M/s Akrati Promoters & Developers, Agra V. DCIT,Circle 4(1), Agra

ITA 157/AGR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0373 (ITAT-AGRA)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 19-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 131; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.129/AGR/2012 ASSESSMENT YEAR: 2008-09 A.C.I.T. 4(1), VS. M/S. AKRATI PROMOTERS & DEVEL OPERS, AGRA. C-S/1-3, RASHMI PALACE, BYE PASS ROAD, AGRA. (PAN : AACFA 3117 E). ITA NO.157/AGR/2012 ASSESSMENT YEAR: 2008-09 M/S. AKRATI PROMOTERS & DEVELOPERS, VS. D.C.I.T., CIRCLE - 4(1), C-S/1-3, RASHMI PALACE, AGRA. BYE PASS ROAD, AGRA. (PAN : AACFA 3117 E). (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI WASEEM ARSHAD, SR. D.R. ASSESSEE BY : SHRI R.C. TOMAR, I.T.P. DATE OF HEARING : 14.02.2013 DATE OF PRONOUNCEMENT : 28.02.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THESE ARE CROSS APPEALS FILED BY THE REVENUE AND AS SESSEE AGAINST THE ORDER DATED 31.01.2012 PASSED BY THE LD. CIT(A)-II, AGRA FOR THE ASSESSMENT YEAR 2008- 09. 2 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . ITA NO.129/AGR/2012 BY THE REVENUE 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER :- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION`N OF RS.29,00,075/- MADE BY THE AO WITHOUT APPRECIATING THE FACTS & CIRCUMSTANCES OF THE CASE, ESPECIALLY THAT THE ASSESSEE HAS NOT FURNISHED EVIDENCES TO JUSTIFY THAT THE EXPENSES TO THE TUNE OF RS.61,53,841/- PERTAINING TO THE PERIOD PRIOR TO 12 .03.2008. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.14,28,460/- MADE BY THE AO ON ACCOUN T OF DISALLOWANCE OUT OF CONTRACT PAYMENT MADE TO SUB CO NTRACTOR, SHRI YOGENDRA SINGH JADON IGNORING THE FACTS & CIRCUMSTA NCES OF THE CASE, ESPECIALLY THAT SHRI JADON DID NOT ATTEND THE OFFIC E IN COMPLIANCE TO THE SUMMONS U/S 131 OF THE ACT ISSUED TO HIM TO VER IFY THE PAYMENT. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DIRECTING THE AO TO WORK OUT THE ADDITION ONLY ON THE SUM OF RS.57,59,910/- AGAINST THE AMOUNT OF RS.86,59,985/- AS CLOSING WO RK IN PROGRESS BY APPLYING GP RATE WITHOUT APPRECIATING THE FACTS & C IRCUMSTANCES OF THE CASE, ESPECIALLY THAT THE ASSESSEE HAS NOT FURN ISHED EVIDENCES TO JUSTIFY THAT THE EXPENSES TO THE TUNE OF RS.61,53,8 41/- PERTAINING TO THE PERIOD PRIOR TO 12.03.2008. 4. THAT ORDER OF LD. CIT(A) BEING ERRONEOUS IN LAW AND ON FACTS DESERVES TO BE QUASHED AND THAT THE ORDER OF AO TO BE RESTORED. 5. THE APPELLANT CRAVES, LEAVES TO ADD OR ALTER ANY OR MORE GROUND OR GROUNDS OF APPEAL AS MAY BE DEEMED FIT AT THE TIME OF HEARING OF APPEAL. ITA NO.157/AGR/2012 BY THE ASSESSEE 3 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEA L ARE AS UNDER :- 1. THAT THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN DISMISSING THE GROUND THAT THE AO HAD NO OCCASION T O REJECT THE BOOKS OF ACCOUNTS U/S 145. 