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TMI Blog2019 (9) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... /Agr/2012 for assessment year 2008-09 and order dated 21.4.2016 passed in ITA No.152/Agr/2014 for assessment year 2009-2010. 2. The Appeal No.89 of 2013 was admitted on 20.9.2013 on the following substantial question of law:- "i. Whether, in view of the fact that the case of the revenue is confined under Section 40A(2)(a) and not section 37 of the Act, the finding of the Tribunal that the appellant did not get sub-contracts executed through Sri Sanjay Agarwal, Sri Subodh Agarwal and Sri R.R. Agarwal is impermissible and suffers from self contradiction? ii. Whether, expenditure incurred by the appellant in execution of work through sub-contractors could have been disallowed, to any extent, under Section 40A(2)(a) in absence of any findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued. Representative of the assessee firm appeared and produced the books of account before the assessing authority. During course of assessment proceedings, to verify the genuineness of payments claimed to have been made to sub-contractors, summons under Section 131 of the Act were issued. In response to the said, Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal appeared and the statement on oath were recorded. During the assessment year in question, assessee had disclosed expenditure of Rs. 2,55,49,027.78/- to 21 different sub-contractors towards execution of work contract. Out of the said amount, assessee incurred expenditure of Rs. 61,76,126/- on 3 sub-contractors namely Sanjay Agarwal (Rs. 21,57,500/-), Subodh Agarwal (Rs. 26,09,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, and the Tribunal should have granted entire relief to the assessee once it arrived at the finding that the subcontract was not carried out by the three contractors named above and it confirmed the finding of the assessing authority as well as the first appellate authority. 9. Sri Manu Ghildyal, learned Counsel appearing for the department submitted that the three sub-contractors named above, namely Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal are the sons and relatives of the partners of the firm and are persons covered under Section 40A(2)(b) of the Act. He further invited the attention of the Court to the findings recorded by the assessing authority, wherein these three sub-contractors were examined by the A.O. and the affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(a) of the Act, on the ground that all these three sub-contractors did not have sufficient amount in their bank accounts so as to incur such expenses for execution of work and disallowed the expenditure so made by the assessee firm as regard these three sub-contractors. The CIT (A) also held that mere filing of affidavits of three persons in support of the claim that work was sub-contracted to them, unless corroborated cannot be taken on its face value. It was further held that these sub-contractors could not produce any shred of evidence to establish that they had actually carried out any work as claimed by them. 13. The Tribunal while considering the grounds so raised recorded a categorical finding that the sub-contract was not carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the means and the source to make expenses for the work contract, as the balance in the saving accounts was negligible in comparison to the alleged work contract executed by them and the payments so made. 16. As Section 37 of the Act envisages for any expenditure made for the purpose of business to be allowed in computing the income, while Section 40A puts a barrier for expenses of payments not deductible in certain circumstances as enumerated in the said section. 17. In the present case, as it was found by the taxing authorities that payment made by the assessee firm to three sub-contractors out of 21 work contracts given by it was to the relatives of the partners of the firm, as such same was disallowed in view of Clause (b) of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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