TaxTMI 
TaxTMI 
2024 (9) TMI 1114
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..../11/2014, declaring total income of Rs. 96,93,807. The case was selected for scrutiny and the assessment order under section 143(3) of the Income Tax Act, 1961 ("the Act") was passed in which the Assessing Officer assessed the income of the assessee at Rs. 6,87,51,810. 4. The only issue for our adjudication relates to the addition of Rs. 5.88 crore, on account of disallowance of entire payment made and claimed by the assessee contractor firm to sub-contractors treating the same as bogus. 5. During the course of assessment proceedings, the Assessing Officer, on a perusal of submission made by the assessee, noticed that assessee has sub-let the work to other parties and debited its Profit & Loss A/c at Rs. 5,88,00,000, and shown almost all the sub-contractors as Sundry Creditors of Rs. 5,14,42,171. In order to verify the genuineness of sub-contract payments, the assessee was asked to substantiate the genuineness of payment made to the sub-contractors along with their complete address, copy of ITR, bank statement indicating the respective payment. In response the assessee, inter alia, submitted the statement of the subcontractors showing details of payment, address, PAN and copy....
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.... receipt or work-in-progress. He held that the assessee could not establish any nexus between the sub contract payments. Even the work-in-progress shown is at Rs. 25,65,000, only. Therefore, this entire amount of Rs. 5,88,00,000, was disallowed and added to the total income of assessee as undisclosed income. Penalty proceeding under section 271(1)(c) of the Act was initiated separately. The assessee being aggrieved, carried the matter before the learned CIT(A). 7. The learned CIT(A), in view of the submissions made by the assessee, held that the action of the Assessing Officer in making the impugned addition is not found to be sustainable in the facts of the case and in law as it fails the test of appeal. Thus, the learned CIT(A) directed the Assessing Officer to delete the impugned addition of Rs. 5,88,00,000, as the assessee is entitled to get the relief. Aggrieved, the Revenue is in appeal before the Tribunal. 8. We have given a thoughtful consideration to the arguments made by the learned Departmental Representative and perused the material available on record. There is no representation from the side of the assessee since 18/09/2023, when the matter was first fixed on Bo....
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....s, this year, was major outstanding from the department that was received after end of the financial year and the bills of Sub- contractor which were not received in time. Hence the provision was made in the head of creditors is increase in respect of preceding year. viii. It has been further submitted that "The appellant has also deducted TDS at the specified rates u/s 194C of all the sub-contractors. The list of subcontractors along with their address, PAN card and Bank Account details were furnished during the course of assessment proceedings. ix. It has been lastly submitted "That during the course of assessment proceedings the assessee also requested the subcontractor either to attend before the Assessing Officer or to file their confirmation along with copy of return and computation of income. All these sub-contractor have appointed the counsel of the assessee as their counsel to sign and filed confirmation and other documents on their behalf. The Counsel of assessee (Sub-contractor) signed only the written submission all confirmation and income tax returns signed by the respective assessee. However the Assessing Officer has not accepted the above confirmati....
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....only an application of their already taxed income as per the law of the day Those withdrawals may be related to further payments to the labour, material sellers etc. F. That, the application of income in the hands of the sub contractors cannot and should not entitle the Ld AO of the appellant firm to make such a huge amount of addition in the hands of the appellant firm treating the entire payments made and claimed by it and totaling to as much as Rs. 5.88 crores even when the similar practice has been made by the appellant firm in other succeeding years as well and even when in scrutiny assessment in immediately preceding year, no similar addition has been made, as has been submitted by the Ld. Counsel. For ready reference once again it is quoted from the reply of the Ld. Counsel as below:- "It is to be mentioned that the assessment of the assessee for the assessment year 2013-14 was completed u/s 143 (3) and the Assessing Officer has accepted the sub-contract work in that year." Though res judicata does not apply in the Income Tax proceedings but consistency also has to be respected and is one of the very strong factors which should never be fo....
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....firming impugned addition of Rs. 5.88 crores. If the same amount is added back to the net profit of Rs. 1.24 cr. (before giving interest and salary to partners) for this year i.e. A.Y. 2014-15 at the gross receipts of Rs. 16.36 crores then net profit will rise to 43.52% which is by no stretch of imagination can be realistic in a business of civil contract work as is that of the appellant firm. However, in many cases as in this case Ld. AOs do not appreciate this aspect of the case which is too important to be over looked." 5.1.3 Thus, the action of the Ld. A.O. in making the impugned addition is not found to be sustainable in the facts of the case and in law as it fails the test of appeal. The Ld. A.O. is therefore directed to delete the impugned addition of Rs. 5,88,00,000 as the appellant is entitled to get the relief. Ground no. 1, 3, 4 & 5 are, thus, allowed." 9. Shorn of any details as to the identity of the subcontractors and nature of services rendered, relief was granted based on comparative financial performance of earlier years. The learned Departmental Representative has been quite correct in submitting that the order of the learned CIT(A) be overturned. Ther....
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....ng commensurate receipt. Assessee could not produce any evidence to prove that the claim of sub contract expenses have resulted in any receipt. In fact the work-in-progress shown is only Rs. 25,65,000/-. When the assessee debited Rs. 5,35,00,000/- as sub contract expenses in the month of March, is all the more necessary for the assessee to show commensurate receipt or work-in-progress on the credit side of the Trading/Profit & Loss account. The assessee has completely failed to justify these expenses. Any expenditure claimed should have a nexus with the income. The assessee could not prove that the sub contractors' expenses debited is represented either by way of contract receipt or by way of Work-in-progress. Since the expenditure is debited at the fag end of the year, in the absence of any nexus proved by the assessee that these expenses have resulted in any receipts or work-in-progress, it makes it clear that only debit side of the Trading account/Profit & Loss account is increased artificially in order to reduce and suppress the actual profit of the assessee. Since these expenses are bogus, the assessee was not forth coming to explain the genuineness of the expense....