ITAT Upholds CIT(A)'s Deletion of ₹2.25 Crore Disallowance, Finding No Evidence to Doubt Transaction Genuineness [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision to delete a ₹2.25 crore disallowance, finding no evidence to doubt the genuineness of transactions made by the assessee.

JMC Projects,appellant-assessee,company involved in civil construction and infrastructure development, faced a disallowance of ₹2,25,05,524 by the Assessing Officer ( AO ). The AO added this amount back to the assessee’s income, questioning payments made to four contractors/vendors. These included Vishala Glazers (₹95,261), Vishala Glazers Pvt. Ltd. (₹12,85,383), Balaji Construction (Hathras) (₹46,77,783), and AMG Infrastructure Pvt. Ltd. (₹1,64,37,097).

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The AO pointed out that the assessee did not provide enough evidence to prove the genuineness of these transactions. Notices under Section 133(6) of the Act were sent but either went unanswered or returned without adequate responses. For instance, AMG Infrastructure’s notices were returned unserved, and the AO was unable to verify the assessee's existence due to unreliable contact information.

Even though payments were made through account payee cheques, the AO did not consider this enough proof of the transactions' authenticity. The AO also raised concerns that the amounts could have been returned to the company in cash. Despite submitting Tax Deducted at Source ( TDS ) certificates and Form 16, the assessee could not convince the AO that the expenses were genuine. As a result, the AO disallowed the expenditure, claiming the assessee failed to prove that the costs were incurred entirely for business purposes.

The CIT(A) found that the AO's decision was based on assumptions without enough proof. The CIT(A) noted that the assessee had provided detailed documents, including vendor details, TDS certificates, and payment records. This evidence was seen as sufficient to prove the transactions were genuine.

The CIT(A) stated that payments made by cheque and backed by proper documents should not be doubted without strong evidence. The company was not required to provide third-party confirmations, only adequate documentation. The CIT(A) also criticized the AO for not conducting further checks and relying on unserved notices. Given the size of the company’s operations, the CIT(A) ruled that the disallowance of ₹2,25,05,524 was unjustified and deleted it.

The two member bench comprising Suchitra Kamble ( Judicial Member ) and Makarand V.Mahadeokar ( Accountant Member ) reviewed the AO’s decision and the CIT(A)’s findings. It agreed with the CIT(A), stating that the AO’s disallowance was based on assumptions and lacked solid evidence. The AO did not provide proof, like cash withdrawals, to show the payments were fake.

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The appellate tribunal noted that the assessee had provided enough documents, including TDS certificates and payment details. It also agreed that unserved notices alone did not make the transactions invalid, especially given the size of the business. Court rulings supported that payments backed by proper documents should not be doubted without clear evidence.

The tribunal concluded that the AO’s disallowance was unjustified and upheld the CIT(A)’s decision. As a result, the addition of ₹2,25,05,524 was deleted, and the appeal was decided in favor of the assessee.

To Read the full text of the Order CLICK HERE

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