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2019 (10) TMI 1458 - AT - Income TaxAddition of payment made to Progressive Constructions Ltd. (PCL) - AO found during the assessment proceedings that the assessee has debited an amount towards chips , oil and lubricants by way of journal entry - Since the PCL has not confirmed the supply of chips and dust, the AO disbelieved the payments made by the assessee for business purposes and accordingly made the addition u/s 37(1) - HELD THAT - The amounts were debited in the P L account for lubricants and oils and the assessee claimed to have made the payments for purchase of chips and dust. Though the payments were made through cheques, the PCL has neither confirmed the transaction nor issued the pucca bills to the assessee. Though the PCL stated to have issued the clarificatory letter for supply of chips and dust, the same was issued to the Managing Partner, but not to the assessee. It is not known whether the managing partner is having separate individual business apart from partnership firm. The Ld.CIT(A) misdirected himself to rely on the clarificatory letter issued by PCL in the name of Managing Partner without supporting documents of stock register and the consumption register and the proper bills. In respect of Raghava Co., though the managing partner had stated that he was a sub contractor and executed part of the work, the Ld.CIT(A) misdirected himself in believing that the managing partner has given a statement in confusion. When the assessee has made payments to Raghava Co., it is incumbent upon the assessee to establish the nature of payment furnishing proper bills supporting the supply of material with stock register and consumption register. No supporting evidences were placed before the Ld.CIT(A) or before the AO. Payment made otherwise than crossed cheques for expenditure in violation of the provisions of section 40A(3) - HELD THAT - The assessee has neither produced proper bills nor explained the reasons for payments made otherwise than by crossed cheque. Even for labour charges, the assessee has not furnished the details of mastry and labour attached to each mastry and the number of days the labour employed by each mastry etc. Though the assessee stated to have made the payment on bank holidays, it did not establish that the payments were made on bank holidays and in exceptional circumstances as provided under Rule 6DD of I.T.Rules. The very fact that the bank cheques were encashed across the counter shows that there was no holiday on the same date. Therefore, we are unable to accept the contention of the assessee that the payments were made in exceptional circumstances. Estimation of income - rejection of books of accounts - HELD THAT - As assessee has not maintained the proper books of account and expenses debited to the P L account was not properly grouped and supported by pucca vouchers. During the appeal hearing also, the Ld.AR did not place any evidence to support the arguments - this is a fit case for rejection of books of accounts and estimation of income. Therefore, taking into consideration of all the facts and merits of the case and basis from KNR Constructions 2012 (10) TMI 1046 - ITAT HYDERABAD , we hold that assessee s case is fit case for estimation of income @12.5% on main contracts and 5% on sub contracts before depreciation and interest and remuneration to partners. Accordingly, to meet the ends of justice, we direct the AO to estimate the income @12.5% before depreciation, interest and remuneration to partners. However, the income after giving effect to the order of this Tribunal should not be less than the returned income or should not be less than the income arrived at as per the first appellate authority or more than the assessed income. Addition on account of unexplained creditors - HELD THAT - Assessee has furnished the confirmation letters with full details of the address and the payments were received through cheques or RTGS and there was no cash payments. Therefore, the burden was shifted from the assessee to the AO and it is for the AO to establish that the contents of the confirmation letter were false or incorrect. The AO did not make any enquiries for verification of the genuineness of the transactions. Therefore, the AO did not shift the burden to the assessee, hence the finding of the AO that the assessee has not proved the genuineness, credit worthiness and identity is incorrect and there is no case for making the addition on account of unsecured creditors. CIT(A) relied on the decision of Maddi Sudarsnam Oil Mills Co. 1959 (2) TMI 27 - ANDHRA PRADESH HIGH COURT where held that if the income tax authorities have rejected the books of accounts, they cannot make addition on account of unexplained cash credit on the very same books. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld.- Decided in favour of assessee.
Issues Involved:
1. Addition of ?1,00,85,000/- payment made to Progressive Constructions Ltd. (PCL). 2. Addition of ?38,02,376/- payment made to M/s Raghava & Co. 3. Disallowance of expenditure under section 40A(3) of the Income Tax Act. 4. Estimation of income for the assessment years. 5. Addition on account of unexplained creditors. Detailed Analysis: 1. Addition of ?1,00,85,000/- Payment Made to Progressive Constructions Ltd. (PCL): The Assessing Officer (AO) found discrepancies between the ledger accounts and the Profit & Loss (P&L) account regarding payments made to PCL. The assessee failed to provide proper evidence such as bills and invoices. PCL initially denied any transactions with the assessee for the relevant period. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that PCL had clarified the supply of materials to the managing partner of the assessee firm. The Income Tax Appellate Tribunal (ITAT) found that the CIT(A) erred in relying on the clarificatory letter issued by PCL in the name of the managing partner without supporting documents such as stock registers and proper bills. 2. Addition of ?38,02,376/- Payment Made to M/s Raghava & Co.: The AO added the amount under section 40(a)(ia) for failure to deduct tax at source, based on the managing partner's statement that M/s Raghava & Co. was a sub-contractor. The CIT(A) deleted the addition, stating that the managing partner was confused and that the payments were for borrowing oils and lubricants. The ITAT found that the CIT(A) misdirected himself, as the assessee failed to provide proper bills and supporting evidence for the payments. 3. Disallowance of Expenditure Under Section 40A(3) of the Income Tax Act: The AO disallowed ?2,18,63,350/- for payments made in cash exceeding the threshold limit, violating section 40A(3). The CIT(A) deleted the addition, considering the nature of the assessee's business and the practice of making payments through bearer cheques. The ITAT found that the assessee failed to establish that the payments were genuine and covered under exceptions of Rule 6DD of the Income Tax Rules. The ITAT held that the payments violated section 40A(3) and rejected the CIT(A)'s deletion of the addition. 4. Estimation of Income for the Assessment Years: For the A.Y. 2008-09, the ITAT directed the AO to estimate the income at 12.5% on main contracts and 5% on sub-contracts before depreciation, interest, and remuneration to partners, as the assessee failed to maintain proper books of accounts and supporting vouchers. For the A.Y. 2012-13, the CIT(A) had directed the AO to estimate the income at 11% on main contracts and 5% on sub-contracts, but the ITAT upheld the estimation at 12.5% on main contracts and 5% on sub-contracts, consistent with the earlier year. 5. Addition on Account of Unexplained Creditors: The AO added ?35,50,000/- for unexplained creditors, doubting the genuineness despite confirmation letters provided by the assessee. The CIT(A) deleted the addition, noting that the payments were received through cheques or RTGS and the AO failed to shift the burden back to the assessee. The ITAT upheld the CIT(A)'s decision, agreeing that the AO did not make any enquiries to verify the genuineness of the transactions and relied on the Andhra Pradesh High Court's decision that if books of accounts are rejected, unexplained cash credits cannot be added based on the same books. Conclusion: The ITAT partly allowed the appeals of the revenue for the A.Y. 2008-09 and 2012-13, and partly allowed the cross objections of the assessee for the A.Y. 2008-09. The ITAT directed the AO to estimate the income at specified rates and upheld the deletion of addition related to unexplained creditors.
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