GNI INFRASTRUCTURE LIMITED,AURANGABAD vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD, AURANGABAD

ITA 1490/PUN/2026Status: DisposedITAT Pune29 September 202611 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held as follows: 1. **Issue 1 (Sub-contract work addition):** The Tribunal reversed the finding of the CIT(A)/NFAC. It was held that the sub-let contract work pertains to the original contract work allotted to the assessee. Therefore, the Assessing Officer was not required to calculate separate profit on the payment made to subcontractors/suppliers. The Tribunal directed the AO to delete the addition of Rs.14,77,400/-. The reasoning was that the sub-contract expenses were already part of the gross receipts disclosed by the assessee, and calculating separate profit would amount to double addition. 2. **Issue 2 (Donation disallowance):** The Tribunal dismissed the ground raised by the assessee. It was noted that the assessee debited Rs.92,000/- towards donation expenses but could only furnish receipts for Rs.26,000/-. The AO allowed 50% of Rs.26,000/- (Rs.13,000/-) under section 80G and added back the balance Rs.79,000/-. Even before the Tribunal, the assessee could not provide receipts for Rs.66,000/-. Therefore, there was no error in the CIT(A)'s order confirming the addition of Rs.79,000/-. 3. **Issue 3 (PF damages/interest disallowance):** The Tribunal partly allowed the ground. Following the coordinate bench decision in *Bajaj Energy (P.) Ltd. vs. ACIT*, the Tribunal directed the AO to allow deduction for the amount representing interest under section 7Q of the EPF Act and to disallow only that portion which represents damages under section 14B of the EPF provisions. The assessee was directed to produce a bifurcation of interest and damages payments before the AO. This issue was partly allowed for statistical purposes. Operative Directions: Addition of Rs.14,77,400/- deleted; addition of Rs.79,000/- confirmed; disallowance of Rs.30,771/- to be bifurcated and partly allowed/disallowed.

What were the facts?

The assessee, GNI Infrastructure Limited, filed an appeal against the order dated 09.01.2026 passed by the CIT(A)/NFAC for Assessment Year 2020-21. The Assessing Officer (AO) completed the assessment under section 143(3) r.w.s. 144B, determining the income at Rs.23,21,74,381/-, an increase from the returned income of Rs.23,05,87,210/-. This increase included an estimated addition of Rs.14,77,400/- (4% of sub-contract expenses), a disallowance of Rs.79,000/- for donation, and a disallowance of Rs.30,771/- for PF damages/interest. The assessee's appeal to the CIT(A)/NFAC was dismissed, leading to the present appeal before the ITAT.

What were the issues?

1. Whether the addition of Rs. 14,77,400/- on account of alleged undisclosed income from sub-contract work is justified, particularly concerning the estimation of profit at 4% on sub-contract expenses of Rs. 3,69,35,011/-, when the entire contract receipts have been offered to tax and the sub-contract expenses are genuine business expenditures supported by books and invoices, and whether the CIT(A) erred in confirming the addition without rejecting the books of account under section 145. 2. Whether the disallowance of Rs. 79,000/- on account of donation is justified, and whether the payment to the Police Welfare Fund should be allowed as business expenditure under section 37(1) due to commercial expediency and business nexus, rather than being treated as a donation under section 80G. 3. Whether the disallowance of Rs. 30,771/- towards PF damages/interest is justified, and whether this amount, representing interest/damages for delayed PF payment, is compensatory in nature and allowable as business expenditure, with the assessee arguing for a distinction between penal and compensatory payments. Assessee's Contentions: - For Issue 1: The sub-contract expenses were incurred against contract receipts already offered to tax, so estimating further profit leads to double taxation. Books were not rejected, and expenses are genuine. The addition was an ad hoc estimation without basis. - For Issue 2: The payment to the Police Welfare Fund was for commercial expediency and business necessity, allowable under section 37(1). - For Issue 3: The amount represents interest/damages for delayed PF payment, which is compensatory and allowable as business expenditure. Revenue's Contentions: - The judgment does not explicitly record the revenue's arguments for each issue, but the CIT(A)'s order, which the revenue is defending, implies that the revenue contended that the sub-contract agreements were not genuine, the supporting documents lacked evidentiary value, and the donation was not a business expenditure. The disallowance of PF damages/interest was also upheld by the CIT(A).

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144B,Section 145,Section 37(1),Section 80G,Section 7Q,Section 14B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE

For Appellant: Shri Shubham N. Rathi &, Shri Ashutosh A. Dhoot
For Respondent: Shri Rajesh Haladkar
Hearing: 14.07.2026Pronounced: 29.09.2026

PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 09.01.2026 passed by Ld. CIT(A)/NFAC for the assessment year 2020-21. 2. The appellant has raised the following grounds of appeal :- “1. ADDITION OF RS. 14,77,400/- ON ACCOUNT OF ALLEGED UNDISCLOSED INCOME FROM SUB CONTRACT WORK

1.

1 The learned Commissioner of Income Tax (Appeals) [‘the Ld. CIT(A)] has erred in confirming the addition of Rs. 14,77,400/- made by the Assessing Officer by estimating profit at 4% on sub-contract expenses of ₹3,69,35,011/-.

1.

2 The Ld. CIT(A) failed to appreciate that the entire contract receipts, against which the sub-contract expenses were

The order continues below.

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