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TMI Blog2014 (11) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) erred in deleting the addition made on the ground of Labour charges without appreciating the fact that payments had been made by cash and not all the vouchers were produced for verification, and the fact that the addition was made on reasonable basis as the expenses were on a higher side. iii) On the fact and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on the ground of Site expense without appreciating the fact that assessee did not provide for verification the mode of expenses incurred for the site expenses. iv) On the fact and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on the ground of Purchase expenses of 3 parties amounting to Rs. 94,58,077/- without considering the report of the inspector on the genuineness of the relevant parties and the fact that the assessee had failed to establish during the assessment proceedings that the transactions were wholly and exclusively for the purposes of business. v) On the fact and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of expenses on account of purchases from three parties without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration as accrued to the assessee. He has relied upon the order of Assessing Officer. 2.4 On the other hand, the Ld. Authorized Representative of the assessee has submitted that as per the terms and conditions of the contract of MCGM, 5% amount was deducted by MCGM as retention money from the certified bid amount on which no interest shall be paid. The retention money shall be refunded to the assessee only on finalization of final bill settlement of accounts of work by the assessee in all respect or after the completion of defect liability period, whichever is later. Therefore, the assessee offered the retention money in the year of receipt because it has accrued only on satisfaction of stipulated conditions and fulfillment of specified criteria and after lapse of stipulated time. This method of accounting has been regularly followed by the assessee. He has pointed out that for all the previous years right from the A.Y. 2002-03 to 2008-09, the Assessing Officer accepted this method of accounting and retention money shown and offered by the assessee only in the year of receipt after deduction if any by the authorities. In support of his contention he has relied upon the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal is as to whether the retention money could be considered to be the income of the assessee in the year in which the amount was retained. The Income-tax Appellate Tribunal has referred to a judgment of the Tribunal inAssociated Cables P. Ltd. v. Deputy CIT [1994] 206 ITR (AT) 48 (Bom). Mr. Sathe appearing for the respondent has, however, drawn our attention to two judgments, viz., of the Calcutta High Court and the Madras High Court. The Calcutta High Court judgment is reported in CIT v. Simplex Concrete Piles (India) P. Ltd. . A Division Bench of the Calcutta High Court in that matter has held that the payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled and, therefore, it would not amount to an income of the assessee in the year in which the amount is retained. The other judgment relied upon is in the case of CIT v. Ignifluid Boilers (I) Ltd. reported in [2006] 283 ITR 295 (Mad). In that judgment also, a Division Bench of the Madras High Court has held that the amount retained does not ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance only on suspicion. He has referred the details of the comparative expenditure on account of labour charges and site expenses and submitted that the expenses for the A.Y. under consideration for labour charges and site expenses are together 13.07% of turnover which is less than the expenses for the earlier years of 13.08%. In the nature of assessee's work, the expenses incurred in cash is inevitable as it is required on the site for payment to the unskilled labour or daily wager. Therefore, the cash payment to the total labour charges about 7% is not abnormal but it is reasonable in the labour incentive work carried out by the assessee. The assessee's Books of Accounts are audited and, therefore, in the absence of any defect in the Books of Accounts the ad hoc disallowance is not warranted. 3.5 We have considered the rival submissions and relevant material on record. The Assessing Officer has made an ad hoc disallowance on account of labour charges and site expenses on the ground that some of the expenses were incurred in cash and further all the vouchers were not produced by the assessee for verification. The Ld. Authorized Representative has disputed the observation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances and the submission of the appellant. Further I agree with the explanation that for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business reasonableness of the expenditure should be judged from the point of view of the business and not of the revenue. Once it is established that there was nexus between the expenditure and the purpose of the business the revenue can not justifiably claim to put itself in the arm-chair of the businessman and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. In view of the explanation given and the submission filed by the appellant the addition is deleted." 3.6 Though the claim of the assessee is not on higher side, however, we note that the assessee has made the expenses of Rs. 58,17,088/- in cash and all the vouchers on the cash payment are not verifiable, therefore, in the facts and circumstances of the case and in the interest of justice, we find that the disallowance made by Assessing Officer on these two accounts amounting to Rs. 25,00,000/- is excessive and very high, therefore, we are of the view that a reasonable disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the inspector who has pointed out in the report that there was no proper place of business of these parties and the address given was found to be small room from where the business was allegedly carried out. The Inspector has also pointed out that there was no sign board of these parties at the given address, therefore, the existence of the parties and the genuineness of the business transaction was suspected. 4.3 On the other hand, the Ld. Authorized Representative of the assessee has produced all the necessary details and evidence to prove the claim of genuineness of purchase from these parties. He has pointed out that the assessee has produced the confirmation from all the parties as affidavits were filed, statement of invoices and copy of invoices showing the purchase made from these parties. The statement of payments and receipt by the purchaser through bank were also produced before the Assessing Officer along with confirmation of bank account. Bank book of the purchaser and bank statement of the purchaser along with VAT return, income tax return were filed before the Assessing Officer. He has further submitted that the copy of electricity bill raised and financial status ..... 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