The ACIT(OSD) Range-1,, v. Dholu Construction Ltd.,,

ITA 3306/AHD/2007 | 2001-2002
Pronouncement Date: 02-07-2010 | Result: Dismissed

Appeal Details

RSA Number 330620514 RSA 2007
Assessee PAN AABCD3760E
Bench Ahmedabad
Appeal Number ITA 3306/AHD/2007
Duration Of Justice 2 year(s) 11 month(s)
Appellant The ACIT(OSD) Range-1,,
Respondent Dholu Construction Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 02-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 02-07-2010
Date Of Final Hearing 23-06-2010
Next Hearing Date 23-06-2010
Assessment Year 2001-2002
Appeal Filed On 02-08-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE S HRI A.N. PAHUJA A.M.) I.T.A. NO. 3306/AHD./2007 ASSESSMENT YEAR : 2001-2002 ASSISTANT COMMISSIONER OF INCOME TAX (OSD) -VS.- DHOLU CONSTRUCTION & PROJECTS LTD. RANGE-1 AHMEDABAD AHMEDABAD (PAN : A ABCD 3760 E) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.M. MAHESH SR. D.R. RESPONDENT BY : SHRI S.N. DIVETIA O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 21.05.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-V AHMEDABAD DE LETING THE ADDITION OF RS.15 45 573/- MADE BY THE ASSESSING OFFICER BY INVOKING PROVISION S CONTAINED IN SECTION 40A(2)(B) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2001-0 2. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE-C OMPANY ENGAGED IN THE BUSINESS OF CARRYING EARTHWORK MAINLY OF GOVERNMENT OF GUJARAT. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IT FILED THE RETURN OF INCOME DECLARING INCOME OF RS.1 9 80 156/- ALONGWITH PROFIT & LOSS A/C. BALANCE-SHEET TAX AUDIT REPORT IN FORM NO. 3CD ETC . THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) WHEREIN HE DISALLO WED RS.15 45 573/- BY INVOKING THE PROVISIONS CONTAINED IN SECTION 40A(2)(B) OF THE IN COME TAX ACT 1961. 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS :- ' THE APPELLANT BEGS LO SUBMITS THAT THE IMPUGNED D ISALLOWANCE IS WHOLLY UNJUSTIFIED BOTH ON FACTS AND IN LAW: (A) FIRSTLY THE AO HAS FAILED LO APPRECIATE THAT T HE COMPARABLE SALES CHARGED BY OTHER PARTIES WERE FURNISHED TO THE AO ALONGWITH REPLY DA TED 2.8.2006 AND THE SAME PERTAIN TO DUMPER CHARGES FOR WORK OF OBR AL GMDC PANANDHRO KUTCH MINES NORMALLY THERE WOULD BE AN INCREASE IN SUCH RATES OVER A PERIOD AN D A DOWNWARD TREND. THE APPELLANT HAS PAID LOWER CHARGES TO [HE RELATIVES AS IT WOULD BE NOTICED FROM THE AFORESAID LETTER DATED 2 ITA NO. 3306/AHD/200 7 2.8.2006. IT WILL BE APPRECIATED THAT DISALLOWANCE U/S.40A(2)(B) COULD BE MADE ONLY IN CASE OF EXCESSIVE EXPENDITURE IN RELATION LO THE LEGITIM ATE BUSINESS NEEDS AND FAN MAN\ET VALUE WHICH DOES NOT ARISE IN THE PRESENT CASE (B) SECONDLY THE URGENCY OF HIRING DUMPERS/TANKERS FROM THE RELATIVES WAS PROVED BY FURNISHING THE COPY OF LETTERS RECEIVED FROM GMDC STATING THAT THE DESIRED AND REQUIRED QUANTITY AS PER THE TARGET WAS NOT REACHED. IT WILL BE APPRECIATED THAT IF THE DUMPERS/TANKERS WERE NOT DEPLOYED URGENTLY IT WOULD RESULT INTO HUGE FINANCIAL CONSEQUENCES SUCH AS LIQUITY DAMAGES PENALTY AND E VEN TERMINATION OF THE CONTRACT II WAS THEREFORE A COMMERCIAL EXPEDIENCY TO DEPLOY THE SAI D MACHINERIES AND COMPLETE THE WORK IN TIME THEREFORE THE CHARGES PAID TO THEM CANNOT BE SAID TO BE EXCESSIVE CONSIDERING THE LEGITIMATE BUSINESS REQUIREMENT. THE AO HAS NOT DIS PUTED THE FACT THAT THE SAID MACHINERIES WERE REQUIRED TO BE DEPLOYED TO COMPLETE THE WORK I N TIME AND MEET WITH THE COMPLAINT LETTERS FROM GMDC. [C) THIRDLY THE AO HAS FAILED TO APPRECIAT E THAT THE SAID RELATIVES WERE ASSESSED TO TAX AS PER THE COPY OF RETURNS FILED BEFORE AO ALONGWIT H REPLY DATED 13 7.2006 AND 5 9.2006 WHICH PROVES THAT THERE WAS NO INTENTION TO AVOID T AX. THE PROVISIONS OF SECTION 40A(2)(B) ARE INTENDED TO PLUG THE CASES WHERE EXCESSIVE EXPE NDITURE IS PAID TO THE RELATIVES SO AS TO REDUCE THE TAX INCIDENCE. (D) LASTLY IT IS SUBMITTED THAT THE AO HAS NOT DIS PUTED THE FACT THAT MACHINERIES SUPPLIED BY THE RELATIVES WERE NOT UTILIZED FOR THE PURPOSE OF APPELLANT'S BUSINESS. THE APPELLANT HAD LIME AND AGAIN POINTED OUT IN ITS REPLIES THAT THE MACHI NERIES WERE REQUIRED TO BE DEPLOYED IN THE WORK ALLOTTED BY GMDC AND AO HAS NOT EVEN DISPUTED IN ANY OF HIS LETTERS THAT THE SAID MACHINERIES WERE NOT ENGAGED IN THE EXCAVATION WORK BY THE APPELLANT THEREFORE THERE CANNOT BE ANY DISALLOWANCE OF THE ENTIRE EARTH-WORK EXPENSES. EVEN U/S. 40A(2)(B) THE DISALLOWANCE HAS TO BE LIMITED TO THE EXCESSIVE EXP ENDITURE AND NOT THE ENTIRE EXPENDITURE. IT IS NOW WELL-SETTLED POSITION IN LAW VOLTAMP TRANSFO RMERS P LTD 129 ITR 105 (GUJ)) AND ACIT VS DOON VALLEY MOTORS 10 SOT 525 (DELHI) THAT THE B URDEN LIES UPON THE DEPARTMENT TO PROVE THAT THE EXPENDITURE INCURRED BY THE APPELLAN T BY WAY OF PAYMENT TO THE RELATIVES WAS EXCESSIVE AND UNREASONABLE CONSIDERING THE BUSINESS NEEDS ETC WHICH THE AO HAS RAILED TO PROVE IN THE PRESENT CASE. IN VIEW OF THE ABOVE FADS AND CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT THE DISALLOWANCE OF RS 15 45 473/- MAY BE CANCELLED.' 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE AFORESAID ADDITION OF RS.1 5 45 573/- FOR THE DETAILED REASONS GIVEN IN PARA 3.2 WHICH READS AS UNDER :- 3.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MATTE AND I HAVE ALSO GONE THROUGH VARIOUS PAPERS FILED. IT IS APPARENT THAT I N THIS CASE ORIGINAL ASSESSMENT WAS COMPLETED AFTER DUE SCRUTINY. THEREA FTER THE AO NOTICED ON VERIFICATION OF THE AUDIT REPORT THAT CERTAIN PAYME NTS WERE MADE LO RELATED PERSONS ON ACCOUNT OF EARTHWORK AS PER NOTICE DID. 22/6/2006 IT IS APPARENT THAT THE AO STARTED WITH A PRIMA FACIE BELIEF THAT THESE PAYMENTS ARE NOT GENUINE IT IS NOTICED THAT VIDE REPLY DATED 2/8/200 6 ASSESSEE HAD FILED DETAILS 3 ITA NO. 3306/AHD/200 7 OF PERSONS FROM WHOM AFTER DISCUSSION RATES WERE OB TAINED IT IS NOTICED THAT 4 PARTIES HAD SUBMITTED THEIR RATES VIZ. IWS GAURAV C ONTRACTS CO (2) M/S. VIJAY ENGINEERING CO (3) WS V K. PATEL & CO AND (4) DUR GA CONSTRUCTIONS CO. THE RATES QUOTED BY THEM VARIED BETWEEN RS. 12/- PE R CBM TO RS.12.75 PER CBM. THE RATES AT WHICH THE SAME WORK WAS AWARDED T O RELATED PARTIES WAS AT RS.11.75 PER CBM. THUS ON THE FACE OF IT. THE RATE S AT WHICH RELATED PERSONS HAVE BEEN PAID IS LOWER THAN THE RATES QUOTED TO BY UNRELATED PARTIES. THUS PRIMA FACIE IT IS APPARENT THAT THE RATES ARE NOT A T ALL EXCESSIVE. IT IS FURTHER NOTED THAT ASSESSEE HAD FILED LETTERS GIVEN BY THES E PERSONS WHICH SHOWS THAT THESE RATES WERE QUOTED IN THE LIGHT OF DISCUSSIONS BETWEEN THE PARTIES AND THEREFORE IT WAS NOT NECESSARY TO ISSUE ANY TENDER FOR THIS PURPOSE. IT IS ALSO SEEN THAT WORK TO THESE PARTIES WAS AWARDED IN VIEW OF LETTER DTD. 29/04/2001 ISSUED BY GMDC LTD IN WHICH THEY HAD POINTED OUT TH AT COMPLETION OF WORK WAS NOT BEING UNDERTAKEN AS EXPECTED AND THEY WERE ASKED TO ADJUST THE SHORTFALL AND INCREASE THE RATE OF PROGRESS THIS LE TTER WAS ALSO FILED BEFORE THE AO WHILE EXPLAINING THE QUERIES THAT THE ENTIRE WOR K OF CONTRACT WAS AWARDED LO RELATED PARTIES TO COMPLETE THE WORK UNDERTAKEN HURRIEDLY. THIS WAS WITH A VIEW TO THE CONTRACT AWARDED TO THE ASSESSEE. IT IS ALSO SEEN THAT VIDE LETTER DTD. 13/7/2006 THE ASSESSEE HAD REPLIED TO THE AO STATI NG THE FACTS THAT ALL THE RELATED PARTIES WERE ASSESSED TO TAX THEIR P A NUM BER WAS GIVEN AND PROOF OF OWNERSHIP OF MACHINERIES BY THE RESPECTIVE PERSONS WAS ALSO ENCLOSED WHICH WAS IN THE NATURE OF COPIES OF RTO CERTIFICATE. ALL THESE FACTS CLEARLY SHOW THAT THE RELATED PERSONS WERE HAVING NECESSARY EQUIPMENT S TO CARRY OUT THE EARTHWORK AWARDED TO THEM. IT IS ALSO NOTICED THAT THE WORK WAS AWARDED TO THEM IN VIEW OF URGENCY OF THE MATTER BECAUSE GMDG LTD WAS PRESSING HARD FOR EARLY COMPLETION OF WORK IT IS ALSO NOTICED THA T THE RATES AT WHICH THE RELATED PARTIES HAD UNDERTAKEN THE WORK WAS LOWER T HAN THE RATES QUOTED BY UNRELATED PERSONS. IN THESE CIRCUMSTANCES I FIND N O JUSTIFICATION FOR THE ADDITION MADE AND THE SAME IS DELETED. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US SHRI K.M. MAHE SH SR. D.R. APPEARED ON BEHALF OF THE REVENUE AND RELYING ON THE REASONING GIVEN BY THE A SSESSING OFFICER IN THE ASSESSMENT ORDER CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.15 45 573/- MADE BY THE ASSESSIN G OFFICER BY INVOKING THE PROVISIONS CONTAINED IN SECTION 40A(2)(B) OF THE INCOME TAX AC T 1961. 6. ON THE OTHER HAND SHRI S.N. DIVETIA LD. COUNSE L APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). 4 ITA NO. 3306/AHD/200 7 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION MADE BY THE ASSES SING OFFICER AFTER APPRECIATING THE FACTS CORRECTLY AND ON BEING SATISFIED THAT BEFORE THE AS SESSING OFFICER THE ASSESSEE HAS GIVEN COMPLETE DETAILS PAN AND PROOF OF OWNERSHIP OF THE MACHINER IES BY THE RESPECTIVE PERSONS ALONGWITH COPIES OF RTO CERTIFICATE. ALL THESE FACTS CLEARLY INDICATE THAT PERSONS WHO CARRIED OUT THE WORK WERE HAVING NECESSARY EQUIPMENTS TO CARRY OUT EARTH WORK. IN OUR OPINION THE ASSESSING OFFICER MADE THE ADDITION ON DOUBTS AND SUSPICION AND LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN DELETING THE SA ME. WE THEREFORE DECLINE TO INTERFERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS ). 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 02.07.2010 . SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02/ 07 /2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.