Income Tax Appellate Tribunal - Hyderabad
M/S Muppa Homes Private Limited,, ... vs Department Of Income Tax on 21 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
ITA No. 271/Hyd/2013
Assessment year 2009-10
The Deputy CIT vs. M/s. Muppa Homes Pvt..
Circle-16(2) Ltd., Hyderabad
Hyderabad PAN: AACCM4073A
Appellant Respondent
Appellant by: Smt. Padmaja
Respondent by: Sri P. Murali Krishna
Date of hearing: 21.04.2014
Date of pronouncement: 23.05.2014
ORDER
PER CHANDRA POOJARI, A.M.:
This appeal by the Revenue is directed against the order of the CIT(A)-V, Hyderabad dated 29.11.2012 for assessment year 2009-10.
2. The Revenue raised the following grounds:
1. The order of the CIT(A) is erroneous in law and on facts of the case.
2. The CIT(A) ought to have appreciated the AO making addition of expenditure claimed to have executed by non-existing company.
3. The CIT(A) ought to have enquired into genuineness how a contract was allocated to a non existing company.2 ITA No. 271/Hyd/2013
M/s. Muppa Homes Pvt.. Ltd.
======================
3. There is only one issue in this appeal and that relates to the disallowance of development contract expenditure amounting to Rs. Rs. 17,05,38,557. The facts of the case are that during the year the assessee company obtained land development works at Koduru Village, Chilamattur Mandal from M/s. Lepakshi Knowledge Hub (M/s. Lepakshi for short) for a total value of Rs. 20.25 Crores. The assessee company entrusted the above work on subcontract to M/s. GKC Projects Limited (for short M/s. GKC) for total consideration of Rs. 17.62 Crores. During scrutiny proceedings, the Assessing Officer received information in the case of M/s. Advik Builders and Consultants Pvt. Ltd. (for short M/s. Advik) that they have executed a part of land levelling work amounting to Rs. 4,99,55,400 at Chilamattur for M/s. GKC, which was subcontracted to them by the assessee company. The Assessing Officer found that the company M/s. Advik had not proved the genuineness of its claims towards expenditure for its contract works and sundry creditors, etc. Therefore, the Assessing Officer held that M/s. Advik is a non-existent company and accordingly disallowed total expenditure claimed by the assessee company towards development contract expenditure work amounting to Rs. 17,05,38,557 paid to M/s. GKC.
4. On appeal, the CIT(A) observed that during the relevant assessment year, the assessee company got a contract for land development works at Koduru Village, Chilamattur Mandal from M/s. Lepakshi for Rs. 20.25 crores. The assessee 3 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== company gave the above contract to M/s. GKC for Rs. 17.62 crores on subcontract. In turn, M/s. GKC gave the work to various sub-contractors, in which M/s. Advik had done a part of work. The assessee during the first appeal proceedings produced evidences like copy of agreement between the assessee-company and M/s. Lepakshi, copy of agreement between the assessee and M/s GKC, bills raised, TDS certificates, bank statements and copies of assessment orders of M/s. GKC and M/s. Advik. It has also produced the confirmation letter from M/s. GKC regarding completion of work.
5. The CIT(A) observed that M/s. GKC declared the above contract receipts in their income returned for the A.Y. 2009-10 and the assessment u/s. 143(3) of the Income-tax Act, 1961 was completed by making disallowances of expenditure and office & administrative expenses. If the same contract receipts offered by M/s. GKC, in their return were added in the hands of the assessee company, it will lead to the assessment of same receipts twice. Further, the argument of the Assessing Officer that M/s. Advik is not a genuine one is not acceptable as it is not based on any substantial documentary evidence. In fact, the assessee company had produced a copy of assessment order of M/s. Advik, which is assessed with DCIT, Circle-1(1), Hyderabad with PAN - AAECA3793K and the assessment u/s. 143(3) of the Act for the AY 2009-10 was completed on 30.12.2011 determining the total income at Rs. 18,80,60,122/- where some additions were made by the 4 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== Assessing Officer towards non-production of vouchers for the direct expenditure incurred. In para 8, 9 & 10 of the assessment order, the Assessing Officer has discussed about the contract link and suspected that the expenditure claimed by M/s. Advik was in the nature of bogus expenditure and disallowed the expenditure claimed as not proved. Moreover, M/s. Advik itself had offered Rs. 5.95 crores as disallowance in respect of work done pertaining to M/s. GKC as there was no TDS made from those payments. Hence, it is very clear from the assessment order of M/s. Advik and also facts of the case that the disallowances were made for expenditure claimed by them as not being proved with supporting evidences, etc. Same expenditure cannot be disallowed in the case of the assessee company. Moreover, the Assessing Officer is not clear about the evidences submitted by the assessee company. In fact, M/s. Advik in no way concerned with the assessee company as it has given contract works to M/s. GKC and in turn, M/s. GKC had given work to M/s. Advik. If at all any action to be taken, it should be in the hands of M/s. GKC, but not in the case of the assessee company. Therefore, the CIT(A) observed that the assessee had produced all the evidences pertaining to the contract works to prove the genuineness of the transactions and the onus on the assessee was discharged.
6. The CIT(A) observed that no material, whatsoever, had been brought on record by the Assessing Officer to show that the entire contract work of Rs. 17.62 crores done by M/s. GKC is not genuine except stating that M/s. Advik who had done 5 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== only a part of work amounting to Rs. 4.99 crores, is a non- existent company because it has not proved the genuineness of its claims towards expenditure for its contract works and sundry creditors, etc. The Assessing Officer should have verified further or recorded statements from other sub- contractors, the onus was on him to issue summons to those sub-contractors and record their statements or conduct further investigations. However, that has not been done.
7. The CIT(A) observed that there is no ground for the Assessing Officer to disallow the sub-contract expenditure of Rs. 17.05 crores paid to M/s. GKC by the assessee company. Once the amount of sub-contract works claimed by the assessee company was offered as receipts by the sub- contractor in their return, it is enough for the assessee that it had proved its genuineness of its claim. The Assessing Officer had not brought any material on record to show that the evidences filed by the assessee were, in any manner, unsatisfactory. The evidences filed by the assessee remained un-rebutted. Therefore, no addition could be made on this count and the CIT(A) directed the Assessing Officer to delete the addition of Rs. 17,05,38,557 made in the assessment.
8. The learned DR submitted that the Department received an information in the case of M/s. Advik which has claimed to have executed a land levelling work worth Rs. 4,99,55,400 at Chilamattur in Anantapur Dist., for M/s. GKC. It is further stated that M/s. GKC stated to have contracted the above work 6 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== from the assessee company i.e., M/s. Muppa Homes Pvt. Limited. It is further informed that for A.Y. 2009-10, while verifying the genuineness of the claims of the above assessee M/s. Advik, it is found out that the company M/s. Advik is a non-existent company. The said company could not prove at all the genuineness of its claims towards expenditure for its contract works and also in respect of sundry creditors etc. The company does not have any acceptable evidence to prove its genuineness. Therefore, it is conclusively established that the company M/s. Advik is a non-existent company. In view of the above facts, the claim of the assessee company in respect of its contract works cannot be taken as genuine for the reason that the sub-contractor of the assessee company i.e., M/s. GKC has claimed in its letter, received by the Department on 15.12.2011, that it had undertaken land development and levelling works at Chilamattur, Anantapur District, from the assessee company M/s. Muppa Homes Pvt.. Ltd. Further, in the case of GKC's one of the subcontractor i.e., M/s. Advik it is proved that the transaction is not genuine.
9. The learned AR submitted that the Assessee is primarily engaged in the business of real estate for the past 13 years and has some experience in construction management owing to the business of construction and sale of plots. The Assessee maintains administrative staff, supervisors and other para- phernalia required for the business and has to incur fixed establishment expenses of about Rs. 30-50 lakhs a year. There has been severe recession in the real estate business and the 7 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== company has foreseen the problems and decided to venture into the contracting business. For the first time in the history of the company, the Assessee has ventured into the contracting business and obtained the land development works at Koduru Village, Chilamattur Mandal for M/s. Lepakshi for a total contract value of Rs. 20.25 crores. M/s. Lepakshi is a Private Limited Company with company Identification NO. U80301-KA2008PTC045764 with its Registered Office at No. 127, 21 Cross, 23 Main Road, Judicial Layout, GKVK, Yelahanka, Bangalore-560 065.
10. The AR submitted that in view of lack of experience in handling such a huge project in short time, the Assessee decided to entrust the work on subcontract and has been in touch with the companies in the same field even before the award of the contract. After exploring the possibilities and capabilities of the companies who can handle the job, decided to entrust the work to M/s. GKC, Flat No. 503, Prasanthiram Towers, Yellareddyguda, Beside Sarathi Studio, Hyderabad-73. M/s. GKC is a renowned company in the business of infrastructure development, roads, irrigation, pipelines and mining sector, who have the necessary equipment and capabilities for handling such project. The Company Identification No. of GKC Projects Ltd., is U45200- AP2004PLC043015. The assessee company awarded the Contract as per the specifications and requirements of the contract awarded by M/s. Lepakshi for a total consideration of Rs. 17.62 crores to M/s. GKC. Copies of the contracts awarded 8 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== to the Assessee and the contract awarded to M/s. GKC by the Assessee were produced before lower authorities.
11. The AR submitted that after the receipt of the contract and award of the contract to GKC, the assessee company has only the legal obligations under the contract to M/s. Lepakshi. The test that has been applied for fulfilment of the obligations under the contract to M/s. Lepakshi is receipt of payment from them. On the receipt of the payment from M/s. Lepakshi, the same has been passed on to M/s. GKC. The Assessee filed its return of Income for the A.Y. 2009-10 on 09/09/2009 admitting income of Rs. 1,35,23,330/-. The return was processed u/s 143(1) of the Act on 05/03/2011. The case was taken up for scrutiny by issue of notice u/s 143(2) of the Act on 23/08/2010 and subsequently notices u/s 143(2) and u/s 142(1) of the Act were issued by the Assessing Officer. The Assessee Company produced the books of account, all the vouchers and other relevant documents necessary for verification of the return of income and detailed scrutiny took place of all the receipts and payments of the assessee company on the various dates specified in the Assessment order. The Assessing officer called for details of copy of the contract agreement bills raised, TDS effected and bank statements identifying the receipt of the money from M/s. Lepakshi and same were furnished the Assessing officer. Similarly copy of the sub contract given to M/s. GKC, copy of bills raised by them, TDS effected by the assessee company have been furnished to the Assessing Officer. The Assessee 9 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== company had also furnished confirmation balances from M/s. Lepakshi and M/s. GKC.
12. The Assessing Officer had also obtained independent confirmation from M/s. GKC regarding receipt of sub contract from the assessee company, its execution by them and finally the confirmation of balance as at 31/03/2009 and M/s. GKC vide their letter dt. 15/12/2011 had confirmed all the above three points to the Assessing Officer. On the facts and circumstances of the case, the Assessing Officer is in receipt of all the information from the assessee company as well as direct confirmation from the parties concerned and there is no reason whatsoever for making such huge addition knowing fully well that the money has actually been paid to the sub- contractors. It is of utmost importance to note that M/s. GKC is assessed to tax with the PAN NO. AACCG1395F on the files of the Assistant Commissioner of Income Tax, Circle-2(3), Hyderabad. M/s. GKC filed its Return of Income for the A.Y. 2009-10 and declared the contract receipts of the assessee company in their income returned of Rs. 39,77,93,480/-. The assessment of M/s. GKC was completed by the Assessing Officer by his Order dated 18-02-2011 passed u/s. 143(3) of the Income Tax Act 1961. Copy of the Order in the case of M/s. GKC for the relevant assessment year of the assessee company was also produced before lower authorities. The profound fact is that the addition made by the Assessing Officer in the assessee company's assessment was offered and taxed in the hands of M/s. GKC and it is a classic case of 10 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== double assessment of the same income. On these facts, there is no justification for making such arbitrary assessment, especially when the money was actually paid to the sub- contractor M/s. GKC and the assessee company is in no position to pay the taxes on the income which was neither accrued nor received. If there are any issues on which the Assessing Officer had doubts in his mind, he could have investigated into those specific issues and completed the assessment in a judicious manner by following due process of law instead of making arbitrary addition without conviction which has been actually assessed in the hands of the recipient M/s. GKC.
13. Further the AR drew our attention to the following documents:
1. Memorandum of Submissions in Appeal No. 0373/2011-12 filed before the Commissioner of Income Tax (Appeals)-V, Hyderabad
2. Assessment Order under Section 143(3) of Income Tax Act 1961 dated 18-02-2011 passed by the ACIT, Circle 2(3), Hyderabad in the case of GKC Projects Ltd for the A.Y. 2009-10
3. Notice under Section 274, r.w.s. 271(1)(C) of the Income-
tax Act, 1961 dated 18-02-2011 received from the ACIT, Circle 2(3), Hyderabad in the case of GKC Projects Ltd for the A.Y. 2009-10
4. Lr dt. 29-12-2011 regarding submission of information - Scrutiny Assessment for the Asst, Year 2009-10 filed before the Income Tax Officer, Ward 16(1), Aayakar Bhavan, Hyderabad by Muppa Homes Pvt. Ltd during its Scrutiny Proceedings for A.Y. 2009-10
5. Work Order for Rs. 20.25 crores in favour of Muppa Homes Pvt. Ltd vide Lr. Dt. 06-11-2008 regarding land development work at Koduru village, Chilamattur Mandal for Lepakshi Knowledge Hub 11 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
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6. Muppa Invoices No. LKH/03/2008-09 dt. 03-03-2009, LKH/02/2008-09 dt 02-02-2009, and LKH/01/2008-09 dt. 02-01-2009 for the work executed for the principal contractor
7. Form No. 16A dated 30-06-2009 - TDS Certificate issued by Lepakshi Knowledge Hub in favour of Muppa Homes Pvt.. Ltd
8. Job Completion Certificate dt. 31-03-2009 from Lepakshi Knowledge Hub Pvt.. Ltd
9. Works Order dt. 08.11.2008 addressed to M/s. Projects Ltd for site development works
10. Invoice dt. 04.03.2009, 16.03.2009 and 31.03.2009 from GKC Projects Ltd in respect of works executed by them
11. Form No. 16A dated 19-06-2009 - TDS Certificate Issued by Muppa Homes Pvt.. Ltd to GKC Projects Ltd
12. Lr. dt. 28-03-2009 from GKC Projects Ltd regarding work completed - Notice for demobilization of sub-contract from 31st March 2011
14. The AR he invited our attention to the Memorandum of Submissions dated 6-11-2012 and the subsequent hearing on 15-11-2012 before the CIT(A) wherein a specific query was raised with regard to the income tax assessment of M/s. Advik for A.Y. 2009-10 which was referred in the Assessment Order dated 30.12.2011 passed u/s. 143(3) of the Act. The Assessee obtained a copy of the assessment order of M/s. Advik (PAN AAECA3793K) for the Income Tax A.Y. 2009-10 passed u/s. 143(3) of the Act on 30-12-2011. He submitted that in para-2 of the Assessment Order it was confirmed that M/s. Advik had taken on sub-contract works from various parties and the relevant paragraph is reproduced below for ready reference: 12 ITA No. 271/Hyd/2013
M/s. Muppa Homes Pvt.. Ltd.
====================== "2. The assessee is stated be a subcontractor and admitted gross receipts of Rs. 19,87,87,931. It was claimed that it had executed certain works on sub-
contract basis to the following parties.
a) Chadalavada Infratech Ltd. Rs. 8,54,55,909
b) GKC Projects Ltd. Rs. 6,15,81,669
c) NSP Constructions Rs. 3,89,41,318
d) Tata Wireless Rs. 1,28,09,035
-------------------
Total Rs. 19,87,87,931
===========
15. The AR further submitted that in the assessment order of M/s. Advik the additions were made mainly on account of the verification of creditors for purchases which were not found to be genuine by the Assessing Officer. The main reason for addition was the company could not furnish documentary evidence in relation to the expenditure claimed and also on account of non-deduction of TDS. It is also pertinent to note that out of the total receipts of Rs.
19,87,87,931 the taxable income was determined in the assessment order of M/s. Advik at Rs. 18,80,60,100. On the facts and in the circumstances of the case there is no justification on the part of the Assessing Officer to make addition in the assessee's case by making vague references to the assessment of M/s. Advik who is a sub-contractor to M/s. GKC., to whom the work is entrusted by the Assessee.
16. The AR submitted that in para-3.1 of the Assessment Order, the Assessing Officer confirmed the fact that M/s. GKC, subcontracted levelling work worth Rs. 4,99,55,400/- at 13 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== Chilamattur in Anantapur District to M/s. Advik and also the fact that the assessee had given the subcontract to M/s, GKC. The Assessee had given the subcontract, made the payment, deducted the TDS, deposited the TDS and issued relevant Certificates together with the confirmation from M/s. GKC. Under these circumstances, there is no justification whatsoever on the part of the Assessing Officer to bring in the assessment made in the hands of M/s. Advik for the purpose of making such huge addition arbitrarily.
17. The AR further submitted that in para-3.2 of the Assessment Order, the Assessing Officer stated as under:
"It is further informed that for the A.Y. 2009-10, while verifying the genuineness of the claims of the above assessee M/s. Advik Builders & Consultants Pvt. Ltd., it is found out that the company Advik Builders & Consultants Pvt. Ltd., is a non-existent company."
