ACIT, CHENNAI V. SVE Engineers Pvt. Ltd., CHENNAI

ITA 2038/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95977 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 28-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DASGUPTA IRS
• Keywords: Business income; Business expenditure; Additional evidence; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 2038/MDS/2014 / ASSESSMENT YEAR : 2010-2011 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(1), CHENNAI VS. M/S. SVE ENGINEERS P. LTD, 12/1, SOUNDARYAM ENCLAVE, UNITED INDIA COLONY, 4 TH CROSS ROAD, KODAMBAKKAM, CHENNAI 600 024 [PAN AAECS 3211Q ] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : SHRI. DAS GUPTA, IRS, JCIT. /RESPONDENT BY : SHRI. PHILIP GEORGE, ADVOCATE / DATE OF HEARING : 23-07-2015 / DATE OF PRONOUNCEMENT : 28-08-2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHENNA I, DATED 30.04.2014 FOR THE ASSESSMENT YEAR 2010-2011. ITA NO.2038/MDS/2014 :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF D2,38,11,190/- UNDER THE HEAD DISALLOWANCE OF CONTRACTOR EXPENSES . 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGA GED IN MANUFACTURING /TRADING OF MATERIAL HANDLING EQUIPME NT LIKE BELT CONVEYORS, SCREW CONVEYORS, ELEVATOR, PIPE CONVEYOR AND ITS RELATED PRODUCTS. THE ASSESSEE CLAIMED DIRECT EXPENDITURE PAID TO M/S. ERECTION INDIA AND M/S. TEKNO CONVEYOR. THE ASSESSI NG OFFICER OBSERVED IN ASSESSMENT ORDER THAT THE EXPENSES CLAI MED AS PAYMENTS MADE TO THE ABOVE TWO PARTIES ARE BOGUS, ACCOMMODAT ION ENTRIES AND SAME WAS DONE TO REDUCE THE PROFIT OF THE COMPANY W HILE FINALIZING ITS ACCOUNTS AS IT WAS EVIDENT FROM THE JOURNAL ENTRIES MADE AT THE FAG END OF THE FINANCIAL YEAR. ACCORDINGLY, THE ASSESSI NG OFFICER DISALLOWED AN AMOUNT OF D2,38,11,190/- PAID TO THOSE TWO PARTI ES. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS). 4. DURING THE COURSE OF FIRST APPELLATE AUTHORITY, THE ASSESSEE FIELD ADDITIONAL EVIDENCES AND THE COMMISSIONER OF INCOME TAX (APPEALS) FORWARDED THE SAME TO THE ASSESSING OFFIC ER AND CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSE SSING OFFICER ITA NO.2038/MDS/2014 :- 3 -: SUBMITTED REMAND REPORT ON 20.12.2013. THE COMMI SSIONER OF INCOME TAX (APPEALS) GAVE A COPY OF THE REMAND REPO RT FORWARDED BY THE ASSESSING OFFICER TO THE ASSESSEE FOR COMMENTS . AFTER CONSIDERING THE ASSESSEES COMMENTS, THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONSIDERED THE SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE AND ALSO THE FINDINGS O F THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT, THE REMAND REP ORT AND OBSERVED THAT THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER WAS THAT THE SUB-CONTRACTORS VIZ. TECKNO CONVEYOR AND E RRECTIONS INDIA WERE ACCOMMODATING CONCERNS FOR CLAIMING CONTRACT E XPENSES WITHOUT ACTUALLY INVOLVING IN THE BUSINESS AND THER EFORE DISALLOWED THE CLAIM OF EXPENDITURE. IN THE REMAND PROCEEDINGS , THE ASSESSEE PRODUCED PROPRIETOR OF TECKNO CONVEYOR AND PROPRIET OR OF ERRECTIONS INDIA BEFORE THE ASSESSING OFFICER. THES E SUB- CONTRACTORS HAVE CONFIRMED THAT THEY HAVE CARRIED O N SUB-CONTRACT FOR THE ASSESSEE IN THE VEDANTA PROJECT. IN THE REMAND REPORT, THE ASSESSING OFFICER HAVING NOTED THE FACT THAT THESE S UB- CONTRACTORS HAVE CONFIRMED THAT THEY HAVE CARRIED ON SUB-CONTRACT FOR THE ASSESSEE IN THE VEDANTA PROJECT HAS NEITHER DISPUTED THIS FACT NOR ALLEGED/HELD THAT IT WAS NOT TRUE. HOWEVER, THE ASSESSING OFFICER HAVING ACCEPTED THAT THEY HAVE IN FACT CARRI ED OUT THIS WORK HAS MERELY SUBMITTED IN THE REMAND REPORT THAT WITHOUT ITA NO.2038/MDS/2014 :- 4 -: PAYMENT TO LABOURERS HOW THE WORK WAS CARRIED OUT AN D OBSERVED THAT SUB-CONTRACTORS HAVE NOT DEDUCTED TAX AT SOURCE ON SUCH ACCRUED LABOUR CHARGES. THE UNDISPUTED ESTABLISHED F ACTS OF THE CASE ARE THAT THE PROJECTS WERE AWARDED BY M/S. VEDA NTA. IN ORDER TO EXECUTE THE PROJECT, THE ASSESSEE HAD ENGAG ED SUB CONTRACTORS VIZ. M/S. TEKNOCONVEYOR AND M/S. ERECCTIO NS INDIA. THIS WAS CONFIRMED BY THE SUB-CONTRACTORS IN COURSE O F REMAND PROCEEDINGS. THE SUB-CONTRACTORS EXECUTED THE PROJECT AND RAISED RUNNING BILLS IN RESPECT OF THE EXECUTED WORK. THE S ITE ENGINEERS OF THE ASSESSEE HAVE VERIFIED THE ACTUAL EXECUTION TH E WORK AT SITE AND CERTIFIED AND APPROVED RUNNING BILLS. SINCE THERE WAS DELAY IN SUCH APPROVAL, THE SUB-CONTRACTORS HAVE RAISED INVOI CES AT THE END OF THE FINANCIAL YEAR AND DECLARED THE SAME AS IN COME ON ACCRUAL BASIS IN THEIR RESPECTIVE HANDS. THE ASSESSE E HAD DEDUCTED TAX AT SOURCE IN RESPECT OF THE AMOUNT PAYABLE TO THE SUB CONTRACTORS; THE ASSESSEE HAD RAISED INVOICES A GAINST M/S. VEDANTA IN RESPECT OF THE EXECUTED WORK AND DULY ACCO UNTED THE SAME; M/S. VEDANTA HAD ISSUED COMPLETION CERTIFICATE; ASSESSEE HAD MADE PART PAYMENTS TO THE SUB CONTRACTORS IN SUBSE QUENT ASSESSMENT YEARS AS AND WHEN IT RECEIVED PAYMENT FROM M/S. VEDANTA. ITA NO.2038/MDS/2014 :- 5 -: 4.1 THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THE MATERIALS PLACED ON RECORD AND A S SUBMITTED BY THE ASSESSEE, IT WAS FOUND THAT THE SUB-CONTRACTOR TEKNOCONVEYOR WAS ENGAGED BY THE ASSESSEE FOR EXECUTION OF THE SERV ICE PROJECTS OF FABRICATION OF BAUXITE HANDLING SYSTEM, MODIFICATI ON OF CONVEYOR AND REVERSABLE CONVEYOR AND ERECCTIONS INDI A WAS ENGAGED BY THE ASSESSEE FOR EXECUTION OF THE SERVICE PROJECT OF FABRICATION OF BAUXITE GRINDING SYSTEM. WHILE EXECUT ING THE PROJECT THESE SUB-CONTRACTORS HAVE INTIMATED THE RUNNI NG WORK PROGRESS DETAILS TO THE ASSESSEE WITH THE DETAILS O F QUANTITY OF STRUCTURAL STEELS OF THE EXECUTED WORK FOR THE VERIF ICATION AND APPROVAL OF THE ASSESSEE. THIS WAS DULY VERIFIED BY THE SITE ENGINEERS OF THE ASSESSEE WITH REGARD TO THE QUANTITY AND ON THE BASIS OF SUCH APPROVAL, THE INVOICES WERE RAISED BY T HE SUB- CONTRACTOR. THE PROJECTS IN RESPECT BAUXITE GRINDING AND MODIFICATION CONVEYORS, M/S.VEDANTA HAD ISSUED MECHANI CAL COMPLETION AND COMMISSIONING COMPLETION CERTIFICATE. THEREFORE, THE SUB-CONTRACTORS HAVE EXECUTED THE PROJECTS. FU RTHER IT WAS FOUND THAT THE ASSESSEE HAD BEEN PAYING THE DUES TO SUB- CONTRACTORS IN THE SUBSEQUENT YEARS AS AND WHEN IT RE CEIVED AMOUNTS DUE FROM VEDANTA. MOST OF THE PAYMENTS MADE B Y ASSESSEE IN SUBSEQUENT YEARS ARE THROUGH BANKING CHAN NELS. FROM ITA NO.2038/MDS/2014 :- 6 -: THE CIRCUMSTANCES AND THE MATERIALS ON RECORD, IT WAS FURTHER FOUND THAT THE ASSESSEE COULD NOT HAVE EXECUTED TH ESE PROJECTS WITHOUT ENGAGING THESE SUB- CONTRACTORS. 4.2 THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT WHILE CONSIDERING THE CLAIM OF BUSINES S EXPENDITURE IN THE HANDS OF ASSESSEE, ALL THAT HAVE TO BE SEEN IS THAT WHETHER SUCH EXPENDITURE ACCRUED WAS IN THE COURSE AND FOR TH E PURPOSE OF ITS BUSINESS. OUTSTANDING DUES TO LABOURERS/HIRE C HARGES BY THE SUB-CONTRACTORS OF THE ASSESSEE AND NON DEDUCTION OF T AX AT SOURCE BY THE SUB-CONTRACTORS OF. THE ASSESSEE, CAN NOT BE TAKEN AS REASONS FOR DISALLOWING THE CLAIM OF THE ASSESSE E. IN THIS CASE, IT IS ESTABLISHED FROM THE UNDISPUTED FACTS AND MY F INDINGS ABOVE THAT THE SUB- CONTRACTORS HAVE EXECUTED THE WORK FOR THE ASSESSEE. THE ASSESSEE HAD INCURRED EXPENDITURE TO I TS SUB CONTRACTORS FOR EXECUTION OF THE PROJECT UNDERTAKEN BY THE ASSESSEE WITH VEDANTA, AND VEDANTA HAD ISSUED COMPLE TION CERTIFICATE IN RESPECT OF FOUR PROJECTS. ONCE IT IS E STABLISHED THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE FOR THE PUR POSE OF ITS BUSINESS, THE SAME HAD TO BE ALLOWED IN THE HANDS OF T HE ASSESSEE. FROM THE DETAILS SUBMITTED BY ASSESSEE, I T IS SEEN THAT 57% OF THE LABOUR CHARGES, 13% OF THE MACHINERY CHARGES WERE ITA NO.2038/MDS/2014 :- 7 -: PAID BY SUBCONTRACTOR M/S. ERECTIONS INDIA & 7% OF THE LABOUR CHARGES WERE PAID BY SUBCONTRACTOR M/S.TECHNO CONVE YER FOR EXECUTING WORK & BALANCE REMAINED TO BE PAYABLE TO THEM DUE TO DELAY IN THE PAYMENTS TO THE ASSESSEE BY VEDANTA. T HE REASONS GIVEN BY THE ASSESSEE FOR DELAY IN PAYMENTS MADE TO LABOURERS ARE PLAUSIBLE. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE, IT CANNOT BE SAID THAT PAYMENTS MADE TO SUB CONTACTORS ARE ACCOM MODATING ENTRIES. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT THE CONTRACT EXPENSES ARE GENUINE AND FURTHER HELD THAT SUB-CONT RACT EXPENDITURE ACCRUED ON THIS ACCOUNT IN THE COURSE O F EXECUTION OF THE PROJECT WAS AN ALLOWABLE BUSINESS EXPENDITURE. HENCE, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CL AIM OF THE ASSESSEE. AGAINST THIS, THE REVENUE IS IN APPEAL BE FORE US. 5 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS ON RECORD. IN THIS CASE, THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE EXPENDITURE PAID TO M/S. ERECTION INDIA AND M/S . TEKNO CONVEYOR AS THE ENTRY WAS PASSED BY THE ASSESSEE IN ITS BOOK S OF ACCOUNTS BY WAY OF JOURNAL AT THE FAG END OF THE FINANCIAL YEAR . HE WAS OF THE OPINION THAT IT WAS MADE SO AS TO REDUCE THE PROFIT OF THE ASSESSEE. IN OUR OPINION, THERE CANNOT BE ANY DOUBT OF THIS K IND WHEN THE ENTRY ITA NO.2038/MDS/2014 :- 8 -: HAS BEEN MADE TOWARDS THE EXPENDITURE AT THE FAG EN D OF THE FINANCIAL YEAR. EXPENDITURE IS NOT NECESSARILY CONFINED TO THE MONEY WHICH HAS BEEN ACTUALLY PAID OUT. IT COVERS A LIABILITY W HICH HAS ACCRUED OR WHICH HAS BEEN INCURRED ALTHOUGH IT MAY HAVE TO BE DISCHARGED AT A FUTURE DATE. HOWEVER, ANY EXPENDITURE PRIMARILY DE NOTES THE IDEA OF SPENDING OR PAYING OUT, IT MAY, IN GIVEN CIRCUMSTA NCES, ALSO COVERS AN AMOUNT WHICH HAS GONE OUT OF THE ASSESSEES POCKET BUT WHICH IS ALL THE SAME, AN AMOUNT WHICH THE ASSESSEE HAS HAD TO G IVE OUT. IT ALSO COVERS A LIABILITY WHICH THE ASSESSEE HAS INCURRED IN PRAESENTI ALTHOUGH IT IS PAYABLE IN FUTURE. A CONTINGENT LI ABILITY THAT MAY ARISE IN FUTURE IS, HOWEVER, NOT EXPENDITURE. IT WOULD ALSO COVER NOT JUST A ONE TIME PAYMENT, BUT THE LIABILITY SPREAD OUT OVER NUMBER OF YEARS. WHEREIN A PROVISION IS MADE FOR LIABILITY AND THAT AMOUNT SO PROVIDE WILL BE DEDUCTABLE AS AN EXPENDITURE WHILE COMPUTIN G BUSINESS INCOME OF THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE CARRIED ON THE CONTRACT AND DECLARED INCOME GENERATED FROM THAT CO NTRACT TO TAX AND PAID TAX THEREOF. THERE IS NO ALLEGATION BY THE ASS ESSING OFFICER THAT THE ASSESSEE HAS NOT COMPLETED THE PROJECT AND DECL ARED PROFIT THEREFROM. THERE IS NO ALSO ALLEGATION THAT PROFIT DECLARED BY THE ASSESSEE FROM THE BUSINESS IS LOW AS COMPARED TO TH E EARLIER ASSESSMENT YEARS. ONCE THE ASSESSEE COMPLETED THE CONTRACT AND DECLARED PROFITS THEREFROM, IT IS TO BE CONSTRUED T HAT THE ASSESSEE WAS ITA NO.2038/MDS/2014 :- 9 -: ABLE TO COMPLETE THE CONTRACT ONLY AFTER INCURRING THE EXPENDITURE. IN THE PRESENT CASE, SUB-CONTRACTORS CARRIED ON THE WO RK OF FABRICATION OF BAUXITE HANDLING SYSTEM, MODIFICATION OF CONVEYOR A ND REVERSIBLE CONVEYER AND THEREAFTER THEY SENT RUNNING BILLS TOW ARDS THE WORK CARRIED ON BY THEM AT THE FAG END OF THE FINANCIAL YEAR AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL IN SUBSE QUENT YEARS, AND THE PAYMENTS MADE IN THE SUBSEQUENT ASSESSMENT YEARS WERE NOT AT ALL DOUBTED BY THE AUTHORITIES. FURTHER, THE PA RTIES WHO CARRIED ON THE WORK CONFIRMED BEFORE THE ASSESSING OFFICER DUR ING THE REMAND PROCEEDINGS STATING THAT THEY HAD CARRIED OUT THE WORK. IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER HAS NO REASON TO DOUBT THE EXPENDITURE INCURRED TO CARRY ON THE BUSINESS OF T HE ASSESSEE. THE ONLY TEST FOR THE DEDUCTABILITY OF THE EXPENDITURE IS WHETHER THE EXPENDITURE HAS BEEN INCURRED SOLELY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS. IF THE REALITY OF THE PAYMENT IS CHALLENGED OR IS IN DISPUTE DIFFERENT CONSIDERATIONS ARISE; SO ALSO IN CASE WHERE THE TAX AUTHORITIES ARE ABLE TO POINT TO SOME CONSIDERATION OTHER THAN THE PURPOSE OF THE BUSINESS AS ACCOUNTING FOR ANY PORTI ON OF THE PAYMENT MADE. IN SUCH CASES, OF COURSE, SUCH PORTION OF TH E AMOUNT CLAIMED, WHICH IS EITHER NOT HELD TO HAVE BEEN PAID OR IS HE LD TO HAVE BEEN PAID FOR REASONS OTHER THAN BUSINESS EXPEDIENCY, CO ULD AND SHOULD BE DISALLOWED; BUT THE REASON FOR DISALLOWANCE IS BECA USE EITHER THE ITA NO.2038/MDS/2014 :- 10 -: PORTION DISALLOWED IS NOT PAID, OR BECAUSE THE EXP ENDITURE IS NOT SOLELY AND EXCLUSIVELY FOR THE BUSINESS, AND NOT ON THE G ROUND THAT IN THE OPINION OF THE ASSESSING OFFICER THE EXPENDITURE IS UNREASONABLE EITHER BECAUSE THE EXPENDITURE WAS NOT INCURRED OR NOT DISCLOSED TO BE INCURRED OR BECAUSE THE ASSESSEE WOULD HAVE REDUCE D IT. IN OUR OPINION, THE ASSESSING AUTHORITY HAVING NO MATERIAL IN HAND CANNOT DOUBT THE INCURRING EXPENDITURE AND ONCE THERE IS P OSITIVE MATERIAL TO SHOW THAT THERE ARE POSITIVE FACTS WHICH MAY JUSTIF Y INCURRING THE EXPENDITURE FOR THE PURPOSE OF BUSINESS, THE ASSESS ING AUTHORITIES CANNOT CHALLENGE REASONABLENESS OF THE EXPENDITURE OR INCURRING THE EXPENDITURE. THUS, IN OUR OPINION, THE ASSESSING O FFICER CANNOT SUBSTITUTE HIS OWN STANDARD OF REASONABLENESS OF EX PENDITURE FOR THAT OF THE ASSESSEE, AS THE ASSESSING AUTHORITY HAS NOT BROUGHT ANYTHING TO SHOW THAT THE ASSESSEE ADOPTED COLOURABLE OR ILL USORY OR FRAUDULENT MEANS TO REDUCE THE PROFITS TO SHOW THE EXPENDITURE . IN OUR OPINION, IN THE PRESENT CASE THE ASSESSEE PROVED THE GENUINE NESS OF THE PAYMENT BY PRODUCING COGENT EVIDENCE INCLUDING IDENTITY OF THE PARTIES ALONGWITH PAYMENT DETAILS AND THE BURDEN CAST UPON THE ASSESSEE WAS DISCHARGED AS THERE IS NO EVIDENCE TO SUGGEST THE B OGUS NATURE OF THE EXPENDITURE AND THE CONCLUSION OF THE ASSESSING OFF ICER IS BASED ON THE PRESUMPTION TO REACH THE CONCLUSION THAT THE PA YMENT ARE NOT GENUINE IT CANNOT BE UPHELD. FURTHER, THE ASSESSEE IS ABLE TO SHOW THE ITA NO.2038/MDS/2014 :- 11 -: COMMERCIAL EXPEDIENCY TO INCUR THE EXPENDITURE FO R THE PURPOSE OF BUSINESS AND INCURRING OF EXPENDITURE ALSO CONFIRME D BY THE RESPECTIVE SUB-CONTRACTORS AND THEY HAVE RECEIVED P AYMENTS THROUGH BANKING CHANNEL IN SUBSEQUENT ASSESSMENT YEARS. HE NCE, WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS) AND THE GROUND OF THE REVENUE IS REJECTED . 6. IN THE RESULT, THE APPEAL OF THE REVENUE IN I TA NO.2038/MDS/2014 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, 28TH DAY OF AUGUST, 2 015, AT CHENNAI. SD/- SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:28.08.2015 KV %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF