2016 (5) TMI 525 - AT - Income Tax

Addition on account of non-genuine/bogus/unexplained expenditure u/s 69C - Held that - There is complete mismatch in between the claim made by the assessee towards sub-contract expenditure and the revenue shown by the sub contractor in their respective income-tax returns or from the statement on oath. The act of assessee looks to be suspicious in relation to various cash payments of ₹ 15,50,000/- during the year to both the sub-contractors wherein each transaction has been shown at ₹ 20,000/- even when assessee and both the sub-contractors were having account with the same bank and branch and no justification has been given by the assessee for doing so. Assessee has taken a plea that if the amount of ₹ 23,04,740/- is added to its income then the gross profit will be calculated at 54.54% which is not at all justifiable in the type of contract he has undertaken wherein the accrued G.P. element was 9.53% and 17.95% for contract work for block no.9C-1 and block 9A6/11 given by SSNNL for the total cost of contract at ₹ 83,14,999/- and ₹ 74,98,000/- respectively. In our view GP percentage which is just an estimation and the real profits of the assessee can be much higher depending upon the cost efficiency but certainly it cannot go to the extent of 54.54% as rightly submitted by the assessee but looking to the undisputed facts that the cash payments of ₹ 15,20,000/- and outstanding amount of 8,54,073/- total ₹ 23,74,073/- has not been shown as income/revenue by the two sub-contractors and work was completed. We, in order to meet the ends of justice, are of the view that 20% of ₹ 23,74,073/- working out at ₹ 4,74,815/- to be sustained as nongenuine expenses at the place of ₹ 23,74,073/- made by the Assessing Officer. - Decided partly in favour of assessee

Issues Involved:
1. Addition of ?23,74,073/- as non-genuine/bogus/unexplained expenditure under Section 69C of the Income Tax Act, 1961.
2. Application of Section 44AD of the Income Tax Act.
3. Charging of interest under Section 234B of the Income Tax Act.
4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

Issue 1: Addition of ?23,74,073/- as Non-Genuine/Bogus/Unexplained Expenditure under Section 69C of the Income Tax Act, 1961
The assessee, engaged in civil construction under Paras Builders, filed a return declaring an income of ?3,53,128/-. The case was selected for scrutiny, and the Assessing Officer (AO) observed that the assessee debited ?50,84,073/- as payments to two subcontractors, Shri Sharadbhai Mohanbhai Kakadia and Shri Sudhirbhai N. Modhiya. Upon verification, it was found that significant cash payments were not acknowledged by the subcontractors. The AO disallowed ?23,74,073/- as non-genuine expenses and added this amount to the assessee's income, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The Tribunal noted that the payments made by cheque were accepted, but cash payments were disputed. The subcontractors denied receiving cash payments and did not reflect these amounts in their returns. The Tribunal observed discrepancies in the assessee's claims and the subcontractors' statements. The Tribunal concluded that the act of the assessee was suspicious, particularly the cash payments structured to be below ?20,000/-. The Tribunal decided to sustain 20% of the disputed amount, i.e., ?4,74,815/-, as non-genuine expenses instead of the full ?23,74,073/-.

Issue 2: Application of Section 44AD of the Income Tax Act
The assessee contended that the AO and CIT(A) erred by not applying Section 44AD, which prescribes a presumptive taxation scheme for small businesses. However, this issue was not elaborated upon in the judgment, and the Tribunal did not specifically address it, indicating it was general in nature.

Issue 3: Charging of Interest under Section 234B of the Income Tax Act
The assessee challenged the interest charged under Section 234B, which deals with interest for defaults in payment of advance tax. The Tribunal noted that this ground was consequential to the primary issue of the addition under Section 69C. Since the addition was partly sustained, the interest under Section 234B would be recalculated accordingly.

Issue 4: Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act
The assessee also contested the initiation of penalty proceedings under Section 271(1)(c), which pertains to penalties for concealment of income or furnishing inaccurate particulars. The Tribunal found this ground to be premature, as the penalty proceedings were still in the initial stage and had not yet culminated in a final order.

Conclusion:
The Tribunal partly allowed the appeal, reducing the disallowed non-genuine expenses to ?4,74,815/- from ?23,74,073/-. The other grounds were either general, consequential, or premature and thus did not warrant separate adjudication. The order was pronounced on 05/04/2016.

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