The ACIT, Circle-1(1), Visakhapatnam v. Sri S Vijay Kumar, Visakhapatnam

ITA 374/VIZ/2009 | 2006-2007
Pronouncement Date: 24-09-2010 | Result: Dismissed

Appeal Details

RSA Number 37425314 RSA 2009
Bench Visakhapatnam
Appeal Number ITA 374/VIZ/2009
Duration Of Justice 1 year(s) 2 month(s) 25 day(s)
Appellant The ACIT, Circle-1(1), Visakhapatnam
Respondent Sri S Vijay Kumar, Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 24-09-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 24-09-2010
Date Of Final Hearing 08-09-2010
Next Hearing Date 08-09-2010
Assessment Year 2006-2007
Appeal Filed On 29-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 374 /VIZAG/ 20 09 ASSESSMENT YEAR : 2006 - 07 ACIT CIRCLE - 1(1) VISAKHAPATNAM S. VIJAY KUMAR VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AJJPS 0703L CO NO.67/VIZAG/2009 ASSESSMENT YEAR : 2006 - 07 ACIT CIRCLE - 1(1) VISAKHAPATNAM S. VIJAY KUMAR VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI SUBRATA SARKAR DR RESPONDENT BY: SHRI C.V.S. MURTHY CA ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) ON FOLLOWING GROUNDS: - 1. LD. CIT(A) ERRED IN DELETING ADDITION OF R S.4 99 007 AND RS.47 377 ESTIMATED AS NET PROFIT ON CERTAIN SUB - CONTRACTS MADE BY ASSESSEE TO ITS SISTER CONCERN. THE BASIS ON WHICH DELETION WAS MADE BY CIT(A) IS UNREASONABLE. 2. LD. CIT(A) IS NOT JUSTIFIED IN ALLOWING RS.23 78 068 WHICH ADDED AS BOGUS EX PENDITURES CLAIMED BY THE ASSESSEE. 3. LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.19 88 642 WHICH WAS ADDED BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B). 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF APPEAL HEARING. 2. THE ASSESSEE H AS FILED THE CROSS OBJECTIONS IN SUPPORT OF THE CIT(A)S ORDER. THE ASSESSEE HOWEVER CHALLENGED THE ORDER OF THE CIT(A) THROUGH THE C.O. WITH RESPECT TO PARTIAL DISALLOWANCES CONFIRMED BY THE CIT(A). BUT 2 DURING THE COURSE OF HEARING OF THE APPEAL HE OPT ED NOT TO PRESS THE GROUND THEREFORE TH IS GROUND IS DISMISSED BEING NOT PRESSED. THE OTHER GROUNDS WHICH ARE IN SUPPORT OF THE ORDER OF THE CIT(A) ARE TO BE ADJUDICATED ALONG WITH THE APPEAL OF THE REVENUE. 3. WITH REGARD TO THE GROUND NO.1 WHICH REL ATE TO AN ADDITION OF RS.4 99 007/ - AND RS.47 377/ - ON ACCOUNT OF ESTIMAT ION OF NET PROFIT ON SUB - CONTRACTS THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS IN THE BUSINESS OF EXECUTION OF CIVIL CONTRACTS AND FILED THE RETURN OF INCOME DISCLOS ING THE INCOME OF RS.2 78 54 049/ - AND THE ASSESSMENT WAS COMPLETED BY DETERMINING THE TOTAL INCOME OF RS.3 30 71 043/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. HAD NOTICED THAT ASSESSEE HA D RECEIVED WORK CONTRACT RECEIPT FROM VARIOUS CONCE RNS WHICH WERE DIVERTED TO M/S. VNC PRIVATE LIMITED (VNC) WITHOUT DEDUCTION OF ANY COMMISSION O R PROFIT COMPONENT. IT WAS ALSO NOTED THAT THE ASSESSEE WAS A MANAGING DIRECTOR IN THE VNC. THEREFORE THE ASSESSING OFFICER WAS OF THE VIEW THAT DIVERTING THE ENTIRE CONTRACT WITHOUT RETAINING THE COMMISSION OR SUB - CONTRACT PROFIT TO VNC BY THE ASSESSEE WAS A CASE OF DIVERSION OF INCOME. FURTHER THE ASSESSING OFFICER NOTED THAT ASSESSEE HIMSELF HAD DEDUCTED 4% COMMISSION ON WORKS WHICH WERE GIVEN AS SUB - CONTR ACT TO OTHER CONCERNS. THEREFORE HE CONCLUDED THAT COMMISSION INCOME ESTIMATED AT 4% OF THE AMOUNTS WHICH WERE DIVERTED TO VNC WOULD CONSTITUTE THE INCOME OF THE ASSESSEE. HE ACCORDINGLY ESTIMATED INCOME AT 4% OF RS.1 24 75 226/ - AT RS.4 99 007/ - . THE A.O. FURTHER OBSERVED THAT THE CONTRACT RECEIPTS FROM IASL RAIGARH WAS ALSO DIVERTED TO THE SUB - CONTRACT VNC AND SUCH DIVISION OF LOSS WAS BOOKED IN THE BOOKS OF THE ASSESSEES. THE SAID ACTION OF THE ASSESSEE WAS CONSIDERED UNREALISTIC AND FABRICATED BY THE ASSESSING OFFICER THEREFORE HE ESTIMATED THE INCOME ON SUCH CONTRACTUAL RECEIPT WHICH WAS DIVERTED TO VNC AT 4% OF THE AMOUNT DIVERTED AT RS.47 337/ - . 4 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT ASSESSEE FLOATED A PRIVATE LIMITED COMPANY AT HYDERABAD UNDER THE NAME AND STYLE OF M/S. VIJAY NIRMAN COMPANY PRIVATE LIMITED HYDERABAD (VNC). AS THE ASSESSEE WAS OVER BURDENED WITH THE CONTRACTUAL 3 WORKS CERTAIN WORKS WERE DIVERTED TO THE SISTER CONCERNS OF THE ASSESS EE. VNC WAS ONE SUCH SISTER CONCERN. VNC WAS ASSESSED TO TAX SINCE LAST FIVE YEARS AT HYDERABAD. AS STATED IN THE ASSESSMENT ORDER DURING THE PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSEE HAD GIVEN ON SUB - CONTRACT ON BACK TO BACK BASIS OF THE WORKS O F THE VALUE OF RS.1 24 75 226/ - TO VNC. THE ASSESSEE DID NOT CHARGE ANY COMMISSION FOR GIVING SUCH WORKS ON SUB - CONTRACT TO VNC. THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE EARNED ANY SUCH COMMISSION. THEREFORE THE ASSESSING OFFICER WAS NO T CORRECT IN ESTIMATING SUCH COMMISSION AT 4% OF THE CONTRACT AMOUNT GIVEN TO VNC ON THE BASIS OF PRESUMPTION ONLY. 5 . COMING TO THE ESTIMATED ADDITION OF RS.47 377/ - IT WAS SUBMITTED THAT THE ASSESSEE HAD RECEIVED CONTRACT WORKS FROM IASL RAIGARH TO THE TUNE OF RS.17 22 822/ - WHICH WERE OFFLOADED FOR RS.16 53 909/ - TO HIS SISTER CONCERN I.E. VNC. THUS THE ASSESSEE KEPT FOR HIMSELF A PROFIT MARGIN OF 4% I.E. RS.68 913/ - (RS.17 22 822 16 53 909). HENCE THE ASSESSEE HAD DISCLOSED THE PROFIT ON THE S AID TRANSACTION ENTERED WITH THE SISTER CONCERN. HOWEVER THE ASSESSEE IN HIS BOOKS OF ACCOUNTS HAD ACCOUNTED FOR RS.5 38 395/ - RECEIVED FROM IASL RAIGARH IN THE FINANCIAL YEAR 2004 - 05 RELEVANT TO ASSESSMENT YEAR 2005 - 06. BUT THE SISTER CONCERN I.E. VN C ACCOUNTED FOR THE ENTIRE CONTRACT RECEIPT IN THE FINANCIAL YEAR 2005 - 06 RELEVANT TO ASSESSMENT YEAR 2006 - 07. WITHOUT APPRECIATING SUCH ACCOUNTING DIFFERENCE THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD SHOWN A LOSS WITH RESPECT TO THE SAID TRA NSACTION WHICH IS ABSOLUTELY INCORRECT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 6 . THE CIT(A) HAS EXAMINED THE ISSUE IN THE LIGHT OF MATERIAL PLACED BEFORE HIM AND BEING CONVINCED WITH IT HE DELETED THE ADDITIONS. NOW THE REVENUE IS IN APPEAL BEFOR E US BUT HE COULD NOT POINT OUT A SPECIFIC DEFECT IN THE ORDER OF THE CIT(A). WE HOWEVER CAREFULLY EXAMINED THE ORDER OF THE CIT(A) BUT FIND NO INFIRMITY THEREIN WE THEREFORE CONFIRM THE SAME. 7 . WITH REGARD TO GROUND NO.2 IT IS NOTICED THAT ASSES SING OFFICER HAS OBSERVED THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAD CARRIED OUT 4 CONTRACTUAL WORKS FOR D.R.D.O. AT DURGAPUR WEST BENGAL. IN CONNECTION WITH THE EXECUTION OF THE SAID WORK THE ASSESSEE HAD MADE A SERIES OF CASH PAYMENTS TO T HREE PERSONS VIZ. RANJIT KHOTRAPAL DINABANDU HAZARA AND MOHAN SETHI. THE PAYMENTS WERE BOOKED UNDER VARIOUS HEADS LIKE NMR WAGES ROD BENDING CHARGES OUTSIDE JOB CHARGES ETC. IN THIS CONTEXT THE ASSESSING OFFICER CALLED FOR ALL THE BILLS & VOU CHERS IN SUPPORT OF SUCH PAYMENTS. THE ASSESSEE PRODUCED VOUCHERS PERTAINING TO AUGUST 2005 TO FEBRUARY 2006 AND DID NOT PRODUCE THE VOUCHERS FOR THE BALANCE PERIOD OF THE FINANCIAL YEAR UNDER CONSIDERATION UNDER THE PRETEXT THAT THEY WERE MISPLACED. F URTHER EXAMINATION MADE BY THE ASSESSING OFFICER INDICATED THAT THOUGH CASH PAYMENTS WERE MADE AT DURGAPUR BUT ON THE RELEVANT DATES ON WHICH CASH PAYMENTS WERE MADE THERE WAS NO CASH BALANCE AS PER THE DURGAPUR CASH BOOK. THE ASSESSEE CLAIMED THAT CASH WAS WITHDRAWN AT VISAKHAPATNAM AND ON THOSE DATES CASH PAYMENTS WERE MADE AT DURGAPUR. THE ASSESSING OFFICER CONSIDERED IT UNLIKELY THAT CASH WAS WITHDRAWN AT VISAKHAPATNAM AND THE SAME WAS TRANSPORTED PHYSICALLY TO DURGAPUR FOR MAKING PAYMENTS AT DURGAP UR. AFTER ANALYZING THE ENTIRE ISSUE WHICH ARE DISCUSSED ELABORATELY BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FROM PAGES (4) TO (12) THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.23 78 068/ - TOWARDS BOGUS CLAIM OF EXPENDITURE OR INFLATION OF E XPENDITURE. 8 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ENTIRE BILLS & VOUCHERS COULD NOT BE PRODUCED AS THEY WERE MISPLACED IN COURSE OF SHIFTING THE ASSESSEES OFFICE FROM THE OLD PREMISES TO A NEW PREMISES. THE BILLS & VOUCHERS IN SUPPORT OF THE SAID EXPENDITURES WERE SOUGHT TO BE PRODUCED IN COURSE OF THE APPEAL PROCEEDINGS AS AN ADDITIONAL EVIDENCE ON THE GROUND THAT SUFFICIENT OPPORTUNITY WAS NOT GIVEN BY THE ASSESSING OFFICER TO PRODUCE THE SAME IN COURSE OF THE ASSESSMENT PROCEEDINGS. IN ADDITION TO THE SAID ADDITIONAL EVIDENCE THE FOLLOWING SUBMISSIONS WERE MADE: (I) THE ASSESSEE IS A REGULAR INCOME TAX ASSESSEE SINCE LAST 25 YEARS AND SINCE LAST 20 YEARS HIS ACCOUNT S WERE SUBJECT TO TAX 5 AUDIT U/S 44AB OF THE ACT. THE ASSESSEE WAS AWARDED THE HIGHEST TAX PAYER AWARD OF THE REGION BY THE DEPARTMENT. HENCE THE QUESTION OF NOT HAVING BILLS & VOUCHERS FOR THE EXPENDITURE INCURRED BY THE ASSESSEE DID NOT ARISE. IT W AS BECAUSE OF CERTAIN PRACTICAL DIFFICULTIES I.E. SHIFTING OF OFFICE BECAUSE OF WHICH BILLS & VOUCHERS WERE MIXED UP AND WERE NOT READILY AVAILABLE THE SAME COULD NOT BE PRODUCED IN COURSE OF THE ASSESSMENT PROCEEDINGS. (II) THE ASSESSING OFFICER HAS COME T O THE CONCLUSION THAT AMOUNTS PAID IN CASH ARE NOT GENUINE. THE SAID CONCLUSION IS NOT WARRANTED AS THOUGH THE PAYMENTS WERE MADE IN CASH THE SAME WERE WITHDRAWN FROM HDFC BANK ACCOUNT AT DURGAPUR BY PRESENTING THE PRIVILEGED CHEQUES GIVEN BY VISAKHAPATN AM BRANCH OF HDFC BANK WHICH IS CALLED ANYWHERE BANKING FACILITY. THE AMOUNT WITHDRAWN AT DURGAPUR SITE IS NOTHING BUT THE AMOUNT OF CHEQUE OF HDFC BANK VISAKHAPATNAM PRESENTED BY THE ASSESSEE AT DURGAPUR. THE SAID FACT WOULD BE VERIFIED FROM THE SCANN ED COPY OF THE HDFC BANK ACCOUNT VISAKHAPATNAM WHICH IS PART OF THE ASSESSMENT ORDER AT PAGE (10). THE SAME IS NOTHING BUT ONLINE TRANSFER OF FUNDS FROM ONE BRANCH TO ANOTHER OF HDFC BANK. (III) FOR THE PAYMENTS MADE TO THE THREE PERSONS TOWARDS SUB - CONTRACT W ORKS THE TDS WAS MADE BY THE ASSESSEE AS PER THE PROVISIONS OF THE ACT. WHEN THERE WAS NO ACTUAL PAYMENTS THERE WAS NO NECESSITY TO MAKE ANY TDS ON THE PAYMENTS AND REMIT TO THE GOVERNMENT ACCOUNT. 9 . AS THE ASSESSEE SOUGHT TO INTRODUCE ADDITIONAL EVIDE NCE IN THE FORM OF BILLS & VOUCHERS IN SUPPORT OF THE EXPENDITURES THE SAME WAS FORWARDED TO THE ASSESSING OFFICER FOR HIS EXAMINATION AND COMMENTS VIDE THIS OFFICE LETTER DATED 19.3.2009. IN RESPONSE THE ASSESSING OFFICER VIDE LETTER DATED 6.4.2009 OBS ERVED THAT SINCE THESE VOUCHERS ARE NOT PRODUCED IN COURSE OF THE ASSESSMENT PROCEEDINGS IT CANNOT BE PRODUCED BEFORE CIT(A). MOREOVER THE PAYMENTS IN RESPECT OF THESE VOUCHERS ARE SHOWN TO HAVE BEEN MADE IN CASH. HENCE THE AUTHENTICITY OF THE VOUCHE RS PRODUCED COULD NOT BE VERIFIED. 6 THE PERSONS TO WHOM PAYMENTS ARE MADE ARE BASED AT WEST BENGAL. HENCE GENUINENESS ALSO COULD NOT BE CROSS VERIFIED. THUS THE VOUCHERS PRODUCED SUBSEQUENT TO ASSESSMENT PROCEEDINGS SHOULD NOT BE ADMITTED. THE COMMENT S RECEIVED FROM THE ASSESSING OFFICER REGARDING THE ADMISSIBILITY OF THE ADDITIONAL EVIDENCE WAS COMMUNICATED TO THE ASSESSEE AND THE COUNTER COMMENTS WERE SOUGHT. IN THE COUNTER COMMENTS ON BEHALF OF THE ASSESSEE IT WAS SUBMITTED THAT THE VOUCHERS COUL D NOT BE PRODUCED IN COURSE OF THE ASSESSMENT PROCEEDINGS AS THEY WERE MIXED UP IN THE PROCESS OF SHIFTING THE OFFICE PREMISES OF THE ASSESSEE. SINCE TDS WAS MADE ON SUCH PAYMENTS THE ASSESSEE WAS UNDER THE GENUINE IMPRESSION THAT THE ASSESSING OFFICER WILL ACCEPT THE PAYMENTS AS GENUINE. THE ASSESSING OFFICER WITHOUT MAKING ANY ENQUIRIES ABOUT THE GENUINENESS OF THOSE BILLS & VOUCHERS OBSERVED THAT THE ADDITIONAL EVIDENCES SHOULD NOT BE ACCEPTED WHICH IS CONTRARY TO THE PROVISIONS CONTAINED IN THE ACT . 10 . THE CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF DETAILED EVIDENCES FURNISHED BEFORE HIM AND BEING CONVINCED WITH IT HE DELETED THE ADDITIONS. NOW THE REVENUE IS IN APPEAL BEFORE US WITH THE SUBMISSION THAT BEFORE THE ASSESSING OFFICER THE ASSESS EE COULD NOT FILE BILLS & VOUCHERS FOR THE IMPUGNED PERIOD. THEREFORE THE EXPENDITURE CLAIMED WERE TREATED TO BE BOGUS BY THE ASSESSING OFFICER. THE A.O. HAS ALSO DISALLOWED THE CLAIM OF EXPENDITURE ON THE GROUND THAT WHEN THE PAYMENT WAS MADE THERE WA S NO CASH AVAILABLE WITH THE ASSESSEES AT DURGAPUR. THEREFORE THE DISALLOWANCE WAS RIGHTLY MADE BY THE A.O. AND THE CIT(A) HAS WRONGLY ALLOWED THE RELIEF TO THE ASSESSEES WITHOUT REALIZING THAT ASSESSEE WAS BADLY FAILED TO PRODUCE THE RELEVANT EVIDENCE I N SUPPORT OF HIS CLAIM. 11 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES WE FIND THAT THE ASSESSEE COULD NOT FILE THE BILLS & VOUCHERS FOR A PARTICULAR PERIOD BEFORE THE ASSESSING OFFICER. THE REASO NS FOR NOT FILING THE VOUCHERS WAS ITS NON - AVAILABILITY DUE TO SHIFTING OF THE OFFICE OF THE ASSESSEES. BUT THESE BILLS & VOUCHERS WERE FILED BEFORE THE CIT(A) AND THE CIT(A) BEFORE ADMITTING THE SAME CALLED A REMAND REPORT FROM THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY THESE BILLS & VOUCHERS. 7 BUT THE A.O. DID NOT VERIFY THE SAME AND SUBMITTED THE REPORT THAT THESE BILLS & VOUCHERS COULD NOT BE VERIFIED AS IT WERE NOT FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE A.O. HAS ALSO NOT COMMENTED ON THE BANK STATEMENTS FURNISHED BY THE ASSESSEE SHOWING THE ENCASHMENT OF CHEQUES AT DURGAPUR. THE CIT(A) TOOK COGNIZANCE ON ALL THESE BILLS & VOUCHERS AND THE BANK STATEMENTS AND VERIFIED THE SAME BEFORE ACCEPTING THE C LAIM OF THE ASSESSEES. THE COPY OF BANK STATEMENTS WERE ALSO FILED BEFORE US AND FROM ITS PERUSAL WE FIND THAT CHEQUES ISSUED BY THE HDFC BANK VISAKHAPATNAM WERE ENCASHED AT DURGAPUR. THEREFORE WE DO NOT FIND ANY FORCE IN THE CONTENTION OF THE REVENUE THAT AT DURGAPUR WITHOUT HAVING CASH BALANCE THE ASSESSEE HAS MADE THE PAYMENTS AGAINST THE BILLS & VOUCHERS. WE HAVE ALSO EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT(A) HAD MADE THE COMPLIANCE OF PROVISIONS OF RULE 46A BY CONFRONTING THE ADDI TIONAL EVIDENCE TO THE ASSESSING OFFICER AND ALSO BY CALLING A REMAND REPORT FROM HIM. BUT A.O. HAS FAILED TO DISCHARGE HIS DUTIES AS HE HAS NOT EXAMINED THE EVIDENCE FILED BEFORE THE CIT(A). THEREFORE NOW THE REVENUE CANNOT TAKE A BENEFIT OF THE CALLOU S ATTITUDE OF THE ASSESSING OFFICER. WE HOWEVER CAREFULLY EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT(A) HAS PROPERLY EXAMINED THE ISSUE IN THE LIGHT OF MATERIAL AVAILABLE BEFORE HIM AND WE DO NOT FIND ANY INFIRMITY THEREIN. WE THEREFORE CON FIRM THE SAME. 1 2 . GROUND NO.3 RELATE TO THE ADDITION OF RS.99 88 642/ - AND IN THIS REGARD WE FIND THAT DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE RECEIVED A S UM OF RS.3 87 54 905/ - FROM TDM INFRASTRUCTURES LIMITED T OWARDS SUB - CONTRACT PAYMENT FOR EXECUTION OF THE STRUCTURAL WORKS I.E. BRIDGES CULVERTS AND PROJECTION WORK FROM KILOMETERS 122.3 TO 1.58 IN NH - 4 PROJECT. THE ASSESSEE FURTHER SUB CONTRACTED THE SAME WORK TO VNC FOR RS.3 51 71 009/ - . THE ASSESSING OFFI CER FOUND THAT THE SAID SUB CONTRACT PAYMENT WAS MADE TO VNC TOWARDS LABOUR CHARGES. OUT OF RS.3 51 71 009/ - PAYABLE TO VNC THE ENTIRE PAYMENT WAS RELEASED EXCEPTING AN AMOUNT OF RS.19 88 642/ - WHICH REMAINED PAYABLE AS ON 31.3.2006. THE ASSESSING OFFIC ER NOTED THAT THE ASSESSEE WAS THE MANAGING DIRECTOR OF VNC AND THEREFORE HE WAS OF THE VIEW THAT THE PAYMENTS MADE TO VNC FALLS SEC.40A(2)(B) OF THE ACT. THEREFORE HE EXAMINED THE REASONABLENESS OF SUCH 8 PAYMENT. IN THIS CONTEXT HE WAS OF THE OPINION T HAT OUT OF THE TOTAL CONTRACTUAL RECEIPT OF RS.3.87 CRORES PAYMENT OF LABOUR CHARGES OF RS.3.51 CRORES TO A SISTER CONCERN WAS HIGHLY EXCESSIVE. THE LABOUR PAYMENTS WERE MADE BY FICTITIOUS SELF - MADE VOUCHERS. VNC WAS NOT A LABOUR CONTRACTOR BUT IT EXECU TED VARIOUS CONTRACT WORKS DIRECTLY ON BEING SUB CONTRACTED BY THE APPELLANT. THEREFORE MAKING LABOUR PAYMENTS TO VNC WAS A COLOURABLE DEVISE. FURTHER HE NOTED THAT THE EXISTENCE OF OUTSTANDING BALANCE OF RS.19.88 LAKHS AS ON 31.3.2006 ITSELF PROVES TH AT IT WAS A CASE OF INFLATION OF EXPENSES IN AS MUCH AS THAT LABOUR PAYMENTS ARE DISBURSED ON CASH BASIS AND THERE CANNOT BE OUTSTANDING AMOUNT AT THE END OF THE YEAR. CONSIDERING ALL THESE FACTS THE ASSESSING OFFICER CONCLUDED THAT THE AMOUNT OF RS.19.8 8 LAKHS WHICH IS SHOWN AS OUTSTANDING AMOUNT AS ON 31.3.2006 IS THE EXCESSIVE AMOUNT WHICH NEEDS TO BE DISALLOWED SEC.40A(2)(B) OF THE ACT. ACCORDINGLY HE DISALLOWED THE SAME. 1 3 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION TH AT THE ENTIRE WORK RECEIVED ON SUB - CONTRACT FROM TDM INFRASTRUCTURES PRIVATE LIMITED WAS OFFLOADED WITH THE ASSESSEES SISTER CONCERN VNC. WHILE THE CONTRACTUAL RECEIPT WAS RS.3 87 54 905/ - THE SAME WAS OFFLOADED FOR A VALUE OF RS.3 51 71 009 / - AND THERE FORE THE ASSESSEE RECEIVED A PROFIT OF RS.35 83 896/ - WHICH IS 9% OF THE TOTAL CONTRACTUAL RECEIPT. THEREFORE IT WAS ARGUED THAT THERE IS NO QUESTION OF ANY EXCESSIVENESS IN PAYMENTS RELEASED TO THE SISTER CONCERN TOWARDS SUB - CONTRACT PAYMENT. THE PAYM ENTS RELEASED TO THE SUB - CONTRACTOR WAS NOT ONLY ON ACCOUNT OF LABOUR PAYMENTS BUT ALSO FOR EXECUTION OF ENTIRE WORK. THE CIT(A) CAREFULLY EXAMINED THE ISSUE AND BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES DELETED THE ADDITIONS. THE RELEVANT O BSERVATION OF CIT(A) IS EXTRACTED HEREUNDER: I HAVE CAREFULLY EXAMINED THE FACTS AND THE SUBMISSIONS MADE IN THIS REGARD. IT IS NOT DISPUTED THAT VNC IS A SISTER CONCERN OF THE APPELLANT. HOWEVER AS EXPLAINED BY THE APPELLANT THE ENTIRE CONTRACT WOR K WAS SUB CONTRACTED TO VNC. IN THE PROCESS THE APPELLANT RETAINED A PROFIT MARGIN OF 9% AS STATED IN PARA (5.2) OF THIS ORDER. THE SUB CONTRACT WAS FOR THE EXECUTION OF THE ENTIRE WORK AND WAS NOT ONLY LIMITED TO SUPPLY OF LABOUR. SINCE THE WORK 9 WAS S UB CONTRACTED AT A LESSOR RATE THAN THE RATE AT WHICH THE APPELLANT GOT THE CONTRACT THE QUESTION OF ANY EXCESSIVE OR UNREASONABLE PAYMENT TO THE SISTER CONCERN IN THIS REGARD DO NOT ARISE. FURTHER WHETHER THE LABOUR PAYMENTS WERE MADE ON THE BASIS OF FICTITIOUS SELF - MADE VOUCHERS WILL BE AN ISSUE IN THE CASE OF SUB CONTRACTOR AND NOT THE APPELLANT. CLEARLY THE PROVISIONS OF SEC. 40A(2)(B) WOULD NOT BE APPLICABLE TO THE FACTS OF THE INSTANT CASE. HENCE IT IS CONCLUDED THAT THE ASSESSING OFFICER HAS ERRED IN MAKING THE SAID DISALLOWANCE OF RS.19 88 642/ - . THE SAME IS HEREBY DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 1 4 . NOW THE REVENUE IS IN APPEAL BEFORE US BUT COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE ORDER OF THE CIT(A). WE HOWEVER CA REFULLY EXAMINED THE ORDER OF THE CIT(A) AND FIND NO INFIRMITY THEREIN AND THEREFORE CONFIRM THE SAME. 1 5 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON 24.9 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 24 TH SEPTEMBER 20 10 COPY TO 1 ACIT CIRCLE - 1(1) VISAKHAPATNAM 2 SRI S. VIJAY KUMAR MG. DIRECTOR M/S. VIJAY NIRMAN CO. PVT. LTD. SIRIPURAM VISAKHAPATNAM 3 THE CI T VISAKHAPATNAM 4 THE CIT (A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAP ATNAM