IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI Before Shri Sanjay Garg, Judicial Member, and Shri Ashwani Taneja, Accountant Member ITA NO.3719/Mum/2013 Assessment Year: 2008-09 ACIT 25(2) Shri Rajiv R. Ahuja, C-11 Pratyakshkar Prop. M/s. Engineers, 301, Bhavan, Bandra Kurla Dora Rose, Main Road, Vs. Complex Bandra (E) I.C. Colony, Borivali(W) Mumbai-51 Mumbai-400103 (Revenue) (Respondent) P.A. No. AADPA6445J Revenue by Shri B.S. Bist (Sr. DR) Respondent by None / Date of 03/10/2016 Hearing : Date of Order: 19/10/2016 ORDER Per Ashwani Taneja (Accountant Member): This appeal has been filed by Revenue against order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 35,{(in short CIT(A) }, dated 19.02.2013 passed against assessment order u/s 143(3) read with section 254 of 2 Rajiv R. Ahuja Income Tax Act, 1961 dated 28.12.2010 for Assessment Year 2008-09 on following grounds: On facts and in circumstances of case and in law, ld.CIT(A) erred in deleting ad-hoc disallowance @ 2.5% out of expenses amounting to Rs.81,13,640/-, on which A.O. had made addition, following decision of Id.CIT(A) for earlier A.Ys." "On facts and in circumstances of case and in law, ld.CIT(A) erred in deleting addition of Rs. 40,05,445/- out of subcontract charges without appreciating fact that assessee failed to prove identity and complete details of sub-contractors to whom payments were made. 2. In this case none appeared on behalf of assessee. On earlier occasions also, none had appeared on behalf of assessee, despite fact that notices are served. Under these circumstances, we have no option but to decide this appeal ex- parte qua assessee. 3. Ground No.1: In this ground, revenue has challenged action of Ld. CIT(A) in deleting ad-hoc disallowance @ 2.5% out of various expenses aggregating to Rs.81,13,640/-. 3.1. brief facts and background of case is that assessee is proprietor of M/s. M.S. Engineers engaged in business of Civil Construction. During course of hearing AO inter alia made disallowance on ad hoc basis computed @ 2.5% of various expenses incurred on conveyance, gift, sales promotion, staff/labour welfare, traveling expenses, printing & stationary and miscellaneous expenses aggregating to Rs.81,13,640/-. 3 Rajiv R. Ahuja 3.2. Being aggrieved, assessee filed appeal before Ld. CIT(A) wherein detailed submissions were filed inter-alia that there were no cogent basis with AO to make disallowance on ad-hoc basis. After considering submissions of assessee, Ld. CIT(A) deleted disallowance by observing as under: Ld. AR submitted that payments of expenses were made by account payee cheques, wherever possible. disallowance of expenses, especially those of payments made by cheque, cannot be arbitrary and random. Further, appellant had already provided substan tive evidences in f orm of vouchers and other document in support of incurrence of above mentioned expenditure and p r o d u c e d b o o k s of ac c o u n ts . It is f ur th e r se e n th t th e r e is n o description of books of accounts or bills/vouchers which were seen by AO where discrepancies were observed or where there was lack of proper voucher or bill. There is no mention of any relevant fact in appellant's case except for AO's observation that some expenditure was not supported by proper vouchers or bills. In absence of relevant facts, discrepancies or improper recording of expenditure is neither ascertainable nor evidenced. In circumstances, disallowance of R s. 2 , 0 2 , 84 1 / - mad e by th e AO is not su s tain ab le . T h e L d . . R contended that vouchers can once again be produced. Furthermore, personal expenses of Rs. 52,94,221/- are already debited to capital account as drawing. He further submitted that similar disallowance made by AO in AY 2007-08, were deleted by CIT(A) vide order dated 05-11-2012. In this case CIT (A) had stated that these were ad-hoc disallowance without pointing out any specific deficiency by A.O. AR further referred to also been considered in case of CREATIVE EYE LIMITED Vs. ACIT-11(1) for A.Y. 2007-08, where CIT (A)-30,Mumbai has provided that Assessing Officer cannot 4 Rajiv R. Ahuja disallo w expenses on ad-hoc basis stating them to be personal in n tu r e , wi th o u t l o o k i n g in t o th e f ac ts , c i r c u m s t c e s d th e explanations given by assessee. Hence, AR submitted that said expenses should be deleted. 6.3 After considering rival stands, it is seen that AO did not consider that to earn income there has to be expenditure like electricity expenses, conveyance, staff welfare travelling expenses etc. & that said expenditure should be allo wed against income. From Vouchers, bills & supporting, it was not found that particular expenses under various heads were not supported by proper vouchers & bills to extent of Rs.2,02,841/- & even this was disallowed. To my mind it is ad-hoc disallowance without pointing out any specific deficiency by AC. Hence addition of Rs. 2,02,841/- and Rs. 142912/- of telephone expenses is deleted. 3.3. During course of hearing nothing has been argued by Ld. DR to show anything wrong in detailed findings of Ld. CIT(A). No arguments were made with regard to this ground and only reliance was placed upon order of AO. We find that order of Ld. CIT(A) is well reasoned and based upon factual appreciation of this case. Nothing wrong has been pointed before us and therefore order of Ld. CIT(A) on this ground is upheld. This ground is dismissed. 4. Ground No.2: In this ground, assessee has challenged action of Ld. CIT(A) deleting addition of Rs. 40,05,445/- out of subcontract charges, on ground that this could not be verified properly. 4.1. Being aggrieved, assessee filed appeal where these disallowance made by AO was deleted by Ld. CIT(A). 5 Rajiv R. Ahuja 4.2. Being aggrieved, Revenue filed appeal before us. During course of hearing, it was submitted by Ld. DR that since AO could not verified sub-contractors, therefore, these were rightly disallowed and requested for confirming order of AO. 4.3. We have gone through orders passed by lower authorities. It is noted by us that Ld. CIT(A) had made detailed verification before deleting disallowance made by AO with following observations: 8.7. I have considered stand of AO as well as submissions of appellant. I have also gone through remand report of AO on specif ic issues which were ref erred to him during remand proceedings. In remand report AO, has basically reiterated earlier stand taken by AO. It is further seen that no specific adverse comments/objections have been raised in remand of AO in respect to admissibility of any details or documents or otherwise with regard to Rule 46A of I.T. Rule, 1962. Keeping in view all aspects, issue regarding ad-hoc disallowance of Rs.40,05,445/being 10% of Rs. 4,00,54,448/- on account of sub contrac t labour charges is decided hereinafter. It has been brought on record that no show cause notice was issued to appellant by AO and no re aso nable oppor tunity of being heard f or such huge ad-hoc disallowance was given. It has been demonstrated by appellant that Assessing off icer has passed order on 28 t h December, 2010 disallowing payment to subcontractor without giving any reasonable opportunity. Last time case was fixed for hearing by AO was on 28-12-2010. It has been explained by AR that he was present in office of AO who was busy with other time barring maters and was called in his chamber only at 6.00 P.M. and thereafter 6 Rajiv R. Ahuja did not take any further hearing. Therefore AO requested for adjournment in writing and requested to be heard on immediate next day if AO does not wish to extend time of hearing on same date i.e. 28-12-2010 beyond 6.00 P.M. AR has shown copy of letter for adjournment where AO under his signature has mentioned "received at 6.00 P.M. letter for adjournment, but received af ter officer hours, so no adjournment will be given and order will be passed on merits". AR submitted before me that assessing officer himself had accepted submission personally on 29/12/2010 submitted by AR for relevant A.Y. even though assessment order under appeal is dated 28-122010. It is further seen that although AO had issued notices u/s.133(6) to five parties viz. Najimuddin Yadu Mandal(1,83,273/-), Jai Prakash(1,18,752/-), Ramkirit Shah (1,14,170/-), Santosh Kumar Singh (5,02,726/-) and Chabbi Behra(2,59,940/-) which total upto only Rs.11,78,861//-- However AO disallowed 10% on ad-hoc basis without giving any specific finding, reasoning, or commenting on any particular reason. It has been explained that no such disallowance was and has been made in any previous as well as subsequent assessment year on this ground where all assessment has been completed by all competent, Income Tax officer u/s 143(3) of I.T. Act,1961. Another aspect relates to Subcontractor charges paid for contract receipt for A.Y. which is far less compared to what was paid in previous years in term of percentage as major part of cost. These are as under: Sr. Asst. Contract Subcontractor Percentage NO. Year receipt(Rs.) Charges(Rs.) 1 2005-06 26,96,99,746 3,63,41,272 13.47% 2 2006-07 45,96,93,142 9,07,07,386 19.73% 3 2007-08 48,08,81,945 9,02,37,267 18.76% 4 2008-09 43,57,40,094 4,00,54,448 9.19% Thus it is seen that in terms of percentage appellant's expenses on subcontract labour charges was comparatively at quite lower side being 9.19 % in AY 7 Rajiv R. Ahuja 2008-09 compared to 19.73% in AY 2006-07. Even in absolute term payment of Rs.4.00 crores on total contract receipt of Rs.43.57 crores is at lower side compared to Rs.9.07 crore in Y 2006 -07 . T hus h is to r ic ally sp e ak in g , wi th n o s tr e tc h of imagination, payment towards labour subcontract charges can be said to be unreasonable in present assessment year. Therefore in this situation making any adhoc disallo wance by AO in assessment order was not justified. It is further seen that all parties to whom labour charges were paid, were subject to TDS by appellant and sum of tax deducted at source were deposited as per law by appellant. It has been explained copies of TDS return were also produced before AO. This being case AO could not have disallowed payment either on ad-hoc basis or even on absolute and specific basis. At best AO could have informed concerned jurisdictional AOs of those parties to do needful at their end. Undisputedly, none of contractor's balances are outstanding nor AO has made any such reasoning for disallowance. appellant has submitted that parties were paid by account payee cheques as per bank statement submitted bef ore AO which is matter of record. Subcontractors were paid on basis of bills received from all parties. Thus in situation where amounts were paid by appellant to respective parties through banking channel and where payments/transactions are complete and over, appellant can neither be subjected to produce those parties or force to give whereabouts of labour subcontractor since they are not supposed to stick to only one client and keep on moving from one client to other. Further, such labour contractor can also be on mobile and move from work place to another without giving any information to its principle contractor. Therefore issuance of notice u/s.133(6) to such parties were not in right direction. AO has not brought any material on record to prove that whatever amount was paid to these labour contractors, they are ultimately return to 8 Rajiv R. Ahuja appellant in form of cash and thereby net profit of appellant increased to that extend of amount and corresponding ratio. Therefore, even from aspect disallowance made by AO cannot be sustained. Keeping in view of, all aspects, disallowance of Rs.40,05,445/- is deleted. In result this ground of appellant is allowed. 4.4. It is noted by us that Ld. CIT(A) had sent entire details and evidences submitted by assessee to AO for his Remand Report. Remand Report was sent by AO which was duly considered by Ld. CIT(A). It is noted that assessee has submitted various documentary evidences with regard to aforesaid creditors e.g. copy of PAN Card, bills receipts, copy of bank statement and confirmation of accounts etc. It is undisputed that PAN Card Numbers of these persons were made available to AO. It is also not disputed that TDS was deducted on all payments as applicable. It is also not disputed that payments were made through account payee cheques. There is no contrary material available with AO to negate these transactions. It is also noted by us that ratio of subcontractor charges paid by assessee to total contract amount received during year was 9.19% which is lowest as compared to all preceding years. Thus, viewed from any angle these expenses were duly substantiated and explained by assessee. It is found that findings given by Ld. CIT(A) are well reasoned and based upon material available on record. Nothing wrong could be pointed out therein by Ld. DR. Under 9 Rajiv R. Ahuja these circumstances, we uphold order of Ld. CIT(A). Ground no.2 is dismissed. 5. In result, appeal of Revenue is dismissed. Order pronounced in open court on 19th October, 2016. Sd/- Sd/- (Sanjay Garg ) (Ashwani Taneja) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 19 /10/2016 Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT, Mumbai. 4. CIT(A)- , Mumbai 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// / (Dy./Asstt. Registrar) ,ITAT, Mumbai ACIT-25(2), Mumbai v. Rajiv R. Ahuja