The DCIT, Circle-3(1), Visakhapatnam v. M/s Bhanu Constructions, Visakhapatnam

CO 40/VIZ/2010 | 2007-2008
Pronouncement Date: 13-07-2011 | Result: Dismissed

Appeal Details

RSA Number 4025323 RSA 2010
Assessee PAN AAEFB3162A
Bench Visakhapatnam
Appeal Number CO 40/VIZ/2010
Duration Of Justice 8 month(s) 11 day(s)
Appellant The DCIT, Circle-3(1), Visakhapatnam
Respondent M/s Bhanu Constructions, Visakhapatnam
Appeal Type Cross Objection
Pronouncement Date 13-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 13-07-2011
Date Of Final Hearing 29-03-2011
Next Hearing Date 29-03-2011
Assessment Year 2007-2008
Appeal Filed On 01-11-2010
Judgment Text
ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.450/VIZAG/2010 ASSESSMENT YEAR: 2007-08 DY.COMMISSIONER OF INCOME TAX CIRCLE-3(1) VISAKHAPATNAM BHANU CONSTRUCTIONS VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO:AAEFB 3162 A C.O NO.40/VIZAG/2010 (ARISING OUT OF ITA NO.450/VIZAG/2010) ASSESSMENT YEAR: 2007-08 DY.COMMISSIONER OF INCOME TAX CIRCLE-3(1) VISAKHAPATNAM BHANU CONSTRUCTIONS VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO:AAEFB 3162 A DEPARTMENT BY: SHRI T.H. LUCAS PETER CIT (DR) ASSESSEE BY: SHRI C.P. RAMASWAMY ADVOCATE ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION O F THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 28.6.2010 PASS ED BY LEARNED CIT(A) VISAKHAPATNAM AND THEY RELATE TO THE ASSESSMENT YEA R 2007-08. 2. THE REVENUE IS CONTESTING THE RELIEF GRANTED BY THE LEARNED CIT(A) ON THE FOLLOWING THREE ISSUES: A) ADDITION MADE UNDER SECTION 40(A)(IA) FOR NON-D EDUCTION OF TDS ON THE PAYMENTS MADE TO THE LABOURERS AND FOR PURCH ASE OF SAND EARTH/CARTING CHARGES. B) ADDITION MADE UNDER SECTION 40A(3) OF THE ACT I N RESPECT OF LABOUR CHARGES AND SAND & EARTH CARTING CHARGES. ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 2 OF 7 C) DELETION OF INCOME FROM SUB-CONTRACT WORKS ENHANCED TO 12.5%. IN THE CROSS OBJECTION THE ASSESSEE IS ASSAILING T HE DECISION OF LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.2 19 37 1/- MADE FOR WANT OF PROPER VOUCHERS. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACT WORKS. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING ADDITION S ON FOUR POINTS. IN THE APPEAL FILED BEFORE THE LEARNED CIT(A) THE ASS ESSEE GOT RELIEF IN RESPECT OF THREE POINTS ONLY. HENCE BOTH THE PARTI ES ARE IN APPEAL BEFORE US ON THE POINTS DECIDED AGAINST THEM. 4. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSES SING OFFICER COMPUTED THE DETAILS OF PAYMENTS MADE UNDER THE HEAD LABOUR CHARGES AND ALSO UNDER THE HEAD EARTH & SAND CARTING CHARGES PERSO N WISE AND NOTICED THAT THE ASSESSEE HAD MADE PAYMENTS IN EXCESS OF RS .50 000/- IN A YEAR TO MANY PERSONS. ACCORDINGLY THE ASSESSING OFFICER TO OK THE VIEW THAT THE ASSESSEE SHOULD HAVE DEDUCTED TDS UNDER SECTION 194 C OF THE ACT ON SUCH PAYMENTS. SINCE THE TDS WAS NOT SO DEDUCTED HE DIS ALLOWED THE FOLLOWING AMOUNTS UNDER SECTION 40(A)(IA) OF THE ACT. LABOUR CHARGES - RS.83 44 370/- EARTH & SAND CARTING CHARGES - RS.39 18 865/ - BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THAT TH ERE WAS NO CONTRACTUAL RELATIONSHIP WITH THE LABOURERS AND HENCE THE PROVI SIONS OF SEC. 194C DO NOT APPLY TO SUCH PAYMENTS. FURTHER IT WAS SUBMITTED T HAT THEY REPRESENT DAILY WAGES PAID TO THE WORKERS AND HENCE THE LIMIT OF RS .50 000/- DOES NOT APPLY TO SUCH KIND OF PAYMENTS. WITH REGARD TO THE EARTH & SAND CARTING CHARGES IT WAS SUBMITTED THAT THEY REPRESENT PURCH ASE OF MATERIALS FOR WHICH THE PROVISIONS OF SEC. 194C DO NOT APPLY. BE ING CONVINCED WITH THE ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 3 OF 7 EXPLANATIONS OF THE ASSESSEE THE LEARNED CIT(A) DE LETED THE IMPUGNED ADDITION. WE HAVE GONE THROUGH THE OBSERVATIONS OF LEARNED CIT(A) AND SUBMISSIONS OF THE ASSESSEE MADE IN THIS REGARD. TH E UNDISPUTED FACT IS THAT THE LABOUR CHARGES ARE PAID TO THE INDIVIDUAL LABOURERS THROUGH A LEADER. IT WAS EXPLAINED THAT THESE LABOURERS ARE ENGAGED ON TEMPORARY BASIS TILL THE COMPLETION OF THE WORK AT A PARTICUL AR PLACE AND THEY ARE USUALLY BROUGHT BY A PERSON WHO IS DESIGNATED AS LE ADER. ACCORDING TO THE ASSESSEE IT HAS ACCOUNTED THE IMPUGNED EXPENSES IN THE NAME OF THE LEADER FOR THE SAKE OF ACCOUNTING CONVENIENCE THOU GH THE SIGNATURE OF EACH WORKER IS OBTAINED IN SEPARATE VOUCHERS. IT WAS AL SO SUBMITTED THAT THIS IS THE USUAL PRACTICE OF ENGAGING LABOURERS IN THE CAS E OF HUGE CONSTRUCTION CONTRACTS. THE FOREGOING DISCUSSIONS SHOW THAT THE RE IS NO CONTRACT BETWEEN THE ASSESSEE AND THE LABOURERS WHICH WOULD ATTRACT THE PROVISIONS OF SEC. 194C OF THE ACT. FURTHER THE PAYMENTS HAVE BEEN MADE TO INDIVIDUAL WORKER THROUGH A GROUP LEADER. HENCE I N OUR VIEW THE PROVISIONS OF SEC. 194C DO NOT APPLY TO SUCH LABOUR PAYMENTS. IT WAS STATED THAT THE EXPENSES BOOKED UNDER THE HEAD EAR TH & SAND CARTING CHARGES RELATE TO PURCHASE OF MATERIALS I.E. SAND . THE LEARNED CIT(A) ALSO NOTICED THAT THE SAID EXPENDITURE HAS BEEN ACC OUNTED UNDER THE HEAD PURCHASES. THERE CANNOT BE ANY DISPUTE THAT THE PROVISIONS OF SEC. 194C DO NOT APPLY TO PURCHASE OF MATERIALS. ACCORDINGL Y WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED CIT(A) IN DELE TING THE IMPUGNED ADDITION MADE UNDER SECTION 40(A)(IA) OF THE ACT. 5. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT. THE ASSESSIN G OFFICER NOTICED THAT THE ASSESSEE FIRM HAD MADE SEVERAL PAYMENTS OF ABOU T RS.15 000/- AT A TIME TOWARDS EXPENSES AND THE TOTAL AMOUNT OF SUCH PAYMENTS MADE IN A DAY CROSSED RS.50 000/- TO A SINGLE PERSON. THE AS SESSING OFFICER TOOK THE VIEW THAT THE PROVISIONS OF SEC. 40A(3) ARE VIOLATE D AND ACCORDINGLY DISALLOWED 20% OF AGGREGATE AMOUNT OF SUCH PAYMENTS . I.E. 20% OF ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 4 OF 7 RS.1 12 63 235/-. THE LEARNED CIT(A) DELETED THE S AME WITH THE OBSERVATION THAT THE ASSESSING OFFICER DID NOT BRIN G ANY EVIDENCE ON RECORD THAT THE PAYMENT EXCEEDING RS.20 000/- WAS MADE BY THE ASSESSEE TO A SINGLE PERSON ON A SINGLE DAY. WE ALSO NOTICE THAT SEC.40A(3) AS IT STOOD AT THE RELEVANT POINT OF TIME IS ATTRACTED ONLY IF TH E ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING RS.20 000/- OTHERWISE THAN BY A CROSSED CHEQUE OR B Y A CROSSED BANK DRAFT. FROM THE OBSERVATIONS OF THE ASSESSING OFFICER IT IS CLEAR THAT THE PAYMENT IN EXCESS OF RS.20 000/- WAS NOT PAID ON A SINGLE O CCASION TO A SINGLE PERSON. ACCORDINGLY IN OUR VIEW THE PROVISIONS O F SEC.40A(3) ARE NOT ATTRACTED IN THE INSTANT CASE. ACCORDINGLY WE UPHO LD THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 6. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE ESTIMATION OF INCOME FROM SUB-CONTRACT WORKS. THE ASSESSEE AW ARDED SUB-CONTRACTS TO THE TUNE OF RS.1 41 88 161/- ON WHICH IT OFFERED ONLY COMMISSION WHICH WAS EQUIVALENT TO THE TDS DEDUCTED BY ITS PRINCIPAL ON SUCH WORKS. THE ASSESSING OFFICER CALLED FOR SUB-CONTRACT AGREEMENT S. ONE OF SUCH AGREEMENTS WAS ENTERED ON 09-09-2006 ON A STAMP PAP ER DATED 08.3.2000. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSE SSEE FIRM ITSELF CAME INTO EXISTENCE ONLY ON 01.4.2000 AND ACCORDINGLY CA ME TO THE CONCLUSION THAT THE SUB-CONTRACT AGREEMENTS ARE BOGUS ONES. AC CORDINGLY HE TOOK THE VIEW THAT THE ASSESSEE ONLY HAD EXECUTED ALL THE WO RKS SHOWN AS SUB- CONTRACT WORKS. ACCORDINGLY HE PROPOSED TO ESTIMAT E THE INCOME FROM SUCH WORKS AND FINALLY ESTIMATED THE INCOME AT 12.5% ON THE CONTRACT RECEIPTS OF RS.141 88 161/-. THE LEARNED CIT(A) FOUND THAT THE INFERENCE DRAWN BY THE ASSESSING OFFICER IS AGAINST THE FACTS PREVAILI NG IN THE CASE AND ACCORDINGLY DELETED THE ESTIMATE MADE BY THE ASSESS ING OFFICER. THE OBSERVATIONS OF LEARNED CIT(A) IN THIS REGARD ARE E XTRACTED BELOW: ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 5 OF 7 5.2 THE LEARNED COUNSEL OF THE APPELLANT HAD SUBMI TTED THAT THE PROFIT HAS BEEN ESTIMATED BASED ON THE WRONG FA CTS BY THE ASSESSING OFFICER. IT IS BROUGHT TO MY NOTICE T HAT ORIGINALLY THE FIRM M/S. BHANU CONSTRUCTIONS VISAK HAPATNAM CAME INTO EXISTENCE W.E.F. 20.06.92 AND SUBSEQUENTL Y THERE WAS A CHANGE IN THE CONSTITUTION OF THE FIRM WHICH HAS BEEN EVIDENCED BY AN INSTRUMENT OR PARTNERSHIP EXECUTED ON 07.1.94. COPY OF THE PARTNERSHIP DEED DT. 20.06.92 AND COPY OF THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 199 4-95 ARE FILED FOR REFERENCE. IT IS FURTHER POINTED OUT THER E WERE A NUMBER OF CHANGES OCCURRED IN THE CONSTITUTION OF T HE FIRM W.E.F. 01.04.96 TO 01.04.2000 WHICH CAN BE SEEN FRO M A DEED OF PARTNERSHIP EXECUTED ON 01.04.2000. SUBSEQU ENTLY THERE WAS ANOTHER CHANGE IN THE CONSTITUTION OF THE FIRM AS EVIDENCED BY AN INSTRUMENT OF PARTNERSHIP EXECUTED ON 07.07.06. THE APPELLANT HAS ALSO SUBMITTED THE COPY OF THE CERTIFICATE OF REGISTRATION ISSUED BY THE REGISTRAR OF FIRMS DT. 22.07.1992. ALL THE SUBSEQUENT CHANGES WERE ALSO IN TIMATED TO THE REGISTRAR OF THE FIRMS. THIS CLEARLY SHOWS T HAT THE FIRM HAS BEEN DOING BUSINESS FOR MORE THAN 10 YEARS. HOW EVER THE ASSESSING OFFICER INADVERTENTLY WITHOUT CONSIDE RING THE PREVIOUS CHANGES CAME TO THE CONCLUSION THAT THE F IRM CAME INTO EXISTENCE W.E.F. 01.04.2000 WHICH IS NOT CORRE CT. THE FIRM WAS ALREADY DOING BUSINESS PRIOR TO 01.04.2000 . HENCE THE CONTENTION OF THE ASSESSING OFFICER IS NOT CORR ECT. THE ASSESSING OFFICER DID NOT SOUGHT FOR ANY CLARIFICAT ION AND MADE THE ADDITION OUT OF THE THREE SUB CONTRACT AGR EEMENTS ONLY ONE AGREEMENT WAS EXECUTED ON A STAMP PAPER DT . 08.03.2000 AND REMAINING TWO WERE EXECUTED ON STAMP PAPER IN 2005 AND 2006. HOWEVER THE ASSESSING OFFI CER REJECTED ALL THE THREE SUB CONTRACT PAYMENTS WHICH WERE MADE THROUGH CHEQUES AND TDS WAS ALSO DEDUCTED. IN FACT ALL THE THREE PARTIES ARE REGULARLY ASSESSED TO TAX AND DECLARED THE SAID AMOUNTS IN THEIR RESPECTIVE RETUR N OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. COPIES OF THEIR INCOME TAX RETURNS ARE ALSO FURNISHED AS EVIDENCE. 5.3. IN VIEW OF THE FACTS AND THE DOCUMENTARY EVIDE NCE FILED BY THE APPELLANT I DO NOT FIND ANY JUSTIFICATION I N ASSESSING OFFICERS ACTION IN TREATING THE SUB CONTRACT RECEI PTS AS ASSESSEES INCOME BY ESTIMATING THE PROFIT @ 12.5% ON THE CONTRACT RECEIPT OF RS.1 41 88 161/-. NO EVIDENCE H AS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO PROVE THAT THESE SUB CONTRACTS AGREEMENT WERE ENTERED INTO WIT H THE INTENTION TO CONCEAL THE INCOME AS IN SUPPORT OF TH E SAME THE APPELLANT FIRM HAS FILED SUB CONTRACT AGREEMENT S COPIES ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 6 OF 7 OF THEIR INCOME TAX RETURNS AND THE DETAILS OF TDS DEDUCTED AND DEPOSITED WITH THE GOVERNMENT ACCOUNT ON SUB CONTRACTS. THE VIEW TAKEN BY THE ASSESSING OFFICER THAT SUB CONTRACT AGREEMENT WAS ENTERED MUCH PRIOR TO THE DA TE OF FORMATION OF THE FIRM IS ALSO NOT SUPPORTED BY ANY EVIDENCE. SUFFICIENT EVIDENCE HAS BEEN BROUGHT ON RECORD BY T HE APPELLANT TO PROVE THAT THE APPELLANT FIRM WAS IN E XISTENCE PRIOR TO THE PERIOD UNDER CONSIDERATION AND IN SUPP ORT OF THE SAME IT HAS BEEN FILED THE COPIES OF THE ASSESSMENT ORDER OF THE APPELLANT FOR THE ASSESSMENT YEAR 1997-98 AND 1 998-99. FOR THE REASONS DISCUSSED ABOVE I FIND NO JUSTIFIC ATION IN TREATING THE SUB CONTRACT AMOUNT OF RS.1 41 88 161/ - AS BOGUS SUB CONTRACT AND TREATING THE SAME AS APPELLA NTS INCOME BY ESTIMATING INCOME AT 12.5% ON SUCH SUB CONTRACTS. THEREFORE THE ADDITION MADE BY THE ASSE SSING OFFICER TO THE OF RS.17 73 520/- IS HEREBY DELETED AND THIS GROUND OF APPEAL IS ALLOWED . THE LEARNED AUTHORISED REPRESENTATIVE ALSO BROUGHT TO OUR NOTICE THE AGREEMENTS ENTERED BY THE ASSESSEE WITH SUB-CON TRACTORS ACCORDING TO WHICH THE ASSESSEE IS ENTITLED ONLY TO A COMMISSION EQUIVALENT TO THE TDS DEDUCTED BY THE PRINCIPAL ON THE SUB-CONTRACTS ALLO TTED. WE ALSO NOTICE THAT THE ASSESSING OFFICER DID NOT BRING ON RECORD ANY E VIDENCE TO SHOW THAT THE ASSESSEE HAS ACTUALLY EARNED MORE FROM SUCH SUB-CON TRACT WORKS. ACCORDINGLY WE UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS ISSUE ALSO. 7. IN THE CROSS OBJECTION THE ASSESSEE IS ASSA ILING THE DECISION OF LEARNED CIT(A) IN CONFIRMING THE ADDITION OF RS.2 1 9 371/-. THE FACTS RELATING TO THE SAID ADDITION ARE STATED IN BRIEF. THERE WAS DIFFERENCE BETWEEN THE AGGREGATE AMOUNT OF VOUCHERS PRODUCED A ND THE AMOUNT ACCOUNTED IN THE BOOKS IN RESPECT OF EXPENDITURE BO OKED UNDER THE HEAD LABOUR CHARGES AND EARTH & SAND CARTING CHARGES . THE SAID DIFFERENCE WAS RS.70 161/- IN RESPECT OF LABOUR CHARGES AND RS .1 49 210/- IN RESPECT OF EARTH AND SAND CARTING CHARGES. THE ASSESSING O FFICER ADDED BOTH THE AMOUNTS AGGREGATING TO RS.2 19 371/- TO THE TOTAL I NCOME OF THE ASSESSEE AND THE SAME WAS ALSO CONFIRMED BY LEARNED CIT(A). BEFORE US THOUGH ITA NO 450 AND CO 40 OF 2010 BHANU CONSTRUCTIONS VI SAKHAPATNAM PAGE 7 OF 7 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T THE IMPUGNED EXPENSES ARE FULLY VOUCHED YET NO ATTEMPT WAS MADE TO RECONCILE THE SAID DIFFERENCES. HENCE WE FIND NO INFIRMITY IN THE D ECISION OF LEARNED CIT(A) ON THIS ISSUE AND ACCORDINGLY CONFIRM HER ORDER ON THIS ISSUE. 8. IN THE RESULT THE APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 13.7.2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 13 TH JULY 2011 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CIRCLE -3(1) VI SAKHAPATNAM 2 M/S BHANU CONSTRUCTIONS D.NO.49-54-15/3(1) BALYY A SASTRY LAYOUT VISAKHAPATNAM 3 4. THE CIT 1 VISAKHAPATNAM THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM