Sun Steel Industries (P) Ltd. Vs DCIT (ITAT Kolkata)
It is not in dispute that the payments to sub-contractors were indeed made by the assessee through account payee cheques after deduction of tax at source. It is not in dispute that those recipients have duly disclosed the same in their respective IT returns and had also filed their returns of income showing meager figure. The tax deducted by the assessee predominantly forms part of claim of refund made by these parties in their return of income. Even though the existence of these companies are proved beyond doubt, with proper paper work carried out, we find that the assessee had not proved the actual rendering of services by these parties to the assessee by way of rendering the foundation services.
Admittedly, all these six alleged sub-contractors were only trading in shares and investment companies. The assessee was not able to prove with cogent material as to whether these companies possess necessary expertise and infrastructure to render the foundation services to the assessee.
More importantly these services were alleged to have been rendered in Shillong whereas, these parties are located in Kolkata. From the perusal of their balance sheet, it is evident that they do not have any branch in Shillong or any other infrastructure to render foundation services/specialized services to the assessee. Their profit and loss account contains payment of labour charges to the tune Rs 80000/- to Rs 90000/- and payment of salary of Rs. 6 lacs approximately.
Hence, it is proved beyond doubt that those parties had not rendered any services to the assessee even by way of outsourcing of the said jobs to outsiders who are stationed in Shillong. All the six companies had similar types of income and similarly types of expenses reflected in their profit and loss account. None of the companies have sufficient fixed assets to prove the existence of necessary infrastructure for rendering such technical services.
From the aforesaid facts, it is made very clear that these parties had merely acted as a conduit to reduce the profits of the assessee company and show meager income in their returns and claim refund of TDS. We are satisfied in the instant case, that these companies are merely paper companies, having complied with proper paper work, but not possessing necessary expertise to render technical services to the assessee.
Hence, we hold that the factum of services rendered by those parties to the assessee has not been proved by the assessee in the instant case and hence the disallowance has been rightly made by the revenue in the facts and circumstances of the case . Accordingly grounds raised by the assessee are dismissed.
FULL TEXT OF THE ITAT JUDGMENT
1. This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-2, Kolkata [in short the ld CIT(A)] in Appeal No.1783/CIT(A)- 2/14-15 dated 22.01.2016 against the order passed by the DCIT, Circle-5, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 30.03.2014 for the Assessment Year 2011-12.
2. The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in confirming the disallowance of Rs. 37 lacs claimed by the assessee on account of expenses incurred through sub-contractors, in the facts and circumstances of the case.
3. The brief facts of this issue is that the assessee is engaged in the business of fabrication and galvanizing of steel structures and erection of transmission towers. The return of income for the assessment year 2011-12 was filed by the assessee on 29.09.2011 declaring total income of Rs. 69,22,768/- under the normal provision of the Act and book loss of Rs. 72,68,669/- u/s 115JB of the Act. During the course of scrutiny proceedings, the ld. AO observed that the assessee has made following payments to the following sub-contractors as foundation expenses:
