The Hafiz Construction Company Pvt Ltd, Kashmir V. The Asstt. Commissioner of Income-tax, Srinagar

ITA 715/ASR/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5561 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-01-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 01-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUN AL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.715 (ASR)/2014 ASSESSMENT YEAR: 2010-11 HAFIZ CONSTRUCTION COMPANY PVT. LTD., KANGAN GANDERBAL, KASHMIR. [PAN:AACCH 0486J] VS. ASST. CIT, CIRCLE-3, SRINAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. BASHIR AHMED LONE (LD. CA ) RESPONDENT BY: SH. CHARAN DASS (LD. DR) DATE OF HEARING: 30.01.2019 DATE OF PRONOUNCEMENT: 31.01.2019 ORDER PER N.K.CHOUDHRY, JM: THE INSTANT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 17.09.2014 IMPUGNED HEREIN, PASSED BY THE LD. CIT(A), JAMMU, U/S 250(6) OF THE I.T. ACT, 1961 (HEREINAFTER CALLED AS THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. (I) THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING TH E ADDITIONS OF RS.22,54,956.00 ON ACCOUNT OF PAYMENT TO SUB-CONTRA CTS FOR NON-SUBMISSION OF COMPLETE DETAILS, WHEN THE ASSESSEE SUBMITTED CO MPLETE DETAILS BEFORE AO & CIT (A) & DEDUCTED TDS ON SUCH PAYMENTS. (II) THAT THE LD. CIT(A) HAS ERRED BY UPHOLDING ADDITION OF RS.5,22,832.00 ON ACCOUNT OF DISALLOWANCE @ 2.50% OF WAGES, WHEN THE ASSESSEE HAS SUBMITTED COMPLETED DETAILS BEFORE AO. (III) THE UPHOLDING OF THE ADDITIONS BY LD. CIT( A) IS ILLEGAL & ARBITRARY. ITA NO.715 (ASR)/2014 (A.Y.2010-11) HAFIZ CONSTRUCTION COMPANY PVT. LTD. VS. ACIT 2 3. THE FACTS OF THE CASE ARE ALREADY ON RECORD, HENCE FOR THE SAKE OF CONVENIENCE AND BREVITY NOT REPEATED HEREIN. 4. THE ASSESSEE IS AGGRIEVED AGAINST TWO ADDITIONS MADE BY TH E ASSESSING OFFICER AND AFFIRMED WITH VARIATION BY THE LD. CIT(A). FIRST ADDITION RELATES TO SUB-CONTRACTORS AMOUNT OF RS.22,54,959/- ON ACCO UNT OF LABOUR EXPENSES, WHICH WAS ADDED BY THE ASSESSING OFFICER AS UN-EXP LAINED. THE ASSESSEE CHALLENGED THE SAID ADDITION BEFORE THE LD. CIT( A), HOWEVER, DID NOT GET ANY RELIEF. FOR THE SAKE OF COMPLETENESS, THE CONCLUDING PART OF IMPUGNED ORDER RELEVANT FOR THE DISPOSAL OF THIS ISSUE I S REPRODUCED HEREIN BELOW. GROUND OF APPEAL NO 3 RELATES TO ADDITION OF RS.22,54,959/- OUT OF SUBCONTRACTOR EXPENSES. THE APPELLANT HAS ARGUED TH AT THE PAYMENTS UNDER CONSIDERATION WERE MADE TO SUB CONTRACTOR ON ACCOUNT OF LABOUR EXPENSES AND THE LABOUR EXPENSES ARE ESSENTIAL FOR CARRYING OUT CONSTRUCTION CONTRACTS. FURTHER, THE APPELLANT HAS PRODUCED A BANK STATEMENT AND MARKED CERTAIN ENTRIES AS A PROOF OF MAKING PAYMENTS TO THESE SUB CONTRACTORS. I HAVE GONE THROUGH THE SUBM ISSION OF THE APPELLANT AND ASSESSMENT ORDER. IT IS OBSERVED THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS REQUIRED THE APPELLANT TO PR ODUCE THE DETAILS OF SUBCONTRACT EXPENSES AND THE NAME AND ADDRESS OF SU BCONTRACTORS TO VERIFY THE EXPENSES CLAIMED. HOWEVER, THE APPELLANT COULD NOT PRODUCE THE COMMUNICABLE ADDRESSES OF THE SUB CONTRACTOR, NOR H E COULD PRODUCE ANY BILLS RAISED BY THE SUBCONTRACTOR NEITHER DURING TH E COURSE OF ASSESSMENT NOR DURING APPELLATE PROCEEDINGS. IT IS THE DUTY OF THE APPELLANT TO PROVIDE EVIDENCE IN SUPPORT OF EXPENSES CLAIMED IN THE PROF IT AND LOSS ACCOUNT. THE PLEA OF THE APPELLANT THAT THE LABOUR EXPENSES ARE ESSENTIAL FOR CARRYING OUT CONSTRUCTION CONTRACT IN SUPPORT OF HIS CLAIM F OR SUBCONTRACTING EXPENSES COULD NOT BE ACCEPTED AS CONCLUSIVE EVIDEN CE AS THE APPELLANT HAS SEPARATELY DEBITED WAGES EXPENSES AMOUNTING TO RS 2,09,13,294/- IN THE PROFIT AND LOSS ACCOUNT. FURTHER, ONLY A FEW BA NK ENTRIES OUT OF BANK ENTRIES MARKED BY THE APPELLANT AS PAYMENTS TO THES E CONTRACTORS REFLECTS THE NAME OF PAYEE AND OTHER ENTRIES CONTAINS A NARR ATION OF 'ANY' OR 'TRF' WHICH DOES NOT PROVE THAT THE PAYMENTS WERE MADE TO THESE PARTIES. MOREOVER, IT IS NOT VERIFIABLE FROM BANK STATEMENT WHETHER THE PAYMENTS HAVE BEEN MADE FOR LABOUR/ SUB CONTRACT EXPENSES OR OTHERWISE. THE ITA NO.715 (ASR)/2014 (A.Y.2010-11) HAFIZ CONSTRUCTION COMPANY PVT. LTD. VS. ACIT 3 APPELLANT HAS, THEREFORE, FAILED TO DISCHARGE HIS O NUS TO JUSTIFY HIS CLAIM OF EXPENSE. THIS GROUND OF*APPEAL IS, THEREFORE, DISMI SSED. THE ASSESSEE DURING THE COURSE OF ARGUMENT DEMONSTRATED TH AT THE ASSESSEE IS A CONTRACTOR AND DURING THE YEAR UNDER CONSIDE RATION, HAS INCURRED VARIOUS EXPENSES FOR CARRYING OUT ITS BUSINESS AND THE ENTIRE EXPENSES WERE DEBITED TO PROFIT AND LOSS ACCOUNTS WHICH WE RE SUPPORTED BY BOOKS OF ACCOUNT AND RELEVANT VOUCHERS. THE ASSESSEE ALSO E NGAGED VARIOUS SUB-CONTRACTORS FOR CARRYING OUT THE WORK AND SUPPLY OF L ABORERS AND IN SUPPORT OF THE SAID EXPENSES, THE ASSESSEE DEDUCTED TDS AS P ER SEC.194C OF THE ACT ON ENTIRE SUB-CONTRACTORS PAYMENTS. THE ASSESSEE ALSO PROVIDED ALL THE DETAILS AS DESIRED BY THE AO INCLUDING BOOKS OF ACCOU NT, COPY OF SUB- CONTRACT EXPENSES, PERSONAL LEDGER ACCOUNTS OF SUB-CONTRACTO RS, BANK STATEMENT AND COPY OF TDS CERTIFICATES CLEARLY MENTIONIN G PAN NUMBERS OF SUB-CONTRACTORS HOWEVER, THE LD. AO OUT OF TOTAL SUB-CO NTRACTORS PAYMENT OF RS.2,67,86,776/-, DISALLOWED TO THE TUNE OF RS.22, 54,959/- QUA SUB- CONTRACT EXECUTED BY SH. NIZAM UD-DIN HAZRAT WEST BENGAL AND SURIDNER KUMAR PRIDA, PURI ORISSA ONLY, FOR NON-SUBMISSIONS OF THE IR COMPLETE POSTAL ADDRESSES AND THE LD. CIT(A) HAS OVER LOOKED THE FACTS AND AFFIRMED THE IMPUGNED ADDITION . 5 . ON THE CONTRARY LD. DR SUBMITTED THAT PROPER AD DRESSEES OF THE SUB- CONTRACTORS WERE NOT PROVIDED BY THE ASSESSEE, AGAINST WHOSE WAGES THE ADDITION HAS RIGHTLY BEEN MADE BY THE AO AND AFFIRME D BY THE LD. CIT(A). 6. WE HAVE PERUSED THE RELEVANT MATERIAL ON RECORD AND THE ORDERS PASSED BY THE AUTHORITIES BELOW AND ALSO CONSIDERED THE R IVAL SUBMISSIONS OF THE PARTIES. IN OUR CONSIDERED OPINION, THE CLAIM OF TH E ASSESSEE SEEMS TO BE QUITE LOGICAL AND PLAUSIBLE BECAUSE THE ASSESSEE HAD PROVI DED THE PAN ITA NO.715 (ASR)/2014 (A.Y.2010-11) HAFIZ CONSTRUCTION COMPANY PVT. LTD. VS. ACIT 4 DETAILS, PERSONAL LEDGER ACCOUNT OF SUB-CONTRACTORS, BANK STATEMENT AND COPY OF THE TDS CERTIFICATES OF THE SUB-CONTRACTORS QUA TH EIR IDENTITY AND ADDRESSES AND THE SAID DOCUMENTS WERE ENOUGH TO PROVIDE THE DETAILS NECESSARY FOR THE ADJUDICATION OF THE ISSUE, HOWEVER, THE AUTHORITIES BELOW WITHOUT MAKING ANY ENQUIRY AND EXERCISE TO FIND OUT T HE DETAILS SUCH AS ADDRESSES, BY USING PANS AS IT IS IN THEIR DOMAIN, HENC E WE DO FIND THE ADDITION UNDER CONSIDERATION MADE BY THE ASSESSING OFFICER AND AFFIRMED BY THE LD. CIT(A), JUSTIFIABLE AND HENCE STANDS DELETED. 7. THE SECOND ADDITION RELATE TO THE 'HEAD OF LABORER AN D WAGES', WHICH WAS MADE BY THE ASSESSING OFFICER @5%(RS.10,45,664/-) ON T HE ADHOC BASIS, OUT OF THE TOTAL WAGES OF RS.2,09,13.294/- ONLY ON THE GROUND THAT PAYMENTS TO LABOUR HAS BEEN INCURRED IN AMOUNTS IS HUGE AS 60,000/- ON A SINGLE DATE IN CASH, NOT OPEN TO VERIFICATION AND ALSO N OT SUPPORTED WITH THE PRIMARY DOCUMENTS. EVEN THE SELF-MADE VOUCHERS HAVE NOT BEEN SIGNED BY THE LABORERS THEMSELVES BUT BY THE THIRD PARTY AND FUR THER TDS HAS ALSO NOT BEEN DEDUCTED ON THE PARTIES AS REQUIRED UNDER THE PRO VISION OF 194C. THE SAID ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A) W HO REDUCED THE DISALLOWANCE FROM 5% TO 2.5% BY OBSERVING THAT IN HIS O PINION THE EXPENDITURE DISALLOWED BY THE AO IS AT HIGHER SIDE. FO R THE SAKE OF CONVENIENCE AND COMPLETENESS, THE CONCLUDING PART OF THE I MPUGNED ORDER RELEVANT TO THE INSTANT ISSUE IS REPRODUCED HEREIN BEL OW: GROUND OF APPEAL NO 5 RELATES TO ADDITION OF RS.10,45,664/- ON ACCOUNT O F WAGES EXPENSES. IT WAS OBSERVED BY THE AO DURING TH E COURSE OF ASSESSMENT THAT WAGES TO LABOURERS WERE SHOWN AS ONE TIME CASH PAYMENTS FOR A NUMBER OF MONTHS TOGETHER IN THE BOOKS OF ACCOUNTS. THE AO OB SERVED THAT THE DIRECT LABOURERS CANNOT BE EXCEPTED TO WORK FOR MONTHS TOG ETHER WITHOUT PAYMENT AS THE SURVIVAL OF LABOURERS IS ON DAY TO DAY PAYMENTS. HO WEVER, NO CLARIFICATION IN THIS REGARD IS PROVIDED BY THE APPELLANT. THE APPELLANT ARGUED THAT THESE PAYMENTS ITA NO.715 (ASR)/2014 (A.Y.2010-11) HAFIZ CONSTRUCTION COMPANY PVT. LTD. VS. ACIT 5 ARE RECORDED IN BOOKS OF ACCOUNTS AND IN THE REGIST ERS MAINTAINED BY THE APPELLANT AND ACCORDINGLY, THE SAME SHOULD BE ALLOW ED. ALTHOUGH THE PLEA OF THE APPELLANT IS NOT CONVINCING, HOWEVER, IT IS ALSO A FACT THAT LABOUR EXPENSES IS AN ESSENTIAL PART OF CONSTRUCTION CONTRACT. THEREFORE, IN MY OPINION, THE EXPENDITURE DISALLOWED BY THE AO IS ON A HIGHER SIDE. IT IS DIRECTED TO REDUCE THE DISALLOWANCE FROM 5% TO 2.5%. THIS GROUND OF APPEAL IS PARTLY ALLOWED AND A RELIEF OF RS 5,22,832/- IS ALLOWED. 7.1 DURING THE ARGUMENT OF APPEAL THE AR OF THE ASSESSEE HAS DEMONSTRATED THAT IN ONE OR TWO PER CENT CASES, THE LAB ORER EXPENSES HAVE BEEN PAID IN LUMSUM AT THE LAST STAGE OF THE WORK BU T NOT OTHERWISE, HOWEVER, THE ASSESSING OFFICER HAS TAKEN A SINGLE INSTANCE ONLY. THE ASSESSEE DURING THE ASSESSMENT PROCEEDING PRODUCED COMPLETE BOOKS OF ACCOUNT DULY SUPPORTED BY THE COMPLETE LABOUR REGISTER, THEIR ATTENDANCES AND PAYMENTS VOUCHERS ETC. AS THE ASSESSEE IS A CONTRACTOR AN D THEREFORE LABORERS ARE REQUIRED COMPULSORILY AND EVEN THE AO DU LY EXAMINED THE BOOKS OF ACCOUNT AND COULD NOT FIND ANY DEFECT IN THE BO OKS OF ACCOUNT AND ACCEPTED THE BOOKS RESULTS OF THE ASSESSEE. ON ONE SIDE THE A O ACCEPTED THE BOOK RESULT OF THE ASSESSEE AND ON THE OTHER SIDE RESORTED TO AD HOC DISALLOWANCE OF 5% OF WAGES WITHOUT ANY LOGICAL BASIS OR JUSTIFICATION. THE LD. AR ALSO RELIED UPON A JUDGMENT PASSED BY THE CO-ORD INATE BENCH AT LUCKNOW IN THE CASE OF VIJAY INFRASTRUCTURE LIMITED VS. ACIT (ITAT LUCKNOW) (ITA NO.254/2015 AND CROSS APPEAL NO.12 & 13 OF 2015, DATE OF JUDGMENT 30.10.2015). THE OPERATING PART OF THE JUDGMENT IS R EPRODUCED HEREIN BELOW FOR THE SAKE COMPLETENESS AND BREVITY. THE ISSUE IS REGARDING DISALLOWANCE MADE BY THE AS SESSING OFFICER ON AD HOC BASIS TO THE EXTENT OF 1% OF TOTAL EXPENSES DEB ITED BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT. THE ITAT FOUND AS PER PARA 6 OF ASSESSMENT ORDER, IT IS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSES SEE HAS DEBITED VARIOUS EXPENSES UNDER CONSTRUCTION EXPENSES AND ADMINISTRA TIVE EXPENSES. HE HAS FURTHER NOTED THAT IN EXPLANATION TO GENUINENES S OF THESE EXPENSES, ITA NO.715 (ASR)/2014 (A.Y.2010-11) HAFIZ CONSTRUCTION COMPANY PVT. LTD. VS. ACIT 6 BOOKS OF ACCOUNTS AND SOME VOUCHERS WERE PRODUCED B UT THE VOUCHERS PRODUCED ARE NEITHER FULL NOR VERIFIABLE INASMUCH A S COMPLETE IDENTITY OF THE PAYEES IS NOT MENTIONED THEREIN. HE HAS ALSO NO TED THAT MANY VOUCHERS ARE SELF-MADE DEBIT VOUCHERS WITHOUT VERIF IABLE DETAIL OF PAYEES. ON THE BASIS OF THESE OBSERVATIONS, HE MADE DISALLO WANCE ON AD HOC BASIS TO THE EXTENT OF 1% OF TOTAL EXPENSES OF RS.5945.48 LAC AND IN THIS MANNER, HE MADE DISALLOWANCE OF RS.59,45,488/-. WHEN THE AS SESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A), HE DELETED THE DISA LLOWANCE ON THE BASIS THAT THE ASSESSING OFFICER DID NOT GIVE ANY FINDING THAT THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE IS EITHER CAPI TAL IN NATURE OR PERSONAL IN NATURE OR WHOLLY AND EXCLUSIVELY NOT IN CURRED FOR THE PURPOSE OF BUSINESS AND THIS DISALLOWANCE IS MADE ON THE BA SIS THAT THE VOUCHERS PRODUCED ARE NEITHER FULL NOR VERIFIABLE INASMUCH A S COMPLETE IDENTITY OF THE PAYEES IS NOT MENTIONED THEREIN. HE HAS ALSO NO TED THAT AS PER THE A.O. MANY VOUCHERS ARE SELF-MADE DEBIT VOUCHERS WIT HOUT VERIFIABLE DETAIL OF PAYEES. THEREAFTER, HE HAS ALSO OBSERVED THAT TH E ASSESSING OFFICER COULD NOT POINT OUT ANY DEFECT IN ANY SPECIFIC VOUC HER NOR DID ASSESSING OFFICER INVOKE PROVISIONS OF SECTION 145(21 OF THE ACT AND THE A.O. DID NOT REJECT THE BOOKS OF ACCOUNTS. THEREAFTER, HE HAS HELD THAT IN ABSENCE OF SPECIFIC DEFECT, NO AD HOC DISALLOWANCE CAN BE M ADE. HE HAS ALSO HELD THAT THE GENERAL OBSERVATION OF THE A.O. THAT THE VOUCHERS ARE SELF- MADE CANNOT BE A BASIS FOR ADDITION. AT BEST, IT CA N BE A STARTING POINT FOR ENQUIRY BUT IF THE VOUCHERS WERE DEFECTIVE, THE ASS ESSING OFFICER SHOULD HAVE POINTED OUT THE DEFECTS AND SHOULD HAVE ASKED THE ASSESSEE FOR A REASONABLE EXPLANATION. 7.2 ON THE OTHER HAND, THE LD. DR REFUTED THE CLAIM OF THE ASSESSEE AND SUBMITTED THAT THE ORDER IMPUGNED HEREIN HAS RIGHTLY BEEN PASSED AND APPROPRIATE RELIEF ON ACCOUNT OF LABORER'S WAGES BY RED UCING FROM 5% TO 2.5 % HAS RIGHTLY BEEN GIVEN AND THEREFORE NO INTERFEREN CE IS REQUIRED FROM THIS COURT. 7.3 WE HAVE AGAIN PERUSED THE ORDER PASSED BY THE AUTHO RITIES BELOW AND CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AS IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER DID NOT POINT OUT ANY DEFECT IN B OOKS OF ACCOUNT AND THE BOOKS OF ACCOUNT DULY SUPPORTED BY COMPLETE LABORER REGIS TERS, THEIR ATTENDANCE AND PAYMENTS VOUCHERS ETC. THEREFORE IN OUR CONSIDER ED OPINION ADDITION DOES NOT SOUND TO BE LOGICAL AND REASONABLE AND HENCE NO T JUSTIFIED. EVEN OTHERWISE ITA NO.715 (ASR)/2014 (A.Y.2010-11) HAFIZ CONSTRUCTION COMPANY PVT. LTD. VS. ACIT 7 THE DECISION RELIED UPON BY THE ASSESSEE IS SQUARELY APPLIC ABLE TO THE FACTS OF THE INSTANT CASE, WHEREIN ALSO THE AD HOC DISALLOWANCE WAS MADE WITHOUT REJECTING THE BOOKS OF ACCOUNT BUT ON THE GARB THAT THE ASSESSEE HAD PRODUCED MANY SELF MADE VOUCHERS WITHOUT VERIFIABLE DET AILS OF THE PAYEES AND INCOMPLETE IDENTITY OF THE PAYEES. THE HONBLE CO- ORDINATE BENCH DELETED THE DISALLOWANCE BY HOLDING THE BASE OF DISALLO WANCE AS UNREASONABLE AND UNJUSTIFIED. IN VIEW OF THE AFORESAID OBSERVATION AND ANALYZATION AND RESPECTFULLY FOLLOWING THE JUDGMENT REFERRED ABOVE, WE ARE INCLIN ED TO DELETE THE ADDITION/ADHOC DISALLOWANCE QUA LABORER EXPENSES MADE BY THE ASSESSING OFFICER @ 5% AND REDUCED BY THE LD. CIT(A) @ 2.5%. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCE IN THE OPEN COURT ON 31.01.2019 SD/- SD/- (SANJAY ARORA) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:31.01.2019 /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) HAFIZ CONSTRUCTION COMPANY PVT. LTD., KANGAN GANDERBAL, KASHMIR. (2) THE ACIT, CIRCLE -3, SRINAGAR (3) THE CIT(A), JAMMU (4) THE CIT CONCERNED (5) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER FILENAME: HAFIZ CONSTRUCTION COMPANY PVT. LTD.- 715 -14 DIRECTORY: D:\DOCUMENT\NKC ORDERS 2018 TEMPLATE: C:\USERS\ETC PARMOD\APPDATA\ROAMING\MICROSOFT\TEMPLATES\NORMAL.D OT TITLE: IN THE INCOME TAX APPELLATE TRIBU NAL SUBJECT: AUTHOR: RAHUL PRABHAKAR KEYWORDS: COMMENTS: CREATION DATE: 1/31/2019 12:49:00 PM CHANGE NUMBER: 109 LAST SAVED ON: 2/5/2019 11:15:00 AM LAST SAVED BY: ETC PARMOD TOTAL EDITING TIME: 230 MINUTES LAST PRINTED ON: 2/5/2019 11:16:00 AM AS OF LAST COMPLETE PRINTING NUMBER OF PAGES: 8 (APPROX.) NUMBER OF WORDS: 2,160 (APPROX.) 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