2024 (2) TMI 1531 - HC - Income Tax

Expenses incurred are excessive u/s 40A(2)(b) - as during the assessment proceedings the said did not furnish any benchmarking analysis in order to justify expenses in relation to its related parties to substantiate its claim that the expense re not unreasonable in terms of the said provision of the Act - ITAT deleted addition - HELD THAT -According to the ITAT as well as in our considered opinion all material particulars had been duly placed before the DRP and the Assessing Officer failed to justify the invocation of the said provision. The ITAT has further found that the Department had failed to produce any material or establish from the record that the expenses claimed were inflated or unjustified. The Department had also not founded its allegation on a single comparable so as to even prima facie establish that the expenses had been unduly claimed. Applicability of provisions of section 44BBB - It was found that the assessee was not executing a turnkey power project. No substantial question of law.

Summary

ISSUES PRESENTED and CONSIDERED:

- Whether the expenses incurred by the assessee are excessive under section 40A(2)(b) of the Income Tax Act?

- Whether the Assessing Officer failed to justify the invocation of section 40A(2)(b) and provide any opportunity to the assessee?

- Whether the provisions of section 44BBB of the Income Tax Act are applicable to the assessee?

ISSUE-WISE DETAILED ANALYSIS:

Issue 1: Expenses under Section 40A(2)(b)

- Relevant legal framework and precedents: Section 40A(2)(b) of the Income Tax Act

- Court's interpretation and reasoning: The ITAT found that the assessee had provided necessary documents to justify expenses and the Assessing Officer failed to demonstrate how the expenses were excessive and unreasonable. The ITAT held that the Assessing Officer's invocation of section 40A(2)(b) without providing an opportunity to the assessee was unjustified and against natural justice.

- Key evidence and findings: The assessee furnished audited financial statements, audit reports, and replies to queries by the Assessing Officer.

- Application of law to facts: The ITAT concluded that the Assessing Officer failed to fulfill the conditions of section 40A(2)(b) and the addition made was unsustainable.

- Treatment of competing arguments: The Department did not produce material to establish the expenses were inflated or unjustified.

- Conclusions: The appeal was dismissed as it raised no substantial question of law.

Issue 2: Applicability of Section 44BBB

- Relevant legal framework and precedents: Section 44BBB of the Income Tax Act

- Court's interpretation and reasoning: The ITAT determined that the assessee was not executing a turnkey power project, making section 44BBB inapplicable. The ITAT also highlighted the exception under sub-section (2) of section 44BBB.

- Key evidence and findings: The nature of the project undertaken by the assessee.

- Application of law to facts: The ITAT found that section 44BBB did not apply to the assessee.

- Conclusions: The appeal was dismissed as no substantial question of law was raised.

SIGNIFICANT HOLDINGS:

- The ITAT concluded that the Assessing Officer failed to justify the invocation of section 40A(2)(b) and the addition made based on it was unsustainable.

- The ITAT determined that the provisions of section 44BBB were not applicable to the assessee.