Income Tax Appellate Tribunal - Hyderabad
M/S Aparna Constructions And Estates ... vs Department Of Income Tax on 29 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
I.T.A. No. 266/Hyd/2014
Assessment year 2007-08
The Deputy CIT, Vs. M/s. Aparna Constructions
Circle-1(1), & Estates Pvt. Ltd.,
Hyderabad Hyderabad
PAN: AADCA1031D
Appellant Respondent
Appellant by: Shri Rajat Mitra
Respondent by: Shri Mohd. Afzal
Date of hearing: 14.10.2014
Date of pronouncement: 29.10.2014
ORDER
PER ASHA VIJAYARAGHAVAN, JM:
This appeal by the Revenue is directed against the order of the CIT(A)-II, Hyderabad dated 12.12.2013 for the assessment year 2007-08.
2 The Revenue raised the following grounds of appeal:
1. The ld. CIT(A) erred in mentioning the reasons of AO in respect of the disallowance us. 40A(3).
2. The ld. CIT(A) ought to have appreciated the fact that the AO's findings on the amount which were paid to unknown labour contractors in cash with a view to inflate the expenditure.
3 In this case a survey operation was conducted on the assessee's business premises. Assessment proceedings were initiated u/s. 147 of the Act. In the course of assessment, the Assessing Officer noticed that payments were made in violation of provisions of section 40A(3) supposed to be in cash. The Assessing Officer categorised them into three groups of 2 I.T.A. No. 266/Hyd/2014 M/s. Aparna Constructions & Estates Pvt. Ltd.
================================= payments. An amount of Rs. 5,56,35,000 considered as payment made for land purchase, land development and land settlement was considered and disallowed u/s. 40A(3) of the Act. The next group of payments at Rs. 1,03,44,285 was disallowed entirely stating that they are bogus in nature and further provisions of section 40(a)(ia) are also attracted as the payments were made to labour contractor. The third category of expenditure is with reference to deduction u/s. 80G and 40A(3) which is not in dispute.
4 The learned CIT(A) after considering the rival submissions held that, as far as payments for purchase of properties concerned, the ITAT considered similar issue in assessee's own case for A.Y. 2006-07 in ITA No. 1255/Hyd/2011 dated 10.12.2012 and consequent to that the Inspector has verified and found that the villages of Tellapur, Nallagandla and Gundlapochampally were not having any banking facilities till the FY 2007-08 and therefore, Rule 6DD will apply to such payments. However, he also noted that for the lands acquired at Kompally village an amount of Rs. 7,30,000 was paid in cash which cannot be allowed as such and so he confirmed 20% of that amount which comes to Rs. 1,46,000 and confirmed the same, subject to verification by the Assessing Officer of the amount involved. On this issue the Revenue aggrieved and raised ground No. 1 which stated above.
5 We do not see any reason in raising the above ground. First of all, we are unable to understand what is the grievance of the Revenue. The ground indicates that the CIT(A) erred in mentioning the reasons of AO in respect of the disallowance u/s. 40A(34). This ground cannot be adjudicated as raised by the Revenue as such.
3 I.T.A. No. 266/Hyd/2014M/s. Aparna Constructions & Estates Pvt. Ltd. ================================= 6 Be it as it may, we cannot differ from the findings of the CIT(A) as there is a finding that there were no banking facilities in these villages. Therefore, the assessee has to pay only in cash for purchase of agricultural land from the above three villages. In view of the clear finding of the learned CIT(A), which itself is consequential to the enquiry made by the AO/inspector in the immediately preceding year, we uphold the order of the CIT(A) on this count.
7 The second ground raised by the Revenue is with regard to disallowance made by the Assessing Officer u/s. 40(a)(ia) on labour payments of Rs. 1,03,44,285 which was made for the following reasons:
(a) That during assessment proceedings the assessee submitted that the payments were not made to a single person, but were paid to supervisors as a single payment. However, the assessee failed to identify the parts of the sites where the labour had worked, the assessee was also required to produce the site in-
charges (supervisors) for verification which was not done.
(b) Payments to labour are usually made daily or once in a week. Some of the payments are very high to believe that large chunks of work could be completed in a single day or a week.
(c) Though the vouchers were brought for verification, these vouchers were self-serving in nature, hence, they were returned back with a request to submit the details of the persons to whom the payments were made. However, such persons were not produced for verification.
4 I.T.A. No. 266/Hyd/2014M/s. Aparna Constructions & Estates Pvt. Ltd. =================================
(d) Therefore, the obvious inference is that the payments were made to unknown labour contractors in cash or these expenses were booked to inflate the expenditure.
8 The Assessing Officer also made an observation that if the payments are made to labour contractors provisions of section 40(a)(ia) are applicable as no TDS was deducted, the entire amount has to be disallowed. He also observed that if the expenditure is bogus the same cannot be allowed u/s. 37. From the above, it is evident that the AO made huge addition of Rs. 1,03,54,285 as the assessee did not produce the supervisors for his verification.
9 The counsel of the assessee submitted before the CIT(A) that the assessee is in the business of acquiring lands and constructing residential apartments thereon. The assessee has to deal with lot of people in unorganised sectors. One such sector is labour. The assessee needs lot of labour force for levelling the land, laying roads, doffing of lands and for other ancillary works. The labour force which migrates from various places are camped at the project by putting temporary huts at the site. The daily or weekly payments are made in these labour by the site supervisors. The counsel submitted that it is not possible to expect all those labour to have the bank accounts to the satisfaction of the income-tax department. Since most of the labour are not educated and are not literate the vouchers have to be necessarily self-made vouchers. The assumption of the Assessing Officer that section 40 (a)(ia) is applicable on the payments made to labour is incorrect as the said section is applicable only if the payment is made to the contractor who supplies the labour. In the instant case the labour is engaged directly by the company.
5 I.T.A. No. 266/Hyd/2014M/s. Aparna Constructions & Estates Pvt. Ltd. ================================= 10 The CIT(A) after discussing elaborately at paras 6.4 and 6.4.1 of his order held that the payments were not made to a labour contractor and hence not liable to TDS. After going through the impounded material, the CIT(A) observed that if the payments were made to a labour contractor, the name of such person would have been recorded in the impounded material. In this case such name of a contractor was not recorded. On the other hand, it was clearly recorded as labour charges. However, the CIT(A) applied section 40(a)(ia) to the amount of Rs. 3 lakhs paid to one Mr. V. Surender Reddy as it was classified as labour payment made through him. Further the CIT(A) observed that, the Assessing Officer himself had clearly recorded that vouchers were produced for verification during the assessment proceedings and, therefore, expenditure cannot be disallowed u/s. 37 of the Act merely on the ground that the vouchers were self-made. The CIT(A) held that in view of the nature of business of the assessee, especially as the payments were made to labour, there is no other way except to make self-made vouchers and, therefore, the disallowance made by the Assessing Officer of Rs. 1,00,44,285 (Rs. 1,03,44,285 - Rs. 3,00,000) was deleted by him. Aggrieved, the Revenue is in appeal before us.
11 We find no infirmity in the order of the CIT(A) as the CIT(A) has clearly stated that the payments were not made to any particular person and as a matter of practical convenience, the assessee had identified a leader of the group and disbursed the payments through him instead of making labour payments to hundreds of labourers individually. The CIT(A) also appreciated the fact that due to substantial time gap between execution of the project and scrutiny assessment, the assessee was not able to produce the leaders of the groups before the 6 I.T.A. No. 266/Hyd/2014 M/s. Aparna Constructions & Estates Pvt. Ltd. ================================= Assessing Officer. The CIT(A), therefore, was of the view that since the payments were not made to a labour contractor and were recorded as labour charges, provisions of s. 40(a)(ia) cannot be applied. However, in the case of Sri V. Surender Reddy, since the payment was made to him, the CIT(A) held that provisions of s. 40(a)(ia) are applicable only for the amount of Rs. 3 lakhs. We find no reason to interfere with the action of the CIT(A) and uphold his action. The ground raised by the Revenue on this issue is also dismissed.
12 In the result, Revenue appeal is dismissed.
Order pronounced in the open court on 29th October, 2014.
Sd/- Sd/-
(B. RAMAKOTAIAH) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated the 29th October, 2014
tprao
Copy forwarded to:
1. The Deputy Commissioner of Income-tax, Circle-1(1), 4th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2. M/s. Aparna Constructions & Estates Pvt. Ltd., 802, Astral Heights, Road No. 1, Banjara Hills, Hyderabad.
3. The CIT(A)-II, Hyderabad.
4. The CIT-I, Hyderabad.
5. The DR - B Bench, ITAT, Hyderabad