MAHANISHA,CHENNAI vs. ITO,NON CORPORATE WARD 1(1), CHENNAI

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ITA 234/CHNY/2022Status: DisposedITAT Chennai26 May 2022AY 2018-20193 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the assessee could not fully discharge the onus of proving the genuineness of the transaction, the expenditure could not be disallowed solely because the payee did not file a return or respond to a notice. The AO was directed to estimate business income at 10% of business receipts.

What were the facts?

The assessee claimed Rs. 75 Lacs as contract expenses. The AO disallowed this amount as the payee did not file a return and did not respond to a notice. The CIT(A) upheld the disallowance.

What were the issues?

Whether contract expenses can be disallowed if the payee fails to respond to a notice or file a return of income, and if the assessee has otherwise offered a reasonable profit rate.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2018-19 arises out of the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 12.03.2022 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 09.02.2021. The only grievance of the assessee is disallowance of Rs.75 Lacs claimed as contract expenses by the assessee.

1.

ITA No.234/Chny/2022 - 2 - 2. The Ld.AR submitted that the assessee is a contractor and already declared contract profit of more than 8% and therefore, the disallowance was unjustified. The Ld. Sr. DR, on the other hand, controverted the arguments of Ld. AR and submitted that the assessee failed to prove that it earned contract receipts during the year. Having heard rival submissions, our adjudication would be as under.

3.

The assessee being resident individual is stated to have earned contract receipts during the year. It transpired that the assessee made contract payment of Rs.75 Lacs to one Shri M.Shekhar who did not file his return of income. Accordingly, the assessee was directed to file the requisite details. To confirm the transactions, notice u/s 133(6) was issued to Shri M.Shekhar which remained un-responded. Accordingly, the expenditure of Rs.75 Lacs was disallowed and added to the income of the assessee. The stand of Ld. AO, upon confirmation by Ld. CIT(A), is in further appeal before us.

4.

We find that the assessee has earned contract receipts of Rs.88.70 Lacs and offered income of Rs.7.15 Lacs which translate into profit rate of approx. 8.06%. This rate is more than the presumptive taxation rate. The existence of assessee’s business is not in doubt. The assessee has produced ledger extracts of Shri M.Shekhar and deducted TDS on this expenditure. The same is evidenced by copy of Form No.16A as placed on record. Merely because notice u/s 133(6) has not been responded or the payee has not filed the return of income, the expenditure in the hands of the assessee could not be disallowed. At the same time, the assessee could not completely discharge the onus of proving the genuineness of the transactions. Therefore, concurring with alternative submissions of Ld. AR, we direct Ld. AO to estimate the business - 3 - income @10% of business receipts which came to Rs.8.87,032/- instead of separate disallowance of Rs.75 Lacs. The Ld. AO is directed to re- compute assessee’s income.

5.

The appeal stand partly allowed. Order pronounced on 26th May, 2022.

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