Delhi High Court
Cit vs Rishikesh Buildcon Pvt Ltd on 21 March, 2012
Author: Sanjiv Khanna
Bench: Sanjiv Khanna, R.V. Easwar
$~20
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 21st March, 2012.
+ ITA 1719/2010
CIT ..... Appellant
Through Mr. Sanjeev Rajpal, sr. standing
counsel
versus
RISHIKESH BUILDCON PVT LTD ..... Respondent
Through Mr. Chandra Shekhar, Mr. Saurabh
Upadhyay, Mr. Manoj Agarwal and Ms.
Meghna De, Advs.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
SANJIV KHANNA,J: (ORAL)
By order dated 10th March, 2011, the following substantial
questions of law were framed :
"(i) Whether ITAT was correct in law in deleting the
addition of Rs.1.50 crore made by the AO invoking the
ITA 1719/2010 Page 1 of 14
provisions of Section 40(a)(ia) read with Section 194C of
the Act?
(ii) Whether ITAT was correct in law in holding that
there was no relationship of contractor and sub-
contractor between the assessee and M/s Rishikesh
Properties Limited?"
2. The present appeal filed by the Revenue under Section 260A of
the Income Tax Act, 1961 („Act‟, for short) pertains to assessment
year 2006-07.
3. The respondent-assessee, Rishikesh Buildcon Pvt. Ltd., is a
group company, who along with other two group companies namely,
Rishikesh Properties Pvt. Ltd. and Rupa Promoters Pvt. Ltd. were
awarded contracts by PGF Ltd.
4. During the course of assessement proceedings in the case of
the assessee, it was noticed by the Assessing Officer that the assessee
had claimed that it had carried out work worth `4.92 crores for PGF
Ltd. but the TDS certificate issued by PGF Ltd. was only in respect
of ` 4.55 crores.
ITA 1719/2010 Page 2 of 14
5. In response to the queries, the assessee vide letter dated
5.12.2008 stated as under :
"1. Please refer to point 1 of your letter dated
25.11.2008 stating deduction on TDS payment of
Rs.4,55,00,000/- where as the actual total of payment
made for TDS would come to Rs.6,42,00,000/-. Due to
some oversight the figure was mentioned as
Rs.4,55,00,000/- which is regretted. However, if the
payments made are totaled it would be Ps.(sic.)
6,42,00,000/-. It is apparent from the records and could
be rectified. So out of the total TDS on Rs.6,42,00,000/-
a contract work for Rs.4,92,00,000/- was carried out by
self and a work of Rs.1,50,00,000/- was handed over to
Rishikesh Properties Pvt. Ltd. As the case of this
company is also in scrutiny and with your good self the
same may please be accounted for in Rishikesh Buildcon
Pvt. Ltd. and removed from Rishikesh Buildcon Pvt. Ltd.
i.e. (Rs.6,42,00,000-Rs.4,92,00,000/). So the position is
correct. The TDS on Rs.1,50,00,000/- was not deducted
for the two reasons.
1. It is apparent that TDS was deducted on a total
sum of Rs.6,42,00,000/- which includes the work of
Rs.1,50,00,000/- given by us to other company.
2. The nature of work of Rs.1,50,00,000/- given to
Rishikesh Properties was that of supervision only.
Hence, no TDS deducted by us."
ITA 1719/2010 Page 3 of 14
6. The Assessing Officer, after examining the reply, held that the
assessee had failed to deduct tax at source on `1.5 crores which was
paid to Rishikesh Properties Pvt. Ltd. as was mandated and required
by Section 194C and therefore, the provisions of Section 40(a)(ia)
were attracted. It was also recorded by the Assessing Officer that the
assessee had raised bills to PGF Ltd. for work of `6,46,93,646/-
whereas the TDS certificate submitted by the assessee was for
`4,55,00,000/-. During the course of hearing, the assessee had
submitted that it had actually done work for ` 6.42 crores. Thus,
there was a difference of `1.5 crores, which it stated, had been
undertaken and carried out by Rishikesh Properties Pvt. Ltd., the
sub-contractor.
7. The first appellate authority on appeal filed by the assessee
deleted the said addition for the reasons set out, which read as under:
"7.4 I have considered the submissions of the A/R of the
appellant and the facts brought out in the assessment
order by the A.O. that the assessee has paid a sum of
Rs.150,00,000/- to M/s Rishikesh Properties as sub-
contractor for carrying out the work without deducting
TDS under the relevant provisions of the Act, therefore
the Ld. A.O. had proceeded to disallow the amount of
Rs.150,00,000/- by invoking the provisions of Section
40(a) of the I.T. Act red with section 194C(2). However
the A/R of the assessee has argued before me that only
ITA 1719/2010 Page 4 of 14
expenses which have been claimed by the assessee in
profit & loss account can be disallowed under the
provisions of section 40(a) of the Act if the deduction of
TDS under relevant provisions of the I.T.Act has not
been made. The A/R of the assessee has further argued
that the Ld. A.O. though has invoked provisions of
section 40(a) but the said payment has not been a part of
expenses claimed by the assessee in its books of account
as such the disallowance was uncalled for."
8. At this stage we may mention that the aforesaid reasoning is
not convincing and has to be rejected. The assessee had submitted
that it had paid `1.5 crores to Rishikesh Properties Pvt. Ltd., the sub-
contractor. It was claimed as an expense. The reasoning given by
the CIT(Appeals) is that this amount was not treated as an expense
by the assessee in the profit and loss account and therefore, there
cannot be any disallowance under Section 40(a)(ia). If this is
correct, then the entire amount, as stated by the assessee in the letter
dated 5.12.2008, of `6.42 crores was to be treated as income and
`1.5 crores could not be treated as an expense. The result would
ITA 1719/2010 Page 5 of 14
have been the same, whether any disallowance was made under
Section 40(a)(ia) of the Act or not.
9. The Revenue preferred further appeal before the Tribunal,
which has been dismissed by the impugned order dated 18.12.2009.
The relevant reasoning given by the Tribunal reads as under:
"5.4 We have perused the orders of authorities below
and arguments of Ld. DR. From the table referred in
para 4.4 above it is noticed that the total receipts by the
assessee is amounting to Rs.6,42,00,000/- out of which
payment of Rs.1,50,00,000/- pertains to M/s. Rishikesh
Properties. This does not relate to the total contract
value of Rs.4,92,00,000/-. The assessee claimed
expenses against the receipts declared of
Rs.4,92,00,000/- which was contract value with the
assessee company. Thus Rs.1,50,00,000/- does not form
part of the total expenses claimed by the assessee.
During the appellate proceedings it has been clarified
that payment of Rs.1,50,00,000/- was not made as a part
of sub-contractual agreement and there is no evidence in
the form of any contractual agreement which was filed
by the assessee company or the client. In fact payment of
Rs.1,50,00,000/- was neither forming part of the contract
receipts declared by the respondent in the books of
account nor Rs.1,50,00,000/- was claimed as an
expenditure. The provisions of section 40(a)(ia) are
applicable only as evident from the language that
"amounts which are not deductible" relate to an
ITA 1719/2010 Page 6 of 14
"amount payable to a contractor or sub-contractor for
carrying out any work (including supply of labour for
carrying out any work)". And such amount has to be
claimed in computing the income chargeable under the
head "profits and gain of business and profession".
Thus firstly it has to be expenditure payable to a
contractor or a sub-contractor for carrying out any
work. In the present case payments has not been made
by the respondent assessee to M/s. Rishikesh Properties
Pvt. Ltd. for carrying out any work for it as sub
contractor, secondly it is claimed as an expenditure
under the head "profits and gain of business and
profession". In fact Rs.1,50,00,000/- paid by the
respondent assessee to M/s. Rishikesh Properties for the
work done by them assigned to them by the same
company i.e. M/s. PGF Limited. Thus it is an
expenditure in the books of account of M/s PGF Ltd. for
carrying out work for them and they are claiming this
expenditure in order to declare their profit or loan as per
P & L Account but not assessee company who made
payment due to wrong payment made to them belonging
to M/s. Rishikesh Properties (P) Ltd. We have already
dealt similar issue in the case of Rishikesh Properties (P)
Ltd. in ITA No.2061/D/09 wherein total contract receipts
were declared of Rs.4,25,00,000/- for the work assigned
to them by M/s. PGF Limited which includes
Rs.1,50,00,000/- also. Thus same receipt can not form
part of another for the same work assigned by same
company. From the perusal of the facts stated in other
two cases namely Rishikesh Properties (P) Ltd. and Rupa
promoter (P) Ltd. it is found that all these companies
made contract with M/s PGF Ltd for development work
ITA 1719/2010 Page 7 of 14
at Chennai. All the working directors were common.
The promoter directors were also same or relatives. The
total contract made by the M/s PGF Limited with the
respondent assessee amounted to Rs.4,92,00,000/- while
a separate contract was made with M/s. Rishikesh
Properties by M/s. PGF Limited amounting to
Rs.4,25,00,000/-. Rs.1,50,00,000/- paid by the
respondent assessee was forming part of
Rs.4,25,00,000/- and not linked with Rs.4,92,00,000/-
declared by the respondent assessee. Since it is neither
forming part of the receipts in the profit and loss account
nor forming part of an expenditure claimed by it,
provisions of section 40(a)(ia) and section 194C are not
attracted. The same would be applicable when there is a
relation of a contractor a sub-contractor for making
payments for carrying out any work for them but not
otherwise. The assessing officer has not looked into this
aspect which was examined by the CIT (A).
We, therefore, do not find any reason to interfere
with the finding of the CIT (A) and fully agree that
provisions of section 40(a)(ia) are not applicable in this
case. The CIT (A) was justified in deleting the addition
of Rs.1,50,00,000/-. As respondent has not claimed it as
an expenditure. This itself clarify the position of non-
applicability of section 40 (a) (ia) of the Income-tax
Act."
10. As the aforesaid paras refer to paragraph 4.4 of the order and
for the sake of convenience we reproduce para 4.4 of the order
passed by the Tribunal in entirety:
ITA 1719/2010 Page 8 of 14
"4.4 We find that the issue has not been considered in
proper perspective. Similar confusion has also arose in
appeals by revenue in two other group cases which were
also heard together with this appeal. To understand the
controversy it is worthwhile to tabulate the work done by
all the three group companies together. The same is
tabulated below:
ITA No. Name of Work as per Work as per Diff.
Contractor assessee contractee
(Assessee) PGF Ltd.
(Rs. In lacs)
2061/09 Rishikesh 425 225 +200
Properties
Pvt. Ltd.
2062/09 Rishikesh 492 642 -150
Buildcon Pvt.
Ltd.
2060/09 Rupa 485 535 -50
Promoters
Pvt. Ltd.
Total 1402 1402 Nil
From the above table it is clear that all these group
companies did contract work for same client namely M/s.
PGF Ltd. Whereas total contract work done by all these
three companies and total contract work as confirmed by
M/s. PGF Ltd. do not differ, in individual cases the
ITA 1719/2010 Page 9 of 14
amount of work differs. However, the value of work
done by each company can be better appreciated on the
basis of expenses incurred by such companies for their
respective share of work. The AO has not doubted the
expenses incurred by each company. Therefore,
corresponding work done by them cannot be rejected.
The confusion further arose due to payments accounted
by client and TDS made thereon. When we are
concerned with computation of income, the same has to
be on the basis of contract work done by each company
and expenses incurred by them. The tax is deducted on
basis of payments made but TDS is not the criteria to
compute the income. Thus due to discrepancy in
deducting tax at source by the client, the income cannot
vary. It is also seen that all the receipts for contract
work done is accounted for and it is not case of revenue
that the total receipt is not accounted by three companies
taken together.
There is no sub-contracting also. All the three assessee
herein are direct contractors and have incurred then
respective expenses for work executed by them. As
stated earlier, the confusion or difference arose due to
difference in payment made by client or tax deducted
thereon rather than value of total work executed and as
accounted by all the three assessee put together."
11. We may mention here that the observations made in para 4.4
were on a different context and in respect of the addition of
`1,46,96,698/- made by the Assessing Officer on account of the bills
ITA 1719/2010 Page 10 of 14
raised by the assessee before its incorporation for work done for PGF
Ltd. In para 4.4, the Tribunal has held that whether or not the
assessee had done any work was to be judged and ascertained with
reference to the work actually performed and the bills raised and not
with reference to the TDS certificates, which has been issued by PGF
Ltd. to the assessee. The Tribunal, therefore, distinguished between
the amount mentioned in TDS certificates and the quantum of bills
raised and the work actually done on the basis of which income of
the assessee was to be assessed. We may record here that in the table
mentioned above, PGF Ltd. had stated that the assessee had carried
out work of `6.42 crores. This is in conformity and tallies with the
figure which the assessee has mentioned in the letter dated
5.12.2008.
12. The Tribunal while deleting the addition made under Section
40(a)(ia) of the Act has made out altogether a new case and accepted
the stand of the assessee that they had not paid `1.50 crores and the
ITA 1719/2010 Page 11 of 14
said work was not sub-contracted by them to Rishikesh Properties
Pvt. Ltd. This was not the case of the assessee before the Assessing
Officer and is clearly contrary to the averments in the letter dated
5.12.2008, which has been quoted above. The said letter is quoted in
the assessment order itself. Further, the Tribunal has held that
Rishikesh Properties Pvt. Ltd. was directly awarded work, which
includes work worth `1.50 crores by PGF Ltd. However, how the
said factual finding has been recorded has not been indicated and
elucidated. In para 4.4 quoted above, the Tribunal has recorded that
the work, as per PGF Ltd., awarded to the assessee was `6.42 crores.
This includes ` 1.50 crores. The Tribunal has not adverted to the
letter dated 5.12.2008 and the admissions/statements made therein.
The effect of the said letter and whether the assessee can change its
stand has not been considered and examined by the Tribunal. Failure
to consider the relevant and material evidence, which has been
referred to by the Assessing Officer, can in a given case result in
perversity and unreasonable findings, which are contrary to law. In
ITA 1719/2010 Page 12 of 14
view of the aforesaid position, we find that the order of the Tribunal
is perverse and this Court should interfere with the said order. On
the question of perversity we may refer to the decision of the
Supreme Court in the Dhirajlal Girdharilal Vs. CIT (1954) 26 ITR 736,
wherein it has held:
"It is well established that when a court of fact acts on
material, partly relevant and partly irrelevant, it is
impossible to say to what extent the mind of the court
was affected by the irrelevant material used by it in
arriving at its finding. Such a finding is vitiated
because of the use of inadmissible material and thereby
an issue of law arises."
13. In, Excise & Taxation Officer-cum-Assessing Authority v.
Gopi Nath & Sons, 1992 Supp.SCC (2) 312, it has been held as:
"7. ... if a finding of fact is arrived at by ignoring or
excluding relevant material or by taking into
consideration irrelevant material or if the finding so
outrageously defies logic as to suffer from the vice of
irrationality incurring the blame of being perverse,
then, the finding is rendered infirm in law."
14. In view of the aforesaid observations, we answer the two
substantial questions of law mentioned above in negative that is in
ITA 1719/2010 Page 13 of 14
favour of the Revenue and against the assessee. However, we pass
an order of remit to the Tribunal to decide the appeal afresh. The
Tribunal will also take into consideration the reply of the assessee
dated 5.12.2008. It will be open to the Tribunal to consider and refer
to the books of accounts etc. to ascertain the correct factual position.
To cut short any delay, it is directed that the parties will appear
before the Assistant Registrar, Tribunal on 23rd April, 2012 when a
date of hearing will be fixed.
15. The appeal is disposed of with no order as to costs.
SANJIV KHANNA, J.
R.V.EASWAR, J. MARCH 21, 2012 vld ITA 1719/2010 Page 14 of 14