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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K. Pradhan
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-44, Mumbai, dated 28.12.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 23.03.2015 for A.Y. 2012-13. The assessee has assailed the impugned order on the following grounds of appeal: “Being aggrieved by the Order of Commissioner of Income Tax (Appeals)-44, Mumbai [hereinafter referred to as CIT(A)] partly confirming the addition of Rs.26,24,266/- out of total addition of Rs.2,20,86,626/- made b y t h e A s s e s s i n g O f f i c e r [ J . C . I . T . C i r c l e 3
2. ( 2 ) ] a n d r e t a i n i n g disallowance of Rs.26,24,266/- out of labour and contract expenses and thereby assessing total income of Rs.78,50,941/- as against returned income of Rs.52,26,675/-, the Appellant submits this appeal on the following P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) grounds each of which may please be considered without prejudice to one another. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: “ 1 . T h e l e a r n e d C I T ( A) e r r e d i n c on f i r m in g t h e di s a l l ow a n c e o f R s . 26,24,266/- being labour charges and sub contract charges paid to four parties without going through additional details submitted during appeal hearing proceedings and without appreciating the fact that the appellant has given detailed explanation as well as paper book with all supporting documents available with him in respect of two parties i.e. M/s I.S. Enterprises and Sh. Punit Popatlal Shah, which is also mentioned by CIT(A) in Para 5.1.6 of the appeal order.
The learned CIT(A) has not considered the fact that assessee has no power or machinery available to him to enforce the presence of the third party before Assessing officer or to enforce third party to produce or submit confirmation of hi s transaction with the said parties.
3. Without prejudice to above, The learned CIT(A) erred in making disallowance of Rs.26,24,266/- in respect of four parties instead of Rs. 9,70,579/- in respect of two parties as he himself stated in orderthat “I retain disallowance of Rs. 26,24,266/ - in respect of labour and contract charges paid to Shri Narsappa S. Naik and Shri Rajesh K. Varma for want of verification...”
The Appellant prays to your Honour to delete entire disallowance of Labour charges and sub contract charges of Rs.26,24,266/- or reasonably estimate disallowance out of total amount paid to the said parties.
The Appellant craves leave to add, delete, withdraw a n d \ o r modify any one/moreor all the above grounds of appeal
on or before the date of final hearing.”
2. Briefly stated, the assessee who is a civil contractor under the name and style of M/s M.S. Enterprises had e-filed his return of income for A.Y. 2012-13 on 19.12.2013, declaring his total income at Rs.52,26,675/-. The return of income filed by the assessee was processed as such under Sec.143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2).
During the course of the assessment proceedings it was observed by the A.O that the assessee as against his receipts of Rs.16,57,17,745/- had debited sub-contract charges of Rs.4,51,37,926/- and wages & labour charges of Rs.2,61,62,181/-. The A.O was not inspired as regards the genuineness of the aforesaid expenses. It was observed by the A.O that 19 parties to whom the P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) aforesaid payments were claimed to have been made by the assessee were not traceable. Further, as the assessee failed to produce the „books of accounts‟ along with the supporting documentary evidence, therefore, the A.O rejected the book results under Sec.145(3)of the Act. After rejecting the „book results‟ the A.O calculated the profit element @ 15% of the gross receipts of Rs.16,57,17,745/-, which worked out to an amount of Rs.2,48,57,662/-. The A.O keeping in view the „net profit‟ of Rs.27,71,036/- that was already shown by the assessee in his profit and loss account, added the balance amount of Rs.2,20,86,626/- [Rs.2,48,57,662/- (-) Rs. 27,71,036/-] to the returned income of the assessee.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). In the course of the appellate proceedings the assessee inter alia assailed the disallowance of Rs. 2,20,86,626/- that was made by the A.O after rejecting his „books of accounts‟ u/s 145(3) of the Act. It was submitted by the assessee that as he was engaged in contractual work, therefore, his books of accounts etc. were scattered at different sites and sufficient time was not available for producing the same along with supporting documentary evidence in the course of the assessment proceedings. Also, it was the claim of the assessee that the A.O had not given sufficient opportunity to him to explain the various discrepancies as were gathered by him on the basis of independent inquiries conducted under Sec.133(6) of the Act. The assessee in order to fortify the authenticity of his claim of expenses viz. (i) sub-contract charges; and (ii) wages & labour charges, filed additional documentary evidence before the CIT(A). The CIT(A) forwarded the additional evidences to the A.O for his verification and called for a „remand report‟ after thorough investigation and verification of the books of accounts. In the course of the remand proceedings the assessee substantiated the genuineness of the payments which were made by P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) him towards sub-contract charges and wages & labour charges to 15 parties (out of 19 parties) by placing on record certain documentary evidence viz. (i) confirmations; (ii) ledger accounts; (iii) copies of form 26AS; and (iv) bank statements showing entries for corresponding payments made to the said parties. However, the assessee could not produce the confirmations from the remaining 4 parties, as under :
Sr. No. Name of the party Amount (in Rs.) 1. M/s I.S. Enterprises 788,750 2. Shri Narsappa S. Naik 493,165 3. Shri Rajesh Kumar Varma 477,414 4. Shri Punit Popatlal Shah 864,917 Total 2,624,246 Accordingly, the assessee informed the A.O that he was not aware of the present whereabouts of the aforementioned parties. However, subsequent to the remand proceedings the assessee filed his „Written submissions‟, dated 22.08.2017, and furnished documentary evidence supporting the authenticity of the labour charges paid to two parties (out of the aforementioned 4 parties) viz. (i) M/s I.S. Enterprises; and (ii) M/s Punit Popatlal Shah, as under:
(I) M/s I.S.Enterprise:- a. Copies of bank statement of Current A/c No. 998705896 of M/sI.S. Enterprise with Indian Bank, Bhavans Campus Branch for the Period from 08.12.2011 to 31.03.2012 reflecting receipt of payments made by the assessee during the F.Y. 2011-12. b. Profit & Loss A/c Reflecting receipts of Rs. 10,58,841/- c. Copy of Form 26AS reflecting T.D.S. d. Copy of PAN Card e. Copy of Acknowledgement for Return of Income flied for A. 2012-13 f. Copy of Statement of total income for A.Y.2012-13 (II) PUNIT POPATLAL SHAH:- a. Statement of total income for A. Y. 2012-13 b. Incorne & Expenditure A/c for the year ended 31-03-2012 reflecting receipt of labour charges of Rs.9, 15,360/-. c. Copy of Acknowledgement for Return of income filed by Punit Shah d. Copy of statement of A/c No.13910100051205 with The Federal Bank Ltd. for the period from 01-04-2011 to 07-03-2012 reflecting receipt of payment made by assessee to him.
P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) 5. The CIT(A) after deliberating on the facts of the case observed that the A.O had issued notices under Sec.133(6) to following 22 parties on 3rd March, 2015 for verifying labour charges and sub- contract charges paid by the assessee, as under:
Sr. No. Name Labour & Contract Notice Served Charges 1. Tirupati Enterprises 5,65,075 Yes 2. P.B. Construction 17,54,833 Yes 3. Nishil Arvind Shah 8,75,797 Yes 4. Punit Popatlal Shah 8,64,917 Yes 5. Punit Enterprises 7,82,902 Yes 6. Jayantilal M. Shah 8,83,767 Yes 7. Kumkum Construction 4,51,000 Yes 8. Ayush Enterprises 8,42,067 Yes 9. Onix Enclaves (P) ltd. 1,68,25,741 Yes 10. M.K. Enterprise 23,11,893 Yes 11. Ameety Engineers 18,50,912 Yes 12. Marc Engineering 60,71,787 Yes 13. Sunil Mishra 17,68,678 Yes 14. Techno Engineers 1,32,77,558 Yes 15. I.S. Enterprises 7,88,750 No 16. Neelam Enterprises 6,21,557 No 17. Vruksha Enterprises 11,78,233 No 18. K.K. Traders 14,78,951 No 19. Rajesh Kumar Varma 4,77,414 No 20. Narsappa S. Naik 4,93,165 No 21. Sumeet Enterprise 10,97,480 No 22. Amol Chogle 9,00,000 No Total 5,61,62,477 It was observed by the CIT(A) that three parties at Serial No (1),(2) and (9) replied, and notices to parties at Serial No. (15) to (22) had remained unserved or were returned for the reason viz. “unclaimed”, “left”, “address not located or not known”, while for the remaining 11 parties did not file any reply till the culmination of the