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Mrs. R. Indira Devi Versus Addl. CIT, Range-1, Visakhapatnam

2016 (8) TMI 468 - ITAT VISAKHAPATNAM

Bogus expenditure - Guinness of expenditure - Held that:- Once the assessee has proved with necessary evidences that the expenditure incurred is genuine, the A.O. cannot disallow the expenditure simply on assumption or surmises basis by holding that the contractor does not have requisite experience in handling this kind of contracts. Whether the contractor itself do the work or get the work done by others was not a matter of subject with the assessee as long as there was no interruption with the .....

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e is bogus and cannot be allowed. But the assessee has categorically proved that the expenditure claimed is genuine in nature and also furnished necessary evidences before the A.O. to prove his case. Another important point to be noted here is that the A.O. during the course of assessment proceedings recorded statement from the Managing Director of the company and also Managing Partner of the firm wherein both the parties have confirmed that they have supplied or rendered the services to the ass .....

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ACCOUNTANT MEMBER For The Appellant : Shri K.J.D. Srinivas, AR For The Respondent : Shri M.K. Sethi, DR ORDER PER V. DURGA RAO, Judicial Member: This appeal filed by the assessee is directed against the order of CIT(A), Visakhapatnam dated 31.7.2012 and it pertains to the assessment year 2006-07. 2. The brief facts of the case are that the assessee is an individual and proprietor of M/s. Rg. Con Services, which is engaged in the business of engineering consultant and contractors. The assessee h .....

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e name of M/s. SMV Projects Ltd. and also material handling charges of ₹ 26 lakhs in the name of M/s. Malleshwar Enterprises. Therefore, issued a notice and asked to explain the nature of payments made to these companies. The assessee in response to show cause notice submitted that she had taken up turnkey project contract for M/s. Rawmet Ferros Industries Pvt. Ltd. for design and supply of equipments/components for 2x16.5 MW submerged arc furnaces to produce bulk ferro alloys. The assesse .....

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she had paid a sum of ₹ 26 lakhs to M/s. Malleshwar Enterprises towards material handling charges. The assessee further submitted that the payment has been made by cheques, the contractor has issued bills and also filed confirmation letters for having done the job. The A.O. after considering the submissions of the assessee held that the assessee has undertaken works contract of drawing, design and supply of furnace materials. However, the expenditure incurred in respect of design and cons .....

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ision in the books of accounts without any payment during the relevant financial year and also the contractors are not having requisite experience in providing this kind of service, therefore opined that the assessee has inflated the expenditure by creating fictitious entries in the books of accounts. The A.O. further observed that on verification of the financial statement of the contractors, it was noticed that the contractors M/s. SMV Projects Ltd. and M/s. Malleshwar Enterprises have not pro .....

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redentials of the contractor, it was noticed that M/s. Malleshwar Enterprises does not have the capabilities to handle such equipment or transport them, with these observations, held that the assessee has inflated the expenditure by passing fictitious journal entries in the books of accounts without there being any services from the contractor, therefore, disallowed the expenditure and added back to the total income of the assessee. 3. Aggrieved by the assessment order, the assessee preferred an .....

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cture and supply of the material. It was further submitted that the A.O. has not doubted the genuineness of the payments, however, disallowed the expenditure for the simple reason that the contractor does not have requisite experience and resources to execute the work. The assessee further submitted that the A.O. during the course of assessment proceedings recorded statement from the Managing Director and partner of the company and partnership firm. Wherein, the Managing Director has stated that .....

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Ltd. and also partnership deed copies of M/s. Malleshwar Enterprises along with income tax return copies of M/s. SMV Projects Ltd. and M/s. Malleshwar Enterprises, wherein both the parties have declared the contract receipts received from the assessee in their income tax returns. The CIT(A) after considering the submissions of the assessee held that on perusal of the work orders issued by the assessee, it is seen that the work assigned to M/s. SMV Projects Ltd. is design, consultancy and detaile .....

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any capability in any of the required fields. The CIT further observed that though the assessee has furnished the details of M/s. SMV Projects Ltd. and its financial statements where the contractor has executed the works or not cannot be ascertained from the mere existence of the contractor. It has to be looked into whether the person entrusted with the work is having capacity to do the work. M/s. SMV Projects Ltd. is not having any requisite experience and resources to execute these kind of wo .....

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te as to what is supplied by M/s. Malleshwar Enterprises and how the same is transported. With these observations, confirmed the additions made by the assessing officer. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 4. The Ld. A.R. for the assessee submitted that the CIT(A) was erred in holding that expenditure incurred by the assessee is bogus and not substantiated with necessary evidences. The A.R. further submitte4d that the assessee has entered into an agreement with th .....

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e course of assessment proceedings, the A.O. has examined the Managing Director of the company and also Managing Partner of the firm wherein they have categorically stated that they have provided or supplying requisite services to the assessee company. The A.R. further submitted that the A.O. never doubted the genuineness of the transactions, however, was of the opinion that the contractors does not have requisite experience and resources to execute the services to the assessee. Whether the cont .....

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account after deducting applicable TDS as per the Act. Therefore, the A.O. was not correct in disallowing the expenditure simply stated that the expenditure claimed by the assessee is bogus. 5. On the other hand, the Ld. D.R. strongly supported the order of the CIT(A). The D.R. further argued that during the course of assessment proceedings, the A.O. has conducted detailed enquiry of the contractors and pointed out that the contractors does not have requisite experience and resources to execute .....

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eld. 6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix of the case is that the assessee had undertaken a turnkey project contractor for M/s. Rawmet Ferros Industries Pvt. Ltd. for a consideration of ₹ 15,96,68,752/-. The nature of turnkey works contract includes design and supply of equipments/components for 2x16.5MW submerged arc furnaces to produce bulk ferro alloys. The work involves desi .....

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books of accounts. The A.O. has given elaborate reasons for coming to the conclusion that the expenditure claimed by the assessee is bogus, therefore, disallowed the expenditure and added back to the total income of the assessee. It is the contention of the assessee that it has incurred the expenditure and the expenditure was supported by proper bills & vouchers. The assessee further contended that the payment has been through bank after complying with the TDS provisions. The contractors ha .....

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ind of works. The A.O. never doubted the genuineness of the transactions. However, was of the opinion that the expenditure incurred by the assessee is bogus in nature, therefore, disallowed the expenditure. The assessee has filed a paper book containing details of agreements and work orders issued to the contractors. On perusal of the paper book filed by the assessee, we noticed that the assessee has entered into agreement with the contractors, issued detailed work orders. The contractors have i .....

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