SUN STEEL INDUSTRIES (P) LTD.,KOLKATA vs. CIT, (A)-2, KOLKATA, KOLKATA

ORDER Per M.Balaganesh, AM

3 Sun Steel Industries (P) Ltd. A.Yr.2011-12 render those services. He further observed that all these companies are declaring negligible income in their returns and the tax deducted by the assessee company is claimed as refund by the respective companies. The ld. AO observed that these companies have no means to render any kind of alleged foundation services that could be rendered to the assessee. Accordingly, he observed that even though the payments were made to those parties by the assessee by way of account payee cheques and even though they had disclosed the contractor’s income in their respective returns, still the genuinity of the transactions were not proved by the assessee. Even the services rendered by those parties for and on behalf of the assessee were not proved inasmuch as from the perusal of the profit and loss account of the respective companies, the meager labour charges amount of around eighty thousand to ninety thousand along were incurred by each of those companies and salary debited was also only to the tune of Rs. 6 lacs. approximately. It is not clear from the balance sheet of these respective companies as to whether they have any branch in Shillong to carry out the necessary technical services for and on behalf of the assessee. Accordingly, the ld. AO observed that these are merely paper company operated by the entry operator for the purpose of providing accommodation entries. In view of these aforesaid facts the genuineness of the payment of foundation expenses by the assessee to the aforesaid six sub-contractors does not stand proved and accordingly the ld. AO disallowed the same as bogus expenditure in the assessment.

4. The assessee pleaded before the Ld. CIT(A) that for proving the genuineness of the expenditure incurred by the assessee, the following documents with sub-contractors were furnished: i) Xerox Copy of acknowledgment for filing the return of income; ii) Computation of total income for the assessment year 2011-12; iii) Audited accounts for the year under 31.03.2011; iv) Confirmation of accounts for the year under 31.03.2011; 3

4 Sun Steel Industries (P) Ltd. A.Yr.2011-12 v) Bank statement of the payment from where the amount paid was clear; vi) Xerox Copy of the bank statement of the sub-contractor wherein the receipt of payment is recorded; The assessee pleaded that all the payments towards sub-contract charges were paid by the assessee through account payee cheques after due deduction of tax at source and that those companies in turn had disclosed the receipts from the assessee as their income in their respective income tax returns. Merely because the parties did not appear before the ld. AO would not make the transaction as bogus. In support of this proposition, the assessee placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of M/s Diagnostics vs. CIT in I.T.A. No. 153 of 2004 dated 04.03.2011. The Ld. CIT(A) observed that the decision relied upon by the assessee was distinguishable on facts as there was no doubt about existence and expertise of recipient party. He observed that the assessee had merely inflated the expenses of fabrication work by taking entries from paper companies. The Ld. CIT(A) further observed that the assessee could not explain as to how the this six companies stationed at Kolkata are doing business in shillong and especially when they had no expertise in infrastructure in the specialized job of steel fabrication etc. and as to how they had been helping the assessee in doing foundation jobs in Shillong. He further observed that why the companies and the directors could not be traced in given addresses and as to why the assessee could not produce any document before the ld. AO, were not explained by the assessee. Accordingly, he upheld the action of the ld. AO by treating the subject mentioned payments as bogus and confirmed the disallowance thereon. Aggrieved the assessee is in appeal before us on the following grounds: 1. That on the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 37,00,000 claimed by the Appellant company on account of expenses incurred through sub contractors on the alleged ground that the said expenses are bogus.

5 Sun Steel Industries (P) Ltd. A.Yr.2011-12 2. That on the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (Appeals) failed to appreciate that all these payments were subjected to tax deducted at source (TDS) and the amount of TDS on such expenses were deposited to the credit of Central Government and that the said expenses were duly declared by the recipient sub contractor as their income in their Income Tax Returns and credit of TDS was allowed to them.

3. That on the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (Appeals) erred in alleging that the aforesaid expenses incurred by the Appellant company were bogus simply on the ground that the said parties were not traceable at the addresses and that the Appellant company could not produce the Directors of those companies within the very short period allowed by the Assessing Officer.

6 Sun Steel Industries (P) Ltd. A.Yr.2011-12 parties before the ld. AO and had not proved that those parties possess necessary infrastructure to render the specialized job of foundation services to the assessee, that too in Shillong, when they are stationed in Kolkata. Accordingly, he placed heavy reliance on the orders of the lower authorities and prayed for non-interference of the same in the facts and circumstances of the case.

7. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the payments to sub-contractors were indeed made by the assessee through account payee cheques after deduction of tax at source. It is not in dispute that those recipients have duly disclosed the same in their respective IT returns and had also filed their returns of income showing meager figure. The tax deducted by the assessee predominantly forms part of claim of refund made by these parties in their return of income. Even though the existence of these companies are proved beyond doubt, with proper paper work carried out, we find that the assessee had not proved the actual rendering of services by these parties to the assessee by way of rendering the foundation services. Admittedly, all these six alleged sub-contractors were only trading in shares and investment companies. The assessee was not able to prove with cogent material as to whether these companies possess necessary expertise and infrastructure to render the foundation services to the assessee. More importantly these services were alleged to have been rendered in Shillong whereas, these parties are located in Kolkata. From the perusal of their balance sheet, it is evident that they do not have any branch in Shillong or any other infrastructure to render foundation services/specialized services to the assessee. Their profit and loss account contains payment of labour charges to the tune Rs 80000/- to Rs 90000/- and payment of salary of Rs. 6 lacs approximately. Hence, it is proved beyond doubt that those parties had not rendered any services to the assessee even by way of outsourcing of the said jobs to outsiders who are stationed in Shillong. All the six companies had similar types of income and similarly types of expenses reflected in their profit and loss account. None of the companies have sufficient fixed 6

7 Sun Steel Industries (P) Ltd. A.Yr.2011-12 assets to prove the existence of necessary infrastructure for rendering such technical services. From the aforesaid facts, it is made very clear that these parties had merely acted as a conduit to reduce the profits of the assessee company and show meager income in their returns and claim refund of TDS. We are satisfied in the instant case, that these companies are merely paper companies, having complied with proper paper work, but not possessing necessary expertise to render technical services to the assessee. Hence, we hold that the factum of services rendered by those parties to the assessee has not been proved by the assessee in the instant case and hence the disallowance has been rightly made by the revenue in the facts and circumstances of the case . Accordingly grounds raised by the assessee are dismissed.

Order pronounced in the Court on 19.02.2018