2021 (1) TMI 161 - AT - Income Tax

Disallowances incurred towards job-work/labour work expenses - HELD THAT - The assessee has filed the relevant documentary evidences to support its claim. The plea of the assessee that without the RCC work for block numbers A to E of the project, the building construction work cannot be completed and building cannot be sold, appears to be quite compelling to support the factum of rendering of jobwork/ labour work. It is not the case of altogether non-compliance of the notice under s.133(6) of the Act. The Assessing Officer himself has made an averment to the effect that partial/incomplete reply was received from the contractor. However, it is not known as to on what aspects, reply was not adequately received. Thus, in totality of the circumstances, the assessee, in our view, has proved overall bonafides of the expenses actually incurred in relation to construction of project. Given the evidences placed, the Assessing Officer could not have drawn an inference against the assessee in wholesale. The action of the Revenue Authorities is accordingly set aside and the additions made in question is directed to be deleted. Penalty u/s 271(1)(c) automatically gets obliterated. The penalty imposed under s.271(1)(c) of the Act thus stands deleted. Appeal of assessee allowed.

Summary

Issues involved:
1. Disallowance of job-work/labour work expenses in quantum appeal for Assessment Year (AY) 2011-12.
2. Imposition of penalty under s.271(1)(c) of the Income Tax Act on the disallowances made in the quantum proceedings.

Analysis:

Issue 1: Disallowance of job-work/labour work expenses in quantum appeal for AY 2011-12:
The appeals filed by the assessee were against separate orders of the Commissioner of Income Tax(Appeals) concerning assessment under s.143(3) of the Income Tax Act, 1961 for AY 2011-12. The Assessing Officer disallowed expenses of &8377; 46,44,518/- claimed for job-work/labour work due to incomplete replies from the contractor and lack of substantiating evidence. The CIT(A) upheld the disallowance, stating that the genuineness of the expenses was not proven. However, the Tribunal found merit in the assessee's submissions, noting the evidence provided, including invoices, TDS deductions, and banking transactions. The Tribunal observed that the RCC work by the contractor was crucial for the project, supporting the genuineness of the expenses. It concluded that the assessee had established the bonafides of the expenses, overturning the Revenue Authorities' decision and directing the deletion of the additions.

Issue 2: Imposition of penalty under s.271(1)(c) for AY 2011-12:
The penalty appeal was related to the additions made in the quantum proceedings. As the disallowances were reversed in the quantum appeal, the penalty under s.271(1)(c) was automatically deleted. Consequently, the penalty imposed was set aside. Both appeals of the assessee were allowed, leading to the deletion of the penalty.

In conclusion, the Tribunal allowed both appeals of the assessee, overturning the disallowance of expenses and the imposition of penalty under s.271(1)(c) for AY 2011-12. The detailed analysis of the evidence provided by the assessee played a crucial role in the Tribunal's decision, emphasizing the importance of substantiating expenses and establishing the genuineness of transactions in tax assessments.