2016 (8) TMI 468 - AT - Income Tax

Bogus expenditure - Guinness of expenditure - Held that - Once the assessee has proved with necessary evidences that the expenditure incurred is genuine, the A.O. cannot disallow the expenditure simply on assumption or surmises basis by holding that the contractor does not have requisite experience in handling this kind of contracts. Whether the contractor itself do the work or get the work done by others was not a matter of subject with the assessee as long as there was no interruption with the work. The assessee is concerned whether the contractor has executed the work or not? In the present case on hand, on perusal of the facts available on record, we find that the assessee has furnished all the details necessary to prove the expenditure claimed is genuine. There is no reason for the A.O. to disbelieve the evidences filed by the assessee. The A.O. simply harping upon the fact that the contractors does not have experience, therefore, opined that the expenditure claimed by the assessee is bogus and cannot be allowed. But the assessee has categorically proved that the expenditure claimed is genuine in nature and also furnished necessary evidences before the A.O. to prove his case. Another important point to be noted here is that the A.O. during the course of assessment proceedings recorded statement from the Managing Director of the company and also Managing Partner of the firm wherein both the parties have confirmed that they have supplied or rendered the services to the assessee. Therefore, we are of the view that the A.O. without any reasons simply disbelieved the evidences filed by the assessee and disallowed the expenditure. The CIT(A) without appreciating the facts confirmed the additions made by the A.O. Hence, we set aside the order passed by the CIT(A) and direct the A.O. to allow the expenditure claimed by the assessee. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the consultancy and material handling charges claimed by the assessee were genuine.
2. Whether the contractors had the requisite experience and resources to execute the work.
3. Whether the expenditure was inflated by creating fictitious entries in the books of accounts.

Issue-wise Detailed Analysis:

1. Whether the consultancy and material handling charges claimed by the assessee were genuine:
The assessee claimed consultancy charges of ?35 lakhs to M/s. SMV Projects Ltd. and material handling charges of ?26 lakhs to M/s. Malleshwar Enterprises. The Assessing Officer (A.O.) disallowed these expenditures, arguing that the contractors did not provide the services claimed. The assessee contended that the payments were made through account payee cheques after deducting applicable TDS, and the contractors issued bills and confirmation letters. The CIT(A) upheld the A.O.'s disallowance, noting that the contractors lacked the capability to provide the services. However, the Tribunal found that the assessee provided sufficient evidence, including agreements, work orders, bills, and confirmation letters, proving the genuineness of the transactions. Therefore, the Tribunal directed the A.O. to allow the expenditure claimed by the assessee.

2. Whether the contractors had the requisite experience and resources to execute the work:
The A.O. and CIT(A) concluded that M/s. SMV Projects Ltd. and M/s. Malleshwar Enterprises lacked the experience and resources to execute the work. The A.O. observed that M/s. SMV Projects Ltd. operated from a small rented premises without the necessary technical manpower or machinery, and M/s. Malleshwar Enterprises lacked the capability to handle the materials. Despite these observations, the Tribunal emphasized that the genuineness of the transactions was supported by proper documentation and compliance with TDS provisions. The Tribunal noted that the contractors confirmed the transactions and included the receipts in their financial statements, thus proving their involvement in the work.

3. Whether the expenditure was inflated by creating fictitious entries in the books of accounts:
The A.O. alleged that the assessee inflated the expenditure by creating fictitious entries, as the contractors' financial statements showed no correlation between the income earned and the expenditure incurred. The Tribunal, however, found that the assessee provided detailed evidence, including agreements, work orders, and confirmation letters, demonstrating that the expenditure was genuine. The Tribunal highlighted that the A.O. did not doubt the genuineness of the transactions but disallowed the expenditure based on the contractors' lack of experience. The Tribunal concluded that the assessee proved the expenditure was genuine, and the A.O.'s disallowance was based on assumptions and surmises.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the A.O. to allow the expenditure claimed by the assessee, emphasizing that the assessee provided sufficient evidence to prove the genuineness of the transactions. The appeal filed by the assessee was allowed.