The Income Tax Appellate Tribunal (ITAT) Mumbai Bench deleted addition on sub contract expenses as there was no proper verification of records by Assessing Officer (AO).
During the assessment proceedings, upon perusal of profit and loss account it was noticed that assessee, Ajaipal Mangal & Co has debited sub-contract charges amounting to Rupees seven crores. Accordingly, the assessee was asked to furnish party-wise details of sub-contract expenses, bank statement highlighting payments to subcontractors, TDS, copy of agreements entered with the sub-contractors.
In response, the assessee submitted a list of PAN, sub-contract amount and details of tax deducted at source. The AO vide order passed under section 143(3) of the Income Tax Act disallowed 10% of sub-contract expenses.
The Counsel for the assessee submitted that all the payments were made through cheque and TDS was also deducted.
From the record it is evident that even after receipt of PAN details of the parties, to whom sub-contract amount was paid by the assessee and TDS being deducted, no further action was taken by the AO either by issuing notice under section 133 (6) of the Income Tax Act or by issuing summons under section 131 of the Income Tax Act to these parties, in order to determine the veracity of assessee’s claim
A Bench consisting of Rifaur Rahman, Vice President and Sandeep Singh Karhail, Judicial Member observed that “Once the PAN of the parties to whom sub-contract amount has been paid was available with the AO, all the basic details as sought from the assessee could have been easily traceable from the data available with the Department. However, no such efforts by the AO are evident from record.
“Therefore, in view of the above, we find no merits in sustaining the addition of even 10% of sub-contract expenses claimed by the assessee. Accordingly, we direct the AO to delete the impugned addition of 10% of sub-contract expenses claimed by the assessee.”
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