIA PARK, TILAK ROAD, AHMEDNAGAR. PAN: AADFM8557B APPELLANT VS. DCIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI RAJE SH DAMOR DATE OF HEARING: 17.07.2014 DATE OF ORDER : 18.07.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE CONFIRMATION OF DISALLOWANCE OF 27,70,163/- MADE BY THE ASSESSING OFFICER IN RESPECT OF THE EXPENDITURE INC URRED ON LABOUR, LABOUR SUB CONTRACT AND LABOUR SUB CONTRACT ALONG WITH MATERIAL. 2. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE S TURNOVER INCREASED FROM 4,16,21,321/- TO 7,28,13,309/-, THE GP PERCENTAGE WAS SHOWN AT 15.84% AS AGAINST GP IN THE PREVIOUS YEAR SHOWN AT 21.59%. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THE INCREASE UNDER THREE HEADS I.E. LABO UR PAYMENT 2 ITA NO.1288 OF 11 SHRI BHAIRAVNATH NAGARI SAH. PATSANSTHA LTD. EXPENSES, LABOUR SUB CONTRACT AND SUB CONTRACT EXPE NSES VIS-- VIS THE PREVIOUS YEAR, WHICH ARE AS UNDER: PARTICULARS A.Y. 2006-07 A. Y. 2007-08 INCREASE IN QUANTUM PAID PERCENTAGE INCREASE LABOUR PAYMENT EXPENSES 78,81,979 89,84,896 11,02,917 12.34% LABOUR SUB CONTRACT EXPENSES NIL 65,04,143 65,04,142 8.93% SUB CONTRACT EXPENSES 31,27,603 66,01,197 32,73,594 9.07% TOTAL EXPENDITURE 1,10,09,582 2,20,90,326 1,10,80,653 49.83% 2.1 HAVING CONSIDERED THE SUBMISSIONS ON BEHALF OF ASSESSEE, THE ASSESSING OFFICER HAS DISALLOWED 25% OF THE TOT AL INCREASE IN EXPENDITURE INCURRED ON ABOVE HEADS I.E. 1,10,80,653/- AS NON- GENUINE AND FICTITIOUS ON THE FOLLOWING GROUNDS. A) INCREASE IN TURNOVER OF CONTRACT RECEIPTS BY 57% B) THE PERCENTAGE OF GP DECLINED FROM 21.59% TO 15.84% C) EXPENSES ON LABOUR PAYMENTS, LABOUR SUB-CON TRACTS AND SUB CONTRACT EXPENSES INCREASED FROM 26.45% TO 30.33% D) NO CONCRETE EVIDENCE PRODUCED OF WORK DONE E) ACCOUNT EXTRACTS OF LABOUR CONTRACTORS SHOWED PAYME NTS MADE BOTH IN CASH AND BY CHEQUES. F) EXPENDITURE ON COIMBATORE SITE ON ACCOUNT OF THESE 3 HEADS OF EXPENDITURE IS ONLY RS.13,59,805/- AMOUNTI NG TO ONLY 8.65% OF THE TOTAL EXPENDITURE. 2.2 THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAS HELD AS UNDER: 5.3. I HAVE CONSIDERED THE SUBMISSIONS MADE. REGAR DING THE ARGUMENT THAT IT IS NORMAL TO HAVE DECLINE IN G P WHEN THE TURNOVER OF THE ASSESSEE INCREASES SUBSTANTIALL Y, NEITHER ANY FACTS NOR FIGURES JUSTIFYING SPECIFICALLY, THE DECLINE IN GP VIS-A-VIS TURNOVER DURING THE YEAR AS COMPARED TO T HE PREVIOUS YEAR HAS BEEN FURNISHED TO SUBSTANTIATE TH E SAME. WHAT IS MATERIAL IS THAT CONSISTENTLY, THE APPELLAN T HAS BEEN RETURNING A GROSS PROFIT OF BETWEEN 18% TO 23% IN T HE PAST FOUR YEARS AS WELL AS IN THE SUBSEQUENT TWO YEARS. THIS CHART HAS BEEN PREPARED BY THE LEARNED AR OF THE AP PELLANT AND FURNISHED IN THE COURSE OF APPELLATE PROCEEDING S AND READS AS FOLLOWS: 3 ITA NO.1288 OF 11 SHRI BHAIRAVNATH NAGARI SAH. PATSANSTHA LTD. A;Y. TOTAL SALES (RS.) G.P. RATIO (%) N.P; RATIO (%) 2004-05 1,81,14,253 23.75 5.55 2005-06 4,00,73,521 19.22 5.93 2006-07 4,11,23,610 17.95 8.77 2007-08 4,16,21,321 2L .59 6.16 2008-09 7,28,13,309 15.84 6.08 2009-10 5,96,99,939 18.45 6.03 2010-11 5,65,94,801 17.19 5.05 FURTHERMORE, ALL THE CASE LAWS RELIED UPON RELATE T O TRADING ADDITIONS AFTER REJECTION OF