TURBOMACHINERY ENGINEERING INDUSTRIES LTD., HYD,HYDERABAD vs. DCIT, CIRCLE-2(3), HYDERABAD

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ITA 939/HYD/2016Status: DisposedITAT Hyderabad21 March 2022AY 2011-1214 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee's appeal is dismissed. The Tribunal found merit in the Revenue's contentions. It acknowledged that the assessee claimed the payment to M/s. Euphoria Commerce Pvt. Ltd. as subcontractor expenses and deducted TDS. However, the Tribunal noted that these payments were found to be bogus by the CIT(A). The Tribunal concluded that the assessee had merely passed accommodation entries without proving that the sub-contracts were awarded to the payee. The Tribunal relied on the Supreme Court's decisions in CIT Vs. Durga Prasad More and Sumati Dayal Vs. CIT, emphasizing that evidence in income tax proceedings must be appreciated in light of human probabilities. Furthermore, the Tribunal noted that the issue also involved admitted additions, as discussed in the CIT(A)'s order. Consequently, the Tribunal affirmed the actions of the lower authorities. No specific issue was left undecided.

What were the facts?

The assessee, M/s. Turbomachinery Engineering Industries Limited, filed an appeal for Assessment Year 2011-12 against the order of the CIT(A)-2, Hyderabad, which upheld the Assessing Officer's (AO) disallowance of Rs. 2,23,69,143/- paid to a subcontractor, M/s. Euphoria Commerce Pvt. Ltd. The AO disallowed the amount, viewing the transaction as not genuine. The AO's investigation, prompted by information from the ITO, Ward-9(2), Kolkata, revealed that M/s. Euphoria Commerce Pvt. Ltd. had not recognized the sum as revenue, stating no work was performed. The assessee initially claimed the payment was for subcontract work, later stating it was an advance, and then that bills and agreements could not be traced. The CIT(A) found the assessee's arguments general and lacking evidence, noting M/s. Euphoria Commerce Pvt. Ltd.'s confirmation of no work done and the assessee's prior letter to the Kolkata ITO characterizing the payment as an advance.

What were the issues?

1. Whether the disallowance of Rs. 2,23,69,143/- paid to M/s. Euphoria Commerce Pvt. Ltd. as subcontractor expenses is justified, considering the assessee's claim that all details and TDS were provided and that the amount is not the assessee's income under the IT Act (turning on the genuineness of the expenditure and the provisions related to unexplained expenditure, potentially Section 69C). Assessee's Contentions: - The assessee provided all details of payments made to the subcontractor and deducted TDS. - The amount should not be treated as the assessee's income. - The assessee entered into back-to-back contracts, retaining a margin, and payments were made through banking channels with TDS deducted and filed. - The AO erred in invoking Section 69C as there was no factual finding of expenditure incurred, relying on surmises and presumptions. - The assessee claimed that the AO's observation regarding service charges was factually incorrect and based on presumptions. Revenue's Contentions: - The payments to M/s. Euphoria Commerce Pvt. Ltd. were bogus. - The assessee failed to prove the genuineness of the sub-contracts and the execution of work by the subcontractor. - The subcontractor confirmed no work was performed. - The assessee's prior letter to the Kolkata ITO stated the payment was an advance and no contract was executed in FY 2010-11. - The Tribunal affirmed the lower authorities' action, citing the CIT(A)'s detailed discussion and the admitted nature of additions.

Which sections of the Income-tax Act were involved?

Section 131,Section 194C,Section 69C

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD

Before: SHRI A.MOHAN ALANKAMONY & SHRI S.S.GODARA

This assessee’s appeal for AY.2011-12 arises from the CIT(A)-2, Hyderabad’s order dated 28-01-2016 passed in case No.0177/2014-15, involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]. Case called twice. None appears at the assessee’s behest. It is accordingly proceeded ex-parte.

2.

The assessee pleads the following substantive grounds in the instant appeal:

“1. The order of the learned Commissioner of Income Tax (Appeals), Hyderabad, is against the law, weight of evidence and probabilities of case.

2. The learned Commissioner of Income Tax (Appeals) erred in confirming the order of the Assessing Officer, wherein, the amount paid to subcontractor amounting to Rs.2,23,69,143/- is disallowed.

3.

The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the assessee produced all the details of payments made to the subcontractor and also deducted TDS on such payment, therefore, should have deleted the addition made on account of payment made to subcontractor amounting to Rs.2,23,69,143/-.

4.

The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the amount of Rs.2,23,69,143/- is not the income of the assessee under the provisions of the IT Act.

5. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary”.

3. Learned departmental representative next takes us to the CIT(A)’s lower appellate discussion affirming the impugned disallowance of sub-contractor expenses as well as the corresponding service charges as under:

4. We have given our thoughtful consideration to Revenue’s vehement contentions and find due merit therein. It is admittedly a case wherein the assessee had claimed the impugned sub-contractor works payment to M/s. Euphoria Commerce Pvt. Ltd., followed by TDS deduction thereupon as well. The fact however remains that the said payments have turned out to be bogus in nature as per the CIT(A)’s detailed discussion. It is sufficiently clear that the assessee had merely passed accommodation entry amount without having proved the impugned sub-contracts to have been awarded to the payee herein. We thus quote hon’ble apex court’s landmark decision in CIT Vs. Durga Prasad More (1972) [82 ITR 540] (SC) and Sumati Dayal Vs. CIT (1995) [214 ITR 801] (SC) that the evidence filed in income tax proceedings has to be appreciated by removing all blinkers in light of human probabilities.

Coupled with this, it is already an instance of admitted additions as discussed in the CIT(A)’s order. We therefore affirm the learned lower authorities’ action under challenge.

5.

This assessee’s appeal is dismissed in above terms.

Order pronounced in the open court on 21st March, 2022

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