TaxTMI 
TaxTMI 
2016 (11) TMI 740
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....3. That on the facts and circumstances of the case and in law the Ld ClT (A) was not justified in deleting the disallowance u/s 40(a)(ia) on the basis of ITAT, Kolkata's order in the case of M/s Matrix Glass & Structures Pvt. Ltd. -vs- ITO, Ward-6(2), Kolkata in ITA No. 658 (Kol) of 2010 dated 28.01.2011 without considering failure of obligation of the assessee in regard to deduction of tax. 4. That the Department craves leave to add, modify or alter any of the grounds of appeal and/or adduce additional evidence at the time of hearing of the case." 3. The Assessee is a private limited company. It is engaged in the business of giving on hire of construction, earth moving equipment and heavy commercial vehicle. There was a search operation carried out u/s 132 of the Income Tax Act, 1961 (Act) in the case of "Austral Group " on 23.06.2009. The main companies of this group are M/.s Green earth Resources and Projects Ltd. (formerly known as Austral Coke and Project Ltd.) and M/S Sancia Global Infra Projects Ltd. (formerly known as Gremach Infrastructure Equipments and Projects Ltd.). The Assessee was also part of the Austral Group and was also subjected to a search u/s.1....
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....l Audit clarified that he could not verify the accounts on which Tax Deduction at Source (TDS) was required to be made. However, a list on which TDS could be applicable on the basis of original audited accounts, was furnished by the auditor. Based on the supplementary report, the AO called upon the Assessee to furnish the details of TDS on the heads of expenditure as per the auditor's list. In response, the Assessee submitted head-wise details of the expenditures and TDS. On perusal of details AO was of the view that the assessee has made expenditure of Rs. 77,25,966/- under the head 'Transport Charges' in which TDS on expenditure to the tune of Rs. 75,87,662/- was not made. On being questioned, the Assessee in its submission dated 03.08.2012 stated as under: "TDS on Rs. 75,57,662/- has not been deducted due to the reason that the transportation expenses were incurred on various construction sites at remote locations, which were paid to various parties and the same were below the threshold limit prescribed as per Income Tax Act," 6. The AO however concluded that the Assessee failed to comply with the provisions of TDS and therefore the transportation expense....
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....ceed Rs. 50,000/- in a given year. It was therefore submitted that the conditions incorporated in Sec 194C of the Act were not fulfilled; the assessee did not have legal obligation to deduct tax u/s 194C of the Act and therefore the disallowance u/s 40(a)(ia) was uncalled for. It was further explained before the AO that the payments to the transporters were effected during the relevant year and the entire expenditure on transportation was fully paid during the year itself and nothing remained payable and therefore also the provision of Sec 40(a)(ia) of the Act was not applicable. 9. It was further contended that the AO did not point out any infirmity in the explanation furnished. It was pointed out that the books of accounts and supporting papers were not available for production since these were destroyed in fire. It was submitted that in the given circumstances the conclusion of the AO that there was a possibility of some expenses being in excess of threshold limit of TDS is purely based on conjectures and surmises. It was argued that u/s.40(a)(ia) of the Act there cannot be disallowance on ad-hoc estimate basis. The Assessee placed reliance on the decision of the case of Matr....
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.... (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contactor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid " Thus, on plane reading of the above provisions, it is apparent that in order to invoke the provisions of section 40(a)(ia), the first and foremost condition that has be satisfied, is that the tax is deductible at source on the amount of expenditure under Chapter XVII - B of the I.T. Act. The provisions of section 40(a)(ia) cannot be invoked on the presumption that there is a possibility that on some amount of expenditure tax was deductible at source. I am of the opinion that there cannot be any disallowance u/s 40(a)(ia) on ad-hoc basis. The provisions of section 40(a)(ia) have to be invoked in absolute terms and not on presumption. If, there is an expenditure on which tax was deductible under Chapter XVII - B, and the tax has not been deducted or, a....
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....0(a)(ia) of the Act merely on presumption that application of section 194C could not be ruled out because payments were supported by self-made vouchers without containing details of transporters/truck owners. In order to make disallowance u/s 40(a)(ia) of the Act, the Department has to specifically bring out a case that the assessee was required to deduct TDS on the payments made as per provisions of the Act which assessee failed to do so. In view of the above, we are of the considered view that in the facts and circumstances of the case, the disallowance of Rs. 11,58,302/- claimed by the assessee under the head transportation charges is not justified. Hence, we delete the same." The facts in the case of appellant company are same as in the case of M/s. Matrix Glass & Structures Pvt. Ltd. (supra). In the case of appellant company also, the AO has brought no material on record to prove that there was any default u/s 194C of the Act on the part of appellant company in not deducting the TDS on Rs. 37,78,831/-. Therefore, no disallowance could be made u/s 40(a)(ia) of the Act merely on assumption and surmises. In view of above facts and respectfully following the decision of H....
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.... transporter did not exceed Rs. 50,000/- in a given year. The proof to be let by the Assessee in this regard can either be direct proof or circumstantial evidence, keeping in mind the fact that the books of accounts of the Assessee were destroyed in fire. 14. In the result the appeal by the revenue is allowed for statistical purposes. 15. IT(SS)No.16/Kol/2013 A.Y.2008-09: This is an appeal filed by the Revenue against the order dated 20.11.2012 of CIT(A)-Central-II, Kolkata relating to A.Y.2008-09. 16. Ground Nos. 1 and 2 raised by the revenue read as follows :- "1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of Rs. 114,10,16,936/- instead of Rs. 85,10,68,095/-. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in directing to eliminate income from bogus sales of Rs. 114,10,16,936/- against expenditure of Rs. 85,10,68,095/- on bogus purchase." 17. As we have already seen while deciding the appeal of the revenue for A.Y.2007- 08, there was a search and seizure operation carried out u/s 132 of the Act in the cas....
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.... Ajit Jindal in his statement recorded u/s 131 of the Act on 16.11.2011 too has confirmed the transactions entered into with the companies of Nikhil Jalan were bogus. None of these companies had the necessary infrastructure or technical expertise to carry out the hiring of the machineries and there were no concrete evidences to prove the genuineness of the transactions. Therefore, the AO asked the Assessee to explain as to why the hiring charges shown as paid to the above named parties should not be treated as bogus expenditure and disallowed. In response, it was submitted by the Assessee that against the disallowance of bogus hiring charges paid by the Assessee, the corresponding hiring charges received by the Assessee should also be treated as bogus and required to be deducted from the gross receipts/sale. According to the AO, in the Special Audit Report dated 09.06.2012, Shri Swapan Kumar Saha, FCA, too has categorically mentioned the above Machinery Hire Charges to be bogus. Hence, in the year under consideration, he disallowed sum of Rs. 85,26,19,991/- on account machinery hiring charges paid by the Assessee. 20. During the course of assessment proceedings, it was further o....
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....Nikhil Impex (Rs.38,30,47,940/-), (vi) PN Construction -Agra (Rs.4,50,000/-) and (vii) Valuable Infrastructure Pvt. Ltd. (Rs. 7,04,98,000/-). Similarly, as per the originally audited books of account, the expenses on account of rehiring of machines were Rs. 158,90,63,696/-. Out of these expenses/purchases, the expenses of Rs. 85,10,68,095/- were bogus in the cases of (i) Ampoules & Auto Ltd. (Rs.19,04,26,672), (ii) Ganco SS India Pvt. Ltd. (Rs.24,61,96,263/-), GDJ Construction Pvt. Ltd. (Rs.30,63,61,742/-) and GDJ Export Pvt. Ltd. (Rs.l0,80,83,418/-). It was submitted by the Assessee that though in the course of search bogus sale entries amounting to Rs. 82.01 crores were found in the case of Gilbert Commercial Private Ltd. and Nikhil Impex, but, in actual the bogus sales were Rs. 114.10 crores as detailed above. The relevant documentary evidences was also enclosed. In view of above, it was contended before the AO that the bogus sales of Rs. 114.10 crores should be reduced from the total sales declared by the assessee and similarly the bogus purchases/expenses amounting Rs. 85.10 crores should be reduced from the debit side to arrive on the correct income. 21. The AO however did....
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....ases of Rs. 85,10,68,095/-. 23. Aggrieved by the aforesaid action of the AO, the Assessee preferred appeal before CIT(A). Before CIT(A), the Assessee besides reiterating submissions as were made before AO, further submitted that the AO has agreed in principle that in arriving at true taxable income, it was necessary to eliminate from the credit side the income which was not real. However having agreed with this principle he eliminated from the credit side only sum of Rs. 85,26,19,991/-. It was argued that the Assessee did not raise any particular invoices having value of Rs. 85,26, 19,991/ -. The invoices were raised on different parties for different values and aggregate of all bogus invoices, amounted to Rs. 1,14,10,16.936/-. It was submitted that once the AO accepted the premise that entire invoiced value of Rs. 1,14,10,16,936/- represented bogus income then the AO could not turn around and eliminate only few of the invoices totalling to Rs. 85,26,19,991/-. If the AO's hypothesis is accepted then it will amount to the fact that the AO having held the entire gross of sum of Rs.l,14,lo,16,936/- to be bogus yet for tax purpose a differential sum of Rs. 28,99,48,841/- was con....
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....ng to bogus expenses and income were interlinked, inert connected and inter dependant then in arriving at income chargeable to tax from the activity of providing accommodation entries the AO should have allowed the set off for commission paid on the expense entries as well. In the circumstances the AO could not unilaterally assess the income byway of commission for providing accommodation entries without allowing deduction for the corresponding expenses paid for availing accommodation entries. 25. The CIT(A) agreed with the submissions of the Assessee and he concluded on the above issues as follows: "5.2 On careful consideration of facts of the case and in law, I am of the opinion that the AO was not justified in eliminating the amount of bogus sales/receipts at Rs. 85,10,68,095/- only in place of actual amount of Rs. 114,10,16,936/-. In the course of appellate proceedings, the appellant submitted copies of the submission and documents furnished before the AO. I find force in the submission of the appellant that the AO did not dispute the correctness of the amounts of bogus expenses and bogus sales claimed by it before him. In paragraph 11.4 of the assessment order, he ....
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....ot disputed that the appellant company was indulged in booking bogus expenses and bogus receipts and the appellant company was paying as well as receiving the commission on such bogus transactions. Once this fact is admitted, the AO cannot deny the deduction on account of payment of commission and only the net amount of the commission income will be taxable in the hands of appellant company. Hence, the AO is directed to allow payment of commission on bogus expenses/purchases of Rs. 85,10,68,095/- @ 0.15% which comes to Rs. 12,76,602/-. Thus, the net commission income taxable in the hands of appellant company is Rs. 32,87,465/- i.e. (Rs.45,64,067 - Rs. 12,76,602). In view of above, the ground no.1 is allowed and the ground nos.2, 3 and 4 are partly allowed. 26. Aggrieved by the order of CIT(A) the revenue has raised ground Nos. 1 and 2 before the Tribunal. As we have already seen despite service of notice, the assessee did not choose to appear in the present proceedings. We have heard the submissions of the ld. DR. The ld. DR submitted that the re-constructed accounts as drawn by the Special auditor was not verified by the AO or CIT(A) by calling upon the parties to the transacti....