TMI Blog2010 (8) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case, nature of business as well as explanation furnished by the appellant. 2. We have heard the learned Representatives of both the parties, perused the findings of the authorities below and considered the material on record. 3. The AO made the addition of ₹ 4,47,817 on account of estimation of gross profit at 10.95 per cent on the turnover declared by the assessee by primarily focusing on the sub-contract account to 4 persons covered under s. 40A(2)(b) of the IT Act. Perusal of the assessment order reveals that the AO trying to locate the reasons for fall in GP rate during the year identified the payments made to the following 4 sub-contractors covered under s. 40A(2)(b) of the Act : Sl. No. Name of sub-contractors Relationship Amount of sub-contract 1. Amit Jayantilal Patel Son 9,25,870 2. Babulal Ambalal Patel Brother 11,03,146 3. Mahendrakumar K. Patel Cousin brother 8,12,300 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em for the assessee and detailed reply is filed in this regard. However, the AO was not satisfied with their experience and qualification or infrastructure to carry out the activities and withdrawals of amount from the bank by self cheques. The AO accordingly rejected the book results of the assessee under s. 145(3) of the IT Act. It was explained that merely because relatives have completed the work on behalf of the assessee is not ground to reject the book results. All the contractors are assessed to tax and have their PAN, payment made to them is not also disputed. None of them has stated in their statements that they have not worked for the assessee. There was no evidence that the amount withdrawn by them from their account was returned to the assessee. The identity of the sub-contractors is proved and the payment to them is also not in dispute. They have also accepted that they were doing sub-contract work even in the earlier years. It was explained that because of non-insistence of any terms of agreement considering the long-term business prospects, agreement would not become sham or bogus. It was explained that the sub-contractors received only part amount as against the max ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter primarily is in the domain of s. 40A(2)(b). While on the one hand I will generally agree that the appellant seems to have some kind of arrangement with these sub-contractors which affects the tax liability of the appellant, when it entered into contracts with these sub-contractors, it would be difficult to come to the conclusion that the entire payments made to the appellant's sub-contractors were bogus in nature. The AO's comments in the assessment order at various places, after his analysis of the statement recorded also seems to point to the fact that the works stated to be given to these contractors have been done by the firm only. If it is an issue covered under s. 40A(2)(b), then the matter is primarily of excess payment. 3.2 The appellant seems to have some explanation for all in GP rate because there has been very substantive increase of turnover from about ₹ 1.03 crores in the preceding year to about ₹ 1.96 crores in this year and there has also been a change in the nature of the contract undertaken. It has diversified into ring foundation and road metaling work of ONGC along with the high tank and pipeline work for Irrigation Department, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as rejected the book results by resorting to the provisions of s. 40A(2)(b) of the IT Act, however, no specific defect has been pointed out in the maintenance of the books of account. He has submitted that in a nutshell the learned CIT(A) retained the addition of 1 per cent i.e., ₹ 1,96,893 from the addition of ₹ 4,47,817. The learned counsel for the assessee relied upon the decision of Tribunal, Chandigarh Bench in the case of Micro Instruments Co. vs. ITO (2008) 12 DTR (Chd)(Trib) 501copy of which is filed on record. However, the learned counsel for the assessee admitted that the assessee has not raised any ground of appeal before the Tribunal as regards confirmation of the finding of the AO with regard to rejection of the book results under s. 145(3) of the IT Act. On the other hand, the learned Departmental Representative relied upon the orders of the authorities below and submitted that the learned CIT(A) has already granted sufficient relief to the assessee, therefore, no further interference is required in the matter. 6. We have considered the rival submissions and the material available on record. The AO considered the case of the assessee for estimation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... best can be attributed to the auditors of the assessee and cannot be a ground to reject the reliability of the account books. Further, with regard to the incurring of job work payments to the sister concern, the assessee had explained the reasons for making the payment. It has been explained that earlier the job work was being got done from outside parties and in view of the secrecy and confidentiality of the manufacturing process, the same was now being undertaken from the sister concern. It is submitted that no unreasonable expenditure has been incurred on job work payments to the sister concern in as much as it would have incurred such expenditure even if the job work was got done from other parties. There is no negation to the fact position that the work has indeed been undertaken for the assessee by the sister concern, MI Ltd. The assessee has explained even before the lower authorities the circumstances in which the payments have been made. There is nothing unreasonable in this regard. In any case, even for applying the provisions of s. 40A(2)(b), it is for the AO to make out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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