2016 (11) TMI 800 - HC - Income Tax

Allowance of payment made towards sub-contractors - genuity of expenditure - Held that - In the instant case, the work said to have been executed by the sub-contractors is not found as unconcerned or unconnected to the work undertaken by the assessee and hence the claim of payment made for such work by the sub-contractors deserves to be accepted as a genuine expenditure incurred by the assessee. All payments made through banking channel need not be treated as genuine automatically on their face value. Each such transaction ought to be independently examined and considered and no formal conclusion can be drawn about the genuineness regarding the obligation to effect the said payment merely because the payment was effected through a banking channel. In the instant case, we are satisfied that the assessee has produced necessary material before the Commissioner of Income-tax (Appeals), during the course of hearing of the appeal against the order of the Assessing Officer, relating to sub-contracting a part of his work. There is nothing to doubt, in such circumstances, regarding the genuineness of payments effected through banking channels in favour of the two sub-contracting agencies. - Decided in favour of assessee

Summary

Issues:
- Questioning the correctness of the order passed by the Income-tax Appellate Tribunal regarding the deduction of expenditure claimed by the assessee for payments made to sub-contractors without supporting evidence.

Analysis:
1. The tax case appeal raised the issue of whether the expenditure of &8377; 2.38 crores claimed by the assessee as payment made towards sub-contractors could be allowed as a deduction without filing supporting bills or evidence. The Assessing Officer disallowed the amount, suspecting the transactions with sub-contractors as mere accommodation entries to reduce profits. However, the Commissioner of Income-tax (Appeals) accepted additional evidence provided by the assessee, including confirmation from the sub-contracting agencies, leading to a favorable decision for the assessee.

2. The High Court noted that the sub-contracting agencies had provided work progress details to the assessee during the project execution, indicating a genuine sub-contracting arrangement. The principal of the assessee also issued certificates for work completed by the sub-contractors. The Tribunal accepted payments made through banking channels as genuine, considering the obligation to make payments based on the work progress details received from the sub-contractors.

3. The Revenue argued that payments through banking channels do not automatically prove genuineness and could involve accommodating parties. While acknowledging this, the Court emphasized that such payments, when connected to work obligations and supported by relevant details, could be considered genuine. Each transaction must be independently examined, and in this case, the material presented by the assessee supported the legitimacy of payments to sub-contractors.

4. Ultimately, the Court found no merit in the appeal, upholding the decisions of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The appeal was dismissed, affirming the genuineness of the expenditure claimed by the assessee for payments made to sub-contractors based on the evidence presented during the proceedings.