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Facts
The assessee, Dhar Construction Company, is a partnership firm engaged in construction and trading. The Assessing Officer (AO) disallowed Rs. 2,97,16,776/- as unexplained expenditure under Section 69C due to large payments made to non-filers and the absence of supporting bills/vouchers. The Ld. CIT(A) subsequently deleted this addition, reasoning that Section 69C focuses on the source of expenditure, not its authenticity, and the expenses were recorded in the books of account. The Revenue appealed the CIT(A)'s order before the Tribunal.
Held
The Tribunal determined that while Section 69C might not be strictly applicable as the expenditure was recorded in books, the assessee failed to produce primary evidence (vouchers) for the claimed business expenses. Applying the principle that a wrong section citation does not invalidate an order if jurisdiction exists, the Tribunal sustained 10% of the original disallowed amount (Rs. 29,71,678/-) due to the lack of supporting vouchers, while deleting the remaining 90%.
Key Issues
1. Whether the CIT(A) erred in deleting the addition of unexplained expenditure made under Section 69C for payments to non-filers despite the absence of supporting bills. 2. Whether a part of the disallowance should be sustained under Section 37(1) due to the non-production of vouchers for claimed business expenses, irrespective of Section 69C's applicability.
Sections Cited
Section 250 of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 144B of the Income Tax Act, 1961, Section 69C of the Income Tax Act, 1961, Section 194C of the Income Tax Act, 1961, Section 143(2) of the Income Tax Act, 1961, Section 142(1) of the Income Tax Act, 1961, Section 133(6) of the Income Tax Act, 1961, Section 37(1) of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, GUWAHATI BENCH AT KOLKATA
Before: SRI MANOMOHAN DAS & SRI RAKESH MISHRA
order
: January 22nd, 2025 ORDER
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of the Ld. Commissioner of Income Tax-NFAC, Delhi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2018-19 dated 10.01.2024, which has been passed against the assessment order u/s 143(3)/144B of the Act, dated 10.09.2021.
4.1 Appeal Notices were issued to the assessee on 28.07.2022, 15.12.2023 fixing the case for 12.08.2022, 29.12.2023. The assessee has filed written submission on 03.08.2022 and 02.01.2024.
4.2 The main issue in all the grounds taken by the assessee is that the Learned Income Tax Officer has erred on the law as well as on the fact of the case in disallowing expenditures of Rs. 2,97,16,776 considering the same as bogus expenditure.
4.3 I have gone through the assessment order and record available. The scrutiny assessment under the E-assessment Scheme, 2019 for the assessment year 2018- 19 for M/s. Dhar Construction Company under the Computer-Assisted Scrutiny Selection (CASS) for the assessment year 2018-19 was completed with addition u/s 69C. The identified issues for scrutiny included the verification of the genuineness of expenses, refund claims, contract receipts or fees, and share capital/other capital. The case was selected due to large payments made to individuals under section 194C, who had not filed their income tax returns. The tax authorities sought details such as ledger information, names, PANs, and current addresses of these individuals. The assessee did not provide a satisfactory response to the initial notices and reminders regarding large payments made to individuals. Further notices were issued under section 142(1) to which the assessee responded, providing a list with PAN numbers, names, and TDS deductions. However, detailed confirmations, ledgers, bank statements, and ITR copies were not provided. Notices under section 133(6) were issued to a sample of individuals to verify the genuineness of expenses. Some individuals responded with the required details, while others did not. Payments made to certain individuals were considered bogus, and the AO added back these amounts to the income under section 69C of the Income Tax Act. Section 69C allows the deemed income of the assessee if there is no satisfactory explanation about the source of expenditure. Payments made to non-filers were identified, and the assessee was given the onus to prove the genuineness of these transactions. The assessee did not respond to the notice, and these expenditures were considered bogus, resulting in additional additions under section 69C. The assessee provided responses to the show cause notice, citing the pandemic's impact on individuals and emphasizing the deduction of TDS on payments. However, bills supporting the transactions were not provided, making it difficult to verify the genuineness of the expenses. The AO proceeded with the proposed additions under section 69C, resulting in a total assessed income of Rs. 4,01,29,666/- 4.4 The assessee has provided comprehensive explanation in form of written submission for the payments made towards business expenses. It is essential to Page 3 of 10
Aggrieved with the order of the Ld. CIT(A), the revenue has filed the appeal before the Tribunal.
Rival contentions were heard and the record and the submissions made have been examined. The Ld. AR stated before the Bench that with regard to the contention of the Ld. AO that the bills with respect to the expenditure were not produced for verification and without bills it is difficult to verify the claim made by the assessee, it was submitted that neither in the Show cause notice along with the draft assessment order nor in the subsequent notices has the Ld. AO asked for the bills or discussed the non-submission of bills. He made an addition in the final assessment order mentioning that the addition is made as no bills were produced for verification which is wholly in contradiction to the Page 4 of 10 Page 5 of 10 Page 8 of 10 Copy of the order forwarded to:
1. 1. Deputy Commissioner of Income Tax, Circle-Shillong.
2. Dhar Construction Company, Demseiniong, Maccabe Roads, Shillong, Meghalaya, 793003.
3. CIT(A)-NFAC, Delhi.
4. CIT- 5. CIT(DR), Guwahati Benches, Guwahati.