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TMI Blog2011 (9) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... s in deleting the disallowance of ₹ 4,79,165/- made on account of machinery hire expenses. 6. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 1,24,831/- made on account of machinery repairs/spares expenses. 7. The ld. CIT(A) has erred in law and on facts in deleting 20% of the expenses disallowed from Site Expenses of ₹ 2,27,559/- and Site Rasoda expenses of ₹ 2,04,362/- 8. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 32,68,650/- made on account of difference of 60%. 9. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 44,44,787/- out of total addition of ₹ 56,44,787/- made on account of post-survey inquiries in respect of labour contractors. 10. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 36,75,572/- out of total addition of ₹ 46,75,572/- made in respect of payments made to three transport contractors. 11. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 38,12,667/- made on account of claim of expenditure for rendering transportation services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and was to be returned to K. M. Patel Co. as and when received from SSNNL. As this amount belonged to K. M. Patel Co., the assessee did not consider the same as its receipts. However, the AO has not appreciated this fact and has made an addition of ₹ 10,997/- being the security deposit on the work done by M/s. K. M. Patel Co. The assessee submitted that it has failed to understand as to why the deposit on that amount should be considered to be that of the assessee, when the AO accepts that the amount belongs to K. M. Patel Co. The assessee therefore submitted that the addition made on this account be deleted. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings are reproduced as under: 2.2 I have considered the submissions of the Authorized Representative carefully and have also gone through the details filed by the Authorized Representative. From the submissions made by the Authorized Representative it is found that ₹ 10,997/- is 2% of ₹ 5,49,849/- which is the security deposit relating to the work done by M/s. K.M. Patel Co. The Sardar Sarovar Nannada Nigam Ltd. had deducted 2% of security deposit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had given the entire structural work of Valbhipur site of SSNNL to its sister concern M/s G.K. Engineering Co. The assessee had replied before the AO that the payment to sub-contractor M/s G. K. Engineering was reasonable and not excessive. M/s G.K. Engineering is doing structural cement work at site and during the year no other contractor from whom the assessee had taken service has done this work. Since this is very sensitive matter it requires lot of care and the same was awarded to them. The AO instead of appreciating the fact that the work assigned to the sister concern was very sensitive and if the work was not carried out properly the assessee would have to suffer its consequences, has considered the same as unreasonable and has disallowed 5% of the job expenditure as excessive on the ground that the assessee had only made a statement and did not support it with any evidence. The assessee submitted that it did not understand as to what type of evidence the AO required when all bills were available and the same have been verified by him during the course of assessment proceedings. Further it was not possible for the assessee to give comparable figures of similar work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er concern. There is nothing unreasonable in this regard. In any case, even for applying the provisions of section 40A (2) (b) of the IT Act, it is for the AO to make out a case that the expenditure incurred is excessive or unreasonable having regard to fair market value of such services. The AO accepted the same payments in earlier years and no efforts have been made in this regard to bring any comparable case as to what was the fair market value of similar services. Therefore, there was no justification to make the addition. We rely upon decision of Hon ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd., 117 ITR 569 in which it was held before section 40A (2) is applied, AO should have proved expenditure is excessive or unreasonable. This ground has no merit and is rejected. 5. The third ground of appeal is against deletion of addition of ₹ 86,020/- out of ₹ 1,86,020/- in respect of shortage/spoilage in cement purchase. The AO found that the assessee has not maintained stock register. While working out the cement consumption, it was found that there was a shortage of 1420 bags placement which the AO valued @ ₹ 131/- per bag and disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at same time of loading and unloading and for not taking proper care at the sites. However, I find that the wastage of 2.5% claimed by the appellant is quite high. Considering that there is bound to be some pilferage and wastage, the disallowance is sustained to the tune of ₹ 1 lac as against disallowance of ₹ 1,86,020/- made by the Assessing Officer. Thus, the appellant gets part relief of ₹ 1,86,020/-. 5.1 The learned DR relied upon the order of the AO and submitted that no reason has been given for deleting the part addition and addition was made on finding discrepancy. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted wastage was claimed which was rightly partly allowed by the learned CIT(A). 5.2 On consideration of the rival submissions we do not find any merit in this ground of appeal of the revenue. The explanation given by the assessee clearly supports the findings of the learned CIT(A) that there is bound to be pilferage and wastage while dealing with cement. The learned CIT(A) has granted reasonable deduction on account of wastage/pilferage in cement. This ground h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses claimed under this head are inflated. As this addition has been made on the basis of assumption, assessee submitted that the disallowance of ₹ 6,37,504/- be deleted. The addition was challenged before the learned CIT(A).The learned CIT(A) considering the explanation of the assessee deleted the disallowance. His findings are reproduced as under: 5.2 I have considered the submission of the Authorised Representative carefully. The appellant has contended that it is impossible to maintain Log book. The appellant has purchased diesel from Registered dealers. The appellant has also recovered ₹ 21,70,259/- from the sub-contractors. The bills for these expenses were impounded during the course of survey and the same have been verified by the Assessing Officer. The expenses of diesel, oil in the year in appeal have decreased to ₹ 63.75 lakhs from ₹ 142 lakhs of the preceding year. Therefore, in absence of any specific material, it is not justified to disallow 10% of the expenses on account of inflation of expenses. As there is no evidence in support of the said disallowance, the disallowance of ₹ 6,37,5047- made by the Assessing Officer is deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the parties which were impounded as well as those produced during the course of assessment proceedings. The assessee filed the details of machinery hire charges before the AO and requested the AO to treat the bills of the parties as their confirmation letters because the bills prior to the survey were impounded and if the AO had any doubt about the genuineness or otherwise of the bills then necessary verification could have been done at his end. The fact remains that without such services the work cannot be completed. Since the addition has been made on the basis of presumption, the assessee submitted that the disallowance of ₹ 4,79,165/- be deleted. The learned CIT(A) considering the explanation of the assessee deleted the disallowance. His findings are reproduced as under: 6.2 I have considered the submissions of the Authorised Representative carefully. I find that the appellant has informed the Assessing Officer that the names, addresses and the place of deployment of machinery were already mentioned in the bills of parties which have been impounded by the Assessing Officer during survey proceedings and that if the Assessing Officer had any doubt he could have veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the above expenditure from the impounded material as will as those available with it. These bills were verified by the AO and the nature of expenditure was also verified. Most of the expenditure relates to day to day repairs/ welding etc. The assessee submitted that it could not understand as to what kind of evidence the AO required in respect of repairs to machinery. The fact is that, the expenditure is supported by bills and bills up to the date of survey are in the impounded material and that the bills contain description of the item / work done. Bills themselves are, self sufficient to justify the expenditure. As regards sale of scrap, the assessee submitted that these repairs are done at different sites and since the items replaced are petty items the assessee has to keep a broad view and not a conservative view. If any business man is very conservative then there is no trust worthy relationship between the employer and employee and consequently the work suffers. It is also not known as to on what basis the AO has estimated 10% of the said expenditure to be excessive. The machinery has to undergo normal wear and tear during the year. The machinery is deployed on smooth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 86,384/- out of site expenses and site rasoda expenses. The AO observed from the auditor's remark that wherever and whenever, external supporting/evidences are not available the auditors have relied on entries passed or internal supporting vouchers prepared by the firm. The AO found that almost 50% of the expenditure was incurred in cash and was based on self supporting vouchers. Therefore, the AO disallowed 20% of the said expenditure. It was submitted that the has to incur different types of expenditure at its different sites, for example purchase of nails, limestone, colour, repairs to shed, duster, acid, pencil, Xerox etc. for its site office. This type of expenditure has been debited to site expenses. The total of this expenditure during the year is Rs,2,27,559/- for four sites. During the course of assessment proceedings the assessee produced before the AO all the bills of these sites. The AO verified the same with the impounded books and no discrepancy was noted. Similarly the assessee was maintaining kitchen (Rasoda) for its staff at the different sites, the Rasoda expenditure debited to profit and loss account is ₹ 2,04,362/-. It was submitted that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee provided food and shelter to the workers which were also supported by bills and vouchers would prove that expenses were incurred wholly and exclusively for the purpose of business. The learned DR did not produce any contrary material on record and has not pointed out any infirmity in the order of the learned CIT(A). This ground of appeal is accordingly dismissed. 10. The eighth ground of appeal is against deletion of addition of ₹ 32,68,650/- as suppression of receipts. The AO has discussed in Para 7 of the assessment order that the assessee has created a joint venture with M/s. K.M. Patel Co. for which a copy of Joint Venture agreement dated 22nd December, 2000 was produced before the AO. According to the terms and conditions of the said Joint Venture Agreement both the parties i.e. the assessee and M/s. K.M. Patel Co. have entered into a Joint Venture in the nature of partnership for the specific purpose of execution of the work of constructing, providing and laying double layer burnt clay tiles lining and constructing canal service road , catch water drains on Saurashtra Branch Canal on behalf of SSNNL and both the parties have agreed to make financial particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . fast work shows their efficiency. This may be due to the fact that the soil where they are doing the work may be good and not rocky, labour may be freely available, they may have more manpower as compared to assessee and above all they have more liquid funds then the assessee. Further in case of civil construction law of averages cannot be applied. The assessee during the course of assessment proceedings had informed the Assessing Officer that if he had any doubt in respect of receipts shown then necessary enquiries could also be conducted from the corporation. If the assessee had really suppressed its receipts then there would have been difference between the TDS and the receipts shown by the assessee. It was, therefore, submitted that addition cannot be made by comparing the efficiency of two firms. Since the AO has made this addition of ₹ 32,68,650/- on the basis of presumption, the assessee submitted that the same be deleted. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings are reproduced as under: 9.2 I have considered the submissions of the Authorised Representative carefully and have also gone through the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh both are jointly and severally liable to the employer for the whole work. Both the parties specifically undertaken to carry out separate work and shall be responsible for their acts. The information supplied by M/s. K. M. Patel Co. supports the version of the assessee that M/s. K. M. Patel Co. through the bills received ₹ 2,71,55,374/-. Therefore, the balance was rightly accounted for by the assessee in its books of accounts on the basis of the bills provided to the employer and the amount settled. The AO merely on presumption combined the receipts of the assessee and M/s. K. M. Patel Co. and wrongly divided in the ratio of 60% and 40% for making the addition. Since, both the parties could have worked out the work mutually decided by them as per JV agreement; there was nothing wrong if the parties mutually agreed to divide the work accordingly. There is nothing on record to show that assessee actually understated or suppressed the receipts. There is no infirmity in the order of the learned CIT(A) in deleting the addition. We confirm his findings and dismiss this ground of appeal of the revenue. 12. The ninth ground of appeal is against deletion of disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of these parties are genuine as the assessee has not produced parties like Virag C. Patel, Jiteshkumar Bhailal Desai and other labour contractors like Mayurbhai Shantibhai Patel, Chaturbhai Narandas Patel and others. The AO concluded that the assessee has failed to discharge primary onus cast upon it. The AO held that these parties were not produced by the appellant with their proof of identity and that in respond to summons some persons claiming to be these persons appeared before the AO without books of accounts and other evidences and their statements were recorded presuming that the persons were the labour contractors whose names appeared as labour contractor and that the AO who has recorded the statement i.e. the predecessor of the AO had not verified the identity of the persons by calling the photo identity card, driving licence or photo identity card issued by Election Commission etc. Therefore, the AO had again asked the assessee to produce these persons with proof of their identity. But they were not produced. Therefore, the AO made disallowance of the expenses. The total expenditure disallowed was ₹ 56,44,787/- in respect of hire labour contractors and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O on 25th February, 2002 for the work done by an unemployed youth in the month of October and November 2001 running in lakhs of rupees.(Page 15 of the order) 2. The then AO recorded the statement on oath of a person who attended before him in response to the said summons presuming that person to be Mr. Virag C. Patel. (Page 14) 3. At any point of time the then AO has not tried to verify the identity of the person by calling for photo identity like driving license, photo identity card issued by election commission or any other proof of that persons identity.(Page 14) 4. Virag C. Patel did not have capacity to render service because he had taken on hire 6 tractors and one JCB machine on hire to do the rain cut soil filling work and he was not aware of the ownership of three tractors as they were managed by drivers. (Page 14) 5. Even if it is proved that he has received payments from G. K. Patel Co. it cannot be considered as made against the alleged services rendered by him. (Page 15) The assessee submitted that the reasons mentioned by the AO in rejecting the explanation of the assessee are highly unjustifiable and without considering the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d issued by election commission or any other proof of that persons identity.(Page 15) 3. The assessee has not produced the contractor before the AO. (Page 16) As regards the first two observations of the AO, the assessee has already stated here in above in the case of Virag C. Patel. As regards the third issue the assessee submitted that since the contractor had already accepted that he has done work for the assessee, the onus was discharged and moreover it was the department who had issued summons u/s 131 and not that the assessee had produced them as its witness. c). Mayurbhai S. Paid (Rs.7,19,928/-): The AO has made this addition because : 1. The then AO recorded the statement on oath of a person who attended before him in response to the said summons presuming that person as Mayurbhai Palel (Page 16 of the order) 2. At any point of lime the then AO has not tried to verify the identity of the person by calling for photo identity like driving license, photo identity card issued by election commission or any other proof of that persons identity.(Page 16) 3. The assessee has not produced the contractor before the AO. (Page 16) As regards the first tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bhai S. Patel (Rs.7,04,755/-) : The AO has made this addition because : 1. The then AO recorded the statement on oath of a person who attended before him in response to the said summons presuming that person as Rajnibhai Patel (Page 19 of the order) 2. At any point of time the then AO has not tried to verify the identity of the person by calling for photo identity like driving license, photo identity card issued by election commission or any other proof of that persons identity.(Page 19) 3. The assessee has not produced the contractor before the AO. (Page 19) As regards the first two observations of the AO, the assessee has already stated here in above in the case of Virag G. Patel. As regards the third issue the assessee submitted that since the contractor had already accepted that he has done work for the assessee, the onus was discharged and moreover it was the department who had issued summons u/s 131 and not that the assessee had produced them as its witness. g). Jasubhai P. Patel (Rs.7,43,400/-) : The AO has made this addition because : 1. The then AO recorded the statement on oath of a person who attended before him in response to the said summons pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first two observations of the AO, the assessee has already stated herein above in the case of Virag C. Patel. As regards the third issue the assessee submitted that since the contractor had already accepted that he has done work for the assessee the onus was discharged and moreover it was the department who issued summons u/s 131 and not that the assessee had produced them as its witness. Thus the AO did not accept the explanation of the above (a to i) labour contractors and has made an addition of ₹ 56,44,787/- on this account. Since the addition has been made on the basis of assumption and presumption, the assessee submitted that the addition be deleted. The learned CIT(A) considering the explanations of the assessee deleted the addition. His findings are reproduced as under: 10.2 I have considered the submissions of the Authorised Representative carefully and have also considered the observations of the Assessing Officer. It is found that the Assessing Officer had issued summons to the labbour contractors and transport contractors at the time of assessment proceedings for A.Y. 2000-01 and they were examined. They have admitted that they have done work for the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were recorded in which they have admitted to have done work for the assessee and no one denied doing work for the assessee. Payments were made in subsequent year, therefore, assessee proved genuineness of the payment in the matter. 13.2 On consideration of the rival submission, we do not find any merit in this ground of appeal of the revenue. It is undisputed fact that the AO recorded statements of above persons in post survey enquiry in which they have admitted to have done work for the assessee. The assessee produced sufficient materials before the authorities below to prove that genuine payments have been made for the purpose of business. The learned CIT(A) therefore, rightly appreciated that the AO proceeded merely on presumption that proper persons were not produced before the then AO. Since the parties accepted the payments and sufficient material was produced before the authorities below to justify the payment for the business purposes, therefore, the learned CIT(A) on proper consideration of facts and material rightly deleted the part of the addition. No infirmity has been pointed out in the order of the learned CIT(A) through any contrary material or evidence on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition was challenged before the learned CIT(A) and it was submitted that the AO has made the above disallowance representing transport services taken from the following parties: Vardhaman Transport ₹ 5,96,820/- Sonal Transport ₹ 9,60,932/- Amit B. Bhavsar Rs.31,17,820/- The reasons mentioned by the AO in the assessment order for justifying the above addition are common for all the three contractors and hence the learned Counsel for the assessee made common submission. It was submitted that the AO in his show cause notice enclosed the details of only two parties i.e. Vardhman Transport and Sonal Transport although the AO mentioned the name of Amit Bhavsar in the notice; no details pertaining to him were furnished to the assessee so as to comment on it. As regards the first observation of the AO that although summons were issued for personal presence, the party filed letter along with enclosures, the assessee submitted that this was the period of communal disturbance in Gujarat which started from the last week of February 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is routine in nature. As regards the sixth observation that the reason of communal disturbance for late filing of reply is a lame excuse, the assessee has already stated in the first comment mentioned here in above. The last and seventh observation is again repetitive of the fourth one. The assessee further submitted that the assessment for assessment year 2000-01 was made on 13-12-2002 while the survey was conducted on 7-2-2002. It is thus clear that the assessment for assessment year 2000-01 was made 10 months after the survey was conducted by the same AO who made the assessment for year 2000-01. The then AO had issued summons on various parties including Vardhman Transport, Sonal transport, Amit B. Bhavsar and Manoj K. Agarwal. All the four parties had also done work for the assessee during the previous year relevant to assessment year 2000-01. These four parties which are now considered as bogus have already been considered as genuine during assessment year 2000-01. The assessee therefore submitted that the addition made with respect to transport contractors expenses be deleted since the addition has been made without appreciating the fact and on the basis of presumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, bank statements etc. of the transporters to establish genuine payments made to them. He has submitted that if the transporters have filed their return of income under presumptive tax under the Income Tax Act, no infirmity could be made against them. 15.2 On consideration of the rival submission, we do not find any merit in this ground of appeal of the revenue. Though the AO summoned all the transporters but due to the disturbance on account of riots, the parties did not appear before the AO but they have filed their confirmation directly before AO and supported the version of the assessee. The learned CIT(A) found that the same parties had worked for the assessee in which the AO found the work to be genuine. On the face of these findings, it is difficult to believe that the assessee would have inflated the expenses. Merely because transporters have filed return of income as per provisions of section 44AE of the IT Act is no ground to disbelieve the explanation of the assessee because such course is permissible under the Income Tax Act. Considering the facts of the case in the light of the evidences and record as has been pointed out by the learned Counsel for the assessee, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the addition of the amount of ₹ 38,12,667/- be deleted. The learned CIT(A) considering the explanation of the assessee deleted the addition. His findings are reproduced as under: 12.2 I have considered the submissions of the Authorised Representative carefully and have also considered the observations made by the Assessing Officer in the assessment order. The Engineer Shri Manoj K. Agrawal had carried on the work for the appellant during the previous year relating to A.Y. 2000-01 and the payments made to him have been accepted as genuine in the earlier assessment year. Sri Manoj K. Agrawal has been doing the work for the appellant even as on date and he is also assessed to Income tax, therefore, the Assessing Officer could have verified the payments made to him and as the expenditure has been genuinely incurred by giving sub-contract work to the engineer Shri Manoj K. Agrawal, there is no justification to make any disallowance for the payment made to him. Therefore, the disallowance made by the Assessing Officer of ₹ 38,12,667/-- is deleted. 17. The learned DR relied upon the order of the AO and submitted that this ground is same as is considered on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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