Sun Steel Industries (P) Ltd., Kolkata V. CIT, (A)-2, KOLKATA, Kolkata

ITA 531/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1476 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Accommodation entries
• Section: 143(3); 115JB; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 531/KOL/201 6 ASSESSMENT YEAR : 2011-1 2 SUN STEEL INDUSTRIES (P) LTD. -VS- DCIT, CIRCLE-5, KOLKATA [PAN: AADCS 5916 M] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI A.K. TIBREWAL , FCA FOR THE RESPONDENT : SHRI SALLONG YADEN, ADDL . CIT DATE OF HEARING : 12.02.2018 DATE OF PRONOUNCEMENT : 19.02.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-2, KOLKATA [IN SHORT THE LD CIT (A)] IN APPEAL NO.1783/CIT(A)- 2/14-15 DATED 22.01.2016 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-5, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30.03.2014 FOR THE ASSESSMENT YEAR 2011-12. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 37 LACS CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXPENSES INCURRED THROUGH SUB-CONTRACTOR S, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF FABRICATION AND GALVANIZING OF STEEL STRUCTURES AND ERECTION OF TRANSMISSION TOWERS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 WA S FILED BY THE ASSESSEE ON 2 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 2 29.09.2011 DECLARING TOTAL INCOME OF RS. 69,22,768/ - UNDER THE NORMAL PROVISION OF THE ACT AND BOOK LOSS OF RS. 72,68,669/- U/S 115JB OF T HE ACT. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE LD. AO OBSERVED THAT THE ASSESSEE HAS MADE FOLLOWING PAYMENTS TO THE FOLLOWING SUB-CONTRACTORS AS FOUNDA TION EXPENSES: SL. NO NAME OF THE COMPANY AMOUNT IN RS. 1 SUNGROW MERCANTILE PVT. LTD. 7.20 LAKH S 2 LOVELY DEALER PVT. LTD. 7.50 LAKHS 3 JAGPREM COMMERCIAL PVT. LTD. 7.20 LAKHS 4 GOODVIEW DEALER PVT. LTD. 3.60 LAKHS 5 ROOTSTAR DEALER PVT. LTD. 4.00 LAKH S 6 SUBHRASHI MARKETING PVT. LTD. 7.50 LAKH S TOTAL 37 LAKHS THE LD. AO IN ORDER TO VERIFY THESE PARTIES ISSUED SUMMONS U/S 131 OF THE ACT THROUGH DEPARTMENTAL INSPECTOR. THESE SUMMONS COULD NOT BE SERVED AS THESE COMPANIES WERE FOUND TO BE NON-EXISTING IN THEIR ADDRESSES. SUBSEQ UENTLY THE SUMMONS WERE ISSUED TO ALL THE DIRECTORS OF THE COMPANIES FOR THEIR PERSON AL APPEARANCES. HOWEVER, THE SAID SUMMONS RETURNED UNSERVED WITH THE POSTAL COMMENT NOT KNOWN, LEFT. BY ORDER SHEET NOTING DATED 18.03.2014, THE DIRECTOR OF THE ASSESSEE COMPANY WAS ASKED TO PRODUCE THESE PARTIES OR ELSE THE SUBJECT MENTIONED PAYMENT TO SUB-CONTRACTORS WO ULD BE TREATED AS BOGUS PAYMENTS. IN RESPONSE, THE SAID DIRECTOR APPEARED ON 30.03.2014 AND STATED THAT HE WILL NOT BE IN A POSITION TO PRODUCE THE PARTIES AT PRESENT. THE LD. AO OBSERVED THAT THE BUSINESS ACTIVITY OF THE ASSESSEE WAS CARRIED OUT IN SHILLONG, BUT THE PAYMENTS WERE MADE TO AFORESAID SIX PARTIES WHICH A RE BASED IN KOLKATA. THE LD. AO DOWNLOADED THE DATA BASE OF REGISTRAR OF COMPANIES (ROC IN SHORT) AND FOUND THAT ALL THESE COMPANIES WERE INCORPORATED IN JULY, 2010 AND THAT THEY WERE IN THE BUSINESS OF TRADING IN SHARES AND INVESTMENT IN VARIOUS UNQUOTE D COMPANIES. THE ONLY CONTRACT JOB DONE BY MOST OF THEM WERE ONLY WITH THE ASSESSEE. T HE LD. AO FROM THE BALANCE SHEET DOWNLOADED FROM THE ROC OBSERVED THAT, THESE COMPA NIES ARE NOT IN THE BUSINESS OF DOING THESE KIND OF SERVICES I.E. FOUNDATION SERVIC ES NOR DOES HAVE THE INFRASTRUCTURE TO 3 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 3 RENDER THOSE SERVICES. HE FURTHER OBSERVED THAT ALL THESE COMPANIES ARE DECLARING NEGLIGIBLE INCOME IN THEIR RETURNS AND THE TAX DEDU CTED BY THE ASSESSEE COMPANY IS CLAIMED AS REFUND BY THE RESPECTIVE COMPANIES. THE LD. AO OBSERVED THAT THESE COMPANIES HAVE NO MEANS TO RENDER ANY KIND OF ALLEG ED FOUNDATION SERVICES THAT COULD BE RENDERED TO THE ASSESSEE. ACCORDINGLY, HE OBSERV ED THAT EVEN THOUGH THE PAYMENTS WERE MADE TO THOSE PARTIES BY THE ASSESSEE BY WAY O F ACCOUNT PAYEE CHEQUES AND EVEN THOUGH THEY HAD DISCLOSED THE CONTRACTORS INCOME I N THEIR RESPECTIVE RETURNS, STILL THE GENUINITY OF THE TRANSACTIONS WERE NOT PROVED BY TH E ASSESSEE. EVEN THE SERVICES RENDERED BY THOSE PARTIES FOR AND ON BEHALF OF THE ASSESSEE WERE NOT PROVED INASMUCH AS FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE RESPECTIVE COMPANIES, THE MEAGER LABOUR CHARGES AMOUNT OF AROUND EIGHTY THOUSAND TO NINETY THOUSAND ALONG WERE INCURRED BY EACH OF THOSE COMPANIES AND SALARY DEBI TED WAS ALSO ONLY TO THE TUNE OF RS. 6 LACS. APPROXIMATELY. IT IS NOT CLEAR FROM THE BAL ANCE SHEET OF THESE RESPECTIVE COMPANIES AS TO WHETHER THEY HAVE ANY BRANCH IN SHI LLONG TO CARRY OUT THE NECESSARY TECHNICAL SERVICES FOR AND ON BEHALF OF THE ASSESSE E. ACCORDINGLY, THE LD. AO OBSERVED THAT THESE ARE MERELY PAPER COMPANY OPERATED BY THE ENTRY OPERATOR FOR THE PURPOSE OF PROVIDING ACCOMMODATION ENTRIES. IN VIEW OF THESE A FORESAID FACTS THE GENUINENESS OF THE PAYMENT OF FOUNDATION EXPENSES BY THE ASSESSEE TO THE AFORESAID SIX SUB-CONTRACTORS DOES NOT STAND PROVED AND ACCORDINGLY THE LD. AO DI SALLOWED THE SAME AS BOGUS EXPENDITURE IN THE ASSESSMENT. 4. THE ASSESSEE PLEADED BEFORE THE LD. CIT(A) THAT FOR PROVING THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE, THE FOLLOWING DOCUMENTS WITH SUB-CONTRACTORS WERE FURNISHED: I) XEROX COPY OF ACKNOWLEDGMENT FOR FILING THE RETU RN OF INCOME; II) COMPUTATION OF TOTAL INCOME FOR THE ASSESSMENT YEAR 2011-12; III) AUDITED ACCOUNTS FOR THE YEAR UNDER 31.03.2011 ; IV) CONFIRMATION OF ACCOUNTS FOR THE YEAR UNDER 31. 03.2011; 4 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 4 V) BANK STATEMENT OF THE PAYMENT FROM WHERE THE AMO UNT PAID WAS CLEAR; VI) XEROX COPY OF THE BANK STATEMENT OF THE SUB-CON TRACTOR WHEREIN THE RECEIPT OF PAYMENT IS RECORDED; THE ASSESSEE PLEADED THAT ALL THE PAYMENTS TOWARDS SUB-CONTRACT CHARGES WERE PAID BY THE ASSESSEE THROUGH ACCOUNT PAYEE CHEQUES AFTER DU E DEDUCTION OF TAX AT SOURCE AND THAT THOSE COMPANIES IN TURN HAD DISCLOSED THE REC EIPTS FROM THE ASSESSEE AS THEIR INCOME IN THEIR RESPECTIVE INCOME TAX RETURNS. MERE LY BECAUSE THE PARTIES DID NOT APPEAR BEFORE THE LD. AO WOULD NOT MAKE THE TRANSACTION AS BOGUS. IN SUPPORT OF THIS PROPOSITION, THE ASSESSEE PLACED RELIANCE ON THE DE CISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S DIAGNOSTICS VS. CIT IN I.T .A. NO. 153 OF 2004 DATED 04.03.2011. THE LD. CIT(A) OBSERVED THAT THE DECISI ON RELIED UPON BY THE ASSESSEE WAS DISTINGUISHABLE ON FACTS AS THERE WAS NO DOUBT ABOU T EXISTENCE AND EXPERTISE OF RECIPIENT PARTY. HE OBSERVED THAT THE ASSESSEE HAD MERELY INF LATED THE EXPENSES OF FABRICATION WORK BY TAKING ENTRIES FROM PAPER COMPANIES. THE LD . CIT(A) FURTHER OBSERVED THAT THE ASSESSEE COULD NOT EXPLAIN AS TO HOW THE THIS SIX C OMPANIES STATIONED AT KOLKATA ARE DOING BUSINESS IN SHILLONG AND ESPECIALLY WHEN THEY HAD NO EXPERTISE IN INFRASTRUCTURE IN THE SPECIALIZED JOB OF STEEL FABRICATION ETC. AND A S TO HOW THEY HAD BEEN HELPING THE ASSESSEE IN DOING FOUNDATION JOBS IN SHILLONG. HE F URTHER OBSERVED THAT WHY THE COMPANIES AND THE DIRECTORS COULD NOT BE TRACED IN GIVEN ADDRESSES AND AS TO WHY THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENT BEFORE THE LD. AO, WERE NOT EXPLAINED BY THE ASSESSEE. ACCORDINGLY, HE UPHELD THE ACTION OF THE LD. AO BY TREATING THE SUBJECT MENTIONED PAYMENTS AS BOGUS AND CONFIRMED THE DISAL LOWANCE THEREON. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS. 37,00,000 CLAIMED BY THE APPELLANT COMPANY ON ACCOU NT OF EXPENSES INCURRED THROUGH SUB CONTRACTORS ON THE ALLEGED GRO UND THAT THE SAID EXPENSES ARE BOGUS. 5 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 5 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT A LL THESE PAYMENTS WERE SUBJECTED TO TAX DEDUCTED AT SOURCE (TDS) AND THE A MOUNT OF TDS ON SUCH EXPENSES WERE DEPOSITED TO THE CREDIT OF CENTRAL GO VERNMENT AND THAT THE SAID EXPENSES WERE DULY DECLARED BY THE RECIPIENT S UB CONTRACTOR AS THEIR INCOME IN THEIR INCOME TAX RETURNS AND CREDIT OF TD S WAS ALLOWED TO THEM. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLEGING THAT THE AFORESAID EXPENSES INCURRED BY THE APPELLANT COMPANY WERE BOGUS SIMPLY ON THE GROUND THAT THE SAID PARTIES WERE NOT TRACEABLE AT THE ADDRESSES AN D THAT THE APPELLANT COMPANY COULD NOT PRODUCE THE DIRECTORS OF THOSE CO MPANIES WITHIN THE VERY SHORT PERIOD ALLOWED BY THE ASSESSING OFFICER. 4. THAT THE PAYMENTS WERE MADE TO THE CONTRACTORS BY A CCOUNT PAYEE CHEQUES ISSUED IN FAVOUR OF THE SUB-CONTRACTOR AND WERE CLE ARED IN THE BANK ACCOUNTS OF THOSE SUB-CONTRACTORS, LD. COMMISSIONER OF INCOM E TAX (A) WAS NOT JUSTIFIED IN DISALLOWING THOSE EXPENSES IN VIEW OF THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF M/S DIAGNOSTICS VS. CIT, KOLKATA-XX & ANR. IN I.T.A. NO. 153 OF 2004. 5. THE LD. AR PLACED RELIANCE ON THE PAPER BOOK CON TAINING THE ENTIRE DETAILS, ITR ACKNOWLEDGMENT, AUDITED FINANCIAL STATEMENTS, COMPU TATION OF TOTAL INCOME, BANK STATEMENT AND CONFIRMATION OF ACCOUNT IN RESPECT OF EACH OF THE SIX PARTIES. BASED ON THESE DOCUMENTS HE ARGUED THAT THE EXISTING OF THES E SIX COMPANIES ARE PROVED BEYOND DOUBT AND HENCE THE SAME CANNOT BE TREATED AS PAPER BOOK WITH NON-EXISTENT COMPANIES. HE ALSO ARGUED THAT ALL THE SIX COMPANIES HAVE DUL Y ACCOUNTED THE SUBJECT MENTIONED CONTRACT IN THEIR PROFIT AND LOSS ACCOUNT AS INCOME HE PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT SUPRA TO SUPP ORT HIS ARGUMENTS. 6. IN RESPONSE TO THIS, THE LD. DR ARGUED THE EXIST ENCE OF THE PARTIES WERE NOT IN DISPUTE. IT IS NOT IN DISPUTE THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES WITH DUE DEDUCTION OF TAX AT SOURCE AND ALL THE PARTIES HAVE DULY DISCLOSED THE SUBJECT MENTIONED CONTRACT AMOUNT AS INCOME IN THEIR RETURNS BUT THE ASSESSEE COULD NOT PRODUCE ANY OF THE 6 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 6 PARTIES BEFORE THE LD. AO AND HAD NOT PROVED THAT T HOSE PARTIES POSSESS NECESSARY INFRASTRUCTURE TO RENDER THE SPECIALIZED JOB OF FOU NDATION SERVICES TO THE ASSESSEE, THAT TOO IN SHILLONG, WHEN THEY ARE STATIONED IN KOLKAT A. ACCORDINGLY, HE PLACED HEAVY RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES AND PRAYED FOR NON-INTERFERENCE OF THE SAME IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE PAYMENTS TO SUB-CONTRACT ORS WERE INDEED MADE BY THE ASSESSEE THROUGH ACCOUNT PAYEE CHEQUES AFTER DEDUCTION OF TA X AT SOURCE. IT IS NOT IN DISPUTE THAT THOSE RECIPIENTS HAVE DULY DISCLOSED THE SAME IN TH EIR RESPECTIVE IT RETURNS AND HAD ALSO FILED THEIR RETURNS OF INCOME SHOWING MEAGER FIGURE . THE TAX DEDUCTED BY THE ASSESSEE PREDOMINANTLY FORMS PART OF CLAIM OF REFUND MADE BY THESE PARTIES IN THEIR RETURN OF INCOME. EVEN THOUGH THE EXISTENCE OF THESE COMPANIE S ARE PROVED BEYOND DOUBT, WITH PROPER PAPER WORK CARRIED OUT, WE FIND THAT THE ASS ESSEE HAD NOT PROVED THE ACTUAL RENDERING OF SERVICES BY THESE PARTIES TO THE ASSES SEE BY WAY OF RENDERING THE FOUNDATION SERVICES. ADMITTEDLY, ALL THESE SIX ALLEGED SUB-CON TRACTORS WERE ONLY TRADING IN SHARES AND INVESTMENT COMPANIES. THE ASSESSEE WAS NOT ABLE TO PROVE WITH COGENT MATERIAL AS TO WHETHER THESE COMPANIES POSSESS NECESSARY EXPERT ISE AND INFRASTRUCTURE TO RENDER THE FOUNDATION SERVICES TO THE ASSESSEE. MORE IMPORTANT LY THESE SERVICES WERE ALLEGED TO HAVE BEEN RENDERED IN SHILLONG WHEREAS, THESE PART IES ARE LOCATED IN KOLKATA. FROM THE PERUSAL OF THEIR BALANCE SHEET, IT IS EVIDENT THAT THEY DO NOT HAVE ANY BRANCH IN SHILLONG OR ANY OTHER INFRASTRUCTURE TO RENDER FOUNDATION SE RVICES/SPECIALIZED SERVICES TO THE ASSESSEE. THEIR PROFIT AND LOSS ACCOUNT CONTAINS PA YMENT OF LABOUR CHARGES TO THE TUNE RS 80000/- TO RS 90000/- AND PAYMENT OF SALARY OF R S. 6 LACS APPROXIMATELY. HENCE, IT IS PROVED BEYOND DOUBT THAT THOSE PARTIES HAD NOT R ENDERED ANY SERVICES TO THE ASSESSEE EVEN BY WAY OF OUTSOURCING OF THE SAID JOBS TO OUTS IDERS WHO ARE STATIONED IN SHILLONG. ALL THE SIX COMPANIES HAD SIMILAR TYPES OF INCOME A ND SIMILARLY TYPES OF EXPENSES REFLECTED IN THEIR PROFIT AND LOSS ACCOUNT. NONE OF THE COMPANIES HAVE SUFFICIENT FIXED 7 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 7 ASSETS TO PROVE THE EXISTENCE OF NECESSARY INFRASTR UCTURE FOR RENDERING SUCH TECHNICAL SERVICES. FROM THE AFORESAID FACTS, IT IS MADE VER Y CLEAR THAT THESE PARTIES HAD MERELY ACTED AS A CONDUIT TO REDUCE THE PROFITS OF THE ASS ESSEE COMPANY AND SHOW MEAGER INCOME IN THEIR RETURNS AND CLAIM REFUND OF TDS. WE ARE SATISFIED IN THE INSTANT CASE, THAT THESE COMPANIES ARE MERELY PAPER COMPANIES, HA VING COMPLIED WITH PROPER PAPER WORK, BUT NOT POSSESSING NECESSARY EXPERTISE TO REN DER TECHNICAL SERVICES TO THE ASSESSEE. HENCE, WE HOLD THAT THE FACTUM OF SERVICE S RENDERED BY THOSE PARTIES TO THE ASSESSEE HAS NOT BEEN PROVED BY THE ASSESSEE IN THE INSTANT CASE AND HENCE THE DISALLOWANCE HAS BEEN RIGHTLY MADE BY THE REVENUE I N THE FACTS AND CIRCUMSTANCES OF THE CASE . ACCORDINGLY GROUNDS RAISED BY THE ASSESSEE A RE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 19.02.2018 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 19.02.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. SUN STEEL INDUSTRIES (P) LTD., 22, STRAND ROAD, KOLKATA-700001. 2. DCIT, CIRCLE-5,KOLKATA 3. C.I.T(A)- , KOLKATA 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 8 ITA NO.531/KOL/2016 SUN STEEL INDUSTRIES (P) LTD. A.YR.2011-12 8