Case Law Details
Learned AR contended that the assessee incurred labour cost in executing works contracts (pertaining to road strengthening and preventive maintenance and repairs) awarded by Effluent Channel Project (ECPL) for GIDC through competitive and totally transparent bidding process. These are labour oriented work. It was pointed out that similar work has been carried by the assessee from the assessment years 1999-2000 to assessment year 2004-05 and always the assessee has incurred the labour charges were never disallowed except in the impugned assessment year.
The chart showing the labour charges against the ECPL was also filed. The bills submitted by the assessee are prepared in detail and are thoroughly checked by the technical staff of ECPL and therefore, the payments is fully paid to the assessee. Since the assessee did not have sufficient fund to pay the labour charges, it took loan from Jay Panchmahal Co- operative Credit Society Ltd (JPC). This loan was repaid by the assessee subsequently, then the funds were transferred to the account of the various sub-contractors through the account of Shri Kamlesh Parmar. The assessee did not pass any entry at the time of labour expenses were incurred on the advice of the Accountant. The entries were passed by issuing the entries against the various contractors ultimately the amount has come back to the account of Shri K I Parmar. The assessee has taken the loan from Jay Panchmahal Co- operative Credit Society Ltd (JPC) is apparent from pages 127 to 132 that the funds have been utilized for the payment of loan in this bank account from Jay Panchmahal Co-operative Credit Society Ltd (JPC) is apparent from the findings of the AO given at page 13 of the assessment order totaling loan was Rs.20,85,000/-. This clearly shows that the loan was a short term loan only to bridge the gap between the incurring of the labour expenses and the receipt money from ECPL after submission of the bills. Our attention was drawn to page 13 in which the details of the payment of loan and loan taken and it was paid to the sub-contractor and again given to the assessee. The AO mistakenly taken that this fund has come to the bank account but the fact is that the funds has given to the loan account of assessee. No new assets, or investment were acquired by the assessee neither has incurred new personal expenses. The books of account of the assessee were not rejected by the AO. The AO without establishing that the assessee has incurred actual expenses towards labour payment for ECPL has disallowed whole of the expenses . He took us to page 123 of the paper book and pointed out that except this year the assessments were completed u/s 143(3) for the assessment year 2004-05 and 2005-06 and no disallowance was made. The details of all the labour expenses as well as contract from ECPL were also filed before us. It was vehemently stated since contract is labour oriented it cannot be carried without the help of labour force. If the AO is of the view that the assessee has not incurred the labour expenses, he should have also excluded labour receipt. Referring to page 123 of the paper book it was pointed out that the net profit earned in the business of the assessee in the assessment year ranging from 6% to 9% and if the disallowance is adequate to profit the revised net profit would be 23.27% which is very high and in fact unattainable, keeping in view the nature of the business of the assessee. Alternatively it was submitted that since the profit could be estimated at the 8% of the turnover according to the provisions of section 44AD of the Act. The reliance was also placed by the learned AR on the following decisions :
- Dabros Industrial Co.(P.)Ltd. V. CIT 108 ITR 424 ( Cal.)
- Gemini Pictures Circuit Ltd. V. CIT 33 ITR 547 ( Mad.).
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