ACIT, Gwalior v. M/s Lakhpat singh contractor, Gwalior

1 ITA 650-08 IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH : AGRA. ( BEFORE SHRI R.K. GUPTA AND SHRI P.K. BANSAL ) ITA NO. 650/AG./2008 ASSTT. YEAR : 2005-06. THE ACIT CIRCLE-III VS. M/S. LAKHPAT SINGH CON TRACTOR GWALIOR. 39 SHIVAJI NAGAR GWALIOR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.C. SHARMA JR. D/R RESPONDENT BY : SHRI K.C. AGARWAL ADV OCATE ORDER PER R.K. GUPTA J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) GWALIOR RELATING TO ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON T HE BUSINESS OF CIVIL CONTRACTOR IN GOVERNMENT AND SEMI GOVERNMENT DEPARTMENTS. THE ASS ESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 8 16 913/- AGAINST TH E GROSS RECEIPTS FROM THE VARIOUS GOVERNMENT DEPARTMENTS. REGULAR BOOKS OF ACCOUNT HA VE BEEN MAINTAINED ALONG WITH BILLS VOUCHERS ETC. AND THEY ARE AUDITED ALSO. AG AINST THE DECLARED INCOME THE ASSESSMENT WAS COMPLETED ON A FIGURE OF RS. 43 00 7 48/-. CERTAIN ADDITIONS WERE MADE ON ACCOUNT OF TDS NOT DEDUCTED AND ON ACCOUNT OF DI SALLOWANCE UNDER SECTION 40A(3) ON ACCOUNT OF DISALLOWANCE OF PENAL CHARGES RECOVERED BY THE DEPARTMENT ON ACCOUNT OF 2 INTEREST INCOME ON INTEREST FREE LOANS ON ACCOUNT OF UNEXPLAINED CASH CREDIT ON ACCOUNT OF SUPPRESSED OF PURCHASES AND ON ACCOUNT OF DISALL OWANCE OF VARIOUS EXPENSES. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT (A) WH O ALLOWED THE APPEAL OF THE ASSESSEE IN PART. THE DEPARTMENT HAS FILED APPEAL AGAINST T HE ORDER OF LD. CIT (A) RAISING FOUR GROUNDS OF APPEAL. 3. NOW THE APPEAL OF THE DEPARTMENT IS DISPOSED OFF IN THE FOLLOWING MANNER. 4. FIRST GROUND OF APPEAL RELATES TO DELETING THE A DDITION OF RS. 8 02 942/- MADE BY ASSESSING OFFICER ON ACCOUNT OF PENAL CHARGES PAID. 5. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD CLAIMED DEDUCTION OF RS. 8 02 942/- ON ACCOUNT OF PENAL CHARGES RECOVERED BY M.P.R.R.D.A.P.I.U. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED THAT THEY ARE NOT PENAL IN NATURE BUT ON ACCOUNT OF DELAYED WORK. ACC ORDINGLY THE EXPENSES CLAIMED WERE DISALLOWED. IT WAS SUBMITTED BEFORE THE LD. CIT (A) THAT THE ABOVE SAID PENAL CHARGES WERE RECOVERED BY THE DEPARTMENT DUE TO NON-COMPLET ION OF WORK IN TIME GIVEN AND DUE TO UNAVOIDABLE CIRCUMSTANCES. IT WAS FURTHER SUBMI TTED THAT WHERE PENALTY INCURRED BY AN ASSESSEE WHICH IS AN OFFENCE OR WHICH IS PROHIBITE D BY ANY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR P ROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDIT URE. HOWEVER THE ABOVE STATED AMOUNT DOES NOT FALL IN THE CATEGORY OF PENALTY LEV IED ON ACCOUNT OF CONTRAVENTION OF ANY SPECIFIC STATUTORY PROVISION. IT WAS SUBMITTED THA T SUCH EXPENSES ARE ALLOWABLE UNDER SECTION 37(1) OF THE ACT. RELIANCE WAS PLACED ON VA RIOUS CASE LAWS MENTION IN THE ORDER OF LD. CIT (A) AT PAGE 3. AFTER CONSIDERING THE SU BMISSIONS AND VARIOUS CASE LAWS THE LD. CIT (A) WAS OF THE VIEW THAT THE AMOUNT PAID BY ASS ESSEE TO VARIOUS DEPARTMENTS IS NOT 3 PENAL IN NATURE AND THE SAME IS ALLOWABLE UNDER SEC TION 37. ACCORDINGLY HE DELETED THE ADDITION. 6. THE LD. D/R PLACED RELIANCE ON THE ORDER OF ASSE SSING OFFICER PART OF THE ORDER WAS READ ALSO. 7. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE P LACED RELIANCE ON THE ORDER OF LD. CIT (A). FURTHER RELIANCE WAS PLACED ON THE WRITTEN SUBMISSIONS FILED BEFORE LD. CIT (A) AND VARIOUS CASE LAWS COPIES OF WHICH ARE PLACED O N RECORD. 8. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD WE FIND NO INFIRMITY IN THE FINDING OF THE LD. CIT (A) WHO HEL D THAT THE ASSESSEE FIRM HAS NOT CONTRAVENED ANY LAW OR STATUTORY PROVISION. THE PEN ALTY HAS BEEN RECOVERED DUE TO THE FACT THAT THE TERMS AND CONDITIONS OF THE CONTRACT HAS NOT BEEN FULFILLED. THE COPY OF CERTIFICATE OBTAINED FROM THE ABOVE SAID DEPARTMENT WAS ALSO EXAMINED BY LD. CIT (A) AND THEREAFTER THE DISALLOWANCE WAS DELETED. THIS FINDING OF LD. CIT (A) REMAIN UNCONTROVERTED. ACCORDINGLY WE CONFIRM HIS ORDER I N THIS REGARD. 9. SECOND GROUND RELATES TO ALLOWING RELIEF OF RS. 18 76 799/- MADE BY ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED CASH CREDIT. 10. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSIN G OFFICER NOTICED THAT THERE IS CREDIT BALANCE IN THE NAME OF VARIOUS PARTIES. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE OF THIS AMOUNT. IT WAS EXPLAINED THAT THESE ARE PETTY CONTRACTOR AND THE AMOUNT IS OUTSTANDING ON ACCOUNT OF WORK DONE BY THEM. IT WA S ALSO SUBMITTED THAT THE OUTSTANDING AMOUNT IS OLD ONE. CONFIRMATIONS OF THESE PARTIES W ERE ALSO FILED. HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED. IN HIS VIEW T HE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF THE AMOUNT. ACCORDINGLY HE TREATED THE A MOUNT AS UNEXPLAINED CASH CREDIT AND 4 ADDITION OF RS. 18 76 799/- WAS MADE. CONTENTIONS RAISED BEFORE THE ASSESSING OFFICER WAS REITERATED BEFORE THE LD. CIT (A). THE DETAILS OF OPENING BALANCE AND TRANSACTIONS MADE DURING THE YEAR AND CLOSING BALANCE AND SUNDRY CLAIMS WERE ALSO FILED. RELIANCE WAS PLACED ON VARIOUS CASE LAWS MENTIONED IN THE OR DER OF LD. CIT (A) AT PAGES 5 & 6. 11. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD THE LD. CIT (A) FOUND THAT MAJOR PORTION OF OUTSTANDING AMOUNT IS CARRIED FORWARD FROM EARLIER YEAR. IT WAS FURTHER SEEN THAT ONLY A WORK OF RS. 3 11 81 0/- WAS DONE DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER FOUND BY LD. CIT (A) THAT IN SUBSEQUENT YEAR THE AMOUNT HAS BEEN PAID TO THE RESPECTIVE CREDITOR. ACCORDINGLY THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED. 12. THE LD. D/R PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE LD. CIT (A). 13. AFTER CONSIDERING THE SUBMISSIONS WE FIND THAT LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. OUT OF RS. 18 76 799/- SUM OF RS. 16 59 719/- IS CARRIED FORWARD FROM EARLIER YEAR. DURING THE YEAR THE PARTICULAR WORK WAS GOT DONE FROM THESE RESPECTIVE CONTRACTORS AT RS. 3 11 810/- AND A SUM OF RS. 95 000/- WAS PAID DURING THE YEAR AND THE REMAIN AMOUNT WAS OUTSTANDING. CO NFIRMATIONS FROM RESPECTIVE PARTIES WERE ALSO FILED THAT THE AMOUNT OUTSTANDING IN THE BOOKS OF ACCOUNT IS ON ACCOUNT OF PARTICULAR CONTRACT WORK DONE BY THEM. TRADING ACC OUNT OF THE ASSESSEE HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THEREFORE IN OU R CONSIDERED VIEW THE AMOUNT OUTSTANDING ON ACCOUNT OF CONTRACT WORK DONE BY VAR IOUS PARTIES CANNOT BE TREATED AS UNEXPLAINED CASH CREDIT. THE LD. CIT (A) WAS JUSTI FIED IN HOLDING THAT THIS IS NOT A CASH 5 CREDIT BUT OUTSTANDING ON ACCOUNT OF CONTRACT WORK DONE BY VARIOUS PARTIES. ACCORDINGLY WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. 14. NEXT GROUND RELATES TO ALLOWING RELIEF OF RS. 1 45 680/- ON ACCOUNT OF UNACCOUNTED PURCHASES IN ITS BOOKS OF ACCOUNT. 15. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSIN G OFFICER NOTED THAT PURCHASES WORTH RS. 1 45 680/- HAVE NOT BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. ACCORDINGLY HE MADE THE ADDITION OF THIS AMOUNT. IT WAS SUBMIT TED BEFORE LD. CIT (A) THAT MATERIAL WORTH RS. 1 45 680/- WAS RECEIVED BY THE ASSESSEE A T THE FAG END OF THE YEAR AND THE BILL WAS RECEIVED IN SUBSEQUENT YEAR. THE PURCHASES HAVE BEEN ENTERED IN THE BOOKS OF ACCOUNT IN THE SUBSEQUENT YEAR. IT WAS FURTHER SUBM ITTED THAT NO DEDUCTION ON ACCOUNT OF DEDUCTION HAVE BEEN CLAIMED IN THE YEAR UNDER CONSI DERATION. THEREFORE DISALLOWANCE MADE BY ASSESSING OFFICER IS NOT JUSTIFIED. THE LD. CIT (A) WAS SATISFIED WITH THE CONTENTION OF THE LD. A/R. ACCORDINGLY HE DELETED THE ADDITION. 16. AFTER CONSIDERING THE ORDERS OF ASSESSING OFFIC ER AND LD. CIT (A) WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A). THE PURC HASES HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOUNT IN SUBSEQUENT YEAR. THIS FACT WAS ASCERTAINED BY LD. CIT (A). THEREFORE IN OUR CONSIDERED VIEW THE ASSESSING OFFICER WAS N OT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) WHO HAS DELETED THE ADDITION. 17. THE REMAINING GROUND IS AGAINST ALLOWING THE RE LIEF OF RS. 2 LACS ON THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANC E OF VARIOUS EXPENSES. 18. THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 2 85 000/- ON ACCOUNT OF BRICKS METAL SAND HIRE CHARGES SALARY TO SITE STAFF WA GES TO LABOUR SALARY TO STAFF SITE 6 EXPENSES ETC. THE LD. CIT (A) AFTER EXAMINING THE D ETAILS AND VOUCHERS OF THE RESPECTIVE EXPENSES FOUND THAT THE DISALLOWANCE MADE BY THE AS SESSING OFFICER IS ON HIGHER SIDE. ACCORDINGLY HE DELETED THE ADDITION OF RS. 2 LACS. AND THE REMAINING ADDITION OF RS. 85 000/- WAS CONFIRMED. 19. AFTER CONSIDERING THE ORDERS OF THE ASSESSING O FFICER AND LD. CIT (A) ON WHICH RELIANCE HAS BEEN PLACED BY THE RESPECTIVE PARTIES WE FIND THAT LD. CIT (A) WAS REASONABLE IN ALLOWING THE GROUND IN PART. THE SAI D DISALLOWANCES HAVE BEEN MADE BY THE ASSESSING OFFICER ON THE GROUND THAT SOME OF THE EX PENSES LIKE PURCHASE OF BALLI/BATTE ETC. ARE NOT VERIFIABLE. THE LD. CIT (A) HAS OBSERV ED THAT ASSESSEE IS A CONTRACTOR WHERE SUCH EXPENSES ARE INCIDENTAL TO THE BUSINESS. HOWEV ER HE SUSTAINED SOME OF THE ADDITIONS BY OBSERVING THAT PROPER AND REGULAR VOUCHERS FOR S OME OF THE EXPENSES HAVE NOT BEEN MAINTAINED BY ASSESSEE. ACCORDINGLY THE GROUND OF THE ASSESSEE IS PARTLY ALLOWED. AS STATED ABOVE THE LD. CIT (A) WAS REASONABLE IN ALL OWING THE GROUND OF APPEAL. THEREFORE WE CONFIRM THE ORDER OF THE LD. CIT (A) ON THE REAS ONING GIVEN BY HIM WHICH REMAINED UNCONTROVERTED AT THE END OF THE DEPARTMENT. 20. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DISMISSED. 21. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 .04.2010 SD/- SD/- ( P.K. BANSAL ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AGRA DATED : 26/04/2010. D/- 7 COPY FORWARDED TO :- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A) CONCERNED. THE D/R ITAT AGRA. GUARD FILE (ITA 650/AG/2008) BY ORDER AR ITAT AGRA.