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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आदेश / O R D E R
PER AMARJIT SINGH, AM:
All the appeals of the assessee are based on similar issue and identical facts. As common issues are involved in all the appeals, therefore, for the sake convenience these appeals are adjudicated together by way of a consolidated order. We shall take ITA No. 7272/Mum/2019 for A.Y. 2014-15 as lead case and its findings will be applied to the other appeals.
2 ITA Nos.7270 to 7272/Mum/2019 A.Ys. 2014-15 to 2016-17 Shri Manuprasad Trivedi Mukesh Bros Vs. DCIT, CC-5(1)
ITA No. 7270/Mum/2019
The appeal has been filed against the order dated 27.09.2019 of the ld. CIT(A)-53, Mumbai. The Grounds of appeal filed by the assessee are as under:
“1. On the facts and circumstances of the case and in law the Hon'ble CIT(A) erred in upholding the assessing officer's action of reopening of the completed assessment u/s. 147 of the I.T Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT{A) erred in upholding addition of Rs. 4,55,246/-made to the returned income by Ld AO by disallowing 5% of legitimate labour expenses incurred towards business activities as unexplained u/s 69C of the Act and the reasons assigned for doing so are wrong and contrary to the provision of Income Tax and rules made there under. 3. The Appellant craves leave to add to, amend, alter or delete any of the above grounds of appeal on or before the date of hearing.” 3. Fact in brief is that return of income declaring total income at Rs.2,92,85,780/- was filed on 30.11.2014 and it was processed u/s 143(1) of the Act. Subsequently, the case was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act, dated 19.03.2018. on the basis of information received that labour expenses claimed were not genuine. To verify the genuineness of labour transaction the case was reopened u/s 147 of the Act. In response to the notice the assessee filed submission on 01.10.2018. During the course of assessment the A.O noticed that assessee has debited labour expenses of Rs.2.13 crore by way of cheque and balance sum of Rs.91 lac by way of cash. The A.O stated that assessee had failed to substantiate the clam of labour payment amounting f Rs.91,04,924/- with documentary evidences, therefore 5% of such labour expenses paid in cash to the amount of Rs.4,55,245/- was disallowed.
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Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld CIT(A) has dismissed the appeal of the assessee.
Heard both the side and perused the material on record. Regarding first ground of appeal the assessee that reopening of the completed assessment was contrary to the provision of the Income Tax Act.
During the course of appellate proceedings before us no supporting material and any submission has been made by the assesse to substantiate that the issue of labour payment has been examined by the assessing officer, therefore, we don’t find any error in the finding of the ld. CIT(A) elaborated at para 4.4 to 4.90 of the appellate order upholding the reopening of the assessment. Therefore, 1st Ground of appeal of the assessee stand dismissed.
2nd Ground: Upholding addition of Rs.4,55,246/- as unexplained labour expenses u/s 69C of the Act:
Regarding 2nd ground of appeal, during the course of assessment the A.O has made disallowance of Rs.4,55,246/- being 5% of the labour payment made in cash for want of supporting evidences. During the course of appellate proceedings before us the ld. Counsel has vehemently contended that A.O has not given any basis for making such adhoc disallowance out of labour payment on estimation basis and submitted that only small percentage of labour expenses were incurred in cash since certain labour worker were unorganized and were not having any bank account. On the perusal of the material on record it is observed that assessee was an individual registered contractor of BMC engaged in construction activity under the proprietary concern named M/s Mukesh Brothers for the last several years. It is noticed that major part of the
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payment to the labourers have been paid by the assessee by account payee cheques and in respect of such payment name, address, PAN, TDS deducted bank statement in support of such payment were filed. We have also perused the profit and loss account of the assessee pertaining to the year under consideration and it is noticed that assessee has shown gross profit @ 19.14%. It is observed that assessing officer has not given any basis for estimating the disallowance @ 5% of the labour expenses incurred in cash and not elaborated that what kind of detail was required to be furnished by the assessee in support of his claim of incurring small percentage of labour expenses in cash, therefore, we considered that it could be appropriate to restrict such estimated disallowance to 3% of Rs.91,04,924/- of labour expenses incurred in cash. Accordingly, this ground of appeal of the assessee is partly allowed for statistical purposes.
ITA No. 7271/Mum/2019
This appeal of the assessee is based on identical facts and similar issue as adjudicated supra in this order vide ITA No. 7270/Mum/2019. Therefore applying the finding of ITA No. 7270/Mum/2019 as mutatis mutandis.
The A.O is directed to restrict the disallowance of labour expenses incurred in cash to 3%. Therefore, this ground of appeal of the assessee is partly allowed.
Ground No. 2 disallowance of interest paid on delayed payment of TDS:
During the course of assessment the A.O noticed that assessee has claimed interest expenses of VAT and TDS to the amount of
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Rs.12,48,509/-. On perusal of the detail filed by the assessee the A.O noticed that the reason for payment of interest on VAT & TDS was because of delay occurred in making payment towards VAT & TDS. Therefore, interest expenses on VAT & TDS to the amount of Rs.12,48,509/- was allowed and added to the total income of the assessee.
The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee by holding that interest on delayed payment of VAT is to be allowed and the interest paid on delayed payment of TDS is not to be allowed as deductible expenses.
Heard both the side and perused the material on record. We find that ld. CIT() has allowed the interest expenses relating to delay in payment of VAT in accordance with decision of Hon’ble Supreme Court in the case of Laxmandas Mathur Vs. CIT 254 ItR 799 & disallowed the claim of interest on delayed payment of TDS following the decision of Hon’ble Supreme Court in the case of Bharat Commerce and Industires Ltd. Vs. CIT( (1998) 230 ITR 733 and after following the other judicial pronouncement. The relevant part of the decision of the CIT(A) is reproduced as under:
“5.5. As regards the interest on delay in payment of TDS, the issues was not before the Apex Court in the case mentioned above. Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd reported in (1998) 230 ITR 733(SC) & Lachmandas Mathura reported in 254 ITR 799(SC) wherein it was held interest paid on late deposit of sales tax is an allowable deduction u/s. 37(1) of the Act. Hon'ble Supreme Court in the case of Bharat Commerce & Industries Ltd. V. CIT [1998] 230 ITR 733/98 Taxman 151 (SC) has held that Interest paid under section 215 for failure to pay advance tax up to statutory percentage would not be allowable as business expenditure u/s 37(1) of the Act. Moreover, where taxpayer declared income under Voluntary Disclosure Scheme and tax was paid in installments with interest, interest paid was held not: deductible as business expenditure or as interest on borrowed I.T.A. No.979/Del/2015 capital, In the cases of CIT v. Ashoka Mills Ltd. [1996] 88 Taxman 187 / 218 ITR 526 (Guj) and
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CIT v. Raipur Manufacturing Co. Ltd [19961 135 CTR (Guj.) 248, it has been held that interest paid under section 220(2) for late payment of income tax is not deductible as revenue expenditure, In the case of Orient General Industries Ltd. V. CIT [1994] 209 ITR 490 (Cal.) Hon'ble Court held that interest for delayed filling of return in not deductible u/s 37(3). The court held that it cannot be said that interest paid for delay in filing the return has any connection with the business of the taxpayer. If income taxes is not a permissible deduction under section 37, any interest payable for default committed by the taxpayer, in discharging its statutory obligation under the Income tax Act which is calculated with reference to the tax or income, cannot be allowed as a deduction.” In the light of the above judicial pronouncement as referred above in the decision of CIT(A) we don’t find any merit in the ground of appeal of the assessee in respect of disallowance of interest on delay in payment of TDS. Accordingly, this ground of appeal of the assessee is dismissed.
ITA No. 7272/Mum/2019
1st Ground:
This appeal of the assessee is based on identical facts and similar issue as adjudicated supra in this order vide ITA No. 7270/Mum/2019. Therefore applying the finding of ITA No. 7270/Mum/2019 as mutatis mutandis.
The A.O is directed to restrict the disallowance of labour expenses incurred in cash to 3%. Therefore, this ground of appeal of the assessee is partly allowed.
2nd Ground: upholding addition of Rs.10,10,240/- on the basis of bogus purchase:
The assessment in the case of the asessee was made u/s 143(3) of the Act on 29.12.2017. During the course of assessment proceedings, the A.O has treated the entire purchase to the amount of Rs.101,02,387/- made from M/s Shanti Construction Corporation as bogus purchases
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merely on the basis of list placed by the MVAT authority on its website of parties providing accommodation entries.
The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has restricted the disallowance to the extent of 10% of the purchases i.e Rs.10,10,240/-.
Heard both the side and perused the material on record. During the course of assessment merely on the basis of name M/s Shanti Construction Corporation found in the list of party providing accommodation on the website of the MVAT authority, the A.O has treated the entire amount of purchases made by the assessee from the said party as bougs purchases. In the appellate proceedings, the Ld. CIT(A) stated that A.O has not shown or proved that how the purchases made were bogus. The ld. CIT(A) also mentioned that assessee had filed confirmation along with detail of PAN during the assessment proceeding. The A.O had not made any further investigation to prove that impugned purchases were bogus. The A.O has fully accepted the sales made by the assessee. The assessee was a contractor for carrying out work of government organization. The MCGM measure and identified the work and arrived at the total quantity required for the execution of the work. MCGM has a set up system for supervision of project with qualified engineers. The assessee had sown gross profit for F.Y. 2013-14 @ 19.27%, F.Y. 2014-15 @ 22.74% and for F.Y. 2015-16 @ 19.41%. During the course of appellate proceedings before us the ld. Counsel has also referred the decision of ITAT, Mumbai in the case of Ramesh kumar & Com. Vs. ACIT, vide ITA No. 2959/Mum/2014 wherein on identical facts and similar issue the addition made on the basis of dealer declared as hawala dealer by the Sales Tax Department was deleted as no further
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investigation was made by the A.O. We observe that in the case of the assessee the A.O has not carried out any further investigation to disprove the supporting evidences furnished by the assessee i.e confirmation/PAN detail, payment made by account payee cheques, invoices, book entries etc. The A.O has not referred any evidence to substantiate that the purchases made by the assessee were bogus. As a civil contractor the assessee has also shown gross profit @ 19.41% for the year under consideration. It was also not pointed out that assessee had failed to make any compliance before the lower authority by not furnishing any specific details or material. In the light of the above facts and circumstances, we direct the A.O to delete the addition made an adhoc basis. Accordingly, this ground of appeal of the asessee is allowed.
In the result, all the appeals of the assessee are partly allowed.
Order pronounced in the open court on 28.03.2022
Sd/- Sd/- (Amarjit Singh) (Amarjit Singh) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28.03.2022 PS: Rohit
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
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BY ORDER, //True Copy//
(Sr. Private Secretary) ITAT, Mumbai