ACIT 24(1), MUMBAI V. PRAKASH BHJIMRAO PATIL, MUMBAI

ITA 8327/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83775 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: DR K SHIVRAM SHRI RAHUL HAKANI
• Section: 143(3); 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C B ENCH, MUMBAI , , ! '#$ , % & BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 8327/MUM/2010 ( ' ' ' ' / ASSESSMENT YEAR : 2007-08 THE ACIT-24(1), 503, PRATYAKSH KAR BHAVAN, MUMBAI / VS. SHRI PRAKASH BHIMRAO PATIL SHOP NO. 3, R.K. SINGH MARG, AMBAWADI, JOGESHWARI, MUMBAI-400 060 ( % ./ ) ./ PAN/GIR NO. : AAFPP 8293P ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SMT. PARMINDER +,(* . - / RESPONDENT BY: DR. K. SHIVRAM SHRI RAHUL HAKANI . /0% / DATE OF HEARING :03.09.2014 12' . /0% / DATE OF PRONOUNCEMENT :10.09.2014 3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-34, MUMBAI DT.28.9.2010 PERTAINING TO A.Y.20 07-08. ITA NO. 8327/M/2010 2 2. THE FIRST GROUND RELATES TO THE DELETION OF ADD ITION OF RS. 36,93,139/- ON ACCOUNT OF UNEXPLAINED LABOUR CHARGE S. 3. THE ASSESSEE IS AN ELECTRICAL CONTRACTOR. THE R ETURN OF INCOME WAS FILED ON 25.10.2007 DECLARING TOTAL INCOME AT RS. 2 5,03,766/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. DURING THE C OURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED LABOUR CHARGES AND WAGES EXPENDITURE AT RS . 1,12,08,662/-. THE AO FURTHER NOTICED THAT THE LABOUR CHARGES OUTSTAN DING AS ON 31.3.2007 IS SHOWN AT RS. 75,32,046/-. THE AO WAS OF THE OPINIO N THAT THE OUTSTANDING LABOUR CHARGES ARE BEING VERY HIGH. TO VERIFY THE CORRECTNESS OF THE CLAIM, THE AO ISSUED NOTICES U/S. 133(6) TO 14 PARTIES. 11 NOTICES WERE RETURNED UNSERVED AND NO REPLY WAS RECEIVED IN RESPECT OF 3 PARTIES. HOWEVER, SUBSEQUENTLY 6 OF THE PARTIES FILED THE RE PLY. THE AO EXAMINED THE ACCOUNTS OF CERTAIN PARTIES EXHIBITED AT PAGE-4 OF THE ASSESSMENT ORDER. THE AO FURTHER OBSERVED THAT MAJORITY OF T HE PAYMENTS WERE MADE IN CASH. NONE OF THE PARTIES HAVE FILED THEIR BANK ACCOUNTS. THE AO FURTHER FOUND THAT THE BILLS RAISED BY THE LABOU RS ARE PREPARED IN SIMILAR MANNER. INVOKING THE PROVISIONS OF SEC. 14 5(3), THE AO DISALLOWED RS. 36,93,131/-, ON ACCOUNT OF PURCHASES FROM A RELATED PARTY. 3.1. ON FURTHER VERIFICATION OF THE DETAILS, THE AO NOTICED THAT THE ASSESSEE HAS PURCHASED 3000 METERS OF 20MM LMS PVC PIPE FROM AN UNRELATED PARTY M/S. FALGUNI TRADING CO. @ 11.60 AN D RS. 10.25 PER MTR. INVOKING THE PROVISIONS OF SEC. 40A(2)(B) OF THE AC T, THE AO MADE AN ADHOC ADDITION OF RS. 2,00,000/-. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED BEFORE THE LD. C IT(A) THAT MERELY ITA NO. 8327/M/2010 3 BECAUSE NOTICES U/S. 133(6) COULD NOT BE SERVED CA NNOT BY ITSELF BE A GROUND OF DISALLOWANCE. THE AO FAILED TO CONSIDER THE REASONABLENESS OF EXPENDITURE VIS--VIS NATURE OF ACTIVITIES OF THE A SSESSEE. IT WAS EXPLAINED THAT IN THIS LINE OF BUSINESS, MOSTLY THE LABOURS A RE FROM OUTSIDE THE STATE WITH NO PERMANENT RESIDENTIAL ADDRESS, FURTHER THE LABOURS ARE ILLITERATE. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT THE INCIDENCE OF HIGH OUTSTANDING LABOUR EXPEN SES AT THE YEAR END IS MAINLY BECAUSE OF INCURRENCE OF THE EXPENSES IN THE LAST QUARTER AND PARTLY BECAUSE OF LIQUIDITY PROBLEM CAUSED BY BLOCK AGE OF WORKING CAPITAL FUNDS RECEIVABLE FROM CUSTOMERS. THE LD. CI T(A) FURTHER OBSERVED THAT MOST OF THE LABOURS ARE FINANCIALLY SMALL PERSONS AND MAY NOT BE HAVING PAN. THE LD. CIT(A) OBSERVED THAT TH E AO HAS ALSO INCLUDED IN THE ADDITION THE AMOUNT ON WHICH TDS WA S MADE BY THE ASSESSEE. THE LD. CIT(A) WAS CONVINCED THAT MERELY BECAUSE LABOUR CHARGES ARE OUTSTANDING, NO ADVERSE INFERENCE CAN BE DRAWN AND ACCORDINGLY DELETED THE ADDITION OF RS. 36,93,139/- . 5. IN RESPECT OF THE ADDITION OF RS. 2,00,000/- U/S . 40A(2)(B) OF THE ACT, THE LD. CIT(A) OBSERVED THAT THE TRANSACTIONS WITH THE RELATED PARTY M/S. PRAMOD ENTERPRISES ARE ON DIFFERENT DATES THEN THE DATES OF TRANSACTIONS WITH UNRELATED PARTY M/S. FALGUNI TRAD ING CO. THE LD. CIT(A) WAS CONVINCED THAT U/S. 40A(2((B), NO ADHOC DISALLOWANCES CAN BE MADE ON THE SUSPICION OF PASSING BENEFIT TO THE SISTER CONCERN IN COMPARISON TO OTHER UNCONNECTED PARTY. THE LD. CIT (A) DELETED THE ADHOC ADDITION OF RS. 2,00,000/-. 6. AGGRIEVED BY THIS, REVENUE IS BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE AO. ITA NO. 8327/M/2010 4 8. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 9. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECOR D BEFORE US. IN SO FAR AS DELETION OF ADDITION ON ACCOUNT OF LABOUR CH ARGES OF RS. 36,93,139/- IS CONCERNED, WE HAVE THE BENEFIT OF GOING THROUGH THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2008-09 AND 2009-10 DT. 25.11.2 010 AND 21.11.2011 RESPECTIVELY MADE U/S. 143(3) OF THE ACT. IN BOTH THESE ASSESSMENT YEARS, ON IDENTICAL SET OF FACTS AND ON IDENTICAL FINDINGS , THE AO HAS MADE AN ADDITION OF RS. 1,00,000/-. WE FURTHER FIND THAT T HE OUTSTANDING LABOUR CHARGES OBJECTED BY THE AO WERE PAID TO THE RESPEC TIVE SUB-CONTRACTORS IN THE SUCCEEDING YEAR AS IS EVIDENT FROM THE COPIE S OF THE LEDGER ACCOUNT PLACED BEFORE US FROM PAGES 83 TO 99 OF THE PAPER B OOK. CONSIDERING THE FACT THAT OUTSTANDING LABOUR CHARGES OBJECTED BY TH E AO WERE DULY PAID IN THE SUBSEQUENT FINANCIAL YEAR. THE OBSERVATION OF THE AO THAT THESE OUTSTANDING LABOUR CHARGES ARE NOT GENUINE, DO NOT HOLD ANY WATER. CONSIDERING THE ASSESSMENT OF SUCCEEDING YEARS, ON IDENTICAL SET OF FACTS AND ON IDENTICAL CONDITIONS, IN OUR CONSIDERED OPIN ION, THE DISALLOWANCE ON ACCOUNT OF LABOUR CHARGES AND WAGES AT RS. 1,00, 000/- WOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS. 1,00,000/-. GROUND NO. 1 IS PA RTLY ALLOWED. 10. IN SO FAR AS DISALLOWANCE OF RS. 2,00,000/- U/S . 40A(2)(B) IS CONCERNED, IT IS AN UNDISPUTED FACT THAT THE AO HAS MADE AN ADHOC DISALLOWANCE WHICH IS NOT PERMISSIBLE U/S. 40A(2)( B) OF THE ACT. FURTHER, THE AO HAS PICK UP ONLY ONE BILL/ONE ITEM OUT OF SU CCESSIVE TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION, THE TRANSACTI ONS WITH UNRELATED PARTY IS ALSO OF A DIFFERENT DATE. CONSIDERING ALL THESE FACTS IN TOTALITY, WE DO ITA NO. 8327/M/2010 5 NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH SEPTEMBER, 2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) / JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 4 DATED : 10 TH SEPTEMBER, 2014 . . ./ RJ , SR. PS 3 3 3 3 . .. . +/ +/ +/ +/ 5 '/ 5 '/ 5 '/ 5 '/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 +/ , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. 3 3 3 3 / BY ORDER, ,/ +/ //TRUE COPY// ; ;; ; / < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI