BHUPAL INFRASTRUCTURE PRIVATE LIMITED,HYDERABAD vs. ACIT., CENTRAL CIRCLE -1(2), HYDERABAD

The next issue that came up for our consideration from Ground No. 4 of the assessee’s appeal is addition towards unexplained expenditure of Rs. 11,90,000/-. During the course of search proceedings, hard disk vide A/BIPL/OFF/04 was seized from the premises of the assessee. Excel sheets stored in the above hard disk were taken printouts and examined. It is noticed from the excel sheets that the assessee has made certain cash payments for repairing the lorry, JCB, and Hydra, and also payment for purchase of JCB, Crane and Truck. The A.O. called upon the assessee to explain the transactions with respect to books of account maintained by the assessee. Since the assessee failed to prove the above cash payments were recorded in the regular books of account maintained by the assessee, the A.O. made addition of Rs. 11,90,000/- as unexplained expenditure under Section 69C of the Act and brought to tax under Section 115BBE of the Act. On appeal, the Ld. CIT(A) sustained the addition made by the A.O.

The learned counsel for the assessee submitted that, the Ld. CIT(A) erred in sustaining the addition of unexplained expenditure of Rs. 11,90,000/- u/s 69C of the Act, on the basis of printout taken from the hard disk seized during the course of the search in the premises of the assessee marked as Annexure- A/BIPL/OFF/04, even though said document does not show any payment in cash to Shri Yadavaa Reddy for the purpose of repairing three vehicles and also cash payment for repair expenses of new purchased vehicles like Lorry, JCB, etc and Crane. The learned counsel for the assessee further submitted that, the A.O. also failed to bring on record any evidences to correlate the seized documents and relevant expenditure which is evident from the sum of Rs. 10,00,000/- shown as cash payment for purchase of new vehicles. Even though the above expenditure is capital in nature, the A.O. made addition u/s 69C of the Act. Therefore, he submitted that, the addition made by the A.O. should be deleted.

The Learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the documents found during the course of search show certain cash payments for repair of vehicles and purchase of new vehicles. The assessee could not explain the said cash payments with reference to the books of account maintained for the relevant assessment year. Since the expenditure incurred in cash is outside the books of account and also unexplained, the A.O. has rightly treated said expenditure under Section 69C of the Act. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the addition made by the A.O. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered relevant seized material vide Annexure A/BIPL/OFF/04. The A.O. made addition of Rs. 11,90,000/- under Section 69C of the Act, on the basis of printouts taken from the hard disk seized during the course of search in the premises of the assessee marked as Annexure- A/BIPL/OFF/04. The assessee has paid an amount of Rs.1,50,000/- to Shri Yadava Reddy for the purpose of repairing three vehicles. The A.O. further noticed that, the assessee has paid sum of Rs.40,000/- for repairs of new purchased vehicles like Lorry, JCB etc. Similarly, the A.O. noticed that, the assessee had paid sum of Rs.10,00,000/- to Khajamoinali Khan for purchase of 3 vehicles. Although, the A.O. refers to seized material, but the assessee claims that, the seized material referred to by the A.O. is not emanating from the documents found during the course of search. The assessee further claimed that, in the said seized material, there is no evidence for payment to Yadava Reddy for the purpose of repairing vehicles and also to Kajamoinali Khan for purchase of three vehicles. We find that, although the A.O. referred to the payment made in cash for the purpose of repairs and purchase of new vehicles, but failed to record any details as to when the said payment has been made by the assessee company. There is no corroborative evidence other than the printout taken from hard disk. Since the A.O. could not link the seized material to the alleged expenditure, in our considered view, the addition made by the A.O. cannot be sustained. The Ld. CIT(A), without properly appreciating the relevant facts, sustained the addition.

1. Therefore, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the addition of Rs. 11,90,000/- made under Section 69C of the Act.

The next issue that came up for our consideration from Ground No. 5 of the assessee’s appeal is disallowance of Rs. 2,91,31,153/- under Section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of TDS on subcontract works. The A.O. disallowed Rs. 2,91,31,153/- @ 30% of the expenditure incurred towards subcontract payment to Bathini Infra of Rs. 5,47,454/-, Rs.4,13,765/- incurred towards subcontract payment to Shankarapally, Rs. 2,76,00,000/- incurred towards subcontractor works, Rs. 32,420/- incurred towards Freight and Forwarding charges, Rs. 5,06,515/- incurred towards machinery hire charges, and Rs. 30,000/- incurred towards audit fee. The A.O. has referred to the payments made by the assessee without deducting TDS under the respective provisions of the Act in para 6.7 of his order and claimed that the assessee has made the above payments without deducting TDS applicable under the law and therefore disallowed 30% of the said expenditure and made additions of Rs. 2,91,31,153/- u/s 40(a)(ia) of the Act.

The learned counsel for the assessee, referring to the additions made by the A.O. towards subcontract payments to Bathini Infra, submitted that, the above payments are opening balance brought forward from the previous Financial Year 2016-17, on which the A.O. had already made disallowance under Section 40(a)(ia) of the Act. Therefore, once again making disallowance of the said amount for the year under consideration is amounting to double addition, which is not permissible under the law. The learned counsel for the assessee further submitted that, in respect of subcontract works of Rs. 9,20,00,000/-, on which the A.O. made 30% disallowance of Rs. 2,76,00,000/-, the assessee had passed a duplicate entry in the books of account by increasing the income and corresponding expenditure to show better financial results for the purpose of showing increased turnover to the bank. However, the said subcontract works do not relate to any payment to the party for executing the works. Similarly, the assessee increased the revenue under the head Hindupur Project, Medak Earth Work and Work in Progress. Iin fact, it is not the actual payment made by the assessee to any party for application of provisions of Section 194C of the Act. Although, these facts have been explained to the A.O., but the A.O. simply made 30% disallowance at the expenditures on the basis of documents found during the course of search, being the financial statements of the assessee.

The learned counsel for the assessee, further referring to disallowance of freight and forwarding charges, machinery hire charges and audit fee, submitted that, the assessee has incurred the above expenditure and the total sum paid to a single person does not exceed the monetary limit specified under Section 194C/194J of the Act for deduction of TDS and therefore, the question of disallowance of the said payments under Section 40(a)(ia) of the Act is not correct. Therefore, he submitted that, the additions made by the A.O. should be deleted.

The learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, as per the documents found during the course of search, there is a clear case of non-deduction of TDS under Section 194C of the Act, for various payments made by the assessee, including the payments made for subcontract works, payment of freight and forwarding charges, machinery hire charges, and audit fee. Although the assessee claims that, the subcontract works amounting to Rs. 9.20 crore is a dummy entry and the same has been subsequently reversed, but going by the evidence available on record, there is no dispute with regard to the fact that, the assessee has incurred expenditure for subcontract payments which attract provisions under Section 194C of the Act. Since the assessee has failed to deduct TDS on various payments, the A.O. has rightly disallowed 30% of the said expenditure under Section 40(a)(ia) of the Act. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the additions made by the A.O. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The A.O. has disallowed sum of Rs. 2,91,30,153/- @ 30% of Rs. 9,71,00,510/- towards various expenditure incurred for subcontract payments, freight and forwarding charges, machinery hire charges, and audit fee. The A.O. has disallowed 30% of Rs. 18,24,848/-, being subcontract payments made to Bathini Infra on the ground that, the assessee has not deducted TDS on the said payment. Similarly, the A.O. has made 30% disallowance on sum of Rs. 13,79,215/-, paid to subcontractor Shankarapally. It was the argument of the learned counsel for the assessee that, the above two amounts represent the outstanding trade payables to the subcontractors towards expenditure incurred in the earlier financial years and therefore, the same cannot be considered for disallowance under Section 40(a)(ia) of the Act, for non-deduction of TDS. We find from the ledger account filed by the assessee, which is available in page number 106 of A1/BIPL/OFF/02, and as per the said ledger account, the assessee had not incurred any expenditure under the head subcontract payments to Bathini Infra, which is evident from the relevant ledger account where the assessee has made payments for opening balance of the subcontractor.

Similarly, in respect of subcontract payment to Shankarapally during the financial year, there is no expenditure incurred towards payment made to subcontractors and whatever payments made by the assessee are towards outstanding balance payable to the above said subcontractors. Since the A.O. has already made disallowance towards expenditure incurred for making payment to subcontractors, Bathini Infra and Shankarapally for the Financial Year 2016-17 relevant for the A.Y. 2017-18, and the same has been upheld by us, once again making disallowance on the opening trade payables to the above parties under Section 40(a)(ia) of the Act, is incorrect. Since the payments made to the above two parties are only trade payables and not actual expenditure incurred by the assessee towards subcontract payments, in our considered view, the above two payments cannot be disallowed under Section 40(a)(ia) of the Income-tax Act, 1961 for non- deduction of TDS under Section 194C of the Act. Therefore, we direct the A.O. to delete the additions made towards disallowance of subcontract payments to Bathini Infra and Shankarapally under Section 40(a)(ia) of the Act for Rs.5,47,454/- and Rs.4,13,765/-, respectively.

Insofar as the disallowance of sum of Rs. 2,76,00,000/- @ 30% of subcontract works for Rs. 9,20,00,000/-, we find that, the assessee has increased revenue and also expenditure by passing dummy entries for Rs. 9,20,00,000/- in the books of account without there being any actual payment to any party for carrying out the works, which is evident from the relevant seized document Annexure A/BIPL/OFF/02, which is available at page numbers 183, 135, 128, 101, 112, and 113 of the seized documents. The assessee has increased the subcontract works under the head Hindupur Project, Medak Earthwork Project and the subcontract works, with a corresponding increase in the revenue under the heads Hindupur Project, Medak Earthwork and Work in Progress. Upon perusal of the relevant ledger accounts, we find that, the assessee has passed dummy entry in the books of account towards revenue and expenditure without there being any actual payment to any party for application of provisions of Section 194C of the Act. Since the expenditure shown under the head subcontract works for Rs. 9,20,00,000/- is nothing but a dummy entry or fictitious entry in the books of account of the assessee without there being any actual payment to any person for carrying out the works, in our considered view, the above payment cannot be subject to TDS under Section 194C of the Act. Since the above payment does not fall under the provisions of Section 194C of the Act, in our considered view, the A.O. has erred in disallowing 30% of the amount under Section 40(a)(ia) of the Act. Therefore, we direct the A.O. to delete the addition of Rs. 2,76,00,000/- made towards 30% disallowance of subcontract works for Rs. 9,20,00,000/- under Section 40(a)(ia) of the Act.

Coming back to the remaining expenditure incurred under the head freight and forwarding charges, machinery hire charges, and audit fee. There is no dispute with regard to the fact that, the assessee has incurred a sum of Rs. 1,08,068/- towards freight and forwarding charges. Similarly, the assessee has incurred a sum of Rs. 16,88,379/- towards machinery hire charges and also paid a sum of Rs. 1,00,000/- towards audit fee. It is also an admitted fact that, for the above said expenditure, the assessee has not deducted TDS under Section 194C of the Act in respect of freight and forwarding charges. Although the assessee claims that, the expenditure incurred under the above heads do not exceed the monetary limit specified under Section 194C of the Act, but failed to file any evidences. Since there is no dispute with regard to non- deduction of TDS under Section 194C of the Act in respect of freight and forwarding charges, in our considered view, there is no error in the reasons given by the A.O. to disallow 30% of the said expenditure under Section 40(a)(ia) of the Act.

In respect of machinery hire charges of Rs. 16,88,379/-, the assessee claims that, it has deducted TDS of Rs. 1,28,206/- and the same has been remitted to the Government account on or before the due date. We find that, the assessee has furnished ledger account of TDS paid on machinery hire charges, and as per the ledger account, which is available at page 105 of the assessee’s paper book, the assessee has deducted TDS of Rs. 1,28,206/- and also paid on 05.05.2017, 06.06.2017, and 07.07.2017. Since the assessee has deducted TDS and paid to the Central Government account in respect of the above expenditure, in our considered view, the addition made by the A.O. @ 30% of Rs. 16,88,379/- cannot be upheld. Thus, we direct the A.O. to delete the addition of Rs. 5,06,514/- made towards machinery hire charges under Section 40(a)(ia) of the Act.

Similarly, in respect of audit fee, there is no dispute with regard to the fact that, the assessee has not deducted TDS on said payment. The only argument of the learned counsel for the assessee was that, the auditor has furnished return of income for the relevant assessment years and also paid taxes on the income, however, the assessee failed to furnish the ITR filed by the auditor to prove his contentions. Since the assessee has not deducted TDS on audit fee under Section 194J of the Act, and also failed to file relevant ITR filed by the auditor, in our considered view, the addition made by the A.O. towards disallowance of audit fee under Section 40(a)(ia) of the Act should be upheld. Therefore, we uphold the addition of Rs. 30,000/- made towards disallowance of audit fee under Section 40(a)(ia) of the Act.

To sum up, out of the total disallowance of Rs. 2,91,30,153/- made under Section 40(a)(ia) of the Act, the assessee gets relief of Rs. 2,90,67,733/- and the balance amount of Rs. 62,420/- is upheld.

In the result, the appeal of the assessee for A.Y.2018-19 is partly allowed.

A.Y. 2019-20 43. The grounds raised by the assessee read as under : “1. The order of the Appellate Commissioner is contrary to law, facts and circumstances of the case.

Coming back to Assessment Year 2019-20, the first issue that came up for our consideration from Ground No. 2 of the assessee’s appeal is addition of Rs. 4,00,000/- under Section 69A of the Income-tax Act, 1961 towards cash found and seized during the course of search under Section 132 of the Act. During the course of search on 27.09.2018, cash of Rs. 4,00,000/-, where the found and seized in the premises of the assessee. The assessee was asked to furnish the source of cash found during the course of search. The assessee did not furnish any explanation with regard to the source of cash found and seized during the course of search. Therefore, the A.O. made addition of Rs. 4,00,000/- under Section 69A of the Act as unexplained money. On appeal, the Ld. CIT(A) confirmed the addition.

The learned counsel for the assessee submitted that, the Ld. CIT(A) erred in sustaining the addition of Rs. 4,00,000/- made under Section 69A of the Act, towards cash found during the course of search, without appreciating the fact that, as on the date of search, the cash book of the assessee was not updated, and further, the assessee had sufficient cash balance as on the date of search, which is evident from the relevant cash book prepared by the assessee. The learned counsel for the assessee further submitted that, the Department found and seized cash of Rs. 4,00,000/-, whereas the assessee has drawn cash of Rs. 49,24,000/- during the period from 01.04.2018 to 27.09.2018 on various dates and the same has not been updated in the cash book. Since the updated cash book shows sufficient cash balance to explain cash found during the course of search, the A.O. ought not to have made addition towards cash found during the course of search under Section 69A of the Act. The Ld. CIT(A), without appreciating the relevant facts, simply sustained the addition made by the A.O. Therefore, he submitted that, the addition made by the A.O. should be deleted.

The learned senior A.R. for the Revenue, on the other hand, submitted that, the assessee could not explain the cash found during the course of search with the relevant cash book maintained for the assessment year under consideration. Although the assessee claims that, as per the updated cash book, sufficient cash balance is available, but fact remains that, the said cash book was prepared after the date of search and as such, the authenticity of the cash book cannot be accepted. Since the assessee could not explain the source of cash found during the course of search, the A.O. has rightly made addition of Rs. 4,00,000/- under Section 69A of the Act. Therefore, he submitted that, the addition made by the A.O. should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, during the course of search, sum of Rs. 4,00,000/- was found and seized from the premises of the assessee. The assessee explained the source for the cash found during the course of search out of cash withdrawals made from bank accounts from 01.04.2018 to 27.09.2018 and claimed that, the assessee has withdrawn cash from bank on various dates and the same has not been brought on record as on the date of search. We find that, the search was conducted on 27.09.2018 and at the time of search, the financial year was not ended for closure of books of account of the assessee. Since the financial year was not ended at the time of search and the assessee claims that, the cash book was not updated as on the date of search, in our considered view, the explanation of the assessee with regard to cash found during the course of search out of cash withdrawals from bank account needs to be accepted. As the assessee had sufficient cash withdrawals from the very same bank account on various dates and further, as per the updated cash book, sufficient cash balance of Rs. 5,01,565/- was available, which is more than the amount of cash found during the course of search, in our considered view, the additions made by the A.O. towards cash found during the course of search cannot be sustained. The Ld. CIT(A), without appreciating the relevant facts, simply sustained the addition made by the A.O. Therefore, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the addition of Rs. 4,00,000/- under Section 69A of the Act.

The next issue that came up for our consideration from Ground No. 3 of the assessee’s appeal is the addition of Rs. 44,24,840/- made under Section 40(a)(ia) of the Act for non- deduction of TDS.

During the course of assessment proceedings, the A.O. called upon the assessee to furnish details of TDS deducted on various expenses debited to the Profit and Loss Account. Since the assessee failed to furnish relevant details of TDS deducted on various expenses, the A.O. made addition of Rs. 2,23,33,770/- @ 30% of subcontract works of Rs. 7,44,45,893/- and added the same under Section 40(a)(ia) of the Act.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A).

Before the Ld. CIT(A), the assessee submitted relevant details and argued that the A.O. had disallowed 30% of subcontract works of Rs. 7,44,45,893/- on the basis of trade payables shown in the Balance Sheet without considering the actual expenditure debited to the Profit and Loss Account. The assessee further contended that, the subcontract expenses considered by the A.O. on the basis of seized material includes payments made for purchase of sand, cement, steel and other materials, etc.

The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of the relevant arguments of the assessee, directed the A.O. to consider only the expenditure debited to the Profit and Loss Account for the purpose of disallowance u/s 40(a)(ia) of the Act for non-deduction of TDS. The A.O. has passed the order giving effect to the order of the Ld. CIT(A) and out of the total disallowance of Rs. 2,23,33,770/-, finally restricted the addition to the extent of Rs. 44,24,840/- @ 30% of site expenses of Rs. 1,47,49,468/- for non-deduction of TDS u/s 40(a)(ia) of the Act.

The learned counsel for the assessee submitted that, the Ld. CIT(A) erred in sustaining the addition of Rs. 44,24,840/- under Section 40(a)(ia) of the Act, without appreciating the fact that, the above payment includes payments made for purchase of sand, cement, steel and other materials at site and also payments made to daily labour at work site and the same is outside the purview of provisions of Section 194C of the Act. The learned counsel for the assessee further referring to various details submitted that, the above payment includes payment made for purchase of materials. However, the A.O., without considering the relevant facts, simply made the addition of Rs. 44,24,840/- under Section 40(a)(ia) of the Act for non-deduction of TDS. Therefore, he submitted that, the addition made by the A.O. should be deleted.

The learned Senior A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A) submitted that, the A.O. has passed the order giving effect to the order of the Ld. CIT(A) and deleted the additions made by the A.O. wherever the assessee could furnish details of expenses and TDS deducted thereon. Further, in respect of expenditure incurred without deduction of TDS, the A.O. has rightly disallowed the expenditure under Section 40(a)(ia) of the Act. Therefore, he submitted that, there is no merit in the arguments of the learned counsel for the assessee and thus, the addition made by the A.O. should be sustained.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The A.O. had made addition of Rs. 44,24,840/- under Section 40(a)(ia) of the Act, being 30% of site expenses of Rs. 1,47,49,468/- debited to the Profit and Loss Account on the ground that, the assessee failed to deduct TDS on the said expenditure. It was the argument of the learned counsel for the assessee that, the expenditure incurred under the head ‘site expenses’ is nothing but payment made for purchase of sand, cement, steel and other materials at work site and also payments made to daily labour at the work site and the same is outside the scope of provisions of Section 194C of the Act. We find that, the Ld. CIT(A) has given directions to the A.O. to verify the disallowance made under Section 40(a)(ia) of the Act towards subcontract expenses on the claim that, the above expenditure includes outstanding payable to the subcontractors and also purchase of materials. Further, during the course of proceedings giving effect to the order of the Ld. CIT(A), the A.O. verified the details furnished by the assessee and has allowed relief wherever the assessee has furnished relevant details of expenditure with TDS particulars. However, wherever the assessee could not furnish relevant details, the A.O. has sustained the addition of Rs. 44,24,840/- @ 30% of site expenses of Rs. 1,47,49,468/- on the ground that, the assessee could not furnish relevant evidence of TDS deducted on said expenditure. It was the only explanation of the assessee that the above expenditure relates to payment made for purchase of sand, steel, cement and other materials. Although the assessee claims that, the above expenditure relates to purchase of materials and payments made to labour, but failed to furnish relevant details of purchases with supporting bills and vouchers. Since the assessee has failed to furnish the details of purchase of materials and payments made to daily labour at worksites, in our considered view, the disallowance of site expenses under Section 40(a)(ia) of the Act @ 30% of expenditure for non-deduction of TDS should be upheld. Therefore, we are inclined to uphold the order of the Ld. CIT(A) on this issue and sustain additions made by the A.O. towards disallowance of ‘site expenses’ of Rs. 44,24,840/- under Section 40(a)(ia) of the Act for non-deduction of TDS under Section 194C of the Act.

In the result, the appeal of the assessee for A.Y. 2019-20 is partly allowed.

To sum up, all the appeals of assessee are partly allowed.