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Assistant Commissioner of Income-tax, Co. Circle VI (1) , Chennai Versus SVE Engineers (P.) Ltd.

2015 (12) TMI 1362 - ITAT CHENNAI

Disallowance of contractor expenses - whether payment made to sub-contractors are bogus - Held that:- Assessing Officer cannot substitute his own standard of reasonableness of expenditure for that of the assessee, as the assessing authority has not brought anything to show that the assessee adopted colourable or illusory or fraudulent means to reduce the profits to show the expenditure. In our opinion, in the present case the assessee proved the genuineness of the payment by producing cogent evi .....

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by the respective sub-contractors and they have received payments through banking channel in subsequent assessment years. Hence, we have no hesitation in confirming the order of the Commissioner of Income Tax (Appeals) - Decided against revenue - IT APPEAL No. 2038 (MDS.) OF 2014 - Dated:- 28-8-2015 - N.R.S. GANESAN, JUDICIAL MEMBER AND CHANDRA POOJARI, ACCOUNTANT MEMBER For The Appellant : Das Gupta, IRS, JCIT For The Respondent : Philip George, Adv. ORDER This appeal by the Revenue is directe .....

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eyors, screw conveyors, elevator, pipe conveyor and its related products. The assessee claimed direct expenditure paid to M/s. Erection India and M/s. Tekno Conveyor. The Assessing Officer observed in assessment order that the expenses claimed as payments made to the above two parties are bogus, accommodation entries and same was done to reduce the profit of the company while finalizing its accounts as it was evident from the journal entries made at the fag end of the financial year. Accordingly .....

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oner of Income Tax (Appeals) gave a copy of the remand report forwarded by the Assessing Officer to the assessee for comments. After considering the assessee's comments, the Commissioner of Income Tax (Appeals) also considered the submissions of the ld. Authorised Representative for assessee and also the findings of the Assessing Officer in the order of assessment, the remand report and observed that the Assessing officer in the assessment order was that the sub-contractors viz. Teckno Conve .....

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act that these subcontractors have confirmed that they have carried on sub-contract for the assessee in the Vedanta project has neither disputed this fact nor alleged/held that it was not true. However, the Assessing Officer having accepted that they have in fact carried out this work has merely submitted in the remand report that without payment to labourers how the work was carried out and observed that sub-contractors have not deducted tax at source on such accrued labour charges. The undispu .....

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unning bills. Since there was delay in such approval, the Sub-contractors have raised invoices at the end of the Financial year and declared the same as income on accrual basis in their respective hands. The Assessee had deducted tax at source in respect of the amount payable to the sub contractors; The Assessee had raised invoices against M/s. Vedanta in respect of the executed work and duly accounted the same; M/s. Vedanta had issued completion certificate; Assessee had made part payments to t .....

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ion of the service project of fabrication of Bauxite Grinding system. While executing the project these sub-contractors have intimated the running work progress details to the assessee with the details of quantity of structural steels of the executed work for the verification and approval of the assessee. This was duly verified by the site engineers of the assessee with regard to the quantity and on the basis of such approval, the invoices were raised by the subcontractor. The projects in respec .....

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ther found that the assessee could not have executed these projects without engaging these sub-contractors. 4.2 The Commissioner of Income Tax (Appeals) further observed that while considering the claim of business expenditure in the hands of assessee, all that have to be seen is that whether such expenditure accrued was in the course and for the purpose of its business. Outstanding dues to labourers/hire charges by the Sub-contractors of the assessee and non deduction of tax at source by the su .....

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curred the expenditure for the purpose of its business, the same had to be allowed in the hands of the assessee. From the details submitted by assessee, it is seen that 57% of the labour charges, 13% of the machinery charges were paid by subcontractor M/s. Erections India & 7% of the labour charges were paid by subcontractor M/s. Techno conveyer for executing work & balance remained to be payable to them due to delay in the payments to the assessee by Vedanta. The reasons given by the as .....

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er of Income Tax (Appeals) allowed the claim of the assessee. Against this, the Revenue is in appeal before us. 5. We have heard both the parties and perused the materials on record. In this case, the Assessing Officer doubted the genuineness of the expenditure paid to M/s. Erection India and M/s. Tekno Conveyor as the entry was passed by the assessee in its books of accounts by way of journal at the fag end of the financial year. He was of the opinion that it was made so as to reduce the profit .....

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ces, also covers an amount which has gone out of the assessee's pocket but which is all the same, an amount which the assessee has had to give out. It also covers a liability which the assessee has incurred in praesenti although it is payable in future. A contingent liability that may arise in future is, however, not expenditure . It would also cover not just a one time payment, but the liability spread out over number of years. Wherein a provision is made for liability and that amount so pr .....

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ssessee completed the contract and declared profits therefrom, it is to be construed that the assessee was able to complete the contract only after incurring the expenditure. In the present case, sub-contractors carried on the work of fabrication of Bauxite Handling system, modification of conveyor and reversible conveyer and thereafter they sent running bills towards the work carried on by them at the fag end of the financial year and the payments were made through banking channel in subsequent .....

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d solely and exclusively for the purpose of the business. If the reality of the payment is challenged or is in dispute different considerations arise; so also in case where the tax authorities are able to point to some consideration other than the purpose of the business as accounting for any portion of the payment made. In such cases, of course, such portion of the amount claimed, which is either not held to have been paid or is held to have been paid for reasons other than business expediency, .....

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