2018 (9) TMI 775 - AT - Income Tax

Disallowance of the sub-contract charges paid to SIPL - Notice issued by the AO u/s 133(6)returned back - Held that - The notice issued by the AO u/s 133(6) to SIPL on the address given by the assessee was returned back by the postal authorities with a remark no such firm/person in this address . Thereafter, the AO vide letter dated 08.10.2011 informed the above matter to the assessee and asked to submit correct current address or produce the party for verification. The assessee neither submitted the new current address of SIPL nor produced the party for verification. As observed by the AO, the fresh address given by the assessee in its submission dated 18.10.2010 is the same which was given earlier. It is the finding of the AO that the assessee filed copies of two bills which are just computer generated bills without any invoice number, service tax number, GST/VAT No. We find from the P/B filed by the appellant that the assessee had filed before the AO vide its letter dated 13.10.2016 during the course of remand proceedings. Thus taking into account the facts and circumstances of the case, we direct the AO to restrict the disallowance to 10% of the sub-contract charges of ₹ 44,38,520/- paid to SIPL.

Summary

Issues Involved:
Appeal against disallowance of expenses under section 143(3) of the Income Tax Act 1961 for the assessment year 2008-09.

Analysis:

1. Disallowance of Expenses by AO:
The Assessing Officer (AO) disallowed expenses of ?44,38,520 claimed by the assessee due to lack of evidence and failure to produce necessary documents. The bills submitted were considered lacking evidentiary value, and the assessee failed to provide final bills, written agreements, or verification of work done. Consequently, the AO held that the expenses lacked substantiation, leading to the disallowance.

2. CIT(A) Confirmation of Disallowance:
The Commissioner of Income Tax (Appeals) confirmed the disallowance by highlighting various shortcomings in the assessee's submissions. The CIT(A) noted the absence of essential contract details, construction plans, and bill of quantities. The lack of supporting documents from the subcontractor and inconsistencies in the bills led to the conclusion that the work done was unsubstantiated and unproved, justifying the disallowance.

3. Appellant's Arguments and Evidence:
The appellant presented a Paper Book containing relevant documents such as work orders, bills, and cancellation notices to support their case. They argued that the expenses were genuine business expenditures and provided details of the project and subcontract agreements. The appellant contended that the AO's disallowance was based on mere suspicion and lacked concrete evidence to prove the expenses were not genuine.

4. Tribunal Decision and Rationale:
The Tribunal considered the submissions of both parties and reviewed the evidence provided by the appellant. While acknowledging the initial lack of documentation and discrepancies in the bills, the Tribunal directed the AO to restrict the disallowance to 10% of the sub-contract charges paid to the subcontractor. The decision was based on a comprehensive assessment of the facts and circumstances of the case, ensuring a fair and balanced outcome.

In conclusion, the Tribunal partially allowed the appeal, emphasizing the importance of substantiating expenses and providing necessary documentation to support claims. The judgment underscored the significance of evidence in tax assessments and highlighted the need for parties to meet their burden of proof to justify expenses claimed under the Income Tax Act.