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TMI Blog2024 (9) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be ignored flippantly. Consequently, the order of the Assessing Officer is upheld by confirming the disallowance towards subcontracting charges. Thus, the ground raised by the Revenue is allowed. - Shri V. Durga Rao, Judicial Member And Shri K.M. Roy, Accountant, Member For the Assessee : None For the Revenue : Shri Kailash C. Kanojiya ORDER PER K.M. ROY, A.M. The present appeal has been filed by the Revenue challenging the impugned order dated 30/12/2019, passed by the learned Commissioner of Income Tax (Appeals) 2, Nagpur, [ learned CIT(A) ], for the assessment year 2014 15. 2. In its appeal, the Revenue has raised following grounds: Whether in facts and circumstances of the case and in law, the CIT(A) 2, Nagpur, was justified on account of disallowance of entire payment made to sub contractors treating the same as bogus? 3. In this case, the assessee is a firm carrying out the activity of Civil Construction. During the year assessee carried out the work of mainly Government and Semi Government Organisations. For the year under consideration, the assessee filed its return of income on 29/11/2014, declaring total income of ₹ 96,93,807. The case was selected for scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus proved by the assessee that these expenses have resulted in any receipts or work-in-progress, which makes it clear that only debit side of the Trading account/Profit Loss account is increased artificially in order to reduce and suppress the actual profit of the assessee. Since these expenses are bogus, the assessee was not forth coming to explain the genuineness of the expenses. Thus, the Assessing Officer held that the expenses are not proved to the genuine and the assessee also could not produce any evidence to show that there is corresponding income credited against the expenses claimed. 6. The Assessing Officer observed that the assessee could not explain and prove the genuineness of the expenses claimed on account of sub contract expenses. He was of the opinion that the assessee has also failed to prove any nexus between the claim of these expenses and the receipt / work-in- progress represented by these so called sub contract expenses. Therefore, the entire claim of sub contract expenses at ₹ 5,88,00,000, is bogus, non genuine and not backed by any evidence or supported by any corresponding receipt or work-in-progress. He held that the assessee could not establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Rs. 16,36,40,187 from all the Government and Serni Government department receipts. Profit declared amounted to Rs. 96,93,807 after deduction of partners' interest and remuneration. v. That it has been also submitted During the year, the assessee had sub-let total work contract of Rs $$800000/- to the sub-contractors which had been done by the sub-contractors during the year. However such sub-contract expenses were recognized in the books of account at the end of the year in the month of March after getting the work certified by the Engineers of the appellant as well as the principal contractor. vi. Further also that However the Assessing Officer has mis-interpreted the said procedure of recording the transaction in books of account and concluded that this work were executed in the month of March only and there being no corresponding work in progress as on 31st March the whole of the sub-contract work is bogus and not genuine . vii. It has also been submitted that the basic reason behind the increasing of sundry creditors, this year, was major outstanding from the department that was received after end of the financial year and the bills of Sub- contractor which were not rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The arguments given from the side of the appellant firm have also been duly considered and it is found that there is merit in the same. On the other hand, the Ld. A.O. did not carry out the enquiries to their logical conclusion and even did not bother to see the following surrounding facts and circumstances of the transactions which were related to the payments made to the claimed sub contractors by the contractor appellant firm: A. That the sub contractors were, in fact, were working only for the appellant contractor firm B. That all the sub contractors were filing their Returns of Income. C. That all the payments were made through account payee cheques only D. That all the payments were subjected to TDS as per Income Tax provisions. E. That, withdrawals from the bank accounts of the subcontractor in cash was only an application of their already taxed income as per the law of the day Those withdrawals may be related to further payments to the labour, material sellers etc. F. That, the application of income in the hands of the sub contractors cannot and should not entitle the Ld AO of the appellant firm to make such a huge amount of addition in the hands of the appellant firm tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing their Returns of Income showing the same payments (made, subjected to TDS and claimed by the appellant firm) as their income and also filing confirmations that were submitted before the Ld. A.O. may be signed and presented by the Ld. Counsel of the appellant firm. In his words The Counsel of assessee (Sub-contractor) signed only the written submission all confirmation and income tax returns signed by the respective assessee. However the Assessing Officer has not accepted the above confirmation being signed by the counsel of the assessee and disbelief the sub-contractor and payments made to them. I. Lastly, let us, for a moment consider a hypothetical situation of confirming impugned addition of Rs. 5.88 crores. If the same amount is added back to the net profit of Rs. 1.24 cr. (before giving interest and salary to partners) for this year i.e. A.Y. 2014-15 at the gross receipts of Rs. 16.36 crores then net profit will rise to 43.52% which is by no stretch of imagination can be realistic in a business of civil contract work as is that of the appellant firm. However, in many cases as in this case Ld. AOs do not appreciate this aspect of the case which is too important to be ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to explain. The assessee was also asked to explain with the evidence the expenditure of work carried out by the sub contractor to whom payments are made. The assessee again failed to offer any explanations. 3.8 The total sub contract payment is Rs. 5,88,00,000/-. From the above discussion it is clear that there is no evidence that the payments made on account of sub contract expenses is genuine. Despite several opportunities none of the sub contractors attended or produced any evidence to show that they actually did work for the assessee. The so called payments made by the assessee is not backed by any evidence showing commensurate receipt. Assessee could not produce any evidence to prove that the claim of sub contract expenses have resulted in any receipt. In fact the work-in-progress shown is only Rs. 25,65,000/-. When the assessee debited Rs. 5,35,00,000/- as sub contract expenses in the month of March, is all the more necessary for the assessee to show commensurate receipt or work-in-progress on the credit side of the Trading/Profit Loss account. The assessee has completely failed to justify these expenses. Any expenditure claimed should have a nexus with the income. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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