assessment proceeding. It was observed by the CIT(A) that the assessee was given a final opportunity by the A.O to attend on 05.03.2015, and was thereafter never informed about the unserved notices or non-receipt of replies in response to notices issued under Sec.133(6). Also, it was P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) noticed by the CIT(A) that no separate „Show-cause‟ notice (for short „SCN‟) was issued to the assessee, therein calling upon him to explain as to why labour charges and sub-contract charges may not be disallowed or why its profit should not be estimated @ 15% after rejecting his „books of accounts‟. It was also noticed by the CIT(A) that the A.O had not afforded any opportunity to the assessee for producing the parties on whom the notices under Sec.133(6) could not be served. Apart there from, it was observed by the CIT(A) that though the assessee in the course of the „remand proceedings‟ could not substantiate on the basis of documentary evidence his claim for labour charges and sub-contract charges in respect of the aforementioned 4 parties, viz. (i) M/s I.S. Enterprises : Rs.7,88,750/-; (ii) Shri Narsappa S. Naik: Rs.4,93,165/-; (iii) Shri Rajesh Kumar Varma: Rs.4,77,417/-; and (iv) Shri Punit Popatlal Shah: Rs.8,64,917/-, however, he had vide his submissions, dated 22.08.2017 filed in the course of the appellate proceedings had furnished „additional evidence‟ in respect of two parties, i.e M/s I.S. Enterprises; and (ii) Shri Punit Popatlal Shah. After necessary deliberations, it was observed by the CIT(A) that as the assessee had discharged his „onus‟ insofar proving the genuineness of payment of labour charges and sub-contract charges was concerned, and there was no basis for rejection of his „books of accounts‟, which were never verified by the A.O, without giving sufficient opportunity to the assessee to produce confirmations from such parties and to produce the parties to whom notices could not be served. It was observed by the CIT(A) that as in response to the directions issued under Sec.250(4) the assessee had produced the „books of account‟ along with „bills‟ and vouchers which were verified by the A.O and no defect was pointed out in the documents produced, therefore, there was no logic in rejecting the same and estimating the „net profit‟ @ 15% of the P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) gross receipts on an adhoc basis. However, the CIT(A) after observing as hereinabove therein concluded that he was retaining the disallowance of Rs.26,24,266/- in respect of labour and contract charges paid to Shri Narsappa S. Naik and Shri Rajesh K. Varma for want of verification. On the basis of his aforesaid deliberations, the CIT(A) partly allowed the aforesaid ground raised by the assessee.
The assessee being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) submitted, that the CIT(A) by way of an inadvertent mistake had wrongly sustained an addition of Rs.26,24,266/- towards labour & contract charges. It was submitted by the ld. A.R that the assessee had in the course of the appellate proceedings furnished by way of an „additional evidence‟ documents supporting to the hilt the authenticity of the payments made to two parties, viz. M/s I.S. Enterprises: Rs.7,88,750/-; and (ii) Shri Punit Popatlal Shah : Rs.8,64,917/-. It was submitted by the ld. A.R that the CIT(A) had duly taken cognizance of the aforesaid documents that were furnished by him in respect of the aforesaid two parties. It was submitted by the ld. A.R, that even while sustaining the disallowance of Rs.26,24,266/- in respect of labour and contract charges the CIT(A) had categorically observed that as the claim of expenses which was raised by the assessee in respect of the remaining 2 persons viz. (i) Shri Narsappa S. Naik; and (ii) Shri Rajesh Kumar Varma, was not backed by any documentary evidence, thus, the same could not be verified. In order to fortify his aforesaid contention the ld. A.R took us through the observations of the CIT(A) recorded a Page 15 – Para 5.1.10& Para 5.1.11 of his order. On the basis of his aforesaid submissions, it was averred by the ld. A.R that the matter may be restored to the file of the CIT(A) for verifying the claim of the assessee as regards labour & contract charges paid to the aforementioned two P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) parties, viz. (i) M/s I.S. Enterprises: Rs.7,88,750/-; and (ii) Shri Punit Popatlal Shah: Rs.8,64,917/-.
Per contra, the ld. Departmental Representative (for short „D.R‟) did not object to the restoration of the issue for verification of the authenticity of the labour and contract charges which were claimed by the assessee to have been paid to the aforementioned two parties.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. The issue involved in the present appeal lies in a narrow compass. As observed by us hereinabove, the A.O while framing the assessment had observed that the genuineness of the labour and contract charges paid by the assessee could not be verified in respect of 19 parties as the said parties were not traceable. As the assessee had also failed to produce his „books of accounts‟ along with supporting documentary evidence, therefore, the A.O had also rejected the book results under Sec.145(3), and had estimated the profit of the assessee @ 15% of his gross receipts. However, in appeal the assessee was able to place on record confirmations as well as „bills‟ and proof of payments towards labour and contract charges to 15 parties. As regards the remaining 4 parties, we find, that the assessee after the culmination of the remand proceedings had submitted documents evidencing the authenticity of the payments made to two parties viz. (i) M/s I.S. Enterprises: Rs.7,88,750/-; and (ii) Shri Punit Popatlal Shah: Rs.8,64,917/-. As observed by us hereinabove, the CIT(A) after necessary deliberations on the facts of the case and remand report/supplementary remand reports, as well as the counter comments of the assessee, had not found favour with the rejection of the „books of accounts‟ of the assessee. Accordingly, the CIT(A) vacated the estimation of the net profit @ 15% of the gross receipts on adhoc P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) basis after rejection of the book results by the A.O under Sec.145(3). It was further observed by the CIT(A), that the disallowance of Rs.26,24,266/- in respect of labour & contract charges paid to Shri Narsappa S. Naik & Shri Rajesh Kumar Varma was being sustained for want of verification. We find that the CIT(A) apparently on account of an inadvertent mistake had sustained the disallowance to the extent of Rs.26,24,266/-, which in fact were the payments towards labour and contract charges by the assessee to the aforementioned 4 parties. As is discernible from the order of the CIT(A), we find that he had duly taken cognizance of the documentary evidence which was filed by the assessee, vide his submission dated 22.08.2017 as „additional evidence‟ in respect of two parties i.e (i). M/s I.S. Enterprises; and (ii). Shri Punit Popatlal Shah. In fact, even while concluding that a disallowance of Rs.26,24,266/- in respect of labour and contract charges was being sustained the CIT(A) had specifically referred to the unverified payments which were made by the assessee to the other two parties i.e Shri Narsappa S. Naik and Shri Rajesh Kumar Varma. In our considered view, the CIT(A) instead of sustaining the disallowance in respect of the unverified payments made by the assessee to the other two parties i.e (i) Shri Narsappa R. Naik: Rs.4,93,165/- ; and (ii) Shri Rajesh Kumar Varma: Rs.4,77,414/-, had however, inadvertently disallowed the entire amount of labour and contract charges of Rs.26,24,266/- which was the aggregate of the payments made by the assessee to the aforementioned 4 parties. Be that as it may, we are of the considered view, that in all fairness the matter requires to be revisited by the CIT(A). The CIT(A) is directed to verify the authenticity of the labour and contract charges claimed by the assessee to have been paid to two parties viz. (i) M/s I.S. Enterprises; and (ii) Shri Punit Popatlal Shah, in the backdrop of the documentary evidence already available on his record. Accordingly, P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2) the matter is restored to the file of the CIT(A) for the limited purpose of readjudicating the issue in terms of our aforesaid observations.
The appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 30.07.2019 Sd/- Sd/- (N.K. Pradhan) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 30.07.2019 Ps. Rohit आदेशकीप्रतिलऱपिअग्रेपिि/Copy of the Order forwarded to : अऩीर थी/ The Appellant 1. प्रत्मथी/ The Respondent. 2. आमकयआम क्त(अऩीर) / The CIT(A)- 3. आमकयआम क्त/ CIT 4. विब गीमप्रतततनधध, आमकयअऩीरीमअधधकयण, भ ुंफई/ 5. DR, ITAT, Mumbai ग र्डप ईर / Guard file. 6. सत्म वऩतप्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायकिंजीकार (Dy./Asstt. Registrar) आयकरअिीऱीयअधिकरण, भ ुंफई / ITAT, Mumbai.
P a g e | Mahesh J. Shah Vs. The Joint Commissioner of Income Tax, Circle-32(2)