Income Tax Appellate Tribunal - Ahmedabad
The Dcit, Central Circle-3,, Baroda vs M/S. Ultra Tech Transmission Pvt. Ltd, ... on 16 October, 2023
आयकर अपीलीय अधिकरण, अहमदाबाद नयायपीी
IN THE INCOME TAX APPELLATE TRIBUNAL,
'' D'' BENCH, AHMEDABAD
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
And
SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER
आयकर अपील सं./ITA No. 400/AHD/2019
धििाधरण वरध/Asstt. Year: 2015-2016
D.C.I.T, M/s. Ultratech Transmission Pvt. Ltd.,
Central Circle-3, Vs. GF-1, Radhakrishna Flat,
Vadodara. Plot No.7,
Shanti Niketan Soc.,
Nr. ESI Hospital,
Opp. Haveli Productivity Road,
Alkapuri,
Vadodara-390007.
PAN: AABCU3751A
(Applicant) (Respondent)
Revenue by : Shri Ashok Kumar, Sr.D.R
Assessee by : Shri Bandish Soparkar, with
Shri Parin Shah, A.Rs
सुिवाई की तारीख/Date of Hearing : 19/07/2023
घोरणा की तारीख /Date of Pronouncement: 16/10/2023
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi, arising in the matter of assessment order passed under s. 143(3) of the Income ITA no.400/AHD/2019 A.Y. 2015-16 2 Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
2. The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowances of sub-contract expenses for Rs. 1,57,64,947/- only.
3. The brief facts in relation to the year in dispute are that the assessee is a private company and engaged in the business of erection, procurement/supply, and construction of transmission towers for carrying electric line. A survey under section 133A of the Act was conducted on 18-6-2015. In consequence to the survey, it was found that the assessee company during the year under consideration had shown payments to certain sub-contractors for an amount aggregating to Rs. 1,57,64,947/- only which was not genuine. As such, the statements of certain sub-contractors were recorded, based on which the AO concluded that the sub- contractors could not provide any evidence of the contractual work done by them for the assessee firm, except copies of invoices of such work. In holding so, the AO made following observations:
(i) Majority of the sub- contractors had worked only for M/s Ultratech transmissions.
(ii) The sub-contractors had no record of material purchase bills, wage registers etc.
(iii) In case of majority of sub- contractors, the return of income was filed by the employees/owner of M/s Ultratech transmissions.
(iv) The contractors filed income tax returns showing's income under section 44AD of the Act, though they were supposed to maintain the books of accounts.
(v) The bank accounts of all the sub- contractors were opened by them in Canara Bank, Baroda on the advice of Mr. Rajnikant (employee of the assessee) who was the introducer of these contractors to the bank.
ITA no.400/AHD/2019 A.Y. 2015-16 3
(vi) In many cases, the cheques received from M/s Ultratech Transmissions were deposited in the bank account and cash was withdrawn from the bank account of sub- contractors.
(vii) Majority of the sub- contractors had no technical training to do the foundation work and erection of electrical transmission towers.
(viii) Majority of sub- contractors were poor and did not have financial capability to work on credit for the amounts running in lakhs of rupees.
(ix) The correspondence address provided to Canara Bank by such sub-
contractors was the registered address of M/s Ultratech Transmissions.
4. The AO, in view of the above observations, disallowed the payment made to the subcontractors for Rs. 1,57,64,947/- by holding the same as bogus and added to the total income of the assessee.
5. On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO in the combined order passed by him for A.Y. 2014-15 and 2015-16. The relevant findings of the learned CIT(A) are available at para 5.2 to 5.6 on pages 11 to 14 of his order dated 17-12-2018.
6. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.
7. The learned DR and the learned AR, both before us, vehemently supported the order of the authorities below as favourable to them.
8. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that consequence to the survey dated 18th June 2015, the assessment of the assessee for the A.Y. 2009-10 to 2012-13 was reopened under section 147/148 of the Act and after reopening identical disallowance on account of payment to sub-contractors were made in the assessment order passed under section 143(3) r.w.s. 147 of the Act. On appeal by ITA no.400/AHD/2019 A.Y. 2015-16 4 the assessee, the learned CIT(A) deleted the disallowance of subcontract expense in all the above-mentioned assessment years. The Revenue carried the issue before this Tribunal in ITA Nos. 393 to 396/AHD/2019 wherein the coordinate bench of this tribunal vide order dated 16-11-2022 partially allowed the grounds of appeal of the revenue by confirming the disallowances to the extent of 10% of payments the subcontractors. The relevant findings of the Tribunal in above mention appeals are extracted as under:
9. We have heard the rival contentions and perused the material on record. We observe that in the instant case, the assessee is in the business of erection, procurement/supply and construction of transmission towers for carrying electric line. For the purpose of carrying out work, the assessee engaged several sub-contractors. It is not a matter of dispute that the income earned from such activities have been subject to tax in the hands of the assessee. Further, it was also not possible for the assessee to carry out such contract work without engaging sub-contractors to carry out the same. The argument of the assessee is that once the tax has been levied on the sales/ contractual income earned by the assessee, and the income from the assessee's business itself has not been doubted, then the entire sub- contracting expenses cannot be disallowed for the simple reason that it would not have been possible for the assessee to carry out the work in absence of the necessary work being sub-contracted, which facilitated the earning of income. At the same time, we also observe that there are certain evident/apparent discrepancies which are seen from the statements of subcontractors recorded and other facts on record before us, which point out to the fact that the sub- contractors are not completely genuine (as observed by the AO in detail during the course of assessment proceedings). In our view, it would not be justifiable to disallow the entire sub-contracting expenses when the corresponding income has been subject to tax in the hands of the assessee. However, when on consideration of the totality of facts and circumstances, it is found that the expenses claimed are not genuine, then there is always an element of speculation on the quantum of disallowance that should be made in case expenses made which are apparently not genuine. In this respect, it would be useful to discuss some of the decisions, which throw useful light on the subject before us.
9.1 In the case of Synbiotics Ltd [2019] 106 taxmann.com 316 (Gujarat), the Gujarat High Court held that where Assessing Officer made addition on account of bogus purchase of raw material by assessee company, since Commissioner (Appeals) and Tribunal concurrently found that assessee had yielded huge profits during year from sales which would not be possible without utilising huge raw material, Tribunal was wholly justified in restricting impugned additions on account of bogus purchased to 25 per cent. However. in the case of Sanjay Oilcake Industries [2009] 316 ITR 274 (Gujarat), the Gujarat High Court held that where certain additions were made on account of inflated purchase price and alleged sellers were not traceable and though payments had been made by account-payee cheques, entire amounts so deposited had been withdrawn by bearer cheques, Tribunal was justified in sustaining addition. In the case of Premkumar B. Rathi [2015] 59 taxmann.com 203 (Gujarat), the Assessing Officer opined that assessee failed to discharge onus of proving genuineness of aforesaid purchase; he, thus, made addition of 25 per cent of total purchases taking it as 'unexplained purchase'. The Commissioner (Appeals) reduced addition to 20 per cent on account of unexplained purchases. The Tribunal further reduced said disallowance to 10 per cent of purchases relying on decision of coordinate bench of Tribunal. The Gujarat High Court upheld the order of Tribunal and held that the same did not require any interference and confirmed the disallowance @10% of bogus purchases. In the case of Jagdish H Patel [2017] 84 ITA no.400/AHD/2019 A.Y. 2015-16 5 taxmann.com 259 (Gujarat), the Gujarat High Court held that where AO having found that during year assessee had made bogus purchases of certain amount added said amount to his income and Tribunal having found that assessee's GP for year under consideration was 7 per cent, adopted GP rate of 8 per cent on purchase and reduced addition, Tribunal was justified. In the case of Simit P. Sheth [2013] 38 taxmann.com 385 (Gujarat), the assessee was engaged in business of trading in steel on wholesale basis. The Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus. He, accordingly, added entire amount of purchases to gross profit of assessee. The Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other parties from grey market, sustained addition to extent of 30 per cent of purchase cost as probable profit of assessee. The Tribunal however, sustained addition to extent of 12.5 per cent. The High Court held that since purchases were not bogus but were made from parties other than those mentioned in books of account, only profit element embedded in such purchases could be added to assessee's income. Accordingly, the High Court sustained the addition to the extent of 12.5% of the bogus purchases. The case of Bholanath Poly Fab (P.) Ltd. [2013] 40 taxmann.com 494 (Gujarat), the Gujarat High Court held that where assessee did purchase cloth and sell finished goods, but purchasers were not traceable, profit element embedded in purchases would be subjected to tax and not entire amount. In the case of Shoreline Hotel (P.) Ltd. v. CIT [2018] 98 taxmann.com 234 (Bombay), the High Court held that where on basis of information received from Sales Tax authorities, Assessing Officer found that assessee was beneficiary of bogus purchase bills and assessee could not produce any material purchased by it nor it could ensure presence of supplier, Assessing Officer was unjustified in limiting addition under section 69C on basis of GP ratio. In the case of Vijay Proteins Ltd. v. CIT [2015] 58 taxmann.com 44 (Gujarat), the at High Court held that Assessee inflated expenditure by showing higher purchase price through fictitious invoices in name of 33 fictitious parties, Tribunal was justified in disallowing 25 per cent of purchase price. In the case of Vijay Trading Co. v. ITO 2016] 76 taxmann.com 366 (Gujarat), the High Court held that In respect of bogus purchases, only profit element embedded therein would be subjected to tax. In the case of SPL Infrastructure (P.) Ltd. SPL Infrastructure (P.) Ltd.[2020] 118 taxmann.com 498 (Madras), the assessee was a contractor, who carried out the work of road laying in the Thermal Power Plant. The AO made an addition in the hands of assessee on the ground that 14 of the sub-contractors to whom the sub contracts were assigned by assessee/ contractor were not produced before AO upon summons being issued to them and thereupon, disbelieving their existence and the sub contract work carried out by them, the entire payments made to them were disallowed by AO and they were added back to the income of assessee. Tribunal, restricted disallowance to 10% of expenditure incurred towards subcontractors. It was held that a bare perusal of the compared results of the Gross Profit and Net Profit by assessee clearly showed that the Gross Profit at the rate of 14.21% and Net Profit at the rate of 3.83% declared by Assessee, with the addition of 10% agreed by assessee before CIT (Appeals), resulted in a much better result of profits declared by assessee in the present Assessment Year viz., A.Y.2010-11 as compared to the previous years. Therefore, the estimation of profit by Appellate Authorities even on the premise taken by AO that some of the sub contractors could not be produced before AO, did not result in any perversity in the findings of CIT (Appeals) as well as Tribunal. Considering nature of work carried on by assessee, there was no question of not incurring of expenditure by assessee to carry on road work contracts and the work was mentioned in the Measurement book maintained by assessee and counter signed by the sub contractors. However, there was chances of inflating the expenditure for which disallowance of 10% of expenditure claimed was justified and disallowance of entire amount could not be appreciated.
ITA no.400/AHD/2019 A.Y. 2015-16 6 9.2 Accordingly, in light of the judicial precedents cited above, a certain percentage of such alleged bogus purchases may be disallowed, keeping into consideration the profit offered to tax by the assessee. During the year under consideration, the assessee had calculated NP at 16.09% of the Turnover. Accordingly, considering the observations made by the Ld. Assessing Officer in assessment order regarding the nature of sub-contracting expenses and looking into the totality of facts of the instant case interpreted in light of judicial precedents highlighted above, we are of the view that in the instant set of facts, 10% of the above alleged bogus sub-contracting expenses may be disallowed and added back to the income of the assessee.
9. Before us, no material has been placed on record either by the learned DR or AR, demonstrating that the decision of Tribunal as discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before us, no material was placed on record to pointing any distinguishing feature in the facts of the case of earlier AYs and the year under consideration. Thus, respectfully following the order of the Tribunal in the own case of the assessee as discussed above, we hereby set aside finding of the learned CIT(A) and direct the AO to restrict the addition to the extent of 10% of payment to alleged bogus subcontractors. Thus, the ground of appeal raised by the Revenue is hereby partly allowed.
10. In the result appeal filed by the Revenue is hereby partly allowed.
Order pronounced in the Court on 16/10/2023 at Ahmedabad.
Sd/- Sd/-
(SIDDHARTHA NAUTIYAL) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy)
Ahmedabad: Dated 16/10/2023
Manish