2024 (6) TMI 1416 - AT - Income Tax

Estimation of income - addition made on account of accommodation entries -CIT(A) has reduced the amount of disallowance from 100% of payments made to the sub-contractors to 15% of such payments - as per AO Assessee had failed to discharge the onus and establish the genuineness of the payments made to two parties engaged as subcontractors and as well as the commercial expediency of making such payments - HELD THAT - Revenue has failed to dislodge the factual findings returned by the CIT(A) during the appellate proceedings before us. We find merit in the contention advance on the behalf of the Appellant that the AO has failed to bring any material on record to establish that the work was not actually performed and therefore, disallowance of 100% payments made to sub-contractors is not warranted in the facts and circumstances of the present case. We are not inclined to interfere with the order passed by CIT(A) restricting the disallowance to 15% of payments made to sub-contractors. There is nothing on record to persuade us to take a view that disallowance at a higher rate was warranted in the facts and circumstances of the present case. We have already rejected the contention of the Revenue to restore the disallowance at the rate of 100% of payments made to sub-contractors. We also concur with the CIT(A) that in absence of any material to substantiate the allegation that Assessee had paid commission at the rate of 1%, the addition made in respect of commission expenses cannot be sustained merely on assumptions and guess work - Decided against revenue.

Summary

Issues Involved:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Justification of the CIT(A) in restricting the addition on account of accommodation entries to 15%.
3. Evaluation of the burden of proof on the assessee regarding the genuineness of transactions with subcontractors.
4. Assessment of the alleged payment of 1% commission expenses to subcontractors.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The Assessee challenged the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The CIT(A) upheld the validity of these proceedings, rejecting the Assessee's challenge. The reassessment was initiated based on information from the Investigation Wing, suggesting that the Assessee engaged in transactions with non-genuine dealers providing bogus accommodation entries. The Tribunal did not find any compelling reason to overturn the CIT(A)'s decision on this matter.

2. Restriction of Addition on Accommodation Entries to 15%:

The Revenue contested the CIT(A)'s decision to restrict the addition related to accommodation entries to 15% of the subcontracting expenses. The CIT(A) had granted partial relief by limiting the disallowance to 15% after considering similar cases and the Assessee's previous assessment history. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide sufficient evidence to justify a 100% disallowance. The Tribunal emphasized that the Assessee had provided substantial documentation, including project completion certificates and banking records, to support the genuineness of the transactions.

3. Burden of Proof on the Assessee:

The Revenue argued that the Assessee failed to discharge the burden of proof regarding the genuineness of payments made to subcontractors, Kumar Enterprises and Shivam Enterprises. The Tribunal noted that the Assessee had submitted extensive documentation, such as invoices, TDS certificates, and bank statements, to substantiate the transactions. The Tribunal agreed with the CIT(A) that the inability to serve notices to the subcontractors did not automatically render the transactions non-genuine. The Tribunal found the CIT(A)'s approach of restricting the disallowance to 15% reasonable, given the lack of evidence from the Revenue to prove otherwise.

4. Alleged Payment of 1% Commission Expenses:

The Assessing Officer had added an amount equivalent to 1% of the alleged accommodation entries as commission expenses. The CIT(A) deleted this addition, citing a lack of documentary evidence to support the allegation. The Tribunal concurred with the CIT(A), stating that assumptions and guesswork could not justify such an addition without concrete evidence. Consequently, the Tribunal dismissed the Revenue's grounds on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeals and the Assessee's cross-objections for both Assessment Years 2011-12 and 2012-13. The Tribunal found no merit in the Revenue's arguments for a higher disallowance rate and upheld the CIT(A)'s decision to restrict the disallowance to 15% of payments made to subcontractors. Additionally, the Tribunal confirmed the deletion of the commission expenses addition due to insufficient evidence.