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TMI Blog2014 (3) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. - I.T.A. Nos. 452 & 580 /AHD/2010 - - - Dated:- 7-3-2014 - Shri D. K. Tyagi, J.M. And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri M. R. Shah. A.R. For the Respondent : Shri K.C. Mathews, Sr. D.R. ORDER Per Shri Anil Chaturvedi,A. M. 1. These two appeals, one filed by the Assessee and the other filed by the Revenue are against the order of CIT(A)-II, Surat dated 30.11.2009 for A.Y. 2006-07. 2. The relevant facts as culled out from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010) 1st ground is with respect to deletion of addition of Rs. 2,50,000/- made under section 68 of the Act. 6. During the course of assessment proceedings, on verification of the cash book A.O. noticed that cash was introduced by the partners but was not found accounted in their own ledger/capital account filed in the Audit report, the details of which are listed at page 2 of the assessment order. A.O. noted that since the Assessee failed to give any convincing reply A.O. concluded that the amounts introduced by the Assessee in cash represented the unaccounted of the firm and therefore treated the same as unexplained cash credit under section 68 of the Act and made addition of Rs. 2,50,000/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). Before CIT(A) Assessee interalia submitted that there was only typographical mistake in the dates mentioned in the partners capital account filed with the audit report. It was further submitted that all the partners of the firm were assessed to tax and the copies of their Income tax return were also filed. CIT(A) after considering the submissions of the Assessee deleted the addition by holding as under:- 6. I h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: (i) CIT V/s Metachem Industries 245 ITR 160 (MP) (ii) CIT V/s Taj Borewells 291 ITR 232 (Mad) (iii) CIT V/s Unique Builders 140 Taxman 121 (Kolkatta) (iv) CIT V/s Burma Electro Corporation 126 Taxman 533 (P H) (v) Dhiman Systems 100 TTJ 466 (Ast) (vi) Rameshwar Dass Suresh Pal Cheeka 208 CTR 457 (P H) (vii) Metal Metals of India 208 CTR 457 (P H) (viii) Shyam Jewellers ITA No. 1826/Ahd/2005. 7. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 8. Before us, the ld. D.R. submitted that the Assessee had failed to prove that the credits shown in the books were the amount introduced by the partners of the firm as their capital. Further during the course of assessment proceedings, the Assessee did not furnish any satisfactory explanation. It was further submitted that the explanation about the typographical error cannot be accepted as the onus to prove the genuineness of the credit entries shown in the books was on the Assessee but the Assessee has failed to do so. He thus supported the order of A.O. 9. The ld. A.R. on the other hand reiterated the submissions made before CIT(A) and further placed reliance on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running bill basis and not on month to month basis. It was further submitted that R.A. Bills (Running Account Bills) were submitted by the Assessee after certain portion of the work was completed and the same was approved for payment after approval of SMC authority. It was further submitted that the scrutiny of the bills took sometime and therefore it was not possible to compare labour expense to labour income on month to month basis. The submission of the Assessee was not found acceptable to the A.O. Inquiries were floated by A.O. under section 133(6) of the Act and in most of the cases A.O. has noted that the letters were returned unserved. Only one confirmation was received from Mukhtar Foundation but there was a difference of Rs. 7,01,575/- which according to A.O., the Assessee failed to explain. A.O. further noted that Assessee had included the figures of material recovery from SMC and Ranjit Construction in the gross figures and after excluding material recovery as well as building material which were purchased by the Assessee, the percentage of labour expenditure over the income worked out to 46.54%. He therefore held that the authenticity and the genuineness of the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the labour expenses were excessive. The Assessee had furnished copies of agreements between M/s Ranjit Construction and SMC, as also between M/s Ranjit Construction and the Assessee. As per these agreements, the basic materials i.e. steel and cement were to be provided by the SMC. These materials were received by M/s Ranjit Construction being the main contractor and then were passed on to sub-contractor i.e. to the Assessee, Subsequently, towards the later part of the year, since the SMC was unable to provide such materials they were provided by M/s Ranjit Construction while some of the smaller items were purchased by the Assessee itself. These sums could not be simply reduced from the total receipt. This is because, the materials supplied by the SMC and M/s Ranjit Construction were in the nature of reimbursement of expenses, Normally, the Assessee would have had to purchase such materials to execute the project. Since the Assessee did not to do so, the materials provided by the contractee would necessarily to be credited to the accounts and the labour expenses would have to be pared the total of such receipts. 10.2 It has been argued in the alternative by the AR that, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of the Assessee on 31.03.2006 but the recipient had passed the entry in subsequent years and therefore there was a difference. He therefore submitted that CIT(A) was fully justified in deleting the addition. He thus supported the order of CIT(A). 14. We have heard the rival submissions and perused the material on record. 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. He has further noted that 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. He has further noted that 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. With respect to the supply of material by Ranjeet Construction and SMC, CIT(A) after perusing the agreement has noted that the material supplied by SMC and Ranjit Construction were in the nature of reimbursement of expenses and therefore material provided would necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njit Construction. A.O. further noted that during the period SMC had provided steel value at Rs. 1,81,50,000/- while the Assessee had claimed cost of wire purchase and supplied by Ranjit construction at Rs. 1,27,01,141/-. A.O. was thus of the view that the amount claimed as consumption of wire was imbalanced and therefore not fully acceptable. He therefore considered the cement and steel amounting to Rs. 57,52,694/- and 1/3 of the value of purchase of wire amounting to Rs. 42,33,713/- to be excessive and accordingly made an addition of Rs. 99,86,407/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under:- 14. I have carefully considered the detailed findings and conclusion of the A.O. as also the equally detailed submissions of the A.R. I am of the view that the A.O. made a lot of assumptions and presumptions while making the disallowances totaling Rs. 99,86,407/-. Her first presumption was that, since there was no material received from either the SMC or M/s. Ranjit Construction during the months of May, June, July, September and November, the claim of material received was doubtful. She also presumed that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -10-2005 because of its inability of procure the same. Therefore; the purchase bills necessarily had to be in the name of M/s. Ranjit Construction and the seller or the supplier would have consequently delivered the same to the buyer. However, the Assessee being the sub-contractor, would necessarily have had to receive such materials only at the site on behalf of the buyer i.e. M/s. Ranjit Construction. There was nothing unusual in such an arrangement. In any case, unless the AO was in a position to show that the purchases made by and in the name of M/s, Ranjit Construction had been utilised elsewhere, she could not take the view that such materials were not utilised for the project in question. In order to take such a view, she would have had to also prove that the project was completed by the Assessee with materials purchased outside its books. Since, neither of these two propositions could be established, it was necessarily to be accepted that the purchases shown in the name of M/s. Ranjit Construction had been utilised for the said project. The AO observed (para-6.4) that as per the agreements, the Assessee was not to purchase cement and steel other than what was to be provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement between Rajit Construction and as per the terms of tender drawn between SMC and Ranjit Construction, the Assessee was not allowed to purchase any cement or steel other than provided by SMC. Since the Assessee had failed to prove that the purchase bills in the name of Ranjit Construction have been fully and exclusively utilized in the flyover project, the disallowance made by the A.O. was fully justified. 18. The ld. A.R. on the other hand, reiterated the submissions made before CIT(A) and also submitted that SMC had granted permission for the purchase of cement and steel and therefore the purchase of materials could not be considered as non genuine. He further submitted that CIT(A) after considering all facts has rightly deleted the addition and he thus supported the order of CIT(A). 19. We have heard the rival submissions and perused the material on record. We find that CIT(A) while deleting the addition made by the A.O. has noted that A.O. 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. CIT(A) has also noted that the A.O. was not in a positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Rs. 37,61,619/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) granted partial relief by holding as under:- 26 I find that the A.R. has missed the point made by the A.O. It was not the Assessing Officer's case that the suppliers of Reti and Kapachi as also the persons who had provided the service of carting or transportation were the same. It was not the AO's case that the purchases of Reti and Kapachi were unverifiable, Her case was that, in the absence of complete bills, the Carting expenses had remained unverifiable. The AO made a detailed scrutiny and found that the Assessee would have incurred Carting expenses only on the purchases made by it which included Reti and Kapachi, the total value of which was Rs 54.49 lakhs. This was apart from the petty other purchases which would not have required carting and transportation. Against the purchases of Rs.54,49 lakhs, the Carting expenses of Rs 75.23 lakhs was much in excess (of the cost of tne materials purchased). The AR has not responded to this finding of the AO, apart from simply saying that the cost of Reti and Kapachi would have in any case been lower than, the cost of transp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in order. However, I am of the view that it would meet the ends of justice if the disallowance is restricted to 25% of the carting expenses claimed against the disallowance @ 50% made by the AO. The addition therefore will be restricted to Rs. 18,80,810. The Assessee would get relief of an equivalent amount. 21. Aggrieved by the order of CIT(A), both the parties are before us. 22. Before us, the ld. D.R. took us through the findings of A.O. He further submitted that though CIT(A) agreed with the findings of A.O, he has reduced the disallowance without any reason. He therefore submitted that in such circumstances, the order of the A.O. needs to be upheld. He further placed reliance on the following decisions. CIT vs. M.N. Dastur and Co (2009) 316 ITR 442 United film Exhibitors vs. CIT (2009) 316 ITR 432 Emmpac Holding (P) Ltd. vs. CIT (2009) 319 ITR 379 ACIT vs. Amar Mining Co. (2009) 123 TTJ (Ahd) 473 23. The ld. A.R. on the other hand reiterated the submissions made before A.O. and CIT(A). He further submitted that Assessee had deducted TDS before making the payments. He further submitted that if the addition as made by the A.O. is sustained the net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osing work in progress (WIP). 26. A.O noticed that Assessee had shown closing stock at Rs. 4,74,008/-. He also noticed that though Assessee had purchased materials aggregating to Rs. 20,79,940/- on the last 2 days of the year (listed at page 11 of order) and which was not used in the project, had not been included in closing stock. He accordingly treated the difference between the purchases made on last day of the year and the value of stock shown by Assessee amounting to Rs. 16,05,932/- as difference in valuation of closing stock and added to the income. CIT(A) upheld the order of A.O. by holding as under:- 18. I have carefully considered the matter. I am of the firm belief that no one can be asked to prove a negative since it is not possible to do so. Therefore, the AO could not be asked to prove that the materials purchased on 30th and 31st March, 2006 were not consumed prior to the purchases. Therefore, the AR's argument in this regard is not relevant. The claim that the materials were received and consumed prior to the raising of invoices as also the bills, has been made by the AR and hence, the onus is entirely on the AR to prove such a claim with relevant evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In the result, this ground of Assessee is partly allowed. 2nd ground is with respect to payment of sales tax;- 29. On perusing the sales tax assessment order of Assessee, A.O noticed that the sales tax paid reflected therein was Rs. 15,94,952/- but however in the Profit and Loss account, Assessee had debited sales tax of Rs. 20,55,428/-. Since the Assessee could not give any plausible explanation for the difference, A.O. considered the excess claim of Rs. 4,60,476/- (Rs. 20,55,428/- less 15,94,952/-) as bogus and added to the income. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) upheld the order of A.O. by holding as under:- 22. I have carefully considered both the positions. First of all, I do not accept the claim of the AR that the AO had not called for the relevant challans in support of the details allegedly furnished by the Assessee in course of the assessment proceedings. It has been claimed by the AR that the Assessee was not liable to any Sales-tax payment and that, it was the liability of M/s. Ranjit Construction which the Assessee had to discharge for utilising their materials. It has been further submitted that a sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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