Arydeep Developers Pvt. Ltd.Vs ITO (ITAT Ahmedabad)
The issue under consideration is whether for assessee engaged in providing accommodation entries only commission amount to be added on estimation basis or entire amount of accommodation entry to be added?
ITAT states that the CIT(A) is unjustified in treating the entire contract receipt as a taxable income of the assessee without disproving the material fact that assessee was indulged in facilitating accommodation entries. The assessee has not carried out any development work for the PACL Ltd. and provided accommodation entries to PACL Ltd. and on similar basis accommodation entries were provided by the subcontractor to the assessee. The assessee has failed to furnish the description of the land and other details where the land development work was carried out and the subcontractors have also admitted in their statements and the affidavits they have only provided accommodation entries. In the light of the above facts and finding that assessee have not executed any work except providing accommodation entries, ITAT consider that looking to the meager income shown by the assessee it will be reasonable to estimate the commission income earned by the assessee @ 4% of contract price. Therefore, the appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This assessee’s appeal for A.Y. 2012-13, arises from order of the CIT(A)-1, Ahmedabad dated 27-02-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
2. The assessee has raised following grounds of appeal:-
“1.1 The order passed u/s.250 on 27.02.2017 for A. Y.2012-13 by C1T(A)-1 . Ahad upholding, the disallowance of sub-contract payments for land development expanses of Rs. 9,48,000/- made by AO is wholly illegal, unlawful and against the principles of natural justice.
1.2 The ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence, produced by the appellant with regard to the impugned additions. The Ld. CIT has grievously erred in law and or on facts in not allowing the opportunity to cross-examine the sub-contractors and relying upon the material gathered by AO behind the back of the appellant.
1.3 The Ld. AO has grievously erred in disallowing the expenses of RS. 94,48,000/-without giving sufficient and specific opportunity to the appellant and thereby violating the principles of natural justice. The AO has failed to appreciate that the appellant was prevented by sufficient cause in failing to produce the sub contractors with documents called for. The appellant should therefore be allowed to produce additional evidence during the course of appellate proceedings arid should be admitted.
2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the disallowance of the entire sub-contractors payments of Rs. 94,48, 000/- as non-genuine.
2.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has grieviously erred in upholding the disallowance of the entire sub-contractors payments of Rs. 94, 48,000/-as non-genuine.
3.1 Without prejudice to the above and in the alternative, when the contention of Dept was that the land development expenses paid by PACL Ltd were not genuine, both the lower authorities have erred in law and or in facts in bringing to tax the entire contract receipts as income
4.1 Without prejudice to the above and in the alternative, the Ld. CIT(A) ought to have restricted the addition to the reasonable rate of commission for providing accommodation to the contractor.
It is therefore prayed that the disallowance of RS. 94,48, 000/- made by the AO and upheld by CIT(A) should be deleted. “
3. During the course of appellate proceedings before us, the Id. counsel has contested only the grounds no. 3.1 and 4.1. As common issue is involved in both the grounds of appeal, therefore, for the sake of convenience, these grounds of appeal are adjudicated together in the succeeding para.
4. The fact in brief is that the assessee has filed return of income on 28th Sep, 2012 declaring total income of Rs. 4,200/-. The assessee company was engaged in the business of construction, road contractor etc. The assessing officer received information from the DDIT, Investigation that assessee had undertaken work contracts from PACL Ltd., Gurgaon. As per the information, the PACL Ltd. has claimed bogus development expenditure and assessee has received Rs. 1,02,04,082/- as land development charges from PACL Ltd. To verify the genuineness of transactions, the case of the assessee was selected under scrutiny by issuing of notice u/s. 143(2) of the Act on 27th Sep, 2013. During the course of assessment, the assessing officer has verified the work agreement of the assessee company with the PACL Ltd. and the work carried out by the assessee through the sub-contractors. On verification, the assessing officer noticed that there was no detail of location of land, area of land, survey no of land etc. in the agreement of the work contract. Therefore, the assessing officer has issued notices u/s. 133(6) of the Act to the following subcontractors:-
