The DCIT, Circle-3, Surat V. M/s. S.V. Enterprise, Surat

ITA 570/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9970 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT JAVERI
• Assessee Lawyers: UKTI SHAH ARS; S N SOPARKAR
• Keywords: Prejudicial to interest
• Section: 44AD

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO. 570/AHD/2012 / ASSESSMENT YEAR: 2008-09 DCIT, CIRCLE-3, SURAT VS. M/S. S. V. ENTERPRISE, 202, CINDRELLA APARTMENT, B/H MODI BUNGLOW, PARLE POINT, ATHWALINE, SURAT PAN : AAPFS 7663 E / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI JAYANT JAVERI, SR DR ASSESSEE BY : SHRI S N SOPARKAR & UKTI SHAH, ARS / DATE OF HEARING : 10/11/2016 / DATE OF PRONOUNCEMENT: 18/11/2016 / O R D E R PER N.K. BILLAIYA, ACCOUNTANT MEMBER: WITH THIS APPEAL THE REVENUE HAS CHALLENGED THE COR RECTNESS OF THE ORDER OF THE CIT(A)-II, SURAT DATED 04.11.2011 PERT AINING TO AY 2008-09. 2. THE GRIEVANCE OF THE REVENUE IS TWOFOLD. THE FIR ST GRIEVANCE RELATES TO THE DELETION OF THE ADDITION OF RS.1,10,99,920/- ON ACCOUNT OF LABOUR EXPENSES AND THE SECOND GRIEVANCE OF THE REVENUE IS AGAINST THE DELETION OF RS.43,74,820/- ON ACCOUNT OF INTEREST EXPENSES. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONST RUCTION OF COMMERCIAL AND INDUSTRIAL BUILDINGS ON CONTRACT BASIS. THE RE TURN FOR THE YEAR WAS FILED ON 30.09.2008, DECLARING TOTAL INCOME AT RS.11,00,5 1,984/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY ST ATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS PAID LABOUR CHARGES T O THE FOLLOWING PERSONS:- ITA NO. 570/AHD/2012 DCIT VS. S V ENTERPRISE AY 2008-09 2 SR. NO. NAME OF THE PERSON NATURE OF EXPENDITURE AMOUNT (RS.) 1 MANHAR PATEL HUF LABOUR CHARGES 37,50,000 2 MAHENDRA PATEL HUF LABOUR CHARGES 38,00,000 3 A.B. CONSTRUCTION PROP OF ATULBHAI B PATEL LABOUR CHARGES 35,49,920 TOTAL 1,10,99,920 5. THE ASSESSEE WAS ASKED TO PRODUCE THESE PARTIES WITH THEIR RESPECTIVE BOOKS OF ACCOUNTS AND VOUCHERS. VIDE A LETTER DATE D 20.12.2010, THE ASSESSEE EXPLAINED THAT THESE PARTIES ARE SHOWING THEIR INCO ME UNDER THE PROVISIONS OF SECTION 44AD OF THE ACT AND THEREFORE, THERE IS NO REQUIREMENT OF MAINTENANCE OF BOOKS OF ACCOUNTS AND ACCOMPANYING R ECORDS. 6. THE ASSESSING OFFICER DID NOT ACCEPT THIS SUBMIS SION OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASSESS EE HAS NOT MADE ANY ACTUAL PAYMENTS TO THESE PARTIES BUT HAS SIMPLY CRE DITED THEIR ACCOUNTS. SINCE HUGE AMOUNTS OF LABOUR CHARGES ARE OUTSTANDIN G AS ON 31.03.2008, THE ASSESSING OFFICER FORMED A BELIEF THAT THE TRANSACT IONS OF THE ASSESSEE WITH THESE PARTIES ARE MERELY A PAPER TRANSACTION. THE ASSESSING OFFICER MADE THE ADDITION OF RS.1,10,99,920/-/-. 