TMI Blog2012 (10) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... fair and reasonable estimate is made in place of technicalities of applicability of sec. 40(a)(ia); the debate about words 'paid and payable' and the debate about revenue having not proceeded against the assessee u/s 201(1). To put rest to these technical debates, it will be in the interest of justice to make a reasonable estimate of assessee's income, when its work execution has not been questioned. - Income estimated at 6% i.e. 8% minus 2% for subletting. - Decided partly in favor of assessee. - IT APPEAL NO. 3248 (DELHI) OF 2011 - - - Dated:- 27-4-2012 - R.P. TOLANI, K.D. RANJAN, JJ. Kapil Goel for the Appellant. N.K. Chand for the Respondent. ORDER R.P. Tolani, Judicial Member This is assessee's appeal against CIT(A)'s order dated 1-4-2011 relating to A.Y. 2007-08. Following grounds are raised: "1. That on the facts and in the circumstances of the case and in law, learned CIT(A) erred in confirming the action of Assessing Officer/AO in making disallowance u/s 40(a)(ia) of the Act amounting to Rs. 1,55,47,512/- on mere material purchases made from M/s Radhey Shyam Gupta India (P) Ltd. (RSGIPL). 2. That on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound. 5. Brief facts are: The assessee is a project office in India of the parent company situated in Spain. The assessee undertakes contracts from various govt. bodies like NDMC, DDA and PWD etc. During the year in question, the assessee obtained a contract from NDMC for strengthening and resurfacing of roads in NDMC area. The assessee derived contract receipts of Rs. 1,53,48,608/-. According to P L A/c of the assessee's computation an amount of Rs. 1,53,48,608/- (net of taxes-VAT) and TDS of Rs. 3,87,476/-. Thus the gross receipt amounted to Rs. 1,57,36,084/-. According to assessee it has executed the work by purchasing the raw material i.e. Bituminous Mix from one M/s Radhey Shyam Gupta India (P) Ltd. ("RSGIPL" in short), hired machinery from another company M/s STC Construction and cement, grit etc. from other parties, claimed to have executed work by itself by purchase of the material from RSGIPL and by using the hired machinery. 5.1 The assessee filed its return declaring nil income. During the course of assessment, AO found that the assessee had not debited any salary expenses so as to support the theory of the assessee that it had executed the contract work. There w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: Total income declared by the assessee (-) 4,10,539 Add: Disallowance u/s 40(a)(ia) of the Act 1,55,47,512 Total income: 1,51,36,973 Rounded off to 1,51,36,970 5.3 Aggrieved, assessee preferred first appeal. CIT(A), however, confirmed the order of AO by following observations: "2.7 The Court looks at the substance of the transaction and not the label which the parties may have agreed to put on the transaction. The Court is entitled to decide whether or not the agreement between the parties is a mere camouflage to get round the rigors of the TDS legislation. Irrespective of the label may have been put upon the transaction by the parties, the doubt would gather the true intention of the parties as to whether the transaction has been made to circumvent the provision of Sec. 194C of the Act. The record further reveals that the job was given to the same contractor in the following year and it is impossible to get the purchase done from the contractor and getting the job done by itself without incurring a single pie expenditure on salary, wages and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties have sold Bituminous Mix and other material. They have collected VAT thereon wherever application, which has been duly deposited by them in the govt. treasury. No supplier will charge VAT on the goods unless the transaction is of sale of the goods. In case of works contract VAT is not leviable. Ld. counsel refers to the invoices placed on paper book in this behalf. ( iii ) Similarly, assessee had hired machinery like JCB/ loader, cement from M/s Triveni Enterprises. Apart from supply of Bituminous Mix, RSGIPL has supplied labour also for which 2 invoices amounting to Rs. 4,50,000/- and Rs. 5,45,000/- are on record. The assessee's liability for deduction of tax may be applicable only in respect of labour supply by the RSGIPL which amounts to Rs. 10 lacs. The remaining amount is undisputedly sale of Bituminous Mix which is evidenced by proper invoices and on which VAT has been charged. Bituminous Mix was separately supplied by RSGIPL. Machineries were hired and stone dust were purchased. All the bills are on record, therefore, without controverting them, on assumption it cannot be held that RSGIPL executed the entire work on sub contract basis. Lower authorities have not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 201(1) are to be initiated to hold the assessee in default and recover the tax. Action u/s 201(1) is not taken by department in assessee's case. In case of amount remaining payable, the same can be disallowed u/s 40(a)(ia). Reliance is placed on ITAT Delhi Bench 'G' order dated 25-4-2011 for this proposition, in the case of SRS Real Estate Ltd. v. Addl. CIT [IT Appeal No. 2218/Delhi/2010] as under: "Therefore, in our considered opinion the CIT(A) erred in not following " Jaipur Vidyug Vitran Nigam Ltd. " ( supra ). The ld. CIT(A) has held, while observing that Jaipur Vidyug Vitran Nigam Ltd. ( supra ) was not binding on him, as it was not from the jurisdictional bench of the Tribunal, that whether the amount for TDS purposes is paid or payable, the provision of section 40(a)(ia) are attracted in both cases, due to their penal implications. However, the CIT(A) has not cited any decision in favour of this proposition as opposed to Jaipur Vidyug Vitran Nigam Ltd. ( supra ). Moreover, as observed, 'K. Srinivas Naidu' ( supra ) has followed ' Jaipur Vidyug Vitran Nigam Ltd. ( supra ). Even otherwise, it is trite law that nothing can be added to or subtracted from the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee with RSGIPL was divisible. ( iv ) Apropos the use of words paid/ payable in sec. 40(a)(ia), it is pleaded that word paid includes payable by General Clauses Act. 8. We have heard rival contentions and gone through the relevant material available on record. Both the authorities have held that the books of account of thee assessee are non-reliable and they have been prepared in such a manner so as to make it as a camouflage. The work has been by converting into self execution work by an act of splitting of work into a transaction of purchase and sale. The provisions of law cannot be interpreted in such a manner to convert a possible task into impossible task by such interpretation. Once the books are held to be camouflaged and not representing the assessee's proper income, in that case the proper course is to reject the books of a/c and estimate the income. The action of the lower authorities has resulted into an impossible situation i.e. holding the entire road contract receipts as the income of the assessee. More so when both the authorities have unequivocally accepted the fact that the roads were in fact constructed and the assessee executed its contract with NDM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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