SRI PARASHURAM D ,BANGALORE vs. INCOME TAX OFFICER WARD-3 , SHIMOGA

The appeal filed by the assessee is directed against the order dated 08-05-2017 passed by Ld CIT(A), Davangere and it relates to the assessment year 2009-10. The assessee is aggrieved by the decision rendered by Ld CIT(A) confirming the addition made by the AO u/s 40A(3) of the Act.

We heard the parties and perused the record. The assessee is a PWD contractor. The original assessment was completed u/s 143(3) of the Act for the year under consideration on 26.12.2011. Subsequently, the Ld CIT revised the assessment order u/s 263 of the Act for examining the issue of disallowance u/s 40A(3) of the Act. Consequent thereto, the present assessment order was passed by the AO on 05-05-2014. In the instant assessment, the AO disallowed a sum of Rs.8,23,200/- u/s 40A(3) of the Act, since the assessee did not respond to the notices issued by AO.

Before Ld CIT(A), the assessee contended that the payments were made in cash to the agents of the assessee, who in turn, has disbursed the same to various persons towards wages/salaries, purchase of materials etc. It was submitted that those expenses did not exceed the threshold limit of Rs.20,000/- and accordingly contended that the disallowance u/s 40A(3) is not called for. The assessee also furnished affidavits in support its contentions that the payees have acted as agents on behalf of the assessee. The Ld CIT(A) was not convinced with the contentions of the assessee and further did not accept the affidavits filed. Accordingly he confirmed the disallowance made u/s 40A(3) of the Act. Aggrieved, the assessee has filed this appeal.

We notice that the assessee has claimed that the payments have been made to its agents for onward disbursement towards various expenses. We also notice that the assessee has furnished affidavits to support its contentions. We also notice that the assessee has furnished the details of disbursements made by each of the agents. Accordingly we are of the view that the affidavits furnished by the agents are supported by the accounts and expenses incurred by the assessee. Accordingly we are of the view that the Ld CIT(A) was not justified in rejecting the contentions of the assessee.

Since the claim of the assessee requires examination of expenses and vouches, we are of the view that this issue needs to be restored to the file of the assessing officer. Accordingly we set aside the order passed by Ld CIT(A) and restore the impugned issue to the file of the assessing officer for examining the same afresh. We also direct the assessee to fully co-operate with the assessing officer for expeditious completion of assessment.

In the result, the appeal of the assessee is treated as allowed for statistical purposes.