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TMI Blog2014 (7) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... dge Hub (M/s. Lepakshi for short) for a total value of Rs. 20.25 Crores. The assessee company entrusted the above work on subcontract to M/s. GKC Projects Limited (for short M/s. GKC) for total consideration of Rs. 17.62 Crores. During scrutiny proceedings, the Assessing Officer received information in the case of M/s. Advik Builders and Consultants Pvt. Ltd. (for short M/s. Advik) that they have executed a part of land levelling work amounting to Rs. 4,99,55,400 at Chilamattur 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 Rs. 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 Rs. 20.25 crores. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company. In fact, M/s. Advik in no way concerned with the assessee company as it has given contract works to M/s. GKC and in turn, M/s. GKC had given work to M/s. Advik. If at all any action to be taken, it should be in the hands of M/s. GKC, but not in the case of the assessee company. Therefore, the CIT(A) observed that the assessee had produced all the evidences pertaining to the contract works to prove the genuineness of the transactions 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 Rs. 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 Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and sale of plots. The Assessee maintains administrative staff, supervisors and other paraphernalia required for the business and has to incur fixed establishment expenses of about Rs. 30-50 lakhs a year. There has been severe recession in the real estate business and the company has foreseen the problems and decided to venture into the contracting business. For the first time in the history of the company, the 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company, its execution by them and finally the confirmation of balance as at 31/03/2009 and M/s. GKC vide their letter dt. 15/12/2011 had confirmed all the above three points to the Assessing Officer. On the facts and circumstances of the case, the Assessing Officer is in receipt of all the information from the assessee company as well as direct confirmation from the parties concerned and 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 Rs. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16A dated 19-06-2009 - TDS Certificate Issued by Muppa Homes Pvt.. Ltd to GKC Projects Ltd 12. Lr. dt. 28-03-2009 from GKC Projects Ltd regarding work completed - Notice for demobilization of sub-contract from 31st March 2011 14. The AR he invited our attention to the Memorandum of Submissions dated 6-11-2012 and the subsequent hearing on 15-11-2012 before the 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 Rs. 19,87,87,931. It was claimed that it had executed certain works on subcontract basis to the following parties. a) Chadalavada Infratech Ltd. Rs. 8,54,55,909 b) GKC Projects Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and contrary to facts on record. 19. The AR submitted that the Assessing Officer in para-3.3 recorded a finding that M/s. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of a claim under section 37(1) should depend upon existence or otherwise of the four conditions 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. As for the third condition as to whether the payment is in the nature of personal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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