Income Tax Appellate Tribunal - Rajkot
The Assistant Commr. Of Income Tax, ... vs M/S Vinay Construction Co.,, ... on 26 November, 2018
आयकर अपील य अ धकरण: राजकोट यायपीठ: राजकोट
IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH:
RAJKOT
ी सी एमगग, या यक सद य एवं ी ओपीमीना, लेखा सद य के सम
BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND
SHRI O.P.MEENA, ACCOUNTANT MEMBER
आयकरअपीलसं. / ITA No.322/RJT/2016
नधारणवष/ Assessment Year: 2011-12
Asst. Commissioner of Income Tax, Vs. M/s. Vinay Construction Co.,
Circle-1(2), 110-112, Silver Chamber,
Rajkot. Tagore Road,
Rajkot.
[PAN: AABFV 5943Q]
(अपीलाथ /Appellant) ( यथ /Respondent)
नधा रती क ओरसे/Assessee by : Shri D.M. Rindani, A.R
राज वक ओरसे/Revenue by : Shri Praveen Verma, Sr. DR
सन
ु वाईक तार ख/Date of Hearing : 22-11-2018
घोषणाक तार ख /Date of Pronouncement : 26-11-2018
आदे श /ORDER
PER C.M. GARG, JUDICIAL MEMBER:
This appeal has been filed by the Revenue against the order of Commissioner of Income Tax (Appeals), Jamnagar ('CIT(A)' for short) dated 28.06.2016 for the Assessment Year (A.Y) 2011-12.
2. The grounds raised by the Revenue read as follows:
1. The CIT(A), Jamnagar has erred in law and on facts in deleting the addition made on account of disallowance of bogus claim u/s. 37 of the Act of Rs. 83,72,281/-.2
ITA No.322 /RJT/2016 (A.Y: 2011-12) M/s. Vinay Construction Co.
2. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer be restored.
3. We have heard the arguments of both sides and carefully perused the relevant material placed on the record of the Tribunal. The ld. Departmental Representative (DR) submitted that the CIT(A), Jamnagar has erred in law and on facts in deleting the addition made on account of disallowance of bogus claim u/s. 37 of the Income Tax Act, 1961 (in short 'the Act') of Rs. 83,72,281/-. The ld. DR submitted that from the submissions of the assessee, audit report and assessment records, it is clearly discernable that the assessee has made payments of Rs. 83,72,281/- to nine parties, which is covered u/s. 40A(2)(b) of the Act, which provides that any expenditure incurred by an assessee in respect of which payment has been or is to be made to the specified persons liable to be disallowed in computing business profits to the extent such expenditure is considered to be excessive or unreasonable having regard to the fair market value of goods or services or facilities etc. The ld. AR submitted that from the facts and circumstances of the case, it is clear that the impugned amounts paid to the sub-contractors as sub-contract and salary expenses is nothing but an artificial arrangement on paper to evade tax therefore, the AO right in making disallowance being bogus claim of the assessee.
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ITA No.322 /RJT/2016 (A.Y: 2011-12) M/s. Vinay Construction Co.
4. The ld. DR also submitted that no payment has been made by the assessee and after claiming the bogus payment the amounts has been shown as outstanding or due to these nine entities/persons in the balance sheet therefore, the same has to be held as bogus and not allowable. The ld. DR submitted that the assessee has not replied show cause notice of the AO in this regard which again supports the fact of bogus claim which was rightly disallowed by the AO. The ld. DR submitted that the ld. CIT(A) has granted relief to the assessee without any basis therefore, impugned order may kindly be set aside by restoring that of the AO.
5. Replying to the above, the ld. Assessee's Representative (AR) submitted that the assessee has made identical claim on identical facts and circumstances in subsequent assessment years 2013-14 & 2014-15, wherein no disallowance has been made by the AO keeping in view the module of business and modus operandi followed by the assessee as a Civil Work Contractor of State and Central Govt. The ld. AR submitted that there is no allegation of AO that either payments has been made on inflated price in comparison to the other sub-contractors and the copies of the ITR of recipient sub contractors show that the amounts given by the assessee towards work done by them has been shown in the return and same has been offered to tax therefore, no allegation of bogus claim or tax evasion can be made either against the assessee or against the 4 ITA No.322 /RJT/2016 (A.Y: 2011-12) M/s. Vinay Construction Co.
recipients of sub contractors. Finally, the ld. AR submitted that even in any case entire amount of claim cannot be held as bogus.
6. On careful consideration of above rival submissions, we observe that admittedly and undisputedly assessee is a Civil Work Contractor, who undertake civil work contracts from Government and receives contract amount against the work done. The impugned claim of the assessee is pertaining to the payments made to the sub contractors and the main allegation of the AO was that the assessee has not actually made any payment to these contractors and only outstanding amount in the balance sheet has been shown without making any payment and claim has been made in the balance sheet in contravention of s. 40A(2)(b) of the Act to the related parties.
7. It is not a case of AO that either the assessee has made payment to the sub contractors on higher rates in comparison to the similar work done by the similar sub contractors in the similar conditions. However, we are in agreement with the basis taken by the AO that no payment has been made during the relevant period and only claim has been made and without making any payment the entire amount has been shown as outstanding in the balance sheet. The assessee is receiving entire amount from Government Dept. against the civil work done by it and no payment could have been received from the Government without any 5 ITA No.322 /RJT/2016 (A.Y: 2011-12) M/s. Vinay Construction Co.
work therefore, the factum of discharging and executing sub contract work by the recipient sub contractors cannot be ruled out or dismissed at the threshold merely because no payment was made during the year and all amount has been shown as outstanding. We are in agreement with the contention of the ld. AR that in the cases, where sub contract work is done by the related parties or partners of the firm, the compulsion of advance payment is waived or given up which provides financial support to the main contractor i.e., assessee and the same support was given by the sub contractors to the assessee in the time of financial constrain by discharging the sub contract work without receiving any payment by the related sub contractors, which is a hidden benefit to the assessee in providing sub contracts to the related persons/partners.
8. Keeping in view, entire facts and circumstances of the case, we are of the considered opinion that in any case entire amount of sub contract amount cannot be disallowed. Only excess part of amount paid to the related parties in comparison to the other similar cases can be disallowed by invoking provisions of s. 40A(2)(b) of the Act and in the present case the AO has disallowed entire amount of claim without any allegation of payment to the sub contractors on higher side in comparison to the other similar sub contractors therefore, action of the AO was not justified and correct in disallowing the entire amount of claim. At the same time, we further observe that since the amount has been claimed by the assessee 6 ITA No.322 /RJT/2016 (A.Y: 2011-12) M/s. Vinay Construction Co.
regarding payment to the sub contractors, who are related parties, and only claim has been made in the P & L a/c. without making any payment during the period and the same has been shown outstanding in the balance sheet at the end of year, which raise the possibility of leakage of revenue by way of partly enhanced or artificial claim. Therefore, the ld. CIT(A) was also not correct in deleting the entire amount of claim without any positive findings in favour of the assessee therefore, the final conclusion recorded by the ld. First appellate authority is also not justified and correct.
9. Keeping in view, the entire facts and circumstances of the case and foregoing discussion, we are of the considered view that neither the entire amount of claim can be held as bogus and disallowed nor the entire amount can be treated as sacrosanct, justified and allowable therefore, findings recorded by the authorities below being arbitrary and contrary to the provisions of the Act are set aside. In our considered opinion, ends of justice would be achieved and all possible leakage of revenue would be covered if a reasonable part of claim is disallowed and thus, we direct the AO to disallow 20% of total claim made by the assessee on account of payment of the sub constrictors. Accordingly, sole ground of Revenue is partly allowed with the directions to the AO as given above to recalculate the disallowance.
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ITA No.322 /RJT/2016 (A.Y: 2011-12) M/s. Vinay Construction Co.
10. In the result, appeal of the Revenue is partly allowed. Order pronounced in the open court on this day of 26th November, 2018 Sd/- Sd/-
(ओ.पी.मीना/O.P.MEENA) (सी.एम.गग /C.M.GARG) लेखासद य के सम / Accountant Member लेखासद य के सम /Judicial Member
Rajkot/राजकोट; &दनांक/Dated : 26th November, 2018/ EDN, Sr. P.S आदे श क! त#ल$प अ%े$षत/Copy of the Order is forwarded to :
1.अपीलाथ*/The Appellant;
2.+,यथ*/The Respondent;
3.आयकर आयु.त(अपील)/The concerned CIT(A);
4.The concerned Prl. CIT;
5./वभागीय + त न ध, आयकर अपील य अ धकरण, / DR, ITAT, राजकोट/Rajkot;
6. गाडफाईल / Guard file.
// By order // Assistant Registrar, ITAT, Rajkot Bench, Rajkot