The Assistant Commr. of Income Tax, Circle-1(2), RAJKOT-GUJARAT V. M/s Vinay Construction Co., RAJKOT-GUJARAT

ITA 322/RJT/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1197 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 30-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DM RINDANI
• Keywords: Fair market value; Wrong claim; Set aside
• Section: 37

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.322/RJT/2016 / ASSESSMENT YEAR: 2011-12 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), RAJKOT. VS. M/S. VINAY CONSTRUCTION CO., 110-112, SILVER CHAMBER, TAGORE ROAD, RAJKOT. [PAN: AABFV 5943Q] ( / APPELLANT) ( /RESPONDENT) /ASSESSEE BY : SHRI D.M. RINDANI, A.R /REVENUE BY : SHRI PRAVEEN VERMA, SR. DR /DATE OF HEARING : 22-11-2018 / DATE OF PRONOUNCEMENT : 26-11-2018 / ORDER PER C.M. GARG, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), JAMNAGAR (CI T(A) FOR SHORT) DATED 28.06.2016 FOR THE ASSESSMENT YEAR (A.Y) 2011 -12. 2. THE GROUNDS RAISED BY THE REVENUE READ AS FOLLOW S: 1. THE CIT(A), JAMNAGAR HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BOGUS C LAIM U/S. 37 OF THE ACT OF RS. 83,72,281/-. 2 ITA NO.322 /RJT/2016 (A.Y: 2011-12) M/S. VINAY CONSTRUCTION CO. 2. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 3. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE T RIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE CIT(A), JAMNAGAR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF BOGUS CLAIM U/S. 37 OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT) OF RS. 83,72,281/-. THE LD. DR SUBMITTED THAT FROM THE SUBMISSIONS OF THE ASSESSEE, AUDIT REPORT AND ASSES SMENT RECORDS, IT IS CLEARLY DISCERNABLE THAT THE ASSESSEE HAS MADE PAYM ENTS OF RS. 83,72,281/- TO NINE PARTIES, WHICH IS COVERED U/S. 40A(2)(B) OF THE ACT, WHICH PROVIDES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO THE S PECIFIED PERSONS LIABLE TO BE DISALLOWED IN COMPUTING BUSINESS PROFI TS TO THE EXTENT SUCH EXPENDITURE IS CONSIDERED TO BE EXCESSIVE OR UNREAS ONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS OR SERVICES OR FA CILITIES ETC. THE LD. AR SUBMITTED THAT FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CLEAR THAT THE IMPUGNED AMOUNTS PAID TO THE SUB-CONTRACTO RS AS SUB-CONTRACT AND SALARY EXPENSES IS NOTHING BUT AN ARTIFICIAL AR RANGEMENT ON PAPER TO EVADE TAX THEREFORE, THE AO RIGHT IN MAKING DISALLO WANCE BEING BOGUS CLAIM OF THE ASSESSEE. 3 ITA NO.322 /RJT/2016 (A.Y: 2011-12) M/S. VINAY CONSTRUCTION CO. 4. THE LD. DR ALSO SUBMITTED THAT NO PAYMENT HAS BE EN MADE BY THE ASSESSEE AND AFTER CLAIMING THE BOGUS PAYMENT THE A MOUNTS HAS BEEN SHOWN AS OUTSTANDING OR DUE TO THESE NINE ENTITIES/ PERSONS IN THE BALANCE SHEET THEREFORE, THE SAME HAS TO BE HELD AS BOGUS A ND NOT ALLOWABLE. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT REPL IED SHOW CAUSE NOTICE OF THE AO IN THIS REGARD WHICH AGAIN SUPPORT S THE FACT OF BOGUS CLAIM WHICH WAS RIGHTLY DISALLOWED BY THE AO. THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE W ITHOUT ANY BASIS THEREFORE, IMPUGNED ORDER MAY KINDLY BE SET ASIDE B Y RESTORING THAT OF THE AO. 5. REPLYING TO THE ABOVE, THE LD. ASSESSEES REPRES ENTATIVE (AR) SUBMITTED THAT THE ASSESSEE HAS MADE IDENTICAL CLAI M ON IDENTICAL FACTS AND CIRCUMSTANCES IN SUBSEQUENT ASSESSMENT YEARS 20 13-14 & 2014-15, WHEREIN NO DISALLOWANCE HAS BEEN MADE BY THE AO KEE PING IN VIEW THE MODULE OF BUSINESS AND MODUS OPERANDI FOLLOWED BY THE ASSESSEE AS A CIVIL WORK CONTRACTOR OF STATE AND CENTRAL GOVT. T HE LD. AR SUBMITTED THAT THERE IS NO ALLEGATION OF AO THAT EITHER PAYME NTS HAS BEEN MADE ON INFLATED PRICE IN COMPARISON TO THE OTHER SUB-CONTR ACTORS AND THE COPIES OF THE ITR OF RECIPIENT SUB CONTRACTORS SHOW THAT THE AMOUNTS GIVEN BY THE ASSESSEE TOWARDS WORK DONE BY THEM HAS BEEN SHOWN I N THE RETURN AND SAME HAS BEEN OFFERED TO TAX THEREFORE, NO ALLEGATI ON OF BOGUS CLAIM OR TAX EVASION CAN BE MADE EITHER AGAINST THE ASSESSEE OR AGAINST THE 4 ITA NO.322 /RJT/2016 (A.Y: 2011-12) M/S. VINAY CONSTRUCTION CO. RECIPIENTS OF SUB CONTRACTORS. FINALLY, THE LD. AR SUBMITTED THAT EVEN IN ANY CASE ENTIRE AMOUNT OF CLAIM CANNOT BE HELD AS B OGUS. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, WE OBSERVE THAT ADMITTEDLY AND UNDISPUTEDLY ASSESSEE IS A CIVI L WORK CONTRACTOR, WHO UNDERTAKE CIVIL WORK CONTRACTS FROM GOVERNMENT AND RECEIVES CONTRACT AMOUNT AGAINST THE WORK DONE. THE IMPUGNE D CLAIM OF THE ASSESSEE IS PERTAINING TO THE PAYMENTS MADE TO THE SUB CONTRACTORS AND THE MAIN ALLEGATION OF THE AO WAS THAT THE ASSESSEE HAS NOT ACTUALLY MADE ANY PAYMENT TO THESE CONTRACTORS AND ONLY OUTS TANDING AMOUNT IN THE BALANCE SHEET HAS BEEN SHOWN WITHOUT MAKING ANY PAYMENT AND CLAIM HAS BEEN MADE IN THE BALANCE SHEET IN CONTRAV ENTION OF S. 40A(2)(B) OF THE ACT TO THE RELATED PARTIES. 7. IT IS NOT A CASE OF AO THAT EITHER THE ASSESSEE HAS MADE PAYMENT TO THE SUB CONTRACTORS ON HIGHER RATES IN COMPARISON T O THE SIMILAR WORK DONE BY THE SIMILAR SUB CONTRACTORS IN THE SIMILAR CONDITIONS. HOWEVER, WE ARE IN AGREEMENT WITH THE BASIS TAKEN BY THE AO THAT NO PAYMENT HAS BEEN MADE DURING THE RELEVANT PERIOD AND ONLY CLAIM HAS BEEN MADE AND WITHOUT MAKING ANY PAYMENT THE ENTIRE AMOUNT HAS BE EN SHOWN AS OUTSTANDING IN THE BALANCE SHEET. THE ASSESSEE IS R ECEIVING ENTIRE AMOUNT FROM GOVERNMENT DEPT. AGAINST THE CIVIL WORK DONE BY IT AND NO PAYMENT COULD HAVE BEEN RECEIVED FROM THE GOVERNMEN T WITHOUT ANY 5 ITA NO.322 /RJT/2016 (A.Y: 2011-12) M/S. VINAY CONSTRUCTION CO. WORK THEREFORE, THE FACTUM OF DISCHARGING AND EXECU TING SUB CONTRACT WORK BY THE RECIPIENT SUB CONTRACTORS CANNOT BE RULED OU T OR DISMISSED AT THE THRESHOLD MERELY BECAUSE NO PAYMENT WAS MADE DURING THE YEAR AND ALL AMOUNT HAS BEEN SHOWN AS OUTSTANDING. WE ARE IN AG REEMENT WITH THE CONTENTION OF THE LD. AR THAT IN THE CASES, WHERE S UB CONTRACT WORK IS DONE BY THE RELATED PARTIES OR PARTNERS OF THE FIRM , THE COMPULSION OF ADVANCE PAYMENT IS WAIVED OR GIVEN UP WHICH PROVIDE S FINANCIAL SUPPORT TO THE MAIN CONTRACTOR I.E., ASSESSEE AND THE SAME SUPPORT WAS GIVEN BY THE SUB CONTRACTORS TO THE ASSESSEE IN THE TIME OF FINANCIAL CONSTRAIN BY DISCHARGING THE SUB CONTRACT WORK WITHOUT RECEIVING ANY PAYMENT BY THE RELATED SUB CONTRACTORS, WHICH IS A HIDDEN BENEFIT TO THE ASSESSEE IN PROVIDING SUB CONTRACTS TO THE RELATED PERSONS/PART NERS. 8. KEEPING IN VIEW, ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT IN ANY CASE ENTIRE A MOUNT OF SUB CONTRACT AMOUNT CANNOT BE DISALLOWED. ONLY EXCESS PART OF A MOUNT PAID TO THE RELATED PARTIES IN COMPARISON TO THE OTHER SIMILAR CASES CAN BE DISALLOWED BY INVOKING PROVISIONS OF S. 40A(2)(B) OF THE ACT A ND IN THE PRESENT CASE THE AO HAS DISALLOWED ENTIRE AMOUNT OF CLAIM WITHOU T ANY ALLEGATION OF PAYMENT TO THE SUB CONTRACTORS ON HIGHER SIDE IN CO MPARISON TO THE OTHER SIMILAR SUB CONTRACTORS THEREFORE, ACTION OF THE AO WAS NOT JUSTIFIED AND CORRECT IN DISALLOWING THE ENTIRE AMOUNT OF CLAIM. AT THE SAME TIME, WE FURTHER OBSERVE THAT SINCE THE AMOUNT HAS BEEN CLAI MED BY THE ASSESSEE 6 ITA NO.322 /RJT/2016 (A.Y: 2011-12) M/S. VINAY CONSTRUCTION CO. REGARDING PAYMENT TO THE SUB CONTRACTORS, WHO ARE R ELATED PARTIES, AND ONLY CLAIM HAS BEEN MADE IN THE P & L A/C. WITHOUT MAKING ANY PAYMENT DURING THE PERIOD AND THE SAME HAS BEEN SHOWN OUTST ANDING IN THE BALANCE SHEET AT THE END OF YEAR, WHICH RAISE THE P OSSIBILITY OF LEAKAGE OF REVENUE BY WAY OF PARTLY ENHANCED OR ARTIFICIAL CLA IM. THEREFORE, THE LD. CIT(A) WAS ALSO NOT CORRECT IN DELETING THE ENTIRE AMOUNT OF CLAIM WITHOUT ANY POSITIVE FINDINGS IN FAVOUR OF THE ASSESSEE THE REFORE, THE FINAL CONCLUSION RECORDED BY THE LD. FIRST APPELLATE AUTH ORITY IS ALSO NOT JUSTIFIED AND CORRECT. 9. KEEPING IN VIEW, THE ENTIRE FACTS AND CIRCUMSTAN CES OF THE CASE AND FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT NEITHER THE ENTIRE AMOUNT OF CLAIM CAN BE HELD AS BOGUS AND DISALLOWED NOR THE ENTIRE AMOUNT CAN BE TREATED AS SACROSANCT, JUSTIFIED AND ALLOWABLE THEREFORE, FINDINGS RECORDED BY THE AUTHORITIES BELOW BEING AR BITRARY AND CONTRARY TO THE PROVISIONS OF THE ACT ARE SET ASIDE. IN OUR CO NSIDERED OPINION, ENDS OF JUSTICE WOULD BE ACHIEVED AND ALL POSSIBLE LEAKAGE OF REVENUE WOULD BE COVERED IF A REASONABLE PART OF CLAIM IS DISALLOWED AND THUS, WE DIRECT THE AO TO DISALLOW 20% OF TOTAL CLAIM MADE BY THE ASSES SEE ON ACCOUNT OF PAYMENT OF THE SUB CONSTRICTORS. ACCORDINGLY, SOLE GROUND OF REVENUE IS PARTLY ALLOWED WITH THE DIRECTIONS TO THE AO AS GIV EN ABOVE TO RECALCULATE THE DISALLOWANCE. 7 ITA NO.322 /RJT/2016 (A.Y: 2011-12) M/S. VINAY CONSTRUCTION CO. 10. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 6 TH NOVEMBER, 2018 RAJKOT/ ; & /DATED : 26 TH NOVEMBER, 2018/ EDN, SR. P.S ! #$ %$ / COPY OF THE ORDER IS FORWARDED TO : 1. * / THE APPELLANT ; 2. +,* / THE RESPONDENT ; 3. . ( ) / THE CONCERNED CIT(A); 4.THE CONCERNED PRL. CIT; 5. / + , , / DR, ITAT, / RAJKOT; 6. / GUARD FILE . // BY ORDER // ASSISTANT REGISTRAR, ITAT, RAJKOT BENCH, RAJKOT SD/- SD/- ( . . /O.P.MEENA) / ACCOUNTANT MEMBER ( . . /C.M.GARG) /JUDICIAL MEMBER