S.S. CONSTRUCTION,MUMBAI vs. ASSESSING OFFICER CIR 19(1), MUMBAI

आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Assessee, being ITA No. 5482/Mum/2014 for assessment year(AY) 2010-11 and Cross Objections(CO) bearing no.

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141/Mum/2018 for AY 2010-11 filed by the Revenue , are both directed against the appellate order dated 31.07.2014 passed by learned Commissioner of Income-tax (Appeals)-30, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2010-11, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 26.03.2013 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”). 2. The grounds of appeal raised by the Assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “ 1. The Learned Commissioner of Income tax Appeal (30) has erred in the facts and circumstances of the case and in law in estimating Income at the rate of 15 percent of gross turnover Rs.8,33,34,738/- (i.e. 8.33 Crs) before Interest and remuneration payable to the partners without any basis and / or comparable cases in this line of contract business hence returned Income which is 9% of turnover before interest and Remuneration to the partners be accepted. 2. The Learned Commissioner of Appeal (30) ought to have accepted the book results of the appellant, which is nine percent of the gross turnover of Rs. 8,33,34,738/- before interest and Remuneration payable to the partners, which is more than 8% percent [which is acceptable in case of the appellant who is liable to tax under Section 44AD of IT Act 1961] 3. The Assessing Officer ought not to have disallowed interest under Section 36 (i) (iii) of the IT Act 1961 amounting to Rs.1.21,064/-. All trade advances of Rs.29,80.500/- are given wholly and exclusively for Business purposes in the ordinary course of business and the Learned CIT (A) 30 ought not to have confirmed the disallowance of Rs.1,21,064/-. He ought to have deleted the addition. 4. The Loan processing charges of Rs.17,692/- is allowable Expenses and ought to have been allowed. 5. The Service tax penalty of Rs.12,000/- and Sales tax penalty of Rs.10,000/- are compensatory in nature and ought to have been allowed.” 3. The additional grounds of appeal is raised by the Assessee which read as under:- “The Assessing Officer as well as CIT(A) 30 ought not to have rejected the Book Results when the Books of Accounts are subjected to the Tax Audit under Section 44AB and all the Expenses are supported by proper vouchers and authorization and the Tax Auditor has not pointed

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out any defects in the books of Accounts as well as by the Assessing Officer and the First Appellant Authority.”

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admission of this additional ground filed by the assessee. We order accordingly.

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508947 Vijay Shankar Tiwari Vinod Misra 892010 397080 V Murugan 12893615 Total

Despite being asked by the AO to furnish the details during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act conducted by the AO, the assessee did not furnish name, address ,PAN , amount paid and details of services rendered with regard to labour charges(Mukadam). The AO observed that in the absence of details furnished, the assessee has failed to discharge its onus, and in absence thereof no further enquiry could be made and it could not be proved that these expenses were incurred wholly and exclusively for the purposes of the business of the assessee. It was observed by the AO that in the absence of details of these labour charges, he could not issue notices u/s 133(6) of the 1961 Act. The AO observed that the assessee could not produce these parties before the AO nor evidences were led by the assessee to prove these expenses being genuine expenses and are allowable being incurred wholly and exclusively for the business of the assessee. The AO held that the assessee failed to discharge its burden of proving that the said expenditure were genuine and allowable. This led to additions of Rs. 1,28,93,615/- being made by the AO on account of disallowance of alleged labour charges(Mukkadums) being bogus expenses as allegedly claimed by the assessee , vide assessment order dated 26.03.2013 passed by the AO u/s. 143(3) of the 1961 Act . It was also observed by the AO that there is no compliance of provisions of Section 40(a)(ia) of the 1961 Act, the assessee submitted as under:- "Secondly I would like to submit that Mukadums are like Sardars of a family of casual labourers doing digging, trenching and cable laying on daily work basis. They are paid on daily wages basis. It is practically not possible to make vouchers of each and every worker and make payment daily basis. We are making payments to the Mukadums in turn they are making payments to the laboures daily basis. These Sardars / Mukadums are not contractors within the meaning of section 194C(2) under provisons of section 40(a)(ia) cannot be applied as decided in Samanvaya vs ACIT (2009) 34 SOT 331 (Kol) Trib. Also Nalawade C Maruti vs JCIT (2011) 48 SOT 566 (Pune) Trib, In view of the above mentioned judgment it is clear that Mukadums cannot be termed as contractors hence no TDS deductible". 5

