BHASKAR DANVE PATIL ,JALNA V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE, JALNA, JALNA

ITA 285/PUN/2024

AI Insights

The case involves Bhaskar Danve Patil, a civil contractor, who appealed against the order of the Commissioner of Income Tax (Appeals) which confirmed the disallowance of certain expenses claimed in his income tax return for the Assessment Year 2016-17. The primary issues were the disallowance of 20% of sub-contract expenses and 10% of other expenses, which the tax authorities deemed non-genuine or unverifiable. The Tribunal examined the submissions and evidence provided by the assessee, including the details of sub-contractors, payments made, and the nature of the business. The Tribunal found that while some disallowances were justified, a reduction in the percentage of disallowance was appropriate based on the evidence of TDS deductions and the nature of the business operations.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 472578 (ITAT-PUNE)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-07-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 14-02-2024
• Other Referred Cases: CIT v/s R. N. Dobaria, ACIT v/s SVE Engineers (P) Ltd, CIT Vs. B.M.S. Projects (P) Ltd., Swadeshi Commercial Co. Ltd. vs. CIT, Ito v/s Lake palace hotel P Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: M.N. KULKARNI
• Keywords: Additional evidence; Reassessment proceedings; Business expenditure; Corroborative evidences; Onus to prove; Principle of natural justice; TDS; Competent authority; Bogus
• Section: 147; 143(3); 142(1); 143(2); 143(1); 13; 234B

Judgement Text

" आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.285/PUN/2024 धििाारण वर्ा / Assessment Year : 2016-17 Bhaskar Danve Patil, BJP Bhavan, Sambhaji Nagar, Dist.-Jalna-431203 PAN : AGBPP0069K Vs. Assistant Commissioner of Income Tax, Circle – Jalna अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Mrs. M.N. Kulkarni Department by : Shri Ramnath P. Murkunde Date of hearing : 18-07-2024 Date of Pronouncement : 14-10-2024 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the assessee is directed against the order dated 19.12.2023 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Year (“AY”) 2016-17. 2. The assessee has raised the following grounds of appeal :- “1. The C.I.T. (Appeals), NFAC is erred on Facts & Law in retaining disallowance of Rs.96,10,693/- i.e. 10% out of Payments for Sub- Contracts. Appellant prays for cancellation of Disallowance. 2. The CIT (A), NFAC is erred on Facts & Law in Confirming the Addition made by Assessing Officer @10% of \"Other Expenses i.e. Rs.11,76,123/-. Appellant prays for Cancellation of the same or restricting to nominal amount. 3. CIT(A) NFAC is not just and fair in not granting full Relief in respect of disallowances made by Assessing Officer. Appellant prays for accepting Returned Income. 4. Lower Authorities have erred in not granting full Credit for TDS as claimed. 2 ITA No.285/PUN/2024, AY 2016-17 Appellant prays for direction for granting full credit of TDS as per updated 26AS. 5. Lower Authorities have erred in charging Interest u/s 234B. Appellant prays for deletion of the same. 6. Appellant denies liability to Interest u/s 234B. 7. Appellant Prays to add, alter, amend, take Additional Grounds, Submit Additional evidence, and/or withdraw the Ground/s, during Appellate Proceedings.” 3. Briefly stated, the facts of the case are that the assessee is an individual and doing business of civil contractor. He is a Government Contractor working in the area of construction of roads, bridges, and other civil construction works. For AY 2016-17, he filed his return of income electronically on 15.10.2016 declaring total income at Rs.1,45,30,530/- which included Rs.48,300/- as income from house property, Rs.1,46,19,298/- as profit & gains of business or profession from his civil contract business and Rs.22,932/- form other sources. The return was processed u/s 143(1) of the Income Tax Act, 1961 (the “Act”). Subsequently, the case was selected for limited scrutiny under CASS for limited purpose to examine whether deductions on account of other expenses claimed in the return of income are admissible. Accordingly, statutory notice(s) u/s 143(2) and 142(1) of the Act along with questionnaire were electronically issued and served on the assessee requiring the assessee to furnish the information called for thereunder. In response, the assessee filed his submission in tapal as well as online along with copies of eight sub-contractor agreement(s). 3.1 The Ld. Assessing Officer (“AO”) on verification of the return filed and examination of material/documents/details available on record completed the assessment on 24.12.2018 on total income of Rs.3,49,28,040/- by making an addition of 20% of sub-contract expenses of Rs.9,61,06,934/- which works out to Rs.1,92,21,386/- and 10% of other expenses of Rs.1,17,61,231/- which works out to Rs.11,76,123/-. 3.2 The Ld. AO in para 4.1 of the assessment order observed that the assessee has received contracts from Government organizations to construct roads, bridges and other civil construction works, etc. and it is seen from the profit and loss account that the assessee has sub-contracted the work to the following 15 parties : 3 ITA No.285/PUN/2024, AY 2016-17 S. No. Name of the party Amount of Contract (Rs.) 1 Mukesh N. Pande, Aurangabad 97,21,295/- 2 Sunil Enterprises 85,97,525/- 3 Vijay Kalyanrao Gawahane 23,10,492/- 4 Habib Khan Samad Khan Pathan 65,00,000/- 5 Sudhakar Pandurang Chaudhari 1,19,44,320/- 6 Santosh Ramrao Lokhande 63,70,619/- 7 Sudhakar Mukundrao Danve Patil 95,85,000/- 8 Tukaram Thavara Chavan 96,92,390/- 9 Krishna Electricals (Arun Deshpande) 11,92,613/- 10 Dinesh Radhakishan Bhutekar 35,00,000/- 11 Balasaheb Kamlaji Pachfule 24,69,700/- 12 Haribhau Nanabhau Chavan 70,95,350/- 13 Sahebrao Vitthalrao Chalak 29,83,210/- 14 Navmahalkar Amar Chhaganlal 70,52,500/- 15 Suresh Parasram Tajne 70,91,920/- Total : 9,61,06,934/- 3.3 In order to verify genuineness of contract works done by the assessee, sub-contracts awarded to the above mentioned sub-contractors and various expenses claimed and debited to the profit and loss account, a detailed questionnaire was issued to the assessee seeking the following information : “Sub-contract Expenses : As regards the subcontract issued, please furnish name & address & PAN of sub-contracting party. Ledger a/c of sub-contract issued. Furnish details of main contract received from where you have issued sub-compact Furnish details of TDS deducted by you while payment or crediting such amount to the account of subcontractor. Details of EMD received from such subcontractor. Further you are requested to furnish following details: 1. Nature of work assigned to such sub-contractor. 2. Details of supervisory authority of work undertaken. Certificate of work completion from competent authority to be furnished. 3. Details of Work done and place of work where the relevant work has been carried out by the sub-contractor. 4. Produce signed copy of measurement book verifying quantity of material used etc. 5. Furnish the details of machinery employed on the site or if the sub- contracting company has hired the said machinery, then furnishing the hiring bills. 4 ITA No.285/PUN/2024, AY 2016-17 6. Furnish of signed copy of running account bill maintained by the Govt./any authority appointed for such project. 7. Work order and agreement copy between Govt. and you well as you and sub-contractor. 8. Copy of certificate from the engineer/supervisor deployed for the supervision of work. Furnish the copy of register maintained at the site with regards to day to day work completed at sites. 9. Details of labour employed on work. If the labour employed by sub- contractor, then furnish copies of muster roll and presently register. If labour was again sub-contracted, then furnish copies of bills raised by them, copies of details of TDS deducted, copies of work issued. 10. Copies of return of income filed along with copies of Audit Report, Balance Sheet and P & L Ale of such sub-contractor.\" 3.4 The Ld. AO in para 4.3 of the assessment order observed that the assessee in his submission filed in response to the above questionnaire has totally ignored the evidences asked to prove the execution of work. The assessee has only submitted those documents which were readily available with him such as ledger copies of sub-contractor, confirmation, copies of return, some copies of agreement made with sub-contractors, etc. No satisfactory details or proof for expenses claimed have been furnished or produced. In few cases, copies of acknowledgment of returns and ledger accounts of sub-contractors have been filed by the assessee. The relevant observations of the Ld. AO in respect of the documents/details furnished by the assessee in support of its claim of sub-contract expenses are reproduced below : “(a) The assessee has furnished copies of only 07 work orders, totaling to contract works of Rs.20,37,83,332/- issued by the Govt. Department. The opening stock was Rs.1,61,28,579/-. Both added together works out to Rs.21,99,11,911/. Whereas contract of Rs.26,10,30,078/- has been shown, which means that there are more work orders which have not been furnished by the assessee. (b) Work contract agreement has been furnished. in 8 cases of sub-contracts given by the assessee to other entities for Rs.5,20,40,558/- for the total sub- contract amount of Rs.9,61,06,934/-. (c) The assessee has shown sub-contracts given to 15 entities, whereas copies of acknowledgement of IT Returns and ledgers for 10 parties only have been furnished. Audit Reports and Balance Sheets of these entities have not been furnished. In case of Sunil Mohanlal Agrawal only, copies of Audit Report, Balance Sheet, Trading Account and P&L Account for A.Y. under consideration have been filed. In cases of 04 sub-contractors, no document has been furnished. (d) Only in one case the assessee has furnish bills raised by the sub- contractor. It is seen that the assessee was received contract of Rs2,13,87,084/- for construction of Training Hostel in Jalna from Jilha Parishad, Jalna whereas the said contract was sub-contracted to Shri S.P. Chaudhary for Rs.1,13,68,876/- which is just 53% of the original work contract awarded to the assessee. Thus it can be seen that the assessee is 5 ITA No.285/PUN/2024, AY 2016-17 earning 47% profit on said contract received. There are no bills/invoices furnished other than bill mentioned above. (e) The assessee was requested to furnish the following details which have not been furnished by him: 1. There is no description of work awarded to such person. Details of work completed by these persons and bills issued by these persons are also not provided (In one case assessee has provided the bill.). 2. Details of supervisory authority of work undertaken. Certificate of work completion from competent authority was not furnished. 3. Details of Work done and place of work where the relevant work has been carried out by the sub-contractor. Production of signed copy of measurement book verifying quantity of material used etc. 4. Details of machinery deployed on the site. 5. Details of labour employed on the site, details of material purchased for the different work undertaken, etc. 6. Signed copy of running account bill maintained by the Govt/any authority appointed for such project. 7. Work orders and agreement copy between Govt. and the assessee as well as between the assessee and sub-contractor. (Note: a few work orders from the government and the other authorities and some agreement claimed to be subcontract agreement have been furnished). 8. Copy of certificate from the engineer/supervisor deployed for the supervision of work. 9. Copies of registers maintained at the sites with regard to day to day work completed at sites. 10. Copies of bills raised by the sub-contractor (except in one case), etc. The above details asked are essential part of the contract and sub- contract so as to prove that the work was executed. There is nothing put on record by the assessee that the so called sub-contract awarded was executed by applying machinery, material, labour force, etc. The assessee is a contractor of Government Agency and there is a machinery to observe the work done in such areas. It is seen from the trading and profit and loss account that the assessee has debited expenses such as purchase of Bitumen & LDO, Bricks Expenses, Dubber & Soiling Expenses, Khadi & Metal Expenses, Carting & Transportation, Cement Purchase, Diesel/Petrol/Oil & Grease, spare parts, Labour & Mistri Payment, machinery repairs, Steel Expenses, Tractor & Tripper rent, watering charges, etc. These are the major items required for such construction activities. The assessee has not given any details as to what purchases he had made through the sub-contractor for completion of such contract received. Whether the main contracts received were fully sub-contracted or not or sub- contracted partly. It is hard to believe that the assessee has not maintained any record of such sub-contract which is around 37% of main contract received. It shows that the assessee has floated such sub-contract expenses so as to siphon out his profit of the business so as to reduce his taxable income.” 3.5 In the absence of the complete details/documents available which obstructed the Ld. AO to make further enquiry so as to verify the 6 ITA No.285/PUN/2024, AY 2016-17 correctness of expenses claimed by the assessee, the Ld. AO observed that the assessee has failed to prove the genuineness of the above sub-contract expenses the burden of proof for which lies on the assessee. Not even a singly evidence has been furnished which might show that the relevant work has been executed. The Ld. AO also observed that the assessee received contract of Rs.2,13,87,084/- for construction of Training Hostel in Jalna from Jilha Parishad, Jalna whereas the said contract was sub- contracted to Shri S.P. Chaudhary for Rs.1,13,68,876/- which is just 53% of the original work contract awarded to the assessee and therefore it can be seen that the assessee is earning 47% profit on said contract received. However, no bills/invoices have been furnished except only in one case where the assessee has furnished bill raised by the sub-contractor. According to the Ld. AO without there being any evidence as to how payment of such sub-contract has been made and as to how such expenses are debited to profit and loss account, if work is not actually carried out, it shows that the assessee had issued bogus sub-contract and just taken bogus bills, which cannot be allowed. The Ld. AO, in view of these facts, material and evidences available before him concluded that it is hard to believe that the assessee has incurred such huge expenses of sub-contract which is around 37% of the contractual receipt and these seems to be non-genuine expenses. He therefore, found it justifiable to disallow 20% of the sub-contract expenses of Rs.9,61,06,934/- i.e. Rs.1,92,21,386/- claimed by the assessee and added back the same to the income of the assessee. 3.6 As regards the claim of other expenses, the assessee was asked to furnish the following information : “Brick Expenses: Was requested to explain the use of Brick in his business and furnish the details of structure erected by using bricks so purchased. Carting Expenses : Details of carting expenses, to whom these payments were made, etc. What are the structure erected/ road constructed. Under what circumstances the payments were made in cash. Was requested to furnish necessary certificate/site register of receipts of such material/expenses incurred. Details of site-wise expenses incurred was also asked. Dubber Soling Expenses: Details of Dubber Soling Expenses. To whom these payments were made. What are the structure erected/ road constructed. To explain under what circumstances the payments were made in cash and furnish necessary certificate/site register of receipts of such material/expenses incurred and to furnish site-wise expenses incurred. Equipment Expenses: It is seen that the assessee has debited Rs35,65,548/ under the head equipment expenses. He was requested to explain what these expenses are. If it relates to consumable spare parts of the machinery 7 ITA No.285/PUN/2024, AY 2016-17 then to give details of such machinery where these parts are used. Whether these machineries are owned or taken on hire. If it taken on hire, then to furnish details of such machinery and details of terms of contractual obligation. Office Expenses: Details of headwise expenses incurred. Printing & Stationery: Details of monthwise expenses incurred.” 3.7 In the absence of supporting bills/vouchers furnished by the assessee to prove the genuineness of the above expenses due to which these expenses remained not fully verifiable, the Ld. AO disallowed Rs.11,76,123/- (10% of total other expenses of Rs.1,17,61,231/-) claimed by the assessee and added the same back to the income of the assessee. The relevant observations of the Ld. AO in this regard is as under : “In response, the assessee has furnished only ledgers of these expenses, showing cash payments on most of occasions. There are some types of purchases in which heavy amount are required for purchase, in such purchases also payment below Rs.20,000/- has been shown. No bills and vouchers have been produced/furnished to prove the genuineness of such purchases. The assessee has not furnished/produced complete information as regards labour register, muster roll, presenty register and other information as required as per the notice u/s 142(1) of the Act as regards other expenses, expenses on labour, mistri, office expenses & supervision charges. Hence, genuineness of these expenses are not fully verifiable. The assessee has failed to furnish the above information, neither he has given any reason for his failure to furnish the required information. Therefore, the claim of assessee of Rs 1,17,61,231/- (Rs 9,26,450/- on Bricks. Rs 29,08,564/- on Carting, Rs 38,88,950/- on Dubber, Rs 35,65,548/- on Equipment, Rs 2,29,370/- on Office Expenses, Rs 2,05,128/- on Printing and Rs 37,221/- on other Misc.) as expenses under all these heads is not fully verifiable. Hence, 10% of Rs.1,17,61,231/- which works out to Rs.11,76,123/- is disallowed and added back to the total income of the assessee” 4. Aggrieved, the assessee carried the matter before the CIT(A) challenging the disallowance of 20% of sub-contract expenses amounting to Rs.1,92,21,386/- and disallowance of 10% of other expenses amounting to Rs.11,76,123/-. Before the Ld. CIT(A), the assessee made the following submissions which are recorded by the Ld. CIT(A) in para 4 of the appellate order which reads as under : “Fact of the case: The assessee is a Government contractor. For the assessment year 2016-17, He has filed Income Tax return on 15/10/2016 declaring an Income of Rs.1,45,30,530. His accounts are audited u/s 44 AB (a) of the Income Tax Act, 1961. The case was selected for scrutiny. The learned AO has assessed the income for Rs. 3,49,28,040/- by making an addition of Rs. 2,03,97,509/- being non genuine sub- contractor expenses and other expenses on estimated basis. The aggrieved assessee made an appeal before you and the assessee humbly submits as follows: 8 ITA No.285/PUN/2024, AY 2016-17 a. The learned AO has erred to disallow 20% of Sub contractor expenses on estimated basis without considering the fact and circumstances and nature of business of the assessee. b. He also ignored the fact that TDS has been deducted and all payments were made by account payee crossed cheques. c. He has also ignored the fact that out of Total Sub contractor expenses of Rs.9,61,06,934 (total 15 sub-contractor) who are income tax payers. d. The learned AO has disallowed sub contractor expenses @ 20% on the ground that sub contractor expenses are higher side and no work order has been furnished, no Income tax returns of all contractors has been given only 10 returns given out of 15 contractors. 8 agreements of contract has been given instead of 15 contractors, details of machinery deployed on the site not given, nature of work assigned to workers not given. e. Confirmation of all the sub-contractors has been submitted herewith. T the time of assessment, due to short time, we have submitted some of major confirmations but some confirmations were remained. f. The list of contractor is as follows: Sr. No. Particulars PAN No. Sub Contract TDS 1 Mukesh N. Pande, Aurangabad ABUPP7361C 97,21,295/- 97,213/- 2 Sunil Enterprises AAWPA8203H 85,97,525/- 85,975/- 3 Vijay Kalyanrao Gawahane ABLPG2441F 23,10,492/- 23,105/- 4 Habib Khan Samad Khan Pathan AFCPP5376B 65,00,000/- 65,000/- 5 Sudhakar Pandurang Chaudhari AAMPC0833D 1,19,44,320/- 1,19,444/- 6 Santosh Ramrao Lokhande ACMPL5810H 63,70,619/- 63,706/- 7 Sudhakar Mukundrao Danve Patil ASNPD9540N 95,85,000/- 95,850/- 8 Tukaram Thavara Chavan AMAPC3757C 96,92,390/- 96,924/- 9 Krishna Electricals (Arun Deshpande) ABFPD8294B 11,92,613/- 11,926/- 10 Dinesh Radhakishan Bhutekar AQGPB5104N 35,00,000/- 35,000/- 11 Balasaheb Kamlaji Pachfule BSLPP8621A 24,69,700/- 24,697/- 12 Haribhau Nanabhau Chavan AHEPC8601Q 70,95,350/- 70,954/- 13 Sahebrao Vitthalrao Chalak AJXPC6248E 29,83,210/- 29,832/- 14 Navmahalkar Amar Chhaganlal ADRPN8385M 70,52,500/- 75,765/- 15 Suresh Parasram Tajne AGJPT6144K 70,91,920/- 70,920/- Total : 9,61,06,934/- 9,66,311/- I) We have received only work order of 7works so we have submitted them. We can submit all the work order if needed. II) No work order has been made for sub-contractor only agreement is available, we have all the agreements but they are remained to submit at the time of assessment since assessee was under an impression that only some of the sample copies to be submitted. Now assessee has submitted all the copies. 9 ITA No.285/PUN/2024, AY 2016-17 III) Copy of Income Tax Returns of all the sub-contractors are now submitted since assessee was in an impression that only some of the copies to be submitted. IV) The earnest money is not required for sub-contractors. V) Work awarded is written in agreement and bills are issued by persons are enclosed. VI) The assessee has asked some time to submit details and some details were already submitted. a. Nature of work assigned was reflected in agreement b. Certificate of work completion for sub-contractor is not required c. Detail of work done is as per bill d. Measurement book is not maintained e. Work order copy of assesse and goverment, assessee and sub- contractor was submitted in 70% cases as sample. Remaining are with the assessee. f. Signed copy of running bill was remained to submit and assessee can submit the same. g As said earlier, Work order is submitted in 70% cases. balance can be submitted. h. We do not keep any such record of supervisor certificate i. Day to day work register is not maintained. j. There were no labour contractors. k. Labour force deployed by sub-contractors. l. Site wise work done is maintained by sub-contractors and not by us. So the learned AO has assumed that only 80% expenses are genuine and disallowed 20% expenses as non genuine ignoring the fact that TDS has been deducted, all sub-contractors are Income tax payers and payments were made through banking channel. Assessee has also filed returns under MVAT act. The learned AO has not made any doubt on genuineness of sub contractors since he has accepted 80% expenses. How he calculated 80% genuine expe. Is known to him only. He has not brought on the record any corrugating evidence that expenses are non- genuine by 20%. He has made assumption and presumption and made an estimate of his own. So, the disallowance made on assumption is totally unjustified and liable to be deleted. The learned AO has not pointed out any defect in books of accounts. Auditor also not pointed out any defect or observation. The appellant relied on following cases: a. In case of CIT v/s R. N. Dobaria (42 taxmann.com 196) AY 2006- 07. In this case, the AO has disallowed 25% of sub-contractor expenses and made addition. The CIT (appeals) observed that assessee had fully discharged his onus of providing details of expenses by submitting names of sub- contractors, their PAN, confirmations, returns and copy of bank statements and proof of TDS payment. The Tribunal also upheld the same. On appeal, Gujrat High court observed that the AO had not doubted genuineness of the sub-contractors and he had failed to bring any evidence that sub contract expenses were non genuine. Even otherwise allocation of work to sub- contractors or doing its own account was the business prudence and same should not be doubted when there is an improvement is book result. b. In the case of ACIT v/s SVE Engineers (P) Ltd (63) TAXMANNN.com 86) It was held by the Hon'ble Chennai ITAT that where the assessee paid certain 10 ITA No.285/PUN/2024, AY 2016-17 amount to sub-contractors for carrying out work by them and proved genuineness of payment by producing cogent evidence and sub-contractors also confirmed that they received payment by banking channels, expenditure was allowable as business expenditure. c. In the case of CIT Vs. B.M.S. Projects (P) Ltd. (44 taxmann.com 206), for AY 2005-06 the Assessing officer observed that major expenses incurred by assessee were on account of job works which were sub-contracted to various persons for carrying out work contracted out to assessee. On account of non- production of parties, the Assessing officer had disallowed expenditure and made addition of such amount. However, the Commissioner (Appeals) after an elaborate examination confirmed only part of total disallowance. The Tribunal deleted entire addition made by Assessing Officer holding that on ground of residential address and registration address of some sub- contractors being same, there was no reason to disbelieve the evidence. Since TDS was deducted on payments made to sub-contractors and other details were also furnished by the assessee, therefore the Hon'ble Gujarat High Court held that the Tribunal had committed no error in deleting entire addition made by Assessing Officer. d. In the case of Swadeshi Commercial Co. Ltd. vs. CIT, the Calcutta high court held that addition made on estimated basis is bad in law. e. In case of Ito v/s Lake palace hotel P Ltd 13 TTJ 216, it is held that estimated disallowance is to be deleted. So, considering the above case laws and fact of the cases, please delete the addition made and oblige. 2. Disallowance of Other expenses The learned AO has disallowed 10% of other expenses of Rs.1.17,61,231/- being expenses not fully verifiable. The following are expenses: Brick expenses 9,26,450 Cartage 29,08,564 Dubber 38,88,950 Equipment rent 35,65,548 Office exp 2,29,370 Printing & stat 2,05,128 Misc exp. 37,221 Total 1,17,61,231 Whereas as per the nature of business and business expediency, the above expenses are justifiable. The books of accounts are audited. The profit has been disclosed by assessee is reasonable. So please delete the addition made since it is estimated without any evidence brought on record.” 4.1 Considering the above submission, the Ld. CIT(A) reduced disallowance of 20% of sub-contract expenses made by the Ld. AO to 10% i.e. Rs.96,10,693/-. The relevant observations and findings of the Ld. CIT(A) on the issue reads as under : “6.6 I have carefully considered the facts of the case, the submission of the appellant and evidences on record. I find that it is not in dispute that the payments to sub- contractors were indeed made by the appellant through 11 ITA No.285/PUN/2024, AY 2016-17 account payee cheques after deduction of TDS. It is also seen from the submissions that those recipients have duly disclosed the same in their respective IT returns and had also filed their returns of income claiming refunds. It is apparent that the tax deducted by the appellant will predominantly form part of claim of refund made by the sub-contractors in their return of income. However, I find that the appellant had not proved the actual rendering of services by these sub-contractors find that no certificate of work completion for sub contractor etc is submitted. The appellant claimed that the detail of work done is as per bill but the appellant famished bills raised by the sub-contractor only in one case. The appellant has not maintained any measurement book, nor has the appellant kept any such record of supervisor certificate, nor has the appellant maintained any to day work register. I find it surprising that the Site wise work done is maintained by sub- contractors and not by the appellant. I find that the appellant has not also proved with cogent maternal as to whether these sub-contractors possess necessary expertise and infrastructure to render services to the appellant. It is seen that in many contract, the appellant has only given a portion of the contract received as sub-contract. There is no detail submitted by the appellant as to why only portion of contract was executed through the sub-contractor for completion of such contract, whether the main contracts received were fully sub-contracted or not, what was the portion of the work carried out by the appellant himself out of the contracts received. It is not possible that the appellant will not maintain details and records as well as monitor the execution and completion of sub-contracts which his around 37% of main contract. 6.7 The appellant has also relied on the certain judicial cases. However, I find that they are not applicable in the instant case, in the case of CIT vs. SPL. Infrastructure Pvt. Ltd. (Hon'ble Madras High Court) TCA No. 766 of 2017 dated 07.08.2020, 10% disallowance of expenditure towards sub- contract for want of proper bills restricted by the Ld. CIT(A), as against 100% disallowance made by the AO, was held justified. I find that merely because TDS has been deducted from all the sub-contractors and they have filed their return doesn't prove the genuineness of the expenses. From the aforesaid facts, I find that the sub-contractors had acted as a conduit to reduce the prates of the appellant find that that the services tendered by those sub- contractors to the appellant has not been proved by the appellant satisfactorily in the instant case. However, I find that the disallowance made by the AO of 20% of sub-contract expenses appears to be on the higher side and in the interest of natural justice, the disallowance is restricted to only 10% of the Subcontract expenses of Rs 9.61.06.934 which works out to Rs 96.10.093.40. Thus the appeal on Ground No 2 & 3 are partly allowed.” 4.2 As regards disallowance of 10% of other expenses of Rs.11,76,123/-, the Ld. CIT(A) sustained the disallowance of Rs.11,76,123/- made by the Ld. AO by observing as under : “7.1 ………………I have carefully considered the facts of the case, the submission of the appellant and evidences on record. I find that the appellant had shown the following expenses:- Brick expenses 9,26,450 Cartage 29,08,564 Dubber 38,88,950 Equipment rent 35,65,548 Office exp 2,29,370 Printing & stat 2,05,128 Misc exp. 37,221 Total 1,17,61,231 7.2 The recent judgment of the Hon'ble ITAT Pune in the case of Garve Motors Private Limited Vs DCIT (in ITA No. 183/PUN/2023 Date of Judgment/Order: 12 ITA No.285/PUN/2024, AY 2016-17 30/05/2023 Related Assessment Year: 2015-16, looked into the issue of non submission of business vouchers, where the case revolves around the contention raised by Garve Motors Private Limited, an authorized dealer of Hyundai Cars, against a disallowance made by the Assessing Officer (AO) based on the non- submission of certain business vouchers. AO disallowed 10% of expenses that were backed by handmade vouchers, which the company claimed under \"Other Expenses\". Challenging the AO's decision, the company appealed before the CIT(A) in NFAC, Delhi, who further restricted the disallowance to 8%. Before the ITAT, Garve Motors argued that the AO made no comment about the genuineness of the expenditure but only doubted the handmade vouchers. The ITAT observed that the AO indeed made no adverse reference to the expenses genuineness. Nonetheless, due to the lack of supporting evidence, the tribunal decided to concur with the authorities below. But, considering the absence of doubt about the genuineness of the expenditure, the ITAT restricted the disallowance to 5%. 7.3 I find that the appellant has submitted only ledger of these expenses showing cash payments on most occasions and no bills and vouchers have been produced/ furnished to prove the genuineness of such expenses and also to enable the AO to verify such expenses. Considering the above discussion and relying on the above judicial decisions cited, the disallowance of 10% of Rs.1,17,61,231/- is sustained. The appeal on this ground is treated as dismissed.” 5. Dissatisfied, the assessee in appeal before the Tribunal and the ground Nos. 1, 2 and 3 raised by the assessee relate thereto. 6. The Ld. AR submitted that the disallowance of 10% of sub- contracting expenses amounting to Rs.96,10,693/- on account of being non-genuine and on estimated basis is unjustifiable. The Ld. AR submitted that the sub-contractors to whom the payments are made are Income-tax payers and regularly filed their return of income. TDS has been deducted on payments made to them which were made by the account payee crossed cheques. The assessee received only work order of 7 works which was submitted before the Ld. AO and that he had submitted before the Ld. CIT(A) that he can submit all the work orders before him, if required. Before the Ld. CIT(A), the assessee has submitted the copies of all the agreements of the sub-contractors and Income Tax returns of all the sub-contractors which were not submitted at the time of assessment proceedings since the assessee was under an impression that only some of the sample copies would suffice. The work awarded to the sub-contractors is written in agreement and bills are issued by the persons which were also submitted before the Ld. CIT(A). The assessee has also filed his returns under MVAT Act. These facts are not in dispute and have been appreciated by the Ld. CIT(A). The Ld. AR submitted that the Ld. AO has not doubted the genuineness of the sub-contracts which is evident from the fact that he has accepted 80% of expenses as being genuine and only 20% has been held to be non-genuine. The addition of 20% made by the 13 ITA No.285/PUN/2024, AY 2016-17 Ld. AO which is reduced to 10% by the Ld. CIT(A) is without bringing on record any corroborative evidence in respect of the same. The addition made by the Ld. AO and sustained by the Ld. CIT(A) is therefore based on assumption and hence the disallowance of 10% of sub-contract expenses is totally unjustified and liable to be deleted. He relied on the various judicial precedents which were cited before the Ld. CIT(A) (supra). 6.1 As regards the disallowance of 10% of other expenses, the Ld. AR submitted that the same has been disallowed on estimated basis without any evidence brought on record both by the Ld. AO as well as by the Ld. CIT(A). Reiterating the assessee’s contention before the Ld. CIT(A), he submitted that the other expenses claimed by the assessee are completely justifiable considering the nature of business of the assessee and business expediency. The books of account of the assessee are audited and the profit disclosed by the assessee is reasonable. 6.2 The assessee submitted paper book(s) including therein the details of the documents furnished before the Ld. CIT(A) in respect of expenses incurred by him. The Ld. AR referred to the statement showing details of assessment proceedings for earlier years as well as subsequent years in respect of sub-contractor expenses incurred by the assessee from AY 2010- 11 to AY 2022-23 and submitted that the sub-contractor expenses have been consistently accepted by the Ld. AO in all these years either under intimation order u/s 143(1) of the Act or under scrutiny assessment u/s 143(3) of the Act. He submitted that in subsequent AY 2017-18 wherein the reopening proceedings were undertaken u/s 144(7) r.w.s. 144B of the Act, no disallowance was made in respect of sub-contract expenses (pages 1 to 2 of the paper book-II refers). 6.3 As regards other expenses, the Ld. AR referred to the statement showing the details of other expenses incurred and allowed in assessment proceedings for earlier years as well as subsequent years from AY 2010-11 to AY 2022-23 and submitted that no disallowance has been made in respect of other expenses in AYs 2011-12 to 2013-14 and AYs 2018-19 to 2022-23. In AYs 2010-11 and 2014-15 - 5% of these expenses were disallowed in scrutiny assessment u/s 143(3) and in AY 2015-16 8% of such expenses have been disallowed. No disallowance has been made in AY 2017-18 during the reassessment proceedings u/s 147 r.w.s. 144B of the Act. (pages 3 to 7 of the paper book refers). 14 ITA No.285/PUN/2024, AY 2016-17 7. The Ld. DR strongly supported the order of Ld. AO/CIT(A). He submitted that the Ld. CIT(A) was fully justified in retaining the 10% disallowance of Rs.96,10,693/- on account of sub-contract expenses as well as 10% of other expenses claimed by the assessee as the assessee lacked to furnish any evidence of expenses incurred and no bills/invoices have been furnished in respect of the same. The Ld. DR submitted that the conduct of the assessee in maintaining the records relating to the expenses indicates that the assessee has floated these expenses to siphon out his profit of the business so as to reduce his taxable income. 8. We have heard the Ld. Representatives of the parties and perused the records. As regards disallowance of 10% of sub-contract expenses sustained by the Ld. CIT(A), the Ld. AR submitted that during the course of appellate proceedings the assessee did produce all the details called for some of which were submitted before the Ld. AO as well which had been verified by the Ld. AO on test check basis. We observe that the assessee has submitted copies of 7 work orders, agreements of all the sub- contractors, Income tax returns of all sub-contractors, confirmation of ledger account statements, the details of payments made to sub-contracts along with the TDS deducted thereon etc. (Paper Book-II, Pages A To D, 1 to 126 refers). The Ld. AO has not doubted the genuineness of the sub- contracts which is evident from the fact that the sub-contract expenses have been disallowed only to the extent of 20% and 80% of such expenses have been accepted by him. The Ld. CIT(A) has observed that there is no dispute with regard to the payments being made to the sub-contractors which were indeed made by the assessee through account payee cheques after deduction of TDS. The sub-contractors have been showing their respective receipts in their IT returns. The Ld. CIT(A) however doubted the genuineness of these expenses observing that the assessee has failed to prove the genuineness of the sub-contract expenses satisfactorily as the assessee has furnished bills raised only by one contractor. The assessee has also not maintained any details and records of the work carried out by the sub-contractors which amounts to 37% of the main contract. Merely because TDS deducted from the payments made to the sub-contractors which is reflected in their respective Income tax returns, the same does not prove the genuineness of these sub-contract expenses. The Ld. CIT(A) therefore concluded that the sub-contractors had acted as a conduit to reduce the profits of the assessee. Relying on the decision of Hon’ble High Court of Madras in the case of CIT Vs. SPL Infrastructure Pvt. Ltd., TCA 15 ITA No.285/PUN/2024, AY 2016-17 No. 766 of 2017 dated 07.08.2020, the Ld. CIT(A) restricted disallowance of sub-contract expenses to 10% as against 20% made by the Ld. AO. We observe that the contentions raised by the assessee before the Ld. CIT(A) have been rejected by the Ld. CIT(A) for want of necessary evidence in support thereof. The assessee’s submission on record is that all the details had been submitted before the Ld. CIT(A) as called for and the assessee filed partial details during the assessment proceedings because he was under the impression that no more details/evidence was required to be submitted before the Ld. AO. 9. It has been pointed out that the similar expenses have been incurred by the assessee in earlier as well as subsequent years u/s 143(1)/143(3) of the Act wherein no disallowance has been made with respect to the sub- contract expenses. It is the plea of the assessee that it is only in the present AY 2016-17 under consideration that the disallowance of 20% of sub-contract expenses has been made on ad-hoc basis by the Ld. AO which has been reduced to 10% by the Ld. CIT(A). We observe that the Ld. CIT(A) has rejected the above contentions of the assessee for want of necessary evidence in support thereof. Under the present facts and circumstances of the case and considering the nature of business of the assessee and the supporting evidence forthcoming from the assessee’s side, we are of the considered view that the possibility of certain portion of sub-contract expenses having been non-genuine cannot be ruled out. We, therefore, deem it fit to disallow 5% of the sub-contract expenses as against 10% sustained by the Ld. CIT(A). The Ld. AO is directed to modify the assessment order accordingly. 10. As regards the disallowance of 10% of other expenses amounting to Rs.11,76,123/-, the Ld. AR has pointed out that the Ld. CIT(A) has sustained the disallowance made by the Ld. AO for the reason that they are not supported by the bills/vouchers and hence the genuineness of these expenses are not fully verifiable. We observe that even during the appellate proceedings the assessee failed to produce any bills/vouchers in support of its claim. During the appellate proceedings the only contention of the assessee is that as per the nature of business and business expediency, these expenses are justifiable. The books of account are audited and the profit disclosed by the assessee is reasonable. Only the ledger accounts of these expenses are on record to substantiate the claim of the assessee. We also observe that the similar disallowance has been made in earlier years 16 ITA No.285/PUN/2024, AY 2016-17 as well which is in the range of 5%/8%. In this view of the matter and considering the nature of business of the assessee, we deem it fit to reduce the disallowance on account of other expenses to 5% as against 10% sustained by the Ld. CIT(A). The Ld. AO is directed to modify the assessment order accordingly. 11. Ground No. 4 relates to denial of credit for TDS. After hearing the parties, we direct the Ld. AO to verify the claim of the assessee and allow the credit, if the claim on verification is found to be correct. We order accordingly. 12. Ground Nos. 5 and 6 relating to interest u/s 234B of the Act are consequential in nature. 13. In the result, the appeal of the assessee is partly allowed for statistical purposes with the directions given above. Order pronounced in the open court on 14th October, 2024. Sd/- Sd/- (R.K. Panda) (Astha Chandra) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 14th October, 2024. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "