M.Narsi Reddy, Satara V. DCIT, Satara

ITA 925/PUN/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56641 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA
• Assessee Lawyers: S P JOSHI; KIRTI JOSHIKULKARNI
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 925 /PN/2010 (ASSTT. YEAR: 2005-06) M. NARSI REDDY APPELLANT 1, AKSHAYKRUPA SOCIETY, KRISHNA NAGAR SATARA 415003 PAN :NOT AVAILABLE V. ASSISTANT COMMISSIONER OF INCOME TAX RESPONDENT SATARA CIRCLE, SATARA ITA NO. 926 /PN/2010 (ASSTT. YEAR: 2005-06) CHANDRASHEKAR REDDY APPELLANT AT POST KSHERA MAHULI, TAL SATARA, DIST. SATARA 415003 PAN :ABVPM4210A V. ASSISTANT COMMISSIONER OF INCOME TAX RESPONDENT SATARA CIRCLE, SATARA APPELLANT BY : MS. KIRTI JOSHI-KULKARNI & SHRI S.P. JOSHI RESPONDENT BY : SHRI S.K. AMBASTHA DATE OF HEARING : 03/11/11 DATE OF PRONOUNCEMENT: 30/12/11 ORDER PER I.C. SUDHIR, JM ITA NO. 925/PN/2010 THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS THAT THE LD CIT(A) HAS ERRED IN CONFIRMING DISALLO WANCE : 1. OF RUPEES TO THE EXTENT OF 2,00,000/- OUT OF LABOU R CHARGES, ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 2 2. OF RUPEES TO THE EXTENT OF 1,00,000/- OUT OF VEHICL E REPAIRS AND MAINTENANCE EXPENSES, 3. OF RUPEES TO THE EXTENT OF 1,50,000/- OUT OF DIZEL EXPENSES, 4. OF RUPEES TO THE EXTENT OF 20,000/- OUT OF OTHER VA RIOUS EXPENSES, 5. OF RUPEES TO THE EXTENT OF 90,000/- U/S 40 A(2)(B) OUT OF OTHER VARIOUS EXPENSES AND 6. OF DEPRECIATION OF RS. 1,50,527/- ON TATA HITACHI EXCAVATOR. 2. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY T HE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW, MATERIAL AVAILABLE ON RECORD AND DECISIONS RELIED UPON. GROUND NO. 1. 3. DURING THE YEAR, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF DAM AT DAMBALA KAWADI, SATARA AS A CONTRACTOR DOING GOVERNMENT AND SEMI GOVERNMENT CONTRACT WORKS. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O MADE SEVERAL DISALL OWANCES, ONE OF WHICH WAS DISALLOWANCE OF RS. 2,00,000/- OUT OF THE CLAIMED PAYMENT OF LABOUR CHARGES AMOUNTING TO RS. 31,01,326/-. THE A.O ALLEGED THAT MOST OF THE CLAIMS ARE MADE IN CASH ON SELF MADE VOUCHER S, WHICH ARE NOT VERIFIABLE. THE A.O NOTED FURTHER THAT PAYMENT BY C HEQUES/DEMAND DRAFT ARE ONLY OF RS. 1,58,000/-. THE LD CIT(A) HAS UPHE LD THE DISALLOWANCE. 4. BEFORE US, THE LD. A.R. SUBMITTED THAT OUT OF LA BOUR CHARGES OF RS. 31,01,326/- PAYMENTS BY CHEQUE ARE OF RS.31,00,926/ -. IN SUPPORT HE REFERRED PAGE NO. 8 OF THE PAPER BOOK GIVING THE DE TAILS OF LABOUR CHARGES PAID DURING THE YEAR BY CHEQUE AND CASH. HE SUBMI TTED THAT THESE PAYMENTS ARE VERIFIABLE. THE BALANCE OF RS. 400/- PAID IN CASH BY SELF MADE VOUCHER IS ALSO VERIFIABLE AND DETAILS WHEREOF HAVE BEEN GIVEN IN THE TOTAL LABOUR CHARGES PAID SHOWN AT PAGE NOS. 5 TO 7 OF THE PAPER ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 3 BOOK. THUS, EVEN ON THE FACE OF THE DEFECTS POINTE D BY THE A.O, THE DISALLOWANCE OF RS. 2,00,000/- APPEARS TO BE UN-REA SONABLE AND UNJUSTIFIED. THE LD. A.R. ACCORDINGLY PRAYED THAT THE DISALLOWANCE MAY BE FULLY DELETED. THE LD. A.R., ON THE OTHER HAND, TRIED TO JUSTIFY THE ORDERS OF THE LOWER AUTHORITIES. 5. HAVING GONE THROUGH THE DETAILS OF THE CLAIMED P AYMENT MADE AVAILABLE AT PAGE NOS. 5 TO 8 OF THE PAPER BOOK, WE PRIMA FACIE FINDS SUBSTANCE IN THE CONTENTION OF THE LD. A.R. THAT U NDER THE CIRCUMSTANCES OF THE CASE, AS DISCUSSED HEREINABOVE IN THE SUBMIS SION OF THE LD A.R., THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING/ SUSTAINING THE DISALLOWANCE OF RS. 2,00,000/- OUT OF THE CLAIMED L ABOUR CHARGES OF RS. 31,01,326/- CONSISTING RS. 31,00,926/- PAID BY CHEQ UE AND RS. 400/- PAID IN CASH ON SELF MADE VOUCHER. WE ALSO WANT TO MAKE IT CLEAR THAT KEEPING IN MIND THE CIRCUMSTANCES UNDER WHICH CASH PAYMENT WAS MADE, THE SAME CAN BE ACCEPTED IF THE SELF MADE VOUCHER C ONTAINS THE PARTICULARS OF THE PAYEE AND THE PURPOSE FOR WHICH IT WAS PAID. WE THUS SUBJECT TO VERIFICATION OF THE CONTENTS OF PAGE NOS . 5 TO 8 OF THE PAPER BOOK DIRECT THE A.O TO ACCEPT THE CLAIMED PAYMENT OF RS. 31,01,326/- TOWARDS LABOUR CHARGES IN ITS TOTALITY. GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 7. OUT OF THE CLAIMED EXPENSES OF RS. 10,92,658/-, THE A.O HAS DISALLOWED RS. 1,00,000/- ON THE BASIS THAT SOME OF EXPENSES ARE AGAINST SELF MADE VOUCHERS WHICH ARE NOT FULLY VERIFIABLE A ND FURTHER THAT NO LOG BOOK WAS MAINTAINED. THE CLAIMED EXPENDITURE IN QU ESTION WAS RELATING TO VEHICLE REPAIRS AND MAINTENANCE. THE LD CIT(A) HAS UPHELD THE SAME. ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 4 8. BEFORE THE TRIBUNAL, THE LD. A.R. SUBMITTED THAT EXPENSES ON CREDIT BASIS WERE OF RS. 8,22,367/-. THE OTHER EXPENSES T O THE EXTENT OF RS. 30,800/- WERE MADE BY CHEQUES. THUS, THE TOTAL EXP ENSES WERE OF RS.8,53,167/-. THE BALANCE EXPENDITURE OF RS. 2,3 9,730/- WAS MADE IN CASH AGAINST SELF MADE VOUCHERS. THE DISALLOWANCE OF RS. 1,00,000/- OUT OF RS.2,39,730/- WOULD BE EXCESSIVE. HE ACCORDINGL Y PRAYED THAT THE DISALLOWANCE BE REDUCED TO A REASONABLE FIGURE. 9. THE LD. D.R. ON THE OTHER HAND TRIED TO JUSTIFY THE ACTION OF THE AUTHORITIES BELOW. 10. EVEN BEFORE THE TRIBUNAL, IT IS NOT A CASE OF T HE ASSESSEE THAT LOG BOOK WAS MAINTAINED TO ENABLE THE A.O TO VERIFY THA T THE CLAIMED EXPENSES WERE INCURRED FOR THE BUSINESS PURPOSES. UNDER THESE CIRCUMSTANCES, THE POSSIBILITY OF PERSONAL USER OF THE VEHICLE IN QUESTION CAN NOT BE TOTALLY RULED OUT. HOWEVER, KEEPING IN MIND THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE ON THE ISSUE, W E RESTRICT THE DISALLOWANCE TO RS. 75000/- ONLY. THE GROUND NO. 2 IS PARTLY ALLOWED. GROUND NO. 3 11. THE A.O MADE DISALLOWANCE OF RS. 1,90,456/- OUT OF THE CLAIMED EXPENDITURE OF RS. 9,82,774/- TOWARDS DIESEL EXPENS ES ON THE BASIS THAT NO LOG BOOK WAS MAINTAINED. HE NOTED FURTHER THAT IN THE A.YS. 2003-04 AND 2004-05, DIESEL EXPENSES WERE AT 4.19 AND 1.89 % RESPECTIVELY OF THE CONTRACT RECEIPTS. HOWEVER, DURING THE YEAR IT HAS BEEN CLAIMED AT 6.15%. THE LD CIT(A) AFTER DISCUSSING THE CASE OF THE ASSESSEE HAS COME TO THE CONCLUSION THAT THAT DISALLOWANCE MAD E BY THE A.O WAS ON ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 5 HIGHER SIDE AND HAS ACCORDINGLY REDUCED THE DISALLO WANCE TO RS. 1,50,000/-. 12. BEFORE THE TRIBUNAL, THE LD. A.R. SUBMITTED THA T THE DETAILS OF DIESEL ACCOUNT HAS BEEN MADE AVAILABLE AT PAGE NOS. 39 TO 45 OF THE PAPER BOOK. HE SUBMITTED THAT OUT OF THE TOTAL CLAIM OF RS. 9,82,774/-, SUBSTANTIAL PORTION OF THE DIESEL WORTH RS. 5,03,2 29/- WAS PURCHASED FROM VARIOUS PARTIES ON CREDIT BASIS, DETAILS OF WH ICH HAS BEEN PLACED AT PAGE NOS. 46 TO 49 OF THE PAPER BOOK. THE BALANCE OF RS. 4,79,545/- WERE CASH PURCHASES FOR WHICH REGULAR BILLS/MEMOS W ERE ISSUED AS MENTIONED IN LEDGER ACCOUNT MADE AVAILABLE AT PAGE NOS. 39 TO 45 OF THE PAPER BOOK. THE LD. A.R. SUBMITTED THAT CONSIDERIN G THESE FACTS AS ALSO INFLATION IN PRICES OF DIESEL, EVEN THE DISALLOWANC E OF RS. 1,50,000/- RETAINED BY LD CIT(A) APPEARS VERY HIGH. HE SUBMIT TED THAT EVEN IF SOME PERSONAL USE OF THE VEHICLES IS TO BE CONSIDERED, T HE DISALLOWANCE AS RETAINED BY THE LD CIT(A) IS EXCESSIVE AND PRAYED F OR REDUCTION OF THE SAME TO A REASONABLE FIGURE. 13. THE LD. D.R., ON THE OTHER HAND, TRIED TO JUSTI FY THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT NON-MAINTENANCE OF THE LOG BOOK FOR DIESEL EXPENSES REMAINED UNDISPUTED EVEN BEFORE THE TRIBUNAL. HOWEVER, KEEPING IN MIND THE TOTALITY OF FACTS AND CIRCUMSTA NCES OF THE CASE ON THE ISSUE, THE DISALLOWANCE IS RESTRICTED TO 10% OF THE CLAIMED AMOUNT AS IN OUR VIEW, THE SAME WOULD BE REASONABLE. IT IS DIRE CTED ACCORDINGLY. THE GROUND NO. 3 IS THUS PARTLY ALLOWED. GROUND NO.4 ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 6 4. THIS GROUND HAS NOT BEEN PRESSED DURING THE COUR SE OF HEARING OF THE APPEAL BEFORE THE TRIBUNAL BY THE LD. A.R. THU S, THE SAME IS REJECTED AS WITHDRAWN. GROUND NO.5 15. THE A.O MADE DISALLOWANCE OF RS. 90,000/- U/S. 40A(2)(B) OF THE ACT OUT OF THE CLAIMED SALARIES PAID TO THE 3 SONS. THE ASSESSEE HAD CLAIMED PAYMENT OF SALARY OF RS. 1,20,000/- TO EACH OF HIS 3 SONS TOTALING TO RS. 3,60,000/-. THE A.O MADE DISALLOWANCE OF RS . 30,000/- IN RESPECT OF PAYMENT OF SALARY OF RS. 1,20,000/- TO EACH OF T HE 3 SONS ON THE BASIS THAT DETAILS WERE NOT FILED ABOUT ACTUAL WORK DONE BY THEM FOR THE ASSESSEE. THE LD CIT(A) HAS UPHELD THE SAME. 16. BEFORE THE TRIBUNAL, THE LD. A.R. SUBMITTED TH AT THESE 3 SONS OF THE ASSESSEE WERE EARLIER WORKING WITH THE ASSESSEE AT VARIOUS SITES AND HAD GAINED EXPERIENCE. THEY WERE NOT PAID ANY SALA RY IN EARLIER YEARS. THIS YEAR, THE ASSESSEE PAID THEM SALARY OF RS. 10, 000/- PER MONTH AS THEY CONTINUED TO DO SUPERVISION WORK AT VARIOUS SI TES. AS THE A.O FINDS THAT SALARY OF RS. 8000/- PER MONTH I.E. RS. 90, 000/- PER ANNUM IS REASONABLE FOR EACH SON, THERE IS NO JUSTIFICATION TO LIMIT THE ALLOWANCE TO SUCH AN ADHOC FIGURE. THE LD. A.R. SUBMITTED FURTH ER THAT SINCE THE A.O DID NOT DISPUTE THAT ALL THE 3 SONS WERE WORKED FOR THE ASSESSEE, THE DISALLOWANCE SUSTAINED BY THE LD CIT(A) BE DELETED. 17. THE LD. D.R., ON THE OTHER HAND, TRIED TO JUSTI FY THE ACTION OF THE AUTHORITY BELOW ON THE ISSUE. CONSIDERING THE ABOV E SUBMISSIONS, ESPECIALLY THE ACTION OF THE A.O IN RESTRICTING TH E DISALLOWANCE ITSELF POSSESS THAT THE A.O HAS NOT DISPUTED THAT ALL THE ABOVE 3 SONS OF ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 7 ASSESSEE HAD WORKED FOR THE ASSESSEE IN THE BUSINES S, WE ARE OF THE VIEW THAT THE SALARY CLAIMED TO HAVE BEEN PAID TO EACH O F THOSE SONS AT THE RATE OF RS. 10,000/- P.M. DURING THE A.Y. 2005-06 C ANNOT BE STATED TO BE UN-REASONABLE KEEPING IN MIND THE SUPERVISION WORK DONE BY THEM AT VARIOUS SITES. THE DISALLOWANCE MADE AND UPHELD BY AUTHORITIES BELOW U/S. 40A(2)(B) OF THE ACT AT THE RATE OF RS. 30,00 0/- OUT OF THE CLAIMED SALARY OF RS. 1,20,000/- OF EACH OF THE 3 SONS IS THUS DIRECTED TO BE DELETED. IN TOTALITY, THE ASSESSEE WILL GET RELIEF OF RS. 90,000/-. GROUND NO. 5 IS ACCORDINGLY ALLOWED. GROUND NO. 6 18. THE CLAIMED DEPRECIATION OF RS. 1,50,527/- ON T ATA HITACHI EXCAVATOR WAS DENIED BY THE A.O ON THE BASIS THAT T HOUGH THE EXCAVATOR WAS STATED TO BE PURCHASED ON 17.3.2005, THE SALE D EED WAS DATED 10.2.2005. THE A.O. ACCORDINGLY HELD THAT THE ACTU AL USER OF THE EXCAVATOR INVOLVED RELEVANT TO THE A.Y IN QUESTION WAS NOT PROVED TO JUSTIFY THE CLAIMED DEPRECIATION. THE LD CIT(A) HA S UPHELD THE SAME. 19. BEFORE THE TRIBUNAL, THE LD. A.R. SUBMITTED THA T A SECOND HAND EXCAVATOR WAS PURCHASED FOR RS. 10,75,000/- FROM ON E SHRI. D.M. PATIL OF PEN, DIST. RAIGAD ON 17.3.2005 AND HAD INCURRED FUR THER EXPENDITURE OF RS. 1,29,218/-. THUS THE TOTAL COST WAS OF RS. 12,0 4,218/-. HE SUBMITTED THAT A COPY OF THE SALE DEED ISSUED BY SHRI D.M. PA TIL WAS PRODUCED BEFORE THE A.O, A COPY WHEREOF HAS BEEN MADE AVAILA BLE AT PAGE NOS. 112 AND 113 OF THE PAPER BOOK. HE SUBMITTED THAT T HIS RECEIPT WAS NOTARIZED ON 10.5.2005 FOR THE PURPOSE OF CONFIRMA TION OF THE TRANSACTION THOUGH THE NOTARIZATION ON A SUBSEQUENT DATE IS NO T THE DATE OF SALE. THE EXCAVATOR IS A MOVABLE PROPERTY AND ITS SALE I S GOVERNED BY THE SALE ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 8 OF GOODS ACT. UNDER THE PROVISIONS OF SALES OF GOO DS ACT, OWNERSHIP OF MOVABLE PROPERTY IS TRANSFERRED BY HANDING OVER POS SESSION OF THE PROPERTY AGAINST THE RECEIPT OF AGREED PAYMENT. TH E LD. A.R SUBMITTED THAT THE EXCAVATOR WAS OWNED BEFORE 31 ST MARCH 2005. HE SUBMITTED THAT THOUGH THERE IS NO EVIDENCE OF ACTUAL USER, BUT IT WAS READY FOR THE USE BEFORE 31 ST MARCH 2005, HENCE ON THE PRINCIPLE OF PASSIVE USER , DEPRECIATION IS ADMISSIBLE. HE SUBMITTED FURTHER T HAT IT BECAME PART OF THE BLOCK OF ASSETS CARRYING 25% DEPRECIATION. IN THIS REGARD, HE REFERRED PAGE NO. 4 OF THE PAPER BOOK WHICH IS THE DEPRECIATION SCHEDULE FOR THE A.Y. 2005-06. THE LD. A.R. ALSO CITED DECI SION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SIDDHESHWAR SA HAKARI SAKHAR KARKHANA LTD., ITA NO. 1297/PN/2009 (A.Y. 2005-06) DATED 1 ST MARCH 2011. 20. THE LD. D.R., ON THE OTHER HAND, PLACED RELIANC E ON THE ORDERS OF THE BELOW AUTHORITIES ON THE ISSUE. 21. CONSIDERING THE ABOVE SUBMISSION, WE CONCUR WIT H THE SUBMISSION OF THE LD. A.R. THAT AS PER THE PROVISION OF SALE OF GOODS ACT, OWNERSHIP OF AN MOVABLE PROPERTY IS TRANSFERRED BY HANDING OV ER POSSESSION OF THE PROPERTY AGAINST THE RECEIPT OF AGREED CONSIDERATIO N. ON PERUSAL OF THE SALE DEED MADE AVAILABLE AT PAGE NOS. 112 AND 113 O F THE PAPER BOOK, IT APPEARS THAT THE TOTAL AMOUNT OF RS. 10,75,000/- DU RING THE PERIOD 9.12.2004 TO 6.3.2005 HAS BEEN PAID BY THE ASSESSEE TO THE SELLER OF EXCAVATOR THROUGH CHEQUES DRAWN AT UNITED WESTERN BANK LTD., KARA NJE, SATARA. THE SELLER IN THIS DEED HAS STATED THAT TH E MACHINERY WAS IN READY AND WORKING CONDITION. IN THE LAST LINE OF T HE SALE DEED, IT HAS BEEN MENTIONED THAT THE PURCHASER IS FULLY RESPONSIBLE FOR THE ABOVE MACHINERY W.E.F. 17.3.2005. THE CONTENTS OF THE SA LE DEED HAVE NOT ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 9 BEEN DISPUTED OR FOUND FALSE BY THE A.O, THUS MEREL Y BECAUSE THE DOCUMENT HAS BEEN EXECUTED ON 10.5.2005, THE CLAIM OF THE ASSESSEE THAT THE MACHINE WAS PURCHASED ON 17.3.2005 AND WAS READY TO USE CANNOT BE DENIED. THE PUNE BENCH OF THE TRIBUNAL I N THE CASE OF ACIT VS. SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD.,(SUPRA) H AS APPROVED THE FIRST APPELLATE ORDER ALLOWING THE CLAIMED DEPRECI ATION OF RS. 15,31,794/- ON WATER PIPE LINE AND ANCILLARY ASSETS FOLLOWING THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MACHINERY MANUFACT URERS CORPORATION LTD. VS. CIT, 31 ITR 203 (BOM.), CIT VS. VISHWANATH BHASKAR SATHE, 5 ITR 62 AND OF HONBLE KERALA HIGH COURT IN THE CAS E OF CIT VS. GEO TECH CONSTRUCTION CORPORATION, 244 ITR 452 (KERALA) HOLD ING THAT THE EXPRESSION USE HAS TO BE GIVEN WIDER MEANING, THE EXPRESSION INCLUDES PASSIVE AS WELL AS ACTIVE USER AND HELD THAT TH E USE INCLUDES PASSIVE USER WHEN THE ASSET WAS KEPT READY FOR OPERATION. WE, THUS, RESPECTFULLY FOLLOWING THESE DECISIONS ON THE ISSUE DIRECT THE A .O TO ALLOW THE CLAIMED DEPRECIATION. GROUND NO. 6 IS ACCORDINGLY ALLOWED. 22. IN RESULT, APPEAL IS PARTLY ALLOWED. ITA NO. 926/PN/2010 23. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORD ER ON THE FOLLOWING GROUNDS THAT LD CIT(A) HAD EARNED IN CONFIRMING D ISALLOWANCE : 1. OF RS. 2,50,000/- OUT OF LABOUR CHARGES 2. OF RS. 1,90,456/- OUT OF DISEL EXPENSES 3. OF RS. 50,000/- OUT OF VEHICLE REPAIRS AND MAI NTENANCE EXPENSES 4. TO THE EXTENT OF RS.10,000/- OUT OF OTHER VARI OUS EXPENSES. ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 10 24. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVA NCED BY THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUT HORITIES BELOW AND MATERIAL MADE AVAILABLE ON RECORD. GROUND NO.1 24. OUT OF THE CLAIMED LABOUR CHARGES OF RS.99,99,8 08/-, THE A.O DISALLOWED RS. 2,50,000/- ON THE BASIS THAT MOST O F THE PAYMENTS ARE IN CASH BY SELF MADE VOUCHERS WHICH ARE NOT VERIFIABLE . HE OBSERVED FURTHER THAT BETWEEN PERIOD 21 ST FEBRUARY 2005 TO 31 ST MARCH 2005, NOT A SINGLE PAYMENT IS MADE BY CHEQUES, HENCE LABOUR CHARGES AR E INFLATED. THE LD CIT(A) HAS UPHELD THE DISALLOWANCE WITH THIS OBSER VATION THAT IT IS 2.5% OF THE CLAIMED LABOUR CHARGES WHICH IS REASONABLE U NDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 25. BEFORE THE TRIBUNAL, THE LD. A.R. SUBMITTED THA T OUT OF THE CLAIMED LABOUR CHARGES RS. 99,99,808/-, RS. 34,03,341/- WAS PAID BY CHEQUES AND CREDIT BILLS ARE OF RS. 24,30,850/-. IN SUPPORT , HE REFERRED PAGE NOS. 25 & 26 OF THE PAPER BOOK. HE ACCORDINGLY SUBMITTE D THAT TOTAL OF THESE 2 AMOUNTS COMES TO RS. 58,38,191/- WHICH ARE FULLY VE RIFIABLE. ABOUT BALANCE AMOUNT OF RS. 41,65,617/- HE SUBMITTED THAT THESE ARE IN CASH AND BY SELF MADE VOUCHERS. HE SUBMITTED THAT PAYME NTS TO SUNDRY MUKADAM LABOURERS ARE UNAVOIDABLE BY SELF MADE VOUC HERS. THUS, EVEN IN THE CASE OF THE DEFECTS POINTED OUT BY THE A.O T HE DISALLOWANCE OF RS.2,50,000/- APPEARS TO BE QUITE HIGH. THE LD. A. R. SUBMITTED THAT THE DISALLOWANCE MAY BE REDUCED TO A REASONABLE FIGURE. 26. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT SUFFICIENT RELIEF HAS ALREADY BEEN GIVEN BY THE AUTHORITIES BELOW KEEPING IN MIND THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED BY THE LD. A.R. ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 11 27. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, ESPECIALLY THAT SUBSTANTIAL AMOUNT OF RS. 41,65,617/- HAS BEEN PAID AS LABOUR CHARGES IN CASH BY SELF MADE VOUCHERS, WE ARE OF THE VIEW THAT THE POSSIBILITY OF INFLATION CANNOT BE TOTALLY RULED OUT. HOWEVER, KE EPING IN MIND THE NATURE OF JOB UNDER WHICH CASH PAYMENT IN SOME CIRC UMSTANCES IS UNAVOIDABLE AND THAT THE MAJOR PAYMENT MADE TOWARDS LABOUR CHARGES ARE VERIFIABLE, WE ARE OF THE VIEW THAT RESTRICTING THE DISALLOWANCE TO 1% WOULD COVER THE INFLATION IF ANY. WE ORDER ACCORDI NGLY. GROUND NO. 1 IS ACCORDINGLY PARTLY ALLOWED. GROUND NO. 2 28. IN ABSENCE OF MAINTENANCE OF LOG BOOK, AND THA T IN COMPARISON TO THE DIESEL EXPENSES SHOWN AT 3.13% OF THE CONTRACT RECEIPT IN A.Y. 2004- 05, AND SHOWN AT 5.5% IN THE A.Y. UNDER CONSIDERATI ON, THE A.O HELD THAT RESTRICTING THE EXPENSES AT 3.50% WOULD BE REASONABLE. HE ACCORDINGLY WORKED OUT THE EXPENDITURE OF RS. 5,93,554/- OUT O F THE CLAIMED DIESEL EXPENDITURE OF RS.7,54,010/- AND HENCE BALANCE O F RS. 1,90,456/- WAS DISALLOWED. THE LD CIT(A) HAS UPHELD THE DISALLOWA NCE. 29. BEFORE THE TRIBUNAL, THE LD. A.R. REFERRED PAGE NOS. 42 TO 55A OF THE PAPER BOOK I.E. DETAILS OF DIESELS ACCOUNT FURN ISHED. THE TOTAL EXPENDITURE OF RS. 7,84,010/- HAS BEEN SHOWN. THE LD. A.R. SUBMITTED THAT ENTIRE DIESL WAS PURCHASED FROM NANDKUMAR AN D SONS AS IT IS EVIDENT FROM PAGE NOS. 56 TO 71 F THE PAPER BOOK. HE SUBMITTED THAT MOST OF THE PAYMENTS ARE IN CASH, BUT BELOW RS. 20, 000/-. ALL THE PURCHASES ARE SUPPORTED BY BILLS ISSUED BY NANDKUMA R & SONS. SOME PAYMENTS ARE FIRST PAID BY B.J. BHASKAR REDDY, A CO NTRACTOR, AND RELATIVE OF THE ASSESSEE AND LATER ON IT WAS REIMBURSED BY M AKING PAYMENT TO ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 12 HIM. THERE ARE 2 PAYMENTS BY CHEQUES. IN SUPPORT, HE REFERRED THE ENTRIES FOR RS. 39,658/- AND RS. 20,900/- ON PAGE N O. 61 OF THE PAPER BOOK. THE LD. A.R. SUBMITTED THAT OUT OF TOTAL PUR CHASES OF RS. 7,84,010/- DIESEL PURCHASES FROM NANDKUMAR & SONS I S OF RS. 7,81,901/- AND THE BALANCE OF RS. 2,109/- IS ONLY BY SELF MADE VOUCHERS. CONSIDERING THIS FACT AS ALSO INFLATION IN PRICES O F DIESEL, THE DISALLOWANCE OF RS. 1,90,456/- APPEARS TO BE ON HIGHER SIDE. 30. THE LD. D.R., ON THE OTHER HAND, TRIED TO JUSTI FY THE ORDERS OF THE AUTHORITIES BELOW. 31. CONSIDERING THE ABOVE SUBMISSIONS, WE ARE OF TH E VIEW THAT THE CLAIMED PAYMENT MADE TO THE CLAIMED PARTY WAS VERI FIABLE, HENCE, DISALLOWANCE OF RS. 1,90,456/- OF THE CLAIMED EXPEN DITURE OF RS. 7,84,010/- IS ON HIGHER SIDE. WE THUS ARE OF THE V IEW THAT RESTRICTING THE DISALLOWANCE TO RS. 50,000/- WILL BE REASONABLE IF LOOKING INTO THE NATURE OF BUSINESS OF THE ASSESSEE AND INFLATION IN THE P RICES OF DIESEL. IT IS ORDERED ACCORDINGLY. GROUND NO. 2 IS THUS PARTLY A LLOWED. GROUND NO. 2 32. OUT OF THE TOTAL EXPENDITURE OF RS. 4,32,373/- TOWARDS VEHICLE REPAIRS AND MAINTENANCE, THE A.O MADE DISALLOWANCE OF RS. 50,000/- ON THE BASIS THAT THE CLAIM WAS NOT VERIFIABLE THAT I T WAS ENTIRELY MEANT FOR THE PURPOSE OF BUSINESS. THE LD CIT(A) HAS UPHELD THE SAME. 33. THE LD. A.R. CONTENDED THAT THE DISALLOWANCE M ADE IS ON HIGHER SIDE AND IT MAY BE REDUCED TO A REASONABLE FIGURE. ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 13 34. THE LD. D.R, ON THE OTHER HAND, SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 35. CONSIDERING THE TOTALITY OF THE FACTS AND CIRC UMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT RESTRICTION OF THE DISALLO WANCE OF RS. 40,000/- WOULD MEET THE END OF JUSTICE. IT IS ORDERED ACCOR DINGLY. GROUND NO. 3 IS THUS PARTLY ALLOWED. GROUND NO. 4 36. THE GROUND REGARDING DISALLOWANCE MADE AT RS. 10,000/- HAS NOT BEEN PRESSED BY THE LD. A.R. BEFORE THE TRIBUNAL. THE SAME IS ACCORDINGLY REJECTED AS WITHDRAWN. 37. IN RESULT, APPEAL IS PARTLY ALLOWED. 38. IN SUMMARY, BOTH THE APPEALS ARE PARTLY ALLOWED . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2011. SD/- SD/- ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 30 TH DECEMBER, 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -III, PUNE 4. THE CIT(A)-III, PUNE 5. THE D.R. A BENCH, PUNE 6. GUARD FILE ITA . NO 925/PN/2010 & 926/PN/2010 M.NARSI REDDY& CHANDRASEKHAR REDDY A.Y. 2005-06 PAGE OF 14 14 BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE