B.PATEL INFRASTRUCTURRE PVT.LTD.,,AHMEDABAD vs. THE JT.CIT.,MEHSANA RANGE,, MEHSANA

Briefly stated facts as culled out from the records are that the assessee is a private ltd. company engaged in the business of civil construction as well as construction of earth work, cement, concrete mining etc. Return of income filed as on 30th September, 2011 claiming a loss of Rs. 56,50,431/-. Case selected for scrutiny through CASS, notice u/s. 143(2) and 142(1) of the act duly served upon the assessee.

During the course assessment proceedings, ld. assessing officer examined the valuation of closing stock and work in progress as on 31-03-2011. Assessee has shown closing stock and work in progress (WIP) at Rs. 4,05,45,100/- which inter alia included the stock in WIP of Jhinjhuwada branch Dashada site at Rs. 1,81,20,961/-. Ld. assessing officer also called for the details u/s. 133(6) of the act from assessee’s banker i.e. Allahabad Bank and received the information about the closing stock of material at various

Aggrieved assessee preferred appeal before the ld. CIT(A) and partly succeeded. Now both assessee and revenue are in appeal before the tribunal raising following grounds of appeals:-

Both the power authorities have passed the orders without properly appreciating the facts and that they further erred in grossly ignoring various submission, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The Ld. CIT(A) has erred in law and in facts of the case in confirming action of Ld. AO in levying interest u/s 234A/B/C/D of the Act.

The Ld. CIT(A) has erred in law and on the facts in confirming the action of Ld. AO in initiating penalty u/s 271(1)(c) of the Act.” The revenue has raised following grounds of appeal:- i) The ld. CIT(A) has erred in law and on facts, in deleting the addition of Rs. 30,66,154/- made by the assessing officer, on account of addition of valuation of closing stock. ii) The Ld.CIT(A) has erred in law and on facts, in deleting the disallowance of Rs.4,86,000/- made by the Assessing Officer on account of disallowance out of tractor rent. iii) The Ld.CIT(A) has erred in law and on facts, in deleting the disallowance of Rs.5,73,086/- made by the Assessing Officer on account of disallowance out of expenses. iv) On the facts and circumstances of the case the Id. CIT(A) ought to have upheld the order of the Assessing Officer. v) It is therefore prayed that the order of the Ld. CIT(A) may be set aside" and that of the A.O. be restored to the above extent.”

From perusal of the grounds raised by assessee and revenue, we find that the first issue commonly raised in both the appeals relates to the addition u/s. 69 of the act for alleged difference in the stock shown in the bank vis-à-vis declared by assessee in books of I.T.A Nos. 2369 & 2472/Ahd/2015 A.Y. 2011-12 Page No 5 accounts at Rs. 48,27,639/-. This addition comprises of two components (i) Rs.30,66,154/- being the difference in value of closing stock shown to the bank at Rs. 44,50,869/- and value of closing stock declared by assessee at Dashad site at Rs. 13,84,715/- (ii) Rs. 17,61,485/- arrived at by calculating difference between value as per statement given to bank at Rs. 31,46,200/- as against Rs. 13,84,715/- shown by the assessee in the books of accounts.

Ld. counsel for the assessee vehemently argued referring to the submissions made before the ld. CIT(A) and further added that ld. CIT(A) has rightly deleted the alleged addition of Rs. 30,66,154/- by following the judgment of Hon’ble Juri ictional High Court in the case of Riddhi Steel & Tubes Pvt. Ltd vs. ACIT in 220 taxman 148. He further submitted that there is no difference in the value of closing stock given to the bank as well as figures of stock and work-in- progress shown in the audited financial statements. Books of accounts have not been rejected and there is no cogent reason given by the assessing officer for making addition. The material issued to each site is shown under the head work in progress and therefore the alleged stock figure of Rs. 44,50,869/- given to the bank is part and parcel of the total closing stock in work in progress of Rs. 4,05,45,100/-. Ld. counsel further referring to the impugned addition of Rs. 17,61,485/- submitted that this addition cannot sustain because the alleged difference has already been considered while calculating the addition of Rs. 30,66,154/- and therefore it will tantamount to double addition.

We have heard rival contention and perused the record before us. Common issue raised by both the parties relates to addition of Rs. 48,27,639/- by the assessing officer u/s. 68 of the act. The facts relating to this addition have been discussed in detail in preceding paragraphs. Out of the total addition of Rs. 48,27,639/-, ld. CIT(A) deleted the addition of Rs. 30,66,154/- for the alleged difference in the value of closing stock shown in the statement submitted to assessee’s banker M/s Allahabad Bank as against the value of closing stock declared by assessee at Dashad site of Jhinjhwada by observing as under:- “4.3 I have considered the facts of the case, assessment order and submission made by the appellant. In the entirety of the facts as narrated in the preceding paragraphs, I am of the opinion that the addition made by the AO is not sustainable in the eyes of law inasmuch as facts of the case. I have seen the Significant Accounting Policy of the Appellant and Schedule - H of the balance Sheet which shows that as per the Accounting Policy adopted by the Appellant the closing stock of material whether used or lying at sites is shown as included in the Work in progress. It is further seen that the AO has not found this Accounting Policy as untrue or inaccurate and the books of accounts and such accounting policy has been accepted by the AO. I further agree with the arguments of the AR of the Appellant that the addition on account nondisclosure of stock cannot be made merely relying on the bank statement submitted to the Bank. I have also considered the Ahmedabad Tribunal order in the case of Riddhi Steel & Tubes (P) Ltd. vs. ACIT 144 ITD 397, which is subsequently confirmed by the Guj'arat High Court in 220 Taxman 148. The Ahmedabad Tribunal in Riddhi (supra) has held as under: "16(i) We have at length heard both the sides. We agree with the arguments of the Ld. Counsel of the Assessee that the case of the Assessee is covered by the Gujarat High Court decisions in the case of Arrow Exim Pvt. Ltd.(supra) and Meico Bonds Pvt. Ltd.(supra). It is seen that Hon'ble the Gujarat High Court in the case of Arrow Exim Pvt. Ltd. (supra) has confirmed the order of ITAT and CIT(A) in deleting addition made u/s 69B of the Act under identical circumstances of the case after making observations that (a) the stock statement showing inflated

1 From the perusal of finding of ld. CIT(A) as well as perusal of the order of Ahmedabad Tribunal in the case of Riddhi Steel and Tubes Pvt. Ltd. Vs. ACIT 144 ITD 397 subsequently confirmed by the Hon’ble juri ictional high court, we find that the issues dealt with are similar so much so that assessee furnished the stock statement for availing credit facilities and there is no finding that such stock statement was verified by the officer of the bank with the stock maintained in the books of accounts and further ld. assessing officer has not found any defect in the books of accounts and method of accounting and accounting policies regularly followed. We therefore in the given facts and circumstances of the case and also looking to the fact that assessee has provided the certificate of the engineer for the calculation of closing stock and work in progress for all the sites find no reason to interfere in the findings of ld. CIT(A) deleting the impugned addition of Rs. 30,66,154/-. We uphold the same.

As regards the addition of Rs. 17,61,485/-, we find that ld. CIT(A) erred in adjudicating the facts properly in the findings given by him. Ld. CIT(A) is considered the Dashada site and Jhinjhuwada site separately whereas the fact is Jhinjhuwada is a branch and the name of site is Dashada and the closing stock as on 31-03-2011 of Dashada site of Rs. 1,81,20,961/- includes the closing stock of material of Rs. 44,50,869/- shown to the bank. Regarding the alleged addition of Rs. 17,61,485/-, we find that this difference is calculated by the assessing officer on the basis of the statement submitted to Allahabad Bank. The addition of Rs. 30,66,154/- (which has been deleted by the ld. CIT(A)) is calculated by subtracting the value of closing stock of material declared by assessee at Rs.13,84,715/- as against closing of material shown to the bank at Rs. 44,50,869/-. However, ld. assessing officer has again made addition of Rs. 17,61,485/- on the basis of statement given to Allahabad Bank but this time calculating the value on the basis of valuing the quantity, which is shown at Rs. 31,46,200/-. We find no substance in the impugned addition of Rs. 17,61,485/- as it has already been considered in the addition of Rs. 30,66,154/- which already stands deleted by us in preceding paras.

3 We therefore in the given facts and circumstances are of the view that both the lower authorities erred in sustaining the addition of Rs. 17,61,485/-, we accordingly delete the same.

Now we take up ground no. 2 of revenue’s appeal against the order of ld. CIT(A) deleting the disallowance of Rs. 4,86,000/- made by the assessing officer on account of disallowance out of tractor rent.

1 Heard rival contentions and perused the record placed before us. We find that in the course of assessment proceedings ld. assessing officer observed that assessee has debited tractor rent expenditure of Rs. 9,72,000/- shown under the head machinery rent. This rent is given to the substantial share-holder and director Mr. Kaushikbhai V. Patel. Ld. assessing officer called for justification about the reasonableness of the rent paid to the director. A general reply was given by the assessee including the ownership documents of the tractor. There is no written agreement for hiring the tractor. Ld. assessing officer also observed that these tractors worked for entire period of 9 months without any gap. He accordingly estimated 50% disallowance of Rs. 4,86,000/-. In the appeal before ld. CIT(A), assessee succeeded as ld. CIT(A) held that the assessing officer failed to bring on record any comparison/comparable rate which could demonstrate that the payment made by the appellant to the related party is excessive and unreasonable.

Now, the revenue is in appeal before the tribunal.

We are in complete agreement with the reasoning and observations made by the learned CIT(A) confirmed by the learned ITAT. In absence of any material before the Assessing Officer, such as comparative chart etc. to suggest that any excessive payment was made to M/s. Pollucon Engineers and the 10% ad'hoc disallowance was made on the payment made under Section 40A(2)(b) of the Act to M/s. Pollucon Engineers solely on the ground that M/s. Pollucon Engineers to whom the payment was made, was run by the wife of the Director . of the assessee company and therefore, there was an element of excessive claim, we are of the opinion that- the 'Assessing Officer was not justified in adopting disallowance to the extent of 10%-payment under Section 40A(2)(b) of the Act. Under the circumstances/disallowance made by the Assessing Officer is rightly deleted by the learned CIT(A) confirmed by the learned ITAT. The contention of the appellant is also supported by the unreported decision of the Hon'ble Gujarat High Court in the cases of Kashi Exports Pvt. Ltd, vs. DCIT in/Tax Appeal No,156 of 2013, wherein also the Hon'ble High Court has held that- "We held that the interpretation of Section 40A(2)(b) would not permit disallowance when there was no finding the effect that the labour charges paid were in excess of the fair market charges and that the authorities below disallowed the labour charges without. ascertaining the fair market value of the same. In view of above, the action of the AO is held not justified and AO is hereby directed to delete the addition of Rs.4,86,000/- made u/s 40A(2)(b) of the Act and accordingly this ground of appeal is allowed.”

In the result, ground no. 2 of revenue’s appeal is dismissed.

Now, we take up ground no. 3 of revenue’s appeal raised against the order of ld. CIT(A) deleting the disallowance of Rs. 5,73,086/-. Ld. assessing officer observed in relation to certain

Now, the revenue is in appeal. Ld. departmental representative supported the order of assessing officer and learned counsel supported the findings of ld. CIT(A).

We have heard rival contentions and perused the record before us. Revenue’s grievance is against deletion of addition of Rs. 5,73,086/-. This addition was made by the assessing officer by disallowance 20% of various expenses of Rs. 28,65,460/- relating to earth work labour expenditure of material and sand carting expenses. We observe that books of accounts of the assessee are audited and no defect has been pointed out by the Assessing authority in the books of accounts and the details shown in the financial statements. Revenue of the assessee has almost doubled this year. However, there is a net loss during the year as against the positive income in the preceding financial year and the administrative expenses which have increased abnormally due to expenditure of rent rates and taxes of Rs. 12017223/- as against the 3,09,532/- in preceding year. All the other heads of expenditure have proportionately increased in I.T.A Nos. 2369 & 2472/Ahd/2015 A.Y. 2011-12 Page No 14 comparison to the turnover. Ld. assessing officer has not placed on record any specific finding about the documents verified and details not found proper and expenses lacking necessary supporting evidences and merely reverted to a lump-sum disallowance which is not justified in nature.

We therefore in the given facts and circumstances and due to absence of specific defects being pointed out in the alleged expenses incurred by the assessee during the year find no reason to interfere with the findings of ld. CIT(A) deleting the impugned ad-hoc disallowance of Rs. 5,73,086/-. Accordingly, this ground no. 3 of revenue is dismissed.

Other grounds of appeal are general in nature which do not require any adjudication.

In the result, the appeal of the assessee is allowed and that of the revenue is dismissed