M/S. SHAH CONSTRUCTION,,SATARA vs. JOINT COMMISSIONER OF INCOME-TAX,,

Shri M.K. Kulkarni appearing on behalf of the assessee submitted at the outset that he is not pressing ground Nos. 1 and 2 raised in the appeal. The ld. Counsel for the assessee submitted that the assessee is a civil contractor and is engaged in construction of roads, bridges, office buildings for Government and Semi-Government Departments. During the course of scrutiny assessment proceedings, the Assessing Officer inter alia disallowed payment to the tune of Rs.8,87,875/- made to the labours working at various sites. The authorities below have failed to take into consideration the fact that assessee has made payments to the labourers working at remote areas with no banking facilities and even if the areas have banking facilities the labourers are not permanently residing in those areas. The labourers would be working on the site only till the time the work is in progress. After the work is complete on the site, they move to the next location.

On the other hand Shri Mukesh Jha representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals). The ld. DR submitted that the assessee has tried to make out a case before the authorities below that the cash payments made by the assessee to the labourers fall within exceptions provided in Rule 6DD(g) or (j) of the Income Tax Rules. The assessee has failed to show that the cash payments made to labourers fall in any of the above exceptions provided under Rule 6DD. The ld. DR asserted that the assessee has made payments to the labourers for working at Mundhe, Phaltan, Kadegaon and Deepnagar. All these places have a bank branch. Therefore, the case of the assessee would not fall in the exceptions provided under Rule 6DD(g). The ld. DR further pointed that the assessee has not been able to show either that the payments were made on bank holiday. Therefore, the case

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The ld. Counsel for the assessee has stated at the Bar that he is not pressing ground Nos. 1 and 2 raised in the appeal. Accordingly, the same are dismissed as not pressed.

In ground No. 3 of the appeal the assessee has assailed disallowance of Rs.8,87,875/- u/s. 40A(3) of the Act. Undisputedly, the assessee has made cash payments to the labourers. The assessee before the authorities below have tried to take shelter of exceptions provide under Rule 6DD (g) and (j). We observe that the Assessing Officer had found cash payments of Rs.10,26,569/- in excess of Rs.20,000/-. The Assessing Officer after giving the benefit of Rule 6DD(j) made addition of Rs.8,87,875/-. The assessee has failed to substantiate that any part of the addition made in respect of cash payments made to the labourers were on closed bank holiday. Therefore, the exception provided in sub-rule (j) would not further come to the rescue of assessee.

Now, we have to see whether the cash payments made by assessee fall within the exception provided under Rule 6DD(g). Before proceeding further it would be relevant to refer to Rule 6DD(g). The same is reproduced here-in-below : “6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft,

In the present case, we find that the assessee is a civil contractor and is engaged in construction of roads, bridges, office buildings for Government and Semi-Government Departments. The assessee works at different sites even at remote places. The labourers to whom cash payments are made move from one site to another after completion of the work. Thus, neither the workers/labours have permanent place of stay at the site nor the assessee has permanent place of work at one site. Thus, the labourers do not ordinarily reside at a place where the purported cash payments are made by the assessee. The assessee may have Bank account at the place of work but it may not be necessary that all the labourers have bank accounts even if the place is served by bank branch, as they are living the life of nomads. The Assessing Officer has not raised any doubt over the payments made to the labourers. The payments have been

In the result, the appeal of assessee is partly allowed.