The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently deleted the addition on disallowance of subcontract expenses on ground of lack of evidence.
The appeal was filed by the asessee V M Matere Infrastructures (India) Private Limited challenging the validity of reopening followed by disallowance of sub-contract payment expenses amounting to Rs.4,88,33,000/-; Rs.3,41,59,000/-; Rs.4,19,02,000/-; Rs.2,48,58,000/-; Rs.1,78,48,000/-; Rs.60,42,000/- and Rs.1,23,66,000/-; assessment year-wise, respectively, which have been partly affirmed in the Commissioner of Income Tax (Appeals) [CIT(A)]’s common order.
The Revenue’s cross-appeals on the other hand sought to revive the Assessing Officer’s addition disallowing the assessee’s sub-contract expenses in entirety.
The cousnel for the assessee argued that the reassessment order under Section 147 of the Income Tax Act was not valid since the original assessment was already completed under Section 143(3) of the Income Tax Act and there was no failure on their part to disclose all material facts.
He further contended that all aspects of subcontracting expenses, including the subcontractors’ details, were already submitted and on record during the original assessment.
The counsel disagreed with the disallowance of subcontractor expenses amounting to Rs. 55,42,995. Furthermore claimed that the expenses were genuine and should not have been disallowed.
Conversely, the counsel for the revenue invited the attention of the court into the revenue’s cross appeal and argued that the disallowance was justified as the expenses were booked under the names of 11 sub-contractors who were found to be bogus.
Additionally, the counsel claimed that the CIT(A) failed to consider a decision of the Supreme Court in the case of N.K. Proteins Ltd., which held that when expenses are found to be bogus, the entire expenses should be added and not just the embedded profit.
The Bench, consisting of Judicial Member Satbeer Singh Godara and Accountant Member. Dipak P. Ripote observed that the Section 292C of the Income Tax Act establishes a presumption of correctness regarding material found or seized during a search or survey.
However, the CBDT circulars emphasized the importance of collecting actual evidence rather than relying solely on admissions or confessions made during a search or survey. Based on these principles, the Tribunal examined the records of the eleven cases and found that the Assessing Officer’s doubts regarding the genuineness of the sub-contractors were reversed by the CIT (A).
The Tribunal agreed with the CIT(A)’s findings, stating that the Assessing Officer failed to provide specific material to support his reasoning. Therefore, the Tribunal concluded that the sub-contractual payments made by the appellant were genuine in the given circumstances, and the Assessing Officer erred in treating them as non-genuine. Consequently, the revenue’s appeals were rejected.
No other grounds or arguments were presented during the proceedings. Therefore, the appellant’s seven appeals were partly allowed, and the revenue’s four cross-appeals were dismissed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