2. THAT THE LEARNED CIT(A) HAS ERRED ON FACTS AND I N LAW IN SUSTAINING THE ADDITION ON ACCOUNT OF PAYMENTS MADE TO SUB CONTRACTORS AS INADMISSIBLE U/S 40A(2)(B) OF THE IT ACT TO THE FOLLOWING: I. SHRI SANJAY AGARWAL RS.21,57,500.00 II. SHRI SUBODH AGARWAL RS.26,09,254.00 III SHRI R.R. AGARWAL RS.14,09,372.00 RS.61,76,126.00 3. THAT THE CIT(A) HAS ERRED ON FACT AND IN LAW TO DIRECTING THE AO TO WORKOUT PROFIT @ 11.2% ON WIP OF RS.57,59,910 .00 SEPARATELY IGNORING THE NATURE OF WIP. 4. THAT THE LEARNED CIT(A) HAS ERRED ON FACTS AND I N LAW IN MAKING WRONG INTERPRETATION ON ACCOUNTING STANDARD- 7. 5. THAT THE CIT(A) HAS ERRED/FAILED ON FACTS AND IN LAW TO APPRECIATE THAT THE WIP, THE OUTCOME OF CONSTRUCTIO N CONTRACT CANNOT BE ESTIMATED RELIABLY CANNOT BE RECOGNIZED AS REVEN UE IN AS MUCH AS : I) THAT NO REVENUE COULD BE RECOGNIZED TO THE EXTEN T OF CONTRACT COST INCURRED OF WHICH RECOVERY WAS NOT POSSIBLE. II) THAT THE ECONOMIC BENEFIT ASSOCIATED WITH THE W IP SINCE NOT MEASURABLE RELIABLY CANNOT BE BROUGHT TO TAX AS CON TRACT REVENUE 6. THAT THE LEARNED CIT(A) AND AO HAD NO OCCASION T O SAY THAT ASSESSEE HAS DEVIATED FROM REGULAR METHOD OF ACCOUN TING FOLLOWED BY HIM FROM YEAR TO YEAR. 4 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . 7. THAT THE ASSESSEE CRAVES TO ADD OR ALTER ANY OTH ER GROUND OF APPEAL AS MAY BE WARRANTED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF CIVIL WORK. 5. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS IN RESPECT OF DELETION OF ADDITION OF RS.29,00,075/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE DID NOT SHOW WORK-IN-PROGRESS COR RECTLY. THE A.O. BIFURCATED CONTRACT ACCOUNT FOR THE YEAR IN TWO PARTS AND NOTE D THAT TOTAL CONTRACT RECEIPTS FOR THE PERIOD 12.03.2008 TO 31.03.2008 WAS RS.65,19,01 3/- WHEREAS THE CONTACT EXPENSES INCURRED FOR THAT PERIOD WAS RS.1,56,54,92 1.26. ACCORDING TO THE A.O. THE ASSESSEE OUGHT TO HAVE SHOWN CLOSING STOCK RS.9 1,35,908/- WHEREAS THE ASSESSEE HAS SHOWN CLOSING SOCK RS.62,35,833/-. TH US, DIFFERENCE OF RS.29,00,075/- IS LIABLE TO BE ADDED. THE A.O. MAD E ADDITION STATING THAT THE ASSESSEE HAS SHOWN LESSER WORK IN PROGRESS/CLOSING STOCK. 6. THE CIT(A) DELETED THE ADDITION AFTER ACCEPTING RECONCILIATION FURNISHED BY THE ASSESSEE. THE ASSESSEE FURNISHED DETAILS OF EX PENSES FOR THE REMAINING PERIOD ALSO, THE SUMMARY OF WHICH NOTED BY THE CIT(A) IS A S UNDER :- (PAGE NOS.19 & 20) 5 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . THE EXPENDITURE PERTAINS TO THE PERIOD FROM 12.03. 2008 TO 31.03.2008 IS RS.95,01,079.00 AS DETAIL GIVEN BELOW :- MATERIAL PURCHASE RS.63,29,719.00 CARTAGE RS. 29,120.00 REPAIR & MAINTENANCE RS. 2,131.00 EXPENDITURE FOR THE PERIOD 12.03.08 TO 31.03.08 AS PER ABOVE CHART RS.31,40, 109.00 TOTAL: RS.95,01,079.00 LESS: PAYMENT RECEIVED BY THE ASSESSEE AS PER A.O. CALCULATION RS.65,19,013.0 0 WIP RS.29,82,066.00 WIP AND CLOSING STOCK SHOWN BY THE ASSESSEE RS.62 ,35,833.00 UNEXPLAINED/UNDISCLOSED WIP NIL 7. THE CIT(A) HAS DELETED THE ADDITION WITH THE FOL LOWING OBSERVATIONS:- (PARAGRAPH NO.4.2, PAGE NO.20) 4.2 I HAVE CONSIDERED THE RIVAL CONTENTIONS AND FI ND THAT THE AO HAS MADE THE ADDITION BY A SIMPLE ARITHMETICAL CALC ULATION I.E. HE HAS CONSIDERED TOTAL EXPENDITURE DEBITED AFTER 12.03.20 08 AND FROM THAT HE HAS SUBTRACTED PAYMENTS RECEIVED FROM THE CONTRA CTEES AFTER 12.03.2008 AND THE WIP SHOWN BY THE ASSESSEE AND OF THE RESULTANT FIGURE HE HAS MADE THE ADDITION. THE CONTENTION OF THE APPELLANT THAT PART OF THE EXPENDITURE DEBITED IN THE BOOKS OF ACC OUNT AFTER 13.03.2008 RELATE TO EARLIER PERIOD HAS NOT BEEN CO NSIDERED BY THE AO. IT IS NOT UNUSUAL IN THE CASE OF BUSINESS OF C IVIL CONSTRUCTION THAT BILLS FOR MATERIAL EARLIER RECEIVED CAN BE RECEIVED AT A LATER DATE OR THE SUB-CONTRACTORS MIGHT SUBMIT THEIR FINAL BILL A T A LATER DATE. IN VIEW OF THIS FACTUAL POSITION THE EXPLANATION OF TH E ASSESSEE HAS TO BE ACCEPTED. THEREFORE, THE ADDITION MADE BY THE AO I S DELETED. 6 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. WE NOTICE THAT THE A.O. MADE ADDITION ON THE BASIS OF FIGURES OF EXPENDITURES AND CONTRACT RECEIPT FOR THE PERIOD 12.03.2008 TO 31.03 .2008 WITHOUT CONSIDERING FIGURES OF RECEIPTS AND EXPENDITURES FOR THE PERIOD 01.04.2008 TO 11.03.2008. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO TRIED TO JUSTI FY THE CALCULATION MADE BY THE A.O. BUT THE SAME IS NOT ACCEPTABLE AS FIGURES FOR THE PERIOD 01.04.2008 TO 11.03.2008 HAVE NOT BEEN CONSIDERED. THE CALCULATI ON OF THE A.O. CAN BE ONE OF THE BASIS OF REJECTION OF BOOKS OF ACCOUNT BUT NOT GOOD FOR MAKING ADDITION PARTICULARLY UNDER THE FACTS AND CIRCUMSTANCES THE OPENING, CLOSING OF WORK-IN- PROGRESS, EXPENDITURES AND CONTRACT RECEIPTS FOR RE MAINING PERIOD HAVE NOT BEEN CONSIDERED. WE, THEREFORE, DO NOT FIND ANY ERROR I N THE ORDER OF CIT(A) IN DELETING THE ADDITION. THE ORDER OF CIT(A) ON THE ISSUE IS CONFIRMED. 9. AS REGARDS GROUND NO.3 RAISED IN BOTH THE APPEAL S, THE SAME ARE COMMON GROUND IN RESPECT OF DIRECTION BY THE CIT(A) TO THE A.O. TO WORK OUT 11.2% PROFIT ON WORK-IN-PROGRESS. 10. THE BRIEF FACT OF THE CASE ARE THAT THE A.O. WA S OF THE VIEW THAT AS PER ACCOUNTING STANDARD-7, PROFIT IS TO BE RECOGNIZED O N THE CLOSING OF WORK-IN- 7 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . PROGRESS IN THE CASES OF CONTRACTORS. THE A.O. ACC ORDINGLY APPLIED 11.2% PROFIT RATE ON WORK-IN-PROGRESS RS.86,59,985/- (57,59,910 + 29,75,000) OF WHICH CALCULATION COMES TO RS.9,71,038/-. THE A.O. MADE ADDITION OF THIS AMOUNT OF RS.9,71,038/-. THE CIT(A) DIRECTED THE A.O. TO APP LY THE G.P. RATE ON WORK-IN- PROGRESS ELEMENT OF PROFIT IN RESPECT OF RS.57,59,9 10/- AS HE HAS DELETED THE ADDITION MADE IN THIS ACCOUNT OF RS.29,00,075/-. B OTH, ASSESSEE AND REVENUE, ARE IN APPEAL THROUGH GROUND NO.3 OF RESPECTIVE APPEALS . 11. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE A.O. AND CIT(A) BOTH ARE NOT CORRECT IN APPLYIN G G.P. RATE ON WORK-IN- PROGRESS. THE A.O. IS NOT CORRECT IN APPLYING ACCO UNTING STANDARD-7 AS THERE IS NO SUCH REQUIREMENT IN ACCOUNTING STANDARD-7 FOR APPLY ING G.P. RATE ON WORK-IN- PROGRESS. THE CIT(A) IN PRINCIPLE ACCEPTED THE A.O .S VIEW THAT G.P. RATE IS APPLIED IN WORK-IN-PROGRESS. HOWEVER, HE RESTRICTE D TO CALCULATE THE G.P. RATE ONLY ON R.57,59,910/- WORK-IN-PROGRESS SHOWN Y THE ASSES SEE AS HE DELETED THE ADDITION ON ACCOUNT OF WORK-IN-PROGRESS RS.29,00,075/- MADE BY THE A.O. THE REVENUE IS IN APPEAL IN REDUCING THE AMOUNT OF WORK-IN-PROGRES S BY THE CIT(A) THROUGH GROUND NO.1 AND DIRECTION GIVEN IN THIS REGARD IN G ROUND NO.3. THE ASSESSEE CHALLENGED THIS DIRECTION OF CIT(A) ON THE GROUND T HAT THE G.P. RATE IS NOT 8 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . APPLICABLE IN RESPECT OF WORK-IN-PROGRESS. IT IS S ETTLED LAW IN RESPECT OF VALUATION OF CLOSING STOCK/WORK-IN-PROGRESS THAT COST OR MARK ET VALUE WHICHEVER IS LOWER. THE PROFIT ELEMENT IS NOT REQUIRED TO BE ADDED BY V ALUING THE CLOSING STOCK OR WORK- IN-PROGRESS. IN THE LIGHT OF THE FACT, WE AR E OF THE CONSIDERED VIEW THAT THE A.O. AND CIT(A) BOTH ARE INCORRECT IN TAKING THE VI EW THAT WHILE MAKING VALUATION OF CLOSING STOCK/WORK-IN-PROGRESS, PROFIT ELEMENT I S TO BE ADDED. THE A.O. AND CIT(A) BOTH HAVE FAILED TO APPRECIATE THE ACCOUNTIN G STANDARD-7 AS THERE IS NO GUIDELINES IN ACCOUNTING STANDAD-7 TO CALCULATE PRO PER RATE WHILE VALUING THE WORK IN PROGRESS. THE HONBLE APEX COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT, 24 ITR 481 (SC) WHEREIN THE APEX COURT LAID DOWN TH E RULE THAT NO PROFIT IN CLOSING STOCK. WE, THEREFORE, SET ASIDE THE ORDERS OF THE CIT(A) AND A.O. IN THIS REGARD WITH THE FINDING THAT NO PROFIT ELEMENT IS R EQUIRED TO BE ADDED IN WORK-IN- PROGRESS. THUS, GROUND NO.3 OF ASSESSEES APPEAL I S ALLOWED AND GROUND NO.3 OF REVENUES APPEAL IS DISMISSED. 12. GROUND NO.2 OF THE REVENUES APPEAL IS IN RESPE CT OF ADDITION OF RS.14,28,460/- MADE ON ACCOUNT OF DISALLOWANCE OUT OF CONTRACT PAYMENT MADE TO SUB-CONTRACTOR SHRI YOGENDRA SINGH JADON. 9 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . 13. THE BRIEF FACTS OF THIS GROUND ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE A.O., IN ORDER TO EXAMINE THE PAYMENT TO SUB-CONTRA CTOR SHRI YOGENDRA SINGH JADON, ISSUED SUMMON WHICH WAS RETURNED BACK WITH T HE POSTAL REMARK NOT FOUND. HOWEVER, A REPLY WAS RECEIVED IN DAK WHER EIN SHRI YOGENDRA SINGH JADON CLAIMED THAT HE IS 80% PHYSICALLY CHALLENGED SO HE COULD NOT APPEAR BEFORE THE A.O. SHRI YOGENDRA SINGH JADON FURNISHED AFFID AVIT ADMITTING THAT HE HAS CARRIED OUT SUB-CONTRACTOR WORK OF RS.1,22,91,152/- . THE AO NOTICED THAT GENERALLY LABOUR EXPENSES REMAINS 30% OF THE CONTRA CT AMOUNT, WHEREAS, IN THE CASE UNDER CONSIDERATION, THE PAYMENT MADE TO SUB-C ONTRACTOR IN RESPECT OF LABOUR PAYMENT WAS 48.57%. THE A.O. FOUND THAT 18.57% OF THE CONTRACT AMOUNT OF WHICH CALCULATION COMES TO RS.22,82,466/- WAS EXCES SIVELY PAID BY THE ASSESSEE TO SHRI YOGENDRA SINGH JADON. THE PAYMENT TO THE TUNE OF RS.14,28,460/- WAS MADE TO SHRI YOGENDRA SINGH JADON IN CASH WHICH IS NOT V ERIFIABLE. HOWEVER, THE A.O. FOUND THAT RS.22,82,466/- IS ON HIGHER SIDE AFTER T AKING A LIBERAL VIEW THE PAYMENT MADE IN CASH TO AN AMOUNT OF 14,28,460/- WHICH WAS NOT SUBJECT TO VERIFICATION WAS DISALLOWED BY THE A.O. ON THE GROUND THAT THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 14. THE CIT(A) DELETED THE SAID ADDITION AS UNDER : - ( PARA 6.2, PAGE 24) 10 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . 6.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE SUBMISSION MADE BY THE LD. AR. IN MY VIEW THE AO HAS FAILED T O BRING ANYTHING ON RECORD TO JUSTIFY THAT THE PAYMENTS MADE TO THE JADON WERE EXCESSIVE OR WERE NOT FOR WORK UNDERTAKEN BY HIM. IF SOME OF THE PAYMENTS WERE SUSPECT THEN IT WAS OPEN TO THE AO TO VERIFY THEM, NO SUCH EXERCISE HAS BEEN DONE BY THE AO. THEREFORE, THE ADDITION MADE BY THE AO IS DELETED. 15. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE A.O. DID NOT DISPUTE ABOUT THE FACT THAT SHRI Y OGENDRA SINGH JADON HAS CARRIED OUT SUB-CONTRACT WORK OF THE ASSESSEE. THE A.O. ON THE BASIS OF PRESUMPTION THAT GENERALLY LABOUR EXPENSES IN THIS LINE OF BUSINESS COMES TO 30% WHEREAS THE PAYMENT MADE TO SHRI YOGENDRA SINGH JADON WAS EXCES SIVE. WHEN THE A.O. HIMSELF ACCEPTED THAT SHRI YOGENDRA SINGH JADON HAS CARRIED OUT SUB-CONTRACT WORK, MERELY ON THE BASIS OF PRESUMPTION, ADDITION CANNOT BE DONE. THE A.O. IS ALSO NOT CORRECT IN MAKING ADDITION ON ACCOUNT THAT CASH PAYMENT WAS MADE TO SHRI YOGENDRA SINGH JADON WHEREAS THE OTHER CONDITIONS O F THE AGREEMENT INCLUDING DEDUCTION OF TAX AT SOURCE AND OTHERS, IN THIS REGA RD THE A.O. DID NOT POINT OUT ANY CONTRARY MATERIAL. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE CONFIRM THE ORDER OF CIT(A) AS THE A.O. HAS FAILED TO POINT OUT ANYTHING ON RECORD TO JUSTIFY THAT THE PAYMENT MADE TO SHRI YOGENDRA S INGH JADON WAS EXCESSIVE OR NOT FOR THE WORK UNDERTAKEN BY HIM WHEREAS THE ASSE SSEE HAS DISCHARGED THE BURDEN BY FILING THE AFFIDAVIT, BOOKS OF ACCOUNT AN D OTHERS. FURTHER, IN THE LIGHT OF 11 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . ADDITION OF RS.12,35,225/- CONFIRMED IN ASSESSEE A PPEAL IN GROUND NO.2 IN SUBSEQUENT PARAS OF THIS ORDER, THE ORDER OF THE CI T(A) IS CONFIRMED ON THE ISSUE. 16. GROUNDS NO.4 & 5 OF REVENUES APPEAL ARE GENERA L IN NATURE. ITA NO.157/AGR/2012 BY THE ASSESSEE. 17. GROUND NO.1 OF ASSESSEES APPEAL IS IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145 OF THE ACT. THE LD. AUTH ORIZED REPRESENTATIVE HAS NOT ARGUED MUCH ON THE ISSUE. IN THE LIGHT OF THE FACT , ORDER OF THE CIT(A) IS CONFIRMED. 18. GROUND NO.2 OF ASSESSEES APPEAL IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 40A(2)(B) OF THE ACT. 19. THE BRIEF FACTS OF THIS GROUND ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE MADE PAYMENT OF RS.2 1,57,500/- TO SUB-CONTRACTOR SHRI SANJAY AGARWAL. THE ASSESSEE FURNISHED AFFIDA VIT OF SHRI SANJAY AGARWAL. IN THE STATEMENT RECORDED, SHRI SANJAY AGARWAL HAS ACC EPTED THAT HE HAS DONE SUB- 12 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . CONTRACT WORK OF THE ASSESSEE. HOWEVER, THE A.O. D ID NOT ACCEPT THE AFFIDAVIT OF THE ASSESSEE ON THE FOLLOWING REASONS:- (PARAGRAPH NO.1.2 PAGE NOS.4 & 5) (I) SHRI SANJAY AGARWAL COULD NOT FURNISH ANY EVIDE NCE DURING THE EXAMINATION ON OATH TO SUBSTANTIATE THAT HE HAD DON E THE JOB OF RS.21,75,000/- FOR THE ASSESSEE. (II) NO VOUCHER FOR EXPENSES INCURRED FOR THE EXECU TION OF THE CONTRACT WORK WAS PRODUCED BY HIM. (III) THE CONCLUSION WHICH CAN BE DRAWN FROM THE FA CTS EMERGES FROM THIS STATEMENT IS THAT SHRI SANJAY AGARWAL HAD WORKED AS AN EMPLOYEE FOR THE ASSESSEE. THE ASSESSEE HAS PROVID ED HIM THE ACCOMMODATION FACILITY, CONVEYANCE FACILITY, TELEPH ONE FACILITY WHICH ARE GENERALLY PROVIDED BY AN EMPLOYER TO ITS EMPLOY EE. (IV) SHRI SANJAY AGARWAL IS NOT A REGISTERED CONTRA CTOR IN THE RECORDS OF SERVICE TAX DEPARTMENT. (V) A PERUSAL OF THE CASH FLOW STATEMENT DRAWN FROM HIS BANK STATEMENT REVEALS THAT SHRI SANJAY AGARWAL HAS NOT SUFFICIENT LIQUIDITY TO MEET OUT THE EXPENSES REQUIRED FOR THE EXECUTION OF SUB-CONTRACT WORK AS SHOWN BY THE ASSESSEE. (VI) AS CLAIMED BY THE ASSESSEE SHRI SANJAY AARWAL HAS RECEIVED PAYMENT FROM SITE AT LALKUAN WAS ALSO FOUND FALSE A S NO PAYMENT WERE RECEIVED BY HIM AT SITE AS EVIDENT FROM THE SE LF MADE VOUCHERS (PLACED ON SCRUTINY FOLDER). THE PAYMENT HAS ALSO BEEN MADE FROM AGRA HEAD OFFICE WHILE ON THOSE DATES HE WAS SUPPOS EDLY WORKING AT LALKUAN. (VII) DURING THE RECORDING OF THE STATEMENT IT ALSO CAME TO THE NOTICE THAT TWO SUPERVISOR STAFF WERE ALSO EMPLOYED BY THE ASSESSEE NAMELY SHRI NITIN AND SHRI SHAILENDRA TO LOOK AFTER THE WO RK AT SITE FOR A SALARY OF RS.3,500/- PER MONTH. SINCE, MR. SANJAY AGARWAL ALSO WORKED AS A SUPERVISOR HE IS ENTITLED FOR A SALARY OF RS.3,500/- PER MONTH. AS HE PROVIDED HIS SERVICES FOR FIVE MONTHS THEREFORE HE IS ENTITLED FOR A PAYMENT OF RS.17500/- HOWEVER THE AS SESSEE HAS PAID 13 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . HIM AN AMOUNT OF RS.2175000/-. SINCE THE SANJAY AG ARWAL IS A REAL BROTHER OF PARTNER UMA DEVI. (VIII) NO PLAUSIBLE EXPLANATION HAS BEEN FURNISHED BY THE ASSESSEE WITH RESPECT TO VARIOUS ISSUES RAISED IN SHOW-CAUSE . (IX) EVEN ASSUMING THAT SHRI SANJAY AGARWAL HAS REC EIVED THE PAYMENT AS CLAIMED IN IMPUGNED AFFIDAVIT EVEN THEN CASE OF REVENUE IS ADMISSIBILITY OF PAYMENT IN THE LIGHT OF SECTION 40 A(2) NOT UNDER SECTION 37. THE MOOT QUESTION IS REASONABLENESS O F THE PAYMENT MADE TO THE RELATIVE OF THE PARTNER OF THE ASSESSEE FIRM. 20. THE A.O. MADE ADDITION OF ENTIRE AMOUNT OF RS.2 1,57,500/- ON MERIT AND ON ALTERNATE REASON ALSO INVOKING SECTION 40A(2) OF TH E ACT. 21. SIMILARLY, THE A.O. MADE ADDITION OF RS.26,09,2 54/- ON ACCOUNT OF SUB- CONTRACT PAYMENT MADE TO SHRI SUBODH KUMAR AGARWAL AND OF RS.14,03,972/- TO SHRI R.R. AGARWAL. 22. THE CIT(A) CONFIRMED THE SAID ADDITIONS AS UNDE R :- (PARA NO.3.3, PAGE NOS.11 & 12) I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE S UBMISSION MADE BY THE APPELLANT AND IN MY VIEW THOUGH THE ASS ESSEE HAD FILED THE AFFIDAVITS FROM THE THREE PERSONS IN SUPPORT OF THE CLAIM THAT WORK WAS SUB-CONTRACTED TO THEM. IT IS TRITE THAT AVERM ENTS MADE IN AN AFFIDAVIT UNLESS CORROBORATED CANNOT BE TAKEN ON IT S FACE VALUE. THESE SO CALLED SUB-CONTRACTORS COULD NOT PRODUCE ANY SHR ED OF EVIDENCE TO ESTABLISH THAT THEY HAD ACTUALLY CARRIED OUT ANY WO RK AS CLAIMED BY 14 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . THEM. WHAT TO TALK OF BOOKS OF ACCOUNTS, THEY COUL D NOT EVEN PRODUCE ANY BILL/VOUCHERS TO THE EFFECT THAT THEY HAVE DONE SOME WORK FOR THE ASSESSEE. THE AO HAS ALSO BROUGHT OUT THEIR FINANC IAL SOUNDNESS ON RECORD TO SUGGEST THAT THEY COULD NOT HAVE UNDERTAK EN THE WORK AS CLAIMED BY THEM. EVEN DURING THE APPELLATE PROCEED INGS NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THESE PERSON S HAD THE WHEREWITHAL TO EXECUTE THE WORKS SIMPLY BECAUSE THE TDS HAS BEEN DEDUCTED AND PAYMENT HAS BEEN MADE THOUGH THE BANKI NG CHANNELS CANNOT CLINCH THE ISSUE IN FAVOUR OF THE APPELLANT AS IT IS NOT THE FORM OF THE TRANSACTION WHICH IS TO BE SEEN BUT THE SUBS TANCE. I DONT SEE ANY REASONS TO DISAGREE WITH THE FINDINGS OF THE A. O. THEREFORE, THE ADDITION MADE BY THE AO IS CONFIRMED. THE GROUNDS OF APPEAL ARE DISMISSED. 23. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS CL AIMED PAYMENTS TO SUB- CONTRACTORS WHICH WERE NOT GENUINE SUB-CONTRACTORS. THE CIT(A) FOUND THAT MERELY FILING AFFIDAVIT IS NOT SUFFICIENT UNLESS SO ME CORROBORATIVE EVIDENCE IS FURNISHED. IN THE CASE UNDER CONSIDERATION, SUB-CO NTRACTORS COULD NOT BE PRODUCED OR ANY EVIDENCE TO ESTABLISH THAT THEY HAD ACTUALLY CARRIED OUT ANY WORK AS CLAIMED BY THE ASSESSEE. THEY COULD NOT PRODUCE BOOKS OF A CCOUNT, VOUCHER, BILL ETC. THE A.O. HAS ALSO BROUGHT ON RECORD THEIR FINANCIAL SOU NDNESS WHICH SUGGESTS THAT THE SUB-CONTRACTORS COULD NOT HAVE UNDERTAKEN THE WORK AS CLAIMED BY THEM. IT IS ALSO ADMITTED FACT THAT SUBCONTRACTORS ARE RELATIVES OF THE ASSESSEE AS REQUIRED UNDER SECTION 40A(2)(B) OF THE ACT. SHRI SANJAY AGARWAL IS SON OF PARTNER SMT. UMA DEVI, SHRI SUBODH AGARWAL IS ALSO SON OF PARTNER S MT. UMA DEVI AND SHRI R.R. 15 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . AGARWAL IS HUSBAND OF THE PARTNER SMT. UMA DEVI. T HE ABOVE DETAILS HAVE BEEN NOTED FROM THE ASSESSEES PAPER BOOK AT PAGE NO.258 . IN THE LIGHT OF THE FACT AND THE MATERIAL AVAILABLE ON RECORD, IN PRINCIPLE, WE AGREE THAT THE SUB-CONTRACT WAS NOT CARRIED OUT BY THE ABOVE SUB-CONTRACTORS AND IN THIS REGARD THE FINDING OF THE REVENUE AUTHORITIES IS CONFIRMED. HOWEVER, IT IS ALSO ADMITTED FACT THAT THE ASSESSEE HAS CARRIED OUT CONTRACT WORK, MAY BE NOT FROM THESE SUB-CONTRACTORS, BUT BY OTHER PARTIES OR BY OTHERWISE. ON CONSIDERING T HE TOTALITY OF THE FACTS OF THE CASE, WE NOTICE A COMPARATIVE CHART OF G.P. WHICH H AS BEEN REPRODUCED BY THE CIT(A) AT PAGE NO.2 OF HIS ORDER. WE NOTICE THAT T HE ASSESSEE HAS SHOWN COMPARATIVELY LOWER G.P. RATE OF 11.2% AS AGAINST 1 5.60% IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2007-08. UNDER THE FACTS AND CIRCUMSTANCES, WE FIND SUBSTANCE IN THE ALTERNATE REASON FOR ADDITION BY T HE A.O. THAT IT IS DISALLOWABLE UNDER SECTION 40A(2)(A)(B) OF THE ACT. CONSIDERING THE G.P. DECLARED BY THE ASSESSEE ON THE INCOME DECLARED IN THE RETURN OF R S.30,06,760/-, CONSIDERING THE FACT THAT THE SUB-CONTRACTOR WORK MAY BE CARRIED OU T BY OTHER MODE OF CARRYING OUT WORK NOT BY THESE SUB-CONTRACTORS, WE ARE OF THE VI EW THAT IT WILL BE FAIR AND REASONABLE IF 20% OF THE EXPENDITURE CLAIMED AS PAY MENT TO SUB-CONTRACTORS IS DISALLOWED OF WHICH CALCULATION COMES TO RS.12,35,2 25/- (20% OF 61,76,126/-) 16 ITA NOS.129 & 157/AGR/2012 A.Y. 2008-09 . (21,57,500+26,09,254+ 14,09,372/-). THE ADDITION T O THE EXTENT OF RS.12,35,225/- IS CONFIRMED AND THE BALANCE ADDITION OF RS.49,40,9 01/- IS DELETED. 24. GROUND NOS. 3, 4 & 5 OF THE ASSESSEES APPEAL P ERTAIN TO DIRECTION TO THE A.O. BY CIT(A) TO WORK OUT 11.2% PROFIT IN WORK-IN-PROGR ESS. THIS ISSUE HAS BEEN DECIDED IN REVENUES APPEAL IN GROUND NO.3 VIDE PAR AGRAPH NO.11 OF THIS ORDER. AS PER THE DETAILED DISCUSSION MADE IN THE SAID PARAGR APH, THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 25. GROUNDS NO.6 & 7 OF ASSESSEES APPEAL ARE GENER AL IN NATURE. 26. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY