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TMI Blog2010 (11) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... leted the entire addition of ₹ 45,62,992/- towards disallowance of labour charges made by the assessing officer @ 25% instead of sustaining a sum of ₹ 35,58,754/- being 10% of thelabour charges, after reducing ₹ 82,09,582/- towards verifiable expenditure. 3. The Ld. CIT(A) ought to have held that the assessing officer erred in disallowing labour charges of ₹ 2,04,54,568/- u/s 40(a)(ia) of the Act. 4. The Ld. CIT(A) ought to have held that the same expenditure cannot be disallowed twice under the sections 40(A)(3) and 40(a)(ia) of the Act. 5. Any other grounds that may be urged at the time of appeal hearing. 3. During the course of hearing, the Ld. Counsel for the assessees has opted not to press ground no.2, thereafter the ground no.2 is dismissed being not pressed. 4. Ground no.1 is of general nature and needs no comments. The ground nos.3 4 relate to the disallowance of labour charges of ₹ 2,04,54,568/- u/s 40(a)(ia) of the Act with regard to which facts borne out from the record are that during the course of assessment proceedings, assessing officer has observed that certain payments had been made without deducting TDS in respect of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the explanations of the assessee and he accordingly directed the A.O. to examine the evidence in support of the TDS thereof, and, after satisfying himself about such fact excludes the amount of ₹ 18,92,125/- from the disallowance of ₹ 2,71,08,378/-. 7. Aggrieved, the assessee has preferred an appeal before the Tribunal and has reiterated its contentions. The Ld. Counsel for the assessee has emphatically argued that major part of payments were made in cash to a group leader of the workers/labourer utilized in construction activities of the assessees on their behalf. From the details of the payments, it is abundantly clear that generally these payments were made weekly or after few days. It was not a regular payment which can be called to have been made to a one person against the contractual obligation. The assessee is engaged in the construction activity and the manpower is being organized by the group leaders to accomplish the construction work. These labourers are generally mistries/mason and helper/beldars who are engaged in construction activities. Therefore, the entire amount paid cannot be called to have been made to one person against a contractual obligat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accomplish the work of construction. From the details of payments, it is also evident that the payments are not made regularly. It was made after interval of few days. Meaning thereby, whatever amount is accrued to the labourers, it was paid through their group leaders of which vouchers were obtained by the assessees and placed on record. 10. From a careful perusal of the orders of the lower authorities, we do not find that revenue has ever doubted the genuineness of the payment to the labourers. Therefore, the issue before us is; whether such type of payments attracts the deduction of TDS u/s 194C of the Act? Nothing is placed on record by the revenue to establish that assessee has ever subletted or assigned its contract to the persons to whom the payments were made. In the absence of the evidence, the contention of the assessee that he has made the payment to group leaders of the labourers i.e. mistries or the beldars on their behalf and they were working at the instruction of the contractor i.e. assessee or its agent cannot be outrightly rejected. Therefore, provisions of section 194C are not attracted. We accordingly do not find ourselves in agreement with the observation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unvouched labour charges to 10% without giving any valid reasons. The facts borne out from the record are that besides making a disallowance u/s 40A(3) of the Act, the A.O. has also verified a certain payments of ₹ 3,42,12,499/- towards labour charges. Assessee was asked to produce the supporting vouchers of these expenses and the assessee has produced the vouchers for ₹ 7,01,150/-. For the remaining expenditure, no vouchers were produced. The A.O. proposed to disallow the 25% of the above expenditure as reduced by the amount already considered for disallowance u/s 40A(3) under the head `Labour Charges and a show cause notice was issued to the assessee as to why the above disallowance cannot be made in the absence of any supporting evidence. In response thereto, it was contended on behalf of the assessees that labour payments were made to the individual labours as per the attendance slips and no separate vouchers are maintained for each payment made to individual labours. The nature of work performed by them includes earthwork, concrete, masonary work involving labour and daily wages. With regard to the quantity and volume of transactions the assessee maintained attend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed unless it is brought on record that such type of expenditures were never incurred by the assessee. Admittedly, assessee is a civil contractor and in construction business, sometimes the supporting evidence are not available for the expenses. But it does not mean the expenses were never incurred. The A.O. has estimated a particular percentage of disallowance and CIT(A) reduced it. It is a question of estimate only and we are of the view that the estimation made by the CIT(A) is reasonable and fair. We therefore uphold his estimation and approve his order. Accordingly, the revenue s appeal is disposed off. ITA No.372 of 2009: 18. This appeal is preferred by the assessee against the order of the CIT(A) on various grounds which are as under: 1. The first appellate authority viz., CIT(A) Rajahmundry Range, Rajahmundry should have deleted the entire additions made by the Additional CIT, Rajahmundry Range, Rajahmundry. 2. The assessing authority viz., Additional CIT, Rajahmundry Range, Rajahmundry should have accepted the books results. 3. The Ld. CIT(A) should have allowed entire expenditure claimed under the head labour charges, metal purchase, blasting material, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disallowed the depreciation claimed on such machineries aggregating to ₹ 9,52,015/-. 21. The assessee preferred an appeal before the CIT(A) with the submission that even if it is assumed that it was humanly impossible to transport such machineries from far off place like Bengaluru and Dharwad in Karnataka state to the interior work site of the assessee in Andhra Pradesh, yet since the assessee has also undertaken contract works in the state of Karnataka, the newly purchased machinery were put to use in Karnataka itself. Therefore, there was no cause for disallowance of depreciation in respect of such machineries. The CIT(A) was not convinced with the arguments of the assessees. He has confirmed the disallowance after making the following observations: After hearing the learned authorized representative and on a careful consideration of the facts relating to the issue, it may be stated that it is heartening to note that it has been admitted on behalf of the appellant that the newly purchased machineries in Bengaluru and Dharwad in the state of Karnataka could not have been transported to the work site of the appellant in Andhra Pradesh state within such short time so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athi Synthetic Limited vs. ITO 38 SOT 208 and the judgement of the apex court in the case of DCIT Vs. N.K. Industries 305 ITR 274 (SC). 24. We have heard the rival submissions and carefully perused the orders of authorities below and documents placed on record. Before the lower authorities, the assessee has not raised this argument. He was altogether raising an argument with regard to the actual use of the machineries, purchased during the impugned financial year. Before us he did not raise any argument with regard to the use of the assets. He has raised a new argument that the newly purchased asset being a part of the block of assets, its use is not required to be proved and the depreciation is to be allowed on W.D.V. of the block of assets. 25. We have also examined the provisions of section 32 of the I.T. Act and according to its clause 1, the depreciation is to be allowed on building, machinery, plant or furniture, being tangible asset, know how, patents, copy rights, trade marks, license, franchise or any other business or commercial rights of similar nature being intangible assets acquired on or after the first day of April, 1998 if owned wholly or partly by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Sri K. Giridhar Babu, Sri K.L. Sudharkar Rao, T.C.H. Venkateswara Rao to the tune of ₹ 6 lakhs, ₹ 1 lakh and ₹ 10 lakhs respectively. It was also noted by the A.O. that there was no business transaction between such parties and the assessee during the year. Consequently, it was inferred that interest bearing funds from bank is to be diverted to such parties for which interest ought to have been charged. When the assessee was asked to produce any evidence to show the business nexus with these persons the assessee was failed to do so. Consequently, the A.O. held that the interest bearing funds have been utilized for the non-business purpose and he accordingly disallowed the proportionate interest expenditure relatable to such amounts advanced to these parties. Before the CIT(A), nothing was placed to prove the business nexus with these persons and the CIT(A) confirmed the disallowance. 27. Before us, Ld. Counsel for the assessee has raised altogether new argument that the notional interest was added by the revenue authorities. Whereas the facts are otherwise and from the facts it is evident that the disallowance was made on account of diversion of borrowed fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ledger extracts of the sale account copies, indicates that various amounts of labour charges credited as against the small amount of advances in the case of these creditors. The CIT(A) re-examined the issue in the light of rival submissions and being convinced with the explanations of the assessee, he deleted the additions after making the following obvervations: After hearing the learned authorized representative and on a careful consideration of the facts relating to the issue, the following observations made and decisions taken:- (i) No doubt, the Assessing officer has requisitioned the necessary proof in respect of the outstanding credit balances of the said six creditors vide his letter dated 31.7.2007 and, as such, the appellant was left with sufficient time on hand to collect the supporting evidences either by way of confirmatory letters or otherwise. The appellant, however, has furnished vide his letter dated 17.11.2008 the ledger extracts of the said parties as appearing in its books of accounts and also produced the books of accounts including ledger in which such accounts are recorded. However, the Assessing Officer appears to have glossed over such extracts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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