""
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
, ,
BEFORE SHRI SHAILENDRA KUMAR YADAV, JM
AND SHRI RAJESH KUMAR, AM
./ITA Nos. 3717 & 5297/Mum/2013
( /Assessment Years: 2009-10 & 2010-11 respectively)
A C I T - 25(2)
C-11, Pratyakshakar Bhavan
Room No. 108, Bandra Kurla Complex /Appellant
Bandra (E), Mumbai 400051
/ Vs.
Shri Ratansingh M. Rathod
/
B-1, Neela Apartment
Respondent
S.V.P. Road, Borivali (W)
./PAN - AACPR4164L
/ Appellant by: Shri Chandra Vijay
/ Respondent by: Shri D.C. Sejpal
/Date of Hearing : 28.09.2015
/Date of Pronouncement : 13.01.2015
/ O R D E R
PER SHAILENDRA KUMAR YADAV, JM :-
Both these appeals filed by the Revenue pertain to same
assessee. Therefore they are being disposed of by this
common order for the sake of convenience.
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Shri Ratansingh M. Rathod
ITA No. 3717/Mum/2013 : AY 2009-10
2. In this appeal, the Revenue has raised the following
grounds: -
"(i) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of `2,22,352/- on account of deemed rent
by accepting additional evidence under Rule 46A
without giving an opportunity to the A.O. for fresh
verification.
(ii) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of `1,14,6632/- to `43,709/- without
appreciating the facts that the provision of Rule 8D
states that all assets which do not fetch any
income or fetches income that does not form part of
the total income is also included while calculating
the disallowance under section 14A read with Rule
8D.
(iii) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of `10,00,000/- on account of labour
charges without appreciating the fact that the
assessee has made payments in cash and its
genuineness as well relation of it with business is
not proved."
3. The brief facts of the case are that the Assessee is an
individual and filed his return of income on 30.09.2009
declaring total income of `2,39,06,248/- in Assessment Year
2009-10. Subsequently, Assessing Officer selected the case
for scrutiny and completed assessment under section 143(3)
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Shri Ratansingh M. Rathod
of the Act determining total income of assessee at
`2,69,38,090/-. Aggrieved, assessee filed appeal before the
concerned CIT(A) wherein the CIT(A) has granted substantive
relief, which are being discussed below.
4. First issue is with regard to rent income from three
parties. The Assessing Officer estimated the annual value of
deemed let out in respect of three parties:-
i. Flat at Sushila Apt. `5,79,600/-
ii. Flat at Trishna Tower `31,59,930/-
iii. Bunglow at Jalore `3,00,000/-
Total `40,39,530/-
Annual value of the Flats ` 3,43,630/-
Less 30% Int. u/s 24(a) ` 1,03,008/-
Deemed let out income ` 2,40,352/-
Thus the Assessing Officer disallowed `2,40,352/- on
account of deemed let out income and added back the same
to the income of the assessee.
4.1 In appeal the CIT(A) observed that this issue also arose
in 2008-09 in assessee's on case and part relief was granted
by CIT(A) by observing as under: -
"I. Have considered the submissions of representative
and the stand taken by the A.O. The A.O. merely stated
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Shri Ratansingh M. Rathod
in the assessment order that the appellant was
confronted on this issue and he agreed for addition. If
that is the case the A.O. should have mentioned the
letter or order sheet entry by which the appellant was
confronted and the manner of agreement by the
assessee either in the form of letter or by signing in the
order sheet. In the absence of the above, I accept the
plea of the representative that the addition was made
without giving opportunity to the appellant violating the
principles of natural justice. A perusal of the case
records submitted by the A.O. reveals that no such
opportunity was given to the appellant. In the
circumstances, the entire addition is liable to be deleted
for violation of principles of natural justice. However
considering the argument of the representative that the
flat at Vaishali Apartment was not given possession, I
hold that the flat at Sushila Apartment can be treated as
self occupied. Accordingly, only the bungalow of Jalore
in the native place of the appellant is to be considered.
In the absence of municipal ratable value, I direct the
A.O. to assess Rs. 15,000/- as deemed rent u/s.23(4) of
the I.T.Act and the balance addition is deleted."
Since the issue is same, the annual ratable value in
respect of bungalow at Jalore in the native place of the
appellant is to be considered. Last year the CIT(A) had
directed the AO to asses ratable value at Rs.15,000/-.
Keeping in view the inflationary tendency in the market,
the amount is being increased by 20% in the present
assessment year, which comes to Rs,18,000/-.
Accordingly, AO is directed to assess Rs.18,000/- as
deemed rent u/s.23(4) of the I.T. Act,1961 and the
balance addition of Rs.2,22,352/- (Rs.2,40,352 -
Rs.2,40,352 - `18,000/- is deleted.
5. In the result, this ground of the appellant is Partly
Allowed."
4.2 Department did not prefer any appeal on this point. The
learned A.R. for the assessee supported the order of the
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Shri Ratansingh M. Rathod
CIT(A) on the issue, which was opposed by Revenue, inter
alia, submitted that the CIT(A) was not justified in deleting
the addition to `2,22,352/- on account of deemed rent.
Accordingly order of the CIT(A) be set aside and that of the
Assessing Officer be restored.
4.3 After going through the rival submissions and material
on record we incline to interfere with the finding of the
CIT(A). We find that the annual ratable value in respect of
bungalow at Jalore in the native place of assessee is the core
question before us. Following the decision in the earlier year
CIT(A) directed the Assessing Officer to assess the ratable
value at `15,000/- keeping in view the inflationary trend in
the market, the amount being increased by 20% in the year
under consideration which comes to `18,000/- Accordingly
Assessing Officer was directed to assess `18,000/- as deemed
rent under section 23(4) of the Income Tax Act and balance
addition of `2,22,352/- (`2,40,352 - `18,000) was directed to
be deleted. This reasoned finding of CIT(A), whereby he
granted partial relief to the assessee, need no interference
from our side. We uphold the same.
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Shri Ratansingh M. Rathod
5. Next issue is with regard to restricting addition of
`1,14,622/- under section 14A r.w. Rule 8D. The Assessing
Officer has disallowed `1,14,622/- vide para `k' of the
assessment order. While doing so the Assessing Officer relied
on the judgement of Chem Investment Ltd. vs. ITO 317 ITR
86 (AT) (Del) and Daga Capital Management Pvt. Ltd. 9TA No.
8057/Mum/2003. The Assessing Officer calculated the
disallowance under section 14A which is reproduced as
under: -
"From the record it is seen that the investments which
generates exempt income has been made out of his
personal account and he has not claimed any expenses
on account of interest
S.No. Particulrs Amt. (Rs.) Amt. (Rs.)
1 Amount of expenses directly
related to the income
A Amount of interest expenses 1A NIL
B1 Investment of 08-09 (the figures 2,24,63,898
supplied by the AR of the assessee)
B2 Investment of 09-10 2,33,84,938
B Average value investment {B=B1 2,29,24,418
+B2/2)
C1 Assets as on 08-09 NA
C2 Assets as on 09-10 NA
C Average of total assets {C = (C1 + NA
C2)/2}
2 Attributable indirect interest NIL
expenses {A*B/C)
3 ½% of the average value of 1,14,622
investment
Disallowance u/s. 14A {1 = 2 = 3} 1,14,622
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Shri Ratansingh M. Rathod
In view of this `1,14,622/- was added to the income of the
assessee.
5.1 The matter was carried before the first Appellate
Authority wherein after considering various submissions of
the assessee and comparative analysis of the facts of the case
it was found the ratio of case law relied upon by the
Assessing Officer is not applicable in the present case. The
computation made by the assessee and filed during the
course of appellate proceedings was found to be in order.
Accordingly, the disallowance made by the Assessing Officer
was restricted to `42,709/- and the balance of `71,913/-
(`1,14,622 - `42,709/-) was deleted. Thus CIT(A) grated
partial relief in this issue.
5.2 The learned D.R. supported the order of the Assessing
Officer and submitted that CIT(A) was not justified in
restricting the addition to `42,709/- instead of `1,14,622/-.
On the other hand, the learned A.R. for the assessee
supported the order of the CIT(A).
5.3 After going through the rival submissions and material
on record we are not inclined to interfere with the finding of
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Shri Ratansingh M. Rathod
the CIT(A) because only after analyzing the facts of the case
he rightly restricted the disallowance to `42,709/- instead of
`1,14,622/- for reasons discussed above. The same is
upheld.
6. Next issue is with regard to addition on account of
labour charges. Assessing Officer disallowed `10,00,000/-
under the head `Labour Charges' vide para (b) of his order.
While doing so he observed as under: -
"Disallowance out of labour charges:
The assessee firm has debited Rs.2,45,55,199/0 under
the head labour charges. During the course of
assessment proceedings, the assessee was called upon
to file details of labour charges claimed along with
details of TDS made thereon and justification for
allowability of the claim made by the assessee under
this head. The assessee firm has filed details of labour
charges on verification of which it is noticed that the
assessee has claimed to have made payments to number
of parties and some of the payments have been made by
way of cash. It is not ascertainable from the details filed
by the assessee as to for which site how many labourers
were employed and apparently, there is no check over
the claim made by the assessee for such a huge claim
made under this head. The assessee submitted during
the hearing that the increase in labour charges as
compared to turnover was due to the labour intensive
nature of the works undertaken this year. Considering
the fact that many payments have been made by cash
and not all the vouchers are produced by the assessee
for verification, on reasonable basis an amount of
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Shri Ratansingh M. Rathod
Rs.10,000,000/- out of total claim made by the assessee
is disallowed and added to the total income of the
assessee."
Thus the Assessing Officer disallowed `10,00,000/- under
the head `Labour Charges' because on scrutiny of the details
filed by the assessee Assessing Officer found that some of the
payments were made by way of cash. Assessing Officer was
also of the opinion as to how many labourers were employed
in various sites. The stand of the assessee has been that the
Assessing Officer has not pointed out any specific
discrepancy regarding utilization of labourers in various sites
of the assessee.
6.1 In appeal, CIT(A) observed that Assessing Officer has not
made any specific observation that labour expenses made by
the assessee were not genuine. The labour charges debited
are as per the Audit Report under section 44AB submitted
before the Assessing Officer along with the return of income.
The Assessing Officer has not pointed out any specific defect
in the details even in respect of a single party. Even the
Assessing Officer did not issue any show cause notice to the
assessee before making addition to the total income of the
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Shri Ratansingh M. Rathod
assessee. In view of this, Assessing Officer was not justified
in disallowing the same by observed that the same were
made in cash. In fact, in such business labor expenses are
made in cash, Assessing Officer has not made out any case
as to whether cash payment were in excess of `20,000/- and
were hit by provisions of section 40(A)(3) of the Act. In case
that transaction was found to be genuine and identity of
payee was established and that payment was not exceeding
the prescribed limit, then disallowance under section 40A(3)
of the Act cannot be made. Assessee had made the payment
to labour contractor and no single payment exceeded
Rs.10,000/-. It is well known that labour needs the cash
payment urgently and contractor is required to pay the same
in cash to avoid labour problems.
6.2 Keeping in view the totality of the facts and
circumstances of the case, CIT(A) was justified in upholding
the disallowance in question. This reasoned finding of the
CIT(A) need no interference from our side. We uphold the
same.
7. In the result, this appeal of the Revenue is dismissed.
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Shri Ratansingh M. Rathod
ITA No. 5297/Mum/2013 : AY 2010-11
8. In this appeal, the Revenue has raised the following
grounds: -
"(i) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of Rs.4,90,000/- which was made by
invoking the provisions of IT Act by treating the
income as Rs 18,000."
(ii) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of Rs. 50,00,000/- which was made
by way of reasonable estimation keeping the
nature of business in mind.
(iii) On the fads and in the circumstances of the case
and in law, the ld. CIT(A) erred deleting the
addition of Rs. 14,86,000/- which was made by
invoking the provisions section 39 of the IT Act by
treating penalty payments as not allowable
expenses.
(iv) On the facts and in the circumstances of the case
and in law, the ld.CIT(A) erred in deleting the
addition of Rs.10,00,000/- which was made by
invoking the provisions of section 40A(3) of the I.T.
Act by treating the payments was not done in cash.
(v) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of Rs.23,84,864/- which was made by
invoking the provisions of section 40a(ia) of the I.T.
Act by treating that TDS was deducted on the
transport charges payments.
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Shri Ratansingh M. Rathod
(vi) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of Rs.8,62,069/- which was made for not
furnishing the related to agriculture income.
(vii) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of Rs.2,16,32,610/- which was made by
invoking the provisions of section 69C of the I.T.
Act by treating the purchase are genuine.
(viii) On the facts and in the circumstances of the case
and in law, the ld.CIT(A) erred in deleting the
addition of Rs.4,48,89,991/- which was made by
invoking the provisions of section 69C of the I.T.
Act by treating the subcontract charges as genuine.
(ix) On the fects and in the circumstances of the case
and in law, the ld. CIT(A) erred in deleting the
addition of Rs.30,68,920/- which was made by
invoking the provisions of section 69C of the I.T.
Act by treating the purchase are genuine even
when the notice u/s 133(6) was returned unserved
and address was not available at the address.
(x) On the facts and in the circumstances of the case
and in law, the ld. CIT(A) erred in relying upon
judgments of the CIT vs. Nikunj Eximp
Enterprises IM. Ltd. without appreciating that the
facts involved in the of the appellant's case are
different from the facts of the above case laws."
9. The first issue raised by the Revenue in this appeal is
against the deletion of Rs.4,90,000/- which was made by the
Assessing Officer by invoking provisions of Income-tax Act by
treating the income as Rs.18,000/-. We have already decided
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Shri Ratansingh M. Rathod
this issue for AY 2009-10, in paragraph Nos.4 to 4.3 of this
order. Facts being similar, so following same reasoning, we
are not inclined to interfere in the findings of CIT(A) in this
year as well wherein CIT(A) has granted the similar relief on
same line. We uphold the order of CIT(A) on this issue in this
year as well.
10. Next issue is with regard to bogus sub-contract
expenses of `50,00,000/-. Assessing Officer vide para. 6 &7
of his order has made an estimated addition of
Rs.50,00,000/- on account of bogus payments to sub-
contracts allegedly "booked by the assessee". Assessee had
claimed sub-contract expenses of Rs.15,68,98,517/-.
Assessing Officer found that many of such sub-contractors
are having turnover of less than Rs. 40 lakhs and their
Income was offered mostly under section 44AD of the Act.
Assessing Officer has also observed that large numbers of
parties belongs to different group of families as ascertained
from residential address and/or surname of the parties. For
this reason, Assessing Officer held that the assessee is using
the names of members of different families for reducing the
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Shri Ratansingh M. Rathod
assessee's overall tax liabilities. According to the Assessing
Officer, the individual members hardly found to pay any
actual taxes after claiming deductions and tax benefits.
Further, the Assessing Officer observed that the turnover of
the individual members are kept below `40 lakhs for dual
purposes - firstly to get rid of statutory audit which would
require documentary evidences of any work done and
secondly - to have small income in the hands of such
individuals. Assessing Officer has held that the assessee was
indulging in tax evasion by reducing the tax liability by
inflating the expenditure through introducing certain bogus
and non-verifiable expenditure under the head "sub-
contract". For these reasons Assessing Officer made an
estimated disallowance of `50,00,000/- which accordingly to
him represents bogus amount of sub-contract booked by
assessee. The matter was carried before the first Appellate
Authority wherein various contentions were raised on behalf
of the assessee and having considered the same CIT(A)
granted relief to the assessee.
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Shri Ratansingh M. Rathod
10.1 The same has been opposed before us, inter alia, stating
that under the facts and circumstances of the case CIT(A)
erred in deleting addition of `50,00,000/-, which was made
by way of estimation keeping the nature of business in mind.
On the other hand, the learned A.R. for the assessee
supported the order of the CIT(A).
10.2 After going through the rival submissions and material
on record we find that the Assessing Officer has not brought
anything on record to verify the genuineness of the payment.
He has not made any effort to verify whether such expenses
were incurred for business purpose or not. Once the
genuineness of expenditure has not been disputed such
adhoc addition is not justified and such addition can be
made only by bringing some material on record to justify the
same, which has not been done in this case. Therefore the
CIT(A) was justified in deleting the addition of `50,00,000/-
and the same is upheld.
11. Next issue is with regard to addition of `14,86,000/-
made by Assessing Officer by treating penalty payments as
not allowable expenses. Assessing Officer has disallowed this
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Shri Ratansingh M. Rathod
amount paid by assessee by way of penalty for delay in
execution of contracts to the contractor. Similar issue arose
in A.Y. 2008-09 wherein ITAT "D" Bench, Mumbai, vide their
order in ITA No. 4390/Mum/2011 dated 04.04.2002 have
decided the issued by observing as under: -
"...... There is no dispute that the said amount of
`42,03,426 has been paid by the assessee on account of
delay in execution of civil contract entered into by the
assessee with MCGM. Therefore the amount was paid as
damages on account of breach of contract. It is not a
penalty for violation of any statutory provisions. Hon'ble
Kerala HC in the case of CIT Vs. Grand Cashew
Corporation, 182 ITR 216 held that the liability to pay
damages on account of breach of contract is an
allowable deduction u/s 37(1) of the Act. Similar view
has been taken by Hon'ble Apex Court in the case of CIT
Vs Shantilal P. Ltd. 144 ITR 57, wherein it was held that
any amount incurred by the assessee on account of
non-fulfillment of business contract for reasons beyond
his control is incidental to the business and is an
allowable deduction.
11.1 Since the issue was covered by the order of the ITAT in
assessee's own case in A.Y. 2008-09 and the facts being
same, for same reasoning CIT(A) deleted the addition of
`14,86,000/-. Nothing contrary has been brought to our
notice by the Revenue. Therefore we are not inclined to
interfere with the decision of the CIT(A), who has deleted the
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Shri Ratansingh M. Rathod
disallowance of `14,86,000/- made on account of penalty
payment for delayed execution of contract. The same is
upheld.
12. Next issue is with regard to the deletion of addition of
Rs.10,00,000/- which was made by the Assessing Officer u/s
40A(3) of the Act, on account labour charges and transport
charges. We have decided this issue for AY 2009-10, in
paragraph No.6 of this order. Facts being similar, so
following same reasoning, we are not inclined to interfere in
the findings of CIT(A) in this year as well wherein CIT(A) has
granted the similar relief on same line. We uphold the order
of CIT(A) on this issue in this year as well.
13. Next issue is with regard to disallowance under section
40(a)(ia) of the Act in respect of transport charges of
`23,84,864/-. Vide para 11 of his order the Assessing Officer
has disallowed `23,86,864/- by invoking provisions of section
40(a)(ia) by observing that in many cases although PAN is not
mentioned, TDS was not deducted.
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Shri Ratansingh M. Rathod
13.1 The matter was carried before the first Appellate
Authority. Various contentions were raised as detailed in
para 9.2 of CIT(A)'s order and having considered the same
CIT(A) has deleted the addition in question. Same has been
opposed before us, inter alia, submitting that the CIT(A) was
erred in deleting the addition of `23,86,864/-, which was
made by invoking provisions of section 40(a)(ia) of the Act by
treating that TDS was deducted on transport charges. On the
other hand, the learned A.R. for the assessee supported the
order of the CIT(A).
13.2 After going through the rival submissions and material
on record we find that CIT(A), after analyzing the details
submitted by the assessee, observed that the parties
mentioned by Assessing Officer in his order and the actual
parties are totally different for which he relied on the chart
given on pages 15 to 17 of his order. In this background the
CIT(A) observed that the amount disallowance by Assessing
Officer was without any basis and without making any
enquiries at his level. Since all details regarding transport
charges, specifying PAN, rate of deduction of TDS, date of
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Shri Ratansingh M. Rathod
deposit in Govt. account, etc. were already before the
Assessing Officer and that too twice - once vide letter dated
10th September, 2012 and the second vide letter dated 18th
February, 2013 - during assessment proceedings, which was
also conveyed to CIT(A). In this background the CIT(A)
observed that Assessing Officer has not applied his mind in
dealing with the issue and even the amount and the names of
concerned parties did not tally. There was also contradiction
in the name of parties. On a comparative analysis of facts, in
this background, CIT(A) observed that there seems to be
wrong identification of figures and parties. In view of this the
CIT(A) deleted the addition by observing that the disallowance
was made without any basis hence the same was directed to
be deleted. This reasoned factual finding of CIT(A) need no
interference from our side. We uphold the same.
14. Next issue is with regard to addition of `8,62,069/- in
respect of agricultural income. Vide para 12 of the
assessment order Assessing Officer has treated exempt
agricultural income as income from other sources on the
ground that source of income has not been explained, which
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Shri Ratansingh M. Rathod
was deleted by the CIT(A). Same has been opposed before us
on behalf of the Revenue , inter alia, submitted that CIT(A)
erred in deleting addition of `8,62,069/- which was made for
non-furnishing the details relating to agricultural income. On
the other hand, the learned A.R. for the assessee supported
the order of the CIT(A) and submitted that assessee has been
declaring agricultural income since last many years and
same has been continuously accepted by Department and
same has been erroneously treated by the Assessing Officer
as income from other sources without any reason for the
same. Since there was no change in assessee's 7/12 Uttara
(official record of Agricultural land) in the name of the
assessee, indicating that assessee owns an agricultural land
at Jalore. Further, assessee also submitted details of the
sales made by the assessee during the year.
Sr. Name of the Details of Amout (Rs.)
No. Customer the
Product
1. Nupur Enterprise Mung 339,300
Bajari 114,000
2. Molota Enterprise Mung 364,000
3. Nikita Enterprise Bajari 90,000
Total 907,300
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Shri Ratansingh M. Rathod
14.1 Assessee also claimed that he incurred cash expenses to
the tune of `45,231/- as reflected in assessee's capital
account to earn the aforesaid agricultural income. In this
background the stand of the assessee has been that
agricultural income amounting to `8,62,069/- as declared by
him is exempt from taxation and hence requested to uphold
the order of the CIT(A).
14.2 After going through the rival submissions and material
on record we find that the income the income assessed under
the head `income from other sources' has rightly been deleted
by CIT(A) because similar income has been consistently
accepted by Assessing Officer in past and there is no change
in the facts and circumstances of the case. Even the
agricultural holding of the assessee has not been disputed.
Under the facts and circumstances, the Assessing Officer was
not justified in deviation from the earlier stand of Revenue in
this regard without bringing any changed circumstances for
this addition. Accordingly, in the aforecited facts and
circumstances, CIT(A) has rightly deleted the addition of
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Shri Ratansingh M. Rathod
`8,62,069/-. This reasoned finding of the CIT(A) need no
interference. We uphold the same.
15. Next issue is with regard to the disallowance of the
aggregate of the purchases amounting to `2,16,32,610/- as
unexplained expenditure under section 69C of the Act. The
assessee had made various purchases to the tune of
`2,16,32,610/- during the relevant accounting period. In
this regard, the Assessing Officer on the basis of materials
provided by the Sales-tax Department disbelieved the said
purchases to the extent of `2,16,32,610/-. The Assessing
Officer Issued notices u/s 133(6) of the Act to all the parties
appeared in the report sent by the Sales Tax Department. It
was found by him that the notices in most of the cases were
returned unserved with a remark 'left' or `not known'. The
Assessing Officer thereafter asked the assessee to explain as
to why the alleged purchases from the parties reported by the
Sales-tax Department should not be treated as unexplained
expenditure u/s 69C of the Act and the resultant amount be
disallowed and added to the assessee's total Income. In this
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Shri Ratansingh M. Rathod
regard, the assessee has given various explanation, but after
rejecting the same, the Assessing Officer disallowed the total
amount of `2,47,01,530/-. Thus, the Assessing Officer has
disallowed 13.97% of purchases made by the assessee during
the year under consideration.
15.1 Matter was carried before the First Appellate Authority
wherein various contentions were raised on behalf of the
assessee. The CIT(A) having considered the submissions of
the assessee granted relief to the assessee and the same has
been opposed before us on behalf of the Revenue inter alia
submitting that the CIT(A) has erred in deleting the addition
of Rs.2,16,32,610/- made by the Assessing Officer by
invoking provisions of section 69C of the Income-tax Act;
accordingly, the Departmental Representative submitted that
the order of the CIT(A) be set aside and that of Assessing
Officer be restored. On the other hand, the Authorized
Representative supported the order of the CIT(A) on this
issue.
15.2 After going through the rival submissions and perusing
the material available on record, we find that the assessee
24
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
executes the contract work awarded by Municipal
Corporation of Greater Mumbai (hereinafter called "MCGM").
The terms and conditions of the contract awarded by MCGM
towards execution of the work done by any contractor. It
was pointed out that found that execution of the contract,
the quality and the quantity of the material supplied was
directly under the supervision of the representative engineer
of the MCGM. In the beginning, the assessee had to furnish
samples of the material to be supplied and the materials were
later on supplied on approval of samples. This was on
account of the clause 59 of General Conditions of Contract
for Civil Works issued by the MCGM which is applicable to all
the contracts awarded by the MCGM. These details were
available on the website of the Municipal Corporation of
Greater Mumbai, and therefore it is in public domain- the
relevant extracts of same are reproduced below:
59(a) Material to be provided by the Contractor:
The Contractor shall, at this own expense, provide all
materials required for the works other than those
which are to be supplied by the Municipal Corporation.
25
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
All materials to be provided by the Contractor
shall be in conformity with the specifications laid
down in the contract and the Contractor shall, furnish
proof to the satisfaction of the Engineer that the
material so comply. Contractor shall produce proof viz,
challans, bills, vouchers, etc so as to ensure that the
material was brought on site and quantities used as
per the norms, specifications, etc.
The Contractor shall, at his own expense and without
delay, supply to the Engineer samples of materials
proposed to be used in the Works. The Engineer shall
within seven days of supply of samples or within such
further period as he may require and intimated to the
contractor in writing, inform the contractor whether
the samples are approved by him or not. If the samples
are not approved the contractor shall forthwith arrange
to supply to the Engineer for approval fresh samples
complying with the specifications laid down in the
contract.
The Engineer shall have full powers to require removal
of any or all of the materials brought to site by the
Contractor which is not in accordance with the contract
specifications or which do not conform in character or
quality to the samples approved by him. In case of
default on the part of the Contractor in removing the
rejected materials, the Engineer shall be at liberty to
have them removed by other means. The Engineer shall
have full powers to procure other proper materials to be
substituted for rejected materials and In the event of the
Contractor refusing to comply, he may cause the same
to be supplied by other means. All costs, which may
attend upon such removal and / or substitution, shall
be borne by the Contractor."
26
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
15.3 In the present case, the total supply of material is stated
to have been obtained from various parties and the Assessing
Officer has held an expense of Rs.2,16,32,610/- as
unexplained expenditure/non-genuine expenditure. In the
Impugned contract the cost of material is quite high and if
the rejection of purchases from such parties, reflected In the
website www.mahavat.gov.in is rejected to be non-genuine
then purchases of the material made for the execution of the
contract from these parties, would lead to the preposterous
conclusion of having executed contract involving materials
without there being any corresponding genuine purchase
and receipt of material. If such disallowances are take in to
consideration, the Gross Profit Ratio as well as Net Profit
Ratio will shoot up in a very high and abnormal ratio and for
which onus was cast on the Assessing Officer to bring
on record any such comparable figures/data which could
show that in the Government Civil Contracts there could be a
possibility of such abnormal Gross profit or Net Profit.
27
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
15.4 The assessee has been engaged in such activity for the
last several years. The assessment of immediate preceding
A.Y. have been completed under 143(3) and no such
additions were made. The books of accounts of the assessee
are audited and the returns filed in each of these years were
supported by tax audit report in form 3CB & 3CD. From the
Assessment Order, it is also seen that the Assessing Officer
has not rejected the Tax Audit Report in case of the assessee.
Since the assessee has done job work exclusively for
Government Departments, its receipts are 100% verifiable.
As per the terms of contracts by the Municipal Corporation of
Greater Mumbai (MCGM), which is in public domain and
available on the website of Municipal Corporation of Greater
Mumbai, the jobs executed by the contractor/assessee also
require quantity and quality specification of the material to
be supplied/consumed and the contract receipts in the
hands of the assessee invariably precede such verification
and certification by the departmental authorities. The only
ground for rejecting the purchase was mention of the names
of purchase parties on the website of sales tax department
28
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
under the category of suspicious dealers. The Assessing
Officer has not found any infirmity with respect to receipt of
payment for execution of contracts for which appellant has
obtained, supplied and consumed materials under the
quantity and quality supervision of the representative
engineer. The Assessing Officer has also not been able to
bring on record the evidences that the amount of the
payment for purchases which were made by the assessee to
the respective parties via banking channels, were received
back by the appellant and ultimately there was no purchase
of any material. It was not possible because without supply
of material, the contract awarded by MCGM cannot be
fulfilled by the assessee and consequently, the MCGM would
not make any payment' for the same. In fact the entire
process is inter connected and the statement of suppliers of
raw materials could not be taken and read
independently rather it has to be examined In totality. In
view of the above, it was apparent that the mere appearance
of the name of the parties on the website of sales tax
department cannot justify the conclusion that the purchases
29
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
made by the assessee were not genuine. Thus, the contracts
executed by various contractors were subjected to check as
regards their specification, workmanship/ quality and
quantity of material utilized by the Audit/Vigilance team of
the MCGM. The Assessing Officer has not brought out any
material on record to suggest that there were any defect or
deficiency in the quantity and quality of material supplied
and the workmanship of the job performed.
15.5 The assessee has made claim for purchases for which
payments have been made by cross-cheque. Where
payments are made by account payee cheques nobody can
deny the existence of the parties. The Assessing Officer has
not brought any material on record to suggest that the
payments made to purchase parties were received back in
cash by the assessee and no further payments were made by
the assessee towards purchase of any material so as to fulfill
the conditions of contract imposed by the MCGM which has
made payments towards contract awarded to the assessee.
Once the assessee establishes consumption of items
30
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
purchased as well nothing more remains to be proved by the
assessee. The CIT(A) himself has logged onto the website
www.mahavat.gov.in to know the allegation of Assessing
Officer regarding the suppliers. He found that the website
merely mentions list of suspicious dealers who has issued
false bills without delivery of goods. It neither gives modus
operandi of dealers nor makes any claim regarding any
corroborating evidences. He further observed that the
addition made by the Assessing Officer could not be accepted
at this stage in view of following judicial pronouncements:-
(i) In the case of CIT vs. M.K. Brothers, reported in 163
ITR 249 the Hon'ble Gujarat High Court held as under:-
It was clear from the Tribunal's order that whether
the said transactions were bogus or not was a
question of fact. The assessee was given credit
facilities for a short duration and the payments
were given by cheques. When that was so, it could
not be said that the entries for the purchases of
the goods made, in the books of the account were
bogus entries. Thus, the conclusion arrived at by
the Tribunal was not against the weight of
evidence. The Tribunal was, therefore, justified in
deleting the addition to the income of the assessee.
In this case, during the assessment proceedings it came
to the notice of the Assessing Officer that in the relevant
31
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
assessment year the assessee had made certain purchases
from some parties, who were not available to cross-examine
for the genuineness of the above purchases. It was found by
the Assessing Officer that though the purchases were
claimed to have been made on credit basis, the payments
were shown to have been made after substantial lapse of time
after the date of purchase. The Assessing Officer held that
the transactions relating to those purchases were bogus and,
therefore, treated the amount allegedly paid for those
purchases as income of the assessee. On second appeal, the
Tribunal found that there was no evidence anywhere that
those concerns gave bogus vouchers to the assessee and
further there was nothing to indicate that any part of the
fund given by the assessee to those parties came back to the
assessee in any form. He, thus, held that the evidence was
not adequate to conclude that the purchases made were
bogus and, therefore, deleted the aforesaid addition to the
income of the assessee. Similar view has been taken by
ITAT, Jodhpur Bench in the of ITO v Permanand, reported in
107 TTJ 395, wherein in it was held as under:-
32
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
"In the instant case, the addition rested mainly only on
the observation of the Sales-tax Department, The
assessee was never associated with the enquiries made
by the Sales-tax Department to that extent. The
satisfaction of the Assessing Officer itself is of prime
Importance while making assessment of an income and
these duties cannot be performed by substituting
satisfaction of someone else the assessee did pay for the
purchases he made from the above two parties through
cheque as was evident from the record. The statements or
even the affidavits of the sellers could not be utilized
against the assesses, unless an opportunity was given to
him to confront the said statement by way of cross-
examination, etc. Admittedly, no such opportunity was
given to the assessee to confront the above sellers in the
instant case. Further, the assessee had also discharged
the primary onus cast on him by section 69 by showing
the purchases, their entries in the books of account,
payments by way of account payee cheque and producing
the vouchers of sales of the goods. The Assessing officer
had miserably failed to bring on record any clinching
evidence to prove that these alleged purchases were
bogus and not genuine. Further, the Assessing Officer
did not make requisite investigation against the two
sellers. Therefore, the Commissioner (Appeals) had rightly
held that the addition made by the Assessing
Officer merely on the basis of observations of
sales-tax department, without conducting independent
enquiries was not justified. Since the purchase in
question had been held as genuine purchase, addition of
Rs, 55,632/- could not be made to the income of the
assessee. Hence, the revenue's appeal was liable to be
dismissed"
Similarly, the Hon'ble Calcutta High Court in the case of
Diagnostics v CIT reported at 334 ITR 111 has held as
under:-
33
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
"However, as regards the payments made to M/s. Selvas
Photographic are concerned amounting to Rs.3,12,302/-,
we find that those have been made by account payee
cheques and those have been encashed through the
bankers of M/s. Selvas Photographic. It appears that
according to the appellant, at the time of assessment, the
appellant had no business transaction with M/s, Selvas
Photographic and consequently, the said party did not
co-operate with the Assessing Officer. However,the
transaction having taken place through account payee
cheques, we are unable to accept the contention of Mr.
Agarwal, the learned advocate appearing for the Revenue
that the transaction was a non-existent one. If an
assessee took care to purchase materials for his business
by way of account payee cheques from a third party and
subsequently three years after the purchase, the said
third party does not appear before the Assessing Officer
pursuant to the notice or even has stopped the business,
the claim of the assessee on that account cannot be
discarded as non-existent. In the case before us, the
Revenue has not put forward any other ground, such as,
it was not a genuine transaction for other reasons but
has simply rejected the claim on the ground as If there
was no such transaction.
10. The transaction having taken place through
payment by account payee cheques, such plea is
not tenable and in such circumstances, the Tribunal
below erred In law in reversing the finding arrived at by
the Commissioner of Income-tax (Appeals) accepting the
said transaction as a genuine transaction."
Therefore, keeping in view the totality of the facts and
circumstances of the case as well as various judicial
pronouncements as referred to above, in our opinion, the
CIT(A) was rightly deleted the addition of Rs.2,16,32,610/-
34
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
made by the Assessing Officer u/s 69C of the Act. Therefore,
this reasoned finding of the CIT(A) needs no interference from
our side. We uphold the same.
16. Next issue is with regard to the addition of
Rs.4,48,89,991/- on account of unexplained expenditure u/s
69C on account of sub-contract charges.
16.1 The brief facts the case are that the addition to the
tune of Rs.4,48,89,991/- was made u/s 69C of the Act in
respect of four parties under the head sub-contractors. The
Assessing Officer observed that notices issued u/s 133(6) to
the four parties were returned unserved by Postal Authorities.
The assessee had furnished to concerned Assessing Officer
the addresses made available by the said parties. The
Assessing Officer asked the assessee to give explanation as to
why the sub-contract work for the said amount of
Rs.4,48,89,991/- should not be held as bugs.
16.2 The matter was carried before the First Appellate
Authority wherein various contentions were raised on behalf
of the assessee and having considered the same, the CIT(A)
35
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
deleted the addition in question and the same has been
opposed before us by Revenue, inter alia, submitting that the
CIT(A) has erred in deletion the addition of Rs.4,48,89,991/-
made by Assessing Officer u/s 69C of the Act. The
Departmental Representative pleaded that the order of the
CIT(A) be set aside and that of Assessing Officer be restored.
On the other hand, the Authorized Representative for the
assessee supported the order of the CIT(A).
16.3 After going through the rival submissions and material
on record, we find that the assessment of the assessee in the
immediately preceding assessment year i.e., 2000-10, was
completed u/s 143(3) but no such addition was made the
Assessing Officer despite thorough scrutiny of the case. The
assessee has completed all government jobs by purchasing
material, engaging sub-contractors etc., which is evident from
the fact that the assessee successfully received the payment
from Government towards such specific contract. In fact, the
Assessing Officer has given time of two days to produce the
confirmation, statement on oath as mentioned in assessment
order. The assessee explained that the assessee had given
36
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
sub-contract to these four parties and list was given to
Assessing Officer alongwith address and PAN. The assessee
explained the payments with reference to copy of account
with cheque payment details and TDS applicable wherever
necessary, which has been detailed in the order of the CIT(A)
at page No.46 as under:-
RATANSINGH & BROS ANNEXURE-B
AY 2010-2011
ASPER PARA 6.1 OF THE ASSESSMENT ORDER
NAME OF THE PARTY : ALPESH MEHTA
Sr. No. Date of Payment Cheque No. Amount Remark
1 15.10.2009 98299 300000 Party's
account
2 16.10.2009 98459 450000
squared off as
3 26.10.2009 99060 512844 on
31.03.2010
4 03.11.2009 99351 1134342
5 06.11.2009 99379 1144193
Total Rs. 3541379
NAME OF THE PARTY : RANJEETSINGH S. DEORA (HUF)
Sr.No Date of Payment Cheque No. Amount Remark
1 28.10.2009 99210 1500000 Party's account
squared off as
on 31.03.2010
Total Rs. 1500000
NAME OF THE PARTY : GAUTAM TRADING CO.
Sr.No. Date of Payment Cheque No. Amount Remark
1 06.04.2010 6908 2045643 Party's account
squared off as on
06.04.2010
Total Rs. 2045643
37
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
NAME OF THE PARTY : ROSEMOUNT CONSTRUCITON
Sr. Date of Payment Cheque No. Amount Remark
No.
1 07.01.2010 496 5000000 Party's
account
2 07.01.2010 497 6000000
squared off as
3 08.01.2010 498 5000000 on
31.03.2010
4 09.01.2010 499 4000000
5 19.01.2010 500 5000000
6 21.01.2010 501 5000000
7 23.02.2010 4232 6830000
Total Rs. 36830000
Grand total Rs. 43917022
SUMMARY
AMOUNT AS PER PARA 6.1 44,889,991
LESS: TDS 824,717
44,065,274
Less: Security Deposit 148,252
TOTAL PAYMENT AS ABOVE 43,917,022
Where identity of the person from whom goods had been
purchased and source of investment in such goods had been
explained by assessee and it was established that amounts
paid by assessee by cheque for those goods had been
received, and further, books maintained by the assessee had
not been rejected by Assessing officer and in fact addition
was based on entries made in those books, it could be said
that transaction was genuine. Here in the case on hand, the
38
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
identity has been established, source of investment and bank
payments have been proved and the books of accounts have
not been rejected by the Assessing Officer. The unexplained
expenditure of Rs.2,16,32,610/- made by the Assessing
Officer by invoking the provisions of section 69C of the Act
has been deleted by us, relying on various judicial
pronouncements as discussed in paragraph 14 of this order.
For the sake of brevity, the same are not reproduced here
once again. The Assessing Officer had all the machinery
under the IT Act, 1961 to make investigation through the
Banks by calling for records and reaching out the parties who
were not co-operating with the assessee and bring the actual
facts on record. In view of above, the CIT(A) was justified in
deleting the addition of Rs.4,48,89,991/- because the
Assessing Officer has also not been able to bring on record
the evidences that the amount of the payment for purchases,
which were made by the assessee to the respective parties via
banking channels. There is nothing on record to suggest that
said payments were received back by the assessee in any
manner. This reasoned finding of the CIT(A) needs no
39
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
interference from our side whereby he has rightly deleted this
addition in question. We uphold the same.
17. Next issue is with regard to the deletion of addition of
Rs.30,68,920/- made by the Assessing Officer u/s 69C of the
Act, on account of purchase expenses.
17.1 The brief facts of the case are that the Assessing Officer
disallowed an aggregate amount of Rs.30,68,920 u/s 69C of
the Act on account unexplained expenditure as the assessee
allegedly did not purchase any goods from three parties as
mentioned in page no.7 of assessment order. The Assessing
Officer himself observed that the name of those three parties
were not appearing in the list of bogus parties sent by the
Sales Tax Department. However, the Assessing Officer
disallowed the amount in question by observing that the
three parties were bogus for the reason that the notices u/s
133(6) were returned unserved. The matter was carried
before the First Appellate Authority wherein various
contentions were raised on behalf of the assessee and having
considered the same, the CIT(A) has granted relief to the
40
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
assessee and the same has been opposed before us by the
Revenue, inter alia, submitting that the order of the CIT(A) be
set aside and that of Assessing Officer be restored.
17.2 After going through the rival contentions and material
available on record, we find that The Assessing Officer has
mainly relied upon an article published in Times Of India
which refers to certain business enterprises. It was further
seen that the article itself was with reference to certain works
entrusted to them. The article has been published on 06-02-
2013 and which falls in FY 2012-13 i.e. AY 2013-14. This
cannot be basis for making any addition or disallowance by
the Assessing Officer in AY 2010-11. The authenticity of
source of such article has not been independency
investigated by the Assessing Officer in the case of
proprietorships concern of the assessee namely M/s.
Ratansingh & Bros. No other reason has been brought on
record by the Assessing Officer to substantiate adverse
conclusion against the assessee. The Assessing Officer has
not taken any personal initiative except issuing notices u/s
41
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
133(6) of the Act to ascertain the genuineness of the
purchases in question. The CIT(A) found from the records
produced before him by the assessee that the purchases
made could not be said to be not genuine. If the Assessing
Officer has not made any effort to rebut the assessee's claim
about the genuineness of the purchases, the assessee cannot
be made for such lapse. Therefore, in our opinion, the
CIT(A) was justified in deleting the addition of Rs.30,68,920/-
made by the Assessing Officer u/s 69C of the Act. We
uphold the same.
18. This appeal of the Revenue is also dismissed.
19. In the result, both appeals filed by the Revenue, i.e. for
AYs 2009-10 and 2010-11, are dismissed.
Order pronounced in the open court on 13th January, 2016.
13.01.2016
Sd/- Sd/-
(RAJESH KUMAR) (SHAILENDRA KUMAR YADAV)
/ACCOUNTANT MEMBER /JUDICIAL MEMBER
Mumbai, Dated 13th January, 2016
42
ITA No. 3717&5298/Mum/2013
Shri Ratansingh M. Rathod
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent
3. () / The CIT(A)
4. / The CIT
5. , , / DR, "D" Bench ITAT, Mumbai
6. / Guard file.
/ By Order
//True Copy//
/Asstt. Registrar)
, /ITAT, Mumbai
n.p.
|