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Facts
The assessee, a partnership firm, filed its return of income declaring Rs. 5,54,200. The AO observed that sub-contract expenses amounting to Rs. 28,60,972/- were unverified and disallowed them. The AO also disallowed interest expenditure of Rs. 75,019/- and a part of deduction under section 80G. Aggrieved, the assessee appealed.
Held
The Tribunal considered the nature of the business and the evidence provided by the assessee, including PAN details, confirmations, TDS certificates, and ITRs of sub-contractors. It was noted that while payments were made in cash, this is common in the unregulated sector of the business, and the assessee had fulfilled its onus by providing substantial documentation.
Key Issues
Disallowance of sub-contract majdoori expenses. Determination of genuineness of cash payments made to sub-contractors.
Sections Cited
143(1), 143(2), 142(1), 44AB, 131, 40A(3), 80G, 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH ‘SMC’ : AGRA.
The assessee has filed appeal against the order of the ld. Addl./JCIT(A)-1, Chandigarh [“Ld. JCIT”, for short] dated 04.02.2025 for the Assessment Year 2017-18.
Brief facts of the case are, assessee, a partnership firm, filed its return of income for the AY 2017-18 declaring total income of Rs.5,54,200/-. The return was processed under section 143(1) of the Income–tax Act, 1961 (for short ‘the Act’). Subsequently, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued and served on the assessee. The AO observed that assessee has declared gross receipts under the head ‘rent’ for Rs.2,00,54,349/- and another receipts and declared net profit of Rs.4,94,875/-. The books of account were also audited under section 44AB of the Act. He further observed that in the immediate preceding AYs 2015-16 and 2016-17, the assessee has declared the income under the provisions of section 44AD of the Act i.e. net profit to tax @ 8% of the gross receipt. Accordingly, notices were issued to the assessee asking for relevant information. After considering the submissions of the assessee, AO has not found any variance in the gross receipt declared by the assessee, in order to verify the major expenditures claimed by the assessee. The assessee was asked to submit the details of transaction with All India Carrying Corporation and Mukesh Transport Agency, expenditure related to Gaya Sight, Majdoori expenses and details of gross rent declared by the assessee in its books of account, accordingly, summons were issued u/s 131 of the Act to Vishal, 665, Mobile Tower Wali Gali, Moti Vihar Colony, Kedar Nagar, Agra to whom assessee has made substantial payments against the work contract assigned to them by the assessee. From the written submissions against 142(1) notice dated 20.09.2019, the AO observed that most of the payments under the head majdoori, expenses are entirely made in cash and all those vouchers were prepared manually and these were remained in proper vouchers. Against the summons issued to four parties, they have confirmed to the AO that the payments were made in cash against the work assigned to them for special contract work related to installation of tents etc.. Since the assessee could not produce the parties and submitted written submissions vide letter dated 14.10.2019. The AO not agreed with the submissions of the assessee and also not responded to the summons issued by him, he disallowed the unverified expenditure of special contracts to the extent of Rs.28,60,972/-. Further he observed that assessee has not charged interest on the funds diverted to GKS Projects and Events due to business relationship with them. The AO observed that during the year substantial amounts were advanced to them interest free to the extent of Rs.38,34,900/- out of which Rs.10,00,000/- received back, with the result amount of Rs.28,34,900/- remained outstanding at the end of the year. Accordingly, he proceeded to disallow the interest expenditure to the extent of Rs.75,019/- and he also disallowed a part of amount of deduction claimed u/s 80G to the extent of Rs.19,786/- and disallowance of indirect expenditure of Rs.50,000/-.
Aggrieved assessee preferred an appeal before the ld. Addl./JCIT (A)-1, Chandigarh and raised grounds, filed detailed submissions before the ld. JCIT. After considering the submissions of the assessee, ld. JCIT sustained the additions made by the AO with regard to contract payment with the following observation :-
I have considered the submission made by the appellant and have also gone through the material on record. On perusal of assessment order, the submission and documents furnished during assessment proceedings had been considered and discussed by the AO in the assessment order. After considering all these documents and submission, the AO has held that these expenses on account of sub-contract were not genuine and remained unverified and therefore, the same were disallowed. As per settled principle - of law, if a deduction or allowance is claimed by an assessee, the onus is on him to establish the genuineness of the same, Here in case under consideration, the appellant had not been able to prove the genuineness of the sub-contract expenses in the name of 4 persons mentioned in the assessment order. There are a number of factors which are pointing toward the non- genuineness of these expenses. Firstly, appellant has not provided the exact nature of work done by those persons and copies of invoices raised. Secondly, there is only one invoice claimed to be raised by each of these 4 persons and that is also in March, 2017. Thirdly, all the payments had been made in cash below Rs.20,000/- on a single day before raising the invoice by those persons. Fourthly, TDS was required to be deducted on the date of payment or credit whichever is earlier, but no tax was deducted when payments were made. Lastly, these persons did not appeared before the AO in response to summons issued under section 131 of the Act for personal appearance and even, the appellant had not produced those persons for examination in spite of specifically asked by the AO. It has also been noticed that the disallowance of Rs.28,66:972/- has been made out of total contract payments of Rs.1,17,43,682/- as per 26AS. If all these facts are considered in totality, the genuineness of these expenses have not been established. Therefore, I am in agreement with the findings of the AO while disallowing these expenses. The case laws relied upon by the appellant are not going to help the appellant as those decisions were delivered on the basis of peculiar facts of those cases and no principle has been lead down regarding allowability of expenses. Here in present case, the disallowance has been made after taking into consideration the totality of the facts and circumstances. Even otherwise, these expenses are liable to be disallowed as per section 40A(3) of the Act as the payments exceeding Rs.10,000/- in a day had been made to these persons. Accordingly, the Ground No. 1.1 and 1.2 are dismissed.
Aggrieved assessee preferred an appeal before ITAT raising various argumentative grounds of appeal
, which is not as per the ITAT Rules. However, single grievance of the assessee is disallowance of sub- contract majdoori expenses claim.
5. At the time of hearing, ld. AR submitted as under :-
On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities.
Considered the rival submissions and material placed on record. I observe that the assessee is in the business of tent work making temporary structures of Huge Pandals, Accommodation, Swiss Cottages etc.. I observe that assessee is taking the contract from various parties and sub-contracts the same. Since assessee has to do tentage contracts which involves voluminous transportation and installation of tentage goods in various places. Accordingly, assessee deals with sub- contractors by settling the same in cash. These being unregulated sector most of the transactions are only through cash. I observe that the assessee has dealt with four sub-contractors of whom the assessee has already submitted PAN details and their respective assessments and also submitted confirmation from these parties. Further I observe that assessee has deducted TDS on such payments and the same were duly complied with and copies of TDS certificates were also submitted before the authorities. Further I observe that assessee also submitted the ITR of these parties. Since these parties were not brought before the AO and these transactions were carried by settling the same in cash, the expenses were disallowed. Since these parties are already filing return of income and their incomes were assessed to tax and considering the peculiar nature of the business of the assessee, I observe that assessee has declared Rs.2 crores of gross receipts during the year and the same was accepted by the Revenue and the nature of business involving erection of huge tents and it cannot be denied that assessee might have given some sub- contracts to the parties involving of such sub-contractors in such business cannot be denied and assessee has properly brought on record, the payments and TDS were deducted properly and assessee is regularly doing business in this line of business and such payment of about 4% of the gross receipt cannot be denied as genuine transaction. Hon’ble High Court of Gujarat in the case of CIT-I vs. BMS Projects (P.) ltd. 44 taxmann.com 206 has held as under :-
Head Note : Assessing Officer observed that major-expenses incurred by assessee were on account of job works which were sub-contracted to various persons for carrying out work contracted out to assessee - On account of non-production of parties, Assessing Officer disallowed expenditure and made addition of such amount - Commissioner (Appeals) after an elaborate examination confirmed on Iv part of total disallowance - Tribunal deleted entire addition made by Assessing Officer holding that on ground of residential address and registration address of some sub-contractors being same, there was no reason to disbelieve evidence - Whether where TDS was deducted on payments made to sub-contractors and other details were also furnished, Tribunal committed no error in deleting entire addition made by Assessing Officer - Held, yes.
These expenditure claimed by the assessee are wholly and exclusively for the purpose of business, hence these payments were deserved to be allowed and AO has any doubt on cash payments, he could have initiated other proceedings in respect of disallowance the expenditure. Merely because the settlements were made through cash, it cannot itself be held to be non-genuine. We have to consider the nature the nature of transaction and nature of industry. Accordingly, the grounds raised
by the assessee are allowed.
9. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 3rd day of September, 2025.