PRAKASH ENGINEERS, MUMBAI V. JTCIT WD 22(2), NAVI MUMBAI

ITA 5925/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88282 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMANAD J
• Assessee Lawyers: USHA DALAL; Y P TRIVEDI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 131

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./ I.T.A. NO.5925/MUM/2012 ( / ASSESSMENT YEAR :2009-10) PRAKASH ENGINEERS, 104, CHARISHMA CENTRE, 1 ST FLOOR, 19 TH ROAD, CHEMBUR, MUMBAI-400071 / VS. JT.COMMISSIONER OF INCOME TAX - 22(2), 4TH FLOOR, VASHI RAILWAY STATION BUILDING, VASHI, NAVI MUMBAI-400705 ( / APPELLANT) .. ( ! / RESPONDENT) ./ I.T.A. NO.6130/MUM/2012 ( / ASSESSMENT YEAR :2009-10) JT.COMMISSIONER OF INCOME TAX -22(2), 4TH FLOOR, VASHI RAILWAY STATION BUILDING, VASHI, NAVI MUMBAI-400705 / VS. PRAKASH ENGINEERS, 104, CHARISHMA CENTRE, 1 ST FLOOR, 19 TH ROAD, CHEMBUR, MUMBAI-400071 ( / APPELLANT) .. ( ! / RESPONDENT) ./ #$ ./ PAN/GIRNO.:AAGFP5386C % / ASSESSEE BY : SHRI Y.P.TRIVEDI AND MS.USHA DALAL ! & % /REVENUE BY : SHRI PREMANAD J. ' ( & ) * / DATE OF HEARING : 31.12.2014 +, & ) * /DATE OF PRONOUNCEMENT : 13.2. 2015 5925 & 6130/M/12 2 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25.7.2012 PASSED BY LD CIT(A)-33, MUMBAI AND THEY RELATE TO T HE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS IN APPEAL IN CHALLENGING THE ORDER OF LD CIT (A) IN CONFIRMING THE ADDITION OF LABOUR CHARGES OF RS.4.1 6 CRORES PAID BY WAY OF CHEQUES. THE REVENUE IS AGGRIEVED BY THE DECISION O F LD CIT(A) IN RESTRICTING THE ADDITION OF LABOUR CHARGES PAID BY WAY OF CASH TO 10% OF THE EXPENSES. THE REVENUE IS ALSO AGGRIEVED BY THE DECISION OF LD CIT(A) IN DELETING THE DISALLOWANCE OF RS.5,60,000/- MADE FROM REPAIRS AND MAINTENANCE EXPENSES. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE FIRM IS A CIVIL CONTRACTOR ENGAGED IN UNDERTAKING ROAD CONSTR UCTION WORK, MAINLY FOR MUNICIPAL CORPORATION OF GREATER MUMBAI. IT FILED I TS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCO ME OF RS.3.48 CRORES. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, EXAMINED ONE OF THE PARTNERS OF THE FIRM AS WELL AS ONE OF ITS EMPLOYEES. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED EXPEND ITURE OF RS.10.38 CRORES AS LABOUR CHARGES AND RS.7.57 CRORES AS JOB WORK CHARGES. THE AO NOTICED THAT THE JOB WORK CHARGES WERE ALSO ESSENTI ALLY LABOUR CHARGES ONLY. THUS, THE ASSESSEE HAD CLAIMED A SUM OF RS.1 7.95 CRORES AS LABOUR 5925 & 6130/M/12 3 EXPENSES WHICH ACCOUNTED FOR 39.30% OF THE CIVIL CO NTRACT RECEIPTS. MAJOR AMOUNT OF EXPENSES WERE ALSO FOUND TO HAVE BEEN INC URRED IN CASH. 4. IN THE STATEMENT TAKEN FROM ONE OF THE PARTNE RS NAMED SHRI NAND K BIJLANI U/S 131 OF THE ACT, HE ADMITTED THAT THERE WERE DEFICIENCIES IN THE VOUCHERS. THE RELEVANT OBSERVATIONS MADE BY THE AO ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE:- 3.5 IT WAS POINTED OUT TO SHRI BIJLANI DURING HIS DEPOSITION U/S 131 ON 25.11.2011 THAT APART FROM THE LABOUR CHARGES PA ID IN CASH, THERE WERE DISCREPANCIES IN THE LABOUR CHARGES PAID BY CHEQUES TOO. IT WAS BROUGHT TO HIS NOTICE THAT ENQUIRIES CONDUCT ED U/S 142(2) OF THE ACT AT THE PREMISES OF SOME OF THE RECIPIENTS O F LABOUR CHARGES (PAID BY CHEQUES) REVEALED THAT THE PAYEES WERE MEN OF LITTLE MEANS AND WERE EMPLOYED AS THE ASSESSEES DRIVERS / ROAD ROLLER OPERATORS ETC. ON MEAGER SALARIES, BESIDES, MANY OF THEM HAD DENIED RECEIVING THE LABOUR CHARGES FROM THE ASSESSEE BY CHEQUES. T HEY HAD AFFIRMED THAT WHATEVER AMOUNT WAS DEPOSITED AS CHEQ UES IN THEIR ACCOUNTS (MAINLY WITH VIJAYA BANK, CHEMBUR BRANCH), WAS WITHDRAWN IN CASH BY EMPLOYEES OF THE ASSESSEE AND THAT THE PROCEEDS OF THESE CHEQUES NEVER REACHED THEM (I.E., THE LABOURERS CONCERNED). WHEN THE PARTNER OF THE ASSESSEE WAS CONFRONTED WIT H THE FINDINGS OF THE AO, HE OFFERED ADDITIONAL INCOME OF RS.2.00 CRORES FOR AY 2009-10, APPARENTLY TO COVER UP THE DEFICIENCIES. THE ASSES SING OFFICER ACCORDINGLY ADDED TO THE TOTAL INCOME THE SUM OF RS.2.00 CRORES OFFERED BY THE ASSESSEE IN THE SWORN STATEMENT. 5. THE AO EXAMINED THE LABOUR CHARGES INCURRED BY WAY OF CASH AND NOTICED THAT THE ASSESSEE DID NOT POSSESS PRIMARY E VIDENCE TO SUPPORT THE CLAIM TO THE TUNE OF RS.1,97,66,687/-. HENCE, THE O FFER OF RS.2.00 CRORES 5925 & 6130/M/12 4 MADE BY THE ASSESSEE WAS CONSIDERED BY THE AO AS HA VING MADE ON ACCOUNT OF UNPROVED CASH EXPENSES INCURRED TOWARDS LABOUR CHARGES. FURTHER, THE AO PROCEEDED TO DISCUSS THE DETAILS OF ENQUIRIES MADE BY HIM IN RESPECT OF PAYMENTS MADE BY WAY OF CHEQUE. IN P ARAGRAPH 4.7 OF THE ORDER, THE AO CAME TO THE CONCLUSION THAT THE PAYME NTS TO THE EXTENT OF RS.4,16,71,407/- MADE TO 12 PARTIES CANNOT BE CONSI DERED TO BE GENUINE. THE AO ARRIVED AT SUCH A CONCLUSION MAINLY FOR THE REASON THAT THE RELEVANT CHEQUES WERE SEEN TO HAVE BEEN ENCASHED BY THE ASSESSEES EMPLOYEES OR THE PAYEES WERE NOT AVAILABLE AT THE G IVEN ADDRESS. ACCORDINGLY, THE AO DISALLOWED THE LABOUR EXPENSES TO THE TUNE OF RS.4,16,71,407/-. 6. THE AO NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS.5,60,000/- TO M/S NEW INDIA EQUIPMENT CO. AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THE AO NOTICED THAT THE ABOVE SAID PAY MENT WAS MADE TOWARDS PURCHASE OF 100 TON CONCRETE SILO. HENCE THE AO TREATED IT AS CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED THE CLAIM OF RS.5,60,000/-. HOWEVER, HE ALLOWED DEPRECIATION OF RS.84,000/- COM PUTED AT THE RATE OF 15% THEREON. 7. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CON FIRMED THE DISALLOWANCE OF LABOUR CHARGES INCURRED BY WAY OF C HEQUE, WHICH AMOUNTED TO RS.4,16,71,407/-. WITH REGARD TO THE OB SERVATION OF THE AO THAT THE LABOUR CHARGES INCURRED BY WAY OF CASH WAS NOT SUPPORTED BY 5925 & 6130/M/12 5 PRIMARY EVIDENCE TO THE TUNE OF RS.1,97,66,687/-, T HE LD CIT(A) HELD THAT THE ADDITION ON ACCOUNT OF THE SAME SHOULD BE RESTR ICTED TO RS.43,84,104/- AND ACCORDINGLY GRANTED RELIEF TO THE TUNE OF RS.1, 53,82,583/-. HOWEVER, HE DID NOT RENDER ANY DECISION ON THE TELESCOPING B ENEFIT GIVEN BY THE AO AGAINST THE OFFER OF RS.2.00 CRORES MADE BY THE ASS ESSEE. THE LD CIT(A) HELD THAT THE EXPENDITURE OF RS.5,60,000/- INCURRED ON CONCRETE SILO IS ALLOWABLE AS REVENUE EXPENDITURE. 8. AGGRIEVED BY THE ORDERS PASSED BY LD CIT(A), BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US. WE HAVE HEARD THE P ARTIES EXTENSIVELY AND PERUSED THE RECORD. A PERUSAL OF STATEMENT RECORDE D FROM THE PARTNER U/S 131 OF THE ACT WOULD SHOW THAT THE ASSESSEE HAS OFF ERED A SUM OF RS.2.00 CRORES FOR THE LABOUR CHARGES INCURRED BY WAY OF CA SH AS WELL AS BY WAY OF CHEQUE. HOWEVER, THE AO ONLY HAS PRESUMED THAT THE SAID OFFER WAS IN THE CONTEXT OF LABOUR CHARGES INCURRED BY WAY OF CA SH ONLY. IT IS PERTINENT TO NOTE THAT THE LD CIT(A) HAS VERIFIED BY THE AUDI TED FINANCIAL STATEMENTS AND HAVE GIVEN A FINDING THAT THE FINANCIAL STATEME NT WAS SHOWING LIABILITY AS LABOUR CHARGES PAYABLE. HOWEVER, THE LD CIT(A) DECLINED TO ACCEPT THE SAME ON THE REASONING THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE BANK WITHDRAWALS AND THE CASH PAYMENTS. FURTHER, THEY WERE SUPPORTED BY SELF MADE VOUCHERS. HOWEVER, THE LD C IT(A) ALSO HELD THAT THE CLAIM OF THE ASSESSEE COULD NOT BE REJECTED IN TOTO. ACCORDINGLY HE HELD THAT THE DISALLOWANCE OF RS.1,97,66,687/- SHOULD BE RESTRICTED TO 5925 & 6130/M/12 6 RS.43,84,104/-. ACCORDINGLY HE GAVE A RELIEF OF RS. 1,53,82,583/-. HOWEVER, THE LD CIT(A) HAS FAILED TO DISCUSS ABOUT THE TELESCOPING BENEFIT GIVEN BY THE ASSESSING OFFICER. WE HAVE ALREADY NO TICED THAT THE LD CIT(A) HAS CONFIRMED THE ADDITION OF LABOUR CHARGES OF RS. 4,16,71,407/-. 9. THE MAIN CONTENTION OF THE LD A.R WAS THAT THE IMPUGNED ADDITIONS HAVE BEEN MADE ONLY ON PRESUMPTIONS WITHOUT CORRECT LY APPRECIATING THE FACTS PREVAILING IN THE CASE. HE SUBMITTED THAT TH E DISALLOWANCES MADE BY THE AO TREATING THEM AS BOGUS IN NATURE, IF CONSIDE RED TO BE CORRECT FOR A MOMENT, WOULD GIVE ASTRONOMICAL PROFIT TO THE ASSES SEE, WHICH ANY CONTRACTOR COULD NOT HAVE REALIZED. HE SUBMITTED TH AT THE NET PROFIT DETERMINED BY THE AO WOULD RESULT IN A G.P RATE OF 34.89% AND NET PROFIT RATE OF RS.21.12%, AS AGAINST THE AVERAGE NET PROFI T OF ABOUT 6% DECLARED BY THE ASSESSEE IN THE PAST. HE FURTHER SUBMITTED THAT THE INDUSTRY AVERAGE WAS ONLY AROUND 9% ONLY. ACCORDINGLY THE L D A.R CONTENDED THAT THE TAX AUTHORITIES HAVE MADE THE IMPUGNED ADDITION S ONLY ON PRESUMPTIONS AND SURMISES. 10. THE LD D.R, WHILE SUPPORTING THE ORDER OF LD C IT(A) WITH REGARD TO THE CONFIRMATION OF ADDITION OF RS.4.16 CRORES, CON TENDED THAT THE LD CIT(A) SHOULD NOT HAVE GRANTED RELIEF IN RESPECT OF CASH EXPENDITURE, WHEN THE ASSESSEE ITSELF HAD OFFERED RS.2.00 CRORES AS I NCOME. 5925 & 6130/M/12 7 11. IT CAN BE SEEN THAT THE ENTIRE ADDITION REVOLV ES AROUND THE LABOUR EXPENSES ONLY. AS NOTICED EARLIER, THE ASSESSEE HA S OFFERED RS.2.00 CRORES TO COVER UP THE DEFICIENCIES IN RESPECT OF LABOUR C HARGES INCURRED BY WAY OF CASH AS WELL AS CHEQUE. WITH REGARD TO THE CHEQU E EXPENSES, THE CONTENTION OF THE ASSESSEE IS THAT THE CHEQUE EXPEN SES HAVE BEEN PROPERLY VERIFIED AND THE PRACTICE FOLLOWED HAS NOT BEEN PROPERLY APPRECIATED. IN SUPPORT OF THE SAME, THE ASSESSEE HAS WORKED OUT THE G.P RATIO, N.P RATIO AND RATE OF PROFIT DECLARED BY COM PARABLE CASES. WHEN WE COMPARE THE PROFIT RATIOS AND COMPARABLE CASES, WE FIND SOME FORCE IN THE CONTENTIONS OF THE ASSESSEE. IT IS AN ADMITTED FAC T THAT THE ASSESSEE IS EXECUTING MAINLY ROAD CONTRACT WORKS, WHEREIN THE L ABOUR EXPENSES ARE TEND TO BE HIGH. HENCE, WE ARE OF THE VIEW THE DISA LLOWANCE OF ENTIRE EXPENSES INCURRED BY WAY OF CHEQUE MAY NOT BE RIGHT PROPOSITION, BECAUSE THE ASSESSEE COULD NOT HAVE EXECUTED THE PROJECT WI THOUT INCURRING LABOUR EXPENSES. HOWEVER, THE INVESTIGATION CARRIED OUT B Y THE AO HAS REVEALED A LOT OF DEFICIENCIES IN THE METHODOLOGIES ADOPTED BY THE ASSESSEE. WE HAVE ALREADY NOTICED THAT THE ASSESSEE ITSELF HAS O FFERED A SUM OF RS.2.00 CRORES TO COVER UP DEFICIENCIES IN RESPECT OF BOTH CASH AND CHEQUE PAYMENTS. HENCE THE AO WAS NOT RIGHT IN PRESUMING THAT THE ABOVE SAID OFFER WOULD COVER ONLY CASH PAYMENTS. WE HAVE ALRE ADY NOTICED THAT THE LD CIT(A) ALSO DID NOT AGREE WITH THE VIEW TAKEN BY THE AO THAT THE ENTIRE CASH EXPENSES, WHICH ARE NOT SUPPORTED BY PRIMARY E VIDENCES, SHOULD BE 5925 & 6130/M/12 8 DISALLOWED. UNDER THESE SET OF FACTS, WE ARE OF TH E VIEW THAT THE PRESENT DISPUTE SHOULD BE SETTLED BY MAKING SOME ESTIMATES. 12. HENCE ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE DISPUTE RELATING TO DISALLOWANCE OF PART OF LABOUR EXPENSES WOULD MEET THE ENDS OF JUSTICE, IF WE RESTRICT THE DISALLOWANCE TO RS.2.00 CRORES (BEING THE AMOUNT OFFERED BY THE ASSESSEE) PLUS 10% OF THE LAB OUR EXPENSES INCURRED BY WAY OF CHEQUE. WE ORDER ACCORDINGLY. T HE DECISION RENDERED BY THE LD CIT(A) ON THIS ISSUE WOULD STAND MODIFIED ACCORDINGLY. HENCE, THE GROUNDS 1 & 2 RAISED BY THE REVENUE WOULD STAND ALLOWED, SINCE THE ADDITIONAL INCOME OF RS.2.00 CRORES OFFERED BY THE ASSESSEE WOULD COVER UP LACK OF SUPPORTING VOUCHERS IN RESPECT OF CASH P AYMENTS. THE GROUNDS URGED BY THE ASSESSEE WOULD STAND PARTLY ALLOWED, S INCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT MAY NOT BE PROPER TO DISALLOW ENTIRE EXPENSES INCURRED BY WAY OF CHEQUE. 13. THE NEXT ISSUE URGED BY THE REVENUE RELATES TO THE DELETION OF DISALLOWANCE OF RS.5,60,000/-. WE NOTICE THAT THE A SSESSEE HAS INCURRED THE EXPENSES TOWARDS PURCHASE OF CONCRETE SILO. THE LD CIT(A) NOTICED THAT IT FORMED PART OF READY MIX CONCRETE PLANT H AVING NO INDEPENDENT FUNCTIONING. BEFORE US, THE LD A.R SUBMITTED THAT THE SAID PART IS REQUIRED TO BE REPLACED FREQUENTLY. ACCORDINGLY, THE LD CIT (A) HELD THAT THE SAME IS REVENUE EXPENDITURE. ON CONSIDERATION OF THE ABO VE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) ON THI S ISSUE. 5925 & 6130/M/12 9 14. IN THE RESULT, THE APPEALS FILED BOTH BY THE A SSESSEE AND THE REVENUE ARE PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13TH FEB, 2015 . +, ' - ./ 0 1 13TH FEB, 2015 , & 2( 3 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER . ' ( MUMBAI:13TH FEB,2015. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. ' 5) ( ) / THE CIT(A)- CONCERNED 4. ' 5) / CIT CONCERNED 5. 6. 67 2 )8 , * 8 , . ' ( / DR, ITAT, MUMBAI CONCERNED 2 9 : ( / GUARD FILE. ; ' / BY ORDER, TRUE COPY < # (ASSTT. REGISTRAR) * 8 , . ' ( /ITAT, MUMBAI