2019 (3) TMI 470 - AT - Income Tax

Bogus purchases and sub-contract labour expenses - notice u/s 133(6)were issued - did not respond as the notices and the same got returned unserved - certain discrepancies in the statements of parties no opportunity for cross-examination - HELD THAT - The assessee has discharged the primary burden that is cast on it to prove the genuineness of these transactions. The Assessing Officer as well as the CIT(A), in our opinion, have not come out with irrefutable proof to negate the evidences submitted by the assessee. It is not the case of the revenue that the standard operating procedure laid down by the assessee s head office was violated by the site office nor that the procedure and documentation was not correct . The entire disallowance is made on suspicion and probabilities. These cannot take the place of evidence. Under these circumstances, we uphold the contentions of the assessee and delete the addition made herein. Disallowance of deduction claimed u/s 80-IA - CIT(A) followed order of ITAT in assessee own case and allowed claim - HELD THAT - In view of the above discussion, we respectfully follow the proposition of law laid down by the co-ordinate bench of the ITAT in the assessee s own case 2017 (3) TMI 1050 - ITAT KOLKATA on the very same issue and uphold the order of the ld. CIT(A) that the assessee is eligible for deduction u/s 80-IA of the Act. As decided in assessee s own case the projects from Serial No. 1 to 2 have been considered as eligible projects for claim of deduction u/s 80-IA(4) by the Tribunal in the earlier Assessment Years. Only in the case of Kolkata Metro Rail Corporation at S. No. 7 and Bangalore Development Authority at S. No. 8, the projects were not considered earlier as to whether they are projects on which the assessee is eligible for deduction u/s 80-IA of the Act. On a query from the Bench, the assessee submitted that the details of the duties and responsibilities of the assessee company as a contractor have been place in the paper book. In our view, this needs to be examined by the Assessing Officer as the Assessing Officer has not considered the same. For the earlier Assessment Years 2011-12 & 2012-13, this Bench of the Tribunal under similar circumstances has restored four projects to the file of the Assessing Officer for examining whether they fall within the ken of exemption u/s 80-IA of the Act. As Consistent with the view of the Tribunal in the earlier Assessment Years, we set aside the issue of grand of deduction u/s 80-IA(4) of the Act, to the Assessing Officer, on the following projects - Kolkata Municipal Corporation and Bangalore Development Authority. As regards deduction claimed on all other six projects at S. No. 1 to 6 in the table above, we uphold the order of the ld. CIT(A). Disallowance made u/s 14A - HELD THAT - Hon ble ITAT Kolkata in the case of REI Agro Ltd. vs. DCIT, 2013 (9) TMI 156 - ITAT KOLKATA to restrict the disallowance u/s 14A of the Act, to ₹ 55,565/-. As the ld. CIT(A) has applied the decision of the Jurisdictional Tribunal, which was later upheld by the Hon ble High Court we find no infirmity in the same

Summary

Issues Involved:
1. Bogus Purchases and Sub-Contract Expenses
2. Deduction under Section 80-IA(4) of the Income Tax Act
3. Disallowance under Section 14A read with Rule 8D
4. Disallowance of Employee’s Contribution towards ESI & PF

Issue-wise Detailed Analysis:

1. Bogus Purchases and Sub-Contract Expenses:
The primary issue in the assessee's appeal was the disallowance of purchases and sub-contract labor expenses on the grounds that they were bogus. The Assessing Officer (AO) disallowed purchases from M/s. Brytex Industries and M/s. Nikhil Enterprises and labor expenses paid to M/s. Supreme Constructions, M/s. Nova Constructions, and M/s. Purnima Constructions, citing non-response to notices under Section 133(6) and discrepancies in statements. The assessee argued that it followed standard operating procedures for expenses, provided necessary documentation, and that the AO's disallowance was based on suspicion and third-party statements without allowing cross-examination. The Tribunal found that the disallowance lacked strong legal evidence and was based on suspicion rather than direct evidence against the assessee. The Tribunal held that the assessee had discharged its burden of proof and deleted the disallowance.

2. Deduction under Section 80-IA(4) of the Income Tax Act:
The revenue's appeal challenged the deletion of the disallowance of deduction claimed under Section 80-IA(4). The CIT(A) allowed the deduction based on the Tribunal's decision in the assessee's own case for earlier years, where it was held that the assessee was a developer of infrastructure projects and not merely executing works contracts. The Tribunal upheld the CIT(A)'s order, noting that the assessee had fulfilled the conditions for deduction under Section 80-IA(4) and had undertaken significant risks and investments in developing infrastructure facilities. However, for new projects with Kolkata Metro Rail Corporation and Bangalore Development Authority, the Tribunal remanded the matter to the AO for verification of the terms and conditions of the contracts.

3. Disallowance under Section 14A read with Rule 8D:
The revenue's appeal also contested the deletion of disallowance under Section 14A. The CIT(A) applied the decision of the Tribunal in the case of REI Agro Ltd., which was upheld by the jurisdictional High Court, and restricted the disallowance to ?55,565. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's ground.

4. Disallowance of Employee’s Contribution towards ESI & PF:
The issue was not specifically discussed in detail in the judgment provided. However, it can be inferred that the CIT(A) had allowed the assessee's claim, and the Tribunal upheld the CIT(A)'s decision.

Conclusion:
The Tribunal allowed the assessee's appeals for both assessment years, deleted the disallowance of bogus purchases and sub-contract expenses, and upheld the CIT(A)'s order on the deduction under Section 80-IA(4) for most projects while remanding two projects for further verification. The Tribunal also upheld the CIT(A)'s restriction of disallowance under Section 14A. The revenue's appeals were allowed in part, specifically for further verification of the new projects under Section 80-IA(4).