2018 (3) TMI 2006 - AT - Income Tax

Bogus work payment expenses - bogus excavation charges - During the course of the survey u/s. 133A statement of Shri Rajesh Agrawal was recorded who offered an amount on account of bogus trade creditors as his undisclosed income for the year under consideration - HELD THAT - The work contract payments made to 8 persons are duly supported by respective bills furnished by them and so also excavation work done by Saumya Mining Company. The recipients of the work contract have shown their income in their respective return filed on presumptive taxation basis u/s. 44AD of the Act. The contention of the A.O. that the recipients are not maintaining any details is ill-founded because of the immunity granted u/s. 44AD of the Act. The recipients are not obliged to maintain any books of accounts if they return their profit u/s. 44AD of the Act. Further the income of Saumya Mining Ltd. has been accepted as such in its assessment framed u/s. 143(3) of the Act. In our considered opinion when the contract receipts of the assessee has been accepted in toto. We fail to understand if the assessee has not incurred these expenditures then how could it execute the contract work allotted to it. Also as the books of accounts of the assessee are audited and the A.O. has not pointed out any defect in the books of accounts of the assessee. More importantly the allegation that the assessee s gross profit and net profit have substantially reduced during the year is also not correct. Assuming yet not accepting these expenditures are bogus then the profit of the assessee would be higher by Rs. 10 crores which would make the gross profit around 25% which is not conceivable in this line of business. Decided against revenue.

Summary

Issues:
1. Deletion of disallowance of work payment expenses.
2. Deletion of disallowance of excavation charges.

Deletion of disallowance of work payment expenses:
The Revenue appealed against the deletion of disallowance of Rs. 2,13,94,500 made by the Assessing Officer (A.O.) on account of alleged bogus work payment expenses. The A.O. disallowed the amount based on the relationship between the payees and the director of the assessee company. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the A.O. wrongly calculated the profit rate and deleted the disallowance. The CIT(A) noted that the A.O. did not provide any evidence to reject the expenditure claims. The Tribunal observed that the A.O. did not invoke Section 40A(2)(b) and failed to prove any discrepancies in the books of accounts. The Tribunal concluded that the payments were supported by bills and the recipients had shown income in their returns under Section 44AD. The Tribunal dismissed the Revenue's appeal, emphasizing that the A.O. lacked substantial grounds for disallowance.

Deletion of disallowance of excavation charges:
The Revenue also contested the deletion of disallowance of Rs. 7,96,72,605 for alleged bogus excavation charges paid to Saumya Mining Limited. The A.O. disallowed the amount, suspecting reduced profits due to these expenses. However, the CIT(A) found discrepancies in the A.O.'s profit rate calculation and accepted the assessee's contentions. The Tribunal noted that the payments were supported by details of work done and bills submitted. The Tribunal highlighted that the recipients' income was accepted under Section 44AD. Moreover, the Tribunal found no defects in the audited accounts of the assessee and refuted the claim of reduced profits. The Tribunal analyzed the profitability data, concluding that even if the expenses were bogus, the profit increase claimed by the Revenue was implausible. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In both issues, the Tribunal scrutinized the A.O.'s reasoning, the CIT(A)'s findings, and the evidentiary support for the expenditure claims. The Tribunal emphasized the lack of substantial grounds for disallowance and upheld the CIT(A)'s decisions based on the evidence presented. The Tribunal's detailed analysis and comparison of financial data reinforced the dismissal of the Revenue's appeals.