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IN THE INCOME TAX APPELLATE TRIBUNAL, 'D' BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER (Assessment Year :2016-17) Asst. Commissioner of Vs. M/s. Dev Engineers Income Tax 307, Jalaram Business Central Circle-2(1), Center, Ganjawala Lane, th Old CGO Building, 8 Floor Nr. Chamunda Circle, M.K.Road Borivali West Mumbai - 400 020 Mumbai - 400 092 PAN/GIR No.AAKFD8486D (Appellant) .. (Respondent) (Assessment Year :2015-16 to 2017-18) M/s. Dev Engineers Vs. Asst. Commissioner of Income 307, Jalaram Business Tax Center, Ganjawala Lane, Central Circle-2(1), Nr. Chamunda Circle, Old CGO Building, 8th Floor Borivali West M.K.Road Mumbai - 400 092 Mumbai - 400 020 PAN/GIR No.AAKFD8486D (Appellant) .. (Respondent) Assessee by Shri Shashi Tulsiyan Revenue by Shri T. Shankar Date of Hearing 24/08/2022 Date of Pronouncement 23/09/2022 M/s. Dev Engineers आदे श / O R D E R PER BENCH:

3.3. Aggrieved by the aforesaid orders, the assessee preferred the appeals before the ld. CIT(A) who granted partial relief to the assessee, against which the assessee had preferred the appeals for A.Yrs. 2015-16, 2016-17 and 2017-18 and Revenue had preferred appeal only for A.Y.2016-17 before us.

M/s. Dev Engineers 3.4. Cash Expenses incurred by the assessee The ld. AO observed that during the course of search proceedings and post search verification, the books of Shri Pratap Purohit and M/s. Dev Engineers (firm) were examined wherein it was found that assessee was incurring cash expenses on certain heads which had typically amount ranging from Rs.10,000 to less than Rs.20,000 in a single day to a particular party. Such expenses were debited as site expenses and conveyance expenses. Shri Sandeep Jain who works as an Accounts Assistant with Shri Pratap Purohit was confronted with the above cash expenses in his statement recorded on 17/02/2017 on oath vide question Nos. 9-13 thereon. Shri Sandeep Jain stated that the head "site expenses" are for miscellaneous expenses incurred at the various sites where contracts works were executed. The ld. AO observed that assessee was asked to produce all the supporting documents such as bill, invoice, cash memo, details of personnel, who incurred such expenses alongwith details of the site. The ld. AO observed that assessee could not produce any supporting proof for such expenses. Similarly, Shri Sandeep Jain was asked to verify the head "conveyance expenses" vide question No.11 of the statement recorded on 17/02/2017 on oath. Same details that were called for site expenses above were called by the ld. AO and the ld. AO observed that assessee could not produce any such proof for such expenses. In respect of site expenses and conveyance expenses, the ld. AO showcaused the assessee as to why the entire expenses should not be subject matter of disallowance. In response, the assessee submitted that these are regular expenses incurred in cash so as to complete the project awarded to it smoothly because at site they cannot wait for M/s. Dev Engineers cheques to be cleared which takes normally more than 3-4 days. Moreover, these expenses are miscellaneous in nature and had to be necessarily incurred only in cash. With regard to submission of vouchers / bills, assessee submitted that they being voluminious and were lying in godown and hence, it could not be submitted immediately when the Investigation wing directed the assessee to submit the same. However, the assessee submitted the sample copies of the vouchers and its evidences before the ld. AO during the course of assessment proceedings. It was reiterated that all the expenses incurred in cash towards site and conveyance were normally business expenses and had to be incurred only in cash. The ld. AO observed that the cash expenses incurred by the assessee were not supported by corroborative documentary evidences and since the assessee is engaged in the business of executing Civil contracts, naturally certain cash expenses are bound to be incurred and accordingly, disallowed 50% of the site and conveyance expenses as not meant for the purpose of business u/s.37(1) of the Act and allowed for remaining 50%. This 50% disallowance was reduced to 35% by the ld. CIT(A) on first appeal. The assessee is aggrieved against the same before us.

M/s. Dev Engineers

4. The next issue to be decided in this appeal is with regard to disallowance made on account of unverifiable purchases.

4.1. We have heard rival submissions and perused the materials available on record. We find that assessee is in the business of executing work contracts for Municipal Corporation of Greater Mumbai (MCGM) for which purpose it had regularly purchased iron, steel pipes, cement, building material supplies etc., from various parties. The ld. AO observed that during the course of search proceedings, the purchase bills from various parties were verified and it was found that in some cases, the purchase bills primafacie appeared suspicious. For the purpose of verifying the authenticity of such bills, the assessee was asked during the search proceedings to explain the standard operating procedure adopted in making purchases and explained it with the help of purchase bills from a primafacie genuine supplier. The assessee produced the bill of M/s. Saket Infra Projects Ltd. The ld. AO observed that on examination of the bills of M/s. Saket Infra Projects Ltd., proper procedure has been followed by the assessee at the time of entering the original vouchers / bills. According to the ld. AO, the seized bills did not follow the standard operating procedure adopted by the assessee for all the bills in as much as for certain bills inward register entries were absent, certification stamp from inspection department was missing, there was no signature of store in-charge etc and lack of proper delivery challans. Accordingly, the ld. AO sought to verify the genuineness of transactions made by the assessee with various purchase parties for which purpose 19 parties were identified by the ld. AO and notices u/s.133(6) of the Act were issued to them. Out of 19 parties, replies were received by the ld. AO directly from 13 M/s. Dev Engineers parties confirming the entire transactions with the assessee. However, replies were not received from 6 parties. It was also pointed out by the assessee before the ld. AO that out of 19 parties selected by the ld. AO, there were no transactions carried out by the assessee with 2 parties.

5.2. The assessee submitted that it is engaged in the business of civil engineering and construction and carrying out work of Government and Semi-Government organization and that during the course of such execution of contracts, the same are executed through sub-contractor. The payment of labour charges are made to labourers who are migrants and belong to unorganized sector. Payments are made to them at regular intervals without which there could not be any continuous supply of labour. Accordingly, it was pointed out that it is very difficult to maintain entire records of such labourers. Sometimes, the payment is made to contractor or Mukadam appointed at the site who inturn disburses the wages to these labourers. Since, it is difficult to get large number of workers at a time, the assessee had appointed M/s. Dev Engineers contractor / Mukadam who brings the required number of migrant workers. The said contractor prepares the bill and places before the assessee for payment. The payments were made by cheque after due deduction of tax at source to the contractor or sub-contractor. Thereafter, these contractors or sub-contractors make the payments to the labourers. It was submitted that the Mukadam / Manager / Contractor are all uneducated belonging to unorganized sector and accordingly, some of the contractors or Managers who had issued the bills to the assessee could not be found at the available address when notices u/s.133(6) of the Act were sent by the ld. AO. The assessee pleaded that the purpose of smooth completion of the project, it had to necessarily take the help of these Mukadams/ Contractors / Sub- contractors irrespective of the fact whether those parties are regular income tax payers and filing their income tax returns or not. But since the payments are received from MCGM, Government and other semi- Government organizations by the assessee, those payments were released only after satisfying and ensuring that due work has been executed and finished by the assessee. As stated earlier, these contracts could not be completed without the assistance of the labour force either sourced locally by the assessee or through the assistance of Mukadam / Sub-contractor / Labour /Contractor. Accordingly, it was pleaded that merely because the Mukadam / Contractors were not available at the address mentioned in their invoices, no adverse inference could be drawn on the assessee. However, the assessee thereafter through its efforts was able to obtain replies from five more parties in response to 133(6) of the Act. Hence, out of 19 parties, 8 parties had responded to the notice u/s.133(6) of the Act. The ld. AO observed that assessee had not made any payment to two parties during the years under consideration towards labour contracts. Hence, M/s. Dev Engineers those parties were also ignored by the ld. AO. In respect of remaining 9 parties from whom no response were received by the ld. AO in response to notice u/s.133(6) of the Act, and in view of the discrepancies found during the course of search proceedings on certain bills appearing suspicious, the ld. AO proceeded to treat the payments made to these labour contractors as „bogus‟ and made an addition u/s.69C of the Act in the following manner for A.Y.2015-16, 2016-17 and 2017-18:-