DILIP JAWAHARLAL VARYANI,PUNE vs. DCIT CIRCLE-8, PUNE

On the basis of facts and circumstances of the case and as per law, the Commissioner of Income Tax. (A) NFAC Delhi, is not justified in confirming the addition solely on account of non-submission necessary information / documents during the appellate proceedings of The assessee humbly prays one more opportunity be given to the assessee to defend the appeal

Without prejudice to Ground No 2 above, on the basis of facts and in the circumstances of the case and as well as in law, the disallowance of labour expense amounting to Rs 1,41,38,625/- is unwarranted as the same is any logical basis

Without prejudice to Ground No 2&3 above, on the basis of facts and in the circumstances of the case and as well as in law the disallowance of labour expense be restricted to a reasonable amount

Without prejudice to Ground No 2 above, on the basis of facts and in the circumstances of the case and as well as in law, the addition of Rs 1,50,50,000/- u/s 68 is unwarranted and hence needs to be deleted

The appellant craves leave to add alter omit or substitute any of the grounds at the time of hearing of the appeal

The ld.Authorised Representative(ld.AR) Mr.Sharad Vaze- Chartered Accountant for the Assessee submitted a paper book along with Power of Attorney, to represent the Assessee. Ld.AR submitted that there was a delay in filing appeal before this Tribunal by 192 days. Ld.AR invited our attention to the Affidavit of the Assessee and Medical Certificate submitted along with the Affidavit. Ld.AR submitted that Due to the Illness of the Assessee, the appeal could not be filed in time. Ld.AR requested for condonation of delay.

1 Ld.AR submitted that Assessee is a Civil Contractor doing work for Municipal Corporations. For A.Y.2011-12, the Assessing Officer has partly disallowed labour expenditure claimed by Assessee. Ld.AR submitted that no vouchers were submitted. Ld.AR has not made any argument to prove genuineness of labour expenditure. Ld.AR invited our attention to Page No.107 of the paper book which was submission made by Assessee before ld.CIT(A) on 15.05.2017. Regarding addition of unsecured loan, ld.AR submitted that Assessee had obtained loan from one Mr.Kishore G Ahuja. Mr.Kishore G Ahuja is Dubai based. Ld.AR

We specifically asked ld.AR regarding source of the impugned cash deposited by Mr.Kishore G Ahuja, however, ld.AR could not ITA No.643/PUN/2025[A]

1 We specifically asked Ld.AR that when the Labour Payments outstanding in the name of sub-contractors were paid? Ld.AR could not answer to the said question. Ld.AR only submitted that the sub- contractors had filed Return of Income and TDS was deducted.

Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of the Assessing Officer and ld.CIT(A). Ld.DR vehemently submitted that ld.CIT(A) had given 13 opportunities, hence ld.CIT(A) had given sufficient opportunities. Ld.DR submitted that ld.AR’s request to set-aside the ld.CIT(A) order to ld.CIT(A) may not be accepted as more than sufficient opportunities were provided both by AO and ld.CIT(A). Ld.DR also submitted

We have heard both the parties and perused the records. In this case, Assessee had filed his Return of Income for A.Y.2011-12 on 30.09.2011 declaring total income at Rs.93,19,313/-. The Assessee’s case was selected for scrutiny. As per the Assessment Order, Assessee is a Civil Contractor and during the A.Y.2011-12, Assessee had undertaken contract work from Municipal Corporations relating to laying of water pipelines. It is specifically mentioned in the Assessment Order that Assessee Mr.Dilip Varyani had attended the hearings before the Assessing Officer along with his Authorised Representative.

