2015 (8) TMI 18 - HC - Income Tax

Disallowance of Land development expenditure - CIT(A) allowed claim confirmed by ITAT - Held that - ITAT in the impugned order noted that the contractors named by the Assessee had in fact been assessed by the Department and in many cases refund had been ordered. It was noticed that the AO had made no effort to verify the details filed by the Assessee and proceeded to inquire into the identity of the contractors through an inspector. These inquiries were conducted long after the work had been executed. The ITAT came to the conclusion that the adverse report of four contractors to whom the payments were made could not override the evidence filed by the Assessee and, therefore, the CIT(A) was justified in deleting the additions which have been made only on the basis of a doubt created or suspicion in the mind of the AO . Significantly, the ITAT observed that nothing had been found during the search operation with regard to the land development expenses and the AO had also not taken the post search inquiries to the logical end. Both the CIT (A) and the ITAT have in fact discussed the materials on record including the statements of four of the contractors and the report of the Inspector. As rightly pointed out by the ITAT, the evidence submitted by the Assessee including photographs and DVDs demonstrating the land development was not properly verified or inquired onto by the AO. - Decided against revenue.

Summary

Issues:
Appeal against ITAT order dismissing Revenue's appeals for Assessment Years 2004-05, 2005-06, and 2006-07 on disallowance of land development expenditure.

Analysis:
The Respondent, engaged in agricultural land development, debited development expenses to Profit and Loss Account. Revenue alleged contractors raised bills without work. Assessee provided PAN, bank details, and evidence of land development.

Revenue claimed contractors confessed to no work done, bills raised, and payments repaid in cash. AO noted contractors' denial of work in other assessments. Assessee defended payments via cheques, TDS deductions, and contractor assessments.

CIT (A) allowed Assessee's appeal citing no incriminating evidence during searches. Suspicion cannot replace evidence. ITAT upheld the decision, noting contractors' assessments and lack of verification by AO.

Revenue argued contractor's statement on bogus entries was not considered. Court found CIT (A) and ITAT discussed evidence, highlighting lack of proper verification by AO. Court deemed concurrent decisions plausible with no perversity.

No substantial legal question found, appeals dismissed.