6. THE ASSESSING OFFICER FURTHER NOTICED THAT THE A SSESSEE HAS SHOWN CASH IN HAND AT RS.1,25,98,617/- AND, AT THE SAME T IME, THE ASSESSEE HAS DEBITED RS.43,74,830/- ON ACCOUNT OF FINANCIAL EXPE NSES. THE AO WAS OF THE OPINION THAT, IN SPITE OF SUCH HUGE CASH IN HAND, T HE ASSESSEE HAS NOT REPAID ITS LOAN AND THEREBY INCURRED HEAVY FINANCIAL CHARG ES WHICH APPEARED TO BE UNCALLED-FOR. THE AO DISALLOWED THE ENTIRE INTEREST EXPENSES OF RS.43,74,830/- AND COMPLETED THE ASSESSMENT. 7. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE CIT(A) AND REITERATED ITS CONTENTION SO FAR AS EXPENDITURE ON ACCOUNT OF LABOUR CHARGES IS CONCERNED. THE ASSESSEE FILED NECESSARY DETAILS BEFORE THE FIRST ITA NO. 570/AHD/2012 DCIT VS. S V ENTERPRISE AY 2008-09 3 APPELLATE AUTHORITY. AFTER CONSIDERING THE FACTS A ND THE DETAILED SUBMISSIONS, THE CIT(A) HELD AS UNDER:- 2.2 I HAVE GONE THROUGH THE FACTS OF THE CASE. THE APPELLANT HAS SHOWN THAT PAYMENTS WERE MADE TO THE LABOUR CONTRACTORS MAJORL Y BY ACCOUNT PAYEE CHEQUES AND THESE WERE REFLECTING IN THE BANK STATE MENT OF THE LABOUR CONTRACTORS. THESE LABOUR CONTRACTORS HAD CONFIRMED SUCH PAYMENTS. THE LABOUR CONTRACTORS WERE REGULAR INCOME-TAX ASSESSEE S AND HAD FILED THEIR RETURN OF INCOME ALBEIT U/S. 44AD. NO ADVERSE INFER ENCE CAN BE DRAWN ONLY ON THE REASON THAT THE LABOUR CONTRACTORS DID NOT M AINTAIN BOOKS OF ACCOUNTS. THE APPELLANT HAS CLAIMED THAT THE LABOUR CONTRACTO RS WERE PRODUCED BEFORE THE A.O. ON 16.12.2010 AND THIS APPEARS TO BE AT LE AST PARTIALLY TRUE AS THE PRESENCE OF SHRI MANHARBHAI PATEL HAS BEEN ACKNOWLE DGED BY THE A.O. IN THE ORDER. IT IS ALSO ESTABLISHED THAT PAYMENTS TO MANH ARBHAI PATEL HUF HAD BEEN MADE EVEN BEFORE THE DATE OF SURVEY AS THESE A RE RECORDED IN THE BANK STATEMENT AND THEREFORE NO ADVERSE INFERENCE CAN BE DRAWN FROM THE FACT THAT THE RELATIONSHIP HAD NOT BEEN DISCLOSED IN THE STAT EMENT DURING SURVEY. THE AO'S OBJECTION REGARDING PAYMENTS IN CASH MADE AFTE R THE DATE OF SURVEY NOT BEING RECORDED ON THE DATE OF SURVEY IS ASKING FOR IMPOSSIBLE. IT HAS ALSO NOT BEEN SHOWN THAT PAYMENTS TO MANHARBHAI PATEL. HUF H AD BEEN MADE IN EXCESS OF MARKET RATES AND THEREFORE THE COMMENT OF THE A.O. THAT THERE WAS CONFLICT OF INTEREST IS IRRELEVANT. AS PAYMENTS OF LABOUR EXPENSES HAS BEEN ESTABLISHED AND THESE HAVE BEEN CONFIRMED BY THE LA BOUR CONTRACTORS, AND THERE IS NO EVIDENCE TO SHOW THAT LABOUR WORK HAD N OT BEEN CARRIED OUT, IT IS TO BE HELD THAT NO DISALLOWANCE OF LABOUR PAYMENTS WAS WARRANTED. THE ADDITION MADE IS DELETED. THIS GROUND IS ALLOWED. 