Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 7 - ITAT PUNE

2016 (7) TMI 7 - ITAT PUNE - TMI - Addition u/s 40A(2)(a) in respect of sub-contract payments - unreasonable and excessive expenditure - Held that:- The market value of services rendered by M/s. Shri Bharat Cemco Pvt. Ltd. is to be seen from the angle of contract received by the assessee. The total work contract has been sub-contracted and even if we consider the direct expenses which have been debited by the assessee as part of cost of contract, the assessee for the year under consideration has .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rst of all, there is no loss of revenue. Even otherwise, we hold that where the market value of services 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

R 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 has raised the following grounds of appeal:- 1] The learned CIT(A) erred in confirming the disallowance of ₹ 67,66,710/- u/s 40A(2)(a) in respect of the sub contract payments made to Shri Bharat Cemco Pvt. Ltd. 2] The learned CIT(A) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ppreciated that the appellant company had given various reasons for decrease in net profit ratio in the current year and in the absence of any evidence that the payments made to Shri Bharat Cemco Pvt. Ltd. were excessive, the disallowance made was not justified at all. 5] Without prejudice to the above grounds, the appellant company submits that the disallowance' made is very excessive and the same may kindly be reduced substantially. 6] The appellant craves leave to add, alter, amend or del .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in cement. The assessee firm for the year under consideration had declared turnover of ₹ 11,06,56,994/- as against turnover of ₹ 12.17 crores declared during the preceding year. The net profit percentage declared by the assessee for the year under consideration was 8% as against 12.89% declared by the assessee in the immediately preceding year. The assessee was asked to explain reasons for decrease in net profit margins as compared to the preceding year. The Assessing Officer noted .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

onditions 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 fixe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ovided to the tune of ₹ 8.46 crores. Apart from this, there were several expenses i.e. payment to employees, administrative expenses, selling and distribution expenses, financial charges and depreciation totaling ₹ 99,52,248/-. In the cost of goods sold, the assessee had debited development expenses amounting to ₹ 5.44 crores. The explanation of the assessee with regard to the said expenses was that the same were paid on account of sub-contracting of KIOM work to one of its par .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

greed upon between the assessee and its partner, which are reproduced at pages 5 and 6 of the assessment order. The explanation of assessee in this regard was that as per the terms of contract, the assessee had handed over all its plant & machinery to the partner for its operation at KIOM site at Hospet. Since the entire work of Hospet site was handed over to one of the partner, the Assessing Officer was of the view that the assessee should not have spent any amount of expenditure on the Hos .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ew that the same should not have been incurred by the assessee at Hospet site. The assessee explained that the expenses debited by it could not be recovered from the sub-contractor because of terms of contract, which was rejected by 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 re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ire 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 account of sub-contract. The Assessing Officer held that the payments .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e to the sub-contractor was excessive payment in contravention with the provisions of section 40A(2)(a) of the Act and hence, the disallowance was worked out at ₹ 67,55,710/- i.e. 8% of ₹ 8.44 crores. The Assessing Officer held that the said excess payment was to be disallowed in the hands of assessee and hence, addition of ₹ 67,55,710/- was made. 5. The CIT(A) upheld the order of Assessing Officer holding that the assessee had failed to substantiate its claim of having made pa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

med as expenditure over and above the sub-contract payments made by the assessee. Our attention was drawn to the Profit and Loss Account placed at page 57 of the Paper Book, under which the total contract was for ₹ 10.65 crores and the sub-contract payments were to the extent of ₹ 8.46 crores and after claiming the other expenses, profit of ₹ 1.35 crores had been declared by the assessee. The learned Authorized Representative for the assessee further pointed out that on account .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

me 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the partners in the assessee firm was M/s. Shri Bharat Cemco Pvt. Ltd. Another concern i.e. National Mineral Development Corporation (NMDC) had been awarded work contract for extraction of Iron Ore from Hospet. As per the contract, 20% had to be paid for extraction and 15% for shifting. The said contract was awarded to NMDC in assessment year 2007-08, against which the assessee purchased machinery. However, in the current year i.e. assessment year 2008-09, the entire work was sub-contracted by t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

10. Under the provisions of section 40A(2)(a) of the Act, it is provided that where excessive payments are made to related party with regard to fair market value of services rendered by the said related party, then the excessive payment is to be disallowed in the hands of payer. The terms of contract between the assessee and NMDC which was awarded the contract are available on record and are not disputed. Further, there is an agreement to sub-contract the work by the assessee to M/s. Shri Bharat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ad declared a turnover of ₹ 11.06 crores, against which the total payments on account of sub-contract was ₹ 8.44 crores. The first objection raised by the Assessing Officer was that in addition to the said subcontract payments, the assessee had also debited certain other expenses totaling ₹ 99,52,248/-. The Assessing Officer was of the view that where the entire contract had been sub-contracted to one of the partners, where was the necessity to incur the said expenses. The deta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 thou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the assessee. The market value of services rendered by M/s. Shri Bharat Cemco Pvt. Ltd. is to be seen from the angle of contract received by the assessee. The total work contract has been sub-contracted and even if we consider the direct expenses which have been debited by the assessee as part of cost of contract, the assessee for the year under consideration has declared profit of ₹ 1.34 crores in the Hospet division. The perusal of assessment order itself reflects that the assessee to ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version