ACIT vs Anish Yadav

PER S. RIFAUR RAHMAN, AM :

The Revenue has filed appeal against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 07.02.2025 for the Assessment Year 2022-23. The assessee has also filed the cross objections in support of the impugned order dated 07.02.2025.

The Revenue has raised following grounds of appeal :-

At the time of hearing, ld. DR brought to our notice grounds of appeal filed by the Revenue. In this regard, ld. DR submitted that ld. CIT (A) deleted the additions by accepting additional evidences violating Rule 46A of the Income-tax Rules, 1962 (for short ‘the Rules’). In this regard, he relied on the decision of Hon’ble Delhi High Court in CIT vs. Manish Buildwell (P.) Ltd. (2011) 16 taxmann.com 27 (Delhi).

On the other hand, ld. AR of the assessee submitted that assessee is a contractor and claimed relevant expenditure. The AO disallowed relevant expenditure without rejecting the books of account and he submitted that assessee has not filed any additional evidences and there is no violation of Rule 46A of the Rules. He heavily relied on the findings of ld. CIT (A) and he brought to our notice page 15 of the ld. CIT (A)’s order. Further, it is brought to our notice page 7 of the paper book and the assessee has not claimed the disallowed amount of expenditure.

In the rejoinder, ld. DR of the Revenue brought to our notice page 6 of the assessment order and submitted that on examination of the reply submitted by the assessee, the AO has not accepted the same and assessee has furnished a copy of a sub-contract agreement entered with Raj Shyama Construction Pvt. Ltd., according to which, the assessee has given back to back sub-contract work received from Superintendent Engineer, Dehradun. He brought to our notice financials between assessee and Raj Shyama Constructions Pvt. Ltd.. Further, he brought to our notice that assessee has not claimed the abovesaid amount as sub-contract expenses in respect of Raj Shyama Constructions Pvt. Ltd. and no TDS was deducted. Further, he brought to our notice page 18 of ld. CIT (A)’s order and submitted that ld. CIT (A) has heavily relied on the submissions of the assessee to give relief.

Considered the rival submissions and material placed on record. We observed that AO on verification of the return of income filed by the assessee observed that assessee has obtained a road construction contract and has observed that assessee has claimed site expenses of Rs.7.09 crores during FY 2021-22 as compared to site expenses claimed of Rs.45.33 lakhs during FY 2020-21. Out of the above site expenses claimed, assessee has shown site expenses payable/ outstanding at Rs.4,07,20,484/- in the Balance Sheet. With regard to above outstanding, the assessee has submitted that contract agreement made with Raj Shyama Constructions Pvt. Ltd. and contract is still pending. In this regard, assessee has also enclosed running ledger of Raj Shyama Constructions Pvt. Ltd. and copy of agreement. After considering the submissions of the assessee, the AO observed that on the basis of sub-contract agreement entered with Raj Shyama Constructions Pvt. Ltd., he observed that assessee has given back to back sub-contract received from PWD, Dehradun, the contract was for an amount of Rs.71.95 crores and the same was sub-contracted for Rs.71.55 crores to Raj Shyama Constructions Pvt. Ltd.. He observed that based on the sub-contracts, assessee has paid an amount of Rs.13.35 crores to Raj Shyama Constructions Pvt. Ltd. As per the details of sub-contract expenses claimed by the assessee, he noticed that assessee has furnished a ledger copy of Raj Shyama Constructions Pvt. Ltd. from which he observed that as on 31.03.2022, a journal entry was passed of site expenses of Rs.4,07,20,484/- and further observed that assessee has not claimed this amount as sub-contract expenses in respect of Raj Shyama Constructions Pvt. Ltd. and no TDS was made. After analysing the submissions of the assessee, he observed that as per the ledger account furnished by the assessee of Raj Shyama Constructions Pvt. Ltd., according to the ledger account, the assessee is required to pay Rs.19.23 crores to Raj Shyama Constructions Pvt. Ltd. which includes the above outstanding balance of Rs.4.07 crores. The copy of agreement submitted by the assessee dated 15.04.2021 with Raj Shyama Constructions Pvt. Ltd., for work of contract amount of Rs.14.50 crores. He observed that claim of payment of Rs.19.23 crores to be made against a work allotted of Rs.14.50 crores is preposterous. With the above observation, the AO was of the view that the expenses claimed of Rs.4.07 crores as site expenses is bogus which is proved by the fact that no TDS was made on the same and it is only an after-thought. Accordingly, he proceeded to make an addition of Rs.4.07 crores.

We observed that ld. CIT (A) after considering the detailed submissions of the assessee deleted the addition on the basis of sub-contract agreement and various details submitted by the assessee and he observed that the standing amount which was payable as on 31.03.2022 were duly discharged by the assessee in the subsequent financial year through banking channels only and in support of the same, the assessee has filed extract of bank statement. After considering the arguments of both the parties, we observed that assessee has passed a journal entry to create the liability of the above but assessee has not claimed any site expenses during the year under consideration, assessee has duly recorded the abovesaid expenditure in the subsequent year, also settled the above amount in the subsequent year. Since there is no financial impact in the year under consideration and the Revenue raised the Rule 46A issue, we observed that all the relevant information is already available on record, therefore, there are no additional evidences. Hence, the issue under consideration raised by the Revenue is dismissed.

With regard to disallowance of sundry deductions of Rs.1,99,42,174/-, during assessment proceedings, the AO observed that assessee has claimed expenditure of sundry deduction at Rs.1,99,42,174/- and assessee has submitted ledgers of the same. When the assessee was asked to substantiate the same, in reply dated 17.03.2024 the assessee has submitted supporting documents to substantiate the claim of the expenses and also furnished ledger account of department-wise summary of sundry deductions along with bills from the Government Department. Since the assessee has filed summary of sundry deductions and submitted some documents, the extract of the same is reproduced at page 10 of the assessment order. After observing the same and some discrepancies, the AO observed that out of the total invoice value of work done for Party Construction Division No.2 PRA PA – Bareilly, assessee has claimed sundry deductions of Rs.52,35,333/- nearly 50% was claimed and no details were furnished. Since assessee has not been able to establish the claim of expenses with documentary evidences, he rejected the complete claim of the assessee and proceeded to make the addition.

Ld. CIT (A) gave relief on the basis of below observations :-

Considered the rival submissions and material placed on record. We observed that assessee has filed partial documents before the AO on the basis of details which were from Government Department only balance documents were submitted before the ld. CIT (A). It clearly shows that all the expenses and documents submitted by the assessee are from Government Departments. Based on the above, ld. CIT (A) has given relief. Since all the relevant expenditure claimed by the assessee is relating to Government Departments, therefore, ld. CIT (A) has used his co-terminus power to give the relief. Therefore, we do not see any reason to disturb the findings that there is violation of Rule 46A

Next issue is with regard to deletion of addition of Rs.2,42,14,090/- made by the Assessing Officer. The Assessing Officer observed that the assessee has claimed sub-contract expenses of Rs.24.211 crores. Assessing Officer observed that assessee has not provided any detail ledger with name, address, PAN, TDS made, etc. in respect of the claim of these sub-contract expenses. Hence, Assessing Officer proposed to disallow an amount of Rs.2.47 crores of the sub-contract expenses claimed based on analysis of the turnover in comparison of earlier year. In reply, the assessee has furnished the ledger account of the sub-contractors and the payments along with the TDS made. However, on verification, the Assessing Officer found various discrepancies which are given at pages 12 to 17 of the assessment order. Assessing Officer observed that there are discrepancies in the amount as shown in the ledger with regard to the amounts credits in the sub contractor's accounts which are supposed to be for the bills raised by them. He further observed that the ledger accounts of these sub contractors have very cryptic entry with regard to credits wherein just "SK&C - UK Branch" is mentioned and it does not contain whether the sub contractor has raised a bill for the amount on which project he was working for nor does it contain the detail address of the contractor. Accordingly, he observed that the assessee is not able to provide complete details in order to show that the sub contract payments debited to the P& L account in the name of these sub contractors are genuine. However, the assessee has vide reply dated 17.03.2024 submitted copies of the agreement with major sub contractors, copies of TDS returns and bank statement and again claimed that they have all the relevant documents to support the claim. However, Assessing Officer observed that the claim made by the assessee that TDS has been made and payment have been made from banking channel to the sub contractors does not establish that the sub contractor has indeed done on the project. Assessing Officer further observed that it is mentioned in the alleged sub contract agreements that all these sub contractors are Class A contractor but no documentary proof has been given in support of the same which could have been readily available. Further, from the above it can be seen that the sub contract agreement does not contain the basic detail of the exact nature of work, the quantum of work, the period under which it needs to be completed, which area exactly the work is required to be carried out by the sub contractor in that particular project. Therefore, he observed that all these alleged sub contractor agreements have been made without the basic details of the work to be done by the sub contractor and therefore are not reliable documents. He thus observed that from the facts and circumstances it is clear that the assessee has not given the complete details to avoid proper scrutiny of the expenditure claimed toward sub contract payments. Assessing Officer observed that (i) the deduction of TDS and payment through banking channels to the sub contractors does not have any sanctity for claim of expenditure without other supporting documentary evidence; (ii) it has to be proved by means of documentary evidence that the sub contractor has the means and resources to carry out the work and that the work was indeed carried out by the sub contractor for which a valid bill was raised; unless the sub contract payment is supported by basic documentary evidences the assessee can very well pay any amount to a person/concern claiming to be sub contract payment from banking channel, deduct TDS and claim it as expenditure. Taking into account all the facts and circumstances as mentioned above and particularly the failure of the assessee to establish the substantial quantum of sub contract expense claimed to have been made of Rs.24,21,40,900/-, Assessing Officer made a disallowance of 10% of the expenses claimed out of the sub-contract expenses that is Rs.2,42,14,092/-.

Before the ld. CIT (A), assessee filed detailed submissions which are reproduced at pages 23 to 25 of the appellate order. Ld. CIT (A), after going through the details submissions, observed that the assessee has provided documents that demonstrate the genuine nature of the sub contract payments and these include detailed agreements specifying the scope of work, invoices from sub contractors, bank statements showing the payments made and supporting TDS returns and duly recorded ledger entries, all of which unequivocally support the legitimacy and business necessity of the expenses incurred. Accordingly, ld. CIT (A) held that in view of the documents submitted, the addition made of Rs.2,42,14,090/-on account of sub contract expenses is deleted.

At the time of hearing, ld. DR of the Revenue submitted that ld. CIT (A) erred in deleting the addition without considering the fact that even availing sufficient opportunities during assessment proceedings, the assessee failed to prove the genuineness of the transactions.

On the other hand, ld. AR of the assessee submitted that all the details are submitted before the Assessing Officer as well as before the ld. CIT (A) and heavily relied on the findings of the ld. CIT (A).

Considered the rival submissions and material placed on record. We observed that the Assessing Officer has made an adhoc disallowance of 10% of the expenses claimed out of the sub-contract expenses on account of some discrepancies. We observed that assessee has filed relevant documents before the Assessing Officer as well as ld. CIT (A) and ld. CIT (A) observed that the documents provided clearly demonstrate the genuine nature of the sub contract payments and also observed the documents include detailed agreements specifying the scope of work, invoices from subcontractors, bank statements showing the payments made and supporting TDS returns and duly recorded ledger entries, all of which unequivocally support the legitimacy and business necessity of the expenses incurred. We observed that first of all the Assessing Officer cannot make adhoc disallowances and he has to direct the assessee to file the relevant information or in case he is not satisfied, he should have disallowed whole expenditure, which is practical. Considering the facts on record and the findings of the ld. CIT (A), we observed that the assessee has filed the relevant details before the ld. CIT (A) who has rightly deleted the addition. Accordingly, we are inclined not to disturb the findings of the ld. CIT (A) on this issue and the grounds raised by the Revenue in this regard were dismissed.

In the result, the appeal filed by the Revenue is dismissed.

Since we have dismissed the appeal of the Revenue, the cross objections filed by the assessee has become infructuous and the same is accordingly dismissed as such.

In the result, the appeal filed by the Revenue and the cross objections filed by the assessee are dismissed.