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Shri Madhav P. Patel Versus ITO, Wd-3 (1) , Baroda

2016 (5) TMI 525 - ITAT AHMEDABAD

Addition on account of non-genuine/bogus/unexplained expenditure u/s 69C - Held that:- There is complete mismatch in between the claim made by the assessee towards sub-contract expenditure and the revenue shown by the sub contractor in their respective income-tax returns or from the statement on oath. The act of assessee looks to be suspicious in relation to various cash payments of ₹ 15,50,000/- during the year to both the sub-contractors wherein each transaction has been shown at ₹ .....

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en by SSNNL for the total cost of contract at ₹ 83,14,999/- and ₹ 74,98,000/- respectively.

In our view GP percentage which is just an estimation and the real profits of the assessee can be much higher depending upon the cost efficiency but certainly it cannot go to the extent of 54.54% as rightly submitted by the assessee but looking to the undisputed facts that the cash payments of ₹ 15,20,000/- and outstanding amount of 8,54,073/- total ₹ 23,74,073/- has not .....

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spondent : Shri James Kurein, Sr. DR ORDER PER Manish Borad, Accountant Member. The appeal of assessee is directed against the order of ld. CIT(A)-II, Baroda, dated 9.1.2010 in appeal No.CAB/II-162/07-08. Assessment was framed under section 143(3) of the IT Act, 1961 (in short the Act) for Asst. Year 2005-06 on 28.9.2007 by ITO, Wd-3(1), Baroda. Assessee has raised following grounds of appeal :- 1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action .....

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me Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s 234B of the Income Tax Act, 1961. 4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceeding u/s 271(l)(c) of the Income Tax Act, 1961. 2. Briefly stated facts of the case as culled out from the assessment records are that assessee is an individual engaged in the business of civil construction work under his pr .....

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various expenses, the net profit was worked out at ₹ 3,22,187/-. During the course of assessment proceedings ld. Assessing Officer observed that the assessee has debited expenditure of ₹ 50,84,073/- as payment to two following subcontractors :- 1) Shri Sharadbhai Mohanbhai Kakadia Rs.36,68,149/- 2) Shri Sudhirbhai N. Modhiya Rs.14,15,924/- Rs.50,84,073/- 3. On verification of details furnished, it was noticed by the Assessing Officer that during the year ₹ 31 lacs was paid to .....

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. Modhiya ₹ 8,30,00/- was paid through account payee cheque and ₹ 3,00,000/- in cash. In order to further cross-verify the payment details and outstanding balance in respect of Shri S. M. Kakadia and Shri S. N. Modhiya letters were issued and thereafter statements were also recorded. After gathering various information and statements of these two parties namely Shri S. M. Kakadia and Shri S. N. Modhiya and verifying available income-tax returns, ld. Assessing Officer observed that ca .....

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n the names of these two parties for ₹ 8,54,073/- (Rs. 5,68,149/- plus ₹ 2,85,924/-) total ₹ 23,74,073/- and this amount was added back to the income of assessee. Income of the assessee was assessed at ₹ 27,27,200/-. 4. Assessee went in appeal before ld. CIT(A) who dismissed the appeal of assessee by observing as under :- 3.3. I have considered the submissions of the Authorized Representative and the order of -the "Assessing Officer. The only issue to be considered i .....

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the Assessing Officer that no such payment has been made by the appellant to the sub Contractors. When an opportunity to cross examine the sub contractors was given to the appellant, at that stage also it could not be established that payments had been made by the appellant to the sub contractors. It is noted that the cross examination was done on 27.05.2008 for the accounts ending on 31.03.2005 i.e. more than three years later. The appellant has submitted that the work has been completed hence .....

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not been made. There could be some element of truth in the assertion that to avoid penal consequences Shri Sharadbhai M. Kakadiya has not admitted to receipt of cash. However, it does not explain the behaviour of Shri Sudhirbhai N. Modhiya who has already filed his return of income and has not shown any receipts in cash. If the actions of the appellant were indeed genuine then (a) What was, the need to make the payment in cash when the appellant as well as sub contractors have account in the sa .....

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ubmissions cannot be relied upon. The appellant has sought to take refuge in the fact that in construction work the gross profit accepted by various courts has been around 8%. That may be so, but in a case where both the sub contractors admit to completing the work and the appellant is unable to establish that the work done by the sub contractors have indeed been paid by him the normal gross profit ratio acceptable cannot be applied. It is a well established principle that the onus of proving th .....

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laimed by the appellant has not been credited to the Government account thereby once again leading to the conclusion that the IDS certificate cannot be relied upon. The appellants claim that since he follows a Mercantile System of Accounting, expenditure incurred on the work completed in an admissible business expenditure cannot be accepted. It cannot be doubted that the work has been done, hence presumably expenditure would have been incurred, the question which remains .unanswered is who incur .....

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n contract from SSNNL which was being subcontracted to Mr. Sudhirbhai Modhia for Block 9A and Sharadhbhai Kakadiya for block 9C1 as per the works agreement. As per the work agreement with both the sub-contractors the appellant had to pay 90% of the work bill of SSNNL after deducting TDS and royalty. Total work bill charged to SSNNL for block 9A subcontracted to Mr. Sudhir Modhia and Block 9C1 subcontracted to Mr. Sharadbhai Kakadiya came to ₹ 16,50,737/- and ₹ 43,11,160/- respectivel .....

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he said expenditure merely because the cash quotient from the above disposed of liability has not been shown by the sub-contractors in their return of income and relied upon the statements given on oath by them denying to have received any payment in cash from the appellant. Thereby disallowing a total of ₹ 23,04,740/- i.e. amount paid in cash and amount standing at the end of the year. Ld. Assessing Officer did not appreciate the facts that the appellant has been following mercantile syst .....

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uch income should be allowed. Ld. AO completely erred on law and on the facts by considering only some parts of statements given by subcontractor. Ld. AO ought to have considered the fact that subcontractors have agreed on having performed the contractual work of SSNNL awarded from Appellant. Ld. AO completely erred on facts as the issue of cash payments not confirmed by the subcontractors is a matter of dispute between appellant and the subcontractors and has nothing to do with the accrual and .....

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to the above Ld. AO ought to have allowed reasonable expenditure towards work admittedly executed by the appellant rather than disallowing almost 46.70% of the total expenditure claimed by the appellant. 7. We have heard the rival contentions and perused the material on record. The issue before us is in regard to addition of ₹ 23,74,073/- being made by ld. Assessing Officer on account of non-genuine/bogus/unexplained expenditure u/s 69C of the Act which have been confirmed by ld. CIT(A) a .....

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ven to Shri S. M. Kakadia at ₹ 36,68,149/- a sum of ₹ 18,80,000/- was paid by account payee cheque during the year and sum of ₹ 12,20,000/- was paid in cash during the year, however, single payment was not exceeding ₹ 20,000/-. As per the books of accounts of assessee closing balance of the sundry creditor Shri S. M. Kakadia was shown at ₹ 5,68,149/-. Thereafter when ld. Assessing Officer verified the genuineness of the transaction statement on oath was taken from S .....

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not file his return of income and, therefore, the impugned amount of sub-contract of Rs,36,68,149/- was not shown as revenue before the income-tax department. No TDS was deducted on the sub-contract of ₹ 36,68,149/- because assessee was not required to deduct TDS as the total turnover of the assessee during Financial Year 2003-04 was below the prescribed limit mentioned in section 44AB of the Act. 9. In the case of sub-contract given to Shri S. N. Modhiya ₹ 14,15,924/- which was reve .....

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the profit and loss account of S. N. Modhiya towards earth work contract and there was no mention of the cash payment received for ₹ 3 lacs and nor assessee s name was appearing as debtor for ₹ 2,85,924/-. 10. All the facts discussed above, in relation to sub contract to S. M. Kakadia and S. N. Modhiya has not been controverted by the assessee and the only submissions made by him is that all the expenditure claimed by him are genuine and the issue relating to the cash payment is mat .....

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