M/s Scantec (India) Pvt. Ltd., Noida V. DCIT, Noida

ITA 2030/DEL/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7153 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-08-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 14-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B RAMANJANEYULA
• Assessee Lawyers: YOGESH K JAGI A
• Keywords: Bad and doubtful debts
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH G NEW DELHI BEFORE : SHRI I.C. SUDHIR, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 2030/DEL./20 09 ASSTT. YEAR : 2004 - 05 SCANTEC (INDIA) PVT. LTD., VS. D .C.I.T., CIRCLE, DADRI ROAD, P.O. KULESHRA, NOIDA. GREATER NOIDA, NOIDA. (PAN: AAHCS 4330H) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. YOGESH K. JAGIA, ADVOCATE RESPONDENT BY : SH. B. RAMANJANEYULA, S R. DR DATE OF HEARING : 23.08.2016 DATE OF PRONOUNCEMENT : 16 .09.2016 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), GHAZIABAD DATED 17.02.2009 FOR THE ASSESSMENT YEAR 2004 - 05 ON THE FOLLOWING GROUNDS : 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (A), HEREINAFTER REFERRED AS CIT(A) IS IN CONTRAVENTION TO THE PROVISIONS OF LAW AND HENCE IS VOID AB INITI O. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF RS.10,47,507/ - REPRESENTING AMOUNT PAID TO SUB CONTRACTORS BY TREATING THEM ITA NO. 20 30/ DEL./20 09 2 BOGUS TRANSACTIONS BASED ON THE ASSESSMENT ORDER PASSED FOR A SSESSMENT YEAR 2003 - 04. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING LD. ASSESSING OFFICER TO RECTIFY THE ORDER PASSED FOR DISALLOWANCE ON ACCOUNT OF ALLEGED BOGUS TRANSACTIONS OF RS.10,47,507/ - . 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF WAGES CLAIMED BY APPELLANT OF RS. 5 LAC BECAUSE OF INCREASE IN CLAIM OF WAGES BY 2.44% OVER THE PREVIOUS YEAR. 5 . THAT IN THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN OBSERVING THAT THE APPELLANT FAILED TO FURNISH ANY COGENT MATERIALS/EVIDENCE TO CONTROVERT FINDING OF THE ASSESSING OFFICER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN T HE BUSINESS OF ELECTRO - MECHANICAL AND CIVIL ENGINEERING CONTRACTOR AND CARRIED OUT THE ERECTION OF EXTRA HIGH VOLTAGE OVERHEAD TRANSMISSION LINES, INSTALLATION OF UNDERGROUND EHV POWER CABLES, MICROBE AND TELECOM TOWERS, REPAIR AND MAINTENANCE OF EHV TRANS MISSION AND DISTRIBUTION EQUIPMENTS FOR ELECTRIFICATION. THE ASSESSEE FILED ITS RETURN OF INCOME, DECLARING TOTAL INCOME OF RS.18,09,015/ - . THE CASE WAS SELECTED FOR SCRUTINY UNDER THE COMPULSORY SCRUTINY GUIDELINES. THE ASSESSEE WORKED AT DIFFERENT PLACES . THE ASSESSEE HAS DECLARED HIS TURNOVER OF RS.6,26,98,140/ - AS AGAINST RS.7,13,83,337/ - OF THE LAST YEAR BESIDES THE OTHER INCOME OF RS.2,10,252/ - AS AGAINST RS.10,34,421/ - OF LAST YEAR. AGAINST THESE RECEIPTS, THE ASSESSEE HAS DECLARED NET PROFIT OF ITA NO. 20 30/ DEL./20 09 3 RS.7 1,82,906/ - AGAINST PROFIT OF RS.1,02,75,509/ - IN THE LAST YEAR. THE ASSESSEE AGAINST THE SAID PROFIT MADE THE PROVISION FOR DOUBTFUL DEBTS OF RS. 11,34,395/ - AND DECLARED THE NET PROFIT IN THE P/L A/C RS.60,48,511/ - , THOUGH IN THE COMPUTATION THE ASSESSEE A DDED B A CK THE PROVISIONS OF RS.11,34,395/ - BESIDE THE OTHER PROVISION OF GRATUITY/LEAVE ENCASHMENT AND UNPAID BONUS ETC TOTALING TO RS.12,56,793/ - , BUT CLAIMED BAD DEBTS OF RS.58,65,647/ - FOR WHICH THE PROVISION WAS MADE IN THE EARLIER YEAR AND DECLA R ED NET PROFIT OF RS.16,56,296/ - FROM THE BUSINESS ACTIVITIES BESIDE THE INTEREST INCOME OF RS.1,52,719/ - . 3. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER DETAILS. THE APPELLANT PRODUCED BOOKS OF ACCOUNT AND DETAILS AS REQUIRED BY THE ASSESSING OFFICER. FROM THE PERUSAL OF THE SAME, IT IS NOTICED BY THE AO THAT THE ASSESSEE HAS GOT EXECUTED THE WORK AT DIFFERENT SITES DIRECTLY AS WELL AS THROUGH SUB - CONTRACTORS. UNDER THE HEAD PROJECT EXPENSES, THE APPELL ANT HAS SHOWN WAGES OF RS.1,40,08,148/ - AND SUB - CONTRACTORS COST OF RS.1,04,45,540/ - HAS BEEN CLAIMED IN PROFIT AND LOSS ACCOUNT. HE FURTHER NOTICED THAT THE ASSESSEE HAS INCURRED THE EXPENSES THROUGH IMPREST ACCOUNTS MAINTAINED BY VARIOUS PERSONS/IN - CHARG E OF THE SITES AND EXPENSES ARE SHOWN TO HAVE BEEN INCURRED THROUGH CASH THOUGH THE ITA NO. 20 30/ DEL./20 09 4 PAYMENTS TO SUB - CONTRACTORS INCLUDES CHEQUES/DRAFTS ALSO. HE ALSO NOTICED THAT THE ASSESSEE HAS SHOWN THE SUB - CONTRACT WORK FROM VARIOUS PARTIES WHICH INCLUDES THE SUB - CONT RACTS NAMES, BUT WERE NOT GOT VERIFIED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2003 - 04. THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE IN RESPECT OF FOLLOWING FIVE PARTIES, WHICH WERE NOT GOT VERIFIED IN ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2003 - 04. THE DETAILS OF PAYMENTS TO THE FIVE PARTIES WHICH HAS BEEN ADDED BY THE AO ARE AS UNDER : S.NO. NAME OF THE PARTY OPENING BALANCE AMOUNT CREDIT ED DURING THE YEAR TOTAL AMT. PAID PAID IN CASH PAID BY CHEQUE/DD (1) (2) (3) (4) (5) (6) (7) 1. JAI MURTI CONSTRUCTION 103814 54608 145000 58000 87000 2. S. SOMAN 240280 70003 236000 86000 150000 3. R.K. CONSTRUCTION 53305 164851 187070 2000 185070 4. K.GREESHAN PILLAI 43731 38421 52152 27202 24950 5. SURESH BABY SHARMA 102343 24950 46500 21500 25000 4. THE LD. ASSESSING OFFICER DISALLOWED THE TOTAL AMOUNTS AS PER COLUMN NO. 5 OF RS.10,47,507/ - IN WHICH THE OPENING BALANCE WAS ALSO INCLUDED OF RS.3,52,833/ - ON THE GROUND THAT SINCE ALL THE ABOVE FIVE PARTIES DID NOT RESPOND TH E NOTICE U/S. 133(6) IN THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2003 - 04, NOR THE ASSESSEE COULD PRODUCE ANY CONFIRMATION ITA NO. 20 30/ DEL./20 09 5 THEREOF, THEREFORE, THE PAYMENTS MADE TO THEM WAS NOT GENUINE AND VERIFIABLE DURING THIS YEAR. 5. ON THE SCRUTINY OF WAGES PAYMENTS, THE ASSESSING OFFICER NOTED THAT DURING THE YEAR, A SUM OF RS.1,40,08,148/ - HAS BEEN INCURRED TOWARDS WAGES AS AGAINST RS.1,16,41,903/ - IN THE LAST YEAR. HE FURTHER NOTED THAT A SUM OF RS.1,04,45,540/ - HAS BEEN PAID TO THE SUB - CONTRACTORS. THE A O AFTER COMPARING THE FIGURES OF PREVIOUS YEAR NOTED THAT OVERALL EXPENSES HAVE BEEN INCREASED TO THE EXTENT 39% AS COMPARED TO 36.56% IN THE LAST YEAR TO THE TOTAL WORK EXECUTED IN THE CURRENT YEAR AND LAST YEAR RESPECTIVELY. THESE FACTS WERE ALSO BROUGHT TO THE NOTICE OF THE ASSESSEE AND WAS CONFRONTED AS TO WHY THE PAYMENTS MADE UNDER THIS HEAD , THAT TOO THROUGH IMPREST ACCOUNT OF THE OF THE SITE INCHARGE WHO HAVE MADE THE EXPENSES IN CASH , SHOULD NOT BE CONSIDERED AS THE EXPENSES INFLATED UNDER THE HEAD WAGES TO REDUCE THE TAX INCIDENCE. THE ASSESSEE RELIED UPON ITS REPLY. CONSIDERING THE REPLY OF THE ASSESSEE AND INCREASE IN THE WAGES, THE WAGES CLAIMED BY THE ASSESSEE INCLUSIVE OF PAYMENTS TO SUB - CONTRACTOR S OF LAST YEAR AT 36.56% COMES TO RS.2,29,22,4 42/ - IN THE RATIO OF LAST YEAR S EXPENSES. THEREFORE, TAKING INTO ACCOUNT THE EXPENSES TO THE SUBCONTRACTOR S BEING UNVERIFIABLE AND PAYMENT MADE THROUGH IMPREST ACCOUNT AS WELL AS GP RATIO DECLARED BETTER IN ITA NO. 20 30/ DEL./20 09 6 COMPARISON TO THE LAST YEAR AND THE EXTRA EXPENS ES BORNE BY THE ASSESSEE ON ACCOUNT OF INSURANCE OF PROJECT WHICH IS RS.18,36,698/ - IN COMPARISON TO RS.3,55,598/ - IN THE LAST YEAR, THE OVERALL ADDITION IN THE NET PROFIT BESIDE S THE ADDITION AGAINST THE ABOVE PARTIES WAS MADE AT RS.5,00,000/ - WHICH ALSO COVERED THE EXCESS EXPENDITURE OF WAGES. AGGRIEVED BY THIS ORDER OF AO, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE ASSESSEE IS IN APPEAL BEFORE ITAT. 6. THE LD. AR SUBMITTED THAT THE S UB - CONTRACTORS ARE GENUINE. THEY HAVE DONE WORK WITH THE APPELLANT FOR MORE THAN ONE YEAR. THEY ARE RAISING BILLS AND ACCORDINGLY, THE ASSESSEE HAS MADE PAYMENT EITHER BY CASH OR CHEQUES/DDS. THE ASSESSING OFFICER WITHOUT ISSUING NOTICE TO THE PARTIES, BUT ON THE BASIS OF LAST YEAR, DISALLOWED THE CLAIM OF THE EXPENDITURE ON THE BASIS OF CONJECTURES AND SURMISES. EVEN THEIR CLOSING BALANCE FOR LAST YEAR HAS BEEN DISALLOWED, WHICH IS CONTRARY TO LAW. THE LD. AO HAS MADE MATHEMATICAL CALCULATION AND ACCORDING LY ON AVERAGE BASIS DISALLOWED THE CLAIM OF WAGES WITHOUT LOOKING TO THE FACTS OF THE CASE AND BILLS AND VOUCHERS SUBMITTED BEFORE HIM. IF THE ASSESSING OFFICER HAD ANY DOUBT IN THE PAYMENTS OF WAGES, HE SHOULD HAVE SPECIFIED THAT WHICH PAYMENT IS NOT GENU INE, BUT HE DID NOT DO SO. THE ASSESSEE HAS EXECUTED THE WORK AT DIFFERENT PLACES. THEREFORE, THE ITA NO. 20 30/ DEL./20 09 7 IMPREST ACCOUNT WAS SANCTIONED TO THE IN - CHARGE OF THAT SITE AND OUT OF THAT IMPREST ACCOUNT, HE HAS PAID THE LABOUR EXPENSES AS AND WHEN REQUIRED. DURING THE ASSESSMENT YEAR, THERE WAS TOTAL PAYMENT MADE FOR RS.1,04,45,540/ - TO THE SUB - CONTRACTORS IN WHICH SOME OF THE LABOUR PAYMENTS HAVE ALSO BEEN INCLUDED AND TDS HAS BEEN DEDUCTED FROM THE PAYMENTS TO THE SUB - CONTRACTORS. HE SUBMITTED A LIST OF TDS DEDUCTED AND PAYMENTS MADE TO THE SUB - CONTRACTORS BEFORE US. 7. THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 8. AFTER HEARING BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE NOTED THAT THE LD. ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE OF RS.10,47,507/ - OF CONTRACT WORK GOT DONE THROUGH ABOVE FIVE PARTIES. IN THE ABOVE AMOUNT, A SUM OF RS.3,52,833/ - IS INCLUDED OF THE PREVIOUS YEAR. THE ASSESSING OFFICER HAS WRONGLY MADE ADDITION ON THE BASIS THAT ALL THE FIVE PARTIES WERE NO T FOUND GENUINE IN THE LAST YEAR ON ISSUING NOTICES U/S. 133(6) AND THEREFORE, THE SA ID PARTIES CANNOT BE SAID TO BE GENUINE IN THIS YEAR ALSO. THE AO, HOWEVER, DID NOT MAKE ANY INVESTIGATION IN THE YEAR UNDER CONSIDERATION TO VERIFY THE GENUINENESS OF THE PAYMENTS MADE TO THE SUB - CONTRACTORS. THEREFORE, THE ADDITION IS NOT JUSTIFIED. THE APPELLANT HAS PLACED ITA NO. 20 30/ DEL./20 09 8 COPIES OF BILLS RAISED BY THE SUB - CONTRACTORS, COPIES OF THEIR LEDGER ACCOUNT, AND FORMS NO. 16A ISSUED TO THEM . AFTER GOING THROUGH THE ABOVE DOCUMEN TS, WE FIND THAT SOME OF THE PAYMENTS REFLECTED IN THE LEDGER ACCOUNT ARE MADE THROUGH DD AND SOME OF IT THROUGH CASH. THE ASSESSING OFFICER COULD HAVE VERIFIED THE PAYMENTS THROUGH BANKING CHANNELS, BUT HE DID NOT DO SO. HE MERELY RELIED ON THE ORDER OF T HE PREVIOUS YEAR 2003 - 04 AND DISALLOWED THE PAYMENTS MADE TO THE CONTRACTORS WHEREAS EVERY YEAR IS A SEPARATE UNIT. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. 9. IN RESPECT OF ESTIMATED ADDITION OF RS.5,00,000/ - ON ACCOUNT OF WAGES PAYMENT, WITHOUT ANY BA S IS, HE MADE SIMPLY A MATHEMATICAL CALCULATION AND COMPARED THE CURRENT YEAR S FIGURES FROM THE PREVIOUS YEAR S FIGURES, I.E., QUANTUM OF TURNOVER AND EXPENDITURE INCURRED AND LUMP SUM DISALLOWANCE HAS BEEN MADE OF RS.5 LACS. HE DID NOT EXAMINE ANY SPECI FIC VOUCHERS, BILLS, SUBMITTED BEFORE HIM AND DID NOT POINT OUT ANY DEFECT IN THE PAYMENT OF WAGES. THE APPELLANT HAS DONE WORKS AT DIFFERENT PLACES AND THEREFORE, SITE IN - CHARGE HAS MADE PAYMENT TO THE LABOURERS AND RELEVANT VOUCHERS WERE PLACED BEFORE TH E ASSESSING OFFICER. THE INCOME - TAX ACT PROHIBITS ADHOC DISALLOWANCE OF EXPENDITURE AS ALSO HELD BY HON BLE HIGHER COURTS AND BY COORDINATE BENCHES OF ITAT IN SEVERAL DECISIONS. UNLESS THE AO POINTS OUT THAT A ITA NO. 20 30/ DEL./20 09 9 PARTICULAR EXPENDITURE IS OF DISALLOWABLE NATU RE, NO DISALLOWANCE COULD BE MADE BY THE AO ON ADHOC BASIS. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THIS GROUND OF APPEAL IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.2016 . SD/ - SD/ - ( I.C. SUDHIR ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16.09.2016 *AKS/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI