The ITO, Ward-5(1), Surat V. M/s. Aakar Construction, Surat

ITA 77/AHD/2010

• Counselvise Citation: 7720514 RSA 2010
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO. 77/ AHD/2010 (ASSESSMENT YEAR 2006-07) ITO, WARD 5(1), SURAT VS. M/S. AAKAR CONSTRUCTION, 718-7`19, LALBHAI CONTRACTOR COMPLEX, OPP. PARSI LIBRARY, NANPURA, SURAT PAN/GIR NO. : AAEFA3859P (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI D K SINGH, SR. DR RESPONDENT BY: NONE DATE OF HEARING: 12.12.2012 DATE OF PRONOUNCEMENT: 31.12.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDE R OF LD. CIT(A) IV, SURAT DATED 29.10.2009 FOR THE ASSESSMENT YEAR 2006-07. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: [1] ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN RESTRICT ING THE ADDITION AT RS.50,000/-INSTEAD OF RS.9,15,480/- MADE BY THE AO ON ACCOUNT OF INFLATED LABOUR EXPENSES. ,- . (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.3,50,000/-MADE BY THE AO ON ACCOUNT OF UNEXPLAIN ED CAPITAL INTRODUCED BY THE PARTNERS. [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF I.T.A.NO.77 /AHD/2010 2 RS.4,07,110/-MADE BY THE AO ON ACCOUNT OF UNDER VAL UATION OF WIP. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-IV, SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [5] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A)-IV, SURAT MAY BE SET-ASIDE AND THAT OF THE ASSESSING OF FICER RESTORED. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE ALTHOUGH NOTICE OF HEARING WAS DULY SERVED ON THE ASSESSEE THROUGH LD. D.R. AN D HENCE, WE PROCEED TO DECIDE THIS APPEAL OF THE REVENUE EX-PARTE QUA T HE ASSESSEE. 3. REGARDING GROUND NO.1, THE LD. D.R. SUPPORTED TH E ASSESSMENT ORDER. IT HAS ALSO BEEN SUBMITTED THAT THE ASSESSE E HAS NOT SUBSTANTIATED THE CLAIM OF EXPENSES WHICH IS DISPROPORTIONATELY H IGH AS NOTED BY THE A.O. ON PAGE 2-7 OF THE ASSESSMENT ORDER. HENCE, T HE ORDER OF LD. CIT(A) ON THIS ISSUE SHOULD BE REVERSED AND THAT OF THE A.O. SHOULD BE RESTORED. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D. R. AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND T HAT THIS ISSUE WAS DECIDED BY LD. CIT(A) ON PAGE 4 OF HIS ORDER AND TH E RELEVANT PARA FROM HIS ORDER IS REPRODUCED BELOW: I HAVE CONSIDERED THE FACTS OF THE CASE, THE VIEW TAKEN BY THE ITO AND OF THE APPELLANT FIRM. IT IS SEEN THAT THE MAIN ALLEGATION OF THE ITO IN THE FLOWING THE LABOUR EXPENSES IS THAT AS P ER GENERALLY ACCEPTED NORMS THE PROPORTION OF MATERIAL AND LABOU R IS 2 : 1 I.E. 67% MATERIAL AND 33% LABOUR WHEREAS, IN THE PRESENT CASE IT IS 37.97% MATERIAL AND 43.06% LABOUR AND FOR WHICH THE APPELLANT HAS EXPLAINED THAT IT IS NOT ENGAGED IN THE CONSTRU CTION OF NEW BUILDINGS BUT HAD UNDERTAKEN CONTRACTS FOR REPAIRS AND RENOVATION OF OLD BUILDINGS AND IN SUCH CASE LABOUR REQUIRED I S MORE AS COMPARED TO MATERIAL SINCE, THE JOB CONSISTS OF FIR STLY TO REMOVE THE OLD PLASTER, FLOORINGS, ETC. AND SECONDLY, FOR RE-A PPLYING OR RE- FIXING FRESH PLASTERS, FLOORINGS, WATER PROOFING, E TC. AND ACCORDINGLY, THE LABOUR COMPONENT APPEARED TO BE HI GHER THAN THE I.T.A.NO.77 /AHD/2010 3 MATERIAL COST. ANOTHER IMPORTANT POINT TO BE NOTED IS THAT OUT OF THE TOTAL LABOUR EXPENSES OF RS.16,86,359/- THE ITO HAS ALLOWED ONLY LABOUR PAYMENTS TO THE TUNE OF RS.7,70,879/- AS MAD E TO THE SUB- CONTRACTORS AND HAS DISALLOWED THE ENTIRE DAILY WAG ES OF RS.9,15,480/-. IN THIS REGARD, THE APPELLANT FIRM