Income Tax Appellate Tribunal - Mumbai
Itd Cementation India Ltd, Mumbai vs Assessee on 3 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" Bench, Mumbai
Before Shri D.K. Agarwal, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No. 4492/Mum/2009
(Assessment Year: 2005-06)
M/s. ITD Cementation India Ltd. Add. CIT, Range 1(3)
1st Floor, Dani Wooltex Compound Vs. Aayakar Bhavan, M.K. Road
158, Vidyanagri Marg, Kalina Mumbai 400020
Santacruz (E), Mumbai 400098
PAN - AAACT 1420 A
Appellant Respondent
ITA No. 4679 & 4680/Mum/2009
(Assessment Years: 2005-06 & 2006-07)
Add. CIT, Range 1(3) M/s. ITD Cementation India Ltd.
Aayakar Bhavan, M.K. Road Vs. 1st Floor, Dani Wooltex Compound
Mumbai 400020 158, Vidyanagri Marg, Kalina
Santacruz (E), Mumbai 400098
PAN - AAACT 1420 A
Appellant Respondent
Assessee by: Shri Vijay Mehta
Revenue by: Shri Sanjiv Dutt
Date of Hearing: 03.10.2011
Date of Pronouncement: 25.10.2011
ORDER
Per B. Ramakotaiah, A.M.
These are appeals by the Revenue for assessment years 2005-06 and 2006-07 and cross objection by the assessee for A.Y. 2005-06. Since common issues are involved, these appeals were heard together and are disposed of by this common order.
2. The assessee is in the business of civil, mining, marine and specialist engineering and construction activity. For the asst. year 2005-06, the assessee declared loss at `3,99,75,980/-. For asst. year 2006-07, the assessee declared loss of `21,44,28,218/-. The A.O., in the scrutiny 2 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
assessment, rejected the books of account and estimated the income at 5% of the gross turnover of the company. While doing so in A.Y. 2005-06, the A.O. also disallowed various amounts claimed under different heads but, however, no separate addition was made as books of account were rejected and net income was brought to tax.
3. Before the CIT(A), the assessee contested the rejection of books of account and filed voluminous details which were sent on remand to the A.O.. After considering the submissions, the remand report and counter submissions, the CIT(A) accepted the assessee's contention that books of account cannot be rejected.
4. The Revenue is aggrieved in both the years on the issue of estimation of income by rejecting the books of account. In both the appeals for assessment years 2005-06 and 2006-07, the Revenue is contesting the issue of rejection of book results by the A.O. and deleting the estimation so made by the CIT(A). The Revenue raised ground nos.1 & 2 accordingly in both the assessment years. The other grounds raised by the Revenue are on the issues on which the CIT(A) gave relief as the estimation was not upheld by the CIT(A). The assessee is contesting partial confirmation of the disallowances in ITA No.4492/Mum/2009 for A.Y. 2005-06. The issues are dealt with as under: -
Revenue's ground No.1 & 2 (A.Ys. 2005-06 & 2006-07):
"1. On the facts and in the circumstances of the case, the CIT(A) erred in law in holding that the rejection of book result by the AO is incorrect without proper appreciation of the facts brought out in the assessment order.
2. On the facts and in the circumstances of the case, the CIT(A) erred in holding that the income of the assessee cannot be estimated at all."
The A.O., in the course of scrutiny, asked for various details from the assessee. The A.O. noticed that there are huge losses incurred by the assessee and the losses cannot be accepted as the projects undertaken by the assessee were having escalation clause. Since the assessee has not 3 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
furnished complete details in various questionnaires issued and has not reconciled the gross receipts with reference to TDS certificates and in the course of scrutiny some of the notices under section133(6) were not responded and on the reasoning that the assessee has not produced stock register and stock details in spite of repeated requests, the A.O. was of the opinion that the assessee's books of account cannot be relied. The A.O. discussed these issues from page 2 to page 11 of his assessment order as to why he has considered these issues for rejecting the books of account. Before the CIT(A), the assessee contended that the assessee was not given sufficient opportunities of hearing and that the assessee was also suffering from difficulties inasmuch as the records pertaining to the year under consideration were destroyed in water logging during July 2005 and further the issue relating to the increase in cost and expenses was only raised on 4- 12-2007 and time given was short considering the volume and nature of business coupled with the nature of projects undertaken during the year. The details furnished by the assessee were sent on remand to the A.O. who submitted his report vide letter dated 06.03.2009. The findings of the A.O. in the remand report are summarized by the CIT(A) as under: -
"3.3.2. The findings of the Assessing Officer in the remand report as summarized as under: -
i) Some of the projects are showing losses which cannot be accepted as the projects undertaken by the company were having the escalation clause.
ii) The increase in the cost of materials, etc. is also not satisfactorily explained.
iii) In a running project, there cannot be any loss and if any loss has occurred, it would occur in the closing year.
iv) The reconciliation of the gross receipts shown in the trading A/c.
with reference to the TDS certificates was not carried out by the appellant.
v) Out of 29 parties to whom the notices u/s. 133(6) were issued, 15 parties did not respond to the notices issued to them.
vi) The appellant has not produced the stock register and stock details in spite of repeated request."
4 ITA No.4679,4680 &4492/Mum/2009M/s. ITD Cementation India Ltd.
The said report was provided to the assessee who furnished detailed explanations including the copies of the bills, vouchers & ledger copies, which were extracted by the CIT(A) in para 3.3.3 of his order. Afterwards, the CIT(A) considered the detailed submissions of the A.R. and objections raised in the remand report and gave the following finding ( some of the paras are extracted for brevity):
Losses from the projects:
"3.4.1. In the remand report, the main objection of the Assessing Officer was that the loss shown by the appellant was not genuine since the said loss was determined based on the excess claim of expenditure and that the nature of projects undertaken by the appellant cannot reflect loss in the business. The Assessing Officer has also observed that the appellant has also undervalued WIP which has resulted in the net loss from the road projects undertaken by the appellant. In order to arrive at the conclusion, the Assessing Officer has also made a comparative analysis of the projects AP/4A and AP/4B for A.Y. 2004-05 and 2005-06. The summary of the said comparative analysis is given below:
(Rupees in crores)
Project AP/4A Project AP/4B
Particulars A.Y. A.Y. A.Y. A.Y.
