2019 (5) TMI 1437 - AT - Income Tax

Bogus expenditure - CIT-A restricted addition to 15% - HELD THAT - This issue in dispute is squarely covered by the decision of the coordinate bench in assessee s own case for AY 2008-09 following the decision therein, we uphold the order of the CIT(A) in directing the AO to disallow the expenditure to the extent of 15% out of the total expenditure and dismiss the grounds raised by the revenue on this issue.

Summary

Issues:
- Disallowance of subcontractor payments
- Burden of proof on the assessee
- Applicability of previous tribunal decisions
- Adequacy of evidence provided by the assessee

Analysis:

Issue 1: Disallowance of subcontractor payments
The case involved appeals by the revenue against the CIT(A)'s orders for the assessment years 2011-12 and 2012-13 concerning the disallowance of payments made to subcontractors. During a survey, blank letterheads were found, and the assessee failed to provide satisfactory explanations. The AO disallowed the payments amounting to ?21,66,90,608, which the CIT(A) reduced to 15% based on a previous tribunal decision for AY 2008-09. The revenue contended that the disallowance should not be restricted to 15% due to the bogus nature of the entities involved. However, the tribunal upheld the CIT(A)'s decision, citing the burden of proof on the assessee and the adequacy of evidence provided.

Issue 2: Burden of proof on the assessee
The tribunal emphasized that the initial burden of proof was on the assessee, which was discharged by producing audited books, payment vouchers, and other documents. Despite concerns of inflating expenses, the tribunal found that the assessee had met the burden of proof. The decision to disallow 15% of the payment was based on a balance of the facts and circumstances of the case.

Issue 3: Applicability of previous tribunal decisions
The tribunal noted that the issue in dispute was materially identical to the AY 2008-09 case, where a similar decision was made regarding the disallowance of subcontractor payments. By following the precedent set in the previous case, the tribunal upheld the CIT(A)'s order for both AY 2011-12 and 2012-13.

Issue 4: Adequacy of evidence provided by the assessee
The revenue argued that the evidence provided by the assessee was insufficient to justify the payments made to subcontractors. However, the tribunal found that the assessee had met the initial burden of proof and that the evidence presented, although not conclusive, was adequate to support the decision to disallow only 15% of the payments.

In conclusion, the tribunal dismissed the revenue's appeals for both assessment years, upholding the CIT(A)'s decision to restrict the disallowance of subcontractor payments to 15% based on the burden of proof on the assessee and the applicability of previous tribunal decisions.