1 We will discuss each ground here onwards.

Ground No.1 is regarding Delay in filing appeal before ITAT. Assessee has filed an Affidavit along with Medical Certificate. We have perused the Affidavit and Medical Certificate. We are ITA No.643/PUN/2025[A]

The Ground No.2 is reproduced here as under : “2. On the basis of facts and circumstances of the case and as per law, the Commissioner of Income Tax. (A) NFAC Delhi, is not justified in confirming the addition solely on account of non-submission necessary information / documents during the appellate proceedings of The assessee humbly prays one more opportunity be given to the assessee to defend the appeal

1 Thus, it is contended by Assessee that sufficient opportunity was not provided by ld.CIT(A). We have carefully studied the order of ld.CIT(A). Ld.CIT(A) in para 4 has reproduced details of opportunities provided which are reproduced here as under : S.No. Date of notice Date of compliance Remarks 1 03.12.2018 12.12.2018 No response 2 28.12.2018 10.01.2019 Sought adjournment 3 06.08.2019 19.08.2019 Sought adjournment 4 12.09.2019 19.09.2019 No response 5 02.01.2020 10.01.2020 Sought adjournment 6 14.02.2020 25.02.2020 No response 7 17.07.2020 27.07.2020 No response 8 05.09.2020 14.09.2020 No response 9 11.08.2023 25.08.2023 No response

2 Only one submission was made by Assessee dated 15.05.2017. 7.3 Thus, it can be noted that ld.CIT(A) had provided 13 opportunities to the Assessee. It is also noted from para 6.3.2 of the order of the ld.CIT(A) that Assessee had made submission dated 15.05.2017 before ld.CIT(A). Ld.CIT(A) in his order has duly considered the submission dated 15.05.2017 of the Assessee and then decided the appeal on merits.

4 The ld.AR or Assessee has not submitted any reason before us for non-compliance to various notices issued by ld.CIT(A).

5 In these facts and circumstances of the case, we do not find any merit in the contention of the Assessee. Accordingly, Ground No.2 raised by Assessee is dismissed.

Ground No.3 & 4 reproduced here as under : “3. Without prejudice to Ground No 2 above, on the basis of facts and in the circumstances of the case and as well as in law, the disallowance of labour expense amounting to Rs 1,41,38,625/- is unwarranted as the same is any logical basis.

Without prejudice to Ground No 2&3 above, on the basis of facts and in the circumstances of the case and as well as in law the disallowance of labour expense be restricted to a reasonable amount.”

1 During the Assessment Proceedings, Assessing Officer noted that Assessee has shown receipts of Rs.13,99,53,070/-. Assessing Officer further noted that Assessee had debited Rs.5,87,00,094/- on account of labour expenses. The Labour Expenses of Rs.5,87,00,094/- consist of Direct Labour Expenses of Rs.2,63,22,333/- and Labour Sub-Contractor Charges of Rs.3,23,77,761/-.

2 The Assessing Officer in the Assessment Order has mentioned that the entire amount of Direct Labour Expenses of Rs.2,63,22,333/- have been incurred in cash. This fact has not been disputed by ld.AR before this Tribunal. Thus, it is an admitted fact that entire Direct Labour Expenditure of Rs.2,63,22,333/- were incurred in cash. Assessing Officer has mentioned specifically that as per Assessee’s submission dated 13.02.2014, more than 200 persons were employed. Assessing Officer specifically asked Assessee to produce supporting documents like ESI, PF Deduction, Bills, Vouchers, Attendance Sheet of Employees. However, no such ITA No.643/PUN/2025[A]

3 Regarding the Labour Sub-contract Payment of Rs.3,23,77,761/- claimed by Assessee, the Assessee claimed that these amounts were paid to Sub-contractors. The details are as under : Sr. No. Name of Sub- Contractor Amount Credited Amount Outstanding as on 31.3.2011 Amount Outstanding as on 31.12.2013 (1) (2) (3) (4) (5) 1. Mayur Varyani 56,96,602/- 56,96,602/- 29,91,602/- 2. Mukesh Mulchandani 52,75,442/- 52,75,442/- 31,47,442/- 3. Rajesh Varyani 57,42,658/- 57,42,658/- 24,94,458/- 4. Shashi Mulchandani 53,78,907/- 53,78,907/- 25,21,907/-

4 The Assessing Officer in the Assessment Order noted that there is no sub-contractor agreement between the Assessee and Sub- contractor. All the sub-contractors are close relatives of the Assessee. All the sub-contractors do not have any office or employees. The sub-contractors have claimed to have made payments to labourers in cash only and no evidences were filed before the Assessing Officer. The Assessing Officer recorded

Aggrieved by the said disallowance of Rs.1,41,38,625/-, the Assessee filed an appeal before ld.CIT(A). The ld.CIT(A) has specifically mentioned in the order that Assessee has made only one submission dated 15.05.2017. Ld.CIT(A) duly considered the submission of the Assessee. Ld.CIT(A) confirmed the disallowance of Rs.1,41,38,625/-.

Aggrieved by the said disallowance, Assessee has filed appeal before ITAT. The Ground No.3 and 4 raised by the Assessee are regarding the said disallowance of Rs.,1,41,38,625/-. During the hearing before this Tribunal, ld.AR has not made any specific submission, but stated that in the business of Civil Contractor 8% profit is an acceptable profit. Ld.AR submitted that after the disallowance of Rs.1,41,38,625/-, the net profit comes to 16% which is very high in the business of Civil Contractor. Ld.AR submitted that without prejudice the disallowance should be reduced so that Net Profit comes to 8%.

1 In these facts and circumstances of the case, in the absence of supporting documents like Bills, vouchers, attendance register etc, we agree with the Assessing Officer that Assessee’s claim for Direct Labour Expenditure of Rs.2,63,22,333/- is not genuine.

Assessee has claimed that Rs.3,23,77,761/- were expenditure incurred on Sub-contractors. We have already reproduced the names of the Sub-contractors. Ironically, the entire amount was outstanding as on 31.03.2011. In this line of business, normally a sub-contractor is paid based on running bills raised by sub- contractors and amount of work done. No evidence has been filed by Assessee like copies of running bills raised by the sub- contractors. Astonishingly, all the four sub-contractors are close relatives of the Assessee. The Assessing Officer has recorded statements of two of the sub-contractors. Those sub-contractors could not provide any details regarding the work carried out for the Assessee. They could not file any documentary evidence before the ITA No.643/PUN/2025[A]

1 In these facts and circumstances of the case, we agree with ld.AO that expenditure claimed to have been made on account of sub-contractors are not genuine.

We are convinced that Assessee could not prove the genuineness of the expenditure claimed by Assessee of Rs.5,87,00,094/- on account of labour expenses. However, it is also a fact that Assessee has received Rs.13,99,53,070/- from Municipal Corporation on account of the work done. It means that Assessee had carried out the work. The Civil Work cannot be carried out without labour expenditure. Therefore, there has to be some labour expenditure incurred by Assessee. In order to estimate the labour expenditure, the Assessing Officer called-for information from Additional City Engineer(Projects), Pune Municipal Corporation. Based on the information provided by Additional City Engineer(Projects) - Pune Municipal Corporation, Assessing Officer has disallowed expenditure of Rs.1,41,38,625/- out of total expenditure of Rs.5,87,00,094/-. Before us, ld.AR submitted that the report of the Additional City Engineer(Projects)-Pune Municipal

We find support from the decision of Hon’ble Madhya Pradesh Taxman 399, in IT Appeal No.79 of 2013. In the said case, Hon’ble Madhya Pradesh High Court vide order dated 17.12.2013 has held as under : “5. The appellant is a registered Private Limited Company registered under the provisions of Companies Act and is engaged in the business of manufacture of pesticide on job work basis for M/s Bayer Crop Science Limited. For the assessment year 2007-2008, the appellant filed return of income on 29-08-2007 and declared a total income of Rs.16,86,270/-. Assessment proceedings were held and it is seen that the Assessing Officer examined the wages, register and other bills and vouchers with regard to labour engaged on casual basis and with regard to expenditure of Rs.50,84,778/- towards payment for casual labour, proper bills and vouchers having not been maintained. Expenditure to the tune of Rs.3,50,000/- was disallowed by the ITA No.643/PUN/2025[A]

Taking note of all these circumstances, we find no ground to interfere into the matter as no substantial question of law as alleged arise for consideration.”

In these facts and circumstances of the case and in the interest of justice, we estimate the disallowance on account of labour expenditure to Rs.1,00,00,000/-(one crore). Accordingly, we direct Assessing Officer to make a disallowance of Rs.1,00,00,000/- on account of labour expenditure instead of Rs.1,41,38,625/-. Accordingly, Ground No.3 and 4 are partly allowed.

1 In the Profit and Loss Account (page 27 of Paper book) the Assessee has shown Sale of Rs.13,99,53,070/- and Net Profit of Rs.93,91,001, but assessee has also shown Rs.10,11,425/- as Interest on Fixed Deposit. Hence once we remove the Interest earned by the ITA No.643/PUN/2025[A]

Distinguishing Case Laws relied by Assessee :

1 The ld.AR has relied on certain case laws, however, all the case laws are distinguishable on facts. Ld.AR has relied on the decision of Arihant Builders Developers & Investors (P) Ltd Vs. ACIT of ITAT Indore Special Bench. The issue before ITAT in the case of Arihant Builders Developers & Investors (P) Ltd Vs. ACIT(supra) was regarding rejection of books of accounts u/s.145(2) of the Act and estimation of profit. The said decision of Arihant Builders Developers & Investors (P) Ltd Vs. ACIT is distinguishable on facts as in the case of the Assessee, the issue is ITA No.643/PUN/2025[A]

2 Assessee has relied on the decision of ITAT Pune in the case of B.C.Biyani Project Pvt. Ltd vs. JCIT in ITA No.773/PUN/2015. The said decision of B.C.Biyani Project Pvt. Ltd.(supra), the labour payments were disallowed u/s.40A(3) r.w.s 40(a)(ia) of the Act. No.4019/DEL/2019 for A.Y.1986-87. The said decision in Eastern Construction Company distinguishable on facts as in the case of Eastern Construction Company Assessing officer has merely made disallowance without any basis. However, in the case of Assesseei.e.Dilip Jawaharlal Varyani, the Assessing Officerhas

Ground No.5 reproduced here as under : “5. Without prejudice to Ground No 2 above, on the basis of facts and in the circumstances of the case and as well as in law, the addition

1 It has been claimed by Assessee that Assessee has taken a loan of Rs.1,50,50,000/- from Shri Kishore Ahuja without paying any interest. The Assessing Officer asked Assessee to produce Mr.Kishore Ahuja. The Assessing Officer asked Assessee to produce copy of bank statement, balance sheet, profit and loss account of Mr.Kishore Ahuja to prove creditworthiness, identity, genuineness. However, Assessee has not filed copy of bank statement, balance sheet, profit and loss account before the Assessing Officer.

2 Assessing Officer had asked assessee to produce Mr.Kishore Ahuja. However, Mr.Kishore Ahuja was never produced before the Assessing Officer. Assessee submitted loan confirmation from Mr.Kishore Gurumukhdas Ahuja.Assessing Officer noted that NRE Account has been used to transmit cash. Therefore, after considering the submission of the Assessee, AO made an addition under section 68 of the Act, of Rs.1,50,50,000/-. Aggrieved by the addition, Assessee filed appeal before the ld.CIT(A) who confirmed the addition.

3 Aggrieved by the same, Assessee filed appeal before this Tribunal.

4 Before us in the paper book, Assessee has filed copy of the passport of Mr.Kishore Ahuja from page no.50 to 78. Assessee also filed copy of statement of Bank of India Account of Mr.Kishore Ahuja at page no.84 of the paper book. Apparently, copy of the bank statement of Bank of India was not filed before Assessing Officer. We specifically asked ld.AR about the same, but ld.AR could not answer. However, as per Assessee’s submission dated 15.05.2017, copy of bank statement was filed before the ld.CIT(A). The ld.CIT(A) has considered the said submission dated 15.05.2017. However, as per Rule 46A of Income Tax Rules, the ld.CIT(A) should have called-for a report from the Assessing Officer with reference to the documents filed before ld.CIT(A), which were not filed during Assessment Proceedings.

5 On perusal of the bank statement of Bank of India filed by Assessee at page no.84 of the paper book, it is observed that before providing impugned loan to Assessee, there were hardly any balances in the account of Mr.Kishore Ahuja. As per the copies of ITA No.643/PUN/2025[A]

Ground No.6 reproduced as under : “6. The appellant craves leave to add alter omit or substitute any of the grounds at the time of hearing of the appeal.”

The assessee has not altered, amended any of the grounds during the hearing, hence, Ground No.6 is dismissed.

In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 28 October, 2025. VINAY BHAMORE

गधर्ाफ़धइल / Guard File.