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TMI Blog2012 (2) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... e reason that this is normal practice in this line of business that this type of payment remains outstanding as on the year ending i.e. in the month of March. Decided in favour of assessee. - I.T.A No. 1612/Kol/2009, I.T.A No. 1706/Kol/2009 - - - Dated:- 6-1-2012 - Sri Mahavir Singh, Shri C. D. Rao, JJ. For the Assessee: Shri S. M. Surana For the Revenue: Shri Ranjit Kr. Saha ORDER Per Mahavir Singh, JM These cross appeals, by assessee and revenue, are arising out of order of CIT(A)-XII, Kolkata in Appeal No 380/XII/40(1)/08-09 dated 15.07.2009. Assessment was framed by ITO, Ward-40(1), Kolkata u/s. 143(3)(ii) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 2006-07 vide dated 29.12.2008. 2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance to the tune of Rs.1008/- on account of depreciation on truck. For this, assessee has raised following ground no.1: 1. For that at the time of assessment the Ld. ITO, Wd-40(1), Kolkata as well as the CIT(A)-XII at the appeal stage erred in law by disallowing the Depreciation to the tune of Rs.1,008/- in full on tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at without any basis and just on estimates, these disallowances cannot be made. Accordingly, we delete the disallowances and these issues of assessee s appeal are allowed. 7. The next common issue in both appeals is as regards to the addition of transport charges of Rs.56,86,701/- added by AO by bifurcating these as bogus expenses of Rs.11,37,340/- and by invoking provisions of section 40(a)(ia) of the Act for failure of deduction of tax at source u/s. 194C of the Act on sub-contract payments amounting to Rs.45,49,361/-. The assessee has raised following ground nos. 5 and 6: 5. For that the Ld. CIT(A-XII wrongly disallowed the expenses to the tune of Rs.5,68,670/- on account of Transportation Charges. 6. For that Ld. CIT(A)-XII has failed to understand the meaning of the provision of Section 40(a)(ia) of the I. T. Act, 1961 and disallowed Rs.31,67,438/- for non deduction of TDS from the payments made to the various truck drivers under the head Transportation Expenses . According to the agreement, which has been submitted at the time of assessment as well as at the time of appeal, between the principal contractor i.e. Hindustan Paper Corporation Limited and the Assessee, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs.5,68,670/- by giving following finding in para 8.1.3 of his appellate order: 8.1.3. I have carefully considered the submissions of the Ld. AR of the appellant. There is some force in the arguments. It is reported that a portion of transport charges (Rs.18,89,540/-) related to purchase of bamboos. As regards payments made in cash, the arguments putforth by the appellant to certain extent are reasonable. The nature of job is such that there is bound to be cash payments in respect of labour/workers or small truck drivers where small payments were made. But at the same time, the same arguments cannot give a total immunity to the entire expenditure incurred in cash. There is bound to be an element of inflation in this line of activity. The A.O has pointed out certain deficiencies. Though these deficiencies are not conclusive proof, but the same indicates an element of unsubstantiated expenses. In these circumstances the only way to arrive at the inflation of expenses is only on estimation basis since neither the assessee nor the department could in a position to prove or disprove conclusively. However, in the facts and circumstances of the case, I feel that the disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As claimed by the assessee, whether the provisions of Section 194(1) as existed in assessment years 2006-07 2007-08 will apply to the assessee or not? Admittedly, assessee has not deducted any TDS on advertisement payment and according to her, provisions of Section 194C(1) as existed in the relevant assessment years will not obliterate any duty on assessee to deduct TDS. Now, we have to examine this. The relevant provisions of Section 194C(1) (2) as exist in assessment year 2006-07 2007-08 reads as under :- (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and-- (a) the Central Government or any State Government ; or (b) any local authority ; or (c) any corporation established by or under a Central, State or Provincial Act ; or (d) any company, or (e) any co-operative society ; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of plann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 44AB and the assessee s accounts are subject to audit and the assessee has audited her accounts and filed Tax Audit Report along with return of income. We find that the Assessing Officer has made disallowance in view of the amended provisions of Section 194C(1) by the Finance Act, 2007 with effect from 01.06.2007 wherein it is proposed to amend Sub-Section (1) in Section 194C so as to include payments made by any individual or Hindu Undivided Family whose total sales / gross receipts or turnover from the business or profession carried on by him exceed monetary limit specified under clause (a) or clause (b) or Section 44AB during the financial year or immediately preceding financial year in which such sum is credited or paid to the account of the Contractor. This amendment takes effect from 1st day of June, 2007 and is applicable for and from assessment year 2008-09. In Section 194C(1) with effect from 01.06.2007, by the Finance Act, 2007, clause as inserted, reads as under :- (k) any individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts being awarded by individuals and HUFs carrying on business or profession and the increasing volume of such payments to contractors, it was felt that there is need to require such persons to deduct tax at source from payments made by them to contractors. 54.4 There would be genuine difficulties if individuals or HUFs with small business turnovers or gross receipts of profession are required to deduct tax at source. An exception in such cases would be justified. Similarly the contracts awarded by an individual or a member of HUF of HUF exclusively for personal purposes merit exclusion. 54.5 Accordingly, the Finance Act, 2007, has substituted the said sub-section (1) to include in its ambit such individual or a Hindu undivided whose total sales, gross receipts or turnover from the business or profession carried on exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding financial year in which sum is credited or paid to the account of the contractor. This amendment shall not apply in respect of payments made to a contractor by any individual or a member of a Hindu undivided family exclusively for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the Assessing Officer despite the fact that complete names and addresses of the labourers and supervisors to whom payments were made in cash was available before the Assessing Officer. Even now the assessee has filed completed details in assessee s paper book at pages 30 to 61 where complete list of labourers and supervisors is given with addresses. We find that without any basis disallowance cannot be made. The AO without carrying out any enquiry has made disallowance purely on surmise. It is not open to the Department to prescribe how the assessee has to spend or incur and in what circumstances he should incur expenditure. It is not the case of the revenue that the expenses are not genuine and not related to business. Once this is the case, the entire expenditure should have been allowed and we order accordingly. This issue of revenue s appeal is dismissed and that of assessee is allowed. 12. The next issue in these cross appeals is as regards to the order of CIT(A) restricting the disallowance at Rs.7,10,969/- out of the total addition made by Assessing Officer at Rs.28,43,879/- as bogus claim of expenditure. For this, revenue has raised following ground no.3: That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouch for these features. As regards the other argument that the A.O has not given a contrary finding about the genuineness of signatures of recipients, this issue does not arise at all as the AO gave a clear finding that the vouchers themselves are unverifiable. As regards favourable trading profits, this may be true, but the same cannot give immunity to the entire expenditure booked when the same stands unverifiable and unsubstantiated. As regards the theory of res judicata it is to mention that the A.O in the present year under consideration made enquirers and gave clear findings about unverifiable nature of the labour charges. It is needless to say that every assessment year is an independent year of assessment as the facts or the findings differ from year to year. At the same time the entire labour payment cannot be doubted as this form the major part of the business activity. Hence a reasonable disallowance based on estimate method is only the method to arrive at reasonable disallowance. However in the present case the disallowance made by the A.O at 20% appears to be on a higher side. Considering the turnover and totality of circumstances and facts of the case, a disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee explained vide reply dated 11.12.2008 and produced break up of sundry creditors liability, station wise and expenditure head wise. It was claimed that the outstanding amounts are due to labour charges and bundling charges, deeding charges, procurement charges, chipper house maintenance charges etc. The assessee produced self-made vouchers claiming this as proof of transaction with such labourers but the Assessing Officer disallowed the entire labour payments amounting to Rs.23,52,340/-. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the disallowance by giving following finding in para 9.2.2 of his appellate order as under: I have carefully considered the submissions of the Ld. AR of the appellant. I have also examined the findings brought on record by the A.O. The major finding given is that the outstanding sundry creditors are shown in the name of station-in-charges who are the employees of the appellant. Secondly the two station-in-charges replied that they have not involved with appellant s business and have no idea about appellant s business activities. The appellant failed to establish identity of the labourers who finally received payments throug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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