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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Sri Aby T. Varkey & Shri M. Balaganesh]
order : April 5th, 2019 O R D E R Per M. Balaganesh, AM :- This appeal of revenue arises out of the order of the Learned Commissioner of Income Tax (Appeals) – 8, Kolkata [‘ld. CIT(A)] dt. 27/10/2015, against the assessment order of the JCIT, Range-29 (in short the ld. Assessing Officer ) u/s 143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), for the Assessment Year 2010-11.
The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made u/s 40A(3) of the Act, in the sum of Rs.2,27,51,443/-, in the facts and circumstances of the case. The interconnected issue involved therein is with regard to the violation of provisions of Rule 46A of the Income Tax Rules, 1962 (in short ‘the Rules’) by the ld CIT(A), in respect of admission of certain evidences without affording an opportunity of being heard to the ld. Assessing Officer.
The brief facts of the issue are that the assessee is a partnership firm engaged in civil contract business. The return of income for the assessment year 2010-11 was filed on 29/09/2010, declaring total income of Rs.8,49,910/-. During 2 Assessment Year: 2010-11 M/s. S.M. Construction the course of assessment proceedings the assessee produced the books of accounts together with various details called for by the assessing officer. The assessing officer observed that the assessee had made cash payments in respect of certain purchases and expenses to the tune of Rs.2,27,51,443/- which, in the opinion of the assessing officer was in violation of provisions of Section 40A(3) of the Act. While calculating the said figure the assessing officer took the sundry creditor balances together with cash and cheque payments made thereon. The assessing officer made an observation in page 5 of his order that since the books of accounts maintained by the assessee had certain deficiencies, the same are liable to be rejected. 3.1. Before the ld. CIT(A), the assessee produced the very same details that were produced before the assessing officer together with ledger accounts of various sundry creditors that were the subject matter of consideration by the assessing officer while making impugned disallowance. The assessee also pointed out that there was a totaling error committed by the assessing officer to the tune of Rs.13,01,000/-, while making the impugned disallowance. It was further pointed out before the ld. CIT(A) that the assessing officer had taken the parties which were not available in the books of accounts of the assessee or pertaining to assessee to the tune of Rs.13,40,549/-. Accordingly, the assessee prayed for reduction of the aforesaid two sums from the total disallowance made. The assessee also pleaded before the ld. CIT(A) that the assessing officer had considered even the cheque payments while considering the disallowance figure of Rs.2,27,51,443/-. The assessee also submitted that the ld. AO had also considered the credit side of the transactions in the sundry creditors ledger account which represents purchases as well as the debit side of the transactions which represents payments while making the impugned disallowance. In addition to these submissions, the assessee also proved with evidence on record with specific reference to books of accounts and ledger accounts of the respective sundry creditors and proved before the ld. CIT(A), that there was no payment made in cash in excess of Rs.20,000/- to any of the parties. The details of the entire submissions made by the assessee and the various ledger accounts and 3 Assessment Year: 2010-11 M/s. S.M. Construction reconciliation submitted by the assessee are reproduced in pages 5 to 15 of the order of the ld. CIT(A). The ld. CIT(A) on a detailed examination of the same gave a categorical finding that there was no payment made in excess of Rs.20,000/- in violation of provisions of Section 40A(3) of the Act and accordingly the disallowance is liable to be deleted. He further held that in view of the said finding, the other arguments advanced by the assessee requires no adjudication.
Aggrieved the revenue is an appeal before us.
We have heard the rival submissions. The ld.CIT(A) had elaborately gone into the entire details with specific reference to the books of accounts and ledger accounts of various sundry creditors of the assessee. The ld. D/R, was not able to point out what were the fresh evidences that were filed by the assessee before the ld. CIT(A) for the first time that were not filed before the assessing officer. On the contrary, the assessee submitted that all the details that were examined by the ld. CIT(A) were duly submitted before the assessing officer also and there was absolutely no fresh evidence/s filed before the ld. CIT(A). Hence the ground taken by the revenue in this regard is dismissed. Later the very same set of documents that were filed before the assessing officer which were either ignored by the assessing officer or he not able to understand the accounting entries thereon, were better appreciated by the ld. CIT(A). We find all the errors committed by the assessing officer which were pointed out by the assessee before the ld. CIT(A) are correct. We hold that the ld. CIT(A) had deleted the disallowance after due examination of entries in the books of accounts and after giving a categorical finding that there was no violation of provisions of Section 40A(3) of the Act. We have also gone through the said ledger account as detailed and reproduced in the order of the ld. CIT(A) and we are convinced with the findings recorded by the ld. CIT(A) in this regard. We also hold that the findings recorded by the ld. CIT(A) remain uncontroverted by the revenue before us. We are also inclined to appreciate the contentions of the ld. A/R that the total purchases claimed by the assessee in the return was to the tune of Rs.2,46,43,767/-, and out of which, the creditor balances were to the tune of Rs.84,53,507/-. If the said sum is deducted from the total purchases, the resultant figure is Rs.1,61,90,260/-. Then how the 4 Assessment Year: 2010-11 M/s. S.M. Construction assessee could have made cash payments in excess of Rs.20,000/- to the tune of Rs.2,27,51,443/- as alleged by the assessing officer. This anomaly in figures clearly reflect the erroneous disallowance made by the assessing officer without understanding the accounts and accounting entries of the assessee. Hence we have no hesitation in upholding the order of the ld. CIT(A), in this regard. Accordingly, Ground Nos. 1, 2 & 3, raised by the revenue are dismissed.
The next issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the addition in the sum of Rs.2,36,800/-, in respect of payment made to Shri Minarul Haque, in the facts and circumstances of the case. 6.1. The assessing officer observed that the assessee had made payment to one Shri Minarul Haque, who was a subcontractor to the assessee in cash without deduction of tax at source towards contractual labour charges. The assessing officer sought to make enquiry with Shri Minarul Haque, through the jurisdictional Income Tax Officer, of the said party. The assessing officer also sought to obtain a copy of the income tax return filed by Shri Minarul Haque from his jurisdictional Income Tax Officer. The jurisdictional Income Tax Officer of the said party replied that no return of income was filed by Shri Minarul Haque for the assessment year 2010-11. The enquiry letter sent to Shri Minarul Haque, returned unserved. Accordingly, the assessing officer treated the transactions with the said party as bogus and observed that the assessee had created bogus liabilities and made bogus payments against Shri Minarul Haque and accordingly made the addition of Rs.2,36,800/- in the assessment. 6.2. The ld. CIT(A), deleted the addition by observing that the observations made by the assessing officer that the payments were made to this party in cash, in excess of Rs. 20,000/- was factually incorrect as is evident from the cashbook of the assessee. He held that there is absolutely no basis for treating this transaction as a bogus liability. The ld.CIT(A) also observed that the assessee had made total expenditure to the tune of Rs.2.70 Crores and, therefore, it is highly irrational and illogical to conclude that the assessee had intention to make bogus payments to the tune of Rs.2,36,800/- . The ld. CIT(A) also observed that the assessee operates 5 Assessment Year: 2010-11 M/s. S.M. Construction at very remote areas and hence the assessee cannot be fastened with the responsibility to ascertain and verify the addresses of the persons to whom sub- contracts were given. He also observed that merely because the concerned subcontractor had not filed the return of income for the assessment year 2010-11, no adverse inference can be drawn against the assessee. With these observations, he deleted the addition made in the sum of Rs.2,36,800/-.
Agreed the revenue is an appeal before us.
We have heard rival submissions. The ld. D/R, reiterated the findings recorded by the assessing officer and vehemently argued that the payee had not filed his return of income for the assessment year 2010-11 and accordingly the action of the assessing officer in treating the said transaction as a bogus payment/bogus liability is to be upheld. Per contra, the ld. A/R vehemently relied on the order of the ld. CIT(A). We are inclined to agree with the arguments of the ld. A/R as the assessing officer was not clear as to whether the said addition is made towards bogus payments or bogus liability as obviously both cannot coexist together. There is no section mentioned by the assessing officer while making this addition. We are also inclined to agree with the observations of the ld. CIT(A) that merely because the payee i.e., Shri Minarul Haque, had not filed his return of income for the assessment year 2010-11, no adverse inference can be drawn on the assessee by treating the insignificant payment made to the said party by the assessee as bogus when compared to total transactions of the assessee. The findings recorded by the ld. CIT(A) are not controverted by the revenue before us and accordingly we find no infirmity in the order of the ld. CIT(A), in this regard. Accordingly, Ground No. 4 raised by the revenue is dismissed.
The next issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made u/s 40(a)(ia) of the Act, in the sum of Rs.1,12,105/-, towards machine hire charges, in the facts and circumstances of the case.
We have heard the rival submissions. We find that the said disallowance was made u/s 40(a)(ia) of the Act, by the assessing officer on the presumption that 6 Assessment Year: 2010-11 M/s. S.M. Construction there is existence of contact. We find that the said sum of Rs.1,12,105/-comprises of monthly bills raised by Sk. A. Huda, totaling to Rs.1,08,000/- and Rs.4,105/-, for generator hire charges from B. Electricals. The assessing officer had also stated that this addition was agreed by the assessee during the course of assessment proceedings. We find that the ld. CIT(A) had deleted the addition without any basis and merely on the ground that the amount involved is insignificant and without appreciating the fact that the primary onus was on the assessee to prove that there was no contract for payment of these machinery charges. Hence we are inclined to accept the contention of the assessing officer with regard to the impugned disallowance to the extent of Rs.1,08,000/- and accordingly uphold the same. In respect of payment made to B. Electricals in the sum of Rs.4,105/- the same would be outside the limits prescribed for applicability of provisions of Section 194C of the Act. Hence relief is granted to the assessee. Accordingly, Ground No. 5 raised by the revenue is partly allowed.
Ground No. 6 & 7 raised by the revenue is with regard to the action of the ld. CIT(A) in deleting the addition of Rs.46,956/-, made on account of difference in closing balances with M/s. Petron Civil Engineering Pvt. Ltd., the debtor of the assessee.
We have heard the rival submissions. We find that the assessing officer had made this addition based on the unreconciled closing balances of the sundry debtor of the assessee M/s. Petron Civil Engineering Pvt. Ltd.. The assessee had total transactions of Rs.2,93,70,251/- with the said party and the difference of Rs.46,956/-, was explained by the assessee to be on account of deductions effected by M/s. Petron Civil Engineering Pvt. Ltd., which the assessee might not have accounted till the finalization of accounts for the year under consideration. We find that confirmation was received from the said party by the assessing officer in response to notice issued u/s 133(6) of the Act. The difference of Rs.46,956/-, represents only the unreconciled figures between the assessee’s books and the books of accounts of the party. The assessee pleaded that since it is a running account, with the said party and the transactions were also carried out in the subsequent years, the difference would be reconciled in due course of time. But we 7 Assessment Year: 2010-11 M/s. S.M. Construction find that the ld. CIT(A) had prepared a tabulation in page 18 of his order, wherein the difference was identified to the tune of Rs.2,284/-, alone and hence addition of Rs.2,284/- alone is to be made with regard to the said party based on complete reconciliation filed by the said party before the assessing officer in response to the notice issued u/s 133(6) of the Act. Accordingly, we direct the assessing officer to add only a sum of Rs.2,284/-, in this regard. We also find that the ld. D/R, was not able to point out the fresh evidence, if any, filed by the assessee for the first time before the ld. CIT(A). Accordingly this ground raised
by the revenue for violation of Rule 46A is dismissed. Accordingly, Ground Nos. 6 & 7, raised by the revenue are partly allowed.
13. The last issue to be decided in this appeal is with regard to the action of the ld. CIT(A) in deleting the addition of Rs.86,522/-, made on account of site expenses. 13.1. The assessing officer made an estimated addition @ 15% of the site expenses and arrived at the disallowance of Rs.86,522/-, on the ground that the assessee only produced self-made vouchers without supporting evidence thereon. We find that the ld. CIT(A) appreciated the contentions of the assessee that the site of the assessee being situated in remote villages, the assessee used to reimburse the expenses and cost of purchases made at site to the employees of the assessee firm. In other words, these expenses were incurred by the employees and reimbursement made to them out of petty cash provided to them at site. The assessee stated that it has got average total staff of 8 and average total labour of 13. The total expenses incurred on this account was Rs.5,76,816/-. Hence the average expenses per day per worker worked out to Rs.75.25/-. The assessee also stated that it is practically impossible to provide full supporting evidences as the documents were maintained at the site which are situated in remote villages. These expenses were not paid to outsiders and instead were reimbursed only to the employees of the assessee firm. The ld. CIT(A) appreciated the contentions of the assessee and deleted the ad hoc disallowance made by the assessing officer.
8 Assessment Year: 2010-11 M/s. S.M. Construction 13.1. We have heard rival submissions. We find that the ld. D/R, relied on the order of the assessing officer. We have gone through the findings recorded by the ld. CIT(A) and we find no infirmity in the said order with regard to the impugned disallowance made on an ad hoc basis by the assessing officer. Accordingly Ground Nos. 8 & 9, raised by the revenue are dismissed.
Ground No. 10, raised by the revenue, is general in nature and does not require any specific adjudication.
In the result, appeal of the revenue is partly allowed. Kolkata, the 5th day of April, 2019. Sd/- Sd/- [Aby T. Varkey] [M. Balaganesh] Judicial Member Accountant Member Dated : 05.04.2019 {SC SPS} Copy of the order forwarded to: 1. M/s. S.M. Construction C/o- Suvayoo Basu Flat No. 1A, Merlin Dev Bhowanipore 10, Debendra Ghose Road Kolkata – 700 025 2. Income Tax Officer, Ward-29(2), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.