DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-19, NEW DELHI, DELHI vs. ANNAI INFRA DEVELOPERS LIMITED, TAMIL NADU
Income Tax Appellate Tribunal, DELHI BENCH ‘A’: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI S.RIFAUR RAHMANDCIT, Central Circle 19, vs.
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The Revenue has filed appeal against the order of the Learned Commissioner of Income-tax (Appeals)-30, New Delhi [“Ld. CIT(A)”, for short] dated 13.09.2023 for the Assessment Year 2016-17 and the 2 CO No.2/Del/2024
assessee has filed cross objections which are basically in support of the ld. CIT (A)’s order.
2. Brief facts of the case are, assessee company filed its return of income for the Assessment
Year
2016-17
declaring taxable income of Rs.14,42,98,320/-. The assessee is engaged in development and construction of heavy infra projects, such as, irrigation projects, road projects, awarded by the Government Departments and private parties.
The case was selected for complete scrutiny under CASS. Notices u/s 143 (2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee along with questionnaire calling for details. The assessee filed requisite details through e-portal. During assessment proceedings, AO observed that assessee has declared total turnover of Rs.2,52,19,69,528/- and declaring net profit of Rs.14,75,45,900/- which is 5.85% of the total turnover. The assessee has executed the existing projects in various parts of Tamil Nadu and Kerala.
It has incurred site wages of Rs.28,39,79,238/- and AO has extracted the project-wise site wages in his assessment order at pages 2 & 3. He observed that the abovesaid site wages expenditure were entirely paid by cash on various dates to the workers on various sites. Accordingly, assessee was asked site workers details with address and ID proof. It was 3
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also asked to submit sub-contractors details and works undertaken by them project-wise/site-wise. However, assessee submitted cash withdrawal details for the payment of site wages in different sites on 20.12.2018 as per the list of bank statement. He further observed that assessee was also asked to submit sub-contract work execution details but assessee submitted only sub-contract documents without work allocation/execution details of the sub-contractor in the various projects.
By observing discrepancies in the documents submitted by the assessee, which is listed at page 4 of the assessment order and accordingly, he was of the view that assessee has inflated site wages upto same extent, therefore, he proceeded to disallow 20% of the site wages claimed by the assessee which was worked out to Rs.5,67,95,847/-..
3. Aggrieved with the order, assessee preferred an appeal before the ld. CIT
(A) and filed detailed submissions. Assessee also filed additional grounds on the demand raised u/s 234B and 234C of the Act. The assessee has also filed additional evidences before ld. CIT (A) and ld.
CIT(A) remanded the matter to the AO and the relevant remand report was reproduced in the appellate order. After considering the details submissions and remand report filed by the AO, ld. CIT (A) deleted the additions proposed by the AO by observing as under :-
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“10.2
I have carefully examined the observations of the Assessing
Officer in the Assessment Order and the remand report alongwith the rebuttals submitted by the appellant. On perusal of facts of the case, it is noted that the Assessing Officer made disallowance of 20% of the wages claimed by the appellant mainly on the ground that the appellant did not produce details of the workers with ID proofs, site wages were paid in cash, cash was transported from Head Office to various sites and that the net profit offered by the appellant is below the industry standard of contractors. The details submitted by the appellant consisting sample of site wages register along with the signature of the workers and their ID proofs have been perused. It shows that the appellant maintains details of expenses incurred by it on site wages and the signature of workers alongwith their Id proof is available. The submission made by the appellant in this regard is for the demonstration purposes to prove its point that the site wage register are properly maintained and the expenses are not bogus in nature. As far as the observations of AO regarding the withdrawal of cash from Head Office is concerned, the appellant submitted detailed cash withdrawal and reconciliation statement in which the details of the branches from where cash was withdrawn on various dates along with the relevant site has been mentioned explaining the details submitted before the Assessing Office during the assessment proceedings. On perusal of the details, it was noted that the cash was not withdrawn from one branch at Head Office or from Erode but from various places and it was transported to the project sites. Therefore, the observations of the Assessing Officer in the Assessment
Order that all the cash was withdrawn from one branch at Erode and transported to different project sites is factually not correct. The Assessing
Officer has observed in the Assessment Order that the appellant is involved in construction projects and has several project sites at various places in the states of Tamil Nadu and Kerala and the total turnover of the appellant for the year under consideration was Rs.252,19,69,528/- which includes site wages of Rs.28,39,79,238/- thus site wages constitute approximately 11% of the total turnover. The Assessing Officer has not brought on record any evidence to show that the site wages claimed by the appellant were excessive and more than the industry norms. The Assessing
Officer has observed that the net profit shown by the appellant is below the industry norms but no comparative study has been quoted. During the remand proceedings, the appellant has submitted financial statements of 4 companies which were showing net profit margin in the range of 2% to 6%. The Assessing Officer has not made any adverse remarks m his remand report on this point.
3 In view of the facts discussed as above, I find that the disallowance made by the Ld. AO @ 20% of site wages is on adhoc basis and is not supported by any corroborative evidence or any reliable comparative study. Therefore, it would not be correct to hold 20% of site wages as not genuine. Hence addition made by the AO is deleted.”
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Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :- “1. Whether in the facts and circumstances of the case, the Ld.CIT(A) has erred in deleting the addition, even when the assessee company has failed to submit the verifiable documentary evidences.
Whether in the facts and circumstances of the case, the Ld.CIT(A) has erred in overlooking that the assessee company has failed to submit the complete details of withdrawal of cash and corresponding payment on site wages expenditure and other cash expenditure for different sites?
Whether in the facts and circumstances of the case, the Ld.CIT (A) has erred in overlooking that assessee company has failed to submit the details of sub contract work execution, site wise payment details and project wise estimation details and other expenditure estimation details as per contracts/tender documents sought during the assessment proceedings?
Whether in the facts and circumstances of the case, the Ld.CIT (A) has erred in overlooking that the total expenses under the head site wages expenditure incurred in cash without verifiable documentary evidences regarding withdrawal of cash, transport of cash to different sites as well as payment of such cash to site wages expenditure, as claimed by it?
Whether in the facts and circumstances of the case, the Ld.CIT (A) has erred in overlooking that the burden of proof of genuineness of the expenditure lies on the assessee?
Whether in the facts and circumstances of the case, the Ld.CIT(A) has erred in considering many documentary evidences as genuine without supporting statutory documents?
(a) Whether on law and facts of the case the order of the Ld. CIT (A) is erroneous and not tenable in law and on facts.
(b)
The appellant craves leave to add, alter or amend any/all of the ground of appeal before or during the course of the hearing of the appeal.”
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At the time of hearing, ld. DR of the Revenue brought to our notice relevant facts on record and submitted that AO has asked various details relevant to site wages incurred by the assessee mainly on cash payments in various sites. Due to non-submission of the informations by the assessee, AO proceeded to make adhoc disallowance of 20%. He brought to our notice findings of the ld. CIT (A) and also remand report submitted by the AO. He also brought to our notice findings of ld. CIT(A) from pages 45 to 61 of the appellate order. He submitted that ld. CIT (A) has overlooked the non-submission of the sub-contract execution and also site-wise payment details before the Assessing Officer. He also submitted that these expenditure incurred in cash without submitting verifiable documentary evidences and withdrawal of cash, transfer of cash to different sites. He submitted that ld. CIT (A) has accepted various documents submitted by the assessee overlooking the burden of proof and genuineness of claim of expenditure. He relied on the findings of the AO. 6. On the other hand, ld. AR of the assessee brought to our notice findings of the ld. CIT (A) at page 69 of the appellate order and he submitted that assessee has filed cross objections mainly in support of the findings of the ld. CIT (A) and he prayed that all the relevant informations were filed
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before the AO in the remand proceedings and ld. CIT (A) has considered all the documents and evidences submitted before the lower authorities.
7. Considered the rival submissions and material placed on record. We observed that AO has made ad hoc disallowance of 20% of site wages due to non-submission of details of cash payment in various site operated by the assessee. However, during appellate proceedings, assessee has submitted detailed documents in support of the site wages. The relevant documents were remanded to the AO and only after considering the informations submitted during remand proceedings and remand report submitted by the AO, ld. CIT (A) has appreciated various documents submitted before the AO during remand proceedings. The main grievance of the Revenue is that assessee has not submitted sub-contract for execution in various sites executed by it. The wages distribution list submitted by the assessee by various workers utilized by it at various sites which include workers from sub-contract and ld. CIT (A) has discussed the issue in detail at pages 68 & 69 of his order and appreciated the various details submitted before him as well as before AO in remand proceedings. Ld. CIT (A) has also given a categorical finding that site wages constitute approximately 11% of the total turnover and AO has not brought on record how the abovesaid site wages were excessive or more
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than industry norms. Further he also analysed the financial statement of four group companies which also showed the net margin in the range of 2% to 6% and in this case, assessee has disclosed profit of 5.85% of the total turnover as net profit. In absence of any detailed analysis before proposing ad hoc disallowances by the AO is not proper and ld. CIT(A) has verified as well as justified the relief given to the assessee.
Accordingly, we do not see any reason to disturb the findings of the ld.
CIT (A) and the grounds taken by the Revenue are dismissed.
8. In the result, the appeal filed by the Revenue is dismissed.
9. The cross objections filed by the assessee are in support of the findings of the ld. CIT (A). As we have already dismissed the appeal of the Revenue, the cross objections filed by the assessee are dismissed as infructuous.
10. To sum up : the appeal filed by the Revenue as well as the cross objections filed by the assessee are dismissed.
Order pronounced in the open court on this 15th day of April, 2025
after the conclusion of the hearing. (VIKAS AWASTHY)
ACCOUNTANT MEMBER
Dated:15.04.2025
TS
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