H AS POINTED OUT THAT OUT OF THE PAYMENT OF RS.7,70,879/- MADE TO SUB-CON TRACTORS, AN AMOUNT OF RS.7,25,471/- IS IN RESPECT OF PAYMENT MA DE TO SHRI ARVIND PATEL FOR 2 SITES ONLY, WHICH LEAVES LABOUR EXPENSES OF ONLY RS.45,408/- (RS.7,70,879 - RS.7,25,471/- IN RESPECT OF ALL THE OTHER 5 SITES UNDERTAKEN BY THE APPELLANT FIRM, FOR WHICH IT HAD EARNED CONTRACT RECEIPTS OF RS.22,86,750/-. CONSIDERING THIS FACT, I AM OF THE OPINION THAT THE ENTIRE DISALLOWANCE OF THE DAILY LABOUR EXPENSES OF RS.9,1 5,480/- AS MADE BY THE ITO IS INCORRECT SINCE, CONTRACT INCOM E OF RS.22,86,750/- FROM 5 SITES CAN UNDER NO CIRCUMSTAN CES, BE SAID TO HAVE BEEN EARNED BY INCURRING LABOUR EXPENSE OF ONL Y RS.45,408/- I.E. @ 1.98%. FURTHER, I ALSO AGREE WITH THE APPELL ANT FIRM THAT LABOUR IS GENERALLY PROCURED FROM OPEN MARKETS AND THESE LABOURERS DO NOT HAVE ANY PERMANENT ADDRESS SINCE T HEY STAY ON ROADS OR IN SLUM AREAS AND HENCE, IT IS NOT POSSIBL E TO PROVIDE THEIR ADDRESS. EVEN AS REGARDS NUMBER OF LABOURERS PROCUR ED DAILY I.E. AROUND 30 PERSONS, I AGREE THAT FOR A PERSON WHO IS A LABOUR CONTRACTOR AND IS ENGAGED IN CONSTRUCTION ACTIVITY, IT IS NOT AT ALL ABNORMAL TO PROCURE AROUND 30 LABOURERS TO WORK AT DIFFERENT SITES. THEREFORE, IN VIEW OF THESE FACTS I AM OF THE OPINI ON THAT THE ITO HAS NOT BEEN ABLE TO SHOW THAT THE LABOUR EXPENSES HAVE BEEN INFLATED, HOWEVER, CONSIDERING THE FACT THAT THE DA ILY WAGES HAVE BEEN PAID IN CASH I FIND IT APPROPRIATE TO SUSTAIN DISALLOWANCE TO THE EXTENT OF RS.50,000/-. ACCORDINGLY, OUT OF THE DISA LLOWANCE OF RS.9,15,480/- AN AMOUNT OF RS.50,000/- IS SUSTAINED AND THE BALANCE AMOUNT OF RS.8,65,480/- IS DELETED. 5. FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A), WE FIND THAT LD. CIT(A) HAS DELETED THIS DISALLOWANCE FOR RS.9,15,48 0/- EXCEPT RS.50,000/-. THIS HAS BEEN DONE BY HIM ON THIS BAS IS THAT THE CLAIM ALLOWED BY THE A.O. IN RESPECT OF LABOUR PAYMENT O F RS.7,70,879/- INCLUDES RS.7,25,471/- IN RESPECT OF THE PAYMENT MA DE TO SHRI ARVIND PATEL FOR TWO SITES AND HENCE, THE BALANCE LABOUR E XPENSES ALLOWED BY THE I.T.A.NO.77 /AHD/2010 4 A.O. WAS ONLY OF RS.45,408/- IN RESPECT OF REMAININ G FIVE SITES FOR WHICH THE ASSESSEE HAD DECLARED HE CONTRACT RECEIPT OF R. 72,86,750/-. HE HAS GIVEN A CLEAR FINDING THAT THE LABOUR EXPENSE ALLOW ED BY THE A.O. FOR THESE 5 SITES TO THE EXTENT OF RS.45,408/- IS ONLY 1.98% OF THE RECEIPT FROM THESE 5 SITES OF RS.22,86,750/- AND THE A.O. HIMSEL F HAS NOTED THAT GENERALLY ACCEPTED NORMS OF MATERIAL AND LABOUR IS 67% MATERIAL AND 33% LABOUR. IT WAS ALSO A SUBMISSION OF THE ASSESSEE B EFORE THE AUTHORITIES BELOW THAT THE ASSESSEE IS NOT ENGAGED IN THE CONST RUCTION OF NEW BUILDINGS BUT HAD UNDERTAKEN CONTRACT FOR REPAIR AN D RENOVATION OF OLD BUILDING AND, THEREFORE, THE COST OF LABOUR IS MORE AS COMPARED TO MATERIAL COST. LD. CIT(A) HAS DECIDED THE ISSUE AFTER CONSI DERING ALL THESE FACTORS AND WE DO NOT FIND ANY INFIRMITY IN HIS ORDER AND H ENCE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. GROUND NO.1 OF THE REVENUE IS REJECTED. 6. REGARDING GROUND NO.2, IT WAS POINTED OUT BY THE BENCH TO LD. D.R. THAT THIS ISSUE IS COVERED IN FAVOUR OF THE AS SESSEE BY THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PANKAJ DYESTUFFS AS RENDERED IN INCOME TAX REF. NO.24/1/1993. IN R EPLY, THE LD. D.R. COULD NOT SHOW THAT THIS ISSUE IS NOT COVERED IN FA VOUR OF THE ASSESSEE AND HENCE, BY RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HONBLE GUJARAT HIGH COURT, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO. 7. REGARDING GROUND NO.3, LD. D.R. SUPPORTED THE AS SESSMENT ORDER. WE FIND THAT THIS ISSUE WAS DECIDED BY LD. CIT(A) O N PAGE 8-9 OF HIS ORDER AND THE RELEVANT PORTION OF HIS ORDER IS REPR ODUCED BELOW FOR THE SAKE OF READY REFERENCE: I HAVE/CONSIDERED THE FACTS OF THE CASE, THE VIEW TAKEN BY THE ITO AND OF THE APPELLANT FIRM. IT IS SEEN THAT THE ITO HAS ADOPTED THE WIP RATE RS.330/- PER SQ. FT., WHICH IS THE SALES R ATE OF A COMPLETED I.T.A.NO.77 /AHD/2010 5 BUNGALOW WHEREAS, THE SITES REMAINING IN CLOSING ST OCK ARE INCOMPLETE SHOPS AND FLATS, WHICH HAVE BEEN SUBSEQU ENTLY SOLD AT RS.225/- PER SQ. FT. THUS, THE ITO HAS ERRED IN VAL UING THE CLOSING STOCK OF WIP AT A RATE WHICH IS EVEN HIGHER THAN TH E SALES RATE. I ALSO AGREE WITH THE APPELLANT FIRM THAT THE SALES R ATE OF A COMPLETED BUNGALOW CANNOT BE APPLIED TO A DIFFERENT SITE, WIT HOUT TAKING INTO CONSIDERATION THE NATURE OF WORK CARRIED OUT, THE SALES PRICE CHARGED, THE STAGE OF COMPLETION, ETC. FURTHER, THE CLOSING STOCK OF WIP HAS TO BE ALWAYS VALUED AT COST AS PER THE ACCE PTED ACCOUNTING STANDARDS WHEREAS, THE ITO HAS VALUED THE CLOSING S TOCK OF WIP AT THE SALES RATE, WHICH IS ALSO INCORRECT. MOREOVER, THE APPELLANT FIRM HAS WORKED OUT CLOSING STOCK RATE OF RS.152/- PER S Q. FT. BY ADOPTING THE COST THEREOF I.E. SALE RATE OF RS.225/ - PER SQ. FT. - GP @ 10.70% RS.257- = RS.200/- PER SQ. FT. @ 76% BEING THE STAGE OF COMPLETION. HENCE, THE APPELLANT FIRM HAS SATISFACT ORILY EXPLAINED THE BASIS OF VALUATION OF CLOSING STOCK OF WIP WHER EAS, THE ITO HAS VALUED THE CLOSING STOCK AGAINST THE ACCEPTED A CCOUNTING STANDARDS AND WITHOUT PROPER BASIS. THUS, I HOLD TH AT THE ITO IS NOT JUSTIFIED IN VALUING THE CLOSING STOCK OF WIP AT RS .7,54,710/- AS AGAINST RS.3,47,600/- AS VALUED BY THE APPELLANT FI RM. THEREFORE, THE ADDITION OF RS.4,07,110/- AS MADE IN RESPECT OF CLOSING STOCK OF WIP IS HEREBY DELETED. 8. FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A), WE FIND THAT THE RATES INDICATED BY THE A.O. FOR VALUATION OF CLOSIN G STOCK OF W.I.P. @ RS.330/- PER SQ. FT. IS THE RATE OF COMPLETE BUNGAL OW WHEREAS THE CLOSING STOCK IS IN RESPECT OF INCOMPLETE SHOP AND FLATS, W HICH HAVE BEEN SUBSEQUENTLY SOLD @ RS.225/- PER SQ. FT. THIS FIND ING OF FACT RECORDED BY LD. CIT(A) COULD NOT BE CONTROVERTED BY THE LD. D.R . LD. CIT(A) HAS ALSO EXAMINED THE BASIS OF WORKING OF CLOSING STOCK WHICH IS BY REDUCING THE GROSS PROFIT @ 10.70% FROM THE SALE PRICE OF RS .225/- PER SQ. FT. RESULTING INTO COST OF RS.200/- PER SQ. FT AND HE H AS ALSO NOTED THAT THE STAGE OF COMPLETION WAS 76% AT THE END OF THE PRESE NT YEAR AND, THEREFORE, FROM THIS TOTAL COST OFRS.200/- PER SQ. FT, COST OF W.I.P. WAS WORKED OUT TO THE EXTENT OF76% I.E. RS.152/- PER SQ. FT. AND HENC E, IN THE LIGHT OF THESE I.T.A.NO.77 /AHD/2010 6 FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN TH E ORDER OF LD. CIT(A) ON THIS ISSUE ALSO. THIS GROUND IS ALSO REJECTED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 14/12/2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 24/12/2012.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 31/12/2012 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.31/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31/1 2/2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .