2019 (11) TMI 26 - AT - Income Tax

Bogus sub-contract payments - contention of the assessee that the cash was in fact handed over to the respective sub-contractor and utilized by them in executing the work - HELD THAT - In absence of any proof that assessee has utilized the same for any purpose other than the sub-contract business we are inclined to accept the contention of the assessee that the cash was in fact handed over to the respective sub-contractor and utilized by them in executing the work. It is not the case of revenue that assessee has not completed the contract work which was allocated to sub-contractors but for the cash management of the sub-contractors requirement the whole sub-contract payments were disallowed. But as per records assessee has executed the works assigned to sub-contractors and got the compensation. We further observe that Ld CIT has not confirmed the addition based on any evidence of utilization of cash only by assessee but heavily relied on the human probabilities and presumptions. Since there is certain element of uncertainty in utilization of such funds only in the sub-contract activities we are inclined to direct the A.O for the sake of justice to disallow 5% of the total cash withdrawn by the sub-contractor with the assistance of assessee. Further we propose to freeze the income earned by the sub-contractor @ 5% as the normal profit in this line of business. By this we are technically upholding 10% of the sub-contract revenue as income. Accordingly grounds raised by the assessee on this issue are partly allowed. Deduction u/s 80IA denied - returns were not filed within the period specified in the notice given u/s 153A - assessee filed a revised return on 6.2.2014 making a claim u/s 80IA - AO held that the return filed u/s 153A was not a valid return because it was filed belatedly and further that the AO did not have the power to condone the delay - AO held that the fresh claim u/s 80IA made in the revised return filed u/s 153A of the Act on 14.02.2013 is therefore not entertainable as a revised return is not provided for under Chapter VIA of the Act. - HELD THAT - CIT (A) has brought out the project-wise details of net profit transferred to the income computation which is claimed as a deduction u/s 80IA in the form of a table. Thereafter he has directed the AO to evaluate the credentials of the contractor as a developer with reference to the specific facts of each contract where such claim is made and also directed the assessee to provide all the necessary details to the AO. CIT (A) also observed that section 80IA(4)(i)(b) requires that the development of infrastructure facility should be pursuant to an agreement entered into by the assessee with the Central Govt./State Govt./local authority/any other statutory bodies. After verifying the information furnished in the table the CIT (A) observed that some of these agreements are prima facie not with the Govt. or any other such authority but are with private parties such as Ratna Infrastructure Projects Pvt Ltd or IVRCL-SSIL JV etc. and therefore the claim with regard to such contracts is not allowable. AO was accordingly directed to make appropriate quantification. We find that the CIT (A) has brought out the facts properly and the DR was not able to rebut any of these findings of the learned CIT (A) without any audience to the contrary. No reason to interfere with the order of the CIT (A) on this issue. Revenue s appeals are accordingly dismissed. Estimation of income on protective basis @ 12.5% on the alleged sub-contract receipts by the AO - HELD THAT - CIT(A) has confirmed the addition based on human probabilities and presumptions and not relying on any material on record. The revenue declared by sub contractors is to be treated as income from business and the income from main contract in this line of business the Hyderabad benches have treated 8% as normal for sub contract business it was at 5%. Respectfully following the same we direct the AO to estimate the income of sub-contractors @ 5% and any sub-contractors who had declared the income in excess of 5% the same may be treated as income from this business. Accordingly In all the appeals grounds raised by assessees are partly allowed Penalty u/s 271B - failure to comply with the provisions of section 44AB - HELD THAT - The assessee filed the return of income belatedly but before the search proceedings for the assessment years under consideration AY 2008-09 AY 2009-10 and AY 2010-11. The assessee made available the relevant audit report at the time of assessment this is clearly evident from the fact that the audit had taken place before the date of filing return of income and the same was within the provisions of sec 44AB. With regard to AY 2011-12 the assessee has not completed the books and proper books are not maintained even though the turnover crossed the prescribed limit requiring the assessee to get its accounts audited. Since it is clear violation of section 44AB we are inclined to sustain the addition made by the AO. Accordingly the appeals filed by the assessee for the AY 2008-09 2009-10 and 2010-11 are allowed and for AY 2011-12 is dismissed.

Summary

Issues Involved:
1. Disallowance of expenditure claimed as payments to sub-contractors.
2. Rejection of claim of deduction under section 80IA.
3. Validity of returns filed in response to notice under section 153A.
4. Penalty under section 271B for failure to get accounts audited.

Detailed Analysis:

1. Disallowance of Expenditure Claimed as Payments to Sub-Contractors:
The assessee recorded expenditures claimed to be payments to sub-contractors. The Assessing Officer (AO) identified significant improbabilities in these expenditures, noting that the sub-contractors lacked the credentials to execute the work. The AO disallowed the payments made to various entities, concluding that the transactions were not genuine. The assessee argued that the sub-contractors executed the work, acknowledged the receipts in their returns, and that the payments were made through banking channels with tax deducted at source (TDS). The CIT(A) upheld the AO's disallowance, noting that the employees of the assessee company withdrew the cash from the bank accounts of the sub-contractors, which cast doubt on the genuineness of the transactions.

2. Rejection of Claim of Deduction Under Section 80IA:
The AO rejected the assessee's claim for deduction under section 80IA, stating that the claim was made for the first time in the revised returns filed in response to notice under section 153A, which was not permissible. The CIT(A) allowed the claim, directing the AO to evaluate the credentials of the contractor as a developer with reference to the specific facts of each contract. The CIT(A) noted that some agreements were not with the government or statutory bodies, thus not qualifying for the deduction.

3. Validity of Returns Filed in Response to Notice Under Section 153A:
The AO held that the returns filed in response to notice under section 153A were invalid as they were filed belatedly. The CIT(A) disagreed, stating that the returns filed beyond the prescribed time could still be considered valid for assessment purposes, though the assessee might face consequences such as interest, penalty, and prosecution for the delay. The Tribunal upheld this view, stating that the returns filed in response to notice under section 153A should be treated as returns filed under section 139(1).

4. Penalty Under Section 271B for Failure to Get Accounts Audited:
The AO levied penalties under section 271B for the assessee's failure to get its accounts audited as required under section 44AB. The assessee argued that the audit reports were obtained and filed along with the returns, though belatedly. The CIT(A) upheld the penalties, noting that the audit reports were not furnished to the AO by the prescribed date, thus constituting non-compliance with section 44AB. For AY 2011-12, the CIT(A) found no credible explanation for the failure to maintain proper books of account.

Conclusion:
- The Tribunal partly allowed the assessee's appeals regarding the disallowance of sub-contract payments, directing the AO to disallow 5% of the total cash withdrawn by the sub-contractors with the assistance of the assessee.
- The Tribunal upheld the CIT(A)'s decision to allow the claim of deduction under section 80IA, directing the AO to evaluate the credentials of the contractor.
- The Tribunal agreed with the CIT(A) that the returns filed in response to notice under section 153A were valid for assessment purposes.
- The Tribunal allowed the assessee's appeals against the penalties for AYs 2008-09 to 2010-11, noting that the audit reports were obtained before the due date, but upheld the penalty for AY 2011-12 due to the failure to maintain proper books of account.