THE BOOKS OF ACCOUNTS, WHICH PRIMA FACIE, ARE NOT COMPARABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, SINCE TRADING RE SULTS ARE NOT DISTURBED. SIMILARLY, THE APPELLANT HAS NOT PRO DUCED ANY EVIDENCES TO SUBSTANTIATE THE FACTS AS CLAIMED, THAT SUBSTANTIALLY LARGER WORK HAS BEEN COMPLETED DURING THE YEAR IN THE SAME TIME FRAME, ALTHOUGH NO NEW CONTRA CTS HAVE BEEN UNDERTAKEN. THE APPELLANT'S ARGUMENT S ABOUT THE ULTIMATE PROFITS I.E. THE NET PROFITS OF THE AP PELLANT SHOULD BE CONSIDERED IS ALSO NOT JUSTIFIED. IN A BU SINESS SUCH AS CONSTRUCTION BUSINESS WHICH IS CONDUCTED BY THE APPELLANT, THE INDICATOR OF TRUE PROFITS IS THE GRO SS PROFIT AND NOT NET PROFIT SINCE THE MAJORITY OF THE EXPENDITUR E IN THIS LINE OF BUSINESS RELATES TO CLOSING STOCK, WORK IN PROGRESS, MATERIALS PURCHASED, LABOUR, SUB-CONTRACT, INTEREST COSTS ETC. OTHER ESTABLISHMENT AND ADMINISTRATIVE COSTS I N THIS LINE OF BUSINESS DO NOT AFFECT THE PROFITABILITY OF THE BUSINESS. 5.4. ONE OF THE CONTENTIONS RAISED REGARDING INCREA SE IN LABOUR EXPENSES AND LABOUR SUB-CONTRACT EXPENSES IS ' THE 10% HIKE IN LABOUR RATES DURING THE YEAR AS 1 COMPARED TO THE PREVIOUS YEAR. THE APPELLANT, IT IS SEEN, ENCLO SED A CHART ALONGWITH HIS WRITTEN SUBMISSIONS DATED 16.12.2010 BEFORE THE ASSESSING OFFICER AS UNDER: SR NO PARTICULARS _ A.Y 2007-08 A.Y 2008-09 INCREASE % 1 LABOUR EXPENSES AS PER GOVT INDICES RS.141 PER DAY (AVERAGE) RS 130 PER DAY 8.5% 2. ACTUAL WAGES PAID TO LABOUR RS 125 PER DAY RS 100 PER DAY 25% FROM THE CHART GIVEN ABOVE, IT IS APPARENT THAT THE ACTUAL WAGES PAID DURING THE YEAR TO LABOUR IS NOT FIXED A S PER THE GOVERNMENT NOTIFIED RATES BUT ARE APPARENTLY NEGOTI ABLE. FURTHER, FROM SOME OF THE BILLS FURNISHED BY THE AP PELLANT 4 ITA NO.1288 OF 11 SHRI BHAIRAVNATH NAGARI SAH. PATSANSTHA LTD. BEFORE THE ASSESSING OFFICER SPECIFICALLY BILL NO. 03160 DATED 19.10.2007 IN RESPECT OF AMOUNT PAID TO R.D. BODHE IN RESPECT OF THE WORK CARRIED OUT AT RAILWAY SITE AND WADIA PARK, IT IS SEEN THAT THE LABOUR HAS BEEN PAID @ 10 0 PER DAY. THIS FURTHER PROVES THAT THE WAGES PAID TO LAB OUR ARE NOT FIXED THAT APPARENTLY FLEXIBLE THEREFORE, THE A RGUMENT THAT THERE WAS A SUBSTANTIAL HIKE IN RATES WHICH WO ULD GO TO EXPLAIN THE DECLINE IN THE GROSS PROFIT DOES NOT AP PEAR VERY CONVINCING. REGARDING THE CONTENTIONS RAISED BEFORE THE ASSESSING OFFICER AND IN APPELLATE PROCEEDINGS, THA T THE LABOUR RATES IN TAMIL NADU, WHERE APPELLANT WAS UNDERTAKING THE AIR FORCE CONTRACT AT COIMBATORE, T HE ASSESSING OFFICER HAS ALREADY RECORDED A FINDING TH AT EXPENDITURE ON COIMBATORE SITE ON ACCOUNT OF THESE 3 HEADS OF EXPENDITURE IS ONLY RS.13,59,805 AMOUNTING TO ON LY 8.65% OF THE TOTAL EXPENDITURE UNDER THESE HEADS. 5.5. THE ASSESSING OFFICER HAS ALREADY BROUGHT ON R ECORD THE FACT THAT MUCH OF THE EXPENDITURE UNDER THESE H EADS IS SELF-VOUCHED. THERE ARE SUBSTANTIAL CASH PAYMENTS M ADE TO LABOUR SUB-CONTRACTORS. FURTHER, AS HELD IN PARA 5. 1, THERE ARE CREDIT BALANCES OUTSTANDING IN RESPECT OF SOME OF THESE LABOUR SUB-CONTRACTORS. HAVING CONSIDERED THE TOTAL ITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS THEREFOR E HELD THAT THE ADDITION BY THE ASSESSING OFFICER IS JUSTIFIED. GROUNDS NO. 1 TO 6 ARE THEREFORE, DISMISSED. 3. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLD ING THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE DEFECTIVE BEC AUSE THERE WERE SELF DRAWN VOUCHERS PREPARED BY THE ASSESSEE A ND FURTHER, SOME OF THE EXPENSES WERE PAID IN CASH AND HENCE, T HE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE BOOKS AND MA KING THE ADDITION. THE CIT(A) HAS FAILED TO APPRECIATE THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE COMPLETE AND ALL THE E XPENSES WERE DULY SUPPORTED BY PROPER VOUCHERS AND THEREFORE, TH ERE WAS NO REASON TO REJECT THE BOOKS OF ACCOUNT. ACCORDINGLY , THE ADDITION IN QUESTION BE DELETED. ON THE OTHER HAND, THE LEA RNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF AUTHORITIES BELOW. 5 ITA NO.1288 OF 11 SHRI BHAIRAVNATH NAGARI SAH. PATSANSTHA LTD. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS BEEN RETURNIN G A GROSS PROFIT OF BETWEEN 18% TO 23% IN THE PAST FOUR YEARS AS WELL AS IN THE SUBSEQUENT TWO YEARS AS DETAILED IN CHART REPRO DUCED ABOVE. IN A BUSINESS SUCH AS CONSTRUCTION BUSINESS WHICH W AS CONDUCTED BY THE ASSESSEE, THE INDICATOR OF TRUE PR OFITS IS THE GROSS PROFIT AND NOT NET PROFIT SINCE THE MAJORITY OF THE EXPENDITURE IN THIS LINE OF BUSINESS RELATES TO CLO SING STOCK, WORK IN PROGRESS, MATERIALS PURCHASED, LABOUR, SUB-CONTR ACT, INTEREST COSTS ETC. OTHER ESTABLISHMENT AND ADMINISTRATIVE COSTS IN THIS LINE OF BUSINESS DID NOT AFFECT THE PROFITABILITY O F THE BUSINESS. REGARDING ARGUMENT OF HIKE IN LABOUR WAGES BY 10%, SOME OF THE BILLS FURNISHED BEFORE THE ASSESSING OFFICER SPECIF ICALLY BILL NO.03160 DATED 19.10.2007 IN RESPECT OF AMOUNT PAID TO R.D. BODHE PERTAINING TO THE WORK CARRIED OUT AT RAILWAY SITE AND WADIA PARK, IT WAS FOUND THAT THE LABOUR HAS BEEN P AID @ 100 PER DAY. THIS SHOWS THAT THE WAGES PAID TO LABOUR WERE NOT FIXED THAT APPARENTLY FLEXIBLE. THEREFORE, THE ARGUMENT THAT THERE WAS A SUBSTANTIAL HIKE IN RATES WHICH WOULD GO TO EXPLA IN THE DECLINE IN THE GROSS PROFIT WAS RIGHTLY NOT FOUND CONVINCIN G BY THE REVENUE AUTHORITIES. REGARDING THE OTHER CONTENTION S THAT THE LABOUR RATES IN TAMIL NADU, WHERE ASSESSEE WAS UNDE RTAKEN THE AIR FORCE CONTRACT AT COIMBATORE, THE ASSESSING OFF ICER HAS RECORDED A FINDING THAT EXPENDITURE ON COIMBATORE S ITE ON ACCOUNT OF THESE 3 HEADS OF EXPENDITURE IS ONLY 13,59,805/- AMOUNTING TO ONLY 8.65% OF THE TOTAL EXPENDITURE UN DER THESE HEADS. OTHER BASIS FOR MAKING DISALLOWANCE WAS THA T MUCH OF THE EXPENDITURE UNDER THESE HEADS WAS SELF-VOUCHED. THERE WERE SUBSTANTIAL CASH PAYMENTS MADE TO LABOUR SUB-CONTRA CTORS. TAKING OVER ALL VIEW OF THE SITUATION AND PRACTICAL PART OF CONTRACTORS, WE RESTRICT THE DISALLOWANCE TO 15% OF THE TOTAL EXPENDITURE ON ABOVE HEADS I.E. 1,10,80,653/- AS NON-GENUINE 6 ITA NO.1288 OF 11 SHRI BHAIRAVNATH NAGARI SAH. PATSANSTHA LTD. AND FICTITIOUS ONE, SO THE DISALLOWANCE IS SUSTAINE D TO THAT EXTENT. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 18 TH OF JULY, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 18 TH JULY, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE