THE DY. CIT-1(2),, RAIPUR (CG) vs. M/S. A.P. NIRMAN LTD.,, RAIPUR (CG)

This appeal by the Revenue is preferred against the order of the Ld. CIT(A), Raipur dated 08.08.2013 pertaining to A.Y. 2010-11.

The underlying facts in both the issues are common and therefore both the grounds are taken up together for disposal.

Briefly stated the facts of the case are that the assessee company is engaged in the business of Civil Contract Work. The return of income for the year was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. During the year under consideration, a survey u/s. 133A of the Act was conducted on 2.06.2010 on the business premises of the assessee. During the course of the survey operations, statement of Shri Rajesh Agrawal was recorded who offered an amount of Rs. 3.75 crores on account of bogus trade creitors as his undisclosed income for the year under consideration.

During the course of the scrutiny assessment proceedings, the A.O. asked the assessee to furnish the details of expenses claimed under the head work payment at Rs. 18.06 crores. The A.O. found that in the immediately preceding year, the assessee has claimed Rs. 12.50 crores. The assessee was asked to justify the increase in the expenditure. The assesse filed the details of the work payments and the same read as under:-

The A.O. fund that the above 8 persons are close/ relatives of the Director of the assessee company, the A.O. observed that in all the above cases, the payments were shown as credits at the year end and further observed that none of these persons have executed any contract work for any other persons other than the assessee company.

On further query, the assessee furnished the copy of accounts of all the persons. The A.O. was of the opinion that the assessee is in the habit of claiming bogus expenses, therefore not convinced with the contentions of the assessee. The A.O. disallowed the sum of Rs. 2,13,94,500/- treating the work payment expenses as bogus.

Assessee strongly agitated the matter before the ld. CIT(A) and vehemently submitted that the A.O. has not appreciated the facts of the case in true perspective. It was strongly contended that the profit ratio for the year under consideration was better than the ratio of the immediately preceding year and the A.O. has wrongly calculated the profit rate. It was further brought to the notice of the ld. CIT(A) that all the necessary details were furnished and the A.O. himself as verified the details by issuing notice u/s. 133(6) of the Act and therefore, the disallowances made by the A.O. are uncalled for.

After considering the facts and the submissions, the ld. CIT(A) found that the A.O. has wrongly calculated the gross profit rate at 2.77% whereas the actual rate is 11.66% which is more than the GP rate in the last years which was 10.35%. The ld. CIT(A) further observed that the PAN details of all the sub- contractors were made available to the A.O. and the A.O. has not brought on record anything in rejection of the claim of expenditure by the asessee. The assessee has calculated the income surrendered during the course of survey

Aggrieved by this, the revenue is before us. The ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities.

We have given a thoughtful consideration to the orders of the authorities below and with the assistance of the ld. Counsel, we have considered the relevant documentary evidences brought on record in the form of paper book in the light of Rule 18(6) of the ITAT Rules. We find that the A.O. has been simply carried away with the fact that the payees are related to one of the directors of the assessee company. At the same time, we find that the A.O. has not drawn support from the provisions of Section 40A(2)(b) of the Act. Neither the A.O. has brought on record any comparable case nor he has brought any material on record to disbelief the claim of the assessee. The work contract payments made to 8 persons are duly supported by respective bills furnished by them and so also excavation work done by Saumya Mining Company. The recipients of the work contract have shown their income in their respective return filed on presumptive taxation basis u/s. 44AD of the Act. The contention of the A.O. that the recipients are not maintaining any details is ill-founded because of the immunity granted u/s. 44AD of the Act. The recipients are not obliged to maintain any books of accounts if they return their profit u/s. 44ADof the Act. Further, the income of Saumya Mining Ltd. has been accepted as such in its assessment framed u/s. 143(3) of the Act.

Moreover, the books of accounts of the assessee are audited and the A.O. has not pointed out any defect in the books of accounts of the assessee. More importantly, the allegation that the assessee’s gross profit and net profit have substantially reduced during the year is also not correct. The following chart shows the profitability of the assessee for the year under consideration vis-à-vis previous year:-

Assuming, yet not accepting, these expenditures are bogus then the profit of the assessee would be higher by Rs. 10 crores which would make the gross profit around 25% which is not conceivable in this line of business.

Appeal filed by the Revenue is accordingly dismissed.