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2014 (3) TMI 528 - AT - Income TaxAddition made u/s 68 of the Act Unexplained cash credit - Held that - CIT(A) while deleting the addition has noted that the individual capital accounts of the partners showed transfer of capital into the Assessee firm and at the same time the Assessee s books showed the receipt of capital on identical amounts the only difference was in dates Relying upon CIT vs. Pankaj Dyestuff Industries 2005 (7) TMI 601 - GUJARAT HIGH COURT - no addition could be made in the hands of the firm of the sums introduced by the partners as unexplained cash credit and if at all any addition was to be made, it could only be made in the hands of individual partners - the Revenue has not brought any material to controvert the findings of CIT(A) thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue. Disallowance of labour charges Held that - CIT(A) while deleting the addition has given a finding that Assessee has acted as a sub-contractor of Ranjit Construction who had been given the contract of construction of Fly over by SMC - the payments are made to Assessee on running account basis for which bills are raised from time to time and there was always a time gap between the raising of a bill and the actual receipt of payment - there cannot be a one to one co-relation between the payment of labour expenses and the raising of R.A. bills and the receipt of payment from the contractee. Supply of material by Ranjeet Construction and SMC Held that - CIT(A) has noted that the material supplied by SMC and Ranjit Construction were in the nature of reimbursement of expenses thus, the material provided would necessarily have to be credited to the accounts and the labour expenses would have to be compared with the total of receipts - if the materials received from SMC and Ranjit Construction were reduced from the gross receipts, the percentage of labour expenses to such net receipts worked out to 30.81% which was quite reasonable. Difference in the account of Mukhtar Foundation Held that - CIT(A) has held the difference as fully explained - the Revenue could not controvert the findings of CIT(A) nor has brought any contrary material on record in its support thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue. Deletion made on account of material recovery Held that - The CIT(A) while deleting the addition made by the AO has noted that AO made lot of assumption and presumption while making the disallowance and further the assumptions were not based on facts associated with the type of business of the Assessee - the AO was not in a position to show that the purchases made by the Assessee and in the name of Ranjit Construction has been utilized elsewhere, nor the AO was in a position to prove that the project was completed by the Assessee with materials purchased from outside its books - SMC had permitted Ranjit Construction and the Assessee to purchase cement and steel on its own and hence in order to complete the project, the two parties had to proceed with the purchases. Disallowance of purchase value of wire Held that - CIT(A) has noted that there was no basis for the AO to observe that the purchase of wire was disproportionate to the quantity of steel provided by SMC - the quantity of wire purchased shown in the purchase bills tallied with the quantity shown in R.A. bills - no material has been brought on record by Revenue to controvert the finding of CIT(A) thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue. Restriction of disallowance of carting expenses Held that - CIT(A) had restricted the disallowance to 25% instead of 50% of the expenses - From the list of parties from whom the TDS has been deducted, it is seen that in a few cases though Assessee has stated it had deducted TDS but in the list no PAN numbers of some of the parties have been indicated - Considering the totality of facts and peculiar circumstances of the case and nature of the business and activity carried out by Assessee, the disallowance is restricted to Rs. 10 lacs Decided against Revenue. Addition made on account of valuation of closing work in progress Held that - The material worth Rs. 16,05,932/- were purchased on the last 2 days of the year and the Assessee could not prove that the same was consumed and was not in the stock at the end of the year and in such circumstances, the action of AO in considering the same as part of closing stock cannot be faulted - it is also an accepted principle of accountancy, that closing stock at the end of the year becomes opening stock of the next year thus, the contention of the assessee is accepted that the amount which is considered as closing stock in the relevant assessment year be considered as opening stock of subsequent year thus, the AO is directed to give credit of the addition made to the closing stock at the yearend as opening stock in the immediate succeeding year Decided partly in favour of Assessee. Disallowance on account of difference in sales tax payment Held that - Assessee contended that sales tax was paid by Ranjit Construction on behalf of Assessee but, there is no finding on this factual aspect by the AO - this aspect needs verification at the end of AO thus, the matter is remitted back to the AO for verification Decided in favour of Assessee.
Issues Involved:
1. Deletion of addition under section 68 of the Act. 2. Deletion of disallowance of labor charges. 3. Deletion of addition on account of material recovery. 4. Restriction of disallowance of carting expenses. 5. Addition on account of valuation of closing work in progress (WIP). 6. Disallowance on account of difference in sales tax payment. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 68 of the Act: During the assessment, the A.O. noticed discrepancies in the dates of cash introduction by the partners in the firm's books. The A.O. treated Rs. 2,50,000/- as unexplained cash credit under section 68. The CIT(A) deleted the addition, noting that the difference was only in dates and not in the amounts. The Tribunal upheld the CIT(A)'s decision, citing that any addition should be made in the hands of individual partners, not the firm. The Tribunal relied on the Gujarat High Court decision in CIT vs. Pankaj Dyestuff Industries. 2. Deletion of Disallowance of Labor Charges: The A.O. disallowed Rs. 27,74,439/- of labor charges, citing variations in monthly labor payments and unverified expenses. The CIT(A) deleted the addition, explaining that payments were made on a running account basis and that the percentage of labor expenses was reasonable. The Tribunal upheld the CIT(A)'s decision, noting that the A.O. failed to provide contrary evidence. 3. Deletion of Addition on Account of Material Recovery: The A.O. added Rs. 99,86,407/- due to doubts about the authenticity of material recovery claims. The CIT(A) found the A.O.'s assumptions baseless and noted that the materials were supplied as per agreements and used in the project. The Tribunal upheld the CIT(A)'s decision, stating that the A.O. did not prove that materials were used elsewhere or purchased outside the books. 4. Restriction of Disallowance of Carting Expenses: The A.O. disallowed 50% of carting expenses, amounting to Rs. 37,61,619/-, due to unverifiable claims. The CIT(A) reduced the disallowance to 25%, noting that some expenses were unverifiable but not to the extent claimed by the A.O. The Tribunal further reduced the disallowance to Rs. 10 lacs, considering the nature of the business and the inability to provide complete details. 5. Addition on Account of Valuation of Closing Work in Progress (WIP): The A.O. added Rs. 16,05,932/- for materials purchased at the year-end but not included in closing stock. The CIT(A) upheld the addition, stating that the Assessee failed to prove consumption before the year-end. The Tribunal agreed with the addition but directed the A.O. to consider it as opening stock in the subsequent year. 6. Disallowance on Account of Difference in Sales Tax Payment: The A.O. added Rs. 4,60,476/- due to discrepancies between sales tax paid and reflected in the Profit and Loss account. The CIT(A) upheld the addition, noting that the Assessee could not provide evidence for the difference. The Tribunal remitted the issue to the A.O. for verification of the Assessee's claim that sales tax was paid by Ranjit Construction on its behalf. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the Assessee's appeal, providing specific directions for each issue. The judgments were based on the evidence provided, legal precedents, and the nature of the Assessee's business.
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