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TMI Blog2013 (1) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assesseecompany is in the business of construction of infrastructure projects. It was noted by the AO that the assessee had undertaken the water supply project. It has also been noted by the AO that the principle source of income of the assessee was job work receipts . In respect of the grounds, mainly ground No. 1 2, we have been informed that the AO had noted that the total work carried out by the assessee was stated to be Rs.11,80,40,814/-. The assessee had given sub-contract and the value of the work of the sub-contract was Rs.3,41,38,500/-. The AO has raised queries in respect of the said amount which was claimed to be subcontracted and investigated to verify the facts in this regard. The AO had issued notice requiring the assessee to furnish the information in respect of those sub-contractors, such as, their addresses, PAN details and details of payment. To verify the genuineness of the sub-contractors, the AO had carried out the investigation as prescribed u/s.133(6) of the IT Act. There was a long list of sub-contractors against whom the AO had made the enquiries. In the following paragraphs, the nature of disallowances shall be discussed separately, however at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assesseecompany. On the other hand, assessee s claim was that the said party was not confronted to him. Due to that reason, ld.CIT(A) had called for Remand Reports, but it was noted by ld.CIT(A) that the assessee could not improve his case. Therefore, ld.CIT(A) had given a clear finding on facts that out of the total payment of Rs.35,863/- claimed to have been made the AO had already made a disallowance u/s.40(a)(ia) and for the balance amount of Rs.11,293/-, the assessee had failed to prove the correctness of the same, hence confirmed the addition. In the absence of any cogent material in support of the balance amount, we hereby confirm the factual finding of ld.CIT(A) and dismiss this ground. In the result, Ground No.1 is dismissed. 3. Ground No.2 reads as under:- 2. That on facts and circumstances of the case, the learned CIT(A) has erred in upholding the disallowance of payment made to subcontractors of Rs.86,48,415/- u/s.40(a)(ia) as made by the AO, which is erroneous and needs to be deleted in the interest natural justice and equity. 3.1. From the order of the AO, it was noticed that in respect of as many as 76 parties, the AO had conducted the enquiry and also call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the assessee. (Disallowance of Rs.3,41,38,500) 3.2. Side by side, the AO has also invoked the provisions of section 40(a)(ia) and noted that there was a default in TDS payment. It was noted that the TDS amount of Rs.47,09,743/- was although deducted but belatedly deposited. Hence, the AO had given an another reason for the disallowance of the said amount as follows:- Hence, without prejudice to the investigation as conducted above the assessee also committed a default in terms of the section 40(ia) of the IT Act, 1961. The amounts in respect of such payment are disallowed and added back to the income of the assessee. Show cause notice issued u/s.271(1)(c) r.w.s. explanation 1 of the IT Act, 1961 for furnishing inaccurate particulars of the income / concealment of income. (Addition Rs.3,41,38,500) 4. When the matter was carried before the first appellate authority a detailed submission was made. The foremost argument of the assessee was that once TDS was deducted on payment to sub-contractors and their PAN details were furnished, then it was factually wrong on the part of the AO to hold those parties as bogus parties. Before ld.CIT(A), it was also alternativel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee in the original assessment, and in absence of any detail or explanation, the said expenses had to be disallowed. It can also be seen from the above table that an amount of Rs.86,48,415 in form of sub contract expenses upto February, 2005 on which TDS was not deposited in the government account before the due date. The AR has tried to make artificial distinction as regards to the word paid and payable. It must be noted that paid includes payable. Hence the above amount of Rs.86,48,415 needs to be disallowed. 4.2. Admittedly a rectification already took place in the past and the figures for disallowance purpose have been revised by the A.O. himself. Thus, We have been informed that only an amount of Rs.2,63,83,486/- remained to be explained instead of the amount of Rs.2,78,81,957/-. Upto that extent, there was no dispute among the parties before us. 4.3. About the verifications as also confirmations, at one place, it was informed to ld.CIT(A) in respect of some of the parties, in the following manner:- (ii) As regards the amount of Rs.44,65,543/- for which the confirmations were not received upto the finalization of the remand report, it may be noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sub-contractor, nature of work assigned to them was submitted to the ld.AO during the course of remand proceedings. 2. Sub contract with M/s. A. Infrastruture Limited 49,39,000 A copy of the certificate issued u/s.197(1) of the Income Tax Act for no deduction of tax at source to M/s. A. Infrastructure Ltd. was submitted to the AO during the course of remand proceedings and hence there is no default of provisions of sec.40(a)(ia). 3. Credit/payment of Sub contract expenses pertaining to the period from 1st March to 31st March 2005 1,94,56,668 A statement showing complete details of address, PAN and TDS submitted to the ld.AO during the course of remand proceedings and On going through the said details it was apparent that as per the retrospective amendment as per section 40(a)(ia) of the Act, the subject amount of Rs.1,94,56,668/- becomes clearly eligible for deduction since the TDS of Rs.2,03,948/- has been paid by the company on 24-05- 2005 i.e. before the date of filing return of income u/s.139(1) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tik Construction as payments not proved to have been genuinely made to these two parties as sub-contractors. This is ground no.1 in assessee s appeal of Rs.86,643/- (Rs.75,350/- + Rs.11,293/-) before the Tribunal. The CIT(A) allowed as genuine the balance of Rs.3,40,51,857/- after the deduction of Rs.86,643/- from the total payment of Rs.3,41,38,500/-. Having done that in para 2.5.5, he took up the alternative reason of disallowance by the Assessing Officer viz. sec.40(a)(ia). The CIT(A) disallowed Rs.86,48,415/- being actual payment to sub-contractors on which TDS was not deposited in the Government account before the due date for making deposit. Thus, u/s.40(a)(ia) CIT(A) disallows Rs.86,48,415/- which is ground no.2 of the assessee s appeal; whereas the balance remaining came to be allowed, which is Rs.2,54,03,342/-, which is the only ground of the Department s appeal. Rs.2,54,03,342/- has been arrived at by deducting Rs.86,643/- + Rs.86,48,415/- from the total payment of Rs.3,41,38,500/- made to sub-contractors. The CIT(A) adjudicated by para 2.5.1 to 2.5.5 of his order the point of genuineness of payment; whereas the CIT(A) disposed off by paras 2.5.6.1 and 2.5.6.2 of his orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue, ld.CIT-DR Mr.D.P.Gupta, has emphasized that the first reason given by the AO was non-verification of the labour expenses. Only part compliance was made by the assessee, rather the confirmations furnished were doubted by the AO. The assessee has not furnished the complete details, hence the disallowance was correctly made. The AO has also made the said disallowance by invoking section 40(a)(ia) but it was an alternate reason for disallowance. Since the payment to sub-contract was not established, therefore the disallowance was rightly made by the AO. Ld.CIT-DR Mr.D.P.Gupta has also placed on record the written submissions as follows:- Ground No.1 of the Revenue and Ground No.1 2 of the assessee:- Disallowance of the claim of sub-contract expenses of Rs.3,41,38,500/- was made by the Assessing Officer due to non verification of identity of majority of the parties, genuineness of the transactions (rendering of services) shown with them and absence of incurring the same wholly and exclusively for business purposes etc. (Please refer Para 3.1 to 3.8 of assessment order). The findings of the Assessing Officer are based upon the report of inspector, outcome of the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises has been disallowed in view of the provisions of section 40a(ia) of I.T. Act (Page no.37, Para 2.6 page 31, para 2.5.2 and page 33, para 2.5.4.5 of CIT(A) s order). The remaining disallowance made on merits were deleted by Ld CIT(A) giving findings at page 34 35, para 2.5.4.6 and 2.5.5 in its order. The ld.CIT(A) erred even not confirming the disallowance of the full amounts of each of both the parties on merits in spite of their denial of doing any works carried out by them. 8) On the alternate plea of the Assessing Officer i.e. invoking of provisions of section 40a(ia) of I.T. Act, the Ld.CIT(A) has confirmed the disallowance to the tune of Rs.86,48,415 including the disallowance of Shri Dinesh Jethwa and M/s.Pratik Enterprises as mentioned in preceding para (Page 36-37 Para 2.5.67 at CIT(A) s order). 9) As can be apparently seen from discussions in assessment order that during the course of assessment proceedings in view of various defects noticed in process of verification of genuineness of claim, the requirements of the Assessing Officer from the assessee were as under:- (i) Production of sub contractors along with books of accounts etc. but assessee ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials recovery by client) 116,128,114 143,579,064 73,047,711 117,112,680 Gross Profit (Rs.) 18,016,845 14,574,245 10,831,698 14,998,821 Gross Profit (In %) 13.43% 9.22% 12.91% 11.35% Net Operating Profit before Depreciation Tax (Rs.) 8,266,834 6,463,358 5,997,852 7,701,079 Net Profit (In %) 6.16% 4.09% 7.15% 5.83% 6.1. There was a figure which was rectified and the disallowance which was required to be made as per the assessment order was actually Rs.2,63,83,486/-. Out of which, the assessee has furnished the confirmation of the parties totalling to Rs.2,08,80,106/-. In respect of the balance amount of Rs.44,65,543/-, the assessee has furnished the TDS details, however confirmations could not be furnished at that time of proceedings. So the assessee has made a request ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is erroneous and needs to be deleted in the interest natural justice and equity. 6.1. The assessee has claimed manufacturing and administrative expenses respectively of Rs.11.61 crores and Rs.75.55 lacs. On account of part compliance, it was noted by the AO that in respect of certain expenditure, the assessee had failed to produce the bills/vouchers on the ground that related files were misplaced. In the opinion of the AO, he had no option but to disallow certain percentage of non-verifiable expenses, hence he has concluded as under: 6.4. The assessee himself has admitted that the file related to expenses are not available as per the above reply. In view of the same, 10% of disallowance is being made out of the manufacturing and administrative expenses respectively as the relevant bills/vouchers and evidences were not put on record. From the manufacturing expenses already an amount of Rs.3,41,38,500 of the sub contractors, Rs.28,58,606 of the Transportation Charges, Workman Incentives Expenses of Rs.1,56,000, Rs.1,64,000 of Workman Retrenchment Expenses and Rs.1,30,50,500 of the Opening Work in progress has been disallowed. The 10% of the remaining will be Rs.65,76,05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miss this ground. 8. Ground No.4 reads as under: 4. That on facts and circumstances of the case, the learned CIT(A) has erred in upholding the disallowance of payment made for transportation charges of Rs.11,36,949/- u/s.40(a)(ia) as made by the AO, which is erroneous and needs to be deleted in the interest natural justice and equity. 8.1. The assessee has claimed expenditure of transportation charges of Rs.28,58,606/- plus workman incentive expenses of Rs.1,56,000 plus workman retrenchment expenses of Rs.1,64,000 totalling to Rs.31,78,606/-. In the absence of TDS details, the AO had invoked the provisions of section 40(a)(ia) and disallowed the same. When the matter was carried before the first appellate authority, it was noted by the ld.CIT(A) that the assessee had taken the action of deduction of TDS in the following manner:- Sr.No. Particulars Amount (Rs.) Remarks 1. Transportation expenses below Rs.20,000/- 3,16,241 TDS provisions would not be attracted 2. Transportation charges paid to Goe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of remand report proceedings and no supporting details such as bank pass book, books of accounts and I.T. Act of so-called parties are filed, in absence of which, merely on confirmatory letter basis, the so-called transactions cannot be considered to be genuine or may be considered as stand explained. 10.1 Facts governing this ground of the Revenue has already been discussed hereinabove while deciding ground No.1 2 from the Assessee s appeal(supra). The main argument of ld.CIT-DR Mr.Gupta before us was that the genuineness of the payment was full of doubt, therefore the entire expenditure was disallowed by the AO. Even at the stage of first appeal, the Remand Report was called for but the assessee had failed to discharge the primary onus of filing the requisite evidences to corroborate the genuineness of the payment. Therefore, according to ld.DR on this basis the entire disallowance should have been confirmed by ld.CIT(A). We are not in agreement with this argument of the Revenue Department. We have discussed in detail the facts and circumstances of the case. If on one hand, the Revenue Department has not doubted the deduction of TDS at source and the tax collected ..... X X X X Extracts X X X X X X X X Extracts X X X X
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