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TMI Blog2016 (4) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned in the adult report, TDS certificates and the amount shown in the ledger account of the sub contractors. 5. That the CIT(A) has erred on facts and in law to estimate & disallow Rs. 1628539/- being 20% of payments made to sub contractors when GP rate had increased from 12.59% of immediately proceeding year to 14.78% during the year. 6. That CIT(A) has erred on facts and in law to presume the sale of scrap and to sustain addition of Rs. 50,000/-. 2. Ground No. 1,2,3,4 and 5 raised by the assessee is against the disallowance of a sum of Rs. 16,28,539/- being 20% of the payment made to sub-contractors. 3. Brief facts relating to the issue are that during the impugned assessment year, the assessee had shown payments made on account of sub-contract work to Sh.Sanjay Agarwal, Sh. Subodh Agarwal and Sh. R. R. Agarwal. During the course of assessment proceedings, the AO found that these persons did not have the capacity to do sub-contract work and also no books were maintained by them showing any sub-contract work done. It was also found by the AO that these persons were actually working as employees in the assessee firm. Therefore he concluded that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub contractors to the extent of 20% of the payment made. Ld. CIT(A)further pointed out that while the assessee had shown the total payments made to these three sub contractors as per their ledger accounts to be as Rs. 81,32,697/- as follows: Sh. Sanjay Agarwal Rs. 29,61,497/- Sh. Subodh Agarwal Rs. 34,76,798/- Sh. R.R. Agarwal Rs. 16,94,702/- Rs. 81,32,697/- the tax audit report showed the amounts paid to these sub contractors as Rs. 90,12,424/- as follows: Sh. Sanjay Agarwal Rs. 33,32,503/- Sh. Subodh Agarwal Rs. 38,00,077/- Sh. R.R. Agarwal Rs. 18,79,844/- Rs. 90,12,424/- In view of the difference of the two figures, Ld. CIT(A) directed the AO to determine the correct amount paid to the sub contractors and thereafter disallow 20% of the same. 5. Aggrieved by the same, the assessee raised ground no. 1, 2,3,4, & 5 before us. 6. In Ground No. 1 the assessee has agitated against the application of N.P. rate to estimate the income of the assessee without rejecting its books of accounts or invoking the provision of section 145. Ground No. 2 raised by the assessee is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir financial soundness which suggests that the sub-contractors could not have undertaken the work as claimed by them. It is also admitted fact that sub-contractors are relative of the assesse as required under section 40A(2)(b) of the Act. Sri Sanjay Agarwal is son of partner Smt. Uma Devi, Sri Subodh Agarwal is also son of partner Smt. Uma Devi Sri R.R. Agarwal is husband of the partner Smt. Uma Devi. The above details have been noted from the assessee's paper book at page No. 258. In the light of the fact and the material available on record, in principle we agree that the subcontract was not carried out by the above sub-contractors and in this regard the findings of the Revenue authorities is confirmed. However, it is also admitted fact that the assessee has carried out contact work, may be not from these subcontractors but by other parties or by otherwise. On considering the totality of the facts of the case, we notice a comparative chart of G.P. which has been reproduced by the CIT(A) at page no. 2 of his order. We notice that the assessee has shown comparatively lower G.P. rate of 11..2% as against 15.60% in the immediately preceding year i.e. A.Y. 2007-08. Under the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine. We find that the GP rate in the Assessment year 2007-08 was 15.6% while in the impugned Assessment year the GP rate is 14.785%. Therefore since the G.P. rate in the current year is on the lower side as compared to A.Y. 2007-08, which was considered by the ITAT, while rendering its judgment for Assessment year 200809, we uphold disallowance to the extent of 20% of the contract work done by three sub contractors. 13. In view of the same we dismiss Ground No. 5 raised by the assessee. 14. As regards ground no. 3 and 4 the assessee has agitated against the findings of the Ld. CIT(A) that there is a difference between the amount of payment made on account of sub contractor work to the above mentioned three parties in the ledger accounts and that shown in the tax audit report. We find no infirmity in the order of the Ld. CIT(A) on this aspect also since undisputedly the assessee has shown different figures in the tax audit report and in the ledger accounts of the parties. While the tax audit report shows payments made to these sub-contractors amounting to Rs. 90,12,424/- the ledger account shows the same as Rs. 81,32,697/-. The Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly allowed. 19. Before us Ld. AR reiterated the contentions made before the lower authorities and stated that no scrap was sold by the assessee but was infact utilized in the construction work again. 20. Ld. DR on the other hand relied upon the order of the CIT(A). 21. We have heard the rival contentions and perused orders of the authorities below. 22. The facts emerging in the present case are that undeniably during the carrying on of the business of construction some scrap of iron and aluminium pieces is generated as also empty bags. While the assessee's contention is that this scrap is reused in the construction business and the empty bags are used by the labour for resting and other purposes and no scrap is therefore sold, the case of the revenue is that the explanation of the assessee is not plausible and some scrap must have been sold by the assessee. We find no infirmity in the order of the Ld. CIT(A) in this respect and agree with his findings that it is impossible to believe that no scrap was sold during the year and that the entire scrap is reused in the business of the assessee. We therefore uphold the order of the Ld. CIT(A) sustaining th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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