8. INSOFAR AS THE DELETION OF THE INTEREST EXPENSES IS CONCERNED, THE FINDINGS OF THE CIT(A) READ AS UNDER:- 3.2 I HAVE GONE THROUGH THE FACTS OF THE CASE. TH E AO HAS DISALLOWED THE TOTAL CLAIM OF INTEREST. IN FACT THE FIGURE TAKEN BY THE AO IS ACTUALLY IN EXCESS OF THE AMOUNT CLAIMED BY THE APPELLANT. THE ASSESSEE HAS BEEN ABLE TO SHOW, ON THE BASIS OF BALANCE SHEETS FOR SUBSEQUENT YEARS, THAT THE ACCUMULATION OF FUNDS WAS TEMPORARY AND NOT A REGUL AR FEATURE. EVEN OTHERWISE, THE TEMPORARY ACCUMULATION WAS NOT SUFFI CIENT TO PAY OFF ALL LOANS AND DEFINITE NOT FROM THE BEGINNING OF THE ACCOUNTI NG PERIOD AS FULL DISALLOWANCE OF INTEREST EXPENSE WOULD SUGGEST. TH E APPELLANT HAS EXPLAINED THE REASON FOR TEMPORARY ACCUMULATION. THE AO HAS NOT GIVEN ANY FINDING THAT THE BORROWED FUNDS HAD BEEN USED FOR PURPOSES OTHER THAN BUSINESS. IN ANY CASE, THE AO IS NOT EMPOWERED TO DICTATE HOW TH E BUSINESS SHOULD BE RUN AND THIS HAS BEEN ACKNOWLEDGED BY THE AO HIMSELF IN THE ASSESSMENT ORDER. IN MY OPINION, TEMPORARY AVAILABILITY OF FUNDS CANN OT LEAD TO THE CONCLUSION ITA NO. 570/AHD/2012 DCIT VS. S V ENTERPRISE AY 2008-09 4 THAT BORROWED FUNDS WERE NOT USED FOR BUSINESS PURP OSES AND THEREFORE NO DISALLOWANCE COULD BE MADE. ADDITION MADE IS THERE FORE DELETED. THIS GROUND IS ALLOWED. 9. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 10. THE DR STRONGLY SUPPORTED THE FINDINGS OF THE A O. 11. PER CONTRA, THE COUNSEL FOR THE ASSESSEE REITER ATED WHAT HAS BEEN SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY. IT IS THE SAY OF THE COUNSEL THAT THE ALLEGATION OF THE AO THAT ONLY PROVISION H AS BEEN MADE IN THE BOOKS OF ACCOUNTS AND THERE IS NO PAYMENT ON ACCOUNT OF L ABOUR CHARGES IS FACTUALLY INCORRECT. THE COUNSEL DREW OUR ATTENTION TO A CHART EXHIBITED ON PAGES 12 AND 13 OF THE PAPER-BOOK AND STATED THAT P AYMENTS HAVE BEEN ACTUALLY MADE TO THE LABOUR CONTRACTORS AND MERELY BECAUSE SOME PAYMENTS WERE OUTSTANDING AS ON 31.03.2008 WOULD NOT JUSTIFY THE DISALLOWANCE MADE BY THE AO. 12. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE REL EVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE LIGHT OF RULE 18 (6) OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES. THE PAYMENT OF LABOUR CHARGES CAN BE UNDERSTOOD FROM THE FOLLOWING CHART:- SR. NO. PARTICULARS NAME OF THE CONTRACTORS MANHERBHAI R. PATEL HUF MAHENDRABHAI R. PATEL - HUF A B CONSTRUCTION PROP. ATUL B. PATEL 1 OPENING BALANCE 55,91,989 49,49,015 56,13,931 2 LABOUR CHARGES BECOME DUE DURING THE YEAR 37,50,000 38,00,000 35,49,920 3 TOTAL 93,41,989 87,49,015 91,63,851 4 AMOUNTS PAID DURING THE YEAR 63,44,000 57,96,600 60,91,600 5 BALANCE OUTSTANDING AS ON 31.03.2008 29,97,989 29,52,415 30,72,251 ITA NO. 570/AHD/2012 DCIT VS. S V ENTERPRISE AY 2008-09 5 13. A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT THE C LOSING BALANCE AS ON 31.03.2008 IS MUCH LESS THAN THE AMOUNT OF LABOUR C HARGES PAID DURING THE YEAR. IT CAN ALSO BE SEEN THAT THESE PARTIES WERE HAVING SUBSTANTIAL OPENING BALANCE IN THEIR RESPECTIVE ACCOUNTS. WE HAVE ALSO SEEN THE STATEMENT OF COMPUTATION OF THE LABOUR CONTRACTORS EXHIBITED AT PAGE NOS. 34 TO 42 OF THE PAPER-BOOK. WE FIND THAT THESE PARTIES HAVE OFFERE D INCOME U/S 44AD OF THE ACT. IF THE INCOME IS OFFERED ON PRESUMPTIVE B ASIS, THEN THERE IS NO REQUIREMENT TO MAINTAIN THE BOOKS OF ACCOUNTS AND T HE SUPPORTING DOCUMENTS. SINCE ALL THE PAYEES ARE ASSESSED TO TA X, THEIR IDENTITIES CANNOT BE QUESTIONED. MOREOVER, ALL THE PAYMENTS HAVE BEE N MADE BY ACCOUNT PAYEE CHEQUES AND DULY REFLECTED IN THE BANK STATEM ENTS OF THE LABOUR CONTRACTORS. 14. CONSIDERING THE FACTS IN TOTALITY, WE DO NOT FI ND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE CIT(A). GROUND NO.1 IS ACCOR DINGLY DISMISSED. 15. THE SECOND GRIEVANCE RELATES TO THE DELETION OF THE ADDITION ON ACCOUNT OF INTEREST EXPENSES. A PERUSAL OF THE ASS ESSMENT ORDER SHOWS THAT THE AO HAS DISALLOWED INTEREST MERELY BECAUSE THE A SSESSEE WAS HAVING CASH IN HAND. ACCORDING TO THE AO, THE ASSESSEE SHOULD HAVE REPAID ITS BORROWINGS, THEREBY SAVED THE INTEREST PAYMENTS. TH IS ALLEGATION OF THE AO IS FAR-FETCHED AND DOES NOT HOLD ANY WATER. THE AO CANNOT QUESTION THE COMMERCIAL PRUDENCE OF A BUSINESSMAN. THE AO CANNO T SIT ON THE DRIVING SEAT AND GUIDE THE ASSESSEE. CONSIDERING THE NATUR E OF BUSINESS OF THE ASSESSEE, THE ASSESSEE IS BOUND TO KEEP SUBSTANTIAL CASH IN HAND FOR PARTICIPATING IN GOVT. TENDERS AND FOR DEPOSITING E ARNEST MONEY THEREON. MERELY BECAUSE THE ASSESSEE IS HAVING SUBSTANTIAL C ASH IN HAND WOULD NOT ITA NO. 570/AHD/2012 DCIT VS. S V ENTERPRISE AY 2008-09 6 JUSTIFY THE DISALLOWANCE OF INTEREST. WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. GROUND NO.2 IS A LSO DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18 TH NOVEMBER, 2016 AT AHMEDABAD. SD/- SD/- (S.S. GODARA) JUDICIAL MEMBER (N.K. BILLAIYA) ACCOUNTANT MEMBER AHMEDABAD; DATED 18/11/2016 BIJU T., SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! # / CONCERNED CIT 4. # ( ) / THE CIT(A ) 5. & ! , ! , / D R, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) # $, / ITAT, AHMEDABAD