Akrati Promoters And Developers v. Deputy Commissioner Income-tax-4
[Citation -2019-LL-0903-20]

Citation 2019-LL-0903-20
Appellant Name Akrati Promoters And Developers
Respondent Name Deputy Commissioner Income-tax-4
Court HIGH COURT OF ALLAHABAD
Relevant Act Income-tax
Date of Order 03/09/2019
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags payment to sub-contractor • expenditure incurred • total expenditure • books of account • return of income • question of law • excess payment • work contract • contract work
Bot Summary: Out of the said amount, assessee incurred expenditure of Rs.61,76,126/- on 3 sub-contractors namely Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal. On 28.2.2013, the Tribunal partly allowed the appeal of the assessee, out of total expenditure of Rs.61,76,126/- disallowed by the assessing authority under Section 40A(2)(a), Tribunal upheld the disallowance of Rs.12,35,225/- and allowed remaining 80 expenditure of 4 Rs.49,40,900/- while the appeal of the department was dismissed. Sri Rakesh Ranjan Agarwal, learned Senior Counsel assisted by Sri Suyash Agarwal, learned Counsel for the assessee submitted that the Tribunal had wrongly disallowed 20 of the amount while deleting the addition of Rs.49,40,901/- made by the assessing authority. As far as the expenditure incurred to the tune of Rs.61,76,126/-, by the three sub-contractors Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal, who are the sons and relatives of the partners of the assessee firm, the assessing authority recorded a categorical finding and disallowed the payments so made to them under Section 40A(2)(a) of the Act, on the ground that all these three sub-contractors did not have sufficient amount in their bank accounts so as to incur such 6 expenses for execution of work and disallowed the expenditure so made by the assessee firm as regard these three sub-contractors. The argument raised by learned Counsel for the assessee does not have any force that it is a case under Section 37 and not under Section 40A(2)(a) of the Act. Learned Counsel for the assessee could not deny the factum of relation of the sub-contractors with the partners of the assessee firm, nor would justify the payments so made by the firm to the sub-contractors who did not have the means and the source to make expenses for the work contract, as the balance in the saving accounts was negligible in comparison to the alleged work contract executed by them and the payments so made. In the present case, as it was found by the taxing authorities that payment made by the assessee firm to three sub-contractors out of 21 work contracts given by it was to the relatives of the partners of the firm, as such same was disallowed in view of Clause of Section 40A(2) of the Act.


[1] Reserved Court No. - 35 Case :- INCOME TAX APPEAL No. - 89 of 2013 Appellant :- M/S Akrati Promoters And Developers Respondent :- Deputy Commissioner Income Tax -4 Counsel for Appellant :- Suyash Agarwal Counsel for Respondent :- C.S.C. It,Suyash Agarwal With Case :- INCOME TAX APPEAL No. - 222 of 2016 Appellant :- M/S Akrati Promoters And Developers Agra Respondent :- Pr. Commissioner Of Income Tax Agra And Another Counsel for Appellant :- Suyash Agarwal Counsel for Respondent :- S.C.,Manu Ghildyal,S.S.C. I.T. Hon'ble Bharati Sapru,J. Hon'ble Rohit Ranjan Agarwal,J. (Delivered by Rohit Ranjan Agarwal,J.) 1. These two appeals of assessee filed under Section 260 of Income Tax Act, 1961 challenges order of Income Tax Appellate Tribunal, Agra Bench, Agra (hereinafter called as Tribunal ) dated 28.2.2013 passed in Income Tax Appeal No.129/Agr/2012 for assessment year 2008-09 and order dated 21.4.2016 passed in ITA No.152/Agr/2014 for assessment year 2009-2010. 2. Appeal No.89 of 2013 was admitted on 20.9.2013 on following substantial question of law:- i. Whether, in view of fact that case of revenue is confined under Section 40A(2)(a) and not section 37 of Act, finding of Tribunal that appellant did not get sub-contracts executed through Sri Sanjay Agarwal, Sri Subodh Agarwal and Sri R.R. Agarwal is impermissible and suffers from self contradiction? ii. Whether, expenditure incurred by appellant in execution of work through sub-contractors could have [2] been disallowed, to any extent, under Section 40A(2)(a) in absence of any finding as to expenditure being excessive or unreasonable having regard to statutory factors enumerated therein? iv. Whether, even otherwise, finding of Tribunal that appellant did not get work executed through sub-contractors Sri Sanjay Agarwal, Sri Subodh Agarwal and Sri R.R. Agarwal is wholly perverse and against entire weight of evidence and against business practice as consistently accepted by revenue authorities in earlier assessment years? v. Whether, any part of expenditure incurred by appellant in earlier years and it, corresponding liability carried in appellants books of account in present year could be disallowed under Section 40A(2)(a)? 3. Appeal No.222 of 2016 was admitted on same question for assessment year 2009-10 on 20.12.2016. 4. As both appeals arise out of same question of law, as such they are being heard and decided together by common order. 5. Assessee/appellant during assessment year in question was partnership firm, but w.e.f. 28.8.2012 was taken over with all its assets and liabilities by company known as Akrati Technimont Ltd. 6. Facts of Appeal No.89 of 2013, which is in respect of assessment year 2008-09, assessee/appellant filed its return of income disclosing income of Rs.30,06,670/-. assessee firm was engaged in business of civil work contracts. Case of assessee was selected for scrutiny, and notices under Section 143(2) and 142(1) of Act were issued. Representative of assessee firm appeared and produced [3] books of account before assessing authority. During course of assessment proceedings, to verify genuineness of payments claimed to have been made to sub-contractors, summons under Section 131 of Act were issued. In response to said, Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal appeared and statement on oath were recorded. During assessment year in question, assessee had disclosed expenditure of Rs.2,55,49,027.78/- to 21 different sub-contractors towards execution of work contract. Out of said amount, assessee incurred expenditure of Rs.61,76,126/- on 3 sub-contractors namely Sanjay Agarwal (Rs.21,57,500/-), Subodh Agarwal (Rs.26,09,254/-) and R.R. Agarwal (Rs.14,09,372/-). Assessing Authority vide order dated 10.4.2011 disbelieved and disallowed entire expenditure of Rs.61,76,126/- being payment made to said 3 sub-contractors and work executed by them. appeal was filed challenging assessment order before Commissioner of Income Tax (Appeals), who on 31.1.2012 partly allowed same, however, as regard ground raised against dis- allowance of expenditure under Section 40A(2)(a) of Act was rejected. 7. assessee as well as Revenue filed cross appeals before Tribunal. On 28.2.2013, Tribunal partly allowed appeal of assessee, out of total expenditure of Rs.61,76,126/- disallowed by assessing authority under Section 40A(2)(a), Tribunal upheld disallowance of Rs.12,35,225/- and allowed remaining 80% expenditure of [4] Rs.49,40,900/- while appeal of department was dismissed. 8. Sri Rakesh Ranjan Agarwal, learned Senior Counsel assisted by Sri Suyash Agarwal, learned Counsel for assessee submitted that Tribunal had wrongly disallowed 20% of amount while deleting addition of Rs.49,40,901/- made by assessing authority. He submitted that Tribunal while recording finding had held that assessee has carried out contract work, may be not from three sub-contractors named above but by other parties, thus case of assessee did not fall under Section 40A(2)(a) of Act and case of assessee fell under Section 37 of Act, and Tribunal should have granted entire relief to assessee once it arrived at finding that sub- contract was not carried out by three contractors named above and it confirmed finding of assessing authority as well as first appellate authority. 9. Sri Manu Ghildyal, learned Counsel appearing for department submitted that three sub-contractors named above, namely Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal are sons and relatives of partners of firm and are persons covered under Section 40A(2)(b) of Act. He further invited attention of Court to findings recorded by assessing authority, wherein these three sub- contractors were examined by A.O. and affidavit filed by them was considered. [5] 10. According to Sri Manu Ghildyal, learned Counsel for Department, A.O. recorded finding that three sub- contractors at most would be supervisor staff of assessee firm, as they were being paid salary and they did not have sufficient balance in their bank account so as to pay employees for execution of work such as filling of earth etc. He further submitted that one of sub-contractors Sanjay Agarwal was entitled for total payment of Rs.21,000/- only in return of assessee, it was claimed that he had made payment of Rs.21,75,000/-, as such excess payment of Rs.21,54,000/- was correctly disallowed. Similarly in case of Subodh Agarwal also amount of Rs.26,09,254 was disallowed. Further A.O similarly disallowed Rs.14,03,972/- in case of R.R. Agarwal. 11. We have heard learned Counsel for assessee as well as learned Counsel for Revenue and perused material on record. 12. As it is case of assessee itself that during assessment year in question, assessee had given contracts to twenty one sub-contractors for execution of various work. As far as expenditure incurred to tune of Rs.61,76,126/-, by three sub-contractors Sanjay Agarwal, Subodh Agarwal and R.R. Agarwal, who are sons and relatives of partners of assessee firm, assessing authority recorded categorical finding and disallowed payments so made to them under Section 40A(2)(a) of Act, on ground that all these three sub-contractors did not have sufficient amount in their bank accounts so as to incur such [6] expenses for execution of work and disallowed expenditure so made by assessee firm as regard these three sub-contractors. CIT (A) also held that mere filing of affidavits of three persons in support of claim that work was sub-contracted to them, unless corroborated cannot be taken on its face value. It was further held that these sub- contractors could not produce any shred of evidence to establish that they had actually carried out any work as claimed by them. 13. Tribunal while considering grounds so raised recorded categorical finding that sub-contract was not carried out by above named three sub-contractors and confirmed finding of A.O. as well as first appellate authority. However, Tribunal considering facts and circumstances of case came to conclusion that sub- contract was carried out by other mode and not by these sub- contractors, and it disallowed 20% of expenditure as claimed as payment to sub-contractor while it confirmed deletion of balance amount of addition of Rs.49,40,401/- made by assessing authority. 14. As, it is admitted case that all three sub- contractors are relatives of partners of assessee firm, and assessing authority recorded categorical finding had rightly disallowed expenditure claimed in view of provisions of Section 40A(2)(b) of Act. argument raised by learned Counsel for assessee does not have any force that it is case under Section 37 and not under Section 40A(2)(a) of Act. As expenditure claimed by assessee while [7] computing income chargeable under head profit and gain of business or profession was disallowed, as payment has been made to persons referred in clause (b) of Section 40A(2) of Act. said finding has been confirmed by first appellate authority as well as Tribunal. 15. Learned Counsel for assessee could not deny factum of relation of sub-contractors with partners of assessee firm, nor would justify payments so made by firm to sub-contractors who did not have means and source to make expenses for work contract, as balance in saving accounts was negligible in comparison to alleged work contract executed by them and payments so made. 16. As Section 37 of Act envisages for any expenditure made for purpose of business to be allowed in computing income, while Section 40A puts barrier for expenses of payments not deductible in certain circumstances as enumerated in said section. 17. In present case, as it was found by taxing authorities that payment made by assessee firm to three sub-contractors out of 21 work contracts given by it was to relatives of partners of firm, as such same was disallowed in view of Clause (b) of Section 40A(2) of Act. Thus, authority had rightly disallowed expenditure so claimed by assessee. 18. Considering facts and circumstances of case, we are of considered opinion that Tribunal has recorded [8] categorical finding of fact which needs no interference by this Court, and appeal is dismissed. Appeal No.222 of 2016 which was admitted on identical question of law for assessment year 2009-10 is also dismissed. questions of law are, therefore, answered in favour of Revenue and against assessee. Order Date :- 3.9.2019 S. Singh Akrati Promoters And Developers v. Deputy Commissioner Income-tax-4
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