18. This finding of the Assessing Officer is ex-facie erroneous as is evident from the order of the Dy. Commissioner of Income Tax, Circle-l(l), Hyderabad for the Income Tax Assessment Year 2009-10 passed u/s. 143(3) of the Act on 30-12-2011, a copy of which is enclosed. The conclusion that M/s. Advik is a non-existent company is totally erroneous and contrary to facts on record.
19. The AR submitted that the Assessing Officer in para-3.3 recorded a finding that M/s. GKC on his direct enquiry confirmed by its letter dated 15-12-2011 that it had taken on subcontract from the assessee company the land development 14 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== and levelling works at Chilamattur, Anantapur District. In the same paragraph the Assessing Officer made a meek attempt to record a finding that "in the case of GKC's one of the subcontractor, i.e., Advik Builders & Consultants Pvt. Ltd., it is proved that the transaction is not genuine". The Assessing Officer does not even refer specifically which part of the transaction as far as the Assessee is concerned as not genuine. The Assessing Officer made an indiscriminate huge addition of Rs. 17,05,38,557 by making passing references of the assessment of M/s. Advik without any substance and contrary to the facts on record which could be gathered from the order enclosed of M/s. Advik.
20. The AR submitted that the above submissions are made without prejudice to the basic contention that the assessment in the hands of one of the subcontractors down the line of the assessee company has no relevance for making such huge addition in the hands of the assessee. In the light of the above, the Tribunal may be pleased to delete the disallowance of Rs. 17,05,38,567 relating to the subcontract awarded to M/s. GKC and actually paid to them and pass such other order as the Tribunal may deem it fit and appropriate in the interest of justice.
21. We have heard both the parties and perused the material on record on the issue relating to disallowance of expenditure. There is disallowance of payment made to sub- contractors at Rs. 17.62 crores.
15ITA No. 271/Hyd/2013
M/s. Muppa Homes Pvt.. Ltd.
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22. Primarily, the payment of Rs. 17.62 crores was made to M/s. GKC Projects. This disallowance was made by the lower authorities on the reason that the assessee not proved genuineness of the payments. A part of this contract relating to land leveling work was given on subcontract to M/s. Advik Builders & Consultants (P) Ltd., who were said to be non- existent company. No enquiry was made with this party. The contention of the assessee's counsel is that this amount was subjected to TDS. Being so, it cannot be disallowed as M/s. Advik is also assessed to tax by DCIT, Circle-1, Hyderabad for A.Y. 2009-10 u/s. 143(3) vide order dated 30.12.2011. Further, he contended that the assessee discharged the burden that the expenditure has been laid out and expended wholly and exclusively for the purpose of business.
23. In the present case, the assessee has incurred expenditure and claimed as deduction. The claim was not allowed by the Assessing Officer on the reason that this payment is not genuine and a part of contract is said to be executed by non-existent company.
24. With regard to the proposition that it is for the assessee to discharge whether any expenditure should be incurred in the course of his business or trade and such expenditure may be incurred voluntarily and without any necessity and such expenditure is incurred, even voluntarily for promoting the business interest and to earn profit, the assessee is entitled to claim deduction under sub section (1) of 37, though there is no 16 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== compelling necessity to incur such expenditure. It is also observed that payment itself established and, secondly it is not the case of the assessing authority that the particulars of the persons to whom the amounts were paid could not be furnished. According to the DR the payment is based on "no evidence", but is based on irrelevant considerations. Allowance or disallowance of a claim under section 37(1) should depend upon existence or otherwise of the four conditions as follows:
1. The expenditure in question should not be of the nature described under the specific provisions ss 30 to 36.
2. The expenditure should not be of nature of capital expenditure.
3. It should not be a personal expenditure.
4. The expenditure have been laid out for expended wholly and exclusively for the purposes business or profession.
25. Now, we will examine, whether in this case the assessee has fulfilled the requirement as envisaged by the provisions of the Act. We have carefully gone through the provisions of sections 30 to 36. Section 30 relates to the allowability of payment like rent, rates, taxes, repairs and insurance for the premises used for the purpose of business or profession. In the instant case, the claim of the assessee does not relate to the kind of expenditure specified in s. 30 and hence that section is not applicable. Section 31 relates to allowability of repairs and 17 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== insurance in respect of machinery, plant and furniture used for the purpose of business. Similarly, section 32 is related to allowability of depreciation on assets used in business. In the same way, while Section 32A is relating to investment allowance, section 32AB is relating to investment deposit account. Section 33 deals with development rebate, while Section 33A deals with development allowance. Similarly, Section 33AB deals with tea development account, coffee development, rubber development account, as against Section 33ABA relating to site restoration fund. Similarly, Section 33AC deals with reserves for shipping business. Section 33B relates to rehabilitation allowance and Section 34 deals with conditions for depreciation allowance and development rebate. Section 34A deals with restriction on unabsorbed depreciation and unabsorbed investment allowance for limited period in case of certain domestic companies. Section 35 deals with expenditure on scientific research. Section 35A deals with expenditure on acquisition of patent right or copy right. Section 35AB deals with expenditure on know-how. Section 35ABB deals with expenditure for obtaining licence to operate telecommunication services. Section 35AC deals with expenditure on eligible project or scheme. Section 35AD deals with deduction in respect of expenditure on specified business. Section 35B deals with export market development allowance. Section 35C deals with agricultural development allowance. Section 35CC deals with rural development allowance. Section 35CCA deals with expenditure by way of payment to association and institutions for carrying out rural 18 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== development programmes. Section 35CCB deals with expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources. Section 35D deals with amortization of certain preliminary expenses and 35DD deals with amortization of expenditure in case of amalgamation or de- merger. Section 35DDA deals with amortization of expenditure incurred under voluntary retirement scheme. Section 35E deals with deduction for expenditure on prospecting etc. for certain minerals. Section 36 deals with other deduction in respect of premium paid, interest, etc.
26. The claim of payment of subcontract by the present assessee is not disqualified for deduction under the Act. Now, coming to next question as to whether the expenditure is capital expenditure or not, we are of the opinion that the expenditure is not a capital expenditure since the assessee did not acquire any capital asset.
27. As for the third condition as to whether the payment is in the nature of personal expenditure or not, again, in our opinion, this is not the payment relating to personal benefit of any employees or directors of assessee-company. Being so, it is not personal expenditure.
28. Now, we have to see whether the expenditure is incurred wholly and exclusively for the purpose of business. In the case of Sassoon J. David & Co. Ltd. Vs. CIT (118 ITR 261 19 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== (SC) wherein held that the expression 'wholly and exclusively' used in s. 10(2)(xv) does not mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfies otherwise the tests laid down by the law.
29. Considering the above proposition, we find that the said entire payment of subcontract cannot be disallowed as there is evidence for such payment. Now, the issue before us is whether the assessee has established the payment of subcontract by producing the necessary evidence. The reason for disallowance is that one of the parties who had taken subcontract from M/s. GKC Projects was not in existence. The Assessing Officer started enquiry in the last quarter of the year 2011, i.e., after 2 to 3 years. At that time the sub-contractors might have changed their place of business and non tracing by the AO cannot be a reason to find fault with the assessee and to disallow the expenditure incurred by the assessee. 20 ITA No. 271/Hyd/2013
M/s. Muppa Homes Pvt.. Ltd.
======================
30. In the instant case of the assessee-company the payment details had been produced by the assessee-company before the Assessing Officer. The payment details contained full details of the nature of transaction. In other words, the details of all transactions in respect of which the subcontract payment had been paid by the assessee-company are duly recorded in the payment vouchers and other evidence.
31. The AR submitted that the details furnished before the AO contain the nature of works carried on by the subcontractors. In view of the above facts, we are unable to accept the contention of the learned Departmental Representative that the genuineness of the payment was not established by the assessee. In our opinion, genuineness of the payments was established by the assessee.
32. The initial onus and burden of proof was on the assessee. In the instant case, such initial onus and burden of proof has been duly discharged by the Assessee Company by producing its audited books of accounts, payment vouchers- and other documents giving full details as to the nature of transactions, which necessitated the payment of such subcontract works and that this was an accepted norm and established in this line of business and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business 21 ITA No. 271/Hyd/2013 M/s. Muppa Homes Pvt.. Ltd.
====================== carried on by the Assessee Company all along. Thus, the ground taken by the Revenue is dismissed.
33. In the result, appeal of the Revenue is dismissed.
Order pronounced in Open Court on 23rd May, 2014 Sd/- Sd/-
(P. MADHAVI DEVI) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 23rd May, 2014
tprao
Copy to:
1. The Deputy CIT, Circle-16(2), Room No. 611, 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2. M/s. Muppa Homes Pvt.. Ltd., Flat No. 202, Sagacity Apts., H. No. 6-3-790/4/1, Besides Chowdary Mansion, Ameerpet, Hyderabad-500 016.
3. The CIT(A)-V, Hyderabad.
4. The CIT-IV, Hyderabad.
5. The DR, A Bench, ITAT, Hyderabad.