Bahubali Print Pvt.ltd. Surat

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IN THE INCOME TAX APPELLATE TRIBUNAL : ?D? BENCH : AHMEDABAD

(Before Hon?ble Shri T.K. Sharma, J.M. & Hon’ble Shri A.N. Pahuja, A.M. )

I.T.A. No. 1192/AHD./2010
Assessment Year : 2005-2006

Deputy Commissioner of Income Tax, -vs.- M/s. Bahubali Prints Pvt. Ltd., Surat
Circle-1, Surat (PAN : AABCB 6232 H)
(Appellant) (Respondent)
&
C.O. No. 150/AHD/2010
(arising out of ITA No. 1192/AHD/2010)
Assessment Year : 2005-2006
M/s. Bahubali Prints Pvt. Ltd., Surat -vs.- Deputy Commissioner of Income Tax,
Circle-1, Surat
(Cross Objector) (Respondent)

Assessee by : Shri Bandish Soparkar

Department by : Shri Rohit Mehra, D.R.

O R D E R

Per Shri T.K. Sharma, Judicial Member :

This appeal filed by the Revenue and Cross Objection by the assessee are against the

order dated 04.02.2010 of Learned Commissioner of Income Tax (Appeals)-I, Surat for the

assessment year 2005-06.

2. Brief facts relating to controversy involved in the Revenue?s appeal are that the assessee

is a Company engaged in the business of trading (master manufacturing) in textile. For the

assessment year under appeal, the Assessing Officer framed the assessment under section 143(3)

of the Income Tax Act, 1961 on 17.12.2007 determining total income at Rs.1,11,80,180/- as

against retuned income of Rs.83,71,849/-. In this assessment order, the Assessing Officer made

an addition of Rs.28,08,327/- on account of bogus sub-contractors payments made to Shri

Balramsingh Sengar and Shri Arjunsingh Sengar. Subsequently, on perusal of the case records,

the Assessing Officer noticed that during the course of original assessment proceedings, the

assessee was asked to furnish the information regarding sub-contractors for the assessment year

2005-06. The assessee had furnished the information regarding the sub-contractors for Bahubali

Prints Pvt. Ltd. and the information for Rajgiri Sarees which is a unit of the Bahubali Prints Pvt.
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ITA No. 1192-AHD-2010 & CO-150-AHD-2010

Ltd. was not furnished. According to Assessing Officer, the information was also received from

the ITO, Ward-2(2), Surat that the above-named persons have not done any business except

giving entries to M/s. Bahubali Prints Pvt. Ltd. It was also informed tat the inquiry by the

Inspector, the Bank account statement, self-cheques issued, the written submission made, etc.

revealed that the aforesaid persons were giving entries to Babubali Prints Pvt. Ltd. The Assessing

Officer accordingly reopened the assessment by issuing notice under section 148 on 12.03.2009.

Thereafter the Assessing Officer framed the assessment under section 143(3) read with section

147 on 29.10.2009, wherein the Assessing Officer made the addition of Rs.16,98,086/- on the

ground that while framing the original assessment, the payments of Rs.13,59,430/- and

Rs.14,48,897/- made to Shr Balramsingh Sengar and Shri Arjunsingh Sengar respectively were

added to the total income of the assessee as bogus sub-contractors payment. Thus the differential

amount of Rs.16,98,086/- is required to be made. He accordingly made the addition of

Rs.16,98,086/-.

3. On appeal, before the Learned Commissioner of Income Tax (Appeals) the assessee

contended that since the order of Learned Commissioner of Income Tax (Appeals) has merged

with the order of Assessing Officer, the Assessing Officer can make the order on this issue again.

On merit also, the assessee contended that these two sub-contractors had worked out the value

addition of sarees on job work basis, the payment had been made by cheque after deducting TDS

and the copies of bills were furnished during the course of assessment proceedings. It was also

contended that statement of Shtri Balramsingh Sengar had been recorded during the original

assessment proceedings on oath and he had categorically stated that the work had been carried

out by him. The other sub-contractor died and so could not produce. It was argued by the ld

counsel of the assessee that in answer no. 8 of the statement that the contractor had stated that he

had received the payment through cheques and he used to withdraw cash from bank account to

make the payment to the workers. The ld. counsel of the assessee stated that out of cash

withdrawn from the bank he used to make payments to ladies workers. The assessee stated that

in the light of the statement the Assessing Officer cannot say that the payment was returned back

to the assessee-company or to its directors. The ld. counsel contended that in answer no. 10 of

the statement Shri Balramsingh Sengar had clearly stated that after 2004, he had done

embroidery work for the assessee. In answer No. 11, he stated that his late brother had also done
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ITA No. 1192-AHD-2010 & CO-150-AHD-2010

the work for the assessee. The assessee argued that inspite of clear statement of the contractor

and without proving it wrong, the assessee had relied only on the information from the ITO and

has made the disallowance. It was argued by the ld. counsel that there is nothing on record to

show that any part of the funds given to the two sub-contractors by the assessee came back to the

assessee-company or to its directors in any form. There are sufficient materials to prove that no

any fund came back to the assessee-company from these two sub-contractors in the form of one

of the sub-contractor Shri Balramsingh as is clear from the statement recorded on oath during the

original assessment proceedings. The ld. counsel of the assessee relied on the decision of the

jurisdictional High Court in the case of M.K. Brothers 163 ITR 249 and the judgment of the

Hon’ble Delhi High Court in the case of Jindal Vegetable Products Ltd. 315 ITR 265 and

contended that no disallowance can be made.

4. After considering the aforesaid submissions, in the impugned order, the Learned

Commissioner of Income Tax(Appeals) deleted the addition of Rs.16,98,086/- made under

section 143(3) read with section 147 for the detailed reasons given in para 8, which is re-

produced hereunder :-

?8. I have considered the submission made by the appellant and the observation of
the A.O. While deciding the original appeal in CAS-I/327/07-08 in the order dated
28.05.2008, the CIT(A.) has observed as under :-

“2.3. 1 have considered the submission made by the appellant and
observation of the AO. The appellant has argued that the AO has summoned
the contractor and has taken the statement in his own office on 27.11.2007.
The contractors have reiterated in the statement that they had done the work
for the appellant, they have received the payment try account payee cheques
and these cheques were deposited in their bank accounts. The payments so
received were used for making the payment to the laborers by withdrawing
cash. The appellant has stated that the AO has not brought any material on
record to show that the statement by Shri Balramsingh Sengar was false or
the work was never done or the payment was received back by the appellant in
the form of cash. In view of these facts by relying upon the decision of Hon’ble
Gujarat High in the case of M. K. Brothers (supra), the appellant has argued
that no addition can be made. The only point is that the contractor has written
the address of the assessee company in his income-tax return but this fact
without there being any other material on record to support AO’s argument no
adverse view can he taken specially because the AO himself has recorded the
statement of the contractors and there is nothing in the statement which can
go against the appellant. This shows that there is no material on record to
support the contention of the AO. Hence the contention of the appellant is
accepted and the addition is deleted. The grounds of appeal are allowed.”
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ITA No. 1192-AHD-2010 & CO-150-AHD-2010

It is seen from the present assessment order that the A.O. has simply mentioned that the
ITO, Ward-2(2), Surat has given an information that these two sub-contractors have not
done any Business except giving entries to Bahubali Prints Pvt Ltd. This was based on
the inquiry by the Inspector, Bank account statement, self-cheque issued and the written
submission made. However, in the entire order there is no descriptive as to what is the
report of the Inspector from whom he had made inquiry. There is nothing on record to
show as to how the Bank account statement, self-cheque issued and the written
submission made revealed that these two parties had given only entries. As stated above,
the A.O. has earlier recorded a statement of Shri Balramsingh Sengar in his own office
on 27.ll.2O07. The contractor has reiterated in the statement that they had done the work
for the appellant, they had received the payment by account payee cheques and these
cheques were deposited in their bank accounts. The payments so received were used for
making the payment to the laborers by withdrawing cash. The appellant has stated that
the AO has not brought any material on record to show that the statement by Shri
Balramsingh Sengar was false or the work was never done or the payment was received
back by the appellant in the form of cash. In view of these facts by relying upon the
decision of Hon’ble Gujarat High in the case of M. K. Brothers (supra), the appellant has
argued that no addition can be made. The only point is that the contractor has written the
address of the assesses company in his income-tax return but this fact without there being
any other material on record to support A.O.?s argument no adverse view can be taken
specially because the AO himself has recorded the statement of the contractors and there
is nothing in the statement which can go against the appellant. This shows that there is
no material on record to support the contention of the AO. Hence the contention of the
appellant is accepted and the addition is deleted?.

5. Aggrieved with the order of Learned Commissioner of Income Tax (Appeals), the

revenue is in appeal before the Tribunal on the following ground :-

?On the facts and in the circumstances of the case and in law, the ld.
CIT(A.)-I, Surat has erred in deleting addition of Rs.16,98,086/- made by
the Assessing Officer on account of bogus sub-contract payment?.

6. At the time of hearing, on behalf of Revenue Shri Rohit Mehra, ld. D.R. appeared and

contended that the view taken by the Learned Commissioner of Income Tax(Appeals) deleting

the addition of Rs.16,98,086/- is not acceptable for the following reasons :-

(1) The ld. CIT(A.) has not appreciated the fact that no proof/ books of accounts
were submitted by the so-called sub-contractor on the ground that the same had
been washed during the flood.

(2) The onus is on the assessee to establish through supporting evidences that a
particular allowance/ expenditure is justified.

(3) Reliance is placed upon CIT ?vs.- Southern Sea Foods Ltd. [1995] 215 ITR
176 (Mad.) and Assam Pesticides & Agro Chemicals [1997] 227 ITR 846 (Gau.)

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ITA No. 1192-AHD-2010 & CO-150-AHD-2010

(4) The ITAT has not appreciated that as per ratios laid down by the Supreme
Court in the following cases :-

(a) CIT ?vs.- Calcutta Agency Ltd. 19 ITR 19 (SC);

(b) Laxmi Marathan Cotton Mills Co. Ltd. 73 ITR 63 (SC);

(c) Dalmia Jain & Co. 33 ITR 294.

In order to claim that expenses falls u/s. 37(1), the burden to prove necessary
facts in that connection is solely on the assessee.

(5) The CIT(A.) has not appreciated the fact that the so called sub-contractor has
filed his IT return showing addresses of the assessee company which very strongly
suggests that the contractors had very low means to carry such contract work and
they were merely name-lenders for the assessee?.

7. On the other hand, Shri Bandish Soparkar, ld. counsel appearing on behalf of the assessee

vehemently supported the order of Learned Commissioner of Income Tax(Appeals). The ld.

counsel of the assessee also produced a copy of the decision of ITAT, ?D? Bench, in assessee?s

own case in Revenue?s appeal in ITA No. 2705/AHD/2008 for the assessment year 2005-06,

order dated 24.09.2010, wherein the Tribunal has confirmed the order of Learned Commissioner

of Income Tax(Appeals) deleting the addition of Rs.28,08,327/- made by the Assessing Officer

in the original assessment framed under section 143(3). The ld. counsel of the assessee submitted

that the issue of bogus sub-contractors was duly examined by the Assessing Officer in the

original assessment proceedings and he made the addition. This was deleted by the Learned

Commissioner of Income Tax(Appeals)-I, Surat vide order dated 28.05.2008. The appeal of the

Revenue against the said order had been dismissed by the Tribunal vide order dated 24.09.2010.

He accordingly contended that the view taken by the Learned Commissioner of Income Tax

(Appeals) be upheld.

8. Having heard both the sides, we have carefully gone through the orders of authorities

below and the decision dated 24.09.2010 of ITAT, ?D? Bench, Ahmedabad in assessee?s own

case in Revenue?s appeal in ITA No. 2705/AHD/2008 for the assessment year 2005-06. It is

pertinent to note that in this case, the Assessing Officer framed the original assessment under

section 143(3) on 17.12.2007, wherein he made the addition of Rs.28,08,327/- on account of
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ITA No. 1192-AHD-2010 & CO-150-AHD-2010

bogus sub-contractors payment. Against this order, appeal was filed and ITAT, ?D? Bench vide

order dated 24.09.2010 deleted the said addition observing that payments were made through

account payee cheques on which TDS were deducted and payments are verifiable from the Bank

a/c. of the sub-contractors. Thereafter in the order under section 143(3) read with section 147, the

Assessing Officer disallowed payment made to sub-contractors amounting to Rs.16,98,086/-,

which is much less than the addition earlier made in the assessment under section 143(3) on

17.12.2007. In the impugned order, the Learned Commissioner of Income Tax(Appeals) deleted

the addition observing that the contractors to whom the payments were made, in the statement

recorded admitted that they had done the work for the assessee for which they had received the

payments through account payee cheque and these cheques were deposited in their Bank

accounts. After considering the totality of the facts and circumstances of the case, we are

convinced that the Learned Commissioner of Income Tax (Appeals) has given cogent reason for

deleting the addition of Rs.16,98,086/- made by the Assessing Officer. We, therefore, uphold the

order of Learned Commissioner of Income Tax (Appeals) and reject the ground raised by the

Revenue.

9. The ground of Cross Objection regarding challenging validity of reassessment

proceedings was not pressed by the ld. counsel of the assessee at the time of hearing. Therefore

the same is dismissed being not pressed.

10. In the result, the appeal filed by the Department as well as the Cross Objection by the

assessee both are dismissed.

The Order was pronounced in the Court on 10.12.2010

Sd/- Sd/-
(A.N. Pahuja) (T.K. Sharma)
Accountant Member Judicial Member
DATED : 10/ 12 / 2010
Copy of the order is forwarded to :
1) The Assessee
(2) The Department.
3) CIT(A.) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad.
True Copy

By Order

Deputy Registrar, ITAT, Ahmedabad

Laha/Sr.P.S.

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