Metal City Construction Kovai (P) Limited, Coimbatore V. ITO, Coimbatore

ITA 697/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1080 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-03-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 03-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN,VICE-PRESID ENT AND SHRI VIKAS AWASTHY, JUDICIAL MEM BER ITA NO.697/MDS/2012 (ASSESSMENT YEAR: 2008-09) M/S.METALCITY CONSTRUCTIONS KOVAI (P) LTD. C/O. MR.ANANDD BABUNATH, CA 5(4) RAMA NAICKEN STREET, 2 ND FLOOR, NUNGAMBAKKAM. CHENNAI-600 034. PAN: AACCM3486D VS. INCOME TAX OFFICER, COMPANY WARD I, 63, RACE COURSE ROAD, COIMBATORE-641 018. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. PAWAN KUMAR CHAKRAPA NI, CA RESPONDENT BY : MR. SHAJI P.JACOB, ADDL. CIT DATE OF HEARING : 11 TH MARCH, 2013 DATE OF PRONOUNCEMENT : 11 TH MARCH, 2013 O R D E R PER VIKAS AWASTHY, JM: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF THE CIT(A)-I, COIMBATORE DATED 24.01.2 012. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF CIVIL CONTRACT A ND LAND DEVELOPMENT. SUBSTANTIAL AMOUNT OF EXPENDITURE OF T HE ASSESSEE IS TOWARDS PAYMENT OF LABOUR. THE ASSESSE E FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-0 9 ON ITA NO.697/MDS/2012 2 29.09.2008 ADMITTING TOTAL INCOME OF ` 9,080/- ONLY. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTIC E UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 8.9.2 009. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2 008-09 THE ASSESSEE HAD UNDERTAKEN THE WORK FOR DEVELOPMEN T OF LAND OWNED BY M/S. PACL INDIA LTD. FOR A TOTAL CO NSIDERATION OF ` 8,13,50,911/-. THE ASSESSEE CLAIMED EXPENDITURE TOWARDS LABOUR CHARGES AMOUNTING TO ` 8.12 CRORES. THE ASSESSING OFFICER SOUGHT DETAILS OF THE LABOUR CHAR GES. THE ASSESSEE IN ORDER TO SUBSTANTIATE ITS CLAIM PRODUCE D MUSTER ROLL WHICH IS ALLEGED TO BE SIGNED BY THE LABOURER S ENGAGED BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT AN AMO UNT OF ` 40,000/- ON TWELVE OCCASIONS WERE PAID TO THE SUPE RVISOR FOR WHICH NO VOUCHERS WERE PRODUCED. THE SAID PAYME NTS WERE MADE IN CASH IN CONTRAVENTION OF THE PROVISION S OF SECTION 40A(3). THE ASSESSING OFFICER OBSERVED THAT NAMES MENTIONED IN THE MUSTER ROLL COULD NOT BE VERIFIED AS COMPLETE ADDRESSES OF THE LABOURERS WERE NOT MENTIONED THERE IN. NO CONFIRMATION LETTERS FROM ANY OF THE LABOURERS WERE PRODUCED ITA NO.697/MDS/2012 3 BEFORE THE ASSESSING OFFICER. THE ASSESSEE COULD NO T PRODUCE BOOKS OF ACCOUNT AS THE SAME WERE ALLEGED T O BE SENT TO SURAT FOR AUDIT AND WERE NOT TRACEABLE. THE ASSESSING OFFICER DISALLOWED 20% OF THE EXPENDITURE INCURRED TOWARDS LABOUR CHARGES ON ESTIMATE BASIS. VIDE ASSESSMENT O RDER DATED 27.12.2010 MADE ADDITIONS ON ACCOUNT OF PAYME NTS MADE TO SUPERVISOR AS WELL. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) A FTER PERUSING THE DOCUMENTS ON RECORD AND TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE VIDE ORDER DAT ED 24.01.2012. NOW, THE ASSESSEE HAS COME IN SECOND A PPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF THE CIT( A). 3. SHRI P.K.CHAKRAPANI, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD MAINTAINED VOUCHERS AND HAD PRODUCED MUSTER ROLL BEFORE THE A SSESSING OFFICER AND NO ADVERSE COMMENTS WERE PASSED BY THE ASSESSING OFFICER THEREON. THE ONLY OBJECTION RAIS ED BY THE ASSESSING OFFICER WAS NON-PRODUCTION OF LABOURERS WHICH IS ITA NO.697/MDS/2012 4 IMPOSSIBLE TASK CONSIDERING HUGE NUMBER OF LABOURER S ENGAGED BY THE ASSESSEE. THE ASSESSING OFFICER WITH OUT REJECTING THE BOOKS OF ACCOUNT HAS DISALLOWED 20% OF EXPENSES INCURRED TOWARDS LAND DEVELOPMENT EXPENSES IN AN ARBITRARY AND UNJUSTIFIED MANNER. 4. ON THE OTHER HAND, SHRI SHAJI P.JACOB APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE C OULD NOT PRODUCE ANY DOCUMENT TO SHOW GENUINENESS OF THE LAB OURERS. NO CONFIRMATION LETTERS FROM ANY OF THE LABOURERS ENGAGED BY THE ASSESSEE WERE PLACED ON RECORD. THE ASSESSEE C OULD NOT PRODUCE BOOKS OF ACCOUNT AS THE SAME WERE ALLEGED T O HAVE BEEN LOST/NOT TRACEABLE. THE DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 5. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. IT IS NOT IN DISPUTE THAT LABOUR INDUSTRY IS AN UNORGANIZ ED SECTOR. HOWEVER, WHEN THE ASSESSEE IS UNDERTAKING LABOUR IN TENSIVE WORK OF SUCH A HUGE EXTENT, DUTY IS CAST UPON THE A SSESSEE TO MAINTAIN MUSTER ROLL WITH PARTICULARS OF LABOURERS WITH FULL DETAILS AND PARTICULARS OF THE LABOURERS ENGAGED B Y IT. A ITA NO.697/MDS/2012 5 PERUSAL OF THE ORDER OF THE CIT(A) SHOWS THAT THE A SSESSEE COMPANY WAS AWARDED A CONTRACT OF LEVELING LAND MEA SURING 1162 ACRES @ ` 70,000/- PER ACRE FOR LEVELING, RAMMING, WATERING, FENCING ETC. THE ASSESSEE HAD ENGAGED LA BOURERS FROM NEIGHBOURHOOD VILLAGES FOR EXECUTION OF WORK A ND HAS UTILIZED THE SERVICES OF NEARLY 1800 LABOURERS FOR COMPLETION OF THE WORK. IT IS DIFFICULT TO IMAGINE THAT WHEN THE ASSESSEE HAS ENGAGED SUCH A LARGE NUMBER OF LABOURERS FROM THE NEIGHBOURING VILLAGES THE ASSESSEE COULD NOT PRODUC E CONFIRMATION LETTERS FROM ANY OF THEM IN SUPPORT OF ITS CLAIM AND WHEN THE ASSESSEE HAS UNDERTAKEN WORK OF SUCH LARGE MAGNITUDE, IT HAD EARNED INCOME OF ` 9,080/- ONLY. ADMITTEDLY, THE ASSESSEE COULD NOT PRODUCE ITS BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER TO VERIFY THE GENUINENESS OF THE TRANSACTIONS. THE ONLY DOCUMENT WHICH THE ASSESSEE HAS PRODUCED BEFORE THE ASSESSING OFFICER WAS MUSTER RO LL. THE ASSESSING OFFICER ON THE BASIS OF ESTIMATION HAS D ISALLOWED 20% OF THE EXPENDITURE INCURRED TOWARDS LABOUR CHAR GES. HOWEVER, IN VIEW OF THE FACT THAT THE ASSESSEE IS ENGAGED IN CIVIL CONSTRUCTION ACTIVITIES WHICH IS LABOUR INTEN SIVE AND THE ITA NO.697/MDS/2012 6 FACT THAT LABOURER IN SUCH AREAS IS UNORGANIZED, WE THEREFORE, IN THE INTEREST OF JUSTICE DEEM IT APPROPRIATE TO REDUCE THE DISALLOWANCE TO 10%. 6. AS REGARDS DISALLOWANCE OF EXPENDITURE UNDER SEC TION 40A(3) IS CONCERNED, WE FIND THAT THE PROVISIONS OF SECTION 40A(3) SPECIFICALLY BARS THE ALLOWABILITY OF THE EX PENDITURE MADE IN CASH OVER AND ABOVE ` 20,000/- . THE RELEVANT EXTRACT OF SECTION 40A(3) IS REPRODUCED HEREIN BELO W:- 40A: EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAI N CIRCUMSTANCES: (1)XXXXXXXXXX (2) XXXXXXXXX 3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, N O DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. THE A.R. COULD NOT SUBSTANTIATE HIS ARGUMENTS AGAIN ST THE DISALLOWANCE OF EXPENDITURE UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT EXCEPT THAT PAYMENT WAS MADE TO T HE ITA NO.697/MDS/2012 7 SUPERVISOR, WHO WAS HEADING THE GROUP OF LABOURERS FOR THE DISBURSEMENT OF PAYMENT TO THEM. THE PAYMENT TO THE SUPERVISOR HAS NOT BEEN SUPPORTED BY THE VOUCHERS. THE ASSESSEE HAS NOT BEEN ABLE TO SHOW VERACITY OF THE SAID PAYMENTS MADE TO LABOURERS. IN VIEW OF THE SETTLE D LAW AND IN THE ABSENCE OF ANY EVIDENCE IN SUPPORT OF THE CL AIM OF THE ASSESSEE, THIS GROUND OF APPEAL IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY, TH E 11 TH DAY OF MARCH, 2013 AT CHENNAI. SD/- SD/- ( DR. O.K.NARAYANAN ) (VIKAS AWASTHY) VICE-PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 11 TH MARCH, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.