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The AO , however, rejected the contentions of the assessee and alternatively additions were confirmed by the AO to the tune of Rs. 1,28,93,615/-to the income of the assessee on account of payments made towards labour charges (Mukadam) by also invoking provisions of Section 40(a)(ia) of the 1961 Act , vide assessment order dated 26.03.2013 passed by the AO u/s 143(3) of the 1961 Act. 7. Similarly , there was an addition of Rs. 8,75,773/- made by the AO to the income of the assessee vide assessment order dated 26-03-2013 passed by the AO u/s 143(3) towards labour charges as the assesse failed to furnish names, addresses , PAN , amount paid and services rendered by the labour and the assessee failed to prove that the services were rendered wholly and exclusively for the business of the assessee and the expenses were genuine, whereby the AO observed as under:- “ 5.1 In the profits loss account for the year ending 31.3.2010 assesseee has debited Rs.8,75,7737- on account of labour charges. During the course of hearing vide order sheet noting dated 21.11.2012 assessee was asked to furnish names, address, PAN, amount paid and services rendered with regard to the labour charges. Assessee was given opportunity to furnish the details vide order sheet noting dated 5.12.2012, 17.12.2012, 24.12.2012, 7.1.2013, 15.1.2013, 28.1.2013, 4.2.2013, 11.2.2013, 15.2.2013. Inspite of providing ample opportunities, assessee failed to furnish the details of labour charges. Any claim of expenditure is allowable if it is incurred wholly and exclusively for the purpose of business. Secondly, in the case of labour charges the assessee has to prove that services have been rendered by them for its allowability. However, the assessee has failed to discharge its burden of proving the fact that the expenditures claimed are genuine and allowable. Therefore the sum of Rs.875773/- being the payments claimed to have made on account of labour charges is disallowed and added to the total income of the assessee, Penalty proceedings u/s 271(1)(c) of the I.T Act 1961 being initiated in this regard. 8. Aggrieved by assessment framed by the AO u/s 143(3) vide orders dated 26.03.2013, the assessee filed first appeal with learned CIT(A) . The assessee filed letter dated 24.06.2014 before learned CIT(A) seeking admission of additional evidences under Rule 46A of the Income-tax Rules, 1962 with respect to the additions made towards labour charges of Rs. 1,28,93,615/- paid through Mukadam and also payment of Rs. 8,75,713/- towards labour charges. The assessee took the plea before learned CIT(A) that the main partner who was incharge of taxation and accounts was not well when the assessment proceedings were going on before the AO and also his close

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relative was critical. It was also submitted that the accountant who was looking after the assessee firm also left the organisation when the, assessment proceedings u/s 143(30 r.w.s. 143(2) were in progress which were the main reason for non production/non furnishing of details including non production of parties before the AO during the assessment proceedings. The above facts are discernible from para 3 of the appellate order dated 15.04.2013 passed by learned CIT(A). The learned CIT(A) did not admitted additional evidences and rejected the application filed by the assessee before it towards admission of additional evidences within parameters of Rule 46A of the 1962 Rules on the grounds that proof of illness of partner is not produced by the assessee. The assessee also failed to produce medical certificate before learned CIT(A) evidencing illness of partner of the assessee firm when the assessment proceedings were in progress. Similarly, the assessee could not produce evidence of illness of close relative of partner of the assessee firm because of which the assessee could not produce evidences before the AO during assessment proceedings. The assessee also could not demonstrate as to when the accountant left the assessee firm when assessment proceedings were in progress leading to non furnishing of details before the AO during assessment proceedings. All these factors weighed heavily on the minds of the learned CIT(A) which led to rejection of application filed by the assessee for admission of an additional evidences u/r 46A of the 1962 Rules. On merits, the learned CIT(A) observed that assessee is engaged in business of trenching and cable laying. The assessee furnished copy of agreement before learned CIT(A) for carrying out work of OSP services as per BOQ for Tata Teleservices( Maharashtra) Ltd. . The learned CIT(A) observed that scope of work including supply of materials and the assessee has earned gross revenue of Rs. 8,33,34,739/- from Tata Teleservices (Maharashtra) Ltd. and it is not possible to carry out such work without expenditure on labour and learned CIT(A) went ahead and estimated profits of the assessee firm to be tune of 15% of the turnover, before deducting remuneration payable to partner, vide appellate order dated 15.04.2013 passed by learned CIT(A). The assessee on its part had declared profit @ 9% of the total turnover before claiming deduction of remuneration of Rs. 45,94,483/- paid to partner which got enhanced to 15% by appellate orders of learned CIT(A). The learned CIT(A) also held vide appellate order

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dated 15-40-2013 that under these situations , the provisions of Section 40(a)(ia) of the 1961 Act has no applicability . 9. Aggrieved by appellate order dated 15.04.2013 passed by learned CIT(A), the assessee has come in an appeal before the tribunal . The Revenue has filed Cross Objection which is delayed by 930 days beyond the time stipulated u/s 253(4) of the 1961 Act. The Ld. Counsel for the assessee has pleaded that the revenue has filed CO in this case vide CO No. 141/Mum/2018 which is time barred and delayed by 930 days. It was submitted that there is no cause and justification provided by Revenue for filing this CO late of 930 days and there is no application moved for condonation of delay in filing CO nor any affidavit has been filed praying for condonation of delay of 930 days. The Ld. AR relied upon the decision of ITAT-Chandigarh in the case of Lakshmi Energy & Foods Ltd v. ITO reported in (2017) 83 taxmann.com 335(Chd.-Trib.), decision of Hon’ble Supreme Court in the case of Office of the Chief Post Master General v. Living Media India Ltd. reported in (2012) 20 Taxmann.com 374(SC), decision of Hon’ble Bombay High Court in the case of CIT(E) v. Lata Mangeskhar Medial Foundation reported in (2018) 166 DTR 76 (Bom) and decision of Hon’ble Punjab and Haryana High Court in the case of Gurpal Singh Brar v. ITO reported in (2018) 404 ITR 58 (P&H High Court). 10. The Ld. DR could not controvert this position nor explained any reasons for delay of 930 days in filing CO late beyond time stipulated u/s 253(4) of the 1961 Act. The learned DR also could not explain why application praying for condonation of delay has not been filed before tribunal. It could also not be explained as to why no affidavit has been filed, rather the learned DR categorically stated that bench can take decision as may deemed fit. 11. We have considered rival contention and perused the material on record. We have observed that the assessee filed its appeal in the year 2014 and hearing in this case commenced before the Bench from September 2016 . Several hearing took place before tribunal since September 2016 so far as assessee’s appeal which hearings continued from time to time as late as on 25.05.2018 . The Revenue filed cross objection on 30-05-2018 which was filed 930 days late beyond time stipulated u/s 253(4) of the 1961 Act but no

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application praying for condonation of delay of 930 days in filing late this CO has been filed by Revenue . No affidavit has been filed and even no reasons for aforesaid delay whatsoever has been filed to justified and explain the causes of this delay of 930 days in filing CO late beyond the time stipulated u/s 253(4). The said delayed filing of CO by Revenue late by 930 days beyond time stipulated u/s 253(4) is not supported by any application nor affidavit for filing late this CO by Revenue for condoning delay in late filing of this CO is filed by Revenue. No explanations or justifications are submitted by Revenue in its CO or even in pleadings before the tribunal as no reasons whatsoever are furnished for such late filing of CO by Revenue. The appeal is statutory right which emanate from the 1961 Act and is to be exercised with in the framework of statute. There is no vested right in filing appeal/CO except as provided by statute. The 1961 Act itself provided for period of 30 days from the date of receipt of notice for filing the CO. The Revenue has participated in appellate proceedings since September 2016 but in the middle of 2018 only this CO has been filed on 30-05-2018 without any explanation, justification or reasons for this substantial delay of 930 days and not even application/prayers for condonation of delay has been filed for condoning this delay of 930 days. Under these circumstances keeping in view factual matrix of the case , we are constraint to dismiss this CO filed by Revenue. We order accordingly. 12. Now coming to merits of the case , it is submitted by Ld. Counsel for the assessee that the assessee is in business of trenching and cable laying. The assessee has paid labour charges to Mukadam of Rs. 1,28,93,615/- and also made payments to labour charges to the tune of Rs. 8,75,773/- . It was submitted by learned counsel for the assessee that Mukadam is not a contractor and the Mukadam was hired by the assessee who is just like Sardar of labourer who distributed payments to labour on behalf of the assessee. Our attention was drawn to page no. 90 of the paper book and it was submitted that Mukadam are like Sardar of family of causal labour doing digging trenching and cable laying on daily work basis . The learned counsel for the assessee also relied upon the decision of ITAT in the case of ITO v. Shree Swamni Samartha Agro Processors in ITA no. 5578/Mum/2014 order dated 17.01.2017 and also decision of ITAT Pune in the case of Nalawade C Maruti v. JCIT reported in (2011) 15 Taxmann.com 2018 (ITAT-

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Pune). It was submitted that learned CIT(A) has estimated profit at the rate of 15% of turnover , while assessee has declared profit at the rate of 9% of turnover( before deducting remuneration to partners). The learned CIT(A) rejected books of accounts and Reliance has been placed on the decision of Hon'ble Supreme Court in the case of M/s.Kanchwala Gems v. JCIT reported in (2007) 158 taxman 71(SC) and it was submitted that reasonable estimation of profit be made @10% of turnover as against 15% as assessed by learned CIT(A). It was submitted that 8% profit is stipulated u/s. 44AD. He also relied upon page no. 80 /paper book wherein written submissions are placed. it was submitted that 9% profits were declared which can be enhanced to 10% . On the other hand learned DR relied upon the order of learned CIT(A) . 13. We have considered rival contention and perused the material on record including case laws relied upon. We have observed that the assessee is in the business of trenching and laying of cables . The assessee has done work of trenching and cable laying for Tata Teleservices (Maharashtra) Ltd. . The assessee paid labour charges to Mukadam to the tune of Rs. 1,28,93,615/-. The assessee had claimed that payments towards labour charges were made through Mukadam to following parties as under:-

Name Amount (Rs) 581768 Ashok Kumar Sharma E Velumalai 263957 Guddu Rajbha 313173 179500 K Vasantha 509769 Laxman Maruti Shinde L S Rajpal 791147 M D Abdul Khayer 464712 M DShafiul Islam 496544 Mohammed Raffi 796821

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Mulla Abu Tahir 543149 N Nityanand Nadar 166400 Priya Swami Perumala 3341742 Rajesh Kumar Prajapati 403256 Ram Bhagat Goud 500800 R V Joga 332623 260717 Shah Jahan Shaikh 113 6500 Sheshrao Gawali 13000 S P Dubey 508947 Vijay Shankar Tiwari Vinod Misra 892010 397080 V Murugan Total 12893615

The assessee also paid labour charges of Rs. 8,75,773/- . The assessee did not produce before the AO name, addresses, PAN , other details of the said payees to whom the payments were made on account of labour charges on both counts as detailed above. The assessee could not establish that said payments were genuine and were paid for services rendered to the assessee wholly and exclusively for the purpose of its business of assessee. The assessee had claimed that Mukadam are like Sardar of family of casual labour who are doing digging, trenching and laying of cables. The Assessing Officer disallowed the entire expenses of Rs. 1,28,93,615/- paid to labour through Mukadam and also disallowed labour charges to the tune of Rs. 8,75,773/- on the grounds that the assessee failed to produce the details of said expenses of which the genuineness could not be proved as also its incurring for business of the assessee wholly and exclusively could not be established. The AO also disallowed the expenses of Rs. 1,28,93,615/- u/s 40(a)(ia) of the 1961 Act on the grounds that no income-tax was deducted at

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source u/s 194C of the 1961 Act. The assessee did not produced details and evidences before the AO which prevented AO to make any enquiries u/s 133(6) nor these parties were produced by the assessee before the AO during the assessment proceedings. But during the course of appellate proceedings before the learned CIT(A) , the assessee filed an application under Rule 46A of the 1962 Rules before learned CIT(A) for admission of additional evidences wherein the assessee had claimed to have filed all details and evidences to support its contentions to justify that no additions are warranted as were made by the AO on both the counts but learned CIT(A) instead of admitting those evidences and appraising /evaluating them on merits to advance substantial justice instead rejected assessee’s application filed u/r 46A of the 1962 Rules at threshold on technical grounds as in the opinion of learned CIT(A) no evidence to support justification for not filing evidence before the AO could be filed by the assessee. The assessee had on the other hand contended that it was due to illness of its partner incharge of taxation and accounts as well illness of the close relative of said partner , the details could not be furnished during assessment proceedings before the AO. The assessee has also submitted that its accountant left the organisation which was another reason for non production of details/evidences before the AO during assessment proceedings which was also disbelieved by learned CIT(A). Be it as may be but the fact remains that the assessee has claimed to have come forward with all the necessary evidences to justify its stand and corroborate that the expenses are bonafide, genuine and incurred wholly and exclusively for the purposes of its business. These evidences got discarded by learned CIT(A) on technical grounds and these evidences never saw day of light with respect to their evaluation/verifications on the touchstone of merit by Revenue. The rules of procedure are subservient to substantive law to serve justice and not to scuttle justice at threshold on technical nitty gritties unless malafide is writ large on the part of tax-payer which is not so in the instant case. The mandate of the 1961 Act is to compute correct taxes as per provisions of the 1961 Act which is supported by mandate of Article 265 of the Constitution of India. The learned CIT(A) ought to have admitted thes additional evidences filed by the assessee and evaluated/verified on the touchstone of merits but instead learned CIT(A) proceeded to estimate profit at the rate of 15% of the turnover ( before deducting partners remuneration ) after discarding these evidences at threshold on technical grounds despite

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evidences filed by the assessee before learned CIT(A). The learned CIT(A) ought to have forwarded the said additional evidences to the AO for submission of remand report on merits after their evaluation/verification by the AO as per Rule 46A(3) of the 1962 Rules. The learned CIT(A) erred in not admitting additional evidences and in estimating profits despite having all evidences before it to compute income as per provisions of the 1961 Act r.w.r. 46A of the 1962 Rules. In our considered view and in the interest of substantial justice to both the parties in exercise of our powers u/s 254(1) of the 1961 to pass such orders as deem fit, the matter is restored to the file of the AO for fresh/de-novo framing of assessment by AO on merits in accordance with law after admitting all the evidences filed by the assessee . All contentions/issues are left open and we would like to clarify that we have not commented on merits of the issue in this appeal. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in denovo assessment proceedings in accordance with principles of natural justice in accordance with law. All the evidences filed or to be filed by the assessee in denovo assessment proceedings before the AO shall be admitted by the AO before adjudicating the issue’s on merits in accordance with law while framing de-novo assessment . We order accordingly. 14. The appeal of the assessee is allowed for statistical purposes while CO filed by Revenue is dismissed. Order pronounced in the open court on 31.07.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 31.07.2018 को की गई ।

Sd/- Sd/- (SAKTIJIT DEY ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, dated: 31.07.2018

Nishant Verma Sr. Private Secretary

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copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, C 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI