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Income Tax Appellate Tribunal, GUWAHATI BENCH AT KOLKATA
Before: SRI RAJPAL YADAV(KZ) & DR. MANISH BORAD
order
: March 28th, 2023 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the Revenue pertaining to the Assessment Year (in short “AY”) 2017-18 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia. “Act”) by ld. Commissioner of Income-tax (Appeals)-2, Guwahati [in short ld. “CIT(A)”] dated 18.03.2020 arising out of the assessment order framed u/s 143(3) of the Act dated 14.11.2019.
The Revenue is in appeal before this Tribunal raising the following grounds: “
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. That the Ld CIT(A) erred in facts and in law in deleting the addition of Rs. 1,62,77,232/- made by the Assessing Officer u/s 69C of the IT Act, 1961 and hence the impugned order of the Ld. C1T(A) is liable to be quashed and the order of the Assessing Officer be restored.
3. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in holding that the section 69C could not be applied to the fact of the case as the payments were made through banking channels which were duly reflected in the books of account of the assessee and therefore no unexplained expenditure within the meaning of section 69C, as the assessee failed to produce work order regarding the sub-contract, postal address of the sub-contractors, nature of work done by each subcontractor & address of work site regarding the sub-contract.
4. The Appellant craves the leave to add/modify/alter any of the ground during the course of hearing /pendency of appeal.”
3. Brief facts of the case as culled out from the records are that the assessee is an individual engaged in construction business. Income of Rs. 62,90,710/- declared in the e-return filed on 26.10.2017 for AY 2017-18. Case selected for limited scrutiny through CASS for the reason “large payments made u/s 194C of the Act with two persons who have not filed return of income” followed by serving of notices u/s 143(2) & 142(1) of the Act.
I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia.
4. The assessee was asked to furnish the details about the contract expenses of Rs. 3,49,72,349/-. The assessee has furnished the name and PAN of the sub-contractors. However, ld. AO was not satisfied with the claim of expense of Rs. 1,62,77,232/- treating it as bogus expenditure since the said sum was paid to sub-contractors i.e. third party who did not file the return of income and alleged that the assessee could not prove the identity, creditworthiness and genuineness of the transaction with regard to the alleged sub-contract expenses at Rs. 1,62,77,232/- and the same was added to the income of the assessee u/s 69C of the Act.
5. Aggrieved, the assessee preferred appeal before ld. CIT(A) and stated that complete details of the alleged expenditure providing the name and PAN of all the sub-contractors. It was also submitted that the assessee is a small contractor working for the tender floated by Government agencies and most of the projects are located in remote areas of North-East region of India. It was also submitted that the assessee has declared 8.5% net profit during the year which is much above the net profit rate generally offered by similar types of assessees. Ld. CIT(A) was satisfied with these submissions and deleted the said addition.
6. Aggrieved, the Revenue is now in appeal before this Tribunal. Ld. D/R vehemently argued supporting the order of ld. AO and stated that the assessee failed to explain the genuineness of the said sub-contract expenditure.
7. On the other hand, ld. Counsel for the assessee vehemently argued referring to the written submissions filed before ld. CIT(A)
I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia. as well as detailed finding given by ld. CIT(A) and also placed reliance on the decisions referred in the impugned order.
We have heard rival contentions and perused the records placed before us. The sole grievance of the Revenue is that ld. CIT(A) erred in deleting the addition for unexplained expenditure made by ld. AO u/s 69C of the Act at Rs. 1,62,77,232/-. We notice that the assessee is engaged in the contract business and mainly execute work contract floated by Government agencies and the projects undertaken are situated in North-East region of India. The turnover during the year is Rs. 7,32,60,600/-. Net profit of around 8.5% of the turnover i.e. Rs. 62,81,540/- has been declared by the assessee. Ld. AO called for the details of the sub-contract expenses of Rs. 3,49,72,349/- but was not satisfied with the details for the expenditure of Rs. 1,62,77,232/- and alleged it to be a bogus expenditure.
9. Before ld. CIT(A) the assessee has filed complete details with the PAN of each of the sub-contractors and the list filed by the assessee is extracted below: Sl. PAN of Sub- Name of the Sub-Contractor Amount Paid No. Contractor 1 Juber Ahmed Choudhery BAZPC1238G 6,81,830/- 2 Alok Biswas CDDPB4538A 50,505/- 3 Ahad Uddin AEMPU6992F 1,01,010/- 4 Satyjit Debnath BBHPD5001R 1,26,263/- 5 Bidya Lal Urang AERPU1987M 2,77,784/- 6 Sukanta Deb Nath APPPN9706E 50,511/- 7 Rlaz Uddin ABZPU5605M 1,01,016/- 8 Bibha Kumari FMIPS3876R 1,01,010/- 9 Somnath Biswas CPCPB6561C 3,03,030/- 10 Samsuddin AFXPU9620E 1,05,050/- 11 ShahaborAH AHPPA4078C 2,30,182/- 12 Mostufa Uddin AETPU6188C 2,22,223/- 13 Tazul Hussain ADCPH7747N 5,30,303/- Page 4 of 10 I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia. 14 Abdul Baten BFEPB0688F 2,29,848/- 15 Shyam Kumar Yadav ADSPY3470H 4,04,040/- 16 Juber Ahmed BJKPA2475F 75,758/- 17 Abdul Bashit COZPB6667R 60,606/- 18 NikhKamin AKEPK9764D 1,26,26,263/- Total 1,62,77,232/- 10. Further, we find that ld. CIT(A) after considering all the details filed by the assessee, books of accounts maintained by the assessee, audit report and also considered the fact that sub- contractors were paid against work done which was verified by the contract awarding parties i.e. Government organizations and after making payment to these sub-contractors it was beyond the control of the assessee to ensure that such sub-contractors filed the return of income. After considering these details ld. CIT(A) deleted the addition for unexplained expenditure u/s 69C of the Act observing as follows: “In this case, it is noted that the disallowance of sub-contractor charges was made by the AO on account of purported failure of the Appellant to adduce the evidence as would prove the identity, creditworthiness and genuineness of the expense amounting to Rs. 1,62,77,232/- claimed by the Appellant under the sub-contractor charges. On examination of the above evidence furnished by the Appellant in pursuance to the exercise of powers under Section 250(4) of the Act by the undersigned, it is noted as under:
1. 1. That, the Appellant is an Individual engaged in the business of construction in the state of Assam and Arunachal Pradesh and with regard to his construction business he has incurred contract expenses of Rs. 3,49,72,349/- and deducted TDS as applicable.
