Disallowance of Rs. 2.97 Crore as Bogus Expenditure u/s 69C: ITAT Upholds 10% Disallowance [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) upheld a 10% disallowance of Rs. 29.71 lakh out of Rs. 2.97 crore claimed as bogus expenditure under section 69C of Income Tax Act,1961, concluding that the necessary documents, including vouchers, were not provided by the assessee, while deleting the rest of the addition.

The Revenue-appellant appealed against the order dated 10.01.2024, passed by Commisssioner of Income Tax(Appeals)[CIT(A)] for the Assessment year 2018-19.In this case ,Dhar Construction Company, respondent-assessee,a partnership firm involved in civil and electrical contracts and trading explosive items, filed its return of income for the assessment year 2018-19 on October 30, 2018. The Assessing Officer (AO) issued a notice under section 143(2) on September 22, 2019.

Want a deeper insight into the Income Tax Bill, 2025? Click here

The assessee maintained its books on a mercantile basis and submitted the required details. The AO disallowed Rs. 2,97,16,776 as bogus expenditure under section 69C. The assessee claimed that the AO ignored the provided evidence and did not give enough opportunity to explain. The appeal was filed, and the CIT(A) allowed the relief.

The CIT(A) reviewed the case after the assessee submitted written responses on 03.08.2022 and 02.01.2024. The main issue was the disallowance of Rs. 2,97,16,776 by the AO as bogus expenditure.

The case was selected for scrutiny due to large payments to individuals who hadn't filed tax returns. The assessee failed to provide key documents, and the AO disallowed the payments under section 69C of the Act.

The CIT(A) accepted the assessee’s explanations and argued that the non-filing of tax returns by payees didn’t prove the expenses were not genuine. The CIT(A) allowed the expenses, and the revenue filed an appeal before the tribunal.

The tribunal considered the arguments and facts. The assessee was a non-filer. The assessee counsel argued that the issue of missing bills was not raised in the notices or draft assessment order, making the addition unfair. The counsel also pointed out that section 69C did not apply, as the expenses were recorded in the books. The net profit ratio was 8% before depreciation and interest.

The appellate tribunal asked if the expenses could be justified with vouchers. The assessee counsel said the AO had not asked for vouchers. The revenue counsel disagreed, stating that all details were requested under section 142(1) of the Act. The assessment order showed large payments to individuals who hadn’t filed returns. The assessee did not provide the required documents despite reminders.

Clear all Your Doubts on RCM, TCS, GTA, OIDAR, SEZ, ISD Etc... Click Here

The ITAT found that the AO did ask for details, and significant payments were made to an individual, Shri Phulchand Sharma, for Rs. 1,47,60,000. Since the expenses were not verified and no vouchers were provided, the tribunal agreed that some disallowance was necessary.

Read More: ITAT Upholds CIT(A)’s Deletion of Rs. 6.8 crore Addition for Bogus Purchase due to Submission of Valid Proof

The two member bench comprising Manomohan Das(Judicial Member) and Rakesh Mishra(Accountant Member)  referred to the case of P.K. Palanisamy Vs. N Arumugham and another, where it was held that mentioning or omitting a provision does not invalidate an order as long as the authority had the requisite jurisdiction.As the documents were not submitted, the ITAT upheld a 10% disallowance of the expenses, amounting to Rs. 29,71,678, and deleted the rest of the addition.

In short,the appeal filed by the revenue was partly allowed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates