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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 ..... ct dated 17.12.2007 were that 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 discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y transaction with the 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 enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng initiated against 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 alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tificial 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 that our company has till date received confirmation of Rs.38,68,664/- as detailed in the following table Sr.No. Name of the subcontractor Amount (Rs.) 1. Aakash Developers 13,38,897 2. Ashok Mehta 4,62,743 3. Dasarath Uroun 1,99,523 4. Devindra A.Muddagi 2,78,466 5. Dinesh Jayrambhai 1,56,337 6. Muktipada Manji 7,08,916 7. Mahadev Mahto 2,10,96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 085 Total amount in respect of which there is no default of TDS considering the retrospective provisions of TDS 4. Sub contract expenses pertaining to the period from April 2004 to February 2005 on which TDS has been paid on 24-05-2005 86,48,415 A statement showing complete detail of address, PAN, amount paid and TDS thereon was submitted to the ld.AO during the course of remand proceedings Total 3,41,38,500 4.6. Because of the aforesaid remark, the assessee has categorically stated that in respect of the disallowance of Rs.86,48,415/-, the TDS was paid on 24/05/2005, i.e. before the filing of the return, hence that amount should also be allowed. The conclusion of the ld.CIT(A) was that the AO had accepted the totalling mistake therefore instead of Rs.2,78,81,957/- the correct figure was Rs.2,63,83,486/-, hence the balance of Rs.14,98,471/- was not to be added in the total income. Thereafter, considering the second Remand Report, ld.CIT(A) has arrived at the conclusion that sub-contract expenses of Rs.86,48,415/- were required to be disallowed because TDS was not deposited as prescribed u/s.40(a)(ia) and the assessee had made an artificial distinction as regards to the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue date for making deposit though the actual payment was made to the subcontractors in the Financial Year. In view of the decision of Vizakapatanam Bench (SB) of the Tribunal in Merilyn Shipping & Transports vs. Addl.CIT - (2012) 136 ITD 23, as the above amount of Rs.86,48,415/- is paid in the Financial Yer to the subcontractors, the same will not be disallowable. The same also will not be disallowable because as noted at the bottom of page 20 of his order by CIT(A), the TDS thereon has been paid on 25.4.2005 i.e. before the due date of the filing of the return being 31st October 2005. The Calcutta High Court in an unreported decision of CIT vs. Virgin Creations (Net copy of which is enclosed herewith) decided that the first proviso to the said sub-section inserted by the Finance Act, 2010 is retrospective. We have also enclosed two decisions of Ahmedabad Bench following the above Special Bench decision of the Tribunal and the above Calcutta High Court decision. Regarding the ground of appeal of the Department pertaining to Rs.2,54,03,342/-, the challenge is on the finding of CIT(A) of this being genuine payment. In para 2.2.1 of his order, the CIT(A) has recorded elaborate submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were furnished but for the balance claim of Rs.77,50,014 no details were furnished. The claim of Rs.2,78,81,957 was further corrected to Rs.2,63,83486 by reducing the expenses of Rs.14,36,252 in respect of transportation charges and Rs.38,344/- due to minor mistakes wrongly included therein. (Please refer page 2 to 3 of remand report dated 14.11.2002 & page 30 PARA 2.5.1 of CIT(A) order. Thus disallowance was made by the A.O. on merits of the claim. 2) Even otherwise also the aforesaid payments were liable to be disallowed in view of the provisions of sections 40a(ia) of I.T. Act as held by the A.O. (Para 4 to 4.4 of the assessment order) 3) Majority of the confirmations of the sub contractors were filed only before the CIT(A) in appellate proceedings which were thereafter forwarded by him to the Assessing Officer. As per the remand report dated 14.11.2008, confirmations for the claim of Rs.2,74,02,767 (Rs.65,22,661 as per chart at page-1) + (Rs.2,08,80,106 as per page - 3) have been furnished by the Assessee. 4) Subsequently also some confirmations of the sub contractors were filed before the CIT(A). As per remand report submitted thereupon by the Assessing Officer dated 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, statement of income, profit and loss account, balance sheet and audit report vide show cause notice issued on 12.11.2007 (Para 3.6 of the Assessment order). In the aforesaid show cause, it was also communicated that in absence of the compliance, the sub contractors will be treated as its benami and payments made to them will be added back. However, no compliance from the assessee was received. 10) Here it is submitted that simply filing of confirmations that too even not before the Assessing Office but before the CIT(A) in appellate proceedings did not meet the original requirements made during the assessment proceedings i.e. production of the sub contractors with relevant details and documents in view of the various defects noticed as discussed in the assessment order. Merely filing of the confirmations did not establish the assessee's claim as genuine. Reference may kindly be taken to the observations of the A.O. at last para at page 9 & 10 of its remand report dated 14.11.2008. Moreover the confirmations of the sub contractors to the tune of Rs.28,62,069 have not been furnished till the completion of the CIT(A)'s proceedings. Therefore, the disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason of part-confirmation of addition as given by ld.CIT(A). As far as the question of the word "paid" and "payable" is concerned, we do not want to comment on this legal controversy because the same is not yet settled and this controversy is still to be decided by the Hon'ble High Court. Leave this apart, otherwise also, the assessee has placed on record the information about the deposit of TDS. The main plank of argument of ld.AR was that the TDS in respect of the said amount had actually been paid on 24/05/2005, i.e. before the due date of the filing of the return being 31/10/2005. In support of this claim, reliance was placed on M/s.Zam Zam Exports Ltd.(supra), wherein the Tribunal has placed reliance on a decision of Hon'ble Calcutta High Court, namely CIT vs. Virgin Creations (Civil No. ITA 302 of 2011/GA/3200/2011 order dated 23.11.11) and Hon'ble Gujarat High Court decision dated 18/07/2011 in Tax Appeal No.706 of 2010 in the case of CIT vs. M/s.J.K.Construction Co. In the light of the undisputed fact that the TDS was deposited as prescribed under law before the due date of filing of return, hence the disallowance to the extent of Rs.86,48,415/- for alleged infringem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the observation of the A.O. From the above, it is seen that the appellant does not able to bring any supporting bills or evidence for the vouchers of various expenses amounting to Rs.5,33,909/- even during the remand report proceedings. In view of the above remand report of the A.O. and comments of the appellant it is clear that the disallowance is restricted to Rs.5,33,909/- and the appellant has no explanation for the same. The disallowance of Rs.73,31,295/- is restricted to Rs.5,33,909/-. This ground of appeal is, therefore, partly allowed." 7. Having heard the submissions of both the sides, we are of the view that even at the stage of second appeal, the assessee was unable to furnish the required corroborative evidences. If an expenditure remains unsupported, then in the absence of bills, vouchers, etc. the Revenue Department has no option but to disallow the same. We have noted that the manner in which the appellate proceedings were conducted, the CIT(A) had made it clear that instead of an adhoc disallowance by applying 10% ratio, better to be specific, thus he had investigated the correctness of the expenditure himself and thereupon arrived at the conclusion that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005 and the TDS thereupon was undisputedly deposited on 24.5.2005, i.e. before the due date of filing of the return. Now the position of law is very well settled as per the High Court decisions cited supra. Following these decisions, we hereby direct to delete the addition. This ground is allowed. [B] Revenue's appeal, ITA No.748/Ahd/2009 10. The solitary ground in this Revenue's appeal is as follows:- (1) On the facts and in the circumstances of the case and in law, the learned CIT(A)-I, Surat has erred in deleting the addition of Rs.2,54,03,342/- out of addition made by A.O. of Rs.3,41,38,500/- on account of disallowance of unexplained payments made to subcontractors holding that in his remand reports the A.O. had accepted that the genuineness of the so-called transactions is verified by him which is 'factually totally incorrect' as in the remand report, it was not submitted that genuineness of the socalled transactions are found to be genuine, but, it was only submitted that confirmatory letters only are filed during the 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 abs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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