TMI Blog2022 (11) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... belief that the assessee has engaged in creating bogus subcontracting expenses in the instant set of facts, thereby leading to escapement of income. Therefore, in the instant set of facts, we find no infirmity in the order of Ld. CIT(Appeals) when he held that issuance of notice under section one 47 of the Act was valid in the instant set of facts. Assessee s application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 challenging the reopening of assessment under section 147 of the Act is hereby dismissed. - ITA Nos. 393, 394, 395, 396 & 1661 /Ahd/2019 - - - Dated:- 16-11-2022 - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri S.N. Soparkar, A.R. For the Revenue : Shri Atul Pandey, Sr. D.R. ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These five appeals filed by the Revenue are against the orders of the ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad dated 03/12/2018 passed for the assessment years 2009-10 to 2012-13 order dated 09-08-2019 passed for assessment year 2016-17. 2. Since the issues involved in all the years under consideration are similar, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2011-12 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,55,99,559/- on account of disallowance of subcontract expenses, when the sub-contractors failed to justify with documentary evidence that contract work was executed by them for the assessee firm. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,55,99,559/- on account of disallowance of subcontract expenses, when the so called payments were made by the assessee firm to the sub-contractors only after presentation of bills but these sub-contractors were not having such financial capacity to make payment/advances to large number of labourers and material purchases. 3. It is, therefore, prayed that the order the Ld. CIT(A)-12, Ahmedabad may be set aside and that-of the AO may be restored to the above extent. 4. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal. Assessment year 2012-13 1. On the facts and in the circumstances of the case and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 1,61,75,302/- on account of disallowance of bogus payment to sub-contractors without appreciating that all the bills/invoices raised by the sub-contractors have been generated from the computer system of the assessee company. 5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 1,61,75,302/- on account of disallowance of bogus payment to sub-contractors without appreciating that even the assistance of the employees of the company was taken for the purpose of operating bank account and withdrawal of cash. 6. It is, therefore, prayed that the order the Ld. CIT(A)-12, Ahmedabad may be set aside and that of the AO may be restored to the above extent. 7. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal. We shall start with assessment year 2009-10 as the lead assessment year. 4. The brief facts in relation to this year are that the assessee is a partnership firm a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided to Canara Bank by such sub- contractors was the registered address of M/s Ultratech Transmissions 4.1 In view of the above observations, the AO concluded that the assessee had created bogus bills of the sub- contract expenses in the name of those sub- contractors, paid them through cheques and received back cash from them and thus, bogus sub- contracting expenses were claimed in order to reduce the profit of the firm and to evade taxes. Accordingly, the AO disallowed a sum of ₹ 1,86,97,354/- for assessment year 2009-10 and added back the same to the total income of the assessee. 5. In appeal, the assessee challenged the reopening of assessment under section 147 of the Act and also contended that on merits, the AO erred in facts and in law in holding that the assessee had created bonus subcontracting expenses. The Ld. CIT(Appeals) dismissed the assessee s challenge to reopening under section 147 of the Act on the ground that the judgement cited by the assessee were on the peculiar facts of that case and in the case of the assessee, it was a prima facie belief of the AO that considering the statements of the sub- contractors of the assessee recorded during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before me, Having considered the facts of the case, the observations of the AO and the detailed submissions of the appellant as also, considering the ratio of various case laws relied on in support of the facts on similar type of issue, I am inclined to agree with the appellant that disallowance of subcontractors' expenses of Rs. 1,86,97,354/- made by the AO on the various grounds is not justified. The disallowance is made on the grounds that the subcontractors could not justify the source of payment by them to their daily wage labourers, bills were prepared by the officials of the appellant, records was not maintained by them, withdrawals were made with the help of the employees of the appellant after payment by the appellant against their bills, bills are created on computer system of appellant, the appellant firm is not registered with Labour Department or Service tax Department - which are not a sound and legally tenable basis for adverse inferences and conclusions. 5.5 It is trite law that a statement has to be read as a whole and cannot be accepted in part and disregarded for another; part. There is nothing in the statement which indicates that the sub-contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was withdrawn by the employees of assessee would not prove that such cash went back to the assessee when the subcontractors had admitted having worked for the assessee. When the matter was carried to the Hon ble Income tax Appellate Tribunal, the ITAT affirmed the order of the CIT(A) by holding that the Ld. CIT(A) considering the submission of the assessee and the material on record correctly noted that the disallowance is totally unjustified, since the payments have been accepted by the sub contractors and the payments were subjected to TDS and also were made by account payee cheques and therefore, there was no reason to presume that the payments withdrawn by the sub contractors from their accounts have returned to the assessee. The ITAT held that in the absence of any specific material available against the assessee on record, there was no case for interference. Thus this decision answers the questions in the instant case of the appellant that neither the fact about withdrawal of cash by the sub-contractor with the assistance of the employee of assessee nor the fact that the sub contractors had shown profit at flat 8% on presumptive basis entitles the AO to hold that paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the appellant have also not been rejected by AO. 5.7 The issue can also be looked at from another angle. While the fact regarding revenue being declared from the work carried out through the engagement of subcontractors is a strong factor which proves the genuineness of the expenditure, if the disallowance of huge expenditure towards such sub-contract payment is made, the same will result in to distorted picture of Gross and net profit which is unrealistic and impossible in the line of the business of construction in which the appellant is engaged in. The Ld. AR rightly contended that even the appellant requested the AO to verify the general trend of result of assessees engaged in similar business of Transmissions tower and foundation work by providing the list of other parties along with their addresses and PAN but the AO remained inactive on such a request on the ground that facts and figures of comparable assessees were not given by the appellant. The AO did not exercise the powers conferred on him by the Act to call for and verify such facts and figures once their PAN and addresses were furnished. Furthermore in various years (except A.Y. 2013-14 and 2014-15) the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of statement recorded of Mr Dolatsinh, proprietor of Jay Ambe Construction (one of the sub-contractors), he could not submit any evidence to substantiate that the work was done except the bills. He could not justify the source of cash payment for material procurements and he had further submitted that he used to sign blank cheques of his bank account and give it to the officials/employees of the assessee firm. The DR submitted that the subcontractors are not maintaining any labour wage register or receipt in respect of payments being made to labour (refer page 6 of assessment order) and neither is the sub-contractor maintaining purchase receipts of materials (refer page 7 of assessment order question 7). Further, the sub-contractor stated during assessment proceedings that the bank accounts are being maintained/operated by employees of Ultratech Transmission, their Income Tax returns are being filed by Ultratech Transmission and further that so far as the cheques are concerned, they simply sign the blank cheque and hand it over to the employees of M/s Ultratech Transmission, for necessary action. The AO further observed that from the details called regarding operations of the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee also drew our attention several other judicial precedents on the subject, where either the disallowance on account of bogus expenses were deleted or only a certain percentage of the bogus expenses were disallowed, considering the particular facts of the case. 9. We have heard the rival contentions and perused the material on record. We observe that in the instant case, the assessee is in the business of erection, procurement/supply and construction of transmission towers for carrying electric line. For the purpose of carrying out work, the assessee engaged several sub-contractors. It is not a matter of dispute that the income earned from such activities have been subject to tax in the hands of the assessee. Further, it was also not possible for the assessee to carry out such contract work without engaging sub-contractors to carry out the same. The argument of the assessee is that once the tax has been levied on the sales/ contractual income earned by the assessee, and the income from the assessee s business itself has not been doubted, then the entire sub contracting expenses cannot be disallowed for the simple reason that it would not have been possible for the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases relying on decision of coordinate bench of Tribunal. The Gujarat High Court upheld the order of Tribunal and held that the same did not require any interference and confirmed the disallowance @10% of bogus purchases. In the case of Jagdish H Patel [2017] 84 taxmann.com 259 (Gujarat) , the Gujarat High Court held that where AO having found that during year assessee had made bogus purchases of certain amount added said amount to his income and Tribunal having found that assessee's GP for year under consideration was 7 per cent, adopted GP rate of 8 per cent on purchase and reduced addition, Tribunal was justified. In the case of Simit P. Sheth [2013] 38 taxmann.com 385 (Gujarat) , the assessee was engaged in business of trading in steel on wholesale basis. The Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus. He, accordingly, added entire amount of purchases to gross profit of assessee. The Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance to 10% of expenditure incurred towards subcontractors. It was held that a bare perusal of the compared results of the Gross Profit and Net Profit by assessee clearly showed that the Gross Profit at the rate of 14.21% and Net Profit at the rate of 3.83% declared by Assessee, with the addition of 10% agreed by assessee before CIT (Appeals), resulted in a much better result of profits declared by assessee in the present Assessment Year viz., A.Y.2010-11 as compared to the previous years. Therefore, the estimation of profit by Appellate Authorities even on the premise taken by AO that some of the sub contractors could not be produced before AO, did not result in any perversity in the findings of CIT (Appeals) as well as Tribunal. Considering nature of work carried on by assessee, there was no question of not incurring of expenditure by assessee to carry on road work contracts and the work was mentioned in the Measurement book maintained by assessee and counter signed by the sub contractors. However, there was chances of inflating the expenditure for which disallowance of 10% of expenditure claimed was justified and disallowance of entire amount could not be appreciated . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the considered view that reassessment proceedings which is duly sanctioned as per law by the higher authority is legal and valid. The ground No. l challenging the reopening is therefore rejected. 12. Before us, the counsel for the assessee primarily reiterated the submissions on this aspect made before Ld. CIT(Appeals). The primary contention of the assessee is that the assessment is bad in law as there is no reason to believe as emphasised by section 147 of the Act. The so-called reasons were mere pretence and not supported by any tangible material. Mere suspicion cannot be belief as held by the Apex court in various judgements. The counsel for the assessee submitted that the AO merely mentioned non-maintenance of records and the sub-contractors unequivocally admitted having done the work for the appellant and thus it is on an irrelevant basis and conjectures that the so-called reasons are recorded. The counsel for the assessee submitted that various issues raised by the AO like withdrawal of cash by employees of assessee, filing of returns by sub- contractors under section 44AD of the Act etc. have also been considered by various judicial precedents cited before Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee challenged impugned notice mainly on ground that jurisdictional facts were not established and hence, revenue could not have assumed jurisdiction and reopened assessment. The ITAT found that exercise of reopening had been made only after due inquiries and recording of statements of concerned persons and on having found primafacie material, impugned notice had been issued to assessee . The Gujarat High Court held that where Assessing Officer had reason to believe that income chargeable to tax had escaped assessment and basis for formation of such belief were several inquiries and investigation by Investigation Wing that there had been escapement of income of assessee from assessment because of his failure to disclose fully and truly all material facts, reopening of assessment was justified, SLP against said impugned order was liable to be dismissed. 13.2 In the case of Kottex Industries (P.) Ltd. v. ACIT [2021] 129 taxmann.com 151 (Gujarat), the Gujarat High Court held that at the time of recording the reason for satisfaction of Assessing Officer, there should be prima- facie some material on the basis of which, the department could reopen the case. The sufficiency or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y. 2010-11 was filed declaring total income of Rs.1,09,70,720/- and assessment u/s.143(3) was completed determining total income at Rs.1,10,70,960/-. Pursuant to the survey U/S.133A conducted in the case of the appellant on 18.06.2015 the case was re-opened and notice u/s. 148 was issued. On the facts, similar to the facts for the A.Y. 2009-10, there were payments of Rs.2,11,82,210/- to 10 sub-contractors and after discussing various facts emerging out of the investigations carried out, the AO held that the expense of Rs.2,11,82,210/- was bogus and non-genuine and the impugned assessment was completed determining total income at Rs. 3,22,76,670/- 16. The Ld. CIT(A) held that from the perusal of the assessment order and the appellant's submissions, it is seen that the facts are similar to those for the A.Y. 2009-10 and the reasoning of the AO for making the additions and the submissions of the appellant challenging those additions are also similar. Under the circumstances, following the decision above for the A.Y. 2009- 10, Ld. CIT(A) dismissed the ground No. 1 challenging the re-opening u/s 147 of the Act and allowed the assessee s ground No. 2 related to disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition to be deleted. 22. Since the facts for assessment year 2011-12 are similar for assessment year 2009-10, following the detailed reasoning given above for assessment year 2009-10, and taking into consideration the observations made by the Ld. Assessing Officer in assessment order regarding the nature of subcontracting expenses and looking into the totality of facts of the instant case interpreted in light of judicial precedents highlighted above, we are of the view that in the instant set of facts, 10% of the above alleged bogus subcontracting expenses may be disallowed and added back to the income of the assessee. 23. Further, in light of detailed discussion for assessment year 2009-10, the Assessee s application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 challenging the reopening of assessment under section 147 of the Act is hereby dismissed for assessment year 2011-12. 24. In the result, the appeal of the Revenue is partly allowed for assessment year 2011-12. Assessment year 2012-13 : 25. The brief facts for this year are that original return of income for A.Y. 2012-13 was filed declaring total income of Rs. 3,85,63,670/- and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 147 of the Act. In appeal against disallowance of sub-contracting expenses, Ld. CIT(A) directed the additions to be deleted on the ground that from the perusal of the assessment order and the appellant's submissions for the A.Y. 2016-17, it is seen that the facts are same as to those for the A.Y. 2009-10 and the reasoning of the AO for making the additions and the submissions of the appellant challenging those additions are also similar. Under the circumstances, Ld. CIT(A), following the decision above for the A.Y. 2009-10 and directed the AO to delete the addition of Rs.1,61,75,302/- made in A.Y. 2016-17 on account of disallowance of sub-contracting expenses. 31. Since the facts for assessment year 2016-17 are similar for assessment year 2009-10, following the detailed reasoning given above for assessment year 2009-10, and taking into consideration the observations made by the Ld. Assessing Officer in assessment order regarding the nature of subcontracting expenses and looking into the totality of facts of the instant case interpreted in light of judicial precedents highlighted above, we are of the view that in the instant set of facts, 10% of the above alleged bogus subc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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