G.R.M. CONSTRUCTIONS,NAMAKKAL vs. ACIT, CENTRAL CIRCLE, SALEM

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 for A.Y to 1980/Chny/2024 :- 2 -:

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.

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 to 1980/Chny/2024 :- 4 -:

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 to 1980/Chny/2024 :- 5 -:

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.

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 to 1980/Chny/2024 :- 7 -:

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 to 1980/Chny/2024 :- 8 -:

In the result, all the appeals filed by the assessee are partly allowed. Order pronounced on 18th October, 2024.