Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer,Ward-8(4),, Surat vs Swastik Construction, Surat on 20 March, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'D' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ITA.No.1601/Ahd/2011
नधा रण वष /Asstt. Year: 2007-2008
Income Tax Officer, M/s.Swastik Construction,
Ward-8 (4), Surat Vs B-8, Kamal Apartment,
Katargam, Surat
PAN: AAJFS4099J
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : Shri S.K. Kabra, AR
Revenue by : Shri Om Prakash Meena, Sr.DR
सन
ु वाई क तार ख/ Date of Hearing : 21/02/2017
घोषणा क तार ख / Date of Pronouncement: 20/03/2017
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER:
The revenue is in appeal before the Tribunal against the order of Ld.CIT(A)-I, Surat, dated 15/02/2011 passed for the Asstt. Year 2007- 2008.
2. Thoughthe revenue has taken five grounds of appeal, but its grievancerevolves around two issues namely:
ITA No.1601/Ahd/2011For Assessment Year 2007-08 2 a. Ld. CIT(A) has erred in deleting the addition of Rs.42,17,418/- which was added by the AO by making a disallowance with the aid of Section 40(a)(ia) of the Income Tax, Act, 1961.
b. Ld.CIT(A) has erred in deleting the addition of Rs.72,88,879/- which was added by the AO with the aid of section 68 of the Income Tax, Act, 1961.
Issue no.1
3. The brief facts of the case are that assesse firm at the relevant time was engaged in the business of Civil Construction. It has filed its return of income on 31/10/2007, declaring total income of Rs.23,940/-. Case of the assessee was selected for scrutiny assessment and notice u/s.143(2) of the Income Tax Act, dated 16/09/2008, was issued and duly served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has shown G.P. of Rs.15,17,818/- which in terms of percentage comes to 4.81% of the total turnover of Rs.3,15,20,695/- . The assessing officer has observed that there is a fall in G.P from the preceding year. In the preceding year G.P in terms of percentage shown bythe assessee was 22.87%.
4. The Ld.AO has confronted the assessee, to show the reason for decline in G.P. The assesse has submitted that it has sub-contracted two contracts having value of Rs.2,30,15,103/- The assesse has received a commission of 1.75 % on the value of sub-contract. Thus, there was a ITA No.1601/Ahd/2011 For Assessment Year 2007-08 3 fall in the G.P. The Ld.AO thereafter verify the accounts of the assessee, he arrived at the conclusion that assessee has paid the labour charges to the headman of the labourers, it is to be construed that a sub- contractorship between the assesse and the alleged headman for supply of labour was in existence. The assessee should havepaid thelabour charges after deduction of TDS.Accordingly he made a disallowance of Rs.42,17,418/- with the aid of section 40(a)(ia) of the Income Tax Act, on the ground that assessee failed to deduct TDS on the labour payment to the alleged headman/contractors of labour supplier.
5. Dissatisfied with the action of AO, assessee carried the matter in appeal, it was contended by the assessee that he has not avail the services of a labourcontract, all the labourers were employed by the assesseeat its own. These were casual workers, the assessee made payment directly to the labourer, there is no relationship of a contractor and contractee between the payments of labour charges to the labourers. The assessing officer has unnecessary assumed existence of certain facts without their being any supporting materials.
6. The Ld. first appellant authority has accepted contentionsof the assessee and deleted the addition.
7. Before us,Ld.DR relied upon the order of the Assessing Officer. On the other hand the Ld.Counsel for the assessee pointed out that during the hearing beforethe Ld.first appellant authority, the ITA No.1601/Ahd/2011 For Assessment Year 2007-08 4 assesseesubmitted all the details of payment and also emphasized that services of any sub-contractor was not availed. The Ld.CIT(A) has called for a remand report from the AO, directing him to verify some of the labourers. The Ld. AO did not bother to carry out this exercise, he has reiteratedhis stand as was taken in the assessment order. He observed that assesse failed to produced contractor/sub-contractor and labourer. In contrary to these observations, theassessee filed objection and pointed out that Bhima Bhai Bachu Bhai Bhabhor and Khim Chand Bhai Bachu Bhai were produced before the AO. The Ld.AO has observed that, since there was work pressure of time barring assessments these persons be produced in the month of January 2011. They again came to the office but Ld. AO did not record their statement. Ultimately they sent their affidavits on the third occasion.He took us through these objections reproduced by the CIT(A) on page 10 of the impugned order.
8. We have duly considered the rival contention and gone through the record carefully. Section 194(c) of the Income Tax Act, contemplates that any person responsible for paying any sum to any resident for carrying out any work including supply of labour for carrying out any work in pursuance of contract between the contract and a specified person shall, at the time credit of such sum to the account of contract or at the time of payment thereof in cash or by issue of cheque or by draft or by any other mode whichever is earlier, deduct an amount equal to ..........
ITA No.1601/Ahd/2011For Assessment Year 2007-08 5
9. Now, the question is whether there was any relationship of contractor and contractee between the assessee and the alleged headman. The assessing officer has assumed that these labourers were supplied by alabour contractors whereas stand of the assessee was that it itself employed all the labourer.It has handed over the labour payments to one or two person on the site who will disburse among the labourer. The assessee has not availed services of any labour contractors therefore, it was not required to deduct TDS. We could have appreciated the case of revenue, if assessing officer has inspected the site or record statement of labourers for establishing the facts that they worked at the site of assessee through some contractors but no such step was taken by the assessing officer,inspite of direction given by theCIT(A). Under these circumstance,the Ld.CIT(A) has deleted the addition and we do not see any reasons to interfere in the order of the CIT(A).
Issue no. 2
10. In this ground, the grievance of revenue is the Ld CIT(A) has erred in deleting the addition of Rs.72,88,879/- which was added by the assessing officer with the aid of section 68 of the Income Tax Act, 1961.
11. The brief facts of the case are that during the year,assessee has assigned its two contracts to one M/s.HimaliEnterprises. In other words it has sub contracted its two work contracts awarded to it by Canal Division of R&B department under tender. The sub contract was for the ITA No.1601/Ahd/2011 For Assessment Year 2007-08 6 entire work to be completed in its entirety as per the terms of the tender and the assesseefirm was to retain 1.75% of the billed amount under the tender as its profit. M/s. Hemani Enterprises had billed for Rs.2,17,02,016/- a total payment of Rs.1,44,13,137/- (including TDS was made to it) the balance amount of Rs.72,88,879/- was shown has a payable to it by the assessee in its accounts as on 31/03/2007. The Ld. AO added this amount as an unexplained cash credit.
12. On appeal, the assessee has filed written submission and it was explained has to how this addition could not be made. The submission made by the assesse, has been noted by the CIT(A) in the paragraph 6 . It is pertinent to note the observation of Ld.CIT(A) made while taking note of the assessee's submissions.
''In this context it is submitted as under:
6. EXISTENCE of Shri MD GOHIL prop of HIMALI ENTERPRISES: The LD Assessing Officer had doubted the existence of the sub contractor at the address provided. The following need to be considered in this matter:
a. The address House No 39/6, 336 LIG, GujHsg Board is a residential house which is owned and registered in the name of SMT JYOTI MANOJ GOHIL who is wife of the said Shri M D GOHIL. (Copy of the document enclosed).
b. The Bank account is having the same address.
c. The address in the department's record as per PAN is also the same as provided by the assessee.
d. The present MOBILE no of Shri Manoj Bhai Gohil is 9898614342.
e. All the POSTS are delivered to the said Shri Manoj Bhai Gohil at the same address.ITA No.1601/Ahd/2011
For Assessment Year 2007-08 7 f. The Sub Contractor had made FDR(TDR) from his own Bank Account in favour of the Exec Engr Canal Division towards the Contract performance, which is evident from the bank account already enclosed. The extract is again enclosed herewith.
g. M/s Himali had also worked for others during the year. Copy of a TDS certificate issued by one M/s MADHURAM CONSTRUCTION CO. of JUNAGARD is enclosed herewith for your perusal.
7. ALL THE BILLS RAISED BY HIMALI ARE IN THE MONTH OF MARCH 2007 WHEREAS PAYMENTS RECEIVED THROUGHOUT THE YEAR: The LD Assessing Officer has not appraised the SUB CONTRACT properly. The Work under the TENDER which was sub contracted commenced in the month of JAN 2007 and accordingly FIRST payment was received only on 07/03/07 and accordingly as per agreement the payment was passed on 08/03/07 to the Sub CONTRACTOR after deducting 1.75% profit margin. A chart showing the Payment received and onward payments made to the sub contractor during the year as well as in the next year.
8. Cash Withdrawn by M D GOHIL from his bank A/c: The LD Assessing Officer has also made a point that the sub contractor had withdrawn cash from his account, but is no where proved or smacked that the withdrawn cash has been reverted back to the assessee. Therefore the doubt of the LD Assessing Officer has no foot. Refer also the case of M K Bros of Hon Guj HC 52 CTR
228.
9. Notice u/s 133(6) of the Act: The notice to M/s HIMALI was served on the party on 18/12/2009.
10. Summons issued u/s 131 on 30/12/09: The LD AO had issued Summons u/s 131 on 30/12/09 and on the same day the Assessment Order was passed.
Such procedure itself speaks of the opportunity provided and time given. However the notice u/s 133(6) was finally served on the HIMALI on 18/12/09.
11. Whereabouts of Shri MD GOHIL: Only because a person does not turnout before the Assessing Officer it cannot be established the person is non- existent more so when all other circumstantial evidences as available to the assessee are provided. The remarks of the LD Assessing Officer that the "assessee had tried to give it a colour of genuine transaction by deducting TDS on the payments made to HIMALI ENT, but unfortunately other evidence which has been collected during the assessment proceedings, points to the fact that the transaction with the HIMALI ENTERPRISES are non genuine transaction to reduce its taxable liability"
has no locus standi. The other evidences which the LD Assessing Officer had mentioned had been never confronted to the assessee either by way of a show ITA No.1601/Ahd/2011 For Assessment Year 2007-08 8 cause notice or otherwise. Even the nature of such other evidences is not mentioned in the assessment order.
12. Addition u/s 68: The LD Assessing Officer had made addition of Rs 72,88/879/- which is the outstanding amount payable to M/s Himali as on 31/03/07 does not qualify the test of being a CASH CREDIT as envisaged by section 68. In this connection the decision of Hon Allahabad HC in the case of CIT vsPanchamDass Jain reported in 205 CTR 444 also endorses the same view. (Copy enclosed). Moreover in the next year the payment for the old outstanding as well for the remaining work has been fully paid by A/c PAYEE Cheques.
13. Issue of GP Rate: The CP chart of the assessee for the LAST FOUR YEARS )and the CURRENT year is enclosed herewith. In this matter it is submitted as under:
a. The GP Ratio of Current Year on an overall basis is 4.82% but if a bifurcation of the OWN a/c Work and SUB CONTRACTED work is madethen your good self will find that the GP on OWN a/c works out of 12.00%. The OWN a/c GP is comparable with the last previous years except for the immediate last previous year.
b. The GP rate with the SUB CONTRACTOR is further evidenced from the payments made to him. Whatever payment has been received from CANAL division is only paid to the SUB CONTRACTOR, A Chart giving the details of the payment to the sub Contractor is enclosed herewith in which your good self can find that the payment made is directlylinked with the payment received. The payment can be traced with the receipt which is after deducting 1.75% profit margin and TDS.
Under the circumstances it is prayed that the CREDIT BALANCE added to the Total Income u/s 68 may kindly be deleted''
13. After going through the above submission the Ld. CIT(A) has deleted the addition.
14. With the assistance of theLd. representative we have gone through the record carefully. The assessing officer disbelieved existence of contractor/sub-contractor relationship between it and M/s. Hemani Enterprises. However, he has not assigned any reasons why he has ITA No.1601/Ahd/2011 For Assessment Year 2007-08 9 disbelieved it. The assessee supplied complete addresses, bank details, PAN and mobile no. of Shri Manoj Bhai Gohil who is the proprietor of M/s. Hemani Enterprises. The Ld. first appellant authority has observed, if assessing officer has any doubt he should have disbelieved the total contract payment made to him, why the outstanding only. The assessee was awarded contract by Canal Division of R&B department under the tender. It has executed the contract through M/s.Hemani Enterprises, if the line of action adopted by the assessing officer is being upheld, than the profit in this contract would be very abnormal because in a contract of having value of Rs.2,17,02,016/- a some of Rs.72,88,879/- is being treated as a profit than the ratio of profit would quite high in a Civil Construction work.
15. The Ld.AO did not pay any attention towards this aspect, he did not make any inquiries as to how the award of sub-contract to M/s. Hemani Enterprises could be considered as bogus. He simply observed that this arrangement is non genuine. The Ld.AO ought to have considered that a contract given by a Govt. agency was completed and payment was made by Canal Division of Govt. department. In such situation the activities cannot be held as bogus.
16. In our opinion the Ld.first appellant authority has appreciated the controversy in right perspective and no interference is called for.
ITA No.1601/Ahd/2011For Assessment Year 2007-08 10
17. In view of the above discussion, the appeal of the revenue is dismissed.
Order pronounced in the Court on 20th March, 2017 at Ahmedabad.
-Sd- -Sd- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER