DCIT, CHENNAI vs. M/S. SPL INFRASTRUCTURE PVT. LTD., CHENNAI

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -15, Chennai, dated 12.08.2016 and pertains to assessment year 2012-13.

The only issue arises for consideration is disallowance of part of the payments paid to sub-contractors by the assessee.

Ms. S. Vijayaprabha, the Ld. Departmental Representative, submitted that the Assessing Officer disallowed ₹2,73,81,984/- being the amount said to be paid to sub-contractors. According to the Ld. D.R., the so-called sub-contractors are related parties of the assessee. According to the Ld. D.R., the assessee arranged the scheme in such a manner to inflate the expenditure and reduce the taxable profit by claiming the expenditure to the so-called sub- ₹22,33,49,691/-, contractors. Out of the assessee paid ₹2,73,81,984/- to the related parties. According to the Ld. D.R., one Shri K. Sivanandan Pillai, Asst. General Manager of the assessee- company was examined. The said Shri Sivanandan Pillai explained that the Managing Director of the company will be able to explain the entries made in the ledger of the books of account of the company. The Ld. D.R. further submitted that the Managing Director Shri S. Lakshmanan was also examined by the Assessing Officer. On the basis of examination and other material available on record, according to the Ld. D.R., the Assessing Officer came to a conclusion that the so-called sub-contract payments are not genuine expenses in the hands of the assessee-company, therefore, he disallowed the entire payment of ₹2,73,81,984/- made to the related parties which comes nearly to 12.3% of the total sub- contract expenditure. According to the Ld. D.R., the CIT(Appeals) by placing reliance on the order of this Tribunal in the assessee's own case for the assessment year 2010-11, restricted the disallowance to 10%. According to the Ld. D.R., the Revenue has already filed an appeal against the order of this Tribunal in the assessee's own case for assessment year 2010-11 and the same is pending, therefore, the CIT(Appeals) is not justified in following the order of this Tribunal.

On the contrary, Shri Philip George, the Ld. counsel for the assessee, submitted that the issue arises for consideration before this Tribunal is with regard to payment made to sub-contractors. According to the Ld. counsel, a similar issue arose before this Tribunal for assessment year 2010-11in the assessee's own case.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claimed expenditure of ₹22,33,49,691/-. Out of which, a sum of ₹2,73,81,984/- was paid to related parties. The Assessing Officer found that in respect of the payment made by the assessee to the extent of ₹2,73,81,984/- to related parties, there was no proof of execution of any work. Therefore, the Assessing Officer doubted the very payment made by the assessee to those sub-contractors who are related to the assessee. In fact, the Assessing Officer extracted the details of sub-contract payments with reference to their name and relationship at page 11 of the impugned assessment order.

We have carefully gone through the order of this Tribunal in the assessee's own case for assessment year 2010-11 in I.T.A. No.2488/Mds/2014. The assessee claimed an expenditure of ₹4,41,08,210/- towards sub-contract expenditure. The Assessing Officer disallowed the claim on the ground that the payment was not supported by bills / vouchers issued by the sub-contractors. This Tribunal considering the nature of assessee’s business and chances of inflated expenses, found that 10% of the total expenditure disallowed by the Assessing Officer would meet the ends of justice. This Tribunal further observed that there was no question of not incurring the expenditure by the assessee to carry out the road work contract which was mentioned in the M-Book furnished by the assessee.

In the present case before us, the facts are entirely different. The payments were made to close relatives of the Managing Director of the assessee-company. Therefore, the Assessing Officer doubted the very payment made by the assessee. Further, from the order of this Tribunal for the assessment year 2010-11, it is not known whether the payment was made to the very same close relatives or third parties. The facts are not coming out from the order of this Tribunal. In those circumstances, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the issue of disallowance of ₹2,73,81,984/- is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter afresh in the light of the material available on record including the M-Book and bring on record the relationship of the sub-contractors with the Managing Director of the assessee-company and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.