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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: SHRI CHANDRA MOHAN GARG & LAXMI PRASAD SAHU
O R D E R Per C.M.Garg,JM This is an appeal filed by the revenue against the order of the CIT(A),1, Bhubaneswar dated 20.8.2018 for the assessment year 2011-12.
The grievance of the revenue is that the ld CIT(A) was not justified in deleting the addition of Rs.4,12,30,153/- made by the Assessing officer disallowing the sub-contract expenditure claimed by the assessee in the name of M/s.
Makeway Consultancy Pvt Ltd., a separate entity.
The facts in brief are that the assessee, in the relevant assessment year, derives income from erection and commissioning of transmission lines on turnkey basis. During the course of assessment proceedings, the Assessing Officer noticed that the assessee incurs its major expenses as against purchases of raw materials required for the job and carries out the erection and installation job including civil
P a g e 1 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12 works through various sub-contractors. The Assessing Officer required the assessee to produce the list of major expenses including sub-contract expenses and the list of sub-contractors. From the list of sub-contractors, namely; one M/s.
Makeway Consultancy Pvt Ltd., the AO found that the assessee has claimed expenditure of Rs.4,12,30,153/- on account of sub-contract charges payable to M/s, Makeway Consultancy (P) Ltd. The Assessing Officer observed that the entire amount debited in the name of the above company was shown payable in the accounts of the assessee and not a single penny was paid to the above company during the relevant previous year. The AO further found that the sub-contractor M/s. Makeway Consultancy (P) Ltd. had not filed any return of income for the AY 2011-12 voluntarily and in the return for that year filed in response to notice u/s.148, M/s. Makeway Consultancy (P) Ltd. had-shown contract receipts of Rs.5.16 crore in the P&L account and the entire amount had been shown as receivable in the balance sheet. It was also found by the AO that almost the entire purchases reflected in the P&L account of this company had been shown as payable as per the balance sheet. Keeping in view all the above facts, the AO issued a show cause notice to the assessee to explain as to why the claim of expenditure payable to M/s. Makeway Consultancy (P) Ltd, should not be disallowed as bogus expenditure. The assessee through a written submission explained that M/s. Makeway Consultancy (P) Ltd. was one of the sub- contractors of the assessee for execution of civil and erection works at various sites, and that work orders given to the above company would clearly show this fact. It was also explained that because of non-receipt of payments from the principal clients of the assessee company, no payment could be made during the P a g e 2 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12 year to that company for sub-contract works carried out. However, the payment against the bills raised by M/s. Makeway Consultancy (P) Ltd. had been paid in the subsequent financial years. The AO, however, rejected the explanation of the assessee and treated the entire amount payable to M/s. Makeway Consultancy (P)
Ltd. as bogus expenses.
On appeal before the ld CIT(A), the assessee filed a written submission alongwith paper book containing copies of invoices raised by M/s. Makeway Consultancy Pvt Ltd., copies of work orders, copies of certificates showing supply of materials by the sub-contractor at various sites and certain other documents to show that its transaction with M/s. Makeway Consultancy Pvt Ltd., were genuine.
Keeping in view that some of the documents and evidences filed by the assessee as additional evidences, the ld CIT(A) called for a remand report from the Assessing Officer for examination and verification of the same. The AO furnished the remand report dated 17.7.2018, which is as follows:
“ "In this case assessment proceeding under section 143(3) of the Li Act, 1961 was concluded on 31.03.2014 wherein the returned income of Rs.5,78,14,287/- was enhanced to Rs.9,90,44,440/-. The sole ground of addition was the bogus sub-contract expense claimed to be incurred by the assessee company in favour of one of the party with name & style M/s. Makeway Consultancy Pvt. Ltd. of an amount of Rs.4,12,30,153/-.
During the course of assessment proceeding, it was noted by the AO that the alleged sub-contractor M/s. Makeway Consultancy Pvt. Ltd. has not filed its return of income for the A.Y. 2011-12 and only after the issuance of notice U/s 148 of the I.T. Act, 1961, this sub-contractor filed its return of income. It was further noted as well as the same was show caused to the assessee that whereas this alleged sub-contractor has purported to have received contract receipt of Rs.5.16 Crore for the F.Y. 2009-10 relevant to A.Y. 2010-11, the assessee has shown purchase as expenditure and has shown almost entire purchase as sundry creditors and the other expenses claimed in the P&L account are of nominal in nature. Also the entire contract receipt is shown as receivable under the head sundry debtor.
P a g e 3 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12
In the event of non-incurrence of any actual expenditure, it is highly improbable that this alleged sub-contractor has in fact done any work for the assessee company. Therefore the sub-contract works done by this alleged sub- contractor was treated to be bogus and the AO went on to make addition of this amount to the total income of the assessee company while framing order u/s. 143(3) of the I.T. Act, 1961.
During the course of remand proceeding, the A/R of the assessee company submitted a large number of invoices to support the claim that sub-contract work is done by the sub-contractor. Careful perusal of these invoices reveals that these invoices were made for "CONSTRUCTION OF LILO 400 KV DC LINE FROM PGCIL TO STERELITE ENERGY LTD" and such invoices were meant for Empowertrans Pvt. Ltd. at Jharsuguda. Further, such invoices carry truck numbers and meant for .supply of construction materials such as sand & chips. However, from such invoices the name of the sub-contractors couldn't be ascertained. It is worth mentioning that such invoices were not produced during the course of assessment proceeding u/s. 143(3) of the I.T. Act, 1961.
In a nutshell, from such invoices it is not proved that this so called sub- contractor M/s.Makeway Consultancy Pvt. Ltd. has indeed performed any subcontract work for the assessee company."
The Ld CIT(A) send the remand report to the assessee for comments and objections, if any. In response thereto, the assessee submitted comments and objections as under:
i) That the AO disallowed the expenditure because M/s. Makeway Consultancy Pvt Ltd., did not file return of income for the relevant assessment year. ii) The AO concluded the assessment on the basis of mere guess without assigning any documentary evidence. iii) M/s. Makeway Consultancy Pvt Ltd., has filed the return of income and assessment order has been passed on 29.9.2015 estimating the income. iv) The documents referred in the remand report are MRNs (certification of materials supplied by the sub-contractor i.e. M/s. Makeway Consultancy pvt Ltd. v) Makeway Consultancy was awarded to undertake civil works mainly involving sands, chips, steels & cement, etc in the project site (Sterlite Energy Limited Project at Jharsuguda at CPP and IPP under ‘ construction of Lilo 400 KV DC line from PGCIL to Sterlite Energy Ltd. vi) The assessee has submitted leger copies of the sub-contractor for relevant assessment years as well as subsequent assessment years and payments have been routed through banking channel.
P a g e 4 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12 vii) Full proof documentary evidence were available with the assessee.
After considering the assessment order, remand report of the Assessing Officer as well as comments/objections thereon by the assessee, the ld CIT(A) deleted the addition made by the Assessing Officer. Hence, the revenue is in appeal before us.
Ld CIT DR appearing on behalf of the revenue relied on the assessment order.
On the other hand, ld counsel for the assessee supported the order of the ld CIT(A). He submitted that during Appellate proceeding, the Assessee Company submitted written submission along with paper Book containing copies of invoice raised by the sub contractor, copies of work order, copies of certificates showing supply of materials by the sub contractor at various sites, description of the work awarded by the assessee to the sub-contractor and other related documents. It was also submitted that, the said sub contractor was to undertake civil works mainly involving sands, chips, steel and cement etc in the project site named Sterelite Energy Limited Project at Jharsuguda at CPP and IPP under "CONTRUCTION OF LILO 444 KV DC LINE FROM PGCIL TO STERELITE ENERGY LTD". Further, the Assessee Company also submitted ledger copies of the sub-contractor for the relevant year as well as the subsequent years along with bank statements in proof of payment made to the said sub-contractors against the works. The CIT(A) called for remand report from the learned A.O. During remand proceeding, the learned A.O examined tit by bit each evidence adduced by the Assessee. There after submitted remand report and in the remand report,
P a g e 5 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12 the AO has admitted that, these evidences were produced before him and he examined. He submitted that even during the remand proceedings, the assessee has filed all evidences. He, therefore, prayed that the order of the ld CIT(A) be upheld.
We have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal. The moot question for our consideration as to whether the ld CIT(A) was justified in deleting the addition made by the Assessing Officer. We find that against the addition made by the AO, the assessee filed appeal before the ld CIT(A) and furnished some new materials, which were remanded to the Assessing Officer for comments. The Assessing Officer furnished his remand report and considering the same, the ld CIT(A) deleted the addition by observing as under:
“ 4. I have considered the matter with reference to the facts on record. I have also gone through the written submissions of the assessee and the remand report of the AO. In the remand report, the AO, after examining the all the details and documents produced by the assessee before him, has observed that from the invoices produced by the assessee, it is not proved that the so-called sub-contractor M/s. Makeway Consultancy (P) Ltd. had indeed performed any sub-contract work for the assessee- company. Copies of all the documents produced before the AO have been produced before me and I have examined all such documents including the invoices submitted by M/s. Makeway Consultancy (P) Ltd. The documents clearly indicate that M/s. Makeway Consultancy (P) Ltd. had indeed performed works in connection with 'construction of Lilo 400 KV DC Line from PGCIL to Sterelite Energy Ltd.' during the FY 2010-11 and raised bills accordingly. Only because no payments were made to the sub-contractor M/s. Makeway Consultancy (P) Ltd. during the FY 2010-11 and M/s. Makeway Consultancy (P) Ltd. had not made any payments against purchases made for the sub-contract works, it cannot be held that the bills raised by M/s. Makeway Consultancy (P) Ltd. are bogus. It appears that the conclusion of the AO in the assessment order is entirely based on suspicion and not on evidence. It is settled law that suspicion, however, strong cannot take the place of evidence. The AO has also not brought any evidence on record to show that the work for which sub-contract was given
P a g e 6 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12 to M/s. Makeway Consultancy (P) Ltd. was not actually done during the FY 2010-11 and bogus bills were raised in the name of the assessee by M/s. Makeway Consultancy (P) Ltd. Moreover, the observation of the AO in the remand report that the invoices submitted by the assessee carry truck numbers and meant for supply of construction materials such as sand and chips cannot be an evidence in support of the conclusion the AO since they are MRNs (certificate of materials supplied by the sub- contractor) on the site with description of materials, quantity, truck numbers, date of supply and signature of the staff delivering the materials for the sub/contractor along wit, countersignature of the staff of the assessee company. It is also seen that M/s Makeway Consultancy (P) Ltd. was given sub-contract mainly for civil work; which require building materials such as sand, chips, steel, cement etc. From the materials on record, it is seen that M/s, Makeway Consultancy (P) Ltd, has filed return of income for the AY 2011-12 in response to notice u/s.148 issued by the AO and scrutiny assessment in the case of that company has been completed by the same AO on 29.9.2015 accepting the receipts disclosed by that company at Rs.4,23,00,063/- which include the impugned amount of Rs.4,12,30,153/- receivable from the assessee company. Of course, rejecting the book profit disclosed by M/s. Makeway Consultancy (P) Ltd. in the return, the AO has estimated the profit @8%. In that assessment order, the AO has not given any finding that M/s. Makeway Consultancy (P) Ltd. has raised bogus bills in the name of the assessee without doing any work for them. On the facts of the case, there is no justification for treating the sub-contract amount payable to M/s. Makeway Consultancy (P) Ltd. as bogus expenditure. Hence, the addition of Rs.4,12,30,153/- is deleted.”
As is evident from the above observation of the CIT(A), the assessee has given explanation, which has not been found to be untrue or false but has been rejected only on the basis of preponderances of probabilities. In this case, M/s.
Makeway Consultancy Pvt Ltd., was given sub-contract mainly for civil works, which require building materials such as sand, chips, steel, cement, etc. It is also not disputed that M/s. Makeway Consultancy Pvt Ltd., has filed the return of income for the relevant assessment year and assessment has been completed by the AO accepting the receipts disclosed by the company at Rs.4,23,00,063/- which include Rs.4,12,30,153/- as receivable from the assessee company. We also find that the AO has not given any finding that M/s. Makeway Consultancy Pvt Ltd. has P a g e 7 | 8 98/CTK/201 8 Assessm ent Y ear : 20 11- 12 not raised bogus bills in the name of the assessee company without doing any work for them. By accepting the contract receipt disclosed by the sub-contractor and by giving credit of tax deducted by the assessee company, the AO has accepted the fact that the sub-contractor do exists and executed the work, for which the payments though could not be made in this assessment year were paid in the subsequent assessment years. Therefore, the assessee company cannot be blamed and its genuine expenses cannot be disallowed on the ground that why the sub-contractor has not filed return of income voluntarily. Before us also no specific error in the order of the CIT(A) could be pointed out by ld D.R. Therefore, we do not find any good reason to interfere with the order of the CIT(A), which is hereby confirmed and ground of appeal of the revenue is rejected.
In the result, appeal of the revenue is dismissed.
Order pronounced on 16 /01/2020.
Sd/- sd/- (Laxmi Prasad Sahu) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 16 /01/2020 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : DCIT, Corporate Circle-1(1), Bhubaneswar The Respondent. M/s Empowertrans Pvt Ltd.,1st floor, 2. Kokila Residency, Ananta Vihar, Pokhariput, Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1 , Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//