DCIT CIRCLE-3, BOKARO vs. YAVVARI NARAYAN RAO, BOKARO

1 ITA No.246/Ran/2016

IN THE INCOME TAX APPELLATE TRIBUNAL, RANCHI BENCH, RANCHI

BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.246/Ran/2016 A.Y. : 2010-2011 DCIT, Circle-3, Bokaro vs Shri Yavvari Narayan Rao, A-1, Sector Market-1, Ram Mandir, Sec-1, B.S.City-827001 PAN No. : AAJCS 7786 F Respondent (Appellant) . Revenue by :Shri A.K.Mohanty, JCIT Assessee by : None Date of Hearing : 28.05.2018 Date of Pronouncement : 30.05.2018 O R D E R Per Pavan Kumar Gadale, JM: This is an appeal filed by the Revenue against the order of CIT(A),

Hazaribag, dated 04.05.2016, for the assessment year 2010-2011

called for hearing, however, the assessee has filed written submission in

the matter, therefore, the Bench decided to dispose off the appeal after

considering the submissions of ld. DR and the written submission filed by

the assessee as well as the material available on record.

2 ITA No.246/Ran/2016 4. Brief facts of the case are that the assessee is a civil contractor and

filed the return of income electronically for the assessment year 2010-

2011 on 31.03.2011 with total income of Rs.30,80,120/- and the return of

income was duly processed u/s.143(1) of the Act and the case was

selected for scrutiny under CASS. Subsequently, notice u/s.143(2) &

142(1) of the Act were issued to the assessee. In compliance, the AR of

the assessee appeared from time to time and case was discussed.

Thereafter the AO completed the assessment and made various additions

and assessed total income at Rs.1,00,98,490/- and passed order u/s.144

of the Act, dated 30.03.2013.

appeal with the CIT(A). In the appellate proceedings the assessee argued

the grounds and reiterated the submissions made before the AO. The

CIT(A) after considering the submissions of assessee and the findings of

AO, allowed the appeal of the assessee.

before the Tribunal.

addition of Rs.68,68,370/- shown under the head retrenchment

compensation and other benefits as outstanding liability and supported the

order of AO.

filed by the assessee and perused the material on record. Prima facie, the

3 ITA No.246/Ran/2016

only disputed issue that raised by the Revenue is with respect to deleting

the addition on account of retrenchment compensation and other benefits

as outstanding liability. We found that the CIT(A) has dealt on this issue

after considering the submission at para 3 onwards. The observations of

the CIT(A) in this regard are as under :-

“3.0 In this case, only two substantive grounds have been raised by the appellant, (a) against the addition^ of current liability of Rs.68,68,370/- on account of worker's retrenchment compensation and other benefits and (b) against the passing of the order u/s!44 of the IT. Act. 3.1 As regards the first issue, the Assessing Officer has held that Rs.68,68,370/- is a fixitious liability created by the appellant on account of retrenchment compensation and oilier benefits outstanding. The Assessing Officer has framed this view mainly on two counts (a) that the liability was outstanding at the year end and in the subsequent year only a sum of Rs.32,91.117/- was paid, and (b) because as per Labour Law, retrenchment compensation is required to be paid on (he very date of retrenchment. The Assessing Officer also observed that complete details of (lie names of the labour and the dates of the payment of compensation were not furnished to the Assessing Officer. 3.2 In the course of appellate proceedings, the appellant was requested to furnish complete details of (he retrenchment compensation and the accounting method adopted for the same as well as the nature of (he retrenchment compensation. In response, (he appellant has made a written submission which is reproduced as under on 04/05/2016: "The appellant is a labour sub-contractor under principal contractor Larsen Sc Loubro Ltd. and doing works in different sites. In the relevant year the works sites are in Angul (Odisha) and Vishakapatnam (AP) This year the total turnover is Rs. 6,81,55,270/- and the accounts have been audited as per the provision u/s 44 A B of the Act. The A.O. is wrong in passing the order u/s 144 (exparte) because the assessee wade compliance day to day queries in course of hearing. Although the A. O. has observed (he assessee followed the Mercantile System of Accounting but it states that no books of accounts were produced which is a contradictory statement. The

4 ITA No.246/Ran/2016 statement ofa/c with copies of ledger etc were submitted in course of hearing but the learned A. O. willfully avoided the examination of the books of a/c 's although it was produced. The appellant enclosed the order of penalty u/s 271H which shows that the books of accounts were produced and test checked.

But the A.O. although he basically discarded the accounts but keeping off the percentage basis he disallowed the total liability of retrenchment benefit of Rs. 68,68,370/- even performing several queries on that point and the order is in (he line of 143 (3) of the Act. In (his situation the appellant submits (hat being a labour contractor the increasing and reducing the load of workers is being done regularly according the work load with the main work.

As per (he terms with (he. principal contractor L & T wherever (he service of the workers is retrenched he is entitled (o the benefits as prescribed in section 25 F of Industrial Dispute Act 1947.

This system of retrenchment benefit (or compensation whatsoever called) is being followed as per (he practice of the principal contractor Larsen & Toubro Ltd. since earlier years.

The principal contractor L & T deduct certain percentage of amount towards retrenchment compensation from (he running bills as per the rules to be followed. The deducted amount is accounted for in the balance sheet as Retention Money. Which is to be released for payment of retrenchment benefit.

During (he scrutiny assessment (of A/Y- 2005-06) (he matter of retrenchment benefit has been discussed and after explaining the same the matter was allowed without any adverse inference.

Similarly in this year i.e. A/Y- 2010-11 (he case of Balaji Construction (a sister concern of (he assessee) this point of retrenchment benefit was raised but no adverse inference is drawn. (A copy of order enclosed)

The learned A.O. should have taken note of the order of earlier year in (his issue.

It every year it is the system followed as (he retrenchment benefit outstanding of the previous year has been paid in the current year. In the instant case (he liability of retrenchment benefit of Rs: 42,75,756/- of the previous year i.e. A/Y- 2009-10 is paid during (his year A/Y- 2010-11.

5 ITA No.246/Ran/2016 However (his year's liability of Rs. 68, 68,370/- could not been paid fully but a sum of Rs. 35,77,253/- has been paid in F/Y- 2010-11 again a sum of Rs. 32,91,117/- has been paid in F/Y-2011-12.

The practical difficulty to defer the payment is due to non release of the retention money of Rs. 41,74,148/- by the principal contractor Larsen & Toubro Ltd. (A chart is enclosed showing the payment of retrenchment benefit of last 3 years and the money due from Larsen & Toubro Ltd.)

The appellant files the chart showing the details of workers with their address and other particulars of the payment made in F/Y- 2010-11. towards part payment of retrenchment benefit. This chart is filed during the assessment proceedings.

Now the appellant explain the obligation of payment of retrenchment benefit (or compensation). As per section 25 F of the Industrial Dispute. Act every retrenched worker is to be paid (i) One month notice pay (ii) Leave wages (Hi) Other benefit and as per the practice the bonus is also paid to the workers at the time of his retrenchment.

This obligation is being followed as per the instruction of the principal contractor Larsen Toubro Ltd. in terms of the retention of retrenchment compensation out of the bill. The Principal contractor supervises the payment time to time.

The learned A.O. in course of hearing raised the point in the. order that the assessee although submitted (he chart showing name and address of the labour’s but did not show their date of their retrenchment.

But the same was not intimated to the A/R of the assessee. This may be seen in the order sheet dated 30/01/2013. (Certified copy of the order sheet is enclosed)

It may be mentioned that the dues of the each workers is calculated on the. basis of the. attendance of the workers as per Muster Roll maintained by the assessee. The learned A.O. has mentioned in the order sheet dated 30/01/2013 but there is no intimation to the A/R of the assessee. The. appellant produced the Muster Roll.

Whenever an order is passed u/s 144 the A.O. discard the accounts submitted by the assessee and the order is passed on estimation basis by taking the Net Profit at higher than the Net Profit shown by the assessee.

This be the system followed the learned A.O. should have enhanced the Net Profit as per estimation as against (he 3.68 % of

6 ITA No.246/Ran/2016 the Net Profit declared by the assessee. Therefore the framing of order is not as per practice or procedure. Alternately the appellant urge that the matter may be considered in this line and a relief may kindly be given It may not be out of place to submit that by adding the entire amount of retrenchment benefit of Rs. 68,68,370/- the net profit has gone to 13.76% which is impossible for a labour contractor. In a case where there is clear disclosure of the gross turnover then this absurd addition is beyond (he principle of equity. So the appellant earnestly pray that relief either of the situation as staled above may kindly be considered. 3.3 In addition to the above, the appellant showed ledger accounts and other documents J maintained with regard to the retrenchment compensation as accounted on year to year basis. 3.4 The fact which becomes clear from the submission of the appellant is that the appellant is basically a labour sub-contractor under Larsen & Toubro Ltd., which is the principal contractor. The appellant has undertaken labours work contract from Larsen & Toubro Ltd. for various sites in Orissa and Andhra Pradesh. The retrenchment compensation is admissible as per Labour Law and has been so debited in the accounts on accrual basis but disbursed to the labours only on receipt of funds from Larsen & Toubro Ltd. on various dates for which necessary documents were produced with the name of labours, dates of retrenchment and amounts calculated under 1 various heads including bonus. The ledger account of the retrenchment compensation shows the j!', opening balance from the last year, payment made in this year and balance carried forward to (lie ! next year. On the basis of the accounts maintained as such I find no infirmity in the appellant’s claim of retrenchment compensation debited in the account of Rs.68,68,370/-. Therefore, in my j considered opinion, no addition is required on this issue. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. C1T (245 ITR, 428). The appellant succeeds on this ground of appeal. The Assessing Officer is. however, free to invoke the provisions of Section 41(1) of the I.T. Act in case this liability ceases to exist in future either in part or full. 3.5 As regards the second issue with regard to order passed u/s.144 of the I.T. Act, the appellant has submitted that when the copies of ledger accounts, etc. were submitted in the course of hearing as well as books of accounts were produced and the same were test checked, the order is in the line of section 143(3) of the I.T. Act and, therefore, the Assessing Officer should not have passed the order u/s 144 of the I.T. Act. The appellant has also

7 ITA No.246/Ran/2016 produced a copy of the note-sheet which has shown that during assessment proceedings books of accounts, etc. were produced before the Assessing Officer and the same were test checked. 3.6 I am convinced with the above submission of the appellant and hold that the order passed u/sl44 of the I.T. Act is erroneous. The appellant succeeds on this ground of appeal. 3.7 In the result, the appeal is allowed.” Before us ld. DR could not bring any new material fact to controvert the

above findings of the CIT(A). Accordingly, we are in the conformity with the

order of CIT(A) and the same is upheld and the ground of appeal of

Revenue is dismissed.

Order pronounced in the open court on 30/05 /2018

Sd/- Sd/- (N.S.SAINI) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Ranchi, Dated 30/05/2018 Prakash Kumar Mishra , Sr. Ps Copy of the Order forwarded to : 1. The Appellant – DCIT, Circle-3, Bokaro 2. The Respondent – Shri Yavvari Narayan Rao, A-1, Sector Market-1, Ram Mandir, Sec-1, B.S.City-827001 3. The CIT(A) concerned 4. CIT , concerned 5. DR, ITAT, Ranchi 6. Guard file.

BY ORDER,

//True Copy// SR.PS, ITAT, RANCHI