TMI Blog2014 (7) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... - Such expenditure may be incurred voluntarily without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure - The fact somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfies otherwise the tests laid down by the law – the entire payment of subcontract cannot be disallowed as there is evidence for payment. Whether the assessee has established the payment of subcontract by producing the necessary evidence - Held that:- At that time the sub-contractors might have changed their place of business and non-tracing by the AO cannot be a reason to find fault with the assessee and to disallow the expenditure incurred by the assessee - the payment details had been produced by the assessee-company before the AO - The payment details contained full details of the nature of transaction - the details of all transactions in respect of which the subcontract payment had been paid by the assessee-company are duly recorded in the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilamattur for M/s. GKC, which was subcontracted to them by the assessee company. The Assessing Officer found that the company M/s. Advik had not proved the genuineness of its claims towards expenditure for its contract works and sundry creditors, etc. Therefore, the Assessing Officer held that M/s. Advik is a non-existent company and accordingly disallowed total expenditure claimed by the assessee company towards development contract expenditure work amounting to ₹ 17,05,38,557 paid to M/s. GKC. 4. On appeal, the CIT(A) observed that during the relevant assessment year, the assessee company got a contract for land development works at Koduru Village, Chilamattur Mandal from M/s. Lepakshi for ₹ 20.25 crores. The assessee company gave the above contract to M/s. GKC for ₹ 17.62 crores on subcontract. In turn, M/s. GKC gave the work to various sub-contractors, in which M/s. Advik had done a part of work. The assessee during the first appeal proceedings produced evidences like copy of agreement between the assessee-company and M/s. Lepakshi, copy of agreement between the assessee and M/s GKC, bills raised, TDS certificates, bank statements and copies of assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the onus on the assessee was discharged. 6. The CIT(A) observed that no material, whatsoever, had been brought on record by the Assessing Officer to show that the entire contract work of ₹ 17.62 crores done by M/s. GKC is not genuine except stating that M/s. Advik who had done only a part of work amounting to ₹ 4.99 crores, is a nonexistent company because it has not proved the genuineness of its claims towards expenditure for its contract works and sundry creditors, etc. The Assessing Officer should have verified further or recorded statements from other subcontractors, the onus was on him to issue summons to those sub-contractors and record their statements or conduct further investigations. However, that has not been done. 7. The CIT(A) observed that there is no ground for the Assessing Officer to disallow the sub-contract expenditure of ₹ 17.05 crores paid to M/s. GKC by the assessee company. Once the amount of sub-contract works claimed by the assessee company was offered as receipts by the subcontractor in their return, it is enough for the assessee that it had proved its genuineness of its claim. The Assessing Officer had not brought any materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee has ventured into the contracting business and obtained the land development works at Koduru Village, Chilamattur Mandal for M/s. Lepakshi for a total contract value of ₹ 20.25 crores. M/s. Lepakshi is a Private Limited Company with company Identification NO. U80301-KA2008PTC045764 with its Registered Office at No. 127, 21 Cross, 23 Main Road, Judicial Layout, GKVK, Yelahanka, Bangalore-560 065. 10. The AR submitted that in view of lack of experience in handling such a huge project in short time, the Assessee decided to entrust the work on subcontract and has been in touch with the companies in the same field even before the award of the contract. After exploring the possibilities and capabilities of the companies who can handle the job, decided to entrust the work to M/s. GKC, Flat No. 503, Prasanthiram Towers, Yellareddyguda, Beside Sarathi Studio, Hyderabad-73. M/s. GKC is a renowned company in the business of infrastructure development, roads, irrigation, pipelines and mining sector, who have the necessary equipment and capabilities for handling such project. The Company Identification No. of GKC Projects Ltd., is U45200- AP2004PLC043015. The assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d there is no reason whatsoever for making such huge addition knowing fully well that the money has actually been paid to the subcontractors. It is of utmost importance to note that M/s. GKC is assessed to tax with the PAN NO. AACCG1395F on the files of the Assistant Commissioner of Income Tax, Circle-2(3), Hyderabad. M/s. GKC filed its Return of Income for the A.Y. 2009-10 and declared the contract receipts of the assessee company in their income returned of ₹ 39,77,93,480/-. The assessment of M/s. GKC was completed by the Assessing Officer by his Order dated 18-02-2011 passed u/s. 143(3) of the Income Tax Act 1961. Copy of the Order in the case of M/s. GKC for the relevant assessment year of the assessee company was also produced before lower authorities. The profound fact is that the addition made by the Assessing Officer in the assessee company's assessment was offered and taxed in the hands of M/s. GKC and it is a classic case of double assessment of the same income. On these facts, there is no justification for making such arbitrary assessment, especially when the money was actually paid to the subcontractor M/s. GKC and the assessee company is in no position to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) wherein a specific query was raised with regard to the income tax assessment of M/s. Advik for A.Y. 2009-10 which was referred in the Assessment Order dated 30.12.2011 passed u/s. 143(3) of the Act. The Assessee obtained a copy of the assessment order of M/s. Advik (PAN AAECA3793K) for the Income Tax A.Y. 2009-10 passed u/s. 143(3) of the Act on 30-12-2011. He submitted that in para-2 of the Assessment Order it was confirmed that M/s. Advik had taken on sub-contract works from various parties and the relevant paragraph is reproduced below for ready reference: 2. The assessee is stated be a subcontractor and admitted gross receipts of ₹ 19,87,87,931. It was claimed that it had executed certain works on subcontract basis to the following parties. a) Chadalavada Infratech Ltd. ₹ 8,54,55,909 b) GKC Projects Ltd. ₹ 6,15,81,669 c) NSP Constructions ₹ 3,89,41,318 d) Tata Wireless ₹ 1,28,09,035 Total ₹ 19,87,87,931 15. The AR further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . GKC on his direct enquiry confirmed by its letter dated 15-12-2011 that it had taken on subcontract from the assessee company the land development and levelling works at Chilamattur, Anantapur District. In the same paragraph the Assessing Officer made a meek attempt to record a finding that in the case of GKC's one of the subcontractor, i.e., Advik Builders Consultants Pvt. Ltd., it is proved that the transaction is not genuine . The Assessing Officer does not even refer specifically which part of the transaction as far as the Assessee is concerned as not genuine. The Assessing Officer made an indiscriminate huge addition of ₹ 17,05,38,557 by making passing references of the assessment of M/s. Advik without any substance and contrary to the facts on record which could be gathered from the order enclosed of M/s. Advik. 20. The AR submitted that the above submissions are made without prejudice to the basic contention that the assessment in the hands of one of the subcontractors down the line of the assessee company has no relevance for making such huge addition in the hands of the assessee. In the light of the above, the Tribunal may be pleased to delete the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions as follows: 1. The expenditure in question should not be of the nature described under the specific provisions ss 30 to 36. 2. The expenditure should not be of nature of capital expenditure. 3. It should not be a personal expenditure. 4. The expenditure have been laid out for expended wholly and exclusively for the purposes business or profession. 25. Now, we will examine, whether in this case the assessee has fulfilled the requirement as envisaged by the provisions of the Act. We have carefully gone through the provisions of sections 30 to 36. Section 30 relates to the allowability of payment like rent, rates, taxes, repairs and insurance for the premises used for the purpose of business or profession. In the instant case, the claim of the assessee does not relate to the kind of expenditure specified in s. 30 and hence that section is not applicable. Section 31 relates to allowability of repairs and insurance in respect of machinery, plant and furniture used for the purpose of business. Similarly, section 32 is related to allowability of depreciation on assets used in business. In the same way, while Section 32A is relating to investment allowance, section 32A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal expenditure or not, again, in our opinion, this is not the payment relating to personal benefit of any employees or directors of assessee-company. Being so, it is not personal expenditure. 28. Now, we have to see whether the expenditure is incurred wholly and exclusively for the purpose of business. In the case of Sassoon J. David Co. Ltd. Vs. CIT (118 ITR 261 (SC) wherein held that the expression wholly and exclusively used in s. 10(2)(xv) does not mean necessarily . Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfies otherwise the tests laid down by the law. 29. Considering the above proposition, we find that the said entire payment of subcontract cannot be di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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