ACIT, CHENNAI vs. SPL INFRASTRUCTURE PVT. LTD., CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by Revenue for Assessment Year (AY) 2012-13 arises out of the order of learned Commissioner of Income Tax (Appeals)-15, Chennai [CIT(A)], Appeal No.55/2018-19/CIT(A)-15, dated 28-02-2019 in the matter of assessment framed by learned Assessing Officer (AO) u/s 143(3) r.w.s. 254 of the Act on 08.11.2018. The grounds taken by the revenue read as under: -

1. 1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.

As evident from grounds of appeal

, the sole subject matter of appeal is disallowance of sub-contract expenses incurred by the assessee. It is also evident that Ld. CIT(A) has followed the order of Tribunal for AY 2010-11. The assessee has filed cross-objection which is delayed by 111 days. The condonation of the same has been sought by the assessee on the strength of condonation petition which is accompanied by the affidavit of the managing director of the assessee-company. It has been submitted that relevant papers got mixed up with other papers and delay took place. Considering the content of petition / affidavit and considering the period of delay, we condone the delay and admit the cross-objection for adjudication on merits.

2. The Ld. AR placed on record comparative statement of details of sub-contractor to show that various payees in AYs 2010-11 and in this year are substantially identical as follows: - Name Relationship with MD AY 2010-11 AY 2012-13 SP Thyagarajan Brother 3495180 799010 SP Veerappan Brother 3570860 5238838 L. Subramanian Brother 3534861 3945328 VR Valliammal Brother’s wife 3456337 3683190 S. Subramaniam Father 3592453 2444164 L. Shanti Brother’s wife 3769708 1733335 T. Lakshmi Brother’s wife 3741301 450933 S. Lakshmanan Cousin Brother Unrelated Parties 18947510 Total disallowed 44108210 27381984 Total Sub contract 60900000 223349691 Expenses Proportion of 72.42% 12.3% subcontract expenses of related parties The Ld. AR also placed on record the decision of Hon’ble High Court of Madras in TCA No.766 of 2017 dated 07.08.2020 dismissing the appeal of the revenue against order of Tribunal for AY 2010-11. Having heard rival submissions, our adjudication to the subject matter of appeal would be as under. Assessment Proceedings 3.1 This is second round of appeal since the matter of disallowance of sub-contract expenditure, in the first round, was set aside by Tribunal to the file of Ld. AO for fresh adjudication. The assessee being resident corporate assessee is stated to be engaged in laying highways. Pursuant to the directions of the Tribunal, Ld. AO tabulated the difference in facts of AY 2010-11 and AY 2012-13 in the assessment order and arrived at a conclusion that facts in both the years were different. In the present year, the expenses were claimed in the name of the close relatives of the Managing Director of assessee-company in comparison to AY 2010- 11 wherein payments were made to third parties. 3.2 The assessee was subjected to survey u/s 133A on 08.01.2014 wherein discrepancies were found in the expense vouchers. The assessee declared net profit of 5% for AYs 2005-06 to 2007-08 but the net profit rate of this year was 3%. The assessee could not produce confirmation of sundry creditors and sub- contractors. The sub-contractor expenses were in the nature of gravel purchase, labour payment, machinery hire charges, metal purchase, metal transport, site clearance etc. It was noted that majority of the work was undertaken by family members / relatives of directors of the assessee company. During survey Shri L.Subramanian, who was one of the sub-contractor, failed to establish that he had executed sub-contract work on behalf of the assessee. Similar was the position of other sub-contractors as enumerated in the assessment order. The payment to these persons was being made on the basis of measurement book (m book) which was found to be incomplete. Therefore, the confirmation letters filed by the assessee in support of expenses were held to be not acceptable. In the above background, Ld. AO noted that out of total sub-contract expenses of Rs.2233.49 Lacs, the amount paid to related parties was Rs.273.81 Lacs which is 12.3% of total sub-contract. This amount of Rs.273.81 Lacs was held to be non-genuine and disallowed by Ld. AO. However, allowance of 10% was given while making the disallowance. Finally, the net disallowance of Rs.246.43 Lacs was added to the income of the assessee.

Appellate Proceedings 4.1 The Ld. CIT(A) noted that in AY 2010-11, similar disallowance was made by Ld. AO which was restricted to 10% u/s 40A(2)(b) in the first appellate order. The department appeal against the same was dismissed by the Tribunal. 4.2 The Ld. CIT(A) further noted that in this year, the assessee complied with the directions of the Tribunal as given in the first round and proved that the sub-contract payments were genuine. The sub- contractors declared the receipts in their respective return of income. TDS compliance was made by the assessee. The assessee furnished complete account and details of work executed by the sub-contractors. The net profit declared in this year was much more than the profit declared in preceding two years. Considering the same and in view of the decision of Tribunal for AY 2010-11, Ld. AO was directed to restrict the disallowance to 10% of sub-contracts expenses of Rs.273.81 Lacs. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 5. Upon careful consideration of material facts and tabulation as placed by Ld. AR before us (extracted in para-2), we find that the related parties in AY 2010-11 and in this year are quite similar. The dispute is also similar i.e. genuineness of sub-contract expenses claimed by the assessee. The undisputed position that emerges is that in the set aside proceedings, the assessee has complied with the directions of the Tribunal and furnished details of sub-contract expenses paid to related parties. The sub-contractors have declared the receipts in their respective return of income. TDS compliance has been made by the assessee. The assessee furnished complete account and details of work executed by the sub-contractors. The net profit declared in this year is much more than the profit declared in preceding two years. Considering the same, the principal of estimation, as applied by Tribunal in AY 2010-11, shall have equal application to the facts of this year also. Therefore, the adjudication of Ld. CIT(A) could not be faulted with. By confirming the same, we dismiss the appeal of the revenue. For the same very reason, the cross-objection filed by the assessee would also be dismissed since in the cross- objection, the assessee is contesting the disallowance of 10% as estimated by Ld. CIT(A).