9911796707
TMI Blog2017 (3) TMI 1920X X X X Extracts X X X X X X X X Extracts X X X X ..... O. after recording the statements of two contractors u/s 131, who had denied to have done any contract work for the assessee and the other persons were not produced by the assessee for examination. 4. Ground No.1 raised by the assessee in its C.O.No.16/Chd/2015 reads as under: "1. That the Worthy Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs.20,64,900/- on account of fabrication charges paid to Sh. Mange Lal to the tune of Rs.8,26,730/- and to Sh. Dushyant Kumar to the tune of Rs.12,38,170/-. 5. The issue in both the above grounds raised by the Revenue and assessee is related to the disallowance made of fabrication charges. While the Revenue is aggrieved by the deletion of disallowance to the extent of Rs.36,11,800/-, the assessee is aggrieved by the disallowance upheld to the extent of Rs.20,64,900/-. 6. The brief facts relating to the case are that the assessee is engaged in the business of fabrication and erection of machinery and equipments. During the course of assessment proceedings, the Assessing Officer noted that the Profit & Loss Account of the assessee firm showed debit of fabrication charges of Rs.77,21,625/- in various names. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charges debited in the names of six individual contractors were bogus. The Assessing Officer considered the case in view of the human probabilities by drawing support from the decision of the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT, 241 ITR 801 and CIT Vs. P. Mohankala, 291 ITR 278. Therefore, an addition of Rs.56,76,791/- was made to the income of the assessee holding the fabrication charges to be bogus and in-genuine. 7. The matter was carried in appeal before the Ld. CIT (Appeals) where the assessee pleaded that its customers were BHEL and L & T and the items supplied to them were special job tailor made to the specification of the customers and as per terms of agreement, the assessee contended that it was duty bound to maintain the confidentiality clause with the customers and, therefore, it had to depend on its own expert technical staff to develop their own team of workers to act as contractors to do the assigned job in the factory premises of the assessee after their normal working hours. The assessee also submitted that the modus operandi followed by the assessee was normal trade practice in the area, i.e Yamuna Nagar, Jagadhri area. The assessee al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x persons could not be served. In the statements, the persons have clearly stated that they were employee of the firm and were drawing salary. They have denied having received any amount from the firm as payment for fabrication work on contract. In fact, they denied even the banking transactions incurred in their name for deposit and withdrawn from the bank accounts. Their statement and cheque book were kept in possession of the firm, opening of bank account by the firm and signing of blank cheque as per direction of firm clearly establishes that all the affairs related to fabrication charges were carried out by the appellant firm in the name of these persons. The bills of fabrication charges were not signed by the alleged contractors and their denial of receipt of fabrication charges by them clearly establishes the factual position that the fabrication charges claimed by the assessee in these names were not genuine. Although, the appellant has provided counter submission to the observation of AO that opening of bank accounts, filing of returns by contractors and banking transaction are none of the appellant's concern, but in view of the statements given by the employees of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation of gross or net profit, so it was not necessary that the AO has to categorically reject the books of account to make disallowance of non-genuine claimed of expenditure. 6.5 However, the appellant has submitted that its gross receipts from business dealing with the reputed customers have increased and it cannot be denied that the appellant firm has not carried out the fabrication work of boiler parts to its customers if the sales of such items have been accepted. The appellant has also given the comparative chart of fabrication charges as percentage of the gross receipt. Though the fabrication charges are in congruence with charges claimed in the preceding year but this fact cannot stop the AO to make any finding based on the evidences gathered by the AO for a specific claim in a particular assessment year. He fact that there is reduction if gross profit by 0.40% during the year as compared to preceding year leads to take a view that the trading results cannot be accepted as such by following the results shown by assessee in preceding year. 6.6 The appellant has taken another plea that on the ground of consistency, no such disallowance of fabrication charges is warrante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fabrication work for the appellant firm. Therefore, the fabrication charges in the name of Sh.Mange Ram for Rs.8,26,730/- and Sh.Dushyant Singh for Rs.12,38,170/- is found to be bogus and disallowance of bogus fabrication charges is restricted to these amounts i.e. Rs. 20,64,900/-. This ground of appeal is partly allowed. 8. Aggrieved by the same, the Revenue has filed its appeal in ITA No.746/Chd/2014 challenging the deletion of fabrication charges amounting to Rs.36,11,800, while the assessee in its C.O.No.16/Chd/2015 has challenged the action of the Ld. CIT (Appeals) in upholding the disallowance of fabrication charges to the extent of Rs.20,64,900/-. 9. During the course of hearing before us the Ld. counsel for the assessee contended that the assessee had duly discharged its onus of establishing the genuineness of the expenses incurred on account of fabrication charges by producing all bills relating to the same, by demonstrating that the payments had been made to the said contractors by cheques which amount had been deposited in their respective bank accounts, by filing copies of income tax returns of the contractors reflecting the income on account of fabrication charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee of fabrication charges incurred during the year. We are in complete agreement with the Ld. CIT (Appeals) that the onus of proving the necessary facts in order to avail deduction u/s 37(1) is on the assessee and if the assessee fails to establish the facts necessary to support his claim, then the said claim for deduction of expenditure is not admissible. The Hon'ble Supreme Court in the case of CIT Vs. Calcutta Agency Ltd. 19 ITR 191 has settled the aforestated legal proposition. But having said so, we, however, do not agree with the Ld. CIT (Appeals) that the assessee in the present case before us has failed to discharge its onus. We find, that to establish the genuineness of its claim of fabrication expenses, the assessee filed the following documents/explanation: i) Bills/vouchers of fabrication charges. ii) Evidence of payments of fabrication charges through banking channels. iii) Copy of income tax returns of the workers/contractors disclosing the fabrication charges received by them as their income. iv) Proof of deposit of refund claimed of TDS in the bank accounts of the employees contractors and withdrawal of the same from said accounts. v) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricals Ltd. (A Govt. of India Public Sector Undertaking) and Larsen & Toubro (A reputed Private Sector Undertaking). The kind of customer base of the assessee speaks of its credibility, and expertise in the field of its operations. The items supplied by the assessee are manufactured as special jobs, tailor made to the specifications of the customers. For the purpose, the assessee is supplied with the designs and drawing of the job which as per terms of the agreement are covered under the "Confidentiality Clause" from the customers. With a view to maintain privacy of the drawings and quality of the products manufactured, the asssessee chooses to get the fabrication charges done by its contractors at its own premises. In order to achieve the above objects, the assessee has developed a team of technically sound persons who are experts in their field/line. For the purpose, the assessee encourages its own technical staff to develop a team of their own workers to act as its contractors and do the job assigned in the factory premises of the assessee after their normal working hours. All the team leaders (Contractors) are identified keeping in view their leadership quality, technical comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant are highly confidential and this fact is borne out from the note given on the drawings which reads as under: "Caution: The information on this document is the property of BHARAT HEAVY ELECTRICALS LTD. It must not be used directly or indirectly in any way detrimental to the interest of the company." 6. Thus, from the above said contention, the appellant is duty bound to own such commitment of maintaining confidentiality vis-a-vis secrecy and, therefore, it cannot afford to divulge the context of the purchase order to any outsider. For that purpose, the appellant has developed a team of its own workers for the fabrication of the parts required to be supplied to the customers and in that process, they used the infrastructure of the appellant inside the factory premises and by this, the appellant is able to maintain the confidentiality vis-à-vis secrecy. These workers, who are not much educated, but are technically experienced and sound and are expert in their field and are given some jobs charges, besides, the fixed salary given to them. By this process, the labourers get the necessary incentives and it serves the dual purpose of the appellant vis-a-vis to mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common to either employ a team of technically sound people on a contractual basis for job work on per kg or per unit basis with material and infrastructure being provided by the manufacturer/fabricator or in case of non-availability of such skilled workers, to develop a separate team of employees who after normal working put in additional hours with an incentive of additional income thereby, ensuring timely & proper completion of these orders. The working is normally carried out in the manufacturer's/fabricator's factory/facility so that close supervision of quality and secrecy ,could be ensured. This certificate has been issued on request of our member M/s Great India Steel Fabricators. For Yamuna Nagar- Jagadhri Chamber of Commerce & Industry 15. The assessee had also demonstrated that such expenses were incurred in the past also wherein the ratio of the fabrication charges was comparatively higher to that in the present year. The assessee had demonstrated that while the ratio of the fabrication charges to gross receipt was 19.38% and 4.41% in the years ending on 3103-2008 and 31-03-2009, the ratio was 3.78% in the impugned year. The assessee had also stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees contractors was very much prevalent in the fabrication unit of the area. The fact that the payment was made to these contractors by cheques who deposited the same in their bank accounts and also withdrew money from the same, has also not been controverted, so also the fact the income tax returns had been filed by the employees contractors reflecting the fabrication charges therein. 17. The only anomaly pointed out by the Department is that the bills were unsigned. Considering the voluminous evidences and explanations filed by the assessee, we do not consider the non-signing of the bills to be a factor major enough to displace the other evidences filed by the assessee and proving conclusively that fabrication charges incurred were bogus. 18. Further the sole basis for holding the impugned expenses as bogus is the statement of two contractors recorded by the Assessing Officer, which as per the Revenue has evidentiary value since it was recorded on oath. On this aspect, we are in agreement with the Ld. counsel for the assessee that since no opportunity of cross examination was afforded to the assessee despite specific request made by the assessee in this behalf, the evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax returns were filed by the contractors themselves and it had not been demonstrated that the assessee had anything to do with it. The assessee had further pointed out that though these persons had stated that they had no idea about the saving bank accounts, the very same persons had gone further and stated that they had signed blank cheque books as per the directions of the firm. The Ld. counsel for the assessee pointed out that two statements of the employees contractors were in itself contradictory and if they had no idea about the saving bank accounts how could they have stated to have signed any blank cheque books. The assessee also pointed out that if the employees contractors had no bank accounts how could they have stated that the bank accounts had been opened by the assessee firm in their names, that they had signed blank cheque books at the directions of the firm and cheque books and passbooks had been kept in the possession of the assessee firm. Thus besides the fact that no opportunity of cross examination was granted to the assessee, there are also many contradictions in the statement of the workers and therefore for both the above reasons taken together we ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs.4,79,429/- on account of scrap not recorded in the books of the assessee. 24. During the appellate proceedings, the assessee contended that whatever scrap had been generated during the course of manufacturing process had been duly disclosed by the assessee and on account of various processes carried out by it, which was explained by way of process-wise chart submitted also, majority of scrap was not recoverable because it was mixed up in the dust being small pieces. Whatever scrap was recovered had been reflected by the assessee in its books of account. The assessee also contended that the Assessing Officer had relied upon a ratio of scrap to total turnover which had been estimated in the preceding year and was not the actual ratio. The assessee, therefore, contended that without any other evidence, the Assessing Officer could not have made any addition on account of unaccounted scrap. The Ld. CIT (Appeals) after considering the assessee's submission deleted the addition made by holding that the addition had been made on the basis of estimation of preceding year, where the facts were different from the current year since the turnover in the preceding year was much lower than ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
