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TMI Blog2012 (4) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... r that on the facts of the case the Ld. CIT(A) was wrong in not considering the fact that the assessee was not liable to deduct TDS on hire charges paid to M/s Bharat Earth Movers amounting to Rs. 1,44,91,357.00, therefore, disallowance made u/s 40(a)(ia) is completely arbitrary, unjustified and illegal. 3. Whether on the fact and in the circumstances Ld. CIT(A) is justified by coming to the conclusion that M/s Bharat Earth Movers executed works contract merely observing the apparent facts. 4. Ld. CIT(A) is not justified by dismissing the appeal on the issue of addition of Rs. 1,44,91,357/- without affording opportunity of cross examination with the alleged firm to unearth the fact. 5. Ld. CIT(A) is not justified by dismissing the appeal on the issue of addition of Rs. 1,44,91,357/- relying on the Inspector's report and on the statement of partner of firm i.e. M/s. Bharat Earth Movers. 6. Ld. CIT(A) is not justified by putting emphasis on the Inspector report on the issue of way bill for machineries placed on hire on the basis of which he dismissed the appeal as one of the reasons. 7. Ld. CIT(A)'s opinion on this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al addition thereof. He on the basis of Inspector's report and bill raised by M/s. Bharat Earth Movers on 31/3/2006 on the assessee found the following particulars:- Sl. No. Particulars Quantities Rate Amount Ref. work order/contract No: Period of work, Bill for construction of Border fencing at Mahadevo, 1 Meghalaya Earth Excavation 237647.25 cubic meter @ Rs.30/- per cubic meter. Rs. 71,29,417 2 Ordinary rock excavation 92024.25 cubic meter @ Rs. 80/- per cubic meter. Rs. 73,61,940 Total Rs. 144,91,357 On the basis of the bill raised by M/s. Bharat Earth Movers and Inspector's report, the ld. A.O. came to the conclusion that the bill undoubtedly and apparently appears contractual. The A.O. also observed that - "Had it been really a payment for hire charges or non contractual payment, the assessee, M/s Roy Mitra Enterprise must have objected and would have settled the matter with M/s Bharat Earth Movers with regard to nature of payment made by him to M/s Bharat Earth Movers". Therefore, the ld. A.O. basing on the bill raised by M/s. Bharat Earth Movers on the assessee-firm came to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 to 31/3/2006 at Mahadeva, Meghalaya work site for earth excavation and rock excavation and used according to the assessee's need. (b) Page-13 : Inspector's report - The Inspector conducted enquiry from one of the partners of M/s. Bharat Earth Movers, Sri Pintu Sengupta, and according to Sri Sengupta's statement, there was no written contract between the assessee and M/s. Bharat Earth Movers and the whole job was done on the basis of verbal agreement. In this context, he further submitted that while the ld. A.O. took the stand that there was oral contract/agreement for the contractual job, disbelieving the explanation of the assessee and supporting documents thereof, onus of proof to the above extent shifts on the department to establish by bringing on record evidential documents that there was indeed existence of an oral agreement, which the department failed to do. (c) Page-9 : Ledger A/c of M/s. Bharat Earth Movers in the books of the assessee for the period 1/4/05 to 31/3/06 showing debit of hire charges of Machine (Receipts). (d) Page-43 : Meghalaya Expenses Account showing expenses under several heads and proving that machineries were put to use by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Movers, the learned counsel pointed out that in both these documents, the signatory was the same person, i.e. Manager of M/s. Bharat Earth Movers, who issued certificate confirming placement of machineries on hire to the assessee-firm. The learned counsel argued that the assessee's case under the given facts shall fall u/s. 194-I of the Act which was amended by the Taxation Laws (Amendment) Act, 2006 w.e.f. 13/7/2006 and, therefore, the said section is not applicable to the assessment year under consideration, i.e. A.Y. 2006-07. He also submitted that there is no disallowance u/s. 40(a)(ia) of the Act in the immediately succeeding assessment year 2007-08 since the assessee has deducted TDS as applicable u/s. 194-I of the Act. He, therefore, contended that the revenue is not justified in invoking provisions of sec. 40(a)(ia) read with sec. 194C of the Act. The learned counsel on the above facts and submissions, therefore, contended that on the bill raised by M/s. Bharat Earth Movers, the assessee had made payment on measurement basis, because the possession of the machineries were given to the assessee so that assessee may use those machineries in the way it wants. Therefore, add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lway lines or erection or installation of plant and machinery are in the nature of contracts for work and labour, income-tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor." The aforesaid guidelines have further been clarified in Circular No. 13/2006 dated 13/12/2006, the relevant portion of which is reproduced below :- "3. It is, therefore, clarified that the provisions of section 194C would apply in respect of a contract for supply of any article or thing as per prescribed specifications only if it is a contract for work and not a contract for sale as per the principles in this regard laid down in para 7(vi) of Circular No.681 dated 8th March, 1994." Further as per Circular No. 558, dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the supply of labour for carrying out any work and a "sub-contractor" would mean any person who enters into a contract with the contractor carrying out, or for the supply of labour for carrying out, the whole or part of the work undertaken by the contractor under a contract with any of the authorities named above or for supply whether wholly or partly any labout which the contractor has undertaken to supply in terms of his contract with any of the aforesaid authorities. Now, in the instant cases, admittedly, the respondent firm had not entered into any contract for carrying out any work or for supply of labour for carrying out any work with any Government, local authority, corporation, company or co-operative society. The respondent thus not being a contractor, the payments made by this firm to any person cannot be treated as payments made by a contractor to a sub-contractor so as to attract the provisions of section 194C(2) of the Act." [Emphasis supplied] It is pertinent to mention here that the Department filed S.L.P. before the Hon'ble Supreme Court in the above case and their Lordships of Hon'ble Supreme Court upheld the decision of Hon'ble Himachal Pradesh High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department has not controverted the said finding of the CIT (A) even before the Tribunal. While recording this finding of fact, the Tribunal has clearly stated that nothing has been brought on record by the AO to prove that there was written or oral agreement between the alleged parties for carriage of the goods. In view of the above, the finding of fact recorded by the Tribunal is not to be interfered with." [Emphasis supplied] 9. On the above facts and circumstances of the case, we are of the considered view that the transactions of the assessee will fall under the provisions of Sec. 194-I of the Act, which is effective from 13/7/2006. Since the assessment year involved in this appeal of the assessee is 2006-07, which is prior to the amendment made by the Taxation Laws (Amendment) Act, 2006 w.e.f. 13/7/2006, we find no justification on the part of the revenue authorities to treat the said transactions under the provisions of sec. 194C to attract provisions of sec. 40(a)(ia) of the Act. It is further pertinent to mention here that the learned counsel during course of argument submitted that in the immediately succeeding assessment year 2007-08, there is no disallowance u/s. 40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into consideration sec. 69C of the Act, the ld. C.I.T.(A) held the disallowance made by the ld. A.O. not legally tenable by observing as under :- "A plain reading of the above would show that a disallowance under the section can only be made in respect of expenditure incurred during the financial year for which assessment order is being passed. The Mumbai Tribunal in the case of Harakchand P. Vora v. A.C.I.T. [2000] 68 TTJ 417 held that addition u/s. 69C can be made only in the assessment year relevant to the financial year in which the expenditure was incurred. The scheme of the section as well as the above cited decision would show that addition u/s. 69C can only be made for expenditure incurred in the relevant financial/previous year. I am, therefore, constrained to hold that the disallowance u/s. 69C is not legally tenable and the same is deleted." 12. We have heard the parties and perused the material placed on record. There is no dispute to the fact that the payments in question related to the liabilities brought forward from earlier year, i.e. payments were made against the opening balance of liabilities of the assessment year under consideration. In such circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T.(A) in allowing higher rate of depreciation on machineries let out on hire basis. We, therefore, uphold his order on this issue and dismissed the ground raised by the department. 16. The only other ground in the Revenue's appeal for assessment year 2007-08, vide ground No.2, is with regard to direction of ld. C.I.T.(A) to apply profit @ 3% of turnover instead of 4.5% as estimated by the ld. A.O. The ld. A.O. observed that the assessee has disclosed contract profits of Rs. 36,02,406/-, which was @ 1.77% of the gross receipts of Rs. 20,33,34,118/-. The explanation of the assessee for such low profit was not accepted by the ld. A.O. He, therefore, on estimate basis applied profit rate at 4.5% on the gross receipts and took the contract income at Rs. 91,50,000/-. In this way the contract profit was enhanced by Rs. 55,47,594/- [Rs. 91,50,000 - Rs. 36,02,406]. 17. The ld. C.I.T.(A) after discussing the facts and related case laws directed the ld. A.O. to take contract profit @ 3% instead of 4.5% by observing as under :- "5. After enhancing the income, the AO. has discussed the issue of payment to fake creditors. The facts are that there were some creditors being brought forward fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee concealed relevant material/evidence; the revenue has no option but to make a best judgment assessment by estimate. In the present case under appeal, books were not produced. The most primarily evidence in an assessment proceedings are the books of account on the basis of which the return has been prepared. The veracity and correctness of the return of income is substantiated to a large extent by production of the books of accounts. Non-production will inevitably attract adverse inference. Under the circumstances, I am of the opinion that the AO's resort to estimation was in principle correct. 7. Coming to the issue of quantum of estimation of income, I have in principle held that the A.O's resort to estimation was correct. During course of the appeal proceedings, the learned A/R submitted that even if the estimation of income by the A.O was held to be correct in principle, the quantum was very excessive. Attention was drawn to ground No.5 of the appeal in this regard. The learned A/R stated that while making a best judgment assessment, the past records of the assessee needed to be examined. It was stated that the net profit rate for A.Yr.2004-05 was 1.8%, for A.Yr.2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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