2. That, out of the aforesaid contract expenses incurred by the Appellant, the AO had disallowed an amount of Rs. 1,62,77,232/- on account of non-furnishing of IT returns by the respective sub- contractors and also on account of failure of the Appellant to adduce the documentary evidence.
I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia.
That, during the course of Appellate proceedings, the Appellant had adduced evidence enumerated above with respect of each of the party/sub-contractor.
That, it is noted that for the above assessment year the Appellant's total contractual receipts/income was Rs. 7,32,60,601/- against which the Appellant's returned net profit before tax amounted to Rs.62,81,541/-. Thus, in this case for the above assessment year, the net profit ratio of the Appellant was 8.57%.
That, in-case the impugned disallowance amounting to Rs. 1,62,77,232/- is considered as income of the Appellant, in that eventuality, the net profit of the Appellant would be Rs. 2,25,58,773/- and the corresponding net profit ratio of the Appellant would be 30.79%.
That, it is noted that the Appellant procures the work through competitive tendering process and the terrain and the geographical location of these contracts awarded to the Appellant are tough and severe.
That, in the case of contractors engaged in civil construction and execution of government contracts, the net profit rate is generally around 7% to 10%. Thus, the net profit rate of 8.57% as returned by the Appellant is well within the industry standards and range.
8. That, it is also evident and clear that neither the AO had referred to any specific Provision of law which casts a responsibility on the tax deductor (i.e. payer) to ensure that the tax deductee (i.e. payee) furnishes his income tax return nor the undersigned could lay his hands onto any such statutory provision. In the absence of any legal impediment requiring the tax deductor to face disallowance on account of non-furnishing of his ITR by the tax deductee, the impugned addition / disallowance would be too severe and harsh.
That, it is also evident that the purported payee to whom sub- contract charges have been paid are residents of Arunachal Pradesh or Assam and many of these would be residing in such places where either income based or area based exemptions have been permitted such as for example under Section 10(26) of the Act. Thus, notwithstanding that there is no legal requirement for ensuring furnishing of ITR by the person from whom TDS has been deducted, there appears to be further reasons for purported non-filing of return by these sub-contractors.
I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia.
That, from the documentary evidence furnished by the Appellant during the course of hearing, it appears that the Appellant had incurred these expenses for the purpose of his business against work done/services rendered by the respective parties.
That, the impugned sub-contract expense incurred by the Appellant was on account of business carried out by the Appellant and this being so, the AO ought to have disallowed the business expenses and thus the action of the AO in invoking the provisions of Section 69C of the Act is at variation. In this regard, the provisions of Section 69C of the Act are reproduced hereunder: "Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." From a bare perusal of the above provisions, the salient features of Section 69C are noted hereunder: Where in any financial year, the assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof OR the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Thus, while in the present case it is not in dispute that the Appellant has incurred the impugned expenditure, it is also not in dispute that the Appellant had incurred the corresponding payments out of the funds available of his business.
I.T.A. No.: 125/GTY/2020 Assessment Year: 2017-18 Shri Paran Jyoti Saikia. Clearly, the action of the AO in first disallowing the above expenses as not incurred and then making an addition under Section 69C of the Act with respect to the source of incurrence of the said expense is akin to blowing hot and cold together. It is noted that in case the contention of the AO that the Appellant had not incurred the impugned expense is to be believed, then the addition under Section 69C cannot be made because for attracting the provisions of section 69C it must be held that the assessee had incurred any unaccounted expenditure which is not recorded in the books of accounts of the assessee. Thus, it is clear that Section 69C could not be applied to the facts of the case as the payments were through banking channels which were duly reflected in the books of accounts of the Appellant and therefore no unexplained expenditure within the meaning of section 69C could be said to have been incurred by the Appellant. In view of the above discussion and after considering the plethora of evidence furnished by the Appellant, the impugned disallowance of Rs. 1,62,77,232/- is, hereby, deleted. Since the present appeal has been adjudicated based on the evidence furnished by the Appellant in pursuance to the exercise of power under Section 250(4) by the undersigned, it is needless to say that, if at any later stage, it is found that any submissions made or documents/evidences filed by the Appellant and the AR of the Appellant during the course of further enquiry in the course of appellate proceedings or otherwise with any other authority are found to be bogus or false or fabricated or concocted, any civil or criminal liability for any loss to the Government revenues or any infraction of any law would lie on the Appellant, the AR of the Appellant and the tax auditor(s) of the Appellant. Subject to the observations and directions, the above ground of appeal is, hereby, allowed.”
11. The above finding of ld. CIT(A) remains uncontroverted by ld. D/R by placing any other contrary material which can prove that the alleged expenditure is bogus. It is pertinent to note that PAN of the sub-contractors stands given by the assessee before the lower authorities. If ld. AO had any doubt then he may have called for the information from the concerned assessing officer who has