2019 (3) TMI 3 - AT - Income Tax

Addition of subcontracting expenses - Ex-parte order - Bogus expenses paid to the related party - CIT(A) deleted the addition - HELD THAT - CIT(A) has not made any effort to get the authenticity of existence of the latter company M/s. Mayan Infrastructure Pvt. Ltd. or the assessee has furnished any details about the existence of the latter company. Since the turnover of M/s. Mayan Infrastructure Pvt. Ltd. was more or less with the expenses of the assessee, AO made all the efforts to locate the latter company for serving notice under section 133(6) of the Act through the Inspector of Income Tax. The report of the Inspector of IT is very clear about non-existence of M/s. Mayan Infrastructure Pvt. Ltd. Thus AO has rightly held that the expenses paid to the related party M/s. Mayan Infrastructure Pvt. Ltd. is bogus and M/s. Mayan Infrastructure Pvt. Ltd. is only a shell company, which exists only in paper. - Decided in favour of revenue

Summary

Issues:
1. Addition made under subcontracting expenses
2. Authenticity of subcontracting expenses

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the addition made under subcontracting expenses. The Assessing Officer considered the subcontracting expenses of ?5,38,72,144 as bogus and brought it to tax. The ld. CIT(A) deleted this addition based on the IT return filed by M/s. Mayan Infrastructure Pvt. Ltd. The Revenue contended that the expenses paid to M/s. Mayan Infrastructure Pvt. Ltd. were bogus as the latter company was found to be non-existent during verification.

2. The Assessing Officer, through the Inspector of Income Tax, made efforts to serve a notice to M/s. Mayan Infrastructure Pvt. Ltd. at the address provided by the Authorised Representative. However, it was found that the company did not exist at the given address. The Inspector's report confirmed the non-existence of M/s. Mayan Infrastructure Pvt. Ltd. The ld. CIT(A) did not verify the authenticity of the latter company or provide any evidence of its existence. Considering the mismatch in turnover and expenses, it was concluded that M/s. Mayan Infrastructure Pvt. Ltd. was a shell company. The Tribunal upheld the decision of the Assessing Officer, confirming the disallowance of the subcontracting expenses.

In conclusion, the Tribunal allowed the appeal filed by the Revenue, setting aside the order of the ld. CIT(A) and confirming the disallowance of the subcontracting expenses.