G.R.M. CONSTRUCTIONS,NAMAKKAL vs. ACIT, CENTRAL CIRCLE, SALEM
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Income Tax Appellate Tribunal, C BENCH: CHENNAΙ
Before: SHRI MAHAVIR SINGH & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M :
Aforesaid eight appeals filed by the assessee are against the
identical orders passed by Learned Commissioner of Income Tax
(Appeals), Chennai-20 [hereinafter “CIT(A)”] dated 24.05.2024
confirming the addition made by the Ld. Assessing Officer.
The facts in all the appeals of the assessee are identical and
issues are common hence, we proceed to pass a common order. For
brevity, we shall take up the appeal in ITA No.1973/Chny/2024 for A.Y
ITA Nos.1973 to 1980/Chny/2024 :- 2 -:
2013-14 as lead case. The grounds of appeal raised by the assessee
for A.Y 2013-14 are as under:
“1. On the facts and circumstances of the case the order of first appellate authority dated 24.05.2024 in dismissing the appeal of the appellant is bad in law and is not legally justified.
On the facts and circumstances of the case the first appellate authority is not justified in giving a finding that the notice U/s 148 issued on 29.03.2021 for the assessment year 2013-14 for which the due date for issue of the notice has expired on 31.03.2020, is a valid notice. The above notice is barred by limitation and the reassessment proceedings are bad in law. On Similar facts Income Tax Appellate Tribunal 'B' Bench in ITA No. 1506/Chny/2023 by order dated 31.05.2024 has held that the notice U/s 148 for the A.Y 2013-14 issued to the assessee on 27.03.2021 in that case is barred by limitation U/s 149 of the Act.
On the facts and circumstances of the case the first appellate authority is not justified in sustaining the reassessment proceedings which has been done after four years from the end of the assessment year on same set of facts without any fresh materials coming into the possession of the AO other than the statement recorded in the course of survey U/s 133A on 06.02.2020.
On the facts and circumstances of the case the first appellate authority is not justified in solely acting upon the statement recorded in the course of survey U/s 133A of the Act on 06.02.2020 in sustaining the addition of Rs.10,78,063/- made by the AO. It has been judicially settled that the statements recorded in the course of survey does not have any evidentiary value as held by The Madras High Court in the case of CIT vs. S.Khader Khan Son reported in 300 ITR 157 which decision has also been affirmed by The Apex court.
On the facts and circumstances of the case the amount admitted in the course of survey U/s 133A was not admitted in the return filed in response to notice U/s 148 of the Act which action amounts to retraction of the statement.
On the facts and circumstances of the case in the course of survey proceedings books of accounts and documents were also seized and the addition of Rs.10,78,063/- has been made not on the basis of the above seized documents but the addition has been made solely on the basis of statement recorded in the course of survey which is bad in law.
ITA Nos.1973 to 1980/Chny/2024 :- 3 -:
On the facts and circumstances of the case reliance was placed upon the circular of CBDT dated 10.03.2003 wherein departmental officials have been specifically instructed not to get confessions during the course of search and survey operations, which circular is binding on all the officials of the department. The framing of the assessment on the basis of such confessions given by the assessee which action has been sustained by The First Appellate Authority is bad in law. 8. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250 passed by Commissioner of Income Tax (Appeals Chennai 20 may be cancelled and justice rendered.”
The assessee is involved in a civil contract works and filed return
of income for A.Y 2013-14 on 13.09.2014 declaring total income of
Rs.13,33,194/-. A survey u/s. 133A of the Income-tax Act, 1961
(hereinafter “the Act”) was conducted in the premises of the assessee
on 05.02.2022. During the survey proceedings, it was found that the
assessee has claimed labour expenses, but could not substantiate the
labour expenses with bills and vouchers fully. The partners therefore,
in his statement recorded during the survey u/s. 133A of the Act
admitted for disallowance of 10% of labour expenses. The A.O has
reopened the assessment on the basis of above statement by issuing
notice u/s. 148 of the Act. The assessee in response to notice u/s.
148 of the Act has stated that the return originally filed may be treated
as return filed u/s. 148 of the Act. The assessee therefore has not
accepted the disallowance of 10% of labour expenses in the return
filed in response to notice u/s.148 of the Act. The A.O in the
ITA Nos.1973 to 1980/Chny/2024 :- 4 -:
assessment order passed u/s. 147 of the Act has made the addition by
adding 10% of labour expenses as per the reasons recorded. The Ld.
CIT(A) has confirmed the addition as the assessee itself has agreed
for disallowance of 10% labour expenses during survey.
The Ld. Authorized Representative (A.R) of the assessee before
us has challenged the reopening of assessment after four years for
A.Ys 2013-14, 2014-15 & 2015-16 as there was no fresh materials in
possession of AO and assessment has been reopened only on the
basis of statement. On merit, the Ld. AR has submitted that the
addition has been made merely on the basis of statement taken during
survey u/s. 133A of the Act and without giving any show cause during
assessment proceedings. The Ld. AR has further submitted that
survey was conducted on 06.02.2020 and thereafter, Covid pandemic
broke out and there was a lock down in the country due to Covid and
the assessee in the return of income in response to notice u/s 148 on
20.10.2021 has not accepted the disallowance of labour expenses @
10%. The Ld. AR has submitted that during the course of survey
proceedings, the documents have been impounded, but no documents
relating to labour expenses has been impounded or relied upon while
making the addition. The Ld. AR relying on the decision of Hon’ble
ITA Nos.1973 to 1980/Chny/2024 :- 5 -:
Madras High Court in the case of CIT vs. S. Khader Khan Son 300 ITR
157 (Mad.) has submitted that statement of partner in survey operation
regarding undisclosed income is not a conclusive piece of evidence.
The Ld. AR has argued that the CBDT in a Circular dated 10.03.2003
has also emphasized that the assessing officer should not take
confession during survey operation and the A.O should rely on the
evidence or material recovered during the course of survey operation
to make addition and in the present case the A.O has relied only on
statement and not on any documents therefore, addition made should
be deleted.
The Ld. Departmental Representative (DR), on the other hand,
has relied on the orders of authorities below and argued that the order
of CIT(A) may be confirmed as addition has been made on the basis of
disallowance of labour expenses agreed by the assessee.
We have heard the rival submissions, and perused the materials
available on record. A survey u/s. 133A of the Act was conducted in
the premises of the assessee. The managing partner, Shri R.
Ganeshan, in his statement during survey stated that all vouchers
relating to labour charges are prepared by site supervisors and some
ITA Nos.1973 to 1980/Chny/2024 :- 6 -:
of the vouchers might have been misplaced and some of the vouchers
might be self made, based on the expenses incurred by the site
Supervisor. Hence, there will be increase/fluctuation in labour charges
expenses claimed. He, therefore offered 10% of the labour charges as
income for A.Y 2013-14 to 2019-20.
The Ld AR has challenged the reopening of assessment,
affirmed by Ld CIT(A). We do not find any merit in the submission of
Ld AR as the the assessment has been reopened on the basis of
finding of survey that some of the vouchers for labour charges was
not available and accepted by the partner , therefore the A.O was
justified to reopen assessment u/s. 147 of the Act.
As regards to merit, the A.O has made the addition only on the
basis of statement of the managing partner , who has agreed for 10%
of disallowance of labor expenses during survey .We note that the firm
has not accepted the disallowances admitted by the partner as it did
not include the disallowances in the return of income filed in response
to notice u/s. 148 of the Act. The A.O has made the addition only on
the basis of statement of the partner. However, after admitting that
some of labour expenses are not fully vouched during survey, onus
was on the assessee to submit all bill/vouchers in support of the
ITA Nos.1973 to 1980/Chny/2024 :- 7 -:
expenses claimed during assessment proceeding, which assessee
has failed to discharge. We therefore hold that the AO was justified to
make the disallowances. As regard to quantum of disallowances,
assessee has shown net profit between 2.5% to 6.18% of gross
receipt for A.Y 2013-14 to A. Y 2019-20 as under:
Assessment Gross Labour Net Profit Net profit Net profit year receipts Charges (in Rs.) ratio ratio after (in Rs.) before addition addition 2013-14 6,05,53,329 1,07,80,638 18,13,194 3.01% 4.80% 2014-15 10,68,13,303 3,74,41,710 33,11,210 3.10% 6.61% 2015-16 16,18,82,230 5,07,29,378 40,48,867 2.50% 5.63% 2016-17 31,30,81,445 13,82,99,882 1,10,16,460 3.52% 7.94% 2017-18 50,05,10,773 21,96,07,058 1,77,78,218 3.55% 7.94% 2018-19 45,89,75,164 6,24,93,442 1,83,99,015 4.01% 5.37% 2019-20 75,34,10,690 6,87,88,056 4,65,32,817 6.18% 6.99%
The net profit ratio after disallowances of 10% labour expenses
has gone up to 4.80% to 6.99% for A.Y 2013-14 to A.Y 2019-20.The
Hon’ble Madras High Court in the case of K. Kannan vs. Assistant
Commissioner of Income-tax, Circle-I in Tax Case (Appeal) Nos. 679 &
680 of 2013 in M.P. Nos. 1 of 2013 and 1 & 2 of 2013 dated
01.10.2013, has held the net profit of 5% of contract receipt in such
business justifiable. We therefore, after considering the nature of
business, gross receipts, labour expenses claimed, restrict the
disallowances to 5% of labour expenses for A.Y 2003-04 to A.Y 2018-
19, which will result in net profit of approximately 5%. As regard to A.Y
2019-20, the assessee itself has shown net profit of Rs 6.18% in the
ITA Nos.1973 to 1980/Chny/2024 :- 8 -:
return of income, therefore no further disallowances is called for in A.Y 2019-20. Hence, the A.O is directed to compute disallowance accordingly.
In the result, all the appeals filed by the assessee are partly allowed. Order pronounced on 18th October, 2024.
Sd/- Sd/- (महावीर िसंह) (जगदीश) (Jagadish) (Mahavir Singh) उपा� / Vice President लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य चे�ई/Chennai, �दनांक/Dated: 18th October, 2024. EDN/- आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF
