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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: GIRISH AGRAWALWAL
Per Bench
This is an appeal filed by the assessee against the order of the ld This is an appeal filed by the assessee against the order of the ld This is an appeal filed by the assessee against the order of the ld CIT(A)-1, Bhubaneswar 1, Bhubaneswar dated 6.9.2019 in Appeal No.0373/16 No.0373/16-17 for the assessment year assessment year 2014-15.
Shri P.C.Sethi, ld AR appeared for the assessee and Shri Saroj Kumar Shri P.C.Sethi, ld AR appeared for the assessee and Shri Saroj Kumar Shri P.C.Sethi, ld AR appeared for the assessee and Shri Saroj Kumar Mahapatra, ld Mahapatra, ld Pr. CIT DR appeared for the revenue.
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It was submitted by ld AR that the assessee is a company, which is engaged in the construction contract business. It was the submission that the assessment for the assessment year 2014-15 came to be completed u/s.143(3) of the Act on 30.12.2016, wherein, the Assessing Officer had made the following disallowances:
i) Wrong claim of depreciation at 100% of shuttering materials;
ii) Addition u/s.40A(3) from bank statement and impounded material; iii) Bogus labour payments; iv) Bogus expenses shown as sundry creditors and non-deduction of TDS in respect of Director’s remuneration. v) addition of interest income as per 26AS 4. It was the submission that the ld CIT(A) did not consider any of the submission made by the assessee and had blindly upheld the order of the Assessing Officer. It was the submission that in respect of issue of depreciation on shuttering materials, that the assessee purchased shuttering materials as and when required on account of damage of the available shuttering materials. It was the submission that the shuttering materials consists of basically iron sheets and M.S.pipes for holding iron sheets. It was the submission that a single shuttering sheets or shuttering pipes were not sufficient and each of these materials were of cost below Rs.5000/-. It was the submission that the assessee requires large number of sheets and pipes and they are purchased in lumpsum. It was the
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submission that as they are purchased in lumpsum, the assessee also derives cost benefit on account of voluminous purchases. It was the submission that said shuttering sheets could be used maximum 40 numbers of times. It was the submission that the total purchases during the year was to an extent of Rs.1,47,06,070/- and the total turnover of the assessee for the relevant assessment was nearly Rs.46 crores. It was the submission that considering the volume of the work being done by the assessee, the shuttering sheets and the pipes which have been purchased by the assessee would not last long, more than a year or year and half. It was the submission that the said purchase of shuttering sheets was a regular feature year after year. It was the submission that consequently the assesse had claimed depreciation at 100%. It was the submission that the alternate claim of the assessee is that the said shuttering sheets are basically revenue expenses as they do not have long life and are consumables. It was the submission that the shuttering sheets and pipes are incapable of any repairing even in case it is damaged as these are used for the support in the concrete work of the roof. It was the submission that any repair or any damage to the shuttering sheets would result in affecting the work done by the assessee. It was the submission that the assessee had claimed 100% depreciation on the same and the Assessing Officer held that the depreciation is liable to be allowed only at 15%. It was the submission that the assessee had categorically informed the Assessing
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Officer that the centering plates and pipes had been used by the assessee for roof casting, lintel, beams RCC walls, stair case and ramps etc and the assessee was executing mainly the construction of buildings under various Government departments and due to frequent use, the strength of the plates and pipes gets damaged and cannot be used in the subsequent year and, therefore, the claim of 100% depreciation is claimed. It was the submission that the Assessing Officer denied the depreciation at 100% and held that depreciation at 15% was permissible and same was upheld by the ld CIT(A). It was the prayer that the depreciation may be granted at 100% as the cost of each of the shuttering materials was below Rs.5000/-.
In reply, ld Pr. CIT DR submitted tat as per the CPWD guidelines, the shuttering materials could be used maximum 40 construction cycles. Considering the work done by the assessee, the work would not require the use of the shuttering materials more than 5 to 6 times in a year as has been mentioned by the Assessing Officer. It was the submission that as per the DVO report also, the shuttering materials could be used 40 times and clearly the work cycle of fitting the shuttering sheets casting the roof and curing one set of shuttering sheets would get cycled once in 45 to 60 days. It was the submission that thus the shuttering sheets would be used 4-5 times in a year and consequently, the shuttering sheets would last 8 to 10 years. It was the submission that as the shuttering sheets are plant and
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machinery, the Assessing Officer was right in holding that the depreciation is allowable at 15%.
We have considered the rival submissions. It is an admitted fact that the shuttering sheets used in construction work would get damaged. It is also an admitted fact that the cost of each of shuttering sheets and pipes is less than Rs.5000/-. Once the cost of the said items are below Rs.5000/-, then the assessee is entitled to depreciation in respect of the same at 100%. Further, the assessee has categorically mentioned that the shuttering sheets did not last for more than a year due to constant wear and tear. A perusal of the assessment order shows that the Assessing Officer has taken general information in regard to the life span of the shuttering materials. The Assessing Officer has not considered the fact that the assessee has a turnover of nearly Rs.46 crores during the relevant assessment year and the cost of the shuttering material itself is only about Rs.1.47 crores, which comes to about Rs.3.2%. Further, on perusal of the decision of the Hon’ble A.P. High Court in the case of CIT vs S. Vijaya Kumar, 376 ITR 226 (AP) shows that the Hon’ble Andhra Pradesh High Court on identical issue has held as follows:
“ The benefit arising out of every individual article/unit/component of the shuttering material is not confined to any particular part of the construction activity. Temporary structure, used for moulding cement concrete may be for a very small portion of construction activity, is also not confined to the use of any particular article/unit/component of shuttering material. In other words, in any case unless two or more articles/units/components, similar or dissimilar, are put to use P a g e 5 | 15
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together, it cannot be made functional and no cement concrete can be laid in the process of construction activity. [Para 30] This line of thinking is also supported by the interpretative process of enquiry. One has to determine whether each item of heterogeneous material comes under the definition of Plant mentioned in section 32 (1) or not. Then, if it is a plant one has to go to proviso to see whether any item of such Plant utilized by the assessee for the purpose of his business or profession falls therein. In this case the centering and shuttering material is a homogenous qualitative material, though it is divisible. In such a case, one should not allow the assessee to claim higher rate of depreciation by application of proviso to such homogenous material. [Para 32] Thus, it is clear that where the actual cost of any plant does not exceed Rs. 5000/-, the assessee is entitled to claim 100 per cent depreciation. Merely because cost of every single item is less than Rs. 5000/-, if one holds that every single item used for shuttering can be treated as plant perhaps that will create a very strange situation. For instance, a Car is a plant within the meaning of section 43, however the owner of the Car is not entitled to claim 100 per cent depreciation on its spare parts since the cost of the Car is more than Rs. 5000/-. Therefore, if one ask question to ourselves whether all spare parts of the Car including tyres costing less than Rs. 5000/- individually or separately by the assessee, whether he is entitled to claim 100 per cent depreciation on those items, answer to this question is in the negative. Similarly, centering/shuttering, erected temporarily, even it is assessed costing less than Rs. 5000/-, in a given case, perhaps the Contractor may be able to claim 100 per cent depreciation but cannot claim that every single unit/article/component used for shuttering is costing less than Rs. 5000/- and is, therefore, entitled to claim 100 per cent depreciation. In view of aforesaid, it is held that Tribunal was not justified in holding that the assessee was entitled to claim 100 per cent depreciation on the centering/shuttering material. [Para 33]” 7. Further, a perusal of the decision of the Hon’ble Madras High Court in the case of CIT vs Alagendran Finance Ltd., 264 ITR 269 (Mad) has also under identical circumstances in para 7 and 8 has held as follows:
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“ 7. A Division Bench decision of this Court in First Leasing Co. of India Ltd. v. CIT (No. 2) [2000] 244 ITR 238 was brought to our notice, in which question arose as to whether individual bottles can be regarded as plant for the purpose of the first proviso to section 32(1)(ii) of the Act and this Court held that each bottle can be regarded as a plant and the assessee is entitled to claim 100 per cent depreciation in respect of it, since its cost is less than Rs. 750. R. Jayasimha Babu, J., speaking for the Bench, observed as follows: "... We do not see any foundation for such a view within the four corners of the proviso to section 32(1)(ii) of the Act. The benefit of the proviso is not confined only to units in bulk where the cost of each unit is less than Rs. 750. The proviso would be rendered futile if all similar units of plant, the individual value of which is Rs. 750 are to be grouped together and taken as one single unit for the purpose of calculating depreciation. The proviso does not refer to the number of units but refers to the value of the individual unit and once it is found that the value of the individual unit which could be regarded as a plant, is below Rs. 750 it would qualify for 100 per cent depreciation as provided in the proviso. The task of determining the circumstances in which the proviso is applicable is thus quite simple. One has to first identify the plant or machinery. If the asset claimed by the assessee as plant and machinery is found to be such, the only question to be answered thereafter is as to the value thereof. If the value is below Rs. 750 the proviso will apply. There is no need or occasion for raising a further question as to how many numbers of such units were bought by the assessee at a time or in the course of the year or how many such units are normally used by the assessee for his business, or how many such units are normally regarded as the tradable bulk by the manufacturers of such units. The functional test to the extent relevant is only for the purpose of ascertaining the usability of that unit as a plant or machinery by itself without being dependent on other similar units for making it functional." (p. 242) 8. As observed, the benefit of the proviso to section 32(1)(ii) of the Act is not confined only to units in bulk and it does not refer to the number of units, but refers to the value of individual units and if the individual unit is regarded as a plant and if it is valued below Rs. 5,000, it would qualify for 100 per cent depreciation. There is no question of how many units are normally used for the business and the test is as to whether one centering sheet can be identified as a plant or machinery. While erecting scaffoldings for a building, centering sheets are usually arranged in different shapes and sizes P a g e 7 | 15
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and a single sheet also is used for a particular work. It is not, as a matter of rule, centering sheets have to be used collectively for all works. Depending upon the nature of work, the number of centering sheets to be used varies. A single individual centering sheet may be sufficient for a particular work in the process of construction of a building and hence it would constitute a plant and if the value of it is less than Rs. 5,000, the assessee is entitled to claim 100 per cent depreciation as per the proviso to section 32(1)(ii) of the Act.”
In these circumstances, following the principles laid down by the Hon’ble A.P. High Court in the case of S.Vijaya Kumar (supra) and also the decision of the Hon’ble Madras High Court in the case of Alagendran Finance Ltd(supra), as each of the individual units of the shuttering materials has a cost less than Rs.5000/-, the Assessing Officer is directed to allow the assessee the benefit of 100% depreciation as claimed.
The next issue submitted by ld AR was that there was a survey on the premises of the assessee and in the course of survey, a diary was found and marked as BCBCPL-1. It was the submission that as per the said impounded material, it was found that the assessee has withdrawn large sums from the bank account. It was the submission that to an extent of Rs.82,06,163/-, it was found that the assessee has issued cheques to various persons who had drawn the cash from the assessee’s bank account. In respect of amount of Rs.2,80,65,500/-, it was also found that the assessee had through his employees and others withdrawn cash from the bank accounts. It was the submission that these cash withdrawals were used by the assessee for making the payment to various material suppliers P a g e 8 | 15
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and labourers at various sites of the assessee company. It was the submission that the payments to the various material suppliers and labourers had not crossed the amount of Rs.20,000/-. It was the submission that the Assessing Officer has applied the provisions of section 40A(3) of the Act to the said withdrawals from the bank accounts. It was the submission that the amounts withdrawn from the bank account per se had not been claimed as expenditure as such but the same were claimed as expenditure under various heads such as material purchase and wages payment and labour payments for the purposes for which the amounts had been withdrawn from the bank. It was the submission that the ld CIT(A) took the stand that the withdrawals from the banks were in fact the expenses claimed and did not consider the explanation as was given by the assessee. It was the further submission that the said expenses having been disallowed by invoking the provisions of section 40A(3) included the labour payments, which had been disallowed by the Assessing Officer under the heads “bogus labour payment” to an extent of Rs.6,86,19,336/-. It was the submission that this amounts to double addition. It was the further submission that the Assessing Officer himself has accepted in page 18 of his order that the assessee has himself claimed that the labour payment of Rs.15,000/- to Rs.20,000/- to have been made to each labour in a month. It was the further submission that the Assessing Officer has consequently drawn the conclusion that the total expenses on account of labour
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payments is Rs.16,64,79,931/- and on account of bonus Rs.1,70,68,000/-. It was the submission that the Assessing officer further took the inference that no books of account had been maintained and that the assessee has claimed high percentage of labour cost in comparison to CPWD rates and in the absence of books of account and any third party verification, the claim of the assessee cannot be taken at face value. Consequently, he restricted the labour expenses at 25% by adopting the rates prescribed under CPWD rates. Consequently, he allowed the expenses under labour to the extent of Rs.11,49,28,595/- and made the disallowance of Rs.6,86,19,336/- and disallowed the excess labour payment out of claim of Rs.16,64,79,931/- and bonus of Rs.1,70,68,000/-. It was the further submission that the Assessing Officer further proceeded to disallow the sundry creditors being purchase in respect of Classic Engineers of Rs.38,98,562/- and Kanchan Industries of Rs.32,79,673/-. It was the submission that the Assessing Officer has not even examined the said sundry creditors but has treated the same as bogus. It was the prayer that the issue may be restored to the file of the Assessing officer and the assessee would be able to prove the said sundry creditors. In respect of interest receivables, it was the submission that the Assessing Officer had from verification of 26AS statement and bank statement of the assessee found that the assessee had earned interest of Rs.6,47,706/- on accrual basis. It was the submission that the said interest income is offered as and when it is received. It was the further submission
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that the Assessing Officer had made the disallowance by invoking the provisions of section 40(a)(ia) of the Act in respect of Director’s remuneration of Rs.19,83,000/- on the ground that no TDS has been made. It was the further submission that the Assessing Officer took the stand that 26A statement had not been produced and did not consider the claim that the Directors have offered the remuneration to tax and also paid the tax on the same. It was the prayer that the addition as made by the AO and confirmed by the ld CIT(A) may be deleted.
In reply, ld Pr. CIT DR submitted that the Assessing Officer has categorically given a fact that the books of account are not maintained and consequently, adopted the rates as prescribed by CPWD for the purpose of calculating the actual of labour payments. It was the further submission that the addition made u/s.40A(3) cannot be telescoped into the addition made under bogus labour payments as it is for the assessee to prove that the said expenditure has been used towards labour payments. It was the further submission that the assessee is a company and it is liable to be assessed on mercantile basis and consequently, the interest income as shown in 26AS statement has been rightly added by the Assessing Officer and confirmed by the ld CIT(A).
It was the further submission that the Directors’ remuneration was liable for TDS and the TDS having not been made, the same was disallowable u/s.40(a)(ia) of the Act. It was the submission that the P a g e 11 | 15
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assessee has not proved the sundry creditors. It was the submission that he had no objection if the issue of sundry creditors is restored to the file of the Assessing Officer for readjudication.
At this point, it was pointed out to ld Pr. CIT DR that the Assessing Officer in his assessment order in page 19 has categorically given a finding that no books of account are maintained. The Assessing Officer further goes on to hold that the assessee has claimed very high percentage labour cost in comparison to CPWD rates. When the Assessing Officer has given this finding, if one is to see the total income assessed, the same is to an extent of Rs.15,32,46,740/-. This comes to nearly 30% of the turnover of the assessee of Rs.46 crores. To adopt 30% of net profit when books of account itself are not maintained would be very harsh stand. It was then put to Ld Pr. CIT DR that the books of account being not maintained, obviously, the income of the assessee should be estimated. Ld Pr. CIT DR submitted that in the earlier years, the income of the assessee has been estimated at 6%. It was the submission that the assessee himself has shown income of Rs.2,58,03,192/- in his return of income, which is 5.6% of net profit. It was the submission that the income of the assessee could be estimated at more than 6%. It was also the submission that the said rejection would be in respect of profit and loss account and in respect of the addition made touching the balance sheet figures being the bogus sundry creditors, the same cannot be considered as it relates to items which are
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not in profit and loss account. It was the further submission that in respect of statutory disallowance made being non-deduction of TDS on the Directors’ remuneration, the same also cannot be considered when estimating the income of the assessee.
We have considered the rival submissions. We find substance in the submission of Ld. PR. CIT DR . Admittedly, the Assessing Officer himself has held that the assessee is not maintaining books of account. In any case, there was a survey on the premises of the assessee and the books of account have not been found. This being so, the Assessing Officer is directed to estimate the income of the assessee at 7% of the turnover of Rs.45,97,14,379/-. Consequent to the estimation of income of the assessee at 7% of the gross total contract value being the turnover of the assessee, the disallowance made by invoking the provisions of section 40A(3) in respect of withdrawals from the bank by the assessee to an extent of Rs.3,62,71,663/- and on account of bogus labour payments to the extent of Rs.6,89,19,336/- would stand deleted. So also, the interest receivable to the extent of Rs.6,47,706/-. We are not going into the issue of double addition or telescoping of the additions.
In respect of issue of bogus expenses claimed as sundry creditors to the extent of Rs.71,78,235/-, the issue is restored to the file of the Assessing Officer for readjudication after granting the assessee adequate opportunity of being heard. P a g e 13 | 15
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In respect of issue of TDS on the director’s remuneration, the issue is restored to the file of the AO for readjudication. If the assessee is able to show that the directors have offered the income being the remuneration to tax in their hands, then in view of the principles laid down by the Hon’ble Supreme Court in the case of M/S. Hindustan Coca Cola Beverage ... vs Commissioner Of Income Tax, 387 ITR 471 (SC), no disallowance is called for.
In respect of depreciation, we have already held that the assessee is entitled to 100% depreciation, but it will not have a bearing insofar as the net profit of the assessee is being directed to be estimated at 7% of the turnover.
In the result, appeal of the assessee stands partly allowed for statistical purposes.
Order dictated and pronounced in the open court on 20/07/2023.
Sd/- sd/- (Girish Agrawal) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 20/07/2023 B.K.Parida, SPS (OS)
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Copy of the Order forwarded to : 1. The Appellant : B.C.Bhuyan Construction Pvt Ltd., Plot No.90, Palasuni, Rasulgarh, By order Bhubaneswar 2. The Respondent: DCIT, Corporate Circle - 1(1), Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//
Sr.Pvt.secretary ITAT, Cuttack
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