Gujarat High Court
Commissioner Of Income Tax Iii vs R N Dobaria....Opponent(S) on 14 October, 2013
Author: M.R. Shah
Bench: M.R. Shah
COMMISSIONER OF INCOME TAX III....Appellant(s)V/SR N DOBARIA....Opponent(s) O/TAXAP/877/2013 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 877 of 2013 ================================================================ COMMISSIONER OF INCOME TAX III....Appellant(s) Versus R N DOBARIA....Opponent(s) ================================================================ Appearance: MR MANAV A MEHTA, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI Date : 14/10/2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.00. Present Tax Appeal has been preferred by the appellant - revenue challenging the impugned judgement and order passed by the learned Income Tax Appellate Tribunal [hereafter referred to as the Tribunal for short] in ITA No.1788/Ahd/2009 dated 5/4/2013 with respect to AY 2006-07, by which the learned tribunal has dismissed the said appeal preferred by the revenue confirming the order passed by the learned CIT(A) deleting addition of Rs.53,59,150/- made by the AO on account of disallowance of sub-contractor expenses as well as deleting addition of Rs.12,85,000/- made by the AO on account of disallowance of hiring charges.
2.00. That the appellant has raised the following proposed substantial question of law :
(A) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in law in deleting the addition of Rs.53,59,150/-
made on account of unverifiable expenses made to sub-contractors.
(B) Whether in the facts and in law the Tribunal was right in deleting the addition of Rs.12,85,000/- made u/s. 37 of the Act though requirements of the Section are not met with?
3.00. That the assessee filed return of income declaring total income at Rs.30,76,709/-. The case was taken up for scrutiny assessment. Notice under section 143(2) was issued and duly served upon the assessee and during the assessment year the assessee shown turnover of Rs.7,31,79,834/-. The assessee also furnished sub-contractors bills total amounting to Rs.2,14,36,602/-. The assessee also gave particulars of sub-contracts. That the assessing officer while passing the assessment order disallowed 25% of the sub-contracts expenses, which comes to Rs.53,59,150/- out of total amount of sub-contract expenses of Rs.2,14,36,602/- and added the said amount to the income of the assessee. The AO also disallowed Rs.12,85,000/- being claimed for hiring charges.
4.00. Feeling aggrieved by and dissatisfied with the order of assessment, more particularly making disallowance of Rs.53,59,150/- at 25% out of sub-contractors expenses and making disallowance of entire hiring charges of Rs.12,85,000/-, the assessee preferred an appeal before the CIT(A) and the learned CIT(A) vide order dtd. 16/2/2009 allowed the said appeal deleting disallowance of Rs.53,59,150/- with respect to sub-contractors expenses and deleting disallownace of entire hiring charges of Rs.12,85,000/-.
5.00. Feeling aggrieved by and dissatisfied with the order order passed by the CIT(A), revenue preferred an appeal before the ITAT and by the impugned judgement and order, the learned ITAT has dismissed the said appeal, which gives rise to the present appeal.
6.00. Mr.Manav Mehta, learned counsel appearing on behalf of the appellant revenue has vehemently submitted that the learned ITAT has materially erred in confirming deleting the disallowance of Rs.53,59,150/- which was disallowed by the AO on account of unverifiable expenses made to the sub-contractor. It is submitted that it was found by the AO that as such one of the sub-contractors was the employee of the assessee and therefore, the amount alleged to have been paid to the said employee, who was shown as sub-contractor was not genuine and therefore, the learned AO rightly disallowed the same. It is submitted that considering the overall facts and circumstances when the AO disallowed 25% of the sub-contractors expenses, the same was not required to be interfered with by the learned CIT(A). It is further submitted that even the learned tribunal has materially erred in deleting addition of Rs.12,85,000/- made under section 37 of the Act, when the assessee could not show actual expenses towards hiring charges.
7.00. Heard Mr.Manav Mehta, learned counsel appearing on behalf of the appellant revenue.
7.01. So far as the deletion of addition of Rs.53,59,150/- by the CIT(A) confirmed by the learned ITAT, it appears that AO disallowed 25% of the sub-contractors expenses and therefore, disallowed the same and directed to make addition of the same. It is required to be noted that the learned CIT(A) as well as ITAT both have specifically observed and found that AO has not doubted genuineness of the sub-contractors. The learned CIT(A) has also dealt with the case on behalf of the revenue with respect to one of the sub-contractor, who was the employee of the assessee.
7.02. While deleting addition of Rs.53,59,150/-, the learned CIT(A) has observed and held as under :-
I have considered the facts of the case, findings of the AO as also the submissions made by the appellant. First of all, it is seen that during the year under consideration the gross profit of the appellant has increased from 4.50% to 7.14% and the net profit before appropriation has also increased to 3.60% from 2.145 in the earlier year. It is also seen that the appellant has fully discharged its onus of providing the sub contract expenses by submitting the complete names, address, PAN, confirmations, IT returns and bank statements of the sub-contractors as also the details of TDS and proof for payment made by account payee cheques, however, the AO has not been able to prove by bringing any evidence on record that the sub contract expenses are non genuine. Further, the contention of the appellant that it has achieved better book results by assigning sub contract work directly by weight in it, since it has achieved a direct profit margin of Rs.8.33 lacs @ 6.88% on the direct sub contract work of Rs.1.12 crores as passed by it and even otherwise allocation of work to sub contractors or doing it on own accounts is the business prudence of the appellant and the same cannot be doubted more so when there is an improvement in the book results on account of the same. Further, I agree with the appellant the deposition of the payment in the bank account by the sub contractors in the month of April 2006 against their bills for the month of March 2006 cannot be a ground for disallowing sub contract expenses. I also agree with the appellant that payment of Rs.2,26,730/- after a period of eight months by the appellant to one sub contractors namely Shreeji Construction also cannot be held against the appellant entailing disallowance of 25% of total sub contract expenses of 2.14 crores, when it is seen from the records that the said sub contractor namely Shreeji Construction had ample resources with it in form of other receipts to execute the work. Further, in respect of payment of Rs.13,028/- as made by the appellant to one sub contractor namely Shri Atul M. Multani over and above the sub contract expenses of Rs.10,98880/- paid to him. I agree with the appellant that on account of some technical problem at a site a sub contractor can be called for his expertise and for which it any amount is paid to him over and above the sub contract work of some other site allotted to him, the sub contract expenses does not become non genuine. It is also seen that the AO has not disallowed the sub contract expenses paid to Shri Atulbhai M. Multani and thus, he has accepted the genuineness of the payment made to him and hence I am of the opinion that it cannot be a ground for disallowing 25% of the total sub contract expenses.
Hence, considering the fact that the book results of the appellant have improved considerably during the current year as compared to the earlier years and that the appellant has fully discharged the onus of proving the sub contract expenses and the AO has no proper ground or corroborative evidence and making ad-hoc disallowance of 25% out of the total sub contract expenses. I am of the view that the ad-hoc disallowance of Rs.53,59,150 @ 25% out of sub contract expenses as made by the AO is incorrect and the same is hereby deleted. In the result, first ground of appeal of the appellant in respect of ad-hoc disallowance out of sub contract expenses is allowed.
The aforesaid finding of fact has been confirmed by the learned ITAT. We are in complete agreement with the reasoning given by the CIT(A) as well as ITAT while deleting addition of Rs.53,59,150/-. There are concurrent finding of facts given by both the authorities below, which are on appreciation of evidence.
7.03. Now, so far as the deletion of addition of Rs.12,85,000/- on account of disallowance of hiring charges is concerned, it is required to be noted that on appreciation of evidence, the learned CIT(A) as well as ITAT have found that sufficient material was placed on record inclusive of the bills in respect of the hiring charges as well as T.D.S. deducted by the assessee. The aforesaid finding of fact is also on appreciation of evidence.
8.00. In view of the above, we see no reason to interfere with the impugned order as no question much less any substantial question of law arise in the present appeal. Hence, present appeal deserves to be dismissed and is accordingly dismissed.
(M.R.SHAH, J.) (MS SONIA GOKANI, J.) Rafik.
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