TaxTMI 
TaxTMI 
2019 (1) TMI 1764
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....Liquidated Damages for belated execution of the contract and should be allowed as an expense from the alleged contract receipt of Rs. 8,23,11,478/-. 3. Both the lower authorities have erred in not appreciating that addition cannot be made merely because tax was deducted at source on the gross amount. 4. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in disallowing expenses amounting to Rs. 20,38,708/- 5. Both the lower authorities have erred in law and on facts of the case in disallowing expenses for mere non-service or non-reply of notice u/s.33(6)of the Act. 6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C ....
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....he current year. Therefore, the assessee is liable to offer the same to tax in the year under consideration as it is following a mercantile system of accounting. 4. There was also nothing mentioned in the tax audit report regarding the liquidated damages as discussed above. 4.3 Because of the above, the AO treated the difference of Rs. 19,06,739/- as discussed above as undisclosed income and accordingly added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to learned CIT (A). The assessee before the learned CIT (A) submitted as under: 1. It has not taken any action for the recovery of the liquidated damages deducted by the Gujarat Council of primary education in the subsequent years. As such the amount approved by the Gujarat Council of primary education was final, and the assessee was not entitled to recover anything over and above the amount approved. 2. The form 26AS is used to provide information about the deduction of TDS and corresponding income. But the same cannot be treated as sacrosanct for determining the income of the assessee. Had there been less deduction of TDS by the party corresponding to the income declared by the assessee in....
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....een received by the assessee as is evident from assessee's bank statement: Bill No.SSAM/ACR/V AD/420 : Rs. 24,02,863/- Bill No.DIR/ACR/AND/427 : Rs. 20,69,038/- 8.2 Thus, the following aspects become crystal clear according to the Ld.AR: i) There was delay in execution of work assigned to the assessee. ii) The principal deducted "liquidated charges " from the bill amount. iii) Assessee has received merely "net amount" (i.e. after deduction of liquidated damages) from the principal; 8.3 The Ld.AR, before us submitted that since assessee never had any right to claim such sum from the principal, only the net receipts were credited to the P&L. Under such circumstances, such sum could not have been taxed as undisclosed "contract receipts". 8.4 As regards AO's observation Ld.AR submitted that assessee has not furnished copy of contract entered into with the principal, it is submitted that the mere fact that there was no written contract cannot be a ground to make the impugned addition. In construction work, there is always an arrangement for deduction of liquidated damages if the work is not completed within stipulated time period so as to ensure that eff....
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....usiness expense. 9. On the other hand the learned DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the difference observed by the AO between the income declared by the assessee and income represented in form 26AS. The AO found a difference of Rs. 19,06,739/- which was treated as undisclosed income of the assessee. The view taken by the AO was subsequently confirmed by the learned CIT (A). 10.1 From the preceding discussion we note that the difference is arising on account of liquidated damages deducted by the Gujarat Council of primary education. The assessee raised bills to Gujarat Council of primary education amounting to Rs. 37,71,684/- and 32,35,027/-. 10.2 However, the Gujarat Council of primary education approved such bills for an amount of Rs. 24,02,863/- and Rs. 20,69,038/- respectively after making certain deductions including the liquidated damages of Rs. 10,29,374/- and Rs. 8,74,428/- respectively. The copies of the bills showing the deduction on account of liquidated damages are placed on pages 37 to 38 of the paper book. 10.3 O....
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....usiness activity and was inherent part of its business transactions. The expenditure was certainly not incurred for any purpose which is an offence or which is prohibited by law. The Tribunal therefore was perfectly justified in granting such expenditure." 10.11 Accordingly, we are inclined to reverse the order of lower authorities and direct the AO to delete the addition made by him for Rs. 19,06,739/-. Hence the ground of appeal of the assessee is allowed. 11. The 2nd issue raised by the assessee in the ground no. 4 to 6 is that learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of Rs. 20,38,708/- on account of the payment made to the subcontractor. 12. The assessee during the year has made certain payments to the subcontractors for the execution of the work assigned to it by Gujarat Council of primary education amounting to Rs. 20,38,708/- only. The details of the parties stand as under: Sr.No. Name Amount in Rs. 1. Mahmmad Saiyed Husen 9,85,623/- 2. Nimesh Builders 9,92,235/- 3. R C G Transport 90,850 12.1 The AO during the assessment proceedings to verify the genuineness of the payments above issued notices under section 133(....
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....e inferred that the assessee could have taken the necessary details regarding the payment made to it along with confirmation. But the assessee failed to do so. ii. The proprietor was hospitalized only for one day as per the medical report furnished by the assessee. 12.5 In view of the above, the AO concluded that the assessee failed to prove the genuineness of the payment made to the subcontractor for Rs. 20,38,708.00 only. Accordingly, the AO disallowed the same and added to the total income of the assessee 13. Aggrieved, assessee preferred an appeal to learned CIT (A). The assessee in the case of Mahammed Husen Syed & Nimesh Builders before the learned CIT (A) submitted that these parties were located in the district of Baroda and Anand. As such these parties were based in the remote area and there was not any regular dealing with the assessee. Therefore it was not possible for the assessee to get in touch with them and obtained the necessary required information. It has submitted all the information which it had obtained at the time of subcontract assigned to them. 13.1 The addresses of these parties were supplied to the AO on the basis of the invoices issued by them. 13.2....
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....n AO is not disputing "completion of underlying work" as well as "corresponding income ", AO could not have doubted "expenses" incurred for carrying out such work since without incurring such expenses, assessee would not have been in a position to carry out such work and earn income. Thus, AO is not justified in disallowing whole of such expenses. 16. On the other hand, the learned DR vehemently supported the order of authorities below. 16.1 We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee has made payment to subcontractors which was not allowed by the AO on the ground that the notices issued under section 133(6) of the Act were not either served to them or there was no compliance. Accordingly, the AO held that the payment made by the assessee was not representing the genuine transactions. Thus the AO disallowed the same. The learned CIT (A) subsequently confirmed the view of the AO. 16.2 From the preceding discussion we note that the assessee has furnished the copies of the PAN of all the parties along with the jurisdiction. Thus we are of the view that the AO before holding that the payment made by the assesse....