The ACIT, Circle-9, Ahmedabad V. Shri Natubhai S.Chaudhary, Ahmedabad

ITA 762/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0264 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 10-03-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI
• Assessee Lawyers: S N DIVETIA
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND A.N. PAHUJA , ACCOUNTANT MEMBER) ITA NO.762/AHD/2005 [ASSTT.YEAR : 2005-2006] ACIT, CIR.9 AHMEDABAD. VS. SHRI NATUBHAI S. CHAUDHARY D-1, GAGOTRI APARTMENT OPP: HEM APARTMENT NEHRU PARK, VASTRAPUR AHMEDABAD. REVENUE BY : SHRI S.C.TIWARI ASSESSEE BY : SHRI S.N.DIVETIA O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THIS IS AN APPEAL BY THE DEPARTMENT AND IT RELATES TO THE ASSESSMENT YEAR 20 01-2002. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN CIVIL CONSTRUCTION BUSINESS I N THE NAME AND STYLE OF MARUTI ASSOCIATES. THE APPEAL ARISES OUT OF THE AS SESSMENT ORDER PASSED ON 29- 3-2004 UNDER SECTION 143(3) OF THE INCOME TAX ACT. 2. GROUND NOS.6 AND 7 ARE GENERAL AND REQUIRE NO DE CISION. THE FIRST GROUND IS AGAINST THE RELIEF OF RS.24,500/- GIVEN BY THE C IT(A) ON ACCOUNT OF SALARY EXPENSES. WHILE COMPUTING THE ASSESSMENT THE AO NO TICED A STEEP INCREASE IN THE SALARY PAYMENT FROM RS.27,700/- TO RS.1,42,800/ - FOR THE YEAR UNDER APPEAL. HE SUMMONED RAJU PATEL WHO WAS EMPLOYED AS ENGINEER AND RECORDED HIS STATEMENT. RAJU PATEL STATED THAT HE HAS STUDIED ONLY UPTO STANDARD 12 AND LEFT THE ASSESSEES CONCERN TWO TO THREE MONTHS BEFORE DIWALI 2000. HE WAS PAID RS.3,500/- PER MONTH AND ASSIGNED THE JOB OF WORK S UPERVISION AND CLEANING OF SHUTTERS AND LABOUR. HE NAMED A FEW SOCIETIES WHER E HE HAD WORKED FOR THE ASSESSEE. THE AO HELD THAT SINCE RAJU PATEL HIMSEL F ADMITTED THAT HE LEFT THE ASSESSEE TWO OR THREE MONTHS BEFORE DIWALI OF THE Y EAR 2000, THE SALARY FOR THE PAGE - 2 ITA NO.762/AHD/2005 -2- WHOLE YEAR CANNOT BE ALLOWED. ASSUMING THAT HE LEF T THE JOB IN AUGUST OR SEPTEMBER, 2000 AFTER SERVING THE ASSESSEE FOR FIVE MONTHS, THE AO DISALLOWED THE SALARY FOR SEVEN MONTHS FROM SEPTEMBER, 2000 TO MARCH, 2001 WHICH CAME TO RS.24,500/-. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE AND THE GRIEVANCE OF THE REVENUE IS THAT HE HAS NOT CONSIDE RED THE STATEMENT OF THE EMPLOYEE. THE LEARNED COUNSEL FOR THE ASSESSEE STA TED THAT THE SALARY AFTER DIWALI 2000 MAY BE DISALLOWED. ON CAREFUL CONSIDERATION OF THE MATTER, WE ARE OF THE VIEW THAT THE DISALLOWANCE SHOULD BE RESTORE D, BECAUSE RAJU PATEL HIMSELF HAS STATED THAT HE LEFT THE SERVICES OF THE ASSESSEE TWO TO THREE MONTHS BEFORE DIWALI 2000. THE AO HAS BEEN REASONABLE IN ACTING ON THE STATEMENT OF RAJU PATEL AND ALLOWING THE SALARY UPTO AUGUST, 200 0. WE ACCORDINGLY REVERSE THE DECISION OF THE CIT(A) AND RESTORE THE DISALLOW ANCE. WE MAY ADD THAT WE SEE NO BASIS TO RESTRICT THE DISALLOWANCE TO THE SA LARY PAID AFTER DIWALI 2000 IN VIEW OF THE CATEGORICAL STATEMENT MADE BY RAJU PATE L. THE GROUND IS ALLOWED. 3. THE SECOND GROUND RELATES TO THE RELIEF OF RS.1, 96,407/- GIVEN ON ACCOUNT OF RENT PAYMENT. THE ASSESSEE PAID RENT OF RS.2,02,988/- FOR THE SHUTTERS WHICH WAS VERY HIGH COMPARED TO THE EARLIE R YEAR. THE BREAK UP FOR THE RENT PAYMENT IS AS BELOW: MAY 16 RUPESH ENTERPRISE FOR MATERIAL RENT EXP. RS. 6,581/- MAY 25 NAVKAR CONSTRUCTION FOR MATERIAL GOODS RENT RS. 8,000/- MAR 31 NAVKAR CONSTRUCTION FOR MATERIAL GOODS RENT RS. 1,88,407/- RS. 2,02,988/- THE AO EXAMINED THE RENT BILL ISSUED BY NAVKAR CONS TRUCTION AND OBSERVED THAT THE BILLS RAISED SOME DOUBTS. HE HELD THAT T HERE WAS NO CORRELATION BETWEEN SOME OF THE PAYMENTS AND THE EXPENDITURE FO R WHICH THEY WERE ALLEGEDLY PAID. HE THEREFORE ISSUED SUMMONS UNDER SECTION 131 TO NAVKAR CONSTRUCTION, IN RESPONSE TO WHICH ONE MEHUL PARMAR APPEARED AND HIS STATEMENT WAS RECORDED. HE HAS STATED THAT THE PAY MENT OF RS.1,75,000/- MADE PAGE - 3 ITA NO.762/AHD/2005 -3- BY THE ASSESSEE ON 11-4-2000 REPRESENTS CENTRING LA BOUR WORK DONE BY HIM UPTO MAY, 2000. RELYING ON HIS STATEMENT, THE AO CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE RENT PAYMENTS. ON THE GROUN D THAT THE ASSESSEE COULD NOT EFFECTIVELY COMPLY WITH THE DIRECTION AND RESOR TED TO DELAYING TACTICS, THE AO CAME TO CONCLUSION THAT LOOKING TO THE DISCREPAN CIES IN THE BILL SUBMITTED BY THE ASSESSEE THE RENT PAYMENT WAS NOT ALLOWABLE AS A DEDUCTION. HE ACCORDINGLY DISALLOWED THE ENTIRE CLAIM OF RS.1,96, 407/-. 4. ON APPEAL, THE CIT(A) FOUND THAT MEHUL PARMAR HA D CONFIRMED THAT THE RECEIPT OF RS.1,75,000/- FOR LABOUR WORK DONE BY HI M AT GHATLODIAY GAURAV TOWER AND SHARANAM-I LOCATED AT JODHPUR VILLAGE AND SHARNAM-II LOCATED BEHIND DHANANJAY TOWER AND THAT THIS JOB WAS DONE U PTO MAY, 2000 AFTER WHICH THE RELATIONSHIP BETWEEN THE ASSESSEE AND PAR MAR CAME TO AN END. THE CIT(A) FURTHER FOUND FROM THE STATEMENT OF PARMAR T HAT NAVKAR CONSTRUCTION COMPANY WAS NOT MAINTAINING BOOKS OF ACCOUNTS IN A PROPER MANNER. HE ALSO FOUND THAT THE AMOUNT OF RS.1,75,000/- HAS BEEN PAI D BY CHEQUE AND CONFIRMED BY PARMAR, THOUGH THE CASH PAYMENT OF RS.8,000/- WA S NOT CONFIRMED. SINCE THE PAYEE HAS CONFIRMED THAT HE PROVIDED SERVICES T O THE ASSESSEE, THE DISALLOWANCE OF RS.1,96,407/- PAID TO NAVKAR CONSTR UCTION COMPANY WAS DELETED. 5. THE DEPARTMENT IS IN APPEAL AND IT IS CONTENDED THAT PARMAR HAD DENIED ISSUING BILLS OR RENTING OUT ANY SHUTTERING MATERIA LS. IT IS ALSO POINTED OUT THAT THERE IS NO CORRELATION BETWEEN THE PAYMENT AND THE NATURE OF THE EXPENDITURE. ON BEHALF OF THE ASSESSEE, RELIANCE IS PLACED ON TH E ACCOUNT OF NAVKAR CONSTRUCTION COMPANY FOR THE PERIOD FROM 1-4-2000 T O 31-3-2002 AT PAGE 14 OF THE PAPER BOOK AND IT IS POINTED OUT THAT ALL TH E PAYMENTS HAVE BEEN MADE FOR SERVICES RENDERED. IT IS ALSO SUBMITTED THAT THE A SSESSEE WAS NOT GIVEN ANY OPPORTUNITY TO CROSS EXAMINE PARMAR AND THEREFORE N O RELIANCE CAN BE PLACED ON HIS STATEMENT. STRONG RELIANCE IS PLACED ON THE DE CISION OF THE CIT(A). PAGE - 4 ITA NO.762/AHD/2005 -4- 6. HAVING CONSIDERED THE MATTER CAREFULLY, WE ARE O F THE VIEW THAT NO INTERFERENCE IS REQUIRED WITH THE DECISION OF THE C IT(A) WITH REFERENCE TO THE CHEQUE PAYMENT OF RS.1,75,000/-. MEHUL PARMAR WAS NOT ABLE TO DENY THE PAYMENT MADE TO HIM ON 11-4-2000 AND IN FACT HE HAS CONFIRMED THAT IT WAS FOR CENTRING LABOUR WORK DONE BY HIM AT GHATLODIYA TOWE R IN 1999 AND SHARNAM-I AT JODHPUR VILLAGE AND SHARNAM-II BEHIND DHANANJAY TOWER. HE HAS ALSO STATED THAT THIS JOB WAS DONE BY HIM UPTO MAY, 2000 . IN THE LIGHT OF THIS STATEMENT, THE MINOR DISCREPANCIES IN THE DESCRIPTI ON OF THE WORK IN THE BILL AND THE LACK OF CORRELATION BETWEEN THE PAYMENT AND THE NATURE OF THE EXPENDITURE NEED NOT BE GIVEN MUCH ATTENTION. IT CANNOT BE DIS PUTED THAT THE WORK DONE BY NAVKAR CONSTRUCTION COMPANY IS INCIDENTAL TO THE AS SESSEES BUSINESS. THOUGH PARMAR STATED THAT HE WAS NEVER IN THE BUSINESS OF SUPPLYING SHUTTERS, HE HAS CONFIRMED THAT HE HAS CARRIED OUT CENTRING LABOUR W ORK UPTO MAY, 2000. ACCORDINGLY, WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN ALLOWING DEDUCTION IN RESPECT OF THE CHEQUE AMOUNT OF RS.1,75,000/-. HOW EVER, THE CASH AMOUNT OF RS.8000/- PAID TO HIM WAS NOT CONFIRMED BY HIM AND THEREFORE THE SAME IS NOT ALLOWED. WE ACCORDINGLY CONFIRM THE DECISION OF TH E CIT(A) IN SO FAR AS IT RELATES TO THE ALLOWANCE OF RS.1,75,000/- BUT REVER SE THE SAME WITH REGARD TO THE BALANCE AMOUNT AND PARTLY ALLOW THE GROUND OF THE D EPARTMENT. 7. GROUND NO.3 IS AGAINST THE RELIEF OF RS.42,485/- ALLOWED BY THE CIT(A) ON ACCOUNT OF OUTSTANDING DUES. AFTER GOING THROUG H THE ORDERS OF THE DEPARTMENTAL AUTHORITIES, WE FIND THAT THE LABOUR E XPENSES HAVE BEEN CLAIMED ON ACCRUAL BASIS SINCE THE ASSESSEE IS FOLLOWING TH E MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE HAS ALSO FURNISHED THE CO PY OF THE ACCOUNT OF THE LABOUR CONTRACTOR, RAMANBHAI PANCHOLI TO WHOM THE A MOUNT WAS DUE AND FROM THE SAME THE CIT(A) HAS NOTED THAT THE OUTSTANDING AMOUNT HAS BEEN PAID TO HIM IN THE FINANCIAL YEAR 2001-2002 (ASSESSMENT YEA R 2002-2003). RAMANBHAI HAS ALSO CONFIRMED THE PAYMENT BEFORE THE AO. HE H AS ALSO CONFIRMED THAT OUT PAGE - 5 ITA NO.762/AHD/2005 -5- OF THE WORK DONE TO THE TUNE OF RS.1,63,485/-, ONLY RS.42,485/- WAS DUE TO HIM AS ON THE END OF THE RELEVANT PREVIOUS YEAR. IN TH E LIGHT OF THESE FACTS, WE ARE UNABLE TO SAY THAT THE CIT(A) COMMITTED ANY FACTUAL OR LEGAL ERROR. HIS DECISION IS UPHELD AND THE GROUND IS DISMISSED. 8. GROUND NO.4 IS AGAINST THE RELIEF OF RS.11,685/- GRANTED BY THE CIT(A). THIS REPRESENTS OUTSTANDING LABOUR PAYMENT TO SURES H SOLANKI. HE HAS STATED THAT HE DID PLUMBING WORK FOR WATER SUPPLY AND DRAI NAGE ON DAILY BASIS AND WAS PAID RS.285/- PER DAY BY THE ASSESSEE. HE HAS NOT MAINTAINED ANY BANK ACCOUNT. THE ASSESSEE CREDITED SOLANKIS ACCOUNT W ITH RS.56,145/- AND CLAIMED THE SAME AS DEDUCTION WHEREAS THE AO ALLOWED RS.44, 460/- AT THE RATE OF RS.285/- PER DAY FOR 156 DAYS. THE CIT(A) HAS TAKE N THE VIEW THAT SINCE THE STATEMENT OF SOLANKI WAS RECORDED AFTER TWO-AND-HAL F YEARS OF TRANSACTION AND SINCE HE WAS NOT MAINTAINING ANY ACCOUNT, THE FIGUR E OF 156 DAYS COULD BE INACCURATE. HE FURTHER NOTED THAT SOLANKI HAS CONF IRMED IN THE STATEMENT THAT HE HAS DONE WORK TO THE ASSESSEE FOR RS.46,145/-. THE ACCOUNT COPY FILED BEFORE HIM SHOWED THAT THE ASSESSEE PAID RS.13,000/ - IN THE NEXT ACCOUNTING YEAR BY CHEQUE. IN VIEW OF THESE FACTS, THE CIT(A ) HAS DELETED THE DISALLOWANCE. WE AGREE WITH THE DECISION SINCE THE FACTS HAVE NOT BEEN DISPUTED. THE GROUND IS ACCORDINGLY DISMISSED. 9. GROUND NO.5 IS AGAINST THE RELIEF GIVEN BY THE C IT(A) ON ACCOUNT OF CASH PAYMENT TO LABOURERS. THE RELIEF GIVEN IS RS. 2,39,890/-. THE ASSESSEE HAS MADE CASH PAYMENTS ON ACCOUNT OF LABOUR TO SUB-CONT RACTORS, SUPERVISORY CHARGES, SALARY AND RENT. THE ASSESSEE WAS ASKED T O PRODUCE THE PERSONS TO WHOM CASH WAS PAID. THE ASSESSEE PRODUCED SEVEN PE RSONS FROM WHOM STATEMENTS WERE RECORDED. ONE OF THEM WAS PARESH C HAUDHARY, THE ASSESSEES RELATIVE WHO WAS THE PROPRIETOR OF JANVI CONSTRUCTI ON. TWO PERSONS WERE LABOUR CONTRACTORS NOT BELONGING TO GUJARAT. THREE PERSONS BELONGED TO THE TRIBAL BELT OF THE GUJARAT. THE AO OBSERVED THAT N ONE OF THE ABOVE PERSONS WAS PAGE - 6 ITA NO.762/AHD/2005 -6- MAINTAINING BANK ACCOUNTS OR REGULAR BOOKS OF ACCOU NT. THEY DID NOT ALSO CONFIRM THE AMOUNT SHOWN AS OUTSTANDING AND PAYABLE TO THEM. THEY HOWEVER ACCEPTED THAT THEY HAVE BEEN PAID FOR THE WORK DONE BY THEM. THE AO WAS NOT PREPARED TO BELIEVE THAT THE LABOUR CONTRACTORS CAN AFFORD TO LEAVE SUCH LARGE OUTSTANDING BALANCES SINCE THEY HAD TO MAKE PAYMENT S TO THE LABOURERS EMPLOYED BY THEM. THE AO THEREFORE DISALLOWED 20% OF THE EXCESS OF THE CLOSING BALANCE IN THE ACCOUNTS OF THE LABOUR CONTR ACTORS LESS THE PAYMENT MADE TO THEM BY CHEQUE IN THE SUCCEEDING YEAR. THIS CAM E TO RS.2,69,890/-. 10. IT MAY BE CLARIFIED THAT THE DISALLOWANCE IS OF 20% OF RS.13,49,452/- WHICH IS THE CLOSING BALANCE IN THE ACCOUNTS OF THE LABOUR CONTRACTORS. 11. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THE AC COUNT COPIES OF THE LABOUR CONTRACTORS FOR THE FINANCIAL YEAR ENDED 31- 3-2002 SHOWING CASH PAYMENTS. THESE PAPERS HAD BEEN FILED EVEN BEFORE THE AO. ACCORDING TO THE CIT(A), THE AO HAS NOT DISPUTED THE FACT THAT THE L ABOUR CONTRACTORS HAVE DONE THE WORK FOR THE ASSESSEE AND THEY HAVE ALSO CONFIR MED BEFORE THE AO THAT THEY RECEIVED CASH PAYMENTS. THEY DID NOT HAVE BANK ACC OUNTS NOR DID THEY MAINTAIN BOOKS OF ACCOUNTS. BECAUSE OF THESE ALLEG ED DEFECTS, IT CANNOT BE HELD, ACCORDING TO THE CIT(A) THAT THE PAYMENTS ARE NOT ALLOWABLE AS A DEDUCTION. IF WORK IS DONE, THE SAME HAS TO BE PAI D FOR. IN THIS VIEW OF THE MATTER, THE CIT(A) IN PRINCIPLE HELD THAT THE PAYME NTS SHOULD BE ALLOWED AS A DEDUCTION. HOWEVER, HE HELD THAT A LUMPSUM DISALLO WANCE OF RS.30,000/- WOULD MEET THE REQUIREMENTS OF THE CASE. THE DISA LLOWANCE WAS REDUCED BY RS.2,39,890/- AGAINST WHICH THE REVENUE IS IN APPEA L. 12. ON A CAREFUL CONSIDERATION OF THE MATTER, IT AP PEARS TO US THAT THE AO HAS NOT SERIOUSLY DOUBTED THE CLAIM THAT THE LABOUR CON TRACTORS DID GET THE WORK DONE FOR THE ASSESSEE. THEY HAVE CONFIRMED THIS IN THEIR STATEMENTS. WHAT THEY WERE NOT ABLE TO CONFIRM WAS THE OUTSTANDING BALANC E DUE TO THEM AT THE END OF THE YEAR AND THIS IS BECAUSE THEY DID NOT MAINTAIN BOOKS OF ACCOUNTS. HOWEVER, PAGE - 7 ITA NO.762/AHD/2005 -7- EVIDENCE WAS LED BEFORE THE AO AS WELL AS BEFORE TH E CIT(A) THAT THE OUTSTANDING BALANCES WERE CLEARED IN THE SUCCEEDING ACCOUNTING YEAR. WE ARE ACCORDINGLY IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A) THAT THE DISALLOWANCE OF RS.30,000/- WOULD MEET THE REQUIREM ENTS OF THE CASE. WE AFFIRM HIS DECISION AND DISMISS THE GROUND. 13. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 16 TH OCTOBER, 2009. SD/- SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 16-10-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD