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TMI Blog2016 (1) TMI 1476X X X X Extracts X X X X X X X X Extracts X X X X ..... hat does not form part of the total income is also included while calculating the disallowance under section 14A read with Rule 8D. (iii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 10,00,000/- on account of labour charges without appreciating the fact that the assessee has made payments in cash and its genuineness as well relation of it with business is not proved." 3. The brief facts of the case are that the Assessee is an individual and filed his return of income on 30.09.2009 declaring total income of Rs. 2,39,06,248/- in Assessment Year 2009-10. Subsequently, Assessing Officer selected the case for scrutiny and completed assessment under section 143(3) of the Act determining total income of assessee at Rs. 2,69,38,090/-. Aggrieved, assessee filed appeal before the concerned CIT(A) wherein the CIT(A) has granted substantive relief, which are being discussed below. 4. First issue is with regard to rent income from three parties. The Assessing Officer estimated the annual value of deemed let out in respect of three parties:- i. Flat at Sushila Apt. Rs. 5,79,600/- ii. Flat at Trishna Tower Rs. 31,59,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e result, this ground of the appellant is Partly Allowed." 4.2 Department did not prefer any appeal on this point. The learned A.R. for the assessee supported the order of the CIT(A) on the issue, which was opposed by Revenue, inter alia, submitted that the CIT(A) was not justified in deleting the addition to Rs. 2,22,352/- on account of deemed rent. Accordingly order of the CIT(A) be set aside and that of the Assessing Officer be restored. 4.3 After going through the rival submissions and material on record we incline to interfere with the finding of the CIT(A). We find that the annual ratable value in respect of bungalow at Jalore in the native place of assessee is the core question before us. Following the decision in the earlier year CIT(A) directed the Assessing Officer to assess the ratable value at Rs. 15,000/- keeping in view the inflationary trend in the market, the amount being increased by 20% in the year under consideration which comes to Rs. 18,000/- Accordingly Assessing Officer was directed to assess Rs. 18,000/- as deemed rent under section 23(4) of the Income Tax Act and balance addition of Rs. 2,22,352/- (Rs. 2,40,352 - Rs. 18,000) was directed to be deleted. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the other hand, the learned A.R. for the assessee supported the order of the CIT(A). 5.3 After going through the rival submissions and material on record we are not inclined to interfere with the finding of the CIT(A) because only after analyzing the facts of the case he rightly restricted the disallowance to Rs. 42,709/- instead of Rs. 1,14,622/- for reasons discussed above. The same is upheld. 6. Next issue is with regard to addition on account of labour charges. Assessing Officer disallowed Rs. 10,00,000/- under the head 'Labour Charges' vide para (b) of his order. While doing so he observed as under: - "Disallowance out of labour charges: The assessee firm has debited Rs. 2,45,55,199/0 under the head labour charges. During the course of assessment proceedings, the assessee was called upon to file details of labour charges claimed along with details of TDS made thereon and justification for allowability of the claim made by the assessee under this head. The assessee firm has filed details of labour charges on verification of which it is noticed that the assessee has claimed to have made payments to number of parties and some of the payments have been made by way of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known that labour needs the cash payment urgently and contractor is required to pay the same in cash to avoid labour problems. 6.2 Keeping in view the totality of the facts and circumstances of the case, CIT(A) was justified in upholding the disallowance in question. This reasoned finding of the CIT(A) need no interference from our side. We uphold the same. 7. In the result, this appeal of the Revenue is dismissed. ITA No. 5297/Mum/2013 : AY 2010-11 8. In this appeal, the Revenue has raised the following grounds: - "(i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 4,90,000/- which was made by invoking the provisions of IT Act by treating the income as Rs. 18,000." (ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 50,00,000/- which was made by way of reasonable estimation keeping the nature of business in mind. (iii) On the fads and in the circumstances of the case and in law, the ld. CIT(A) erred deleting the addition of Rs. 14,86,000/- which was made by invoking the provisions section 39 of the IT Act by treating penalty payments as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same line. We uphold the order of CIT(A) on this issue in this year as well. 10. Next issue is with regard to bogus sub-contract expenses of Rs. 50,00,000/-. Assessing Officer vide para. 6 &7 of his order has made an estimated addition of Rs. 50,00,000/- on account of bogus payments to subcontracts allegedly "booked by the assessee". Assessee had claimed sub-contract expenses of Rs. 15,68,98,517/-. Assessing Officer found that many of such sub-contractors are having turnover of less than Rs. 40 lakhs and their Income was offered mostly under section 44AD of the Act. Assessing Officer has also observed that large numbers of parties belongs to different group of families as ascertained from residential address and/or surname of the parties. For this reason, Assessing Officer held that the assessee is using the names of members of different families for reducing the assessee's overall tax liabilities. According to the Assessing Officer, the individual members hardly found to pay any actual taxes after claiming deductions and tax benefits. Further, the Assessing Officer observed that the turnover of the individual members are kept below Rs. 40 lakhs for dual purposes - firstly to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f contract. It is not a penalty for violation of any statutory provisions. Hon'ble Kerala HC in the case of CIT Vs. Grand Cashew Corporation, 182 ITR 216 held that the liability to pay damages on account of breach of contract is an allowable deduction u/s 37(1) of the Act. Similar view has been taken by Hon'ble Apex Court in the case of CIT Vs Shantilal P. Ltd. 144 ITR 57, wherein it was held that any amount incurred by the assessee on account of non-fulfillment of business contract for reasons beyond his control is incidental to the business and is an allowable deduction. 11.1 Since the issue was covered by the order of the ITAT in assessee's own case in A.Y. 2008-09 and the facts being same, for same reasoning CIT(A) deleted the addition of Rs. 14,86,000/-. Nothing contrary has been brought to our notice by the Revenue. Therefore we are not inclined to interfere with the decision of the CIT(A), who has deleted the disallowance of Rs. 14,86,000/- made on account of penalty payment for delayed execution of contract. The same is upheld. 12. Next issue is with regard to the deletion of addition of Rs. 10,00,000/- which was made by the Assessing Officer u/s 40A(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in this background, CIT(A) observed that there seems to be wrong identification of figures and parties. In view of this the CIT(A) deleted the addition by observing that the disallowance was made without any basis hence the same was directed to be deleted. This reasoned factual finding of CIT(A) need no interference from our side. We uphold the same. 14. Next issue is with regard to addition of Rs. 8,62,069/- in respect of agricultural income. Vide para 12 of the assessment order Assessing Officer has treated exempt agricultural income as income from other sources on the ground that source of income has not been explained, which was deleted by the CIT(A). Same has been opposed before us on behalf of the Revenue , inter alia, submitted that CIT(A) erred in deleting addition of Rs. 8,62,069/- which was made for non-furnishing the details relating to agricultural income. On the other hand, the learned A.R. for the assessee supported the order of the CIT(A) and submitted that assessee has been declaring agricultural income since last many years and same has been continuously accepted by Department and same has been erroneously treated by the Assessing Officer as income from other so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a remark 'left' or 'not known'. The Assessing Officer thereafter asked the assessee to explain as to why the alleged purchases from the parties reported by the Sales-tax Department should not be treated as unexplained expenditure u/s 69C of the Act and the resultant amount be disallowed and added to the assessee's total Income. In this regard, the assessee has given various explanation, but after rejecting the same, the Assessing Officer disallowed the total amount of Rs. 2,47,01,530/-. Thus, the Assessing Officer has disallowed 13.97% of purchases made by the assessee during the year under consideration. 15.1 Matter was carried before the First Appellate Authority wherein various contentions were raised on behalf of the assessee. The CIT(A) having considered the submissions of the assessee granted relief to the assessee and the same has been opposed before us on behalf of the Revenue inter alia submitting that the CIT(A) has erred in deleting the addition of Rs. 2,16,32,610/- made by the Assessing Officer by invoking provisions of section 69C of the Income-tax Act; accordingly, the Departmental Representative submitted that the order of the CIT(A) be set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any or all of the materials brought to site by the Contractor which is not in accordance with the contract specifications or which do not conform in character or quality to the samples approved by him. In case of default on the part of the Contractor in removing the rejected materials, the Engineer shall be at liberty to have them removed by other means. The Engineer shall have full powers to procure other proper materials to be substituted for rejected materials and In the event of the Contractor refusing to comply, he may cause the same to be supplied by other means. All costs, which may attend upon such removal and / or substitution, shall be borne by the Contractor." 15.3 In the present case, the total supply of material is stated to have been obtained from various parties and the Assessing Officer has held an expense of Rs. 2,16,32,610/- as unexplained expenditure/non-genuine expenditure. In the Impugned contract the cost of material is quite high and if the rejection of purchases from such parties, reflected In the website www.mahavat.gov.in is rejected to be non-genuine then purchases of the material made for the execution of the contract from these parties, would lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled by the assessee and consequently, the MCGM would not make any payment' for the same. In fact the entire process is inter connected and the statement of suppliers of raw materials could not be taken and read independently rather it has to be examined In totality. In view of the above, it was apparent that the mere appearance of the name of the parties on the website of sales tax department cannot justify the conclusion that the purchases made by the assessee were not genuine. Thus, the contracts executed by various contractors were subjected to check as regards their specification, workmanship/ quality and quantity of material utilized by the Audit/Vigilance team of the MCGM. The Assessing Officer has not brought out any material on record to suggest that there were any defect or deficiency in the quantity and quality of material supplied and the workmanship of the job performed. 15.5 The assessee has made claim for purchases for which payments have been made by cross-cheque. Where payments are made by account payee cheques nobody can deny the existence of the parties. The Assessing Officer has not brought any material on record to suggest that the payments made to purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate that any part of the fund given by the assessee to those parties came back to the assessee in any form. He, thus, held that the evidence was not adequate to conclude that the purchases made were bogus and, therefore, deleted the aforesaid addition to the income of the assessee. Similar view has been taken by ITAT, Jodhpur Bench in the of ITO v Permanand, reported in 107 TTJ 395, wherein in it was held as under:- "In the instant case, the addition rested mainly only on the observation of the Sales-tax Department, The assessee was never associated with the enquiries made by the Sales-tax Department to that extent. The satisfaction of the Assessing Officer itself is of prime Importance while making assessment of an income and these duties cannot be performed by substituting satisfaction of someone else the assessee did pay for the purchases he made from the above two parties through cheque as was evident from the record. The statements or even the affidavits of the sellers could not be utilized against the assesses, unless an opportunity was given to him to confront the said statement by way of crossexamination, etc. Admittedly, no such opportunity was given to the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through payment by account payee cheques, such plea is not tenable and in such circumstances, the Tribunal below erred In law in reversing the finding arrived at by the Commissioner of Income-tax (Appeals) accepting the said transaction as a genuine transaction." Therefore, keeping in view the totality of the facts and circumstances of the case as well as various judicial pronouncements as referred to above, in our opinion, the CIT(A) was rightly deleted the addition of Rs. 2,16,32,610/- made by the Assessing Officer u/s 69C of the Act. Therefore, this reasoned finding of the CIT(A) needs no interference from our side. We uphold the same. 16. Next issue is with regard to the addition of Rs. 4,48,89,991/- on account of unexplained expenditure u/s 69C on account of sub-contract charges. 16.1 The brief facts the case are that the addition to the tune of Rs. 4,48,89,991/- was made u/s 69C of the Act in respect of four parties under the head sub-contractors. The Assessing Officer observed that notices issued u/s 133(6) to the four parties were returned unserved by Postal Authorities. The assessee had furnished to concerned Assessing Officer the addresses made available by the said pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not been rejected by the Assessing Officer. The unexplained expenditure of Rs. 2,16,32,610/- made by the Assessing Officer by invoking the provisions of section 69C of the Act has been deleted by us, relying on various judicial pronouncements as discussed in paragraph 14 of this order. For the sake of brevity, the same are not reproduced here once again. The Assessing Officer had all the machinery under the IT Act, 1961 to make investigation through the Banks by calling for records and reaching out the parties who were not co-operating with the assessee and bring the actual facts on record. In view of above, the CIT(A) was justified in deleting the addition of Rs. 4,48,89,991/- because the Assessing Officer has also not been able to bring on record the evidences that the amount of the payment for purchases, which were made by the assessee to the respective parties via banking channels. There is nothing on record to suggest that said payments were received back by the assessee in any manner. This reasoned finding of the CIT(A) needs no interference from our side whereby he has rightly deleted this addition in question. We uphold the same. 17. Next issue is with regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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