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TMI Blog2010 (12) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... ire payment was made through account payee cheques - Accordingly, the order of the CIT(A) in this regard is set aside and the matter is restored to the file of the A.O. with the direction to re-adjudicate the issue in terms indicated above. - ITA No. 548/Vizag/2008, ITA No. 571/Vizag/2008, - - - Dated:- 10-12-2010 - Sunil Kumar Yadav, B.R. Baskaran, JJ. T.L. Peter, DR for the Appellant G.V.N. Hari, CA for the Respondent ORDER S.K. Yadav:- 1. These cross appeals are preferred by the revenue as well as the assessee against the order of the CIT(A). Since these appeals were heard together, these are being disposed off through this consolidated order. The controversy involved in these appeals is with regard to the disallowances made u/s 40(a)(ia) and 40A(3) of the I.T. Act. 2. The facts in brief borne out from the record are that the assessee is an individual carrying on business of the execution of civil contract. While completing the assessment the assessing officer disallowed Rs.3,50,27,780/- u/s 40(a)(ia) and Rs.1,50,25,500/- u/s 40A(3) of the I.T. Act. With regard to the disallowance u/s 40(a)(ia), the A.O. noticed during the course of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buted the lumpsum amount to the worker and the concerned workers after receiving the labour charges signed wage register as a mark of receipt of wages. They however stated that the entire lumpsum amount was received in cash and not through cheque. The CIT(A) re-examined the issue in the light of the remand report and the evidence furnished by the assessee and being convinced with the explanations of the assessee, the CIT(A) held that labour payments were made directly to the labours and the said payment was not contractual. Therefore, the provisions of section 194C are not applicable to the assessee's case. He accordingly deleted the additions made by the A.O. in this regard on violation of provisions of section 40(a)(ia) of the Act. The relevant observation of the CIT(A) are extracted hereunder for the sake of reference:- "I have carefully examined the facts of the case. At the time of assessment proceedings, the appellant could not produce any evidence in support of his contention that labour payments were made directly to the labourers through one of the co-workers. However, in course of the appeal proceedings, wage registers were furnished wherein payments were shown to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheques. In the case of the bearer cheques, it is not necessary that the person in whose name cheque is drawn has to encash it. Any other person can also encash the cheques. Therefore, the five workers who on their sworn statements stated that they never received cheques but cash, cannot be disbelieved. In view of the fact the primary evidence in the form of wage registers which indicate payment of wages directly to the labourers by the appellant and which is further corroborated by the sworn statements of the five workers, I have no hesitation in concluding that the labour payments were made directly to the labourers and the said payment was not contractual. Therefore, the provisions of sec.194C are not applicable to the facts of the appellant's case. Consequently, the provisions of sec.40a(ia) are not applicable in the instant case. Hence, the addition of Rs.3,50,27,780/- made by the assessing officer in this regard is hereby deleted and this ground of appeal is allowed." 4. Aggrieved, the revenue has preferred an appeal before the Tribunal but during the course of hearing, the Ld. D.R. could not point out the specific defect in the order of the CIT(A). 5. The Ld. Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convinced with the explanations of the assessees, he concluded that the entire amount cannot be considered for the purpose of disallowance u/s 40A(3) of the Act as it was a labour payment to various labours made through their group leaders. Following his observation made while deleting the disallowance made u/s 40a(ia) of the Act, the CIT(A) deleted the disallowance made u/s 40A(3) of the Act. 11. Now the revenue has assailed the order of the CIT(A) but could not point out any specific defect therein. We however have carefully examined the order of the CIT(A) and find no infirmity therein. Therefore, we confirm the order of the CIT(A) on this issue. 12. With regard to the amount of Rs.3,13,42,784/-, it was contended that correct amount should be Rs.3,28,04,292/- of which break up is as under:- i. Payments through account payee cheques Rs. 2,13,98,101/- ii. Payments made in cash on holidays like Sunday Rs. 25,000/- iii. Payments made to Cottage Industry Products Rs. 29,70,454/- iv. Payments made through agents Rs. 52,62,108/- v. Payments made in cash below Rs.20,000/- Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on holidays were not accepted by the assessing officer and he submitted the remand report. Remand report was confronted to the assessees. 17. Having considered the assessee's contention in the remand report, the CIT(A) concluded that the payment through agents and also to cottage industries are to be considered for disallowance u/s 40A(3) of the Act in as much as the assessee could not place the satisfactory evidence in support of his contentions. With regard to the payments made in cash below Rs. 20,000/-, the CIT accepted the contention of the assessees and accordingly concluded that the entire amount of Rs.39,41,128/- is outside the purview of section 40A(3) of the Act. With regard to the payment through cheques, the CIT has relied upon the remand report. Before the CIT(A) after the remand proceedings, assessee furnished another certificate from the bank certifying that amount of Rs.76,40,910/- was also paid through cross cheques. After granting a credit of that certificate filed before him the CIT concluded that an amount of Rs.30,12,034/- has to be considered for disallowance u/s 40A(3) of the Act. The relevant observation of the CIT(A) are extracted hereunder for the sake o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - has to be considered for disallowance u/s 40A(3) of the Act. With regards to the claim of the appellant company that an amount of Rs.29,70,450/- was paid towards procurement of bricks which were manufactured in a cottage industry and the said payment is covered by the exception provided in Rule-6DD(f) is also not acceptable. The case law relied upon by the appellant company in this regard i.e. 114 ITR 720 (M.P.) lays down the ratio that a society engaged in manufacturing of any article with the labour of its members without engaging outside labour is a cottage industry, notwithstanding that it is a "factory" as defined under the Factories Act, 1948. In the instant case, the appellant has failed to furnish the units from which bricks were purchased and whether such bricks were manufactured by any Society by engaging labour of its own members. In the absence of such vital details, it cannot be construed that the bricks were manufactured by cottage industries. Hence, the amount of Rs.29,70,450/- has to be considered for disallowance u/s 40A(3) of the Act. In so far as payments of less than Rs.20,000/- is concerned, as per the appellant the total of such payments was Rs.31,49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heques but during the course of remand proceedings and the appellate proceedings, the assessee could not obtain the certificates from the bankers. If some more time is given, he would either to produce the certificate or to request the department to call for the record from the bankers to verify the nature of payments. The Ld. D.R. formally opposed the request of the assessees. 19. Having carefully heard the assessee's contentions in the light of the order of the CIT(A), we are of the view that before the A.O., assessee could not produce the certificate from the bankers. But when time was given to the assessee for producing the same during the remand proceedings or the appellant proceedings, assessee produced the certificates of bankers of a substantial amount. In the light of these facts, we are of the view that if assessee is allowed one more opportunity, he may produce some more evidence in support of his claim that the entire payment was made through account payee cheques. We therefore, in the interest of justice set aside the order of the CIT(A) and allow the assessee one more opportunity to produce the banker certificate in support of his contention and in case he is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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