M/S. ARYADEEP DEVELOPERS PVT. LTD.,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1(1),, AHMEDABAD

This assessee's appeal for A.Y. 2012-13, arises from order of the CIT(A)-1, Ahmedabad dated 27-02-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".

The assessee has raised following grounds of appeal:- "1.1 The order passed u/s.250 on 27.02.2017 for A. Y.2012-13 by C1T(A)-1 . Ahad upholding, the disallowance of sub-contract payments for land development expanses of Rs. 9,48,000/- made by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence, produced by the appellant with regard to the impugned additions. The Ld. CIT has grievously erred in law and or on facts in not allowing the opportunity to cross-examine the sub-contractors and relying upon the material gathered by AO behind the back of the appellant. 1.3 The Ld. AO has grievously erred in disallowing the expenses of RS. 94,48,000/-without giving sufficient and specific opportunity to the appellant and thereby violating the principles of natural justice. The AO has failed to appreciate that the appellant was prevented by sufficient cause in failing to produce the sub contractors with documents called for. The appellant should therefore be allowed to produce additional evidence during the course of appellate proceedings arid should be admitted. 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the disallowance of the entire sub-contractors payments of Rs. 94,48, 000/- as non-genuine. 2.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has grieviously erred in upholding the disallowance of the entire sub-contractors payments of Rs. 94, 48,000/- as non-genuine. 3.1 Without prejudice to the above and in the alternative, when the contention of Dept was that the land development expenses paid by PACL Ltd were not genuine, both the lower authorities have erred in law and or in facts in bringing to tax the entire contract receipts as income 4.1 Without prejudice to the above and in the alternative, the Ld. CIT(A) ought to have restricted the addition to the reasonable rate of commission for providing accommodation to the contractor. It is therefore prayed that the disallowance of RS. 94,48, 000/- made by the AO and upheld by CIT(A) should be deleted. "

During the course of appellate proceedings before us, the Id. counsel has contested only the grounds no. 3.1 and 4.1. As common issue is involved in both the grounds of appeal, therefore, for the sake of convenience, these grounds of appeal are adjudicated together in the succeeding para.

Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The alternative ground of appeal to make addition of only commission income earned on the accommodating transactions was also rejected by the ld. CIT(A).

During the course of appellate proceedings before us, the ld. counsel has contended that it is unjustified to disallow the entire sub-contract payment of Rs. 94,48,000/- thereby unreasonably taxed entire contract receipt of Rs. 1,02,04,082/-. The ld. counsel has also submitted that assessee company had furnished copies of confirmation of accounts with income tax returns of the five sub-contractors and copies of bill for the cost of services rendered. The ld. counsel has submitted that only net income or commission earned from the transaction be disallowed in the case of the assessee as it is unjustified to tax the whole contract receipt and disallowed the entire expenditure. The Id. counsel placed reliance on the following judicial pronouncements:- (i) Rahee Infratech Ltd. vs. DCIT, IT(SS)A Nos. 05/Ahd/2015 06/Ahd/2015,07/Ahd/2015 dated 4lh July, 2018 (ITAT, Kolkata) (ii) ITA vs. Rupa Promoters Pvt. Ltd., 2641/Ahd/2011, 2642/Ahd/2011 & 2643/Ahd/201 J dated 31-07-2012 (ITAT, New Delhi) (iii) ITO vs. Shri Maheshbhai Tulsibhai Patel, IT A No. 2284/Ahd/2015/SRT & C.O. No. 167/Ahd/20l5/SRT, ITA No. 2285/Ahd/20l5/SRT&C.O. No. 168/Ahd/20l5/SRT, dated 07/09/2018. On Page No 5 M/s. Arydeep Developers Pvt. Ltd. vs. ITO the other hand, Id. departmental representative has supported the order of lower authorities.

We have heard both the sides and perused the material on record. During the course of assessment, the assessing officer observed on the basis of information received in respect of PACL Ltd. from the DDIT Investigation, Gurgaon that PACL Ltd. had claimed fictitious land development expenditure and the assessee M/s. Arydeep Development Pvt. Ltd. has received Rs. 1,02,04,082/- as land development charges from PACL Ltd. In the light of the information received pertaining to fictitious claim of expenditure by the PACL, the assessing officer has called the corresponding detail/document from the assessee to verify the genuineness of land development charges received by the assessee from PACL Ltd. along with the details and documents in respect of sub-contract made by the assessee with different sub-contractors for carrying out the development work. On verification of the details, the assessing officer has noticed that assessee has failed to furnish the complete details of location of land, area of land, survey no. of the land, name of the village where the land development work was taken place to prove the genuineness of the land development expenses paid by the assessee to sub-contractors. The assessing officer has issued notices u/s. 133(6) to all the sub-contractors. During the course of assessment, no sub-contractor has made compliance with the notices issued u/s. 133(6) of the Act by the assessing officer. On the alternative the assessee has failed to produce the sub-contractors along with documentary evidences for examination before the assessing officer. Consequently, the assessing officer has treated the development expenses of Rs. 94,48,000/- claimed as paid to Page No 6 M/s. Arydeep Developers Pvt. Ltd. vs. ITO sub-contractors as bogus expenses and added to the total income of the assessee. During the course of appellate proceedings before ld. CIT(A), the assessee has furnished additional evidences i.e. copies of confirmation account with IT returns of the said five sub-contractors, copies of bills for cost of services etc. The ld. CIT(A) has admitted the additional evidences on the ground of not providing adequate opportunity to the assessee. The assessing officer has examined the subcontractors during the course of remand proceedings by issuing of summon u/s. 131(1) of the Act. In response to the summons issued to Shri Rishi S. Dolakia, one of the contractor has attended and his statement was recorded u/s. 131(1) of the Act. In his statement, the said contractor had admitted that he has not done any land development work for the assessee, M/s. Arydeep Development Pvt. Ltd.. He has further stated that he has just provided accommodation entries for which he has received commission from the assessee. The other four sub-contractors had filed their affidavits and admitted that they have not carried out any land development work for the assessee. They have stated that they have only provided accommodation entries. They have stated that the payment received by cheque from the assessee was returned back to the assessee in cash after deducting their commission for providing accommodation entries. During the course of appellate proceedings before the Id. CIT(A), the assessee has also made alternative plea that the entire contract receipt was not chargeable in the hand of the assessee but only the reasonable commission income should be estimated. However, the Id. CIT(A) has sustained the action of the assessing officer of treating the whole amount of payment made to sub-contractors regarding land development charges to the amount of Rs. 94,48,000/- as bogus and added to the total income of the Page No 7 M/s. Arydeep Developers Pvt. Ltd. vs. ITO