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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS. MADHUMITA ROY
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned cross-appeals have been filed by the Assessee and the Revenue against the common order of the Commissioner of Income Tax (Appeals)–Ahmedabad-5, [CIT(A) in short] vide appeal no.CIT(A)- XV/ITO.9(1)/18/2013-14 and now CIT(A)-5/Wd.9(1)/121/2014-15 dated 02/03/2015 arising in the assessment order passed under s.143(3) of the
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 2 - Income Tax Act, 1961(hereinafter referred to as "the Act") dated 28/03/2013 relevant to Assessment Year (AY) 2010-11.
The assessee (in ITA No.872/Ahd/2015) has raised the following grounds of appeal:-
The Learned Commissioner of Income Tax, (Appeals)-5, Ahmedabad has erred in law and on facts of the case by holding that in principle the Assessing Officer action of treating the claim of purchase of Rs.1,45,49,013/- as bogus is correct and accordingly it is to be reduced from closing work in progress.
The Revenue (in ITA No.1693/Ahd/2015) has raised the following grounds of appeal:-
The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.1,45,49,013/- made by the Assessing Officer on account of bogus purchase/expenditures claimed by the appellant after having confirmed that these purchases/expenditures were indeed bogus and the Assessing Officer was correct in disallowing the same. The CIT(A) ought to have upheld the addition of the same to the returned income of the assessee.
The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.4,76,465/- made by the AO on account of excess expenditures claimed by the appellant though the CIT(A) has himself confirmed the disallowance made by the AO in respect of this expenditure.
The only issue raised by the assessee and the first issue raised by the Revenue are inter-connected. Therefore, we have clubbed them
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 3 - together for the sake of convenience and adjudication. The common issue relates to the labor/material and consultancy charges incurred by the assessee for Rs. 1,45,49,013/-.
Briefly stated facts are that the assessee is a partnership-firm and engaged in the business of building construction. The assessee in the year under consideration has shown closing work-in-progress of Rs. 30,87,72,885/- and shown loss in the Profit & Loss account amounting to Rs. 44,82,661/- only. However, the assessee declared taxable income in its income-tax return amounting to Rs. 23,690/- only. As such, the assessee has capitalized a lot of its expenses under the head ‘work-in- progress’ during the year under consideration.
5.1. The above value of work-in-progress consists of purchase expenses, labor expenses and consultancy charges of Rs. 9,70,95,475/-, Rs. 2,86,41,975/- and Rs. 58,83,382/- respectively. The assessee in support of these expenses filed the copies of ledger along with the names and addresses of the parties.
5.2 The Assessing Officer to verify the genuineness of the above expenses issued notice u/s 131 of the Act to 15 parties requiring them to furnish the following details:
I. In case of a Labour Contractor (i) ITR
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 4 - (ii) Bank statement of the parties (iii) Books of accounts and cash book (iv) Copy of agreement (v) All measurement of work (vi) Service tax return
II. In case of Material Supplier (i) ITR (ii) Bank statement of the parties (iii) Books of accounts and cash book (iv) Purchase bill, sale bill, and delivery-slip (v) Stock Register
5.3. Out of 15 parties, six parties failed to appear and filed the necessary details in response to the notice issued u/s 131 of the Act. The assessee also failed to produce these parties before the Assessing Officer.
5.4. However, the assessee in support of the above expenses furnished the certain details as mentioned below:
Sl.No. Party Name Documents 1. Mukesh Naraji Vachera Confirmation and Acknowledgement of Income-tax return 2. Hema Construction Confirmation and measurement of work- sheet, 3. A-Field Construction Confirmation and
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 5 - measurement of work done 4. Arti Engineering Confirmation, reconciliation statement and measurement of work 5. AB Corporation Copy of ledger account and reconciliation statement. 6. Nachiketa Traders Copy of the ledger and purchase bill.
5.5. The assessee in addition to the above also filed the copies of PANs of all the parties and submitted that all the parties were registered with Service Tax and Sales Tax Department.
5.6. The assessee also claimed to have made the payments to the above parties through banking channel. Thus, the above expenses cannot be treated as bogus merely on the ground that these parties failed to comply with the notice issued u/s 131 of the Act.
5.7. Without prejudice to the above, the assessee also submitted that all these expenses were transferred to work-in-progress. Therefore, there is no question of treating them as income after the disallowance. At the most, the above expenses can be reduced from the work-in-progress without making any addition to the total income of the assessee.
5.8. However, the Assessing Officer observed that none of the party appeared in response to the notice issued u/s 131 of the Act.
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 6 - 5.9. In the case of labor contractors, there was no period of work mentioned in the bill. Therefore, it was not possible to verify/measure the work carried out by the parties.
5.10. Regarding the consultancy charges, there was no detail for the nature of services rendered by the party.
5.11. Regarding the material purchased expenses, there was no confirmation filed by the assessee from the party. The assessee has also failed to file the stock register, lorry receipt and the PAN of the party.
5.12. All the expenses as described above were claimed in February and March which strongly indicate that these charges were claimed to inflate the expenses. Therefore, the Assessing Officer held that these expenses are bogus.
5.13. As the expenses were not verifiable and bogus, therefore the benefit of the same cannot be given even against the future income of the assessee. Accordingly, the Assessing Officer disallowed the same and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld.CIT (A).
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 7 - 7. The assessee before the Ld.CIT (A) submitted that it has requested to Nchiketa Traders to confirm the purchase of the materials from it. Thus, the same will be filed immediately on receipt from the party.
7.1. The assessee further reiterated the submissions as made before the Assessing Officer. However, the Ld.CIT (A) observed certain facts as detailed under:
I. In case of a Labour Contractor, the assessee failed to file the following details: (i) Income Tax Return of the party (ii) Bank statement of the party (iii) Books of accounts and cash book of the party (iv) Copy of agreement (v) All measurement of work (vi) Service tax returns (vii) The parties did not appear before the Assessing Officer (viii) Bills filed were without the date and the period of work
II. In case of Material Supplier (i) Copy of Income Tax Return (ii) Bank statement of the party (iii) Books of accounts and cash book (iv) Purchase bill, sale bill and delivery-slip (v) Stock Register
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 8 - (vi) Sales Tax Returns (vii) Non-appearance of the party
7.2. Similarly, the Ld.CIT (A) observed that the assessee failed to produce the details as discussed above about the consultancy charges paid it.
7.3. Because of the above, the Ld.CIT (A) held that the assessee failed to prove the genuineness of the expenses claimed by it. Thus, the Ld.CIT (A) held the expenses as non-verifiable and therefore bogus.
7.4. However, the Ld.CIT (A) further observed that these expenses were not claimed in the Profit & Loss account, but these were capitalized under the head ‘work-in-progress.’ Therefore, the Ld.CIT (A) reduced the same from the ‘work-in-progress’ and deleted the addition made by the Assessing Officer.
Being aggrieved by the order of the Ld.CIT (A), both the assessee and Revenue are in appeals before us.
The assessee in appeal before us against the order of Ld. CIT (A) directing the Assessing Officer to reduce the expenses from the ‘work-in- progress,’ whereas the Revenue is in appeal against the order of Ld. CIT(A) for deleting the same from income.
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 9 - 10. The Ld.AR before us filed paper-book running from pages 1 to 247 and submitted that all the labor expenses were incurred after the deduction of TDS. The details of the PANs of all the parties were duly furnished during the assessment proceedings. The payment to the labor contractor was paid through banking channel.
10.1. The Ld.AR regarding the material purchased and the consultancy charges placed the same arguments as placed about the labor expenses.
On the other hand, the Ld. DR submitted that the assessee has consented to reduce the above expenses from the amount of ‘work-in- progress.’ Therefore, the assessee cannot agitate the order of the Ld.CIT (A) on the same ground. It is because there is no grievance to the assessee.
Both the parties relied on the orders of the authorities below as favorable to them.
We have heard the rival contentions and perused the materials available on record. In the instant case, the AO made the disallowance of the Labour expenses, Material purchases, and Consultancy charges. The necessary details of the expenses stand as under:
13.1. Labor expenses paid to the parties as detailed under:
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 10 -
Party name Amount (Rs.) (i) Shree mukesh naraji vanjara 11,37,785/- (ii) M/s Hema construction 38,72,099/- (iii) M/s A-field construction 16,29,822/- (iv) M/s Aarti Engineering 52,35,048/-
13.2. Material purchases from the party as detailed under: Party name Amount (Rs.) (i) M/s Nachiketa Traders 13,46,539/-
13.3. Consultancy charges paid to the party as detailed under: Party name Amount (Rs.) (i) M/s A.B. corporation 13,27,720/-
13.4. Regarding Labour expenses paid to the parties as discussed above, we note that the assessee has furnished the necessary details as stated below: Mukesh Naraji Vanjara The assessee has filed the following details: i. confirmation from the party with PAN, (page no.60-62 of PB) ii. Acknowledgment of the income tax return. (page no.63of PB) iii. copy of ledger (page no.132-135of PB) iv. Copy of the bill (page no.136-154of PB) v. Payment after TDS vi. Payment through banking channel
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 11 - M/s Hema construction The assessee has filed the following details: i. confirmation from the party with PAN, (page no.64-67 of PB) ii. copy of ledger (page no.155-158of PB) iii. Copy of the bill, contains service tax no and levy service tax (page no.159-174of PB) iv. Payment after TDS v. Payment through banking channel M/s A-Field construction The assessee has filed the following details: i. confirmation from the party with PAN, (page no.68-70 of PB) ii. copy of ledger (page no.175-177of PB) iii. Copy of abstract and measurement sheet, contain service tax no and levy service tax (page no.178-194of PB) iv. Payment after TDS v. Payment through banking channel M/s Aarti Engineering The assessee has filed the following details: i. confirmation from the party with PAN, (page no.71-75 of PB) ii. Reconciliation statement (page no.76-77of PB) iii. Ledger account in party books (page no.78-79 of PB) iv. copy of ledger (page no.219-221of PB) v. Copy of Bill and measurement sheet, contain service tax no and levy service tax (page no.195-218 of PB) vi. Payment after TDS vii. Payment through banking channel
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 12 - 13.5. None of the authorities below has pointed out any defect in the details filed by the assessee. Thus the non-appearance of the party in response to the notice issued under section 131 of the Act, the assessee cannot be penalized. As per the provisions of section 272A of the Act, the AO is empowered to levy the penalty on the party if it does not respond to the notice issued under section 131 of the Act. There is no obligation imposed on the assessee to compel the party to appear before the AO in response to the notice issued to him under section 131 of the Act. Once the assessee has furnished the necessary details as discussed above, it can be assumed that the assessee has discharged his liabilities imposed under the Act. In this regard, we find support and guidance from the judgment of Gujarat High Court in case of CIT Vs. R.N.Dobaria reported in 42 taxmann.com 196 wherein it was held that no addition can be made in the hands of the assessee if he has furnished the necessary details.
13.6. Similarly, if the party does not reply to the notice issued under section 131 of the Act, the assessee cannot be penalized by making the disallowance of the expenses or in addition to the total income of the assessee.
13.7. Similarly, the expenses cannot be treated as bogus if the period of work is not mention in the bill. It is because the payment was made after the deduction of TDS and through banking channel.
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 13 - 14. The AO was empowered to depute the inspector of the income tax to conduct the necessary inquiries directly from the parties to verify the genuineness of the transactions of the assessee, but the AO has failed to do so.
14.1. Regarding material expenses paid to Nackineta Traders as discussed above, we note that the assessee has furnished the necessary details as stated below: i. copies of the bill along with VAT(page no.94-131of PB) ii. Copy of the ledger of the party in the books of the assessee. (page no.90-93of PB) iii. payment vouchers showing the payment through banking channel (page no.94-131of PB)
14.2. Regarding consultancy charges paid to A.B. Corporation as discussed above, we note that the assessee has furnished the necessary details as stated below:
i. Ledger account in party books (page no.80of PB) ii. Reconciliation statement (page no.81of PB) iii. Copy of the ledger of the party in the books of the assessee. (page no.222-223 of PB) iv. Copy of the bill, contain service tax no and levy service tax (page no.224-233of PB) v. payment vouchers showing the payment through banking channel (page no.224-233 of PB) 14.3. From the preceding discussion, we conclude that the assessee has discharged his duty to prove the genuineness of the expenses and
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 14 - business connection in support of the expenses as discussed above by furnishing the necessary details in support of these expenses. As there was no defect pointed out by the income tax authorities below in the details furnished by the assessee, we are inclined to hold that the AO made the disallowances on his surmise and conjecture. Therefore, the question of reducing the same from the capital work in progress does not arise.
14.4. We also note that the assessee agreed to reduce the expenses from the capital work in progress without prejudice to its claim to treat the same as genuine expenses. Therefore it cannot be concluded that the assessee agreed for the reduction from the capital WIP. Had the assessee not claimed for the reduction from the WIP alternatively, there would have been outstanding demand of the tax as raised by the AO during the assessment proceedings.
14.4. Accordingly, we hold that all these expenses are genuine in the given facts and circumstances. Therefore no disallowance is warranted. Accordingly, we reverse the order of authorities below. Hence the ground of appeal of the assessee is allowed.
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 15 -
Now coming to the ground of appeal of the Revenue
As we have already held in the paragraph of no. 14 of this order that the expenses as discussed above are genuine, and therefore no disallowance is warranted. Moreover, we also note that the assessee has not claimed these expenses in the profit and loss account. Thus the question of treating the same as income of the assessee does not arise. Hence we do not find any reason to disturb the finding of Ld.CIT (A). Hence, the ground of appeal of the Revenue is dismissed.
As a result, ground raised by the Assessee is allowed, whereas ground raised by the Revenue is dismissed.
The second issue raised by the Revenue is that the Ld.CIT(A) has erred in deleting the addition made by the Assessing Officer on account of the excess expenditure of Rs. 4,76,465/- only.
17.1. The assessee in the year under consideration has claimed the miscellaneous expense of Rs.10,00,500/- only. However, the Assessing Officer in response to the notice issued u/s 131 of the Act found that the actual expenses incurred by the assessee is for a sum of Rs. 5,24,035/- only. But the assessee has capitalized ‘work-in-progress’ by an amount of Rs.10,00,500/-. Accordingly, an explanation was sought from the assessee. The assessee conceded the mistake committed by it and submitted that a rectification entry has already been passed in the FY
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 16 - 2011-12. Thus, the excess claim of expense has already been suffered tax in the subsequent financial year.
17.2. However, the Assessing Officer disregarded the claim of the assessee by observing that there was no evidence furnished in support of the rectification of entry in the previous year 2011-12. Accordingly, the Assessing Officer treated the sum of Rs. 4,76,465/- as bogus expenses. Accordingly, the Assessing Officer disallowed the same and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld.CIT (A). The assessee before the Ld.CIT (A) submitted that the rectification entry in the actual expenses has already been carried out in the previous FY 2011- 12. Therefore, there is no loss to the Revenue.
18.1. Without prejudice to the above, the assessee also submitted that it had not claimed any expense in the Profit & Loss account rather the same was added to the ‘work-in-progress.’ Therefore, no addition can be made to the total income. At the most, the amount of excess expense can be reduced from the ‘work-in-progress.’
The Ld.CIT (A) after considering the submissions of the assessee, directed the Assessing Officer to reduce the excess expenses claimed by it from the WIP.
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 17 - 20. Being aggrieved by the order of Ld.CIT (A), the Revenue is in appeal before us.
The Ld. DR before us submitted that the amount of excess claim on account of miscellaneous expenses should also be reduced from the opening balance of the WIP carried forward to the next year. The Ld. DR vehemently supported the order of the Assessing Officer.
21.1. On the other hand, the Ld AR submitted that it has already offered the excess claim of the expenses to tax in the FY 2011-12. Therefore, any addition of the same in the year under consideration will lead to double addition in the hands of the assessee. The Ld. AR vehemently supported the order of the Ld.CIT (A).
We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has claimed excess expenses for Rs. 4,76,465/-only. Therefore, the AO treated the same as income of the assessee.
22.1. However, the Ld.CIT (A) found that the said expenses were capitalized and added in work in progress. As such these expenses were not claimed in the income tax return, accordingly, the Ld.CIT (A) deleted the addition made by the AO but directed to reduce from the capital working work in progress. We also note that the assessee has not
ITA No.872/Ahd/2015 (by Assessee) and ITA No.1693/Ahd/2015 (by Revenue) Shree Parshwanath Corporation vs. ITO (cross-appeals) Asst.Year - 2010-11 - 18 - claimed such expense in the profit and loss account. Thus the question of treating the same as income of the assessee does not arise. Hence we do not find any reason to disturb the finding of Ld.CIT (A). Hence the ground of appeal of the Revenue is dismissed.
As a result, the ground of assessee’s appeal is allowed, whereas ground of Revenue’s appeal is dismissed.
In the result, the appeal of the assessee is allowed, and the appeal of the Revenue is dismissed. This Order pronounced in Open Court on 01/02/2019
Sd/- Sd/- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 01/02/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Ahmedabad-5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad