DCIT 22(3), NAVI MUMBAI V. OM SAI CONSTRUCTION, NAVI MUMBAI

ITA 869/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100846 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 31-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PERMANAND J
• Keywords: Additional evidence; Onus to prove
• Section: 133(6)

Judgement Text

M/S OM SAI CONSTRUCTION ITA NO. 869 /MUM/20 1 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , J UDICIAL MEMBER ITA NO. : 8 69 /MUM/20 1 1 ( ASSESSMENT YEAR: 200 7 - 0 8 ) INCOME TAX OFFICER 11(2)(2), AAYAKAR BHAVAN, NEW MARINE LINES, MUMBAI - 400 020 VS M/S OM SAI CONSTRUCTION , E21/:1, BHIMASHANKAR CHS, SECTOR 19A, NERUL, NAVI MUMBAI - 400 706 .: PAN: AA AFO 4846 Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PERMANAND J RESPONDENT BY : SHRI SUNIL MAKHIJA /DATE OF HEARING : 23 - 0 6 - 201 5 / DATE OF PR ONOUNCEMENT : 19 - 08 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 20.10.2010 PASSED BY CIT(A) - 33, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/ S143(3) FOR THE ASSESSMENT YEAR 2007 - 08, ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING RELIEF OF RS. 48,28,612/ - OUT OF LABOUR AND PURCHASE CHARGES JUST ON THE REASONING THAT WORK CAN NOT BE EXECUTED WITHOUT LABOUR AND TDS HAS BEEN DEDUCTED WITHOUT APPRECIATING THE FACT THAT TDS ON LABOUR PAYMENTS WAS NOT THE ISSUE INVOLVED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACTS THA T THE PRIMARY ONUS TO PROVE THE GENUINE NE SS OF THE LABOUR/PURCHA S ES LIES ON THE ASSESSEE WHICH THE ASSESSEE HAS FAILED TO DISCHARGE. M/S OM SAI CONSTRUCTION ITA NO. 869 /MUM/20 1 1 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN WRONGLY ESTIMATING THE PROFIT WITHOUT AP PRECIATING THE FACT THAT THIS WAS NOT THE SUBJECT MATTER EITHER IN THE ASSESSMENT ORDER OR GROUNDS OF APPEAL. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GRANTING RELIEF BY ESTIMATING PROFIT RELYING ON THE COMPARATIVE CHART PRODUCED AS ADDITIONAL EVIDENCE IN CONTRAVENTION TO THE PROVISIONS AS CONTAINED IN RULE 46A OF THE I T RULES. 2. BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION , MAINLY LAYING OF WATER PIPELINES FOR NAVI MUMBAI M UNICIPAL CORPORATION. DURING THE YEAR, THE ASSESSEE HAS DISC LO SED GROSS WORK RECEIPTS OF RS. 5,70,81,773/ - AND DECLARED NET PROFIT OF RS. 26,21,257/ - I.E. @ 4.59%. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED PURCHASE S AT RS. 4,14,45,133/ - AND LABOUR CHARGES OF RS. 98,03,191/ - IN THE PROFIT AND LOSS ACCOUNT. IN ORDER TO VERIFY GENUINENESS OF THE PURCHASES AND OTHER EXPENSES, THE ASSESSING OFFICER ISSUED NOTICES U/S 133(6) TO VARIOUS PERSONS AS PER THE DETAILS MENTIONED IN PARA 5 OF THE ASSESSME NT ORDER. THEREAFTER , HE ISSUED A SHOW CAUSE NOTICE STATING THAT MOST OF THE NOTICES RETURNED BACK AND THEREFORE, THE ASSESSEE WAS DIRECTED TO PRODUCE THESE PERSONS ALONG WITH THEIR BOOKS OF ACCOUNT, BILLS ISSUED BY THEM, BANK STATEMENTS, COPY OF THEIR INC OME - TAX RETURNS AND COPY OF THEIR FINAL ACCOUNTS. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE CONTRACT WORK UNDER TAKEN BY THE ASSESSEE IS LABOUR INTENSIVE , W H O ARE MOSTLY ILLITERATE AND STA Y IN THE SL UM AREA WITHOUT ANY FIXED ADDRESSES. T HE A SSESS EE HOWE VER TRIED TO CONTACT MANY OF THEM AND ALSO FILED CONFIRMATION LETTERS O F THE MOST OF THE PARTIE S ALONG WITH THEIR ENTIRE DETAILS AND BALANCES DUE FROM THE ASSESSEE. T HE ASSESSING OFFICER HOWEVER DISALLOWED MOST OF THE DISALLOWANCES ON THE GROUND THAT THERE IS NO SEAL OR STAMP IN THE CONFIRMATION LETTERS AND NO BILLS AND RECEIPTS ISSUED BY THESE PARTIES HAVE BEEN PRODUCED. ACCORDINGLY, HE DISALLOWED SUM OF RS. 53, 48 ,060/ - . M/S OM SAI CONSTRUCTION ITA NO. 869 /MUM/20 1 1 3 3. BEFORE THE CIT(A) ASSESSEE FILED DETAILED SUBMISSIONS AND ALSO PAST RECORDS TO JU STIFY THE OVERALL PERCENTAGE OF PROFIT, LABOUR EXPENSES AND PURCHASES. THE LD. CIT(A) AFTER CONSIDERING THE ENTIRE FACTS AND MATERIAL ON RECORD, GAVE PART RELIEF AFTER OBSERVING AND HOLDING AS UNDER: I HAVE GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY TH E APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALONG WITH CONFIRMATION LETTERS. THE PAYMENTS RECEIVED BY THESE PARTIES HAD BEEN CONFIRMED BY THEM. IN FEW CASES HANDWRITTEN LETTERS ARE AVAILABLE AND IN OTHERS LETTER IS WRITTEN IN ENGLISH WHICH IS P ROBABLY PREPARED BY THE APPELLANT ITSELF BUT SIGNED WITH NAME. I UNDERSTAND THAT THESE KINDS OF CONFIRMATION LETTERS CANNOT BE TREATED TO BE AS PROPER CONFIRMATION LETTERS BUT AT THE SAME TIME THIS FACT IS NOT DENIED THAT IT WOULD BE IMPOSSIBLE TO EXECUTE THE CONTRACT WITHOUT MATERIAL AND LABOUR. HENCE, DISALLOWANCE OF ENTIRE MATERIAL PURCHASE AND LABOUR CHARGES CANNOT BE SUSTAINED. NOW THE PERSONS ARE LABOUR CONTRACTORS WHO HAVE ARRANGED LABOURERS FOR THE EXECUTION OF CUTTING OF ROCKS FOR MAKING TRENCHES, SHIFTING OF PIPES AND LABOURING WORK. AGAIN FACT IS AVAILABLE ON RECORD THAT THEY ARE HAVING PAN NUMBERS AND TDS HAS BEEN DEDUCTED FOR THE PAYMENT MADE TO THEM BY THE APPELLANT. THE APPELLANT DURING THE APPELLATE PROCEEDINGS ARGUED THAT THIS BEEN A LABOUR INTENSIVE JOB WHICH IS BEING CARRIED OUT AT SITES, THE LOCAL LABOURS IS ARRANGED FOR THE WORK. THE TDS IS DEDUCTED ON THE PAYMENTS MADE TO THEM. THE FACT THAT THESE PEOPLE IN TURN ARE NOT FILING RETURN OF INCOME, IS NOT WITHIN THE PURVIEW OF THE APPELLANT. 4.3 ON THE OTHER HAND THIS ALSO IS A MATTER OF RECORD THAT THESE PARTIES COULD NOT BE TRACED AT THE GIVEN ADDRESS. THE APPELLANT HAS TRIED TO SUPPORT ITS PLEA BY STATING THAT ITS NET PROFIT RATIO FOR THE CONCERNED PERIOD RELEVANT TO AY 2007 - 08 IS 4.59% W HICH IS NOT VERY DIFFERENT FROM PERCENTAGE OF PROFIT OF M/S OM SAI CONSTRUCTION ITA NO. 869 /MUM/20 1 1 4 4.33% IN AY 2004 - 05, 5.07% IN AY 2005 - 06, 5.40% IN AY 2006 - 07, 5.75% IN AY 2008 - 09 AND 5.82% IN AY 2009 - 10. IT IS THUS SEEN THAT FROM THE CHART THAT RATIO OF PURCHASE OF MATERIALS HAVE GONE UP WHEREAS LABOUR CHARGES HAS COME DOWN. IN VIEW OF THIS THAT THESE PARTIES ARE FOR PURCHASE OF MATERIALS THE PROFIT IS ESTIMATED AT 5.50% I.E. RS. 31,39,510/ - AGAINST THE PROFIT SHOWN AT 4.9% I.E. RS. 26,20,063/ - . THUS THE GAP BETWEEN T HESE TWO AMOUNTS FOR RS. 5,19 ,447/ - WILL TAKE CARE OF THE DIP IN PROFIT IN THE PRESENT ASSESSMENT YEAR UNDER CONSIDERATION. THE APPELLANT THUS GETS RELIEF FOR THE BALANCE AMOUNT I.E. RS. 48,28,613/ - . 4 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS DEBITED TOTAL LABOUR EXPENSES AT RS.98 LAKHS , OUT OF WHICH, THE ASSESSING OFFICER HAS DISALLOWED RS. 53.48 LAKHS ON THE GROUND THAT NOTICES COULD NOT BE SERVED ON THE LABOURERS. THE ASSESSEES CASE HAS BEEN THAT IT HAS PRODUCED THE CO NFIRMATION LETTER AND DETAILS OF ALL THE PARTIES TO WHOM THE NOTICES U/S 133(6) HAVE BEEN SENT, THE DETAILS OF WHICH HAVE BEEN GIVEN IN PAPER BOOK FROM PAGES 22 TO 27. THE LD. DR BEFORE US HAD ARGUED THAT ONUS CAST UPON THE ASSESSEE HAS NOT BEEN PROPERLY D ISCHARGED AS THE ASSESSEE HAS TO JUSTIFY THE CLAIM/EXPENSES IN THE PROFIT & LOSS ACCOUNT . 5 . THE ASSESSEE HAS SHOWN TURNOVER OF 5.70 CRORES ON WHICH NET PROFIT RATE HAS BEEN SHOWN AT 4.5 9% . THE LD. CIT(A) OBSERVED THAT IN THE EARLIER YEAR S AND SUBSEQUENT YEARS THE ASSESSEES NET PROFIT IS RANGING BETWEEN 4.33% TO 5.28%. FURTHER , THE PERCENTAGE OF MATERIAL USED IS 7 2.16% WHEREAS THE LABOUR CHARGE IS 17.17%. AFTER ANALYZING THESE PERCENTAGE OF EXPENSES AND PAST HISTORY, T HE LD. CIT(A) HELD THAT IF THE NET P ROFIT IS ESTIMATED AT 5.5%, THE ADDITION W OULD BE AT THE MOST RS. 5,19,444/ - WHICH WILL TAKE CARE OF THE DIP IN THE PROFIT AND LOSS ACCOUNT. WE AGREE WIT H THE REASONING OF THE CIT(A), BECAUSE IN THE CASE OF A CIVIL CONTRACTOR, GENERALLY, WHAT NEEDS TO BE E XAMINE, IS TO HOW MUCH NET PROFIT HAS M/S OM SAI CONSTRUCTION ITA NO. 869 /MUM/20 1 1 5 BEEN EARNED OR COULD BE EARNED. IN THE CASE OF THE ASSESSEE, PA S T HISTORY AND SUBSEQUENT ASSESSMENTS SHOW THAT ASSES S EES NET PROFIT RATE HAS BEEN RANGING BETWEEN 4.33% TO 5.82%. THUS, TO APPLY NET PROFIT RATE OF 5.5% APPEARS TO BE QUITE A REASONABLE BASIS FOR ESTIMATING THE PROPER INCOME OF THE ASSESSEE AND ACCORDINGLY , THE RELIEF GIVEN BY THE CIT(A) IS UPHELD. MOREOVER, IN THIS CASE, THE ASSESSEE HAS GIVEN ALL THE CONFIRMATION OF THE PARTIES AND DETAILS, WHICH HAS NOT BEEN REBUTTED BY THE ASSESSING OFFICER, THEREFORE , IT CANNOT BE HELD THAT SUCH A ADDITION ON ACCOUNT OF LABOUR PAYMENT IS FU LL Y JUSTIFIED AS THE OVERALL PERCENTAGE OF LABOUR EXPENSES IS IN CONFORMITY WITH THE PAST AND SUBSEQUENT HISTORY OF THE ASSESSEE S CASE. THUS THE GROUNDS RAISED BY THE DEPARTMENT IS DISMISSED. 7. IN THE RESULT, APPEAL OF REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST , 2015. SD/ - SD/ - ( . . ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 19 TH AUGUST , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 3 3 , MUMBAI. 4) THE CIT 22 , MUMBAI. 5) , , / THE D.R. C B ENCH, MUMBAI. 6) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS