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TMI Blog2018 (3) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of this case are entirely different from the facts of the present case. Accordingly, this ground of appeal of the assessee is rejected. Disallowance of interest on mobilization of advances - Held that:- As submitted by assessee interest on mobilization advance was deducted by the awarder and it is to be considered as expenditure whether the awarder has deducted the interest out of the awardee. The amount has to be verified from the tender agreement entered into by the assessee with Cochin Port Trust. The oral argument of the assessee’s Counsel cannot establish that there is a condition in the tender agreement to deduct interest towards mobilization of advance given to the assessee by the awarder. Accordingly, we remit this issue to the file of the Assessing Officer to examine this issue with reference to the tender agreement entered into by the assessee with Cochin Port Trust. The Assessing Officer has to consider this issue afresh. Thus this ground of appeal of the assessee is allowed for statistical purposes. Disallowance of depreciation on car and Disallowance of JCB hire charges - Held that:- Before us the assessee has not given any reasonable cause for not pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk at Edapally, High Court and incurred expenditure of ₹ 16,14,359/- as labour charges other than sub-contract given to Shri K.J. Paul. He drew our attention to break up of cost centre which is placed at pgs. 67-68 of the paper book. The Ld. AR submitted that without completing the work, the assessee would not have received the payment from the awarder as the running bill is passed after physical measurement by the awarder. Income from the contract was offered to tax and correspondingly, the expenditure is to be allowed. It was submitted that the assessee has even deducted TDS on the payment made to Mr. K.J. Paul and received the relevant tax deduction certificate. 4. The Ld. AR submitted that there is a valid agreement between Mr. K.J. Paul and the sub-contractor. According to the assessee, there is no reason to disallow the expenditure in the hands of the assessee. The Ld. AR relied on the judgment of the Bombay High Court in the case of Maneklal D. Shah vs. P.K. Gupta and others (267 ITR 340) wherein it was held that it is incumbent upon the authority to give reasons as to why it disagrees with the reasons and findings of the authority. The relevant observation of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. K.J. Paul by crediting in the Profit Loss account. Had it been Mr. K.J. Paul carried out the work of road entrusted to him, he should have shown the same as income in his hands and correspondingly issue a bill towards that work to the assessee. All the payments made by the assessee cannot be treated as an expenditure in the hands of the assessee as incurred wholly and exclusively for the purpose of business unless it was incurred for the purpose of business and supported by bills and vouchers. The mere existence of an agreement between the assessee and the sub-contractor or making a payment by a cheque, does not bind the Assessing Officer to hold that the payment was made exclusively and wholly for the purpose of assessee s business. Although there might be such an agreement in existence and the payment might have been made, it is still open to the Assessing Officer to consider the relevant facts and to determine for himself whether the payment said to have been paid to the sub-contractor or any part thereof is properly deductible. In the present case, though the assessee made payment of ₹ 2 crores to Mr. K. J. Paul, it was not shown as income in the hands of Mr. K.J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assesses in its P L A/c as well. However, it was observed that the charges on mobilization advance as claimed by assessee was not mentioned anywhere in the bills raised by the awarders nor the assessee could adduce any evidence of whatsoever to prove that it had incurred this expenditure. When the Ld. AR was confronted with all these evidences, he explained off the record, that it was basically the bribe given lo different authorities for releasing the bill amount. Though off the record statements will not have any legal sanctity, it is to be under-stood that the statement carry value as the assesses could not substantiate its claim with any documentary proof Hence, in view of this, the Assessing Officer held that the above expenditure of ₹ 6,92,830/- was not a genuine expenditure nor it was incurred for the purpose of business. Hence, the sum of ₹ 6,92,830/- was disallowed and brought to tax. 7.3 On appeal, the CIT(A) confirmed the disallowance of interest on mobilization advance. 7.4 The Ld. AR submitted that interest on mobilization advance was deducted by the awarded amounting to ₹ 6,92,830.00. It was submitted that it was evident from the specime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Thus, the appeal of the assessee in ITA No. 444/Coch/2016 is partly allowed for statistical purposes. ITA No. 446/Coch/2016 : Revenue s appeal 9. The Revenue has raised the ground with regard to allowability of the claim of 20% labour charges without any additional evidence produced by the assessee at the first appellate stage. 9.1 The facts of the issue are that total contract receipts was ₹ 82,77,36,995/- Out of this, an amount of ₹ 28,41,55,835/- was subcontracted. The Assessing Officer observed that the sub contract worked out to be 35% of the total contract amount. According to the Assessing Officer, such a sum of work is subcontract, the total sub contract works out to be 35% of total contract amount. When such a sum of work is subcontracted, the corresponding expenses should also be reduced. It was noted that in the case of assessee, it was not done. The Assessing Officer noted that assesses was debiting ₹ 10,58,06.975/- as labour charges which is exactly 20% of the total net receipts of the assessee (i.e., total receipts - subcontract amount). The Assessing Officer noted that the assessee was also debiting ₹ 2,64,33,432/- as material purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Rule 10(2)(b) of the KVAT Rule the Commercial Tax Department has fixed the range of labour charges at 30% in the case of structural contract. According to the CIT(A), the assessee further argued that in the State of Kerala the labour charges are very high and they have been maintaining the wage statement of each work site and the statements have got signed by the labourers as and when the payments were made. This matter was never discussed at any stage of assessment proceedings and the AO had, based on estimates, disallowed 20% of such labour charges. It was pleaded before the CIT(A) that no work contract can be executed without incurring cost on labour. After considering the facts and submissions by the assessee, the CIT(A) held that disallowance made by the AO was far off from the facts and based on merely estimates and logical derivations, and devoid of any facts gathered or findings brought on record, contrary to the claims made by the assessee. Thus the CIT(A) deleted te addition made by the Assessing Officer on this count. 9.4 Against this, the Revenue is in appeal before us. 9.5 The Ld. DR submitted that the assessee claimed that the labour charges were incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny stages of the Assessment proceedings and hence the assessee was not given an opportunity to substantiate the case. It was submitted that considering the volume of turnover involved less than 20% labour charges was very much genuine and disallowance of 20% of the labour charge was not correct. 9.9 The Ld. AR submitted that the judgment relied upon in the case of Commissioner of Income Tax Vs. E.S. Jose (ITA No 1451 of 2009 dated 22.10.2013) was entirely different and has no relevance to this case. It was submitted that the point discussed in the above case was whether unexplained cash credit can be added merely because the confirmation letter was not given, which is totally different from the present case. The Ld. AR submitted that in this case it is a direct expense attributable to the turnover and without labour no works contract can be executed properly. Therefore it was submitted that U/s 37 of the Income Tax Act it is an allowable expense. According to the Ld. AR any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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