DCIT, CENTRAL CIRCLE-II, NOIDA vs. SHIV SHAKTI CONSTRUCTION, GREATER NOIDA

PER PRADIP KUMAR KEDIA, A.M.: The captioned appeals filed by the Revenue and the assessee respectively for various assessment years were heard together and are being disposed of by this common order.

dated 143(3) 27.09.2022 2558/Del/2022 Assessee 2019-20 CIT(A)-4, 30.05.2022 153A r.w. Kanpur, Section dated 143(3) 27.09.2022 2839/Del/2022 Revenue 2020-21 CIT(A)-4, 30.05.2022 153A r.w. Kanpur, Section dated 143(3) 27.09.2022 2559/Del/2022 Assessee 2020-21 CIT(A)-4, 30.05.2022 153A r.w. Kanpur, Section dated 143(3) 27.09.2022

“The following grounds of appeal are independent of, and without prejudice to, one another -

1. The Commissioner of Income-tax (Appeals) – 4, Kanpur (hereinafter referred to as the CIT(A) erred in rejecting the books of account of the appellants. The appellants contend that on the facts and in the circumstances of the case and in law, the impugned action of the CIT(A) in rejecting the books of accounts of the appellants is made on patently erroneous facts and in law and hence. not tenable and requires to be reversed.

2. The CIT(A) erred in estimating the net profit at 10% of the gross receipts in view of the fact of rejection of books of account. The appellants contend that on the facts and in the circumstances of the case and in law, the impugned action of the CIT(A) in estimating the net profit at 10% of gross receipts is made on patently erroneous facts and in law and hence, not tenable and requires to be reversed. The appellants further contend that the CIT(A) ought to have accepted the income as declared by the appellants in their return of income. to 2559/Del/2022 & 2834 to 2839/Del/2022 4

Without prejudice, the appellants further, contend that the rate of net profit estimated is on higher side and requires to be reduced. The CIT(A) erred in treating other income as separate in computing the net profit at 10% of the gross receipts. The appellants contend that on the facts and in the circumstances of the case and in law, the impugned action of the CIT(A)in treating other income as separate in computing the net profit at 10% is erroneous on facts and in law and hence, not tenable and requires to be reversed.”

- Revenue Appeal – A.Y. 2015-16

“1. The Ld. CIT(A) has erred in law as well as on facts by deleting the addition of Rs.12,08,41,884/-out of total addition of Rs.15,22,47,537/- by completely ignoring the fact that the assessee has been unable to prove the genuineness of purchases and the corresponding sundry creditors. On bare perusal of the balance sheet of the assessee it is clear that the bogus sundry creditors have been generated to create FDRs against it of similar amounts. In the assessment order it was proved beyond doubt that the assessee has furnished fake bills and invoices and the assessee miserably failed to prove the identity and creditworthiness of the sundry/other creditors and genuineness of transactions. Whereas the primary onus was on the assessee to prove the same. The sundry creditors were also held bogus on the basis of statement of accountant of the assessee Sh. Kuldeep Joshi who admitted that the creditors in the books are mere entries, the infirmities found in the bills produced before the AO in the matter of purchases, huge payments outstanding to be made to the huge amount of ‘other Sundry Creditors'. In face of all these issues the assessee completely failed to prove the genuineness of the sundry creditors and the corresponding purchases. Moreover, the Ld. CIT(A) has also acknowledged the stand of the AO that the creditors shown by the assessee are bogus, based on which the books of the assessee have been held unreliable and rejected.

3. Also, the Ld.CIT(A) has erred in law as well as on facts by deleting the addition made on account of lumpsum disallowance @10% of the employee expenses being Rs. 1,89,451/- made due to inconsistencies in 24Q return. The deletion is not acceptable as either the employee expenses debited by assessee were not reflected in the 24Q return or no 26AS of employees was found or the name of the assessee was not reflected in the 26AS of the employees. In these circumstances the genuineness of payments was not proved and also the assessee could not prove the genuineness of these payments and hence the disllowance was rightly made.”

6.1 A search and seizure operation under Section 132 of the Act was conducted on 27.11.2020 in the premises of the assessee firm. During the course of search operation, certain documents/information belonging to the assessee were found and seized which were allegedly of incriminating nature. Consequently, notices under Section 153A of the Act for various assessment years were issued. In pursuance thereof, the assessee inter alia filed return of income [ROI] declaring total income at Rs.2,35,63,250/- for Assessment Year 2015- 16 in question. While framing the assessment, the Assessing Officer observed that during the search proceedings, it was gathered from the analysis of the audit report of the assessee firm from F.Y. 2012-13 to F.Y. 2018-19 that assessee firm has shown unusually large quantum of amount outstanding as ‘other sundry creditors’. Consequently, the Assessing Officer initiated inquiries and certain individuals connected to the assessee firm were examined on oath. The statement of the accountant of the firm namely Mr. Kuldeep Joshi was referred wherein it was claimed that the accountant deposed that entries towards ‘other sundry creditors’ in the books are merely book entries. The statement of the accountant was extracted in the assessment order. Based on the findings of the investigation wing on ‘other sundry creditors’, inquiries to 2559/Del/2022 & 2834 to 2839/Del/2022 7 were conducted by the Assessing Officer to seek specific details in this regard from Assessee. The Assessing Officer observed that a list of the sundry creditors showing, Name, PAN, Aadhar number, Address, Amount of the Financial Year in which the liability was related, was filed by the assessee on such creditors. The Assessing Officer however observed that details provided are not complete and the addresses mentioned in the bills do not match with the address in the list. After analyzing the bills and the respective purchase years etc and after taking into account the outcome of summons issued to some parties under Section 131 of the Act and notices issued under Section 133(6) of the Act issued to some other parties, the Assessing Officer concluded that the corresponding purchases against such creditors are bogus and non genuine to the extent of Rs.8,11,39,611/- being increase in the creditors during the year. Consequently, the Assessing Officer embarked upon disallowance of such bogus purchases of Rs.8,11,39,611/- by invoking Section 37(1) of the Act.

8.1 The assessee broadly pleaded that to appreciate the issue in perspective, it is necessary to understand the nature of business and hurdles associated with it. The materials are supplied by the large vendors as well as local vendors. Mr. Kuldeep Joshi was neither privy to the correct facts nor was competent to offer his comments. The statement given was without knowledge of the affairs and under coercion which was retracted in the course of assessment. Likewise, while the to 2559/Del/2022 & 2834 to 2839/Del/2022 9 partner of the firm Mr. Mukesh Kumar was not able to furnish the complete details of ‘other sundry creditors during the course of search or investigation proceedings but however, it is also a fact that the assessee did produce the details of creditors, their names addresses, PAN, Adhar, Confirmations, supporting vouchers, details of payments through banking channels in the course of assessment proceedings. The AO also made enquiries by issuing summons under S. 131 or by issue of notice under S. 133(6) with suppliers. The assessee contended that assessment order demonstrates that such parties have actually responded and adduced evidences available with them, meaning thereby that such parties were found to be in existence and have undertaken supplies to the assessee. It was thus contended that large scale rejection of ‘other sundry creditors’ by the AO on suspicion and surmises disregarding tangible proof of purchases has resulted in perverse conclusion. It was also harped that the assessee being a Govt. contractor was bound to execute the contracts as per specifications to get the release of funds from the Govt.. The assessee could receive payments only when the work is completed as per the parameters and when all norms were met. Hence the approval for release of payments impliedly means that the material has been used and services have been rendered as per the contract specifications. Each and every material received at project site was first verified physically by the Govt. officials and once it was found according to requisite specifications to 2559/Del/2022 & 2834 to 2839/Del/2022 10 and approved by them only then the Assessee contractor was authorized to carry out the work. Such verifications were recorded in measurement books which contain quantity of material used by the assessee to perform the contract. These measurement books were produced on sample basis which contained site wise quantity of material used during the year to complete the work. All the documentary records like contract, its specifications, supporting bills for material, quantitative reconciliation of material with bills and measurement books was submitted before AO and no adverse observations were made in this regard. It was contended that only issue red-flagged by the AO was that the expenses are not verifiable with supporting evidence in the opinion of the AO. However, the AO failed to take note of circumstantial peculiarities and hazards while executing the work in remote areas which are not quite accessible and where material are supplied by the unorganized local vendors. The AO disregarded the proof of existence of vendors, consumption of material as per specifications of the Govt. holistically and founded its view to reject the purchases on petty defects such lack of VAT no. in the supply bills, bills carrying same or similar handwritings etc. The payments, where remained outstanding, was shown as sundry creditors and it is common knowledge that the release of funds by the Govt. agencies are, at times, characterized by red-tapism and inordinate delays.

8.2 As regards disallowances under Section 40A(3), the to 2559/Del/2022 & 2834 to 2839/Del/2022 11 assessee contended before CIT(A) that cash book was duly furnished. The books were seized also. The large cash withdrawal undertaken cannot be the basis to infer violation of Section 40A(3) and such disallowance can be carried on the basis of specific instances which are conspicuously absent.

8.3 The assessee on the basis of such detailed submissions thus claimed that the assessment order grossly suffers from the vice of perversity and the assessment order is rendered without objective consideration of the facts placed and peculiar circumstances, the assessee is placed in and misapplied the law prevailing in this regard.

“6.14 have carefully perused the findings of the AO in the assessment order. There are huge other sundry creditors and the same are outstanding for payments for long time, from the audited balance sheets and its schedules, it can be seen that their proportion is very high. The onus of proving genuineness of purchases is upon the appellant and if the to 2559/Del/2022 & 2834 to 2839/Del/2022 12 appellant fails, to prove the genuineness of the same, such purchases cannot be allowed. During the search proceedings, the statement of Sh. Kuldeep Joshi, accountant of the firm has been recorded and he has also stated that the other sundry creditors are just book entries. Sh. Mukesh Kumar the main partner of the firm was also not able to furnish all the evidences and give the complete details of such sundry creditors. But there is also force in the submission of the AR that the appellant is a govt. contractor and all the works have been completed, hence the use of material as well as services of the laborers cannot be denied. Further in the matter of hand written bills in which various discrepancies have been found, the observation of the AO cannot be ignored that the same does not appear to be reliable bills specially when the appellant could not furnish all the requisite details as called for by the AO and the appellant failed to prove genuineness of all purchases and when summons and notices could not be properly responded. Further it has been found that in the search proceedings ample amount of evidences have been gathered and produced in the body of assessment order which clearly indicates that provisions of section 40A(3) of IT Act have been violated. But at the same time it cannot be ignored that the nature of the business of the appellant is such that the appellant has to perform work in the remote areas, where there are no facilities of banks, ATMs and the site in-charges have to keep cash ready for payment to the laborers as well as suppliers of sand, gritt, bricks and all related material which is supplied and provided by local unregistered and petty suppliers. In the light of the peculiar circumstances of the case, the AR was asked to explain as to why books of accounts should not be rejected and the NP should be estimated in the light of provisions of section 145(3) of IT Act. The AR relied on the written submission furnished before the AO as well as in the appellate proceeding and submitted that books of accounts have been audited and the same should not be rejected. But the submission of the AR has not been found correct, the AO has brought on record sufficient material which leads to the conclusion that books of accounts cannot be relied.

6.15 In the assessment orders of AY 2014-15 to AY 2020-21, the AO has made disallowances on account of Bogus purchases, for violating provisions of u/s 40A(3) of IT Act and due to unverifiable labour expenses, but the same result into very high NP which is not possible in the nature of such business, in which the appellant works. The NP of the business after disallowances made by the AO in these assessment orders is computed as under:

AY Total Other Incrementa Turn- Sundry Net Profit Disallowanc NP and NP sundry Sundry l increase over/gross Creditors/gr as shown es made by Percentage creditors Creditors (as per contract oss contract by Assessing of turn-over (Rs.) assessmen receipts receipts in % appellant Officer after t order) disallowan (Rs.) ces

201 10,02,14,7 4-15 93 201 19,33,91,7 18,13,54,4 8,11,39,61 34,48,88,6 56.07% 1,55,25,9 8,11,39,611 16,77,73,4 5-16 31 04 1 89 32 + 69 7,09,18,475 (48.65%) + 1,89,451 to 2559/Del/2022 & 2834 to 2839/Del/2022 13

201 33,01,01,6 44,00,30,6 25,86,76,2 98,50,42,7 33.50% 4,34,42,0 25,86,76,21 43,11,61,8 6-17 06 22 18 72 60 8 30 +12,78,67,9 (43.77%) 75 + 3,26,169 +8,52,408 201 68,07,47,4 67,31,21,4 23,30,90,7 65,30,19,3 104.24% 3,59,03,4 23,30,90,79 35,04,77,7 7-18 26 20 98 46 53 8 + 78 8,03,46,431 (53.67%) +2,82,783 + 8,54,313 201 66,98,81,5 66,05,24,8 33,39,63,0 200.59% 2,07,76,3 15,31,71,23 17,44,54,7 8-19 32 50 19 88 7 +5,07,100 25 (52.54%)

201 92,70,58,8 91,93,14,7 25,87,89,8 60,38,38,1 153.53% 2,81,95,5 25,87,89,89 33,85,87,5 9-20 74 43 93 98 08 3 + 72 5,14,53,169 (56.07%) +1,48,002 202 98,39,24,3 97,05,64,7 5,12,50,00 69,76,06,2 141.04% 4,21,53,6 5,12,50,000 20,00,84,5 0-21 25 43 0 68 18 + 24 9,15,19,864 (28.68%) + 3,85,454 + 1.47,75,588

From the above table it can be seen that in a case of the appellant if the disallowances are made on account of alleged Bogus expenses and expenses incurred in cash above prescribed limit as per provisions of section 40A(3) of IT Act and unverified employee expenses, the NP becomes very high. Therefore looking to the facts and circumstances of the case, though the decision of the AO of making disallowance on account of expenses is sustained but its quantum is restricted. In this regard it would not be out of place to mention that in AY 2015-16 the AO has considered incremental increase in 'other sundry creditors' as Rs. 8,11,39,611/- by considering 'other sundry creditors' as Rs. 18,13,54,404/- in AY 2015-16 and Rs.10,14,02,793/- in AY 2014-15, though the fact is that in AY 2014-15, this amount is for 'all sundry creditors' as is clear from the para-4 of assessment order itself. The Assessing Officer could not do the proper analysis of exact purchases made from such 'other sundry creditors', which are actually Bogus and a general estimate is done which is very high Further the summons and notices are issued selectively, however the number of such other sundry creditors' is around 841. Further the statement of an accountant i.e. Sh. Kuldeep Joshi has been applied sweepingly on all other sundry creditors, though the appellant has questioned his competency and domain since he is simply maintaining accounts and is not aware of the real nature of suppliers. In the matter of disallowances made u/s. 40A(3) of IT Act, there is force in the submission of the AR that the payments made to a single party in a single day above Rs. 20,000/- for AY 2015-16 to 2017-18 and above Rs. 10,000/- for AY 2018-19 to 2020-21 have not been singled out and cash withdrawal amount from the bank as reduced by payments made to labors and 10% estimate for other expenses incurred in cash, has been estimated and balance amount has been disallowed. While making such estimates, the AO needs to be reasonable and make the disallowance which may result into right taxable income. Therefore the decision of disallowance of the AO is upheld but quantum of disallowance is restricted. to 2559/Del/2022 & 2834 to 2839/Del/2022 14

6.16 In the light of findings of the search which lead to clear evidence that the provisions of section 40A(3) of IT Act have been violated, huge cash payments have been made for labor payments as well as purchases, the appellant has failed to discharge the onus to prove the purchases from other sundry creditors, statements recorded on oath from the accountant as well as main partner of the firm, the infirmities found in the bills produced before the AO in the matter of purchases, payments outstanding to be made to the huge amount of 'other Sundry Creditors' and number of evidences of huge cash payments made to various persons, relating to which seized material has been produced in the body of assessment order, I hereby hold that books of accounts of appellant are not reliable. Therefore provisions of section 145(3) of IT Act are hereby invoked since the undersigned is not satisfied about the correctness of the accounts of the assessee. In the light of this decision, the disallowance made by AO on various heads is restricted in such a way that NP of contractor-ship business should be @ 10% of gross receipts of contractor-ship business.

6.17 Based on the above observations, the following table is made for restricting disallowance by considering NP @10% of turn-over. In this regard it has been found that the appellant has earned huge other income ie interest income on FDR, is just on IT refunds, NSC Interest, share of profit from JV and other such receipts, which are not related to contractor- ship business and hence the same are kept separate while computing the NP of the contractor-ship business as under:

AY Turnover/ Net Other Net Disallowances made by Assessing Total Net Relief gross Profit income Profit Officer (e) NP @ Disalloa allowed contract as (interest attribut 10% of nce (NP to the receipts shown from able to turnove @10% appellan (a) by FDR, contract r (=10% of t (h=a-g) appella interest or-ship of a) turnove nt (b) on IT busines r NP as refund, s (d= b- already NSC c) shown Interest (g =f-d) , other income, share of profit from JV) shown in P&L account © 201 4- 15 201 34,48,88, 1,55,25 1,24,42 30,83,2 8,11,39,611 + 7,09,18,475 + 3,44,88 3,14,05 12,08,41 5- 689 ,932 ,716 16 1,89,451 =15,22,47,537 ,869 ,653 ,864 16 201 98,50,42, 4,34,42 2,48,61 1,85,80 25,86,76,218+12,78,64,975+3,26,16 9,85,04 7,99,23 30,77,96 5- 772 ,060 ,156 ,904 9+8,52,408 =38,77,19,770 ,277 ,373 ,397 16 201 65,30,19, 3,59,03 4,82,43 - 23,30,90,798=80346431+282783+8 653019 776424 236931 6- 346 ,453 ,929 1,23,40 54316=314574325 35 11 914 17 ,476 201 33396301 207763 461734 - 15317123+507100=153678337 333963 587933 948849 8- 9 88 80 253970 02 94 43 to 2559/Del/2022 & 2834 to 2839/Del/2022 15 19 92 201 60383819 281965 559269 - 258789893+51453169+148002=310 603838 881142 222276 9- 8 08 50 277304 391064 20 62 802 20 42 202 69760626 421536 535969 - 51250000+91519864+385454+1477 697606 812040 767269 0- 8 18 96 114433 5588=157930906 27 05 01 21 78

While restricting disallowance made by the AO, it was necessary to have a cap on the NP of the business and the same has been considered @10% of turn-over/receipts from govt. contracts, however it has been found that the appellant has included other receipts i.e. interest on FDR, Interest on NSC, Interest on IT refund and share of profit from JV, but the same has been excluded in the NP working. It can also be seen that the appellant has also shown het loss in its core business and the positive NP was appearing in the profit and loss account only because of such other receipts which are not arrived from the contractor-ship business. Therefore looking to the findings of the search proceedings and various evidences produced in the assessment order, the decision of the AO is upheld to make disallowance of purchases made from various other sundry creditors, disallowances for violation of provisions of section 40A(3) of IT Act and other discrepancies found in the claim of expenses but at the same time since the estimation of such disallowances was leading to very high and absurd NP, the same is restricted to 10% of total turn-over of contractor-ship business of the appellant. In this regard the AR has drawn attention to the provisions of section 44AD of IT Act in which presumptive NP is taken @8% as also reliance is placed on the decisions of higher judicial authorities, in which NP rate has been taken @8%, but in this particular case the AO has not only questioned Other Sundry Creditors' ie. the suppliers which are Bogus, violations of provisions of section 40(3) have been found in a very big scale, Further the volume of business is very high than the limit prescribed for presumptive tax rate of 8% in section 44AD of IT Act, therefore while restricting disallowances made by the AO the NP cap is taken @10% of gross receipts.

6.18 In the light of above observations total disallowances of Rs. 15,22.47.537/- made by the AO in this AY 2015-16 is restricted to Rs. 3,14,05,653/- and relief of Rs.12,08.41,884/- is allowed to the appellant.”

13.2 The assessee challenged the rejection of books of account as well as estimations of profits at higher percentage of 10% of contract receipts on the ground such estimations are quite excessive when compared with the actual book results of the preceding several assessment years and also incongruent to the statutory estimations recognized and to 2559/Del/2022 & 2834 to 2839/Del/2022 18 prescribed by the Income Tax Act under presumptive taxation scheme of Section 44AD of the Act and other similar presumptive tax provisions. The assessee contends that such presumptive income at 8% of receipts is determined based on threadbare study of empirical data collected and collated from various sources by the government and thus provides a sound basis for estimations at 8% of business receipts. The increased turnover in fact, would ordinarily bring down profit ratio rather than enhancement of estimations @10% as perfunctorily done by CIT(A). The assessee also simultaneously challenged the action of the Revenue Authorities for taxing the entire amount of interest generated on fixed deposits on the ground that such fixed deposits have been solely used for the purpose of business and served as collateral for obtaining bank finance. The fixed deposits were stated to be money parked for immediate financing needs and do not represent any idle funds or any kind of surplus. The assessee thus claimed that the principles applied for estimations of profits on contract receipts after rejection of books should apply mutatis mutandis to all stream of business income including fixed deposits which are integral and intrinsic part of the business activity of the assessee and directly contributes to the carrying on of business only. As contended, the contract business cannot possibly run without the use of securities and guarantees compelling the assessee to set aside the money by way of FDs. The assessee thus contends that fixed deposits being part of working capital to 2559/Del/2022 & 2834 to 2839/Del/2022 19 interest income on such FDs, cannot be divorced from business receipts.

such kind of irrigation and other construction projects are executed in remote areas where local suppliers supply small quantities of material more conveniently and efficiently. Such fringe suppliers issue local printed bills and are generally not registered under any Sales Tax/VAT/GST Act. The bills are also prepared by some comparatively literate persons locally available in the vicinity of project site resulting at times, in similarity in handwritings. Besides, the assessee-firm being engaged in government contracts, such projects are constantly supervised and monitored by government functionaries and standardized norms are supposed to be adhered to get the release of funds from the government agencies and since the requisite work are to be performed, the purchases and supply of services are clubbed under the head ‘other sundry creditors’. The local supply of material and service is quite plausible and cannot be disregarded. (ii) The reliance placed on the statement of Kuldip Singh before the investigating team to draw adverse inference is not justified. Kuldip Singh is a mere junior accountant/ field boy mainly engaged for bank purposes and other petty work. He is no person of any worthy knowledge to comment on the affairs of the contract work. The statement of such low rung person obtained under duress and influence has no rational probative value for making such whopping estimated disallowance to 2559/Del/2022 & 2834 to 2839/Del/2022 21 out of ‘other sundry creditors’. Significantly, the assessee also filed retraction statement on oath of Shri Kuldip Joshi wherein he has asserted coercion and duress earlier. The statement of Shri Mukesh Kumar does not cast any aspersions in the state of affairs of the assessee firm either. (iii) The increase in ‘other sundry creditors’ was rejected by AO in toto without recognizing any expenses incurred whatsoever. The entire expenses incurred and credited have been treated as bogus on flimsy grounds without taking note of ground reality. This act of disallowance towards bogus purchase has the effect of unpalatable and spectacular increase in the net profit ratio. The high pitched disallowance was carried out by the AO based on stray instances of quoting sample bills obtained from local suppliers primarily on the ground that payments have not been made without understanding the constant constraints of cash flow in Govt. contracts. (iv) The pendency of outstanding amount to the supplier is attributable to prolong delay in corresponding receipts from the government contracts. The poor cash flow has resulted in such outstanding creditors. The payments to the tune of Rs.35.61 were however made to such creditors out of receipts obtained towards government contracts. (v) The fixed deposits were kept owing to specific needs to 2559/Del/2022 & 2834 to 2839/Del/2022 22 of the contract business to serve the purposes of security and meet the immediate contingency. The money lying in fixed deposits served as working capital to meet the business exigencies of Govt. contracts. The outstanding amount towards ‘other sundry creditors’ are dynamic and keeps changing in proportion to change in Contract Performing Expenses. (vi) The assessee has purchased material from the vendors on credit for which confirmations were duly provided and therefore it is incorrect to say that onus on the assessee was not discharged at all. (vii) The adverse inference toward creditworthiness of creditors and their meager income is of no real consequence as a seller needs to check the credibility of the buyer and not vice versa. The assessee as a beneficiary of the supply of material and services is not expected to obtain a dossier on the creditworthiness of a supplier. (viii) The assessee executed canal construction projects for which gritt, stone, sand etc. are required and such material are supplied by local vendors who pick material from the miners and supplies are made using their mode of transportation. The assessee has maintained records of Aadhar number as an identity proof of the supplier. The supply are obtained credit basis/cash basis from time to time since they are small time suppliers from unorganized sector. The materials are delivered by carts, to 2559/Del/2022 & 2834 to 2839/Del/2022 23 tractors, trolleys, etc. and therefore, no LR or GR are issued. The adverse inference drawn on purchases in the absence of transportation proof etc. is thus dehors the ground realities. (ix) With respect to disallowance of expenses carried out for assumed breach of limits under Section 40A(3) of the Act, as stated before CIT(A), the expenses are incurred out of cash withdrawals from banks in the respective assessment year for payment of expenses such as labour, purchase of material and other project related expenses. The books of account showing cash payments towards expenses were seized at the time of search and therefore, there was no scope for any manipulation to comply with provisions of Section 40A(3) of the Act. The breach of S. 40A(3) has not been demonstrated by the AO qua the books seized. (x) As regards estimated disallowance of 10% of the employees’ expenses, the TDS has been deducted whichever applicable. (xi) The net profit ratio declared in sync with the book results in the past and also quite comparable with other contractors in similar business.