TMI Blog2014 (6) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... e at ₹ 20 lacs in the trading result of the Assessee – Decided partly in favour of Assessee. - I.T.A. No. 3811/AHD/2008 - - - Dated:- 16-5-2014 - Shri G. C. Gupta And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri Mehul R. Shah For the Respondent : Shri R. K. Dhanista, Sr. D.R. ORDER Per Shri Anil Chaturvedi,A.M. 1. This appeal is filed by the Assessee against the order of CIT(A)-V, Surat dated 11.10.2008 for A.Y. 2005-06. 2. The relevant facts as culled out from the material on record are as under. 3. Assessee is a firm engaged in the business of manufacturing grey cloth trading and manufacturing of textile goods. Assessee filed its return of income for A.Y. 05-06 on 31.10.2005 showing total income of Rs. 2,20,907/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 28.12.2007 and the total income was determined at Rs. 1,42,54,030/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A). CIT(A) vide order dated 11.10.2008 dismissed the appeal of the Assessee. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us. Before us at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked to show as to why the payment made to sister concerns not be treated as contract and since no TDS was deducted, same be disallowed under section 40(a)(ia) of the Act. The Assessee interalia submitted that the payment made to sister concerns was in the nature of reimbursement of the expenses and were not in the nature of contract payments therefore there was no question of deduction of tax at source. The submissions of the Assessee was not found acceptable to the A.O. for the following reasons (i) There was an oral agreement between Assessee and the sister concerns, all of them were systematically carrying out the expenses and the same was reimbursed by the Assessee every month. (ii) The Assessee was maintaining separate labour register and wages register for each of the sister concerns. (iii) All the expenses were incurred by sister concerns and the sister concerns have been reimbursed by the Assessee. Further the expenses were not incurred directly by the Assessee nor paid by Assessee. A.O. was further of the view that all the expenses were incurred by sister concerns and Assessee had only reimbursed by passing book entries which according to him proves that the written agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce no additional charges are levied on such payment and that credit is given to sister concerns were given only for actual expenses incurred through them. Further it is vehemently submitted that rent was paid solely for leasing of machineries and premises and not for any consideration to work as has been envisaged. In this regard the appellant has filed copies of agreements, entered into between the sister concerns and itself. Also according to the appellant those sister concerns had accounted for only rental charges as income and not other expenses/and therefore it is absolutely clear that contract which did existed was only form renting of premises and machineries and not otherwise for contract of work. The appellant has further submitted that the provisions of section 40a(ia) is applicable only with respect to payment outstanding since the words used in section 40a(ia) reads as under, Amounts payable to a contractor or subcontractor being resident for carrying out any work according to the appellant person following mercantile system of accounting where the base of deduction of tax is on the amount credited to the account of the contractor. The explanation II to section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the payment of rent could be said to be consideration for services in terms of running power looms by the sister concerns as was the case in preceding previous year, it is now well settled that what is important is substance over form and that the assessing authorities are entitled to pierce the viel where the true nature of transaction are different than that of its form in which the same are effected. In the instant case what is important is merely change of book keeping entries as otherwise the actual affairs of the appellant firm viz.a.viz its sister concerns almost remained the same. i.e. in preceding previous year also the appellant was making periodical payments and all the expenses of the nature sought to be incurred in the current year were incurred by those sister concerns in preceding previous year and that there is no change in actual working barring that in preceding previous year the .appellant was making an .year end entry for work carried out where as in the current year entries are made for expenses and year end entry for rent is made separately. Nonetheless so far as actual working is concerned even in previous year also all those expenses were incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not doubted the expenses but has only held the since the expenses on which the Assessee should have deducted has not deducted the TDS, the expenditure was disallowed. He further submitted that the total turnover of the Assessee for the year under consideration was Rs. 3.45 crores and the G.P for the year was 2.91%. If the entire expenses are disallowed, the G.P would work out to more than 35% which would be quite high. He also submitted that the A.O has not rejected the books of accounts meaning thereby that he has not doubted the expenses. He further submitted that the return of income of the sister concerns have been accepted by the Department. He also placed reliance decision in the case of CIT vs. United Riceland Ltd. (2010) 322 ITR 594 and the decision in the case of Om Satya Exim Pvt. Ltd vs. ITO in ITA No. 1335/AHD/2010 order dated 13th May, 2011 the copy of which was placed at page 136 of the paper book. He thus submitted that the addition made by the A.O. was uncalled for and therefore be deleted. . 7. The ld. D.R. on the other hand pointed to the findings of A.O. He further submitted that there was no change in the nature of business activity of the Assessee as com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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