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TMI Blog2019 (10) TMI 1458X X X X Extracts X X X X X X X X Extracts X X X X ..... ry letter issued by PCL in the name of Managing Partner without supporting documents of stock register and the consumption register and the proper bills. In respect of Raghava Co., though the managing partner had stated that he was a sub contractor and executed part of the work, the Ld.CIT(A) misdirected himself in believing that the managing partner has given a statement in confusion. When the assessee has made payments to Raghava Co., it is incumbent upon the assessee to establish the nature of payment furnishing proper bills supporting the supply of material with stock register and consumption register. No supporting evidences were placed before the Ld.CIT(A) or before the AO. Payment made otherwise than crossed cheques for expenditure in violation of the provisions of section 40A(3) - HELD THAT:- The assessee has neither produced proper bills nor explained the reasons for payments made otherwise than by crossed cheque. Even for labour charges, the assessee has not furnished the details of mastry and labour attached to each mastry and the number of days the labour employed by each mastry etc. Though the assessee stated to have made the payment on bank holidays, it di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities have rejected the books of accounts, they cannot make addition on account of unexplained cash credit on the very same books. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld.- Decided in favour of assessee. - I.T.A.No.109/Viz/2013, Cross Objection No.70/Viz/2013 (Arising out of I.T.A. No.109/Viz/2013), I.T.A.No.432/Viz/2017 - - - Dated:- 4-10-2019 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For the Revenue : Shri D.K.Sonowal, CIT DR For the Assessee : Shri P.V.Subba Rao, AR ORDER Per Shri D.S.Sunder Singh, Accountant Member : These appeals are filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Vijayawada in Appeal No.339/CIT(A)/VJA/10-11 dated 07.12.2012 for the A.Y. 2008-09 and in I.T.A. No.90/CIT(A)/VJA /2015-16 dated 21.02.2017 for the A.Y.2012-13 and cross objections are filed by the assessee for the Assessment Year (A.Y.) 2008- 09. For the sake of convenience, these appeals are clubbed, heard together and a common order is being passed as under. 2. The assessee is engaged in the business of civil contract busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts made. The assessee failed to furnish such confirmation. However, the AO noticed that the assessee paid amounts to M/s PCL by cheques and the cheques were cleared in Axis bank, Benz Circle Branch, Vijayawada. Hence, the AO called for information from M/s PCL on 03.12.2010 seeking account copy of the assessee for the period from 01.04.2007 to 31.03.2008. In response to the AO s letter, M/s PCL had informed that there were no transactions between these two parties since 01.04.2007 and the same submission was confirmed by their letter dated 16.12.2010. The AO brought the said information to the notice of the Ld.AR and requested to substantiate it s claim with proper evidence that the payment was for the purpose of business. In response, the assessee filed letter dated 23.12.2010 stating that they have purchased the chips and dust from PCL for which the payment was made by cheques. The assessee also stated to have given the details of vouchers, vehicle number, size of chips supplied by PCL for the month of June 2007, July 2007 and March 2008. The assessee further stated that there was no practice of giving pucca vouchers in this line of business. Since the PCL has not confirmed the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opies of cheque leaves for examining the genuineness of the payments, since, the assessee failed to produce any evidence for various payments made by it. The AO found from bank account that whenever there was withdrawal, either the name of the party to whom the money was paid or the name and number of the account to which the money was transferred or the details of clearing inward / outward is mentioned. The cheque leaves specifically give the details of cash paid across the counter and the AO found that majority of the payments were made through bearer cheques and on many occasions, either the assessee has issued self cheques or bearer cheques in the name of third parties, but the same were encashed by the accountant of the assessee firm or the managing partner on certain occasions. The AO further found that the bearer cheques were encashed across the counter and made cash payments. The AO prepared the list of cheques encashed across the counter with the names of third parties in whose favour the cheque was issued with amount, purpose and compiled the list of payments as Annexure-1 enclosed to the assessment order. As per the list, the bearer cheques issued by the assessee firm in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . With regard to the addition u/s 40(a)(ia) of the Act, relating to Raghava Co.,, the Ld.CIT(A) was of the opinion that the assessee was under confusion when the statement u/s 131 was recorded and the statement was given in confusion. He stated that Raghava Co., is a sub contractor and also the supplier of materials and the assessee had borrowed oils and lubricants on exigencies from M/s Raghava Co., and the supplier was in the business of supply of oils and lubricants, hence, there is no case for invoking the provisions u/s 40(a)(ia) of the Act. Accordingly deleted the addition. 3.3. With regard to 40A(3) payment, the assessee submitted before the Ld.CIT(A) that the said practice of payment through bearer cheques or the cash payments was made in the earlier years also and the department did not object the same in the earlier years and accepted the submissions of the assessee and allowed the expenditure. The payment was for supply of material, providing labour force etc., instead of paying each labourer, there was a system of paying the amounts to the mastries. The Ld. CIT(A) further viewed that no fraudulent payments were detected by the AO and the bearer cheques were iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o subcontractor were made without deducting tax at source and accordingly made the impugned addition in terms of the provisions of section 40(a)(ia), which is under challenge now. Perusal of records revealed that M/s Raghava Co is no doubt a fellow contractor of works, but the material on record would not give rise to giving part of work of laying of roads to M/s Raghava Co, but only borrowing oils and lubricants on exigencies It may however be noted here that ether the appellant or M/s Raghava Co are in the business of supply of oils and lubricants to regard such transactions as contracts or subcontracts. In the circumstances, such statements made inadvertently by the Managing Partner would not make the relation of debtor and creditor to that of a contractor and contractee. In light of such a situation there is no question of invoking section 194C cum section 40(a)(ia) and as such the AO is directed to delete the same. 6D. The fourth issue is regarding invoking the provisions of section 40A (3), i e payments in cash, where each payment exceeded Ps 20,000 and such payments for the year under report amounted to ₹ 2,18,63,350/- which was one of the additions made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot coming under the purview of section 40A(3) and requested the AO to drop such proposals. It was further explained to the AO that the appellant's work was road laying mostly in remote areas and naxal prone regions, where getting labor and materials is very difficult The labor and suppliers of material demand advance payment of the amounts involved, which the appellant is bound to accept in the interest of smooth running of road laying works Thus, the bearer cheques were given in advance and get the work done with the cooperation of everyone involved and thus, encashing of the bearer cheques occurs in the nature of activities of road laying civil works of the appellant from year to year, During the appellate proceedings, it was pointed out by the AR that it is the consistent nature of work occurring every year, which was not questioned in the earlier years and questioned the rational of the AO to raise this point now for this assessment year having accepted the same in the earlier years Thus, there is a merit in the submissions of the appellant that the AO was not justified in invoking the provisions of section 40A (3) in the peculiar facts and circumstances of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re no transactions with the assessee from 01.04.2007. Though subsequently, PCL has confirmed the supply of material to Managing Partner of the assessee, there was no evidence to show that the said material was used by the assessee and it is not known whether there was any specific personal business to the managing partner. Therefore, argued that the assessee failed to establish the genuineness of the expenditure, hence, the AO rightly made the addition. 4.1. In respect of payment to M/s Raghava Co., the same were accounted under the head earth work and oil and lubricants by passing journal entries. When the assessee was asked to produce basic evidences for the entries made in the books of accounts, the assessee failed to furnish any evidence to support its contention. In the statement recorded, the assessee stated that M/s Raghava Co., is a sub contractor. From the basic facts, it is evident that genuineness of the expenditure is doubtful and having confirmed by the assessee that M/s Raghava Co. is a sub contractor, the Ld.DR argued that the AO has rightly made the addition u/s 40(a)(ia) of the Act. 4.2. Referring to disallowance made u/s 40A(3) of the Act, the Ld.DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition. Accordingly, the Ld.DR argued that the Ld.CIT(A) committed an error in deleting the addition and requested to set aside the order of the Ld.CIT(A) and confirm the addition. 5. Responding to the argument of the Ld.DR, the Ld.AR argued that the assessee is a civil contractor and during the assessment proceedings, the assessee has produced the books of accounts, bills and vouchers before the CIT(A) which the Ld.CIT(A) has called for the remand report and the AO stuck to his guns and did not make verification, therefore, argued that it has produced the books of accounts in respect of the payments made to PCL also. Though the assessee has produced the evidences at the remand stage, supporting all the expenses the AO did not examine the books of accounts, bills and vouchers furnished before the Ld.CIT(A), therefore, argued that there is no justice in making the additions by the AO separately. The Ld.AR further argued that the assessee is a civil contractor laying roads and production of pucca vouchers and bills is impossible. Accordingly, the Ld.AR requested to uphold the order of the Ld.CIT(A) or send back the file to the Ld.CIT(A) to reconsider the issue. 6. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the payments were made in excess of ₹ 1 lakh to each recipient against the provisions of section 40A(3) of the act. Though the assessee submitted that the payments were genuine and for the business purpose, the assessee has not produced any evidence to establish that the payment is genuine. The assessee has neither produced proper bills nor explained the reasons for payments made otherwise than by crossed cheque. Even for labour charges, the assessee has not furnished the details of mastry and labour attached to each mastry and the number of days the labour employed by each mastry etc. Though the assessee stated to have made the payment on bank holidays, it did not establish that the payments were made on bank holidays and in exceptional circumstances as provided under Rule 6DD of I.T.Rules. The very fact that the bank cheques were encashed across the counter shows that there was no holiday on the same date. Therefore, we are unable to accept the contention of the assessee that the payments were made in exceptional circumstances. 7. During the appeal hearing, the Ld.AR stated that the assessee has produced the books of accounts and vouchers before the CIT(A) and the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d wrongly grouped the sum of ₹ 1,50,00,000/- under chips instead of labour charges in letter dated 29.12.2010. Pucca vouchers could not be produced for labour, loading and unloading of earth work, chips etc. Only kachha vouchers for chips were maintained. The assessee further stated in respect of 40A(3) submissions that the assessee has to make purchases from unorganized sector and the supplier did not issue the pucca vouchers. Production of original vouchers are not practicable and possible in this case. The assessee also requested for rejection of books of accounts and estimation of income reasonably. From the above discussion, it is clear that the assessee has not maintained the proper books of account and expenses debited to the P L account was not properly grouped and supported by pucca vouchers. During the appeal hearing also, the Ld.AR did not place any evidence to support the arguments. The Ld.AR requested to send the case back to the file of the Ld.CIT(A). In the absence of proper books of accounts, bills and vouchers, no useful purpose would be served even the issue is remitted back to the file of the Ld.CIT(A). Therefore, we are of the considered opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that estimation of income @12.5% on main contracts and 5% on sub contracts is reasonable. Accordingly, we set aside the order of the Ld.CIT(A) and partly allow the appeal of the revenue. 14. Ground No.4 is related to the addition on account of unexplained creditors. In the assessment order, the AO made the addition of ₹ 35,50,000/- relating to unexplained creditors. Though the assessee has furnished the confirmation letters, the AO did not accept the genuineness of the creditors for non production of bank statements, income tax assessment details etc. 15. Against the order the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) found that the assessee has furnished the address of the creditors and the payments were received through cheques or RTGS. Hence, the assessee has discharged it s onus and the AO did not shift the burden on the assessee, therefore, held that there is no case for making addition u/s 68 of the Act. 16. Against the order of the Ld.CIT(A), the revenue has filed appeal before this Tribunal. 17. We have heard both the parties and perused the material placed on record. From the order of the AO as well as the Ld.CIT(A), the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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