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Income Tax Appellate Tribunal, BENCH ‘A’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
This is an appeal by the revenue against the order dated 23.01.2013 of CIT(A)- Durgapur relating to A.Y.2008-09.
The Assessee is a partnership firm. It is engaged in the business of construction of roads and structures. During the previous year the assessee was engaged only in the construction of roads in the capacity of a sub- contractor. For A.Y.2008-09 the assessee filed return of income declaring the total income of Rs.23,540/-. The assessment order was completed by the AO determining the total income of the assessee at a sum of Rs.66,61,885/-. The following additions were made by the AO :
Nature of Expenses Amount Labour Charges 50.29,2182/- Tour & Travels 56,582/- Misc. Materials consumed 6,19,101/- Unloading Charges 5,25,553/- Road Maintenance 4,19,162/- Closing Balance of Union Bank 9,355/- M/s. Singh Construction A.Y.2008-09 1
Wages of difference 2,850/- Total 66,61,885/- Out of the aforesaid additions made by the AO except the addition of the last two additions the other additions made by the AO were deleted by CIT(A) and the revenue has challenged the action of CIT(A) in deleting those additions in this appeal.
As far as the assessment proceedings are concerned the various additions made by the AO were for the reasons of the Assessee’s failure to give the required details and evidence in support of the claim of various deductions in computing income from business. The following were the observations of the Assessing Officer (AO) in the order of assessment that would show the basic reason for the AO making the various additions in the order of assessment :- “30.12.2010 : The A/R appeared and requested to consider some further submission. Though the matter was time-barred by good gesture the undersigned entertained him and received some other pay roll for Rs. 15,47,818/-. So, the total Pay roll substantiated for Rs.34,52,778/-. Therefore still there is Rs.50,29,282/- is pending to be justified on the part of the assessee. The A/R was asked to explain that why this amount shall not be added back to the Total Income of the assessee. It is also further observed that while verifying the 'wages sheet there is a difference of Rs.2,850/- which when asked to reconcile the A/R couldn’t and agreed to add back the quantum to the Returned income of the assessee. On going through the head "Unloading Charges" the A/R just failed to name the items for what the "Unloading Charges" was met for. Moreover, when Mr. Goenka, the A/R of the assessee was asked to explain the justification of expenses under the head "Misc. Materials Consumed" for Rs.6,19,101/- he just failed to produce any specific reply in this regard. A/R also could not produce any supporting Bills & Vouchers to substantiate the expenses as has been claimed by the assessee.”
The assessee filed all the evidence before CIT(A) and the same were confronted to the AO and the remand report dated 05.10.2012 was also obtained by CIT(A) from the AO. The CIT(A) admitted the additional evidence after finding that there was reasonable cause for the assessee not filing the required evidence before the AO.
The contention of the assessee before CIT(A) in this regard were as follows :- “In course of assessment proceedings, the appellant could not furnish books of accounts or pay roll of the labourers before the A.O. These were submitted at the appellate stage. In its submission the appellant has stated that subsequent to the instant M/s. Singh Construction A.Y.2008-09 2
year under appeal one of the three partners of the appellant firm had expired. Another partner had been critically ill since March, 2009' and the third partner had shifted to Kolkata and had not been able to devote any time for the business of the appellant. The appellant has also mentioned that in subsequent year no business had been carried on by it and though the firm has not been dissolved formally it did not have any back office infrastructure. The appellant has mentioned those as the reasons why it could not file all the required details before the A.O. during assessment proceedings.”
The CIT(A) on the above plea of the assessee has held as follows :- “The A.O. submitted his report on 5.10.2012. In that report the A.O. has not made any adverse comments on the facts mentioned by the appellant regarding the demise of one partner or illness of the other, certificates for which had been given in the paper book submitted by the appellant and forwarded to the A.O. and which, as per the claim, were the reasons beyond the appellant's control which prevented it from meeting the requisitions fully at the assessment stage. As the A.O. has no adverse comments to offer on the appellant's claim it is presumed that the contentions of the appellant are justified. Accordingly, the fresh evidence filed is accepted.”
The above background in which the additional evidence was admitted by the CIT(A) would be relevant even while considering the various grounds of appeal raised by the assessee. We will now proceed to decide the various grounds of appeal raised by the Revenue in this appeal.
8. Ground No.1 raised by the revenue reads as follows :- “1. That the Ld. C.1.T. (A). Asansol has erred in law and on facts by allowing the relief of Rs. 50,29,282/-. disallowed by the AO on account of Labour Charges as pay roll could not be furnished by the assessee firm.”
9. As far as ground no.1 raised by the assessee is concerned, the principal reason why the AO disallowed the claim of the assessee was that the pay roll and the required evidence to substantiate the payment of labour charges was not given by the assessee before the AO. The required evidence was filed before CIT(A) and in the remand report, the AO has observed that the evidence with regard to the pay roll and supporting evidence were not available for the following period :- “(a)From 03.09.2007 to 09.09.2007 (b)From 05.11.2007 to 11.11.2007 (c) From 12.11.2007 to 18.11.2007 (d) From 26.03.2008 to 31.03.2008.” - M/s. Singh Construction A.Y.2008-09 3
10. AO in the remand report has pointed out certain discrepancies in the master roll. These objections of the AO were dealt with by CIT(A) in the following manner :- “In his remand report dated 05.10.2012 the A.O. has mentioned that there were some discrepancies in the details submitted by the appellant with respect to payments made on 25.03.2008 and 31.03.2008 amounting to Rs.1,70,460/-. As per the A.O .the appellant had an outstanding liability of Rs.1,21,198.24 as on 31.03.2008. But, the labour charges payable on that date as per the ledger was Rs.1,70,460/- and, besides, the entry made on 25,03.2008 for payment in the details of labour charges was claimed to be Rs.49,261.16 which was not reflected in the ledger account. The A.O. has also mentioned that from the period 26.03.2008 to 31.03.2008 the appellant had claimed to have engaged number of labourers whose names were not found in the muster rolls. A comparison with the expenditure claimed .and the pay roll ledger submitted during the scrutiny also showed discrepancies in numbers between 26.03.2008 to 31.03.2008. The remand report was forwarded to the appellant who filed its reply on 27.10.2012. As to the first discrepancy, regarding outstanding charges mentioned by the A.O. in his report, the appellant's contention is that the aggregation of the payments claimed for 25.03.2008 and 31.03.2008 amounts to Rs.1,70,460/- which tallies with the amount showed as on 31.03.2008. As per its contention, the figure mentioned in date wise details of the labour charges, included in the paper book, reflects the date of event and the figure mentioned in the labour charges ledger account reflects the date of entry in the books of accounts. As per the appellant, it was crediting the labour charges payable account and debiting labour charges account as its normal accounting practice and the payment when made was reflected in the labour charges account. On 31.03.2008, payment of Rs.49,261.76 was made and hence the unpaid amount of Rs.1,21,198.24 was only appearing as liability in the final accounts. As per its claim, therefore, there was no discrepancy as claimed by the AO. Regarding the comments made by the AO. about the muster roll the appellant has conceded that there was no entry for the periods mentioned by the A.O. as because for those periods the pay roll could not be located. As per the appellant the analysis made by the A.O., regarding payments made after 31.03.2008 is faulty because the A.O. had compared two different periods, 26.03.2008 to 31.03.2008 with 2.4.2008 to 8.4.2008. Except for the discrepancies mentioned by the A.O. in his remand report, the rest of the details of the labour charges have not drawn any adverse comments from the AO. Under the circumstances, the appellant's claim for those charges is seen to be justified and, in my opinion, should be allowed. Besides, it is seen that the appellant's claim had been disallowed at the assessment stage for non-production of supporting documents. Since these have been produced and examined by the A.O. now to his satisfaction no case exists here for sustaining this disallowance any further. However, it is a matter of record that pay rolls for certain periods could not be produced by the appellant and, therefore, could not be examined by the AO. The claim for those periods amounting to Rs.4,31,418/- is therefore denied. As for the discrepancies mentioned by the A.O., the first discrepancy regarding the outstanding amount is seen to be successfully explained by the appellant. In my opinion, the total aggregate of expenses for 25.03.2008 and 31.03.2008 comes to Rs.1,70,460/- which is what has been entered on 31.03.2008. Of these, it appears, part of the amount had been paid leaving the balance as outstanding liability. There being no discrepancy in the aggregate figure of payment for these two dates, the appellant's submission explaining the alleged discrepancy is accepted. With regard to the discrepancies in the claims of number of labourers engaged, it has already been seen that the muster roll for this period M/s. Singh Construction A.Y.2008-09 4
could not be produced by the appellant and, as mentioned above, the claim has been disallowed. Under the circumstances, further cognizance of this discrepancy would not be relevant for the purposes of this proceeding. Similarly, the A.O. has cited the case of M/s. Calcutta Agency Ltd. (19 ITR 191). However, that case dealt with the disallowance of a decretal amount which had to be paid due to malfeasance committed by the said company's directors. The facts in the instant case are different and, that, in my opinion precludes the cited decision from being applicable to the appellant's case. As noted earlier, the main reason for the disallowances made by the A.O. was because of non- production of supporting evidence. That issue has been solved at the appellate stage. Thus, out of the total amount of labour charges disallowed by the A.O. in assessment, Rs.4,31,418/- which pertains to the period for which the muster roll could not be produced, is confirmed and the balance disallowance made by the A.O. is directed to be deleted. This ground of appeal is partly allowed.”
11. Aggrieved by the order of CIT(A) the revenue has raised ground no.1 before the Tribunal.
We have heard the rival submissions. The discrepancies pointed out by the AO in the remand report have all been met by the assessee and CIT(A) has after considering the same come to the conclusion that there was no merit in the objections raised by the AO in the remand report. The ld. DR could not controvert the said finding of CIT(A) before us. We are also of the view that the reasons given by CIT(A) for disregarding the discrepancies pointed out by AO in the remand report are correct and does not call for any interference. The CIT(A) has confirmed the order of the AO in so far as the period for which evidence was not filed by the Assessee before the CIT(A). We therefore confirm the order of CIT(A) and dismiss ground no.1 raised by the revenue.
Ground no.2 raised by the revenue reads as follows :- “2. That the Ld. C.I.T, (A). Asansol has erred in law and on facts by allowing the relief of Rs, 6,19,101/-, disallowed by the AO on account of miscellaneous materials consumed without furnishing any supporting evidences.”
As far as ground no.2 is concerned, the CIT(A) has dealt with the additional evidence filed by the assessee before him and the remand report of the AO in the following manner :- - M/s. Singh Construction A.Y.2008-09 5
“In this ground the appellant is disputing the A.O's action in disallowing its claim of expenditure on miscellaneous materials consumed. In course of assessment proceedings, the appellant could submit neither any books of accounts nor any supporting evidence before the A.O. However, in course of appellate proceedings bills were submitted. These were forwarded to the A.O. In his report dated 05.10.2012 the A.G. has mentioned that the appellant could not submit bills for part of the expenditure and also that in two of the bills discrepancies amounting to Rs.582/- were noted. The report 27.10.2012, the appellant has mentioned that the two bills wherein the A.O. was forwarded to the appellant for its comment. In its comment dated has noticed differences were settled for lesser amounts, and hence a perceived difference arose. With regard to issue of non-submission of bills for part of the expenses claimed the appellant has submitted that some of the purchases of sand, soil etc. cannot be supported by bills as they were made from local, small and unorganized sellers. It has also mentioned that this is the reason why such bills may not have any serial numbers. In my opinion, practicalities of doing transactions in small rural areas will have to be kept in mind here, as also the quantum of expenditure which has been incurred relating to the quantum of the work done. Perusal of such figure reveals that the appellant has had a total turnover of around Rs.43 lakhs for road maintenance charges against which materials consumed are seen to be Rs.6,19,101/- which has been disallowed by the A.O. Thus, it is seen that materials consumed constitutes only a small proportion of the appellant's expenditure. The overall picture which emerges is that these were petty purchases made locally .. Circumstances therefore appear to justify the appellant's contention. Without a minimum expenditure it would not be possible for the appellant to engage in the work given to it by its clients. Bills for such petty expenditure may not be available but this does not imply that the claim is bogus. In view of that appellant's contention is accepted and the disallowance made by the A.O. is directed to be deleted. This ground of appeal is allowed. “
15. We have heard the rival submissions. As rightly held by CIT(A) the discrepancies pointed out did not give rise to any income as the sum which was ultimately settled were less than what was found by the AO in the books of account. As far as non submissions of bills for part of the expenses is concerned, the CIT(A) has taken note of the fact that purchase of sand and soil while executing construction of roads at remote places will be met from local markets and unorganized sellers and getting a bill with serial numbers thereon may not be possible. Taking note of these practical situation, the CIT(A) has rightly deleted the addition made by AO. Consequently ground no.2 raised by the revenue is dismissed.
16. Ground No.3 raised by the revenue reads as follows :- - M/s. Singh Construction A.Y.2008-09 6
“3. That the Ld. CLT, (A). Asansol has erred in law and on facts by allowing the relief of Rs . 5,25,553/-disallowed by the AO on account of uploading charges as not evidence could be furnished by the assessee firm.”
As far as ground no.3 is concerned, the evidence filed by the Assessee before the CIT(A) and the remand report of the AO have been discussed in Paragraph 5 of thee order of the CIT(A) which reads as follows :- “In this ground the appellant is disputing the AO’s action in disallowing unloading charges claimed by it. The A.O.’s reason for doing so are the same namely non- production of supporting documents. At the appellate stage fresh evidence was submitted which was forwarded to the A.O. for his report. In his report mentioned above the A.O. has submitted a datewise list of discrepancies observed by him where payment dates as reflected in the ledger account did not coincide with those showing datewise unloading charges. The appellant's submission, in its comments, is that there is no contradiction in the aforesaid documents. As per its comments the ledger account of the appellant reflects the true character of the transactions and the payments under question were made on the dates mentioned in the ledger accounts while the corresponding details reflect the date of event which has been sub-totalled to identify the amount which was to be paid. The appellant has also mentioned that the payment date as mentioned in the ledger account has always been subsequent to the date of event. It appears from the A.O's reply that the veracity of the expenditure claimed is not being challenged by him. The facts mentioned in the appellant's contention are further borne out by the evidence submitted. It is also to .be mentioned that the amount involved in such alleged discrepancies is very low in comparison to the total amount claimed by the appellant. No adverse comments have been made by the A.O. for the balance expenditure claimed. Under the circumstances, in my opinion, the appellant's claim is justified. The disallowance made is directed to be deleted. This ground of appeal is allowed.”
We have heard the rival submissions. It is clear from the order of CIT(A) that whatever discrepancies were pointed out by the AO in the remand report has been properly met by the assessee in its reply and after taking note of such reply, the CIT(A) has rightly come to conclusion that the incurring and necessity for the business of the Assessee of the aforesaid expenses claimed by the assessee was not challenged by the AO and that on the discrepancy, otherwise pointed out by the AO in the remand report no adverse inference can be drawn against the assessee. This conclusion of the CIT(A) in our view is just and proper and calls for no interference. We therefore do not find any merit in ground no.3 raised by the revenue.
Ground no.4 raised by the revenue reads as follows :- M/s. Singh Construction A.Y.2008-09 7
“4. That the ld. C.1.T. (A). Asansol has erred in law and on facts by allowing the relief of Rs.4,19,162/- disallowed by the AO on account of road maintenance expenses on the ground of its actual justification.”
As far as ground no.4 is concerned, the CIT(A) after considering the remand report of the AO has given his finding in para-6 of his order which reads as follows :- “In this ground the appellant is disputing the A.O's action in disallowing road maintenance expenses claimed by it. The A.O's case is that in course of assessment proceedings the AIR has stated that it was not possible to specify why this amount was actually incurred by the assessee. The appellant's case is that road maintenance expenses were incurred for maintenance of roads inside the premises of the parties from whom contract has been received. The appellant has in course of appellate proceedings also submitted ledger copy of road maintenance charges and chart showing datewise payment of such charges. The material was forwarded to the A.O. for his report. In his report dated 05.10.2012 the A.O has pointed out six instances which he claims are discrepancies. Copy of the report was forwarded to the appellant and in its comments it has submitted that, as observed by the A.O. in some cases, payment dates as reflected in the road maintenance charges ledger account does not co-incide with those reflected in the details showing datewise road maintenance charges paid. The appellant has submitted that its ledger account reflects the true character of the transactions. The payments under question were made on the dates reflected in the ledger account while the corresponding details showing datewise transactions reflect the date of event which has been sub-totalled to identify the amount to be paid. As per its submissions it can be seen that the payment date as reflected in the ledger account has always subsequent to the date of event and therefore, there is no contradiction in the documents submitted by it. It appears from the remand report that the veracity of the expenditure is not being challenged by the A.O. The discrepancies pointed out by him are only with respect to the dates. From a perusal of the details submitted it appears that the ledger accounts show payments being made after the work has been done, which detail is available in the details of datewise road maintenance charges account which has been submitted before the A.O. As such therefore there is no contradiction in the dates and I find that the appellant's explanation for the alleged discrepancies noted by the A.O. to be quite logical. Besides, it is seen from the details submitted that the individual expenses were of a very meagre amount and, moreover, given the appellant's total turnover as observed from his accounts the charges cannot be said to be excessive. Under the circumstances, the disallowance made is directed to be deleted. This ground of appeal is allowed.”
21. After hearing the rival submissions, we are of the view that the discrepancy pointed out by the AO in the remand report are only with respect to the dates and the veracity of the expenses has not been challenged by the AO. The CIT(A) after taking note of the ledger account and the details of date-wise road maintenance charges account has rightly come to the conclusion that if at all there was any contradiction in M/s. Singh Construction A.Y.2008-09 8 the same must be only in the dates. The CIT(A) has therefore rightly deleted the addition made by the AO. We find no grounds to interfere with the order of the CIT(A). Consequently Gr.No.4 raised by the Revenue is also dismissed.
22. Ground No.5 raised by the revenue reads as follows :- “5. That the Ld. CIT, (A). Asansol has. erred in law and on facts by allowing the relief of Rs. 56,582/-, disallowed by the AO on account or Tour & Travel exp. On the ground of producing only the self-made cash vouchers by the assessee firm.”
As far as ground no.5 is concerned, the CIT(A) after taking into consideration the remand report of the AO has given his finding in pararaph – 7 of the order which reads as follows :- “In this ground the appellant is disputing the A.O.’s action in disallowing expenses on tour and travel of Rs.56,582/- claimed by the appellant. The A.O's case is that in course of assessment only cash vouchers could be produced and hence the expenses claimed could not be substantiated. The appellant's case is that tour and travel expenses were incurred for visiting the different sites where contract work was being executed and, such expenses being incurred in cash only cash vouchers were available as evidence. Perusal of the details of expenses shows that these were of very small amounts. In my opinion, it may not be possible to have evidence in the form of proper bills for such expenses. But that does not make this claim bogus. Moreover, the assessee being a contractor it would logically be having expenses on tour for visiting the various sites on which the contracts were being executed. The claim therefore cannot be called illogical. Under the circumstances, the disallowance is directed to be deleted. This ground of appeal
is allowed.”
24. After considering the rival submissions we are of the view that the nature of the expenses was not disputed by the AO. The fact that only cash vouchers were produced by the assessee cannot lead to any adverse inference especially keeping in mind the nature of the business of the assessee which is to work at different sites located at remote locations where contract work has to be executed. The CIT(A) has rightly come to the conclusion that the expenses being of petty nature it is not possible to have evidence in the form of proper bills for such expenses. The CIT(A) has therefore rightly deleted the addition. We do not find any ground to interfere with the order of CIT(A). Consequently ground no.5 raised by the revenue is also dismissed. - M/s. Singh Construction A.Y.2008-09 9
In the result the appeal by the revenue is dismissed.
Order pronounced in the Court on 02.09.2016.