2004-05 2005-06 2004-05 2005-06
Consumption of 14.85 21.80 16.49 19.37
raw materials
Cost of sub- 8.55 7.10 7.45 6.27
contract
Total turnover 29.30 31.36 33.82 27.69
Net Loss 8.65 17.33 60.98 16.41
Net loss (%) 29.50% 55.20% 18.00% 59.30%
3.4.2. Based on the analysis showing the comparative analysis of the losses in 2 years, the Assessing Officer has doubted the loss shown in respect of the said project on the ground hat the other projects showing profit have shown substantially lower cost and comparative higher profitability. The Assessing Officer had also compared the 5 top loss making projects with the 5 profit making projects and held that proportionate cost in the loss making projects is substantially higher than the proportionate cost in the profit making projects.
3.4.3.............5 ITA No.4679,4680 &4492/Mum/2009
M/s. ITD Cementation India Ltd.
3.4.4.............
3.5. I have gone through the said submissions and the arguments made by the ld. AR at the time of hearings. I find that the analysis done by the Assessing Officer is not correct since the said analysis has been done in respect of the net profit and loss and not in respect of the gross/operating profit/loss. The Assessing Officer has done the analysis in respect of the profits from every project after considering the overheads and administrative expenses instead of comparing the gross/operating margins. Correct comparison ought to have been done in respect of the operating margins of the projects and not in respect of the net profit of the projects (i.e. after reducing the overheads). The overheads being the fixed and period cost, cannot be co-related with the volume of business and hence the comparison of the net results is bound to give the distorted picture. The comparison in respect of the net losses/profits would have the counter effect of the increase or decrease in the overheads and hence cannot be taken as a base for determining the reasonableness and the correctness of the profits shown by the appellant from various projects. 3.5.1........
3.5.2. Even on the ground of justification of losses, I have gone through the reasons given by the ld. AR in their written submissions justifying the loss suffered by them in the projects. It is seen that the losses are substantially due to the fact that there was a vast mismatch between the Price Adjustment actually received and actual additional costs incurred on account of rise in material prices in comparison with the base estimates/prices since the price adjustment mechanism provided in the contracts is based on variation in Wholesale Price Index and not on the actual price variation experienced by the appellant.
3.5.3........
3.5.4. It is, therefore, held that the losses incurred by the appellant in their projects cannot be considered a valid reason for rejection of the books of accounts and resultant estimation of income. THE INCREASE IN THE COST OF MATERIALS, LABOUR ETC. 3.6. As seen from the remand report, the Assessing Officer was of the view that the cost of aggregate, labour expenses (sub-contract), other materials, balance expenses, etc. with reference to the total consumption of raw materials vis-à-vis turnover varies to a great extent. Such an observation was led to the conclusion that the net loss shown by the appellant is not genuine as the expenses are inflated. This shows that based on the findings as regards the inflated cost of consumption, the Assessing Officer has considered the entire net loss as not genuine and inflated. He has not appreciated 6 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
hat this is because the net loss is resulting out of the increase in overhead expenses.
3.6.1...
3.6.2...
3.6.3...
3.6.4..
3.6.5...
3.6.6. In light of the above discussion, I do not find any reasons for rejecting the books of accounts when no specific defect is pointed out by the Assessing Officer in the books of accounts. Merely because the net results from the project are loss, it cannot be said that the books of accounts are not acceptable.
LOSSES IN RUNNING PROJECT 3.7 The Assessing Officer has also held that in a running project, if the RA bills are raised at cost plus margin and the balance unfinished work is held as WIP, there cannot be any loss, If any loss has occurred, it would occur in the closing year. In this context, the conclusion is drawn by the A.O. that the WIP is undervalued by the appellant and, accordingly, the net loss of Rs.33.74 crores out of the total Rs.59 crores is shown from 2 road projects i.e. AP/4A and 4B. 3.8. I have gone through the said findings of the Assessing Officer and the detailed submissions made before me by the ld. AR. It was explained that Running Account Bills (R.A. Bills) is an application to the customer for payment of work carried out in a particular month. R.A. Bills are not raised as cost plus profit but the same are raised on the basis of BOQ rates irrespective of actual cost incurred by the appellant. The Contractee certifies the payment based on R.A. Bills which are framed in line of Bill of Quantities (B.O.Q) available in the contract. Customer and Rates applicable in the contract conditions as per the payment term clause. All R.A. Bills are on account payment and, therefore, any error or omission in a particular R.A. Bill can be adjusted in the next bills.
3.8.1.....
3.8.2 I find that the Assessing Officer has not considered the factual aspects correctly. I do not agree with the Assessing Officer that if in a running project, the RA bills are raised cost plus margin and the balance unfinished work is held as WIP, there cannot be any loss and that if any loss has occurred, it would occur in the closing year. The Assessing Officer did not consider the fact that if the cost of consumption has increased due to additional cost incurred by the appellant on various counts without corresponding increase in the income/revenue, the accounting of the R.A. bills even by the above method would show losses. This I because the cost and the margin 7 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
as agreed upon with the contractee may not match the actual revenue due to lower revenue/income and higher cost. Moreover, the comparison of Rs.33.74 crores of loss with the turnover of Rs.59 crores to justify the valuation of WIP is also not correct since the loss of Rs.33.74 crores also includes the overhead expenses including idle manpower, cost of plants & machineries, hired construction equipments etc. which have contributed to the loss from the project. Without identifying any falsity in the claim of the overheads expense or without identifying the inflation in such expense, the appellant's claim cannot be disputed.
RECONCILIATION OF THE GROSS RECEIPTS WITH TDS CERTIFICATES.
3.10 The Assessing Officer has also raised several issues in the questionnaire issued to the appellant which has not been responded by the appellant properly. The Assessing Officer had called for reconciliation of the gross receipts shown in the trading A/c. with reference to the TDS certificates. However, the said conciliation was not done. The appellant has submitted that the entire TDS statement cannot be matched with the turnover because the deductions have been made by the debtors also on advances given to the appellant. Moreover, the advances on which TDS was deducted in the last year was also included in the turnover during the year and subsequent year as the work was in progress and completed subsequently. No discrepancy was noted by the Assessing Officer in the order as regards the items which have been reconciled.
3.11 Now, before me, the AR has also submitted the reconciliation of the TDS certificate with the aggregate gross receipts. I agree with the AR that since part of the amounts subjected to TDS are shown as advance received, the TDS claim cannot match with the gross receipts since part of the amount on which TDS was deducted was either included in advances or the advances on which TDS was deducted in the last year is included in the turnover during the year. No discrepancy is noted on verification of such reconciliation as filed before me. Hence, I do not find any defect in the said claim of TDS and the income offered to tax. Nonetheless, the said discrepancy cannot lead to rejection of the books of accounts. OUT OF 29 PARTIES, 15 PARTIES DID NOT RESPOND TO THE NOTICES u/s. 133(6).
3.12 The Assessing Officer has also stated that since the appellant did not obtain confirmation of the parties in whose names expenses were booked, the notices u/s.133(6) were issues to various selected parties. However, according to the Assessing Officer, out of 29 notices, 15 parties did not respond to the notices issued to them. The appellant was therefore asked as to why the said 15 parties did not respond to the notices u/s. 133(6) of the Act. It was argued by the ld.8 ITA No.4679,4680 &4492/Mum/2009
M/s. ITD Cementation India Ltd.
AR that most of the parties who did not send their confirmations were pursued by the appellant and the confirmation from 10 parties were also filed before the Assessing Officer. It was submitted that page no. 1320 to 1533 of the paperbook which were submitted before the Assessing Officer contains the confirmation of account s received from 10 parties as stated to have not been received by the assessing officer.
3.13.....
3.14 I have perused the said confirmations filed by the appellant before the Assessing Officer. I find that though the confirmation letters for 5 of the parties were not received or returned unserved, it cannot be said that the appellant had not reflected the true and correct income from the business carried out. It is undisputed fact that confirmations from most of the parties were obtained by the Assessing Officer. Although the confirmations from 5 of the parties have not been received, the Assessing Officer has not brought anything on record to prove th incorrectness of the amounts shown in the name of those parties who have not responded. The Assessing Officer could have issued summons u/s.131 of the IT Act to them calling for their personal attendance or caused inquiries with the bank etc In any case, I have perused the ledger account of those parties who have not responded to the notices issued u/s.133(6) of the Act. The said ledger account shows that the purchases were made by the appellant and the payments for the same were also regularly made. The appellant has also filed copies of the bills for purchases, delivery challans for supply of materials/goods to the appellant, etc. which establishes the genuineness of the transaction. Hence, in my opinion, no adverse inference can be drawn in respect of the books of accounts merely because the parties have not responded. Moreover, the lack of response from the parties does not reflect any defect in the books of accounts. The Assessing Officer has also not brought on record any evidence to prove that the purchases/expenses entered into the books of accounts are not correct and that the entries in the books of accounts are defective or false. Therefore, the action of the Assessing Officer in rejecting the books of accounts for want of confirmations from some of the parties cannot be upheld.
NON-PRODUCTION OF STOCK REGISTER 3.15 Similarly, the issue of the stock register and the details not filed by the appellant was also verified and it was noticed that the appellant had filed the details called or which is evidence from the paper book filed before the Assessing Officer and produced before me. Hence, the rejection of the book results even on the said amount is incorrect.9 ITA No.4679,4680 &4492/Mum/2009
M/s. ITD Cementation India Ltd.
ESCALATION CLAIM NOT ACCOUNTED FOR 3.16 The Assessing Officer has also held that the appellant had not accounted for the escalation claims of Rs.4.32 crores (out of the total escalation claims of Rs.19.54 crores) and has deferred the same to the subsequent year. This is also one of the reason for the Assessing Officer for rejecting the book results. I have perused the tax audit report wherein such an observation is made. I do not find any merit in the contentions of the Assessing Officer that no offering the income from escalation claim amounting to Rs.4.32 crores results into defective books of accounts and consequent estimation of income. This is more particularly correct since the Assessing Officer himself has made separate addition in respect of the said escalation claim which is dealt with by me in ground of appeal No.19. After elaborately discussing these issues and legal principles established by the decision of Madnani Construction Corporation Pvt. Ltd. 296 ITR 45 (Gau.) and K.S. Bhatia (269 ITR 577) (P&H) and other decisions as extracted in para 3.19, the learned CIT(A) rejected Assessing Officer's action in rejecting the books of account and deleted the estimation of income by giving the following finding: -
"3.22 In the result, I am of the opinion that the books results shown by the appellant is incorrectly rejected by the Assessing Officer and that without bringing on record any evidence to prove that the appellant had not shown the profits from the business correctly. The Assessing Officer has raised the issue of excess expenditure claimed. However, no evidence has been placed on record to prove that the said expenditure claimed was snot genuine or that the appellant has deliberately inflated the expenditure without actually incurring the same. In view of the above discussion, it is held that the income of the appellant cannot be estimated at all, without prejudice to the fact that an estimate @ 5% of the turnover is highly excessive and that the profit shown by the appellant should be accepted as correct subject to the various issues raised in the other grounds of appeal. The addition made by the Assessing Officer is, therefore, deleted. The grounds of appeal no.1 to 5 are, accordingly, allowed.
Similar findings were given in A.Y. 2006-07 following the above. The Revenue is aggrieved in both the years.
5. The learned D.R. referred to the findings in the order of the A.O. and reasons for rejection of the books of account and submitted that the CIT(A) was not correct in rejecting the action of the A.O. on each of the issues 10 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
without considering the cumulative effect of all the reasons as stated by the A.O. It was his submission that the cumulative reason mentioned by the A.O. calls for rejection of the books of account. It was further submitted that the A.O. was correct in estimation of the net profit while estimating the income as the provisions of sec. 44AD allow the A.O. to estimate the income at 8% on the gross receipts. Based on the provisions of sec. 44AD the A.O. could arrive at the net profit rather than estimation of gross profit. He further submitted that the A.O. pointed out 5 specific defects in the order which were reiterated in the remand report and, therefore, the action of the A.O. is to be upheld. He relied on the following case law: -
1. Awadesh Pratap Singh Abdul Rehman & Bros. vs. CIT 210 ITR 406 (All.)
2. National Plastics Industries vs. ITO 309 TR 191 (Bom).
6. The learned A.R., in reply, submitted that the A.O. was misled by the fact that there were huge losses in this year as compared to profits in earlier year. It was his submission that the assessee ventured into Road building contracts and has suffered huge losses in those contracts. It was his submission that sector-wise profits as submitted before the CIT(A) do indicate that the assessee continues to have profits in the other projects, whereas it has suffered losses in road building contracts. The details are as under: -
ITD Cementation India Limited Assessment year : 2005-06 Projectwise profit and loss earned during the F Y 2004-05 Turnover Loss Job code (` in lakhs) (` in lakhs) B2805 3,137 (1,733) B2806 2,769 (1,641) AA011 8,093 (540) AA014 7,029 (168) Total Road Project 21,029 (4,082) Non Road Projects 29,149 2,804 Grand Total 50,177 (1,278) 11 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
He referred to the detailed explanation filed before the CIT(A) and the reasons for incurring losses and submitted that merely because there are losses, the books of account cannot be rejected. He further submitted that the complete details of the parties, who have not responded, were furnished to the A.O. and no defects were pointed out. He also referred to the detailed paper book filed before the A.O. and CIT(A) to submit that the assessee has maintained stock registers and these details were furnished. He referred to the details extracted by the CIT(A) in para 3.3.3 running from page 4 to 16 of his order to submit that all the details were furnished to the A.O. in the remand proceedings to justify the genuineness of transactions of the assessee's accounts. He referred to the various details filed in the paper book to submit that the CIT(A) has examined each of these issues and came to the conclusion that there is no necessity to reject the books of account as complete details were furnished. He also submitted that the A.O. accepted the book results in assessment years 2007-08 and 2008-09 after completion of scrutiny assessment, copies of which were placed on record. He also distinguished the case law relied on by the D.R. to submitted that these will not apply to the facts in the assessee's case.
7. We have considered the issue. As seen from the order of the A.O., detailed submissions of the assessee, details placed on record before the authorities copies of which were placed on the paper book before us, and the detailed order passed by the CIT(A) on all the issues raised by the A.O., we are of the opinion that there is no need to reject the books of account as was done by the A.O.. The provisions of sec. 145 which empower the A.O. in rejecting the books of account are as under: -
"145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.12 ITA No.4679,4680 &4492/Mum/2009
M/s. ITD Cementation India Ltd.
(2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144."
The provision empowers the A.O. to reject the books of account and estimate income as provided under section 144 only if he is satisfied about the correctness and completeness of accounts of assessee or accounting standards notified have not been followed by the assessee. As seen from the order of the A.O., there is no finding that the books of account are not correct or complete. There is also no finding that the method of accounting followed by the assessee is not in accordance with the standards notified. The major plank for rejection of the books of account seems to be the unverifiable nature of expenditure and non-maintenance of stock register. The CIT(A) has not only considered the above issues but also other issues raised by the A.O. in the remand proceedings. As seen from the remand report placed on record, the A.O., instead of examining the voluminous details filed before him and giving a complete report, reiterated the objections as stated in the assessment order. As the assessee has furnished complete details in both the assessment years before the CIT(A) and these details were sent to the A.O. on remand, we do not find any reason to differ from the findings of the CIT(A). The learned D.R. vehemently argued that the five defects pointed out by the A.O. were not examined by the CIT(A) and, therefore, there is need for rejection of the books of account. We do not see any reason to differ from the order of the CIT(A) as he has considered all the issues. As extracted above, the CIT(A) considered the issue headwise i.e. (a) losses suffered by the assessee in projects, (b) increase in cost of raw materials, (c) losses in running projects and escalation clause and (d) reconciliation of gross receipts with TDS, (e) accounts of non-responded parties, and (f) production of stock register. After considering the detailed 13 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
order of the CIT(A), we agree with his findings. For these reasons, the Revenue's grounds in both the years are rejected.
8. The learned D.R. relied on the judgment of Hon'ble Allahabad High Court in the case of Awadesh Pratap Singh Abdul Rehman & Bros. vs. CIT 210 ITR 406 where the issue was rejection of books of account. The Hon'ble High Court has held as under: -
"The account books were rejected because admittedly no stock register was maintained nor the sales were found verifiable in absence of the cash memos. The vouchers of expenses were also not forthcoming and the income returned was ridiculously low as compared to the exorbitant turnover and the extent of the business carried on by the assessee. It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books o the ground that the accounts are not complete or correct from which the correct profit cannot be deducted. Whether presence or absence of stock register is material or not, would depend upon the type of the business. It is true that absence of stock register or cash memos in a given situation may not per se lead to an inference that accounts are false or incomplete. However, where absence of a stock register, cash memos, etc., if coupled with other factors like vouchers in support of the expenses and purchases made are not forthcoming and the profits are low, may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon assess the income profits or gains of an assessee. In such a situation the authorities would be justified to reject the account books under s. 145(2) and to make the assessment in the manner contemplated in those provisions. Taking all these aspects and the material into consideration, the Tribunal has found as a fact that the claim of the assessee for acceptance of the account books was not sustainable. On the findings of fact recorded by the Tribunal, its order does not give rise to any question of law."
As can be seen from the above, it is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. It is not the issue in the assessee's case. The assessee has maintained complete books of account including vouchers and also justified the increase in cost, reasons for suffering losses and also the fact that stock registers were maintained at the respective places. Just because the assessee has suffered losses, it does not 14 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
mean that the assessee's books of account are to be rejected. The assessee also justified why it has suffered losses by giving detailed reasons including the escalation clause, cost of increase in material and difficulty in implementing the road projects in Naxal-hit areas as a new venture. The facts of the above said case relied on by the D.R. do not apply to the facts of the assessee's case.
The next case relied on by the D.R. is with reference to National Plastics Industries vs. ITO 309 ITR 191 (Bom). The issue in the above case is with reference to the finding of the A.O. that in the absence of stock register as also quantitative details of stock of finished goods, it was not possible to verify the correctness of stock shown by the assessee. The A.O. also found that there were instances of various leakages of revenue in the books of account and method of accounting applied was not proper. The Tribunal upheld the finding of the A.O. rejecting the book results and partly confirmed the addition on account of gross profit. The Hon'ble Bombay High Court, in appeal, concluded as under: -
"AO being to verify the correctness of stock shown by the assessee as no stock register or quantitative details of the stock of finished goods was maintained and held that there were various instances of leakage of revenue in the books of account, Tribunal was justified in upholding the findings of the AO rejecting the book results of the assessee and partly confirming the addition on account of estimated GP; no substantial question of law arises for consideration."
Since the issue was decided on facts, no principle of law can be deduced from the above judgment of the Hon'ble Bombay High Court.
In view of this, as the facts in the present case do indicate that there is complete and correct maintenance of accounts and method of accounting followed by the assessee is also according to the principles laid down therein, invoking of the provisions of sec. 145 cannot be justified. Therefore, ground No. 1 & 2 raised in A.Y. 2005-06 and ground No. 1 raised in A.Y. 2006-07 are rejected. There are no other grounds in A.Y. 2006-07. Therefore, that appeal of Revenue stands dismissed.
15 ITA No.4679,4680 &4492/Mum/2009M/s. ITD Cementation India Ltd.
9. In assessee's appeal in ITA No. 4492/Mum/2009 assessee has raised the following grounds: -
"1) The CIT(A) was unjustified in not allowing your appellant's claim of Rs.8,00,000/- for payment made to Cemindia Education Trust without assigning proper reasons for disallowance.
2) The CIT(A) was not justified in disallowing 5% of Rs.9,49,13,999/- for Infotech Expenses and Miscellaneous Expenses incurred by your appellant as your appellant's accounts are duly audited and the expense has been incurred for the business expediency. Therefore, the same should be allowed in full.
3) The CIT(A) was not justified in disallowing 5% of Rs.8,13,61,000/- for Traveling Expenses incurred by your appellant as your appellant's accounts are duly audited and the expense has been incurred for the business expediency. Therefore, the same should be allowed in full.
4) The CIT (A) was not justified in disallowing 5% of Rs.1,86,83,000/- for Postage and Telegraph Expenses incurred by your appellant as your appellant's accounts are duly audited and the expense has been incurred for the business expediency.
Therefore, the same should be allowed in full."
During the course of argument the learned counsel did not press ground No. 1, which is treated as withdrawn. Ground No. 2, 3 & 4 are discussed alongwith the relevant grounds in Revenue appeal for AY 2005-06.
10. In ITA No. 4679/Mum/2009 for A.Y. 2005-06, Revenue has raised the following grounds: -
"3. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the disallowance of Rs.1,64,87,000/- on account of bad debts.
4. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the disallowances of the alleged claim of royalty payment of Rs.5,25,389/- without appreciating that the assessee does snot own any quarry."
5. On the facts and in the circumstances of the case, the CIT(A) erred in law, deleting the disallowance of Rs.14,28,652/- without appreciating the fact that the AO has made the disallowance not u/s.40A(3) but u/s.37(1) of the I.T. Act.
16 ITA No.4679,4680 &4492/Mum/2009M/s. ITD Cementation India Ltd.
6. On the facts and in the circumstances of the case, the CIT(A) erred in restricting the disallowance out of Infotech expenses to 5% as against 20% disallowed by the Assessing Officer.
7. On the facts and in the circumstances of the case, the CIT(A) erred in restricting the disallowance on account of traveling expenses to 5% as against 10% disallowed by the Assessing Officer.
8. On the facts and in the circumstances of the case, the CIT(A) erred in restricting the disallowance on account of postage and telegraph expenses to 5% as against 10% disallowed by the Assessing Officer.
9. On the facts and in the circumstances of the case, the CIT(A) erred in holding that the escalation claim of Rs.4.32 crores cannot be taxed in the year under consideration as the work in respect of such claim is not completed in this year.
10. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the disallowance of Rs.1,06,72,800/- out of temporary site expenses ignoring the assessee's failure to furnish complete details even during the remand proceedings.
11. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of Rs.3,67,11,191/- made on account of unexplained transactions with 22 parties holding that the assessee has discharged the onus of proving the genuineness of the transactions and that Assessing Officer was not able to find any ingenuinity in the transactions of the assessee with these parties.
12. On the facts and in the circumstances of the case, the CIT(A) erred in holding that the statutory disallowance u/s. 40(a)(ia) cannot be added to the total income estimated."
11. Ground No.3 pertains to disallowance of `1,64,87,000/- on account of bad debts. The said disallowance was made by the Assessing Officer on the ground that the said amounts written off as bad debts were from reputed companies like Jaiprakash Associates, Tata Electric, LJNPT, Exe. Engineer Minor Irrigation and so on. It is also stated that the assessee, has not established as to how the said debt has become bad and hence the claim of bad debt is not allowable as deduction. The Assessing Officer has relied upon the decision in the case of South India Surgical Co. Ltd. v. ACIT (Mad HC) to support the stand taken. Before the CIT(A) it was submitted that the bad debts were claimed in respect of the excess claim of contract payments on 17 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
account which were not approved and paid by various parties. It was also submitted that the amounts claimed as bad debts were already offered as income and hence the conditions laid down under section 36(2) were also complied with since as per the amended provisions, the assessee is not required to explain that the debt has become bad. In support, assessee has relied upon the decision in the case of Kanoria Securities & Financial Services Ltd. 15 SOT 191 (Mum) which has considered the decision of Hon'ble Madras High Court in the case of South India Surgical Co. Ltd. (supra) and also the recent decision of Hon'ble Bombay High Court in the case of CIT vs. Star Chemicals (Bombay) P. Ltd. 220 CTR 3l (Bom). The CIT(A) allowed the amount by giving a finding as under: -
"7.3. I have gone through the submissions of the appellant and the observations of the Assessing Officer in the assessment order. I find that as per the amended provisions of section 36(l)(vii) of the IT Act, the appellant is only required to write off the amounts in the books of accounts in order to claim the bad debts. The conditions prescribed u/s. 36(2) shows that the amounts so written off should have been taken in to account for the purpose of determining the income of the appellant. I find that the issue in the present case is squarely covered by the decision in the case of Kanoria Securities & Financial Services Ltd. - 15 SOT 1 9 1 (Mum.) which has duly considered the Madras High Court decision relied upon by the Assessing Officer and the decision of Bombay High Court in the case of CIT vs. Star Chemicals (Bombay) (P) Ltd. - 220 CTR 319 (Bom) wherein it has been held that where the assessee has written off the debts in the books, it is sufficient compliance of the conditions for claiming bad debts. Moreover, the Assessing Officer has also not doubted the bonafide of the claim of bad debts by the appellant. In light of the above, following the decision of the jurisdictional Tribunal and High Court, the Assessing Officer is directed to delete the disallowance. This ground of appeal is, thus, allowed."
11.1 The learned D.R. submitted that the amounts have not become bad as the assessee has not given any reason for write off of the amount and as per the provisions any debt cannot be written off but only a bad debt can be written off.
11.2 The learned counsel submitted that assessee has written off the amount in the books of account and these amounts have become really bad 18 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
and relied on the order of the CIT(A). He also submitted that the details were furnished to the A.O. and since these amounts were written off in the books of account the principles established by the Hon'ble Bombay High Court in the case of DCIT vs. Oman International Bank SOAG 313 ITR 128 which in turn was confirmed by the Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT 323 ITR 397(SC) will apply to the facts of the case.
11.3 After considering the arguments of the learned D.R. and the learned counsel we see no reason to interfere with the findings of the CIT(A) as these amounts were taken into account in earlier years and there are disputes with reference to the receivables. The excess claims of contract payment, which cannot be received were to be written off. The order of the CIT(A) is, therefore, confirmed. Revenue's ground is rejected.
12. Ground No. 4 pertains to the issue of payment made in cash of `5,25,389/- for payment of quarry royalty. The said payment was disallowed on the ground that the payment was made in cash exceeding the prescribed limits and that assessee does not own any quarry. Assessee has submitted that since the payment was made to the Government, the payment for royalty in cash cannot be disallowed. Assessee submitted before the CIT(A) that the question of owning the quarry does not arise and if the assessee owned any quarry, the payment of royalty would not arise. The CIT(A) allowed the claim by giving the following findings: -
"8.2. I have gone through the submissions made by the appellant. I find that the provisions of Rule 6DD(b) states that the payment made to Government is not hit by the provisions of section 40A(3) and hence no disallowance can be made solely on this basis. I find that the appellant's case is covered by the exception provided in Rule 6DD and hence the disallowance made by the Assessing Officer is not warranted. Moreover, I also agree with the ld. AR that the said royalty is required to be paid only because the appellant did not own any quarry and that if the quarry is owned by the appellant, the question of payment of royalty would not arise. In any case, this aspect has no relevance to the disallowance of expenditure made in cash. In the light of the above discussion, the ground of appeal is allowed."19 ITA No.4679,4680 &4492/Mum/2009
M/s. ITD Cementation India Ltd.
13. Since the amount was paid to the Government, there is no need to differ from the findings of the CIT(A). Accordingly Revenue's ground is rejected.
14. Ground No. 5 of Revenue is against deletion of disallowance of `14,28,652/- by the CIT(A) on account of payment in cash made for staff salary, wages, etc. The said disallowance was made since the payment was made in cash in excess of the prescribed limit. It was argued before the CIT(A) that there is no dispute that the said amount was spent in excess of the prescribed limit under section 40A(3). However, it was submitted that assessee had suo moto disallowed 20% of `17,85,815/- (including `14,28,652/-) of the said expense in accordance with section 40A(3) but the A.0. has disallowed l00% of the said expenses. Therefore, the disallowance made by the Assessing Officer is not in accordance with the provisions of section 40A(3) and should, therefore, be deleted. The CIT(A) allowed the claim by giving a findings as under: -
"9.2. I have gone through the submissions of the appellant. The provisions of section 40A(3) requires that if the payment of any expenditure is made in excess of the prescribed limit, the 20% of such expenditure should be disallowed. The appellant itself has conceded that the said expenditure is hit by section 40A(3) and hence suo moto, 20% of the aggregate expenditure of Rs.17,85,815/- (including Rs.14,28,652/-) was disallowed while filling the return of income. I find that the Assessing Officer has not considered the disallowance made by the appellant suo moto in the return of income. Further, the disallowance made by the Assessing Officer is also not in accordance with the provisions of section 40A at the relevant point of time since section 40A(3) required disallowance of only 20% of the total expenses and not the entire expenditure. In the result, I find that the disallowance is not warranted as the same amounts to double disallowance. Accordingly, this ground of appeal is allowed."
14.1 After considering the arguments of both the counsels, we do not see any reason to interfere with the order of the CIT(A). The CIT(A) not only examined the facts but also the provisions of section 40A(3) which require disallowance of 20% of the total expenditure. Since assessee has already disallowed the amount there is no need for further disallowance as contented by the Revenue. The ground is, therefore, rejected.
20 ITA No.4679,4680 &4492/Mum/2009M/s. ITD Cementation India Ltd.
15. Ground No. 6 pertaining to the disallowance of `1,39,34,137/- being Infotech expenses out of the total miscellaneous expenses of `9,49,13,999/-. While completing the assessment the A.O. not only disallowed the entire Infotech expenses but also disallowed 20% of the total miscellaneous expenditure on the reason that assessee has not furnished the vouchers. Before the CIT(A) it was contended that the A.O. has not given proper opportunity of being heard and was never confronted with the fact that he desired to verify the vouchers and addresses of parties. Assessee furnished the detailed submission including copy of the vouchers which are extracted by the CIT(A) in para 11.2. It was the submission that the A.O. disallowed `1,39,34,137/- on account of Infotech expenses which are nothing but payment made for maintenance of telephone and internet lines to connect the Head office and different sites spread all-over India. Not only that the gross amount was also considered again for disallowing 20% of the expenditure which included the expenditure for Infotech expenses, which is nothing but double addition. It was contended that no disallowance can be made as assessee had maintained complete particulars including the vouchers.
15.1 The CIT(A) considered the issue and he was of the opinion that there was double disallowance of entire expenditure on Infotech(100%) as well as 20% disallowance of gross amount. He, however, examined the entire expenditure of miscellaneous expenditure claimed of `9,49,13,999/- and after examining the sample vouchers and giving a finding that the expenditure cannot be stated for non-business purposes was however, of the view that the nature of expenditure indicates that the expenses may not be properly supported by any evidence. Therefore, in order to meet the end of justice he restricted the disallowance to 5% of the aggregate expenses of `9,49,13,999/- including the Infotech expenditure. Revenue is contesting the restriction of 100% disallowance of Infotech expenditure to 5% in ground No. 6 whereas assessee is contesting the disallowance of 5% of miscellaneous expenditure as was done by the CIT(A) in ground No. 2 in its appeal.
21 ITA No.4679,4680 &4492/Mum/2009M/s. ITD Cementation India Ltd.
15.2 We have heard the rival parties and examined the details placed on record. After considering the issue we are of the opinion that there is no need for restricting any expenditure on maintenance of telephone lines and inter net lines. The details filed in this regard indicate that these are periodical payments made to government organizations and internet providers, which are all verifiable and proper details were maintained. Therefore restriction to 5% of the expenditure pertaining to Infotech expenditure, in our view is not correct as assessee has maintained complete details and the expenditure is verifiable in nature. There is also no finding that any capital expenditure has been claimed as revenue expenditure in Infotech expenditure. Therefore, we are not in agreement with the findings of the CIT(A) in restricting the expenditure to 5% even on Infotech expenditure. With reference to the balance expenditure out of the miscellaneous expenditure, considering the extent of expenditure, nature of expenditure, details furnished on record, we are of the view that there is some possibility of non-verifiable nature in the expenditure so claimed. Therefore, while upholding that some restriction is required we agree with the findings of the CIT(A) that 5% of the expenditure will meet the ends of justice. Therefore, while rejecting the ground raised by the Revenue in restricting the expenditure on infotech, we allow assessee's ground partially in deleting 5% restriction of Infotech expenses. The A.O. is directed to restrict the disallowance of 5% on the aggregate expenditure of miscellaneous expenses excluding the Infotech expenditure. Accordingly Revenue's ground is rejected and assessee's ground is partly allowed.
16. Ground No. 7 pertains to traveling expenses of `813.61 lakhs, out of which A.O. made a disallowance of 10% on the ground that the expenses are not fully verifiable. Before the CIT(A) it has submitted the details of monthly breakup of traveling expenses, traveling expenses of all sites for the period 01.08.2004 to 31.08.2004 and traveling expenditure of Site No. B2759, AA0I 1 and AA020 for the period 01.08.2004 to 31.08.2004 and head wise details of traveling expenses for the period 01.04.2004 to 31.03.2005 duly supported 22 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
by bills / vouchers. The CIT(A) restricted the disallowance by giving the following finding: -
"12.2 I have verified the details filed by the appellant before me and before the Assessing Officer during the remand proceedings. I find that the traveling expenses arc duly supported by various evidences. However, the possibility of the unverifiable expenses in such a huge quantum of expenditure cannot be ruled out. I have already held in the foregoing para that the nature of expense does not show that any ingenuine expense would have been claimed by the appellant more particularly, when the Assessing Officer has not been able to find any evidence to the contrary. As held earlier, the company with such a huge turnover and with several sites running at a time, would have to incur huge expenses on various traveling and that it is quite possible that some part of the expense may not he properly supported by the evidences since often such expenses are incurred by the site workers and other employees/labourers who may not have maintained the records properly. Further several traveling expenses through public transport are never supported by any evidences /supporting and hence the appellant cannot be enforced with the production of evidences for such expenses. In line with the findings given by me in the ground of appeal no. 13 to 15, the disallowance of the traveling expenses is restricted to 5% of the total traveling expenses. In the result the ground of appeal is partly allowed."
16.1 Revenue has raised ground No. 7 with reference to restriction of traveling expenses to 5% whereas assessee contested the same in ground No. 3 in its appeal.
16.2 After hearing the rival arguments and examining the record we are of the view that restriction of expenditure to 5% of the claim is justifiable on the facts of the case. Therefore we do not intend to disturb the findings of the CIT(A), who after considering various details restricted the amount to a reasonable percentage. In view of this both Revenue and assessee's grounds on this issue are rejected.
17. Ground No. 8 pertains to disallowance of `18,68,300/- being 10% of aggregate postage and telegraph expenses of `186.83 lakhs made by the A.O. but restricted by the CIT(A) to 5% of the total expenditure in line with his decision to restrict the miscellaneous expenditure and traveling expenditure. Considering the facts of the case and arguments of the rival parties we do not see any reason to interfere with the order of the CIT(A). Therefore, the 23 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
disallowance of 5% is confirmed. Accordingly Revenue's ground No. 8 and assessee's ground No. 4 are rejected.
18. In respect of ground No. 9 the Revenue is objecting to the direction of CIT(A) that the escalation claim of `4.32 crores cannot be taxed in the hands of the assessee in the year under consideration as the work in respect of such claim was not completed in this year. The addition of `4,32,00,000/- was made by the Assessing Officer on the ground that assessee has offered the escalation claims under dispute amounting to `15.22 crores and that since the balance `4.32 crores out of the aggregate claim of `19.54 crores was also identical, the said amount should also be held liable to tax in the year under consideration. Before the CIT(A) assessee has submitted that the matter related to escalation claim which was disputed in nature as narrated by the company as well as the statutory auditor. The escalation claim till the end of 31.3.2005 was `1522 lakhs and the same was accounted for by assessee. The observation of the auditor is reproduced below:
"4. The company has while computing the estimated loss for completion of a contract, included in its aggregate expected contractual revenue, an amount of Rs.1,954 lakhs relating to escalation claims which are currently being disputed by the customer. Of this amount, Rs.1,522 lakhs has been recognised as revenue upto March 31, 2005. However, pending the ultimate outcome in respect of the dispute relating to this escalation claim, we are unable to comment on the adjustments, if any, that may be necessary to turnover, debtors, provision for expected loss for completion of the contract, the loss before tax and earnings per share reported in the financial statements for the year ending March 31, 2005."
18.1 The CIT(A) deleted the addition by giving the following finding: -
"15.3. I have gone through the submissions of the appellant. I find that the entire escalation claim of Rs.19.54 crores is in dispute which is also not disputed by the Assessing Officer. The income of Rs.15.22 crores was offered during A.Y. 2005-06 since the said escalation claims though not approved by the contractee was within the permissible limits based on the actual work done. It is also seen from the submissions made before the Assessing Officer that the balance Rs.4.32 crores was in respect of the escalation claims in respect of which the work was not completed. I find force in the arguments of the appellant that although the claim is made, since the work is not 24 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
carried out in respect of the said escalation claims made, the income cannot be said to have accrued during the year. The said escalation claim cannot be considered at par with the other escalation claims of Rs.15.22 crores offered during the year as the said amount of Rs.15.22 crores is offered on the ground that the work corresponding to the said escalation claim was duly completed during the year whereas the work in respect of the balance claim of Rs.4.32 crores is not carried out. Unless the work corresponding to the balance claim of Rs.4.32 crores is also carried out, it cannot be said that the said amount has accrued to the appellant. This would be contrary to the real income theory under the law where the appellant can be taxed only in respect of the income for which the right to receive the said income had accrued. Admittedly, the nature of transaction shows that the appellant does not have the right to receive the said income. Moreover, I also find that the appellant has offered the said amount of Rs.4.32 crores during A.Y. 2006-07 and no prejudice is caused to the department. In the light of the above findings and reasons, I am of the view that the said amount of Rs.4.32 crores cannot be taxed in the hands of the appellant. In the result, this ground of appeal is allowed."
18.2 After considering the rival submissions, we are of the view that the balance claim of `4.32 crores has not accrued to the assessee. Therefore, it was rightly excluded by the assessee while accepting the income to the extent of `15.22 crores. Unless the contractee accepts the escalation claim, no income can be stated to have accrued to the party as these are contractual receipts and not statutory receipts. In view of this, there is no reason to differ from the view taken by the CIT(A). We, therefore, confirm the order of the CIT(A) and reject the ground of the Revenue.
19. Ground No.10 pertains to the claim of temporary site installation expenses of `1,06,72,800/- deleted by the CIT(A). The said expense was disallowed by the Assessing Officer on the ground that assessee has not submitted the required details, nature, quantum, genuineness and correctness of the said expenses and also that the said site expenses are for the sites which last for 5 to 10 years and hence the same are not allowable as deduction during the year. Before the CIT(A) the learned A.R. submitted that although assessee has submitted many details, complete details may not have been submitted during the assessment proceedings. Full details of Temporary Site Installation expenses have been filed during the remand 25 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
proceedings vide submission dated 12.08.2008 and the same runs from page No. 1090 to 1144. The AR also argued that no adverse comments have been given in the remand report as evident from the para 13 of the remand report. It was therefore submitted that the claim of assessee ought to be accepted and the disallowance made should be deleted. The CIT(A) deleted the same by giving the following finding: -
"16.3 I have considered the submissions of the appellant and the findings in the assessment order and the remand report. I find that the appellant has incurred expenditure for development of various sites amounting to Rs.533.64 lacs for the year. I agree with the submissions of the appellant that at the time of handing over of the site, bare land is handed over to the appellant and that the appellant is required to surface, level and add various facilities to the land handed over. To do so the expenditures arc incurred on the land of others so that the work can be started. 1 also find force in the arguments of the appellant that the expense incurred on such land cannot result in enduing benefit as the appellant is forced to vacate the site on its completion thereby leaving the temporary sites as it is. I am, therefore, of the view that the disallowance of the temporary site expense is incorrect. This ground of appeal is, therefore, allowed. 19.1 We agree with the findings of the CIT(A). We do not find any reason to interfere with the learned CIT(A)'s order in deleting the disallowance of `1,06,72,800/- out of temporary site expenses. Even otherwise, if it is to be considered as capital expenditure, the same is also eligible for 100% depreciation being temporary structures. Looking it either way, the amount is to be allowed as deduction. Hence, his order in this regard is confirmed and ground no.10 of the Revenue is rejected.
20. Ground No. 11 pertains to addition of `3,67,11,191/- made on account of unexplained transactions with 22 parties. The A.O. held that assessee did not furnish the details of the said 22 parties and hence the payments could not be verified. Before the CIT(A) assessee had initially submitted that assessee was not allowed sufficient time and that the details already on record were not verified properly. It was also submitted that during the remand proceedings, assessee had submitted the details relating to 22 parties as mentioned along with the name, mailing addresses, and transactions with them. The said information were duly verified by the 26 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
Assessing Officer in the remand proceedings. It was therefore argued by the A.R. that the said balances are verified and that no discrepancy is noted by the Assessing Officer. The CIT(A) deleted the addition by giving a finding as under: -
"18.3. I have gone through the submissions of the appellant, and the findings in the remand report. I find that though the details and information were not satisfactorily given to the Assessing Officer in the assessment proceedings, the said details were later submitted by the appellant during the remand proceedings (page No. 574 to 579, 671A to 704 and 758 to 779 of the paper Book dated 12th August, 2008). The Assessing Officer has also stated in his report that the sundry creditors above 50 lakhs could not he confirmed by the appellant. However, no specific defect or evidence is brought on record by the Assessing Officer to prove that the said creditors and the payments made to them are not genuine. I find that merely because assessee had made excess payment to the creditors in due course of business, it would not be a sufficient ground to hold that the said payments are not genuine. Moreover, the advance payment in no manner can be treated as income of the appellant. The Assessing Officer has not identified any payments or purchases from these parties as ingenuine or clouded with malafide intentions. The decisions relied upon by the Assessing Officer are also not of any help as the Assessing Officer has not brought any evidence on record that the appellant had entered into bogus purchase transactions. I am therefore, convinced that the addition cannot be made for the payments made to these parties when the appellant had discharged the onus by producing and submitting the details and address of the parties and that the Assessing Officer was not able to find any ingenuinity in the transactions of the appellant. This addition, therefore, deserves to be deleted. This ground of appeal is, accordingly, allowed."
20.1 After considering the rival claims and examining the issue, We agree with the findings of the CIT(A). Accordingly this ground of the Revenue is rejected.
21. Revenue has raised ground No. 12 that the CIT(A) erred in holding that the statutory disallowance under section 40(a)(ia) cannot be added to the total income estimated. We find that this legal ground does not arise out of the order of the CIT(A). While rejecting the books of account the A.O. estimated the income at 5% of the gross receipts and in doing so he also invoked the provisions of section 40(a)(ia) on certain amounts stated to be 27 ITA No.4679,4680 &4492/Mum/2009 M/s. ITD Cementation India Ltd.
amounts on which TDS was not deducted. The CIT(A) did not approve rejection of books of account, therefore estimation of income at 5% stands deleted. With reference to the disallowance under section 40(a)(ia), it was the contention that assessee itself has disallowed an amount of `25,25,87,526/- and the amount of `3,38,27,593/- disallowed by the A.O. was part of the already disallowed by the assessee while filing the return of income. These aspects were remanded to the A.O., who was directed to examine the issue factually. The A.O., however, rejected the contention stating that assessee has not furnished details. Assessee also contended that provisions of section 40(a)(ia) has been amended retrospectively w.e.f. A.Y. 2005-06 and any payment made before filing of return the tax deducted at source is to be excluded from condition under section 40(a)(ia). On this issue the A.O. has not offered any comments. The CIT(A), however examined the issue, reconciled all tax deducted at source in detail while considering the issue of examination of rejection of books of account and he considered this issue as an academic issue. Before us, the learned counsel referred to the complete details and submitted that on facts the amount of `3,38,22,593/- disallowed by AO was part of the amount disallowed by the assessee itself, therefore, it was a double addition. He, however, has no objection if the matter is examined again by the A.O on facts.
21.1 We have considered the issue. As pointed out the issue which was raised by the Revenue in the ground does not arise out of the order of the CIT(A) as the issue of estimation of income was rejected. So disallowance under section 40(a)(ia) can be made if facts so warrant. It was assessee's contention that these amounts disallowed by the A.O. were part of amount disallowed by it and so there is no need for disallowing the amounts again. Subject to verification of this contention by the A.O., we are of the opinion that there is no merit in Revenue's ground. Accordingly the ground stands rejected. However, the A.O. is directed to examine the facts on the contention that the amounts stand already included in the amount disallowed suo moto by the assessee.
28 ITA No.4679,4680 &4492/Mum/2009M/s. ITD Cementation India Ltd.
22. In the result, Revenue appeals are dismissed and assessee's appeal is partly allowed.
Order pronounced in the open court on 25th October 2011.
Sd/- Sd/-
(D.K. Agarwal) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, Dated: 25th October 2011
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - XXI, Mumbai
4. The CIT- I, Mumbai City
5. The DR, "I" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
NG: