DCIT,CIRCLE-1(1), KOLKATA, KOLKATA vs. M/S MCNALLY BHARAT ENGINEERING COMPANY LIMITED, KOLKATA

आयकर अपील"य अधीकरण, "यायपीठ – “D” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “D” KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member Assessment Year :2005-06 DCIT, Circle-1(1), V/s. M/s Mcnally Bharat P-7, Chowringhee Engineering Co. Ltd., 4, Square, R. No.20, 7th Mangoe Lane, 7th Floor, Floor, Kolkata-69 Kolkata-001 [PAN No.ABCM 9443 R] .. अपीलाथ" /Appellant ""यथ"/Respondent Shri P. Mukherjee Addl CIT-DR अपीलाथ" क" ओर से/By Appellant Mrs. Trishna Sharma, & ""यथ" क" ओर से/By Respondent Mr. P.K. Rai, ACA 14-08-2018 सुनवाई क" तार"ख/Date of Hearing 31-08-2018 घोषणा क" तार"ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal for assessment year 2005-06 arises against the Commissioner of Income Tax (Appeals)-1,Kolkata’s order dated 29.07.2016, passed in case No.549/CIT(A)-1/Ward-1(2)/2008-09, reversing the Assessing Officer’s action disallowing / adding assessee’s claim of PF / ESI on account of delayed payment, discrepancy in various transactions leading to Section 69C addition of unexplained investment pertaining to sub-contractor payments, expenditure of payment to sub-contractors involving corresponding figure of ₹20,06,017, 16,52,726/- and 46,04,963/-; respectively, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused. 2. We come to first issue of correctness of Section 36(1)(va) r.w. 2(24)x_ disallowance / addition of assessee’s employees’ contribution towards PF /

ITA No.1968/Kol/2016 A.Y.2005-06 DCIT, Cir-1(1), Kol. Vs. M/s Mcnally Bharat Engineering Co. Ltd. Page 2 ESI on account of its belated payment beyond the grace period but before the due date of filing return. Suffice to say, the hon'ble jurisdictional high court’s decision in M/s Akzo Nobel India Ltd. vs. CIT ITA No.110 of 2011 decided on 14.06.2016 has already held such claim of PF / ESI dues paid belatedly before the due date of filing return; in assessee’s favour as per CIT(A)’s detailed discussion under challenge. The Revenue fails to indicate any distinction on facts or law and facts. We thus find no merit in the instant first substantive ground raised at Revenue’s behest. The same is therefore rejected. 3. The Revenue’s second substantive ground seeks to revive Assessing Officer’s action making u/s 69C addition of unexplained investment of ₹16,52,726/- on account of discrepancies pertaining to taxpayer’s sub- contractor payments. Relevant CIT(A)’s discussion qua the instant second issue reads as under:- “A. Brief Facts: 1.0 During the year under consideration, assessee had debited Rs.57.94 crores on account of outsourcing expenses for job work. Complete details of the said expenses alongwith name of the contractor, address, amount during the course of assessment proceedings vide letter dated 22-11-2007. The said details comprised of more than 300 sub- contractors to whom the job charges were paid by the assessee on account of various contractual jobs undertaken in various parts of the country. Complete details of the parties alongwith address of the parties were furnished before AO. 1.1 In order to verify the above transactions, the AO called for information u/s. 133(6) of the Act from various sub contractors with whom the assessee had entered into transaction with respect to job work on subcontract basis. Majority of the parties from whom information was asked for had their addresses in the remote areas i.e. at various sites in the rural area where projects are undertaken and generally do not have any fixed base of establishment. 1.2 The said parties duly furnished the information as asked for by the AO directly to the office of the AO. However, w.r.t. few parties, the amount claimed by the assessee as expenditure incurred during the year did not reconcile with the details as filed by the said parties to the AO. During the course of hearing, the AO raised further queries and assessee was asked to reconcile the discrepancies as occurring in the accounts of the assessee and the information provided by the parties to the AO. the assessee vide its letters dated 17-12-2008 & 19-12-2008 reconciled all the discrepancies as pointed by the AO and also filed ledger account of all the parties as appearing in its books of account

ITA No.1968/Kol/2016 A.Y.2005-06 DCIT, Cir-1(1), Kol. Vs. M/s Mcnally Bharat Engineering Co. Ltd. Page 3 and also reconciliation statement with the parties showing the reasons for discrepancy alongiwth detailed reasons for the differences. 4. The Revenue’s only contention as per its corresponding substantive ground is that CIT(A) has admitted additional details during the course of lower appellate proceeding in violation of Rule 46A of the Income Tax Rules and to without seeking remand report from the Assessing Officer. We find no merit in the instant sole technical argument. It has come on record that assessee had very well reconciled the differential figure(s) regarding the former three parties – Surindra Engg. Co. Ltd., Vineengineer Enterprise and Gurunanak Construction. It emerges from the paper book that all these details already formed part of assessment records i.e. at pages No. 32, 35 to 44, 47, 55, 15, 16, 37 and 50, 22 & 23. Learned Departmental Representative fails to dispute the fact that CIT(A) had also called for Assessing Officer’s comments and waited thereafter for about two years from 24.04.2014 which was never responded. This tribunal’s co-ordinate bench’s decision in JCIT(OSD) vs. M/s Kalamkari Designs Pvt. Ltd. ITA No.1310/Kol/2016 dated 11.05.2018 holds in similar circumstances that nothing can prevent the CIT(A) from examining the relevant evidence on his own. We thus decline Revenue’s second substantive instant ground as well. 5. This leaves us Revenue’s last substantive grievance that CIT(A) has erred in reversing the assessment findings disallowing expenditure payments to sub-contractors to be tune of ₹46,04,963/- with the following detailed discussion:- “Ground No.4: This ground relates to the disallowance of an amount of Rs.46,04,963/- on account of non-service of letter sent to a party u/s. 133(6) to whom payment of sub-contractors charges has been made during the relevant financial year. That on the facts and in the circumstances of the case, the AO erred in holding that the assessee has not furnished where about the said party during the course of assessment as required by the AO to send the notice u/s. 133(6). The AO dealt with this issue in the assessment order as under: ‘Disallowance due to notice returned unserved from parties. Out of various parties to whom, reference u/s. 133(6) was made by this office, notice issued to M/s Alstom Limited – Noida at the given address has been returned by the Postal Authorities. The assessee was requested to give necessary explanations. In reply, the assessee has submitted that non- service of letter to a party by the Postal Authorities cannot be a ground for ITA No.1968/Kol/2016 A.Y.2005-06 DCIT, Cir-1(1), Kol. Vs. M/s Mcnally Bharat Engineering Co. Ltd. Page 4 disallowance. The explanation of the assessee is not accepted since the whereabouts of the said party has not been furnished. Therefore, the expenditure claimed for Rs.46,04,963/- on account of sub contractor charges paid/payable to the id party by the assessee in the financial year 2004-05 is disallowed and added back for the computation of total income of the assessee for the assessment year 2004-06. The appellant’s AR made written submissions as under: ‘Brief facts: 1.0 As submitted in earlier ground, during the curse of assessment proceedings, the AO has issued several notices u/s.133(6) of the Act to various parties with whom assessee had entered into sub contract during the relevant assessment year. 1.1 However, one of the notice u/s. 133(6) sent in the name of M/s Alstom Ltd., Noida was retuned unserved. The assessee was asked to explain the reasons thereof. The assessee, vide letter dated 19-12-2008, explained to the Assessing Officer that notice sent to the above party could not be served since the name of the above party has subsequently changed from ‘M/s Alstom Ltd., Noida’ to ‘Areva T&D :Ltd.’. It was further requested to the AO to resend the Notice to the above party addressing it by its changed name. B. Contention of A.O 1.0 The Learned. AO disregarded submission filed by the assessee, and disallowed the expenditure of Rs.46,04,963/- on account of sub-contract charges paid to M/s Alstom Ltd. since the notice issued at the given address was returned by the Postal Authorities unserved. C. Submission: 1.0 Disallowance made on the contention that assessee is unable to prove genuineness of claim is incorrect. 1.1 In this regard, it is humbly submitted by the assessee that transaction entered by it with the party cannot be regarded as ingenuine merely on account of the fact that notice served to one of the parties returned unserved. During the curse of assessment proceedings, the assessee had submitted the copy of ledger account of the party in the books of the assessee. Coy of the letter alongwith the ledger account is enclosed herewith and marked as Annexure-4. The ledger account itself should suffice the genuineness of transaction. 2.0 Mere fact that Notice u/s. 1`33(6) returned unserved could not be the basis for disallowance.: 2.1 Merely on account of the fact that the Notice u/s. 133(6) send to the above party was returned unserved does not necessarily mean that the transaction with the said party is not genuine and hence amount claimed as expenditure on account of payment made to said party cannot be disallowed. The above view is supported by the decision of Sagar Bose – vs. ITO (1996) 56 ITD 561 (Kol) wherein thee hon'ble jurisdictional Tribunal held that since the Assessing Officer. Neither made any enquiry from bank authorities to find out final destination of money nor enquired from sales tax department about persons to whom relevant sales tax registration number was allotted, also did not find any defect and irregularity in statements, books of account and bills etc. produced by assessee he was unjustified in treating purchase as bogus and making addition mere on the contention that the parties not traceable at addresses given by the assessee. Thus the ordered of the CIT(A) was quashed. 2.2 Further, in the case of CIT –vs- GP International Ltd. (2010) 325 25 (P&H) it was held that the AO having not doubted the identity of the persons from whom the assessee company has shown receipt of hare application money, impugned transactions cannot be treated as non-genuine merely because some of the applicant did not respond to the Notice issued by the AO u/s 133(6) and, therefore, addition was not sustainable.

ITA No.1968/Kol/2016 A.Y.2005-06 DCIT, Cir-1(1), Kol. Vs. M/s Mcnally Bharat Engineering Co. Ltd. Page 5 2.3 Further, hon'ble Bombay High Court in case of CIT – vs. – Goodlass Nerolac paints Ltd. (1991) 188 ITR 1 (Bom) has held that the consequences of no-compliance with the provisions of Sec. 133(4) is the liability to pay penalty and not the disallowance of the claim for deduction on that ground. The Act does not seem to provide that if information u/s133(4) is not furnished, the claim for deduction can be disallowed on that ground. The relevant provision of the Act is Sec. 272(2)(a) which provides that in case a person, without reasonable cause or excuse, fails to furnish information as required u/s. 133, he shall be liable to pay, by way of penalty, a sum which may extend to Rs.10,000/- for every day during which the failure continues. Applying the same ratio in the assessee’s case it can be said that simply because of the fact that department could not have access to information asked for u/s. 133(6), it cannot disallow the impugned amount. Therefore, merely because the said party did not respond to Notice u/s. 133(6) does not mean that the party does not exist or the claim of the assessee is not genuine. 2.4 Above principle has also been upheld in the following decision:- - ACIT vs. Adam Exports 9ITA No.1177/Mum/2009 dtd. 25-11-2011)(Mum-Tribunal) - ACIT vs. Royal Manors Hotels Ind. Ltd. (ITA No.2577/Ahd/2003 dtd. 24-06-2009) (Ahd-Tribunal) 2.5 Therefore, from the above judgments it is clear that merely because a party did not respond to Notice u/s. 133(6) it cannot be said that the said party never existed and the transaction is not a genuine transaction. Sufficient details by way of ledger account of the party were duly filed before the Assessing Officer during the course of assessment proceedings to state the transaction is a genuine one and the same were also filed before all the authorities therefore it is evident assessee has discharged the burden lay on him of proving the genuineness of claim. D. Prayer: In view of the aforesaid submissions and judicial analysis, the assessee humbly prays that the disallowance of Rs.46,04,963/- on account of payment made to M/s Alstom Limited, Noida may be deleted.” During scrutiny proceedings, the AO issued query letters with u/s. 133(6) for verification to M/s Alstom Limited – Noida at the given address, was returned unserved by the Postal Authorities. The assessee was requested to give necessary explanations. In reply, the assessee has submitted that non-service of letter to a party by the Postal Authorities cannot be a ground for disallowance. The AO after rejecting the app’s explanation held that since the whereabouts of the said party has not been furnished, the expenditure claimed for Rs.46,04,963/- on account of sub contractor charges paid/payable to the said party by the assessee in the financial year 2004-05 was disallowed and added back to the total income. The appellant’s AR has mainly contended that the assessee that transaction entered by it with the party cannot be regarded as ingenuine merely on account of the fact that notice served to one of the parties returned unserved. During the course of assessment proceedings, the assessee had submitted the copy of ledger account of the party in it books of the assessee, which should suffice for the genuineness of transaction. For the proposition that merely on account of the fact that the Notice u/s. 133(6) send to the above party was returned unseved does not necessarily mean that the transaction with the said party is not genuine and hence amount claimed as expenditure on account of payment made to said party cannot be disallowed. The AR has relied upon the decision of Sagar Bose – vs- ITO (1996) 56 ITD 561 (Kol) wherein the hon'ble jurisdictional Tribunal held that since the AO neither made any enquiry form bank authorities to find out final destination of money nor enquired from sales tax department about persons to whom relevant sales tax registration number was allotted, also did not find any defect and irregularity in statements, books of account and bills etc. produced by assessee he was unjustified in treating purchase as bogus and making addition mere on the contention that the parties not traceable

ITA No.1968/Kol/2016 A.Y.2005-06 DCIT, Cir-1(1), Kol. Vs. M/s Mcnally Bharat Engineering Co. Ltd. Page 6 at addresses given by the assessee. Thus the order of the CIT(Appeals) was quashed. Further, in the case of CIT – vs. GP International Ltd. ((2010) 325 ITR 25 (P&H) it was held that the AO having not doubted the identity of the persons from whom the assessee company has shown receipt of share application money, impugned transactions cannot be treated as non-genuine merely because some of the applicants did not respond to the Notice issued by the AO u/s 133(6) and, therefore, addition was not sustainable. Similarly, hon'ble Bombay High Court in the case of CIT – vs- Goodlass Nerolac Paints Ltd. (1991) 188 ITR 1 (Bm) has held that thee consequences of no-compliance with the provisions of Sec. 133(4) is the liability to pay penalty and not the addition of the claim for deduction on that ground. Similar view was taken by Tribunals in ACIT – vs- Adam Exports ITA No.1177/Mum/2009 dtd. 25-11-2011) (Mum-Tribunal); ACITX – vs- Royal Manors Hotels Ind. Ltd. (ITA No.2577/Ad/2003 dtd. 24-06-2009(Ahd- Tribunal) to the effect that return of unserved notice does not warrant addition to the total income. In view of the above discussion and following the decision of the cited case laws relied upon by the appellant, it is held that the AO was not justified in adding back the amount of the expenditure claimed for Rs.47,04,963/- on account of sub contractor charges paid/payable on account of return of enquiry letter/notice u/s. 133(6) unseved by the Postal Department. It is found that AO did not make any further enquiry or find any serious defect in the accounts. The AO is directed to delete the addition of Rs.46,04,963/-. This ground is allowed.” 6. We have head rival contention against and in support of impugned disallowance. Suffice to say, the assessee has very well proved the fact that name of its payee has changed from M/s Alstom Ltd. Noida to Areva T&D Ltd. as per records. The Assessing Officer did not respond to CIT(A)’s notice qua the instant issue as well as for a period of almost two years. The Revenue fails to indicate any infirmity in payees’ details of name change during the course of hearing. It solely harps on violation of Rule 46A of IT Rules. We thus find no merits in its instant last technical argument as well. The CIT(A)’s findings under challenge qua this third issue are also confirmed. 7. This Revenue’s appeal is dismissed. Order pronounced in the open court 31/08/2018 (लेखा सद%य) ("या'यक सद%य) (Dr. A.L. Saini) (S.S.Godara) (Accountant Member) (Judicial Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 31/08/2018 कोलकाता ।

ITA No.1968/Kol/2016 A.Y.2005-06 DCIT, Cir-1(1), Kol. Vs. M/s Mcnally Bharat Engineering Co. Ltd. Page 7

आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:- 1. अपीलाथ"/Appellant-DCIT, Cir-1(1), P-7, Chowringhee sq R.No.20 7th Fl, Kolkata-69 2. ""यथ"/Respondent-M/s Mcnally Bharat Engineering Co. Ltd., 4, Maangoe Lane, 7th Floor, Kolkata-001 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय "'त'न3ध, आयकर अपील"य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, Sr. Private Secretary, Head of Office/DDO आयकर अपील"य अ3धकरण, कोलकाता ।