Been Disallowed, To Any Extent, Under Section 40A(2)(A) Inabsence Of Any Finding As To The Expenditure Beingexcessive Or Unreasonable Having Regard To The Statu v. Whether, Any Part Of The Expenditure Incurred By Theappellant In The Earlier Years And It, Corresponding Liabilitycarried In The Appellants Books Of Account In

Court No. - 35 Case :- INCOME TAX APPEAL No. - 89 of 2013 Appellant :- M/S Akrati Promoters And DevelopersRespondent :- Deputy Commissioner Income Tax -4Counsel for Appellant :- Suyash AgarwalCounsel for Respondent :- C.S.C. It,Suyash Agarwal With Case :- INCOME TAX APPEAL No. - 222 of 2016 Appellant :- M/S Akrati Promoters And Developers AgraRespondent :- Pr. Commissioner Of Income Tax Agra And AnotherCounsel for Appellant :- Suyash AgarwalCounsel 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 the assessee filed under Section260 A of the Income Tax Act, 1961 challenges the order ofIncome Tax Appellate Tribunal, Agra Bench, Agra (hereinaftercalled as ‘Tribunal’) dated 28.2.2013 passed in Income TaxAppeal No.129/Agr/2012 for assessment year 2008-09 andorder dated 21.4.2016 passed in ITA No.152/Agr/2014 forassessment year 2009-2010. 2.The Appeal No.89 of 2013 was admitted on 20.9.2013 onthe following substantial question of law:- “i. Whether, in view of the fact that the case of the revenueis confined under Section 40A(2)(a) and not section 37 ofthe Act, the finding of the Tribunal that the appellant did notget sub-contracts executed through Sri Sanjay Agarwal, SriSubodh Agarwal and Sri R.R. Agarwal is impermissibleand suffers from self contradiction? ii. Whether, expenditure incurred by the appellant inexecution of work through sub-contractors could have [2] been disallowed, to any extent, under Section 40A(2)(a) inabsence of any finding as to the expenditure beingexcessive or unreasonable having regard to the statutoryfactors enumerated therein? iv. Whether, even otherwise, the finding of the Tribunal thatthe appellant did not get the work executed through thesub-contractors Sri Sanjay Agarwal, Sri Subodh Agarwaland Sri R.R. Agarwal is wholly perverse and against theentire weight of evidence and against the business practiceas consistently accepted by the revenue authorities in theearlier assessment years? v. Whether, any part of the expenditure incurred by theappellant in the earlier years and it, corresponding liabilitycarried in the appellants books of account in the presentyear could be disallowed under Section 40A(2)(a)? 3.Appeal No.222 of 2016 was admitted on the samequestion for the assessment year 2009-10 on 20.12.2016. 4.As both the appeals arise out of same question of law, assuch they are being heard and decided together by a commonorder. 5.Assessee/appellant during the assessment year inquestion was a partnership firm, but w.e.f. 28.8.2012 wastaken over with all its assets and liabilities by a companyknown as Akrati Technimont Ltd. 6.Facts of Appeal No.89 of 2013, which is in respect ofassessment year 2008-09, assessee/appellant filed its returnof income disclosing income of Rs.30,06,670/-. The assesseefirm was engaged in business of civil work contracts. Case ofthe assessee was selected for scrutiny, and notices underSection 143(2) and 142(1) of the Act were issued.Representative of the assessee firm appeared and produced [3] 4.As both the appeals arise out of same question of law, assuch they are being heard and decided together by a commonorder. 5.Assessee/appellant during the assessment year inquestion was a partnership firm, but w.e.f. 28.8.2012 wastaken over with all its assets and liabilities by a companyknown as Akrati Technimont Ltd. 6.Facts of Appeal No.89 of 2013, which is in respect ofassessment year 2008-09, assessee/appellant filed its returnof income disclosing income of Rs.30,06,670/-. The assesseefirm was engaged in business of civil work contracts. Case ofthe assessee was selected for scrutiny, and notices underSection 143(2) and 142(1) of the Act were issued.Representative of the assessee firm appeared and produced [3] the books of account before the assessing authority. Duringcourse of assessment proceedings, to verify the genuinenessof payments claimed to have been made to sub-contractors,summons under Section 131 of the Act were issued. Inresponse to the said, Sanjay Agarwal, Subodh Agarwal andR.R. Agarwal appeared and the statement on oath wererecorded. During the assessment year in question, assesseehad disclosed expenditure of Rs.2,55,49,027.78/- to 21different sub-contractors towards execution of work contract.Out of the said amount, assessee incurred expenditure ofRs.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 orderdated 10.4.2011 disbelieved and disallowed the entireexpenditure of Rs.61,76,126/- being payment made to the said3 sub-contractors and work executed by them. An appeal wasfiled challenging assessment order before the Commissionerof Income Tax (Appeals), who on 31.1.2012 partly allowed thesame, however, as regard the ground raised against dis-allowance of expenditure under Section 40A(2)(a) of the Actwas rejected. 7.The assessee as well as the Revenue filed cross appealsbefore the Tribunal. On 28.2.2013, the Tribunal partly allowedthe appeal of the assessee, out of total expenditure ofRs.61,76,126/- disallowed by the assessing authority underSection 40A(2)(a), Tribunal upheld the disallowance ofRs.12,35,225/- and allowed remaining 80% expenditure of [4] Rs.49,40,900/- while the appeal of the department wasdismissed. 8.Sri Rakesh Ranjan Agarwal, learned Senior Counselassisted by Sri Suyash Agarwal, learned Counsel for theassessee submitted that the Tribunal had wrongly disallowed20% of the amount while deleting the addition ofRs.49,40,901/- made by the assessing authority. He submittedthat the Tribunal while recording the finding had held that theassessee has carried out contract work, may be not from thethree sub-contractors named above but by other parties, thusthe case of the assessee did not fall under Section 40A(2)(a)of the Act and case of the assessee fell under Section 37 ofthe Act, and the Tribunal should have granted entire relief tothe assessee once it arrived at the finding that the sub-contract was not carried out by the three contractors namedabove and it confirmed the finding of the assessing authorityas well as the first appellate authority. 9.Sri Manu Ghildyal, learned Counsel appearing for thedepartment submitted that the three sub-contractors namedabove, namely Sanjay Agarwal, Subodh Agarwal and R.R.Agarwal are the sons and relatives of the partners of the firmand are persons covered under Section 40A(2)(b) of the Act.He further invited the attention of the Court to the findingsrecorded by the assessing authority, wherein these three sub-contractors were examined by the A.O. and the affidavit filedby them was considered. 9.Sri Manu Ghildyal, learned Counsel appearing for thedepartment submitted that the three sub-contractors namedabove, namely Sanjay Agarwal, Subodh Agarwal and R.R.Agarwal are the sons and relatives of the partners of the firmand are persons covered under Section 40A(2)(b) of the Act.He further invited the attention of the Court to the findingsrecorded by the assessing authority, wherein these three sub-contractors were examined by the A.O. and the affidavit filedby them was considered. 10.According to Sri Manu Ghildyal, learned Counsel for theDepartment, the A.O. recorded finding that the three sub-contractors at the most would be the supervisor staff of theassessee firm, as they were being paid salary and they did nothave sufficient balance in their bank account so as to pay theemployees for execution of work such as filling of earth etc. Hefurther submitted that one of the sub-contractors SanjayAgarwal was entitled for total payment of Rs.21,000/- only inthe return of the assessee, it was claimed that he had made apayment of Rs.21,75,000/-, as such the excess payment ofRs.21,54,000/- was correctly disallowed. Similarly in case ofSubodh Agarwal also the amount of Rs.26,09,254 wasdisallowed. Further the A.O similarly disallowed Rs.14,03,972/-in case of R.R. Agarwal. 11.We have heard learned Counsel for the assessee as wellas the learned Counsel for the Revenue and perused thematerial on record. 12.As it is the case of the assessee itself that during theassessment year in question, the assessee had givencontracts to twenty one sub-contractors for execution ofvarious work. As far as the expenditure incurred to the tune ofRs.61,76,126/-, by the three sub-contractors Sanjay Agarwal,Subodh Agarwal and R.R. Agarwal, who are the sons andrelatives of the partners of the assessee firm, the assessingauthority recorded a categorical finding and disallowed thepayments so made to them under Section 40A(2)(a) of the Act,on the ground that all these three sub-contractors did not havesufficient amount in their bank accounts so as to incur such expenses for execution of work and disallowed theexpenditure so made by the assessee firm as regard thesethree sub-contractors. The CIT (A) also held that mere filing ofaffidavits of three persons in support of the claim that workwas sub-contracted to them, unless corroborated cannot betaken on its face value. It was further held that these sub-contractors could not produce any shred of evidence toestablish that they had actually carried out any work asclaimed by them. 13.The Tribunal while considering the grounds so raisedrecorded a categorical finding that the sub-contract was notcarried out by the above named three sub-contractors andconfirmed the finding of the A.O. as well as the first appellateauthority. However, the Tribunal considering the facts andcircumstances of the case came to conclusion that the sub-contract was carried out by other mode and not by these sub-contractors, and it disallowed 20% of the expenditure asclaimed as payment to sub-contractor while it confirmed thedeletion of the balance amount of addition of Rs.49,40,401/-made by the assessing authority. 14.As, it is an admitted case that all the three sub-contractors are relatives of the partners of the assessee firm,and assessing authority recorded categorical finding hadrightly disallowed the expenditure claimed in view of provisionsof Section 40A(2)(b) of the Act. The argument raised bylearned Counsel for the assessee does not have any force thatit is a case under Section 37 and not under Section 40A(2)(a)of the Act. As the expenditure claimed by the assessee while [7] computing the income chargeable under the head profit andgain of business or profession was disallowed, as paymenthas been made to persons referred in clause (b) of Section40A(2) of the Act. The said finding has been confirmed by thefirst appellate authority as well as the Tribunal. 14.As, it is an admitted case that all the three sub-contractors are relatives of the partners of the assessee firm,and assessing authority recorded categorical finding hadrightly disallowed the expenditure claimed in view of provisionsof Section 40A(2)(b) of the Act. The argument raised bylearned Counsel for the assessee does not have any force thatit is a case under Section 37 and not under Section 40A(2)(a)of the Act. As the expenditure claimed by the assessee while [7] computing the income chargeable under the head profit andgain of business or profession was disallowed, as paymenthas been made to persons referred in clause (b) of Section40A(2) of the Act. The said finding has been confirmed by thefirst appellate authority as well as the Tribunal. 15.Learned Counsel for the assessee could not deny thefactum of relation of the sub-contractors with the partners ofthe assessee firm, nor would justify the payments so made bythe firm to the sub-contractors who did not have the meansand the source to make expenses for the work contract, as thebalance in the saving accounts was negligible in comparisonto the alleged work contract executed by them and thepayments so made. 16.As Section 37 of the Act envisages for any expendituremade for the purpose of business to be allowed in computingthe income, while Section 40A puts a barrier for expenses ofpayments not deductible in certain circumstances asenumerated in the said section. 17.In the present case, as it was found by the taxingauthorities that payment made by the assessee firm to threesub-contractors out of 21 work contracts given by it was to therelatives of the partners of the firm, as such same wasdisallowed in view of Clause (b) of Section 40A(2) of the Act.Thus, the authority had rightly disallowed the expenditure soclaimed by the assessee. 18.Considering the facts and circumstances of the case, weare of the considered opinion that the Tribunal has recorded a categorical finding of fact which needs no interference by thisCourt, and the appeal is dismissed. The Appeal No.222 of2016 which was admitted on the identical question of law forthe assessment year 2009-10 is also dismissed. The questionsof law are, therefore, answered in favour of the Revenue andagainst the assessee. Order Date :- 3.9.2019S. Singh