TMI Blog2016 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... vices provided by the assessee is available on record i.e. the receipts received by the assessee against the contract between the assessee and NMDC, which in turn, is sub-contracted to M/s. Bharat Cemco Pvt. Ltd., we find no merit in the order of authorities below in holding that the provisions of section 40A(2)(a) of the Act are attracted in the case. In the absence of any finding by the Assessing Officer that the payments made to M/s. Bharat Cemco Pvt. Ltd., were unreasonable and excessive, we find no merit in the disallowance of any part of sub-contract charges paid by the assessee to the said concern. Accordingly, we direct the Assessing Officer to delete the addition - Decided in favour of assessee. - ITA No.644/PN/2014 - - - Dated:- 29-4-2016 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant by : Shri Nikhil Pathak For The Respondent : Shri Kiran P. Unavekar ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of CIT(A), Kolhapur, dated 13.01.2014 relating to assessment year 2008-09 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re it was mainly engaged in the production and sale of cement pipes and Hospet Division, wherein it was engaged in contract work of drilling, crushing, screening and transportation of ROM at Kumarswani Iron Ore Mine at Hospet. The assessee had taken a contract for this purpose from National Minerals Development Corporation (NMDC). The Assessing Officer on perusal of terms and conditions of the contract of the assessee with NMDC noted that the contract was basically a work order for hiring of plant machinery owned by the assessee for working in KIOM site at 1 at Post Office at Donimalai Township, Dist-Bellari, Karnataka. As per the terms of contract, the assessee was to provide its plant machinery on hire basis to NMDC and was required to produce the Ore as per specifications of NMDC as per the terms of contract. For the work done, the compensation was fixed by NMDC for hiring of equipment on hourly rate basis and also the rate was fixed for work order in per thousand tons. The details of hiring charges to be received by the assessee are tabulated under para 6 at pages 3 and 4 of the assessment order. The Assessing Officer found that the assessee had executed t otal work of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer since the sub-contract agreement was between the assessee and its partner only. Further, the assessee was asked to file justificatio n for the rates at which payments were made to the partner having regard to the fair market value of services rendered by the partner and in view of section 40A(2)(a) of the Act. The Assessing Officer notes that despite several requests, the basis of fixing of rates to be paid to the partner were not filed by the assessee. He also observed that there were no comparative quotations for justification of rates. The Assessing Officer was of the view that where the entire machinery, manpower, office setup, site supervision setup, etc. belonged to the assessee, there was apparent reason for handing over the entire setup to the partner for operation, particularly when he did not have infrastructure and as per the Assessing Officer, sub-contracting was nothing but a colourable device to reduce the profits of assessee. Since there was drastic fall in net profit during the year as compared to the net profit margin declared in the earlier years, the Assessing Officer was of the view that excessive payment had been made by the assessee on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance amount was paid to the sub-contractor, who in turn, had paid its taxes and it was claimed that there was no loss to the Revenue, where the said company had declared income of ₹ 1.75 crores. He further stressed that as against contract value to be received on account of work order, the fair market value was to be seen from that angle and same was higher and the amount paid to sub-contractor was lesser. He placed reliance on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Indo Saudi Services (Travel) Pvt. Ltd. (2009) 310 ITR 306 (Bom) for the proposition that no disallowance under section 40A(2)(a) of the Act could be made when there was no loss to the Revenue. 8. The learned Departmental Representative for the Revenue placing reliance on the orders of authorities below pointed out that the said subcontractor had no expertise and even was in possession of plant machinery of assessee and consequently, there was no merit in the stand taken by the assessee and paying the said amount of sub-contract. 9. We have heard the rival contentions and perused the record. The assessee firm is mainly doing business as contractor and one of the partners in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the partners, where was the necessity to incur the said expenses. The details of expenditure are provided at page 4 of the assessment order under which, there are direct expenses of ₹ 5,28,477/-, there are payments to employees of ₹ 6,77,054/- and administrative expenses of ₹ 11,36,206/-. Further, the assessee had debited financial charges of ₹ 23,94,937/- and depreciation of ₹ 51,97,918/-. The explanation of the assessee in this regard was that the plant and machinery which was owned by the assessee, which in turn, was handed over to the subcontractor to use the same at the Hospet site was bought by raising loan and financial charges related to the said machinery. Further, depreciation was claimed by the assessee on the aforesaid plant and machinery being owner of said plant and machinery. We find that majority of expenses considered by the Assessing Officer related to financial charges and depreciation charges. Another expenditure which has been claimed by the assessee is administrative expenses of ₹ 11,36,206/- and though the breakup of said expenses is not available before us, we find no merit in the order of Assessing Officer in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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