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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI SANJAY GARG & SRI SANJAY AWASTHI
order
: July 31st, 2024 ORDER
Per Sanjay Awasthi, Accountant Member:
The appellant company is engaged in providing underground car park ventilation systems on a turnkey basis and filed their return of income on 19.11.2018 declaring income of Rs. 49,14,056/- under the heads ‘profits and gains from business or profession’ and ‘capital gain’. At the assessment stage, a disallowance of Rs. 2,59,97,824/- was made u/s 37(1) of the Income Tax Act, 1961 (in short the 'Act') on the finding that the assessee had failed to submit documentary evidences to confirm the genuineness of expenditure booked. It is recorded by the Assessing Officer (hereinafter referred to as ld. 'AO') that this case was selected for scrutiny and one of the reasons for the I.T.A. No.: 638/KOL/2024 Assessment Year: 2018-19 Airovient Fans & Systems Private Limited. said selection were large payments made u/s 194(C) of the Act to persons who have not filed return of income. It is seen that the Income Tax Department was in possession of information that even though tax had been deducted u/s 194(C) of the Act to certain vendors but some recipients have not filed their returns of income. The AO found that only some of the parties responded to notices u/s 133(6) of the Act and filed confirmations amounting to Rs. 24,73,206/-. He thereafter proceeded to make an addition of Rs. 2,59,97,824/- ostensibly on the ground that the payments to a substantial number of parties could not be verified. 1.1. Before the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as ld. 'CIT(A)'] the assessee averred that all possible details available with him were presented before the AO and it was demonstrated that there were regular business dealings with such vendors and importantly the income returned would not have been earned until and unless such expenditure was incurred. It was further averred before the ld. CIT(A) that as far as the assessee was concerned, he had duly deducted tax at source and provided all details as were available with him to show that the payments have been made only and exclusively for the purposes of his business. 1.2. The ld. CIT(A) found that on the very same grounds that the AO had held an amount of Rs. 24,73,206/- to be genuine, there was a further amount of Rs. 41,92,261/-, pertaining to three more parties which was equally genuine by the yardstick adopted by the AO. This amount was deleted straight away from the addition made by the AO. He further found that the details on record of the AO indicated that certain other parties had independently submitted evidence of ITRs/acknowledgement of ITRs filed by them. On the basis of this finding, he further gave relief of an amount of Rs. 38,03,998/- pertaining to five more parties. However, he proceeded to confirm the remaining addition which was an amount of Rs. 1,80,01,565/- (impugned amount).
I.T.A. No.: 638/KOL/2024 Assessment Year: 2018-19 Airovient Fans & Systems Private Limited. 1.3. Aggrieved this action, he has approached the ITAT through the following grounds of appeal:
“1. For that the Ld. CIT(A), NFAC erred in confirming the addition to the extent of Rs. 1,80,01,565/- incurred towards business expediency on account of expenditure incurred towards various heads; testing & commissioning, security services, repairing, loading & unloading, labour charges, installation charges, freight expenses, etc. when the Income earned from corresponding activities remain undisputed.
2. For that without incurring such expenditure, revenue could not have been earned, besides disallowance on the grounds of confirmation from the respective parties is unwarranted.”
During the course of hearing before us, a paper book containing 174 pages has been filed with the following index, indicating the extensive documentation presented before the authorities below to prove the genuineness of expenditure:
SL PARTICULARS PAGE FILED NO. NO BEFORE AO CIT (A) 1 Audited Financials 31/03/2018 1-25 Y Y 2 Tax Audit Report 31/03/2018 26-41 Y Y 3 Summary of Expenses Wrt parties mentioned in Asst. 42-50 Y Y Order Para 5.3, wherein tds deducted u/s 194C 4 Master chart wrt. Vendor contracts vs. Client Work order 51 Y Y 5 Corresponding Revenue earned wrt. Testing, Erection & 52-56 Y Y Commissing 6 Map Power Infrasolutons Pvt Ltd corresponding 57-72 Y Y contract/Invoice/Client Work order copy 7 Lutfar Mollick/Global One Enterprises corresponding 73-83 Y Y contract/Invoice/Client Work order copy 8 Vidya Nikam/R D Engineering Co. corresponding 84-94 Y Y contract/Invoice/Client Work order copy 9 Goutam Enterprises corresponding 95-102 Y Y contract/Invoice/Client Work order copy 10 Reply letter to AO against Show cause notice dated 103-126 Y Y 24/04/2021 11 Reply letter to AO against Show cause notice dated 127-137 Y Y 12/08/2021 12 TDS deduction chart wrt. disallowed parties with sample 138-152 Y Y Form 16A 13 Summary list wrt. Installation charges, Labour charges, 153-161 Y Y Loading & Unloading charges, Repairs & maintenance charges, Security charges & Freight charges I.T.A. No.: 638/KOL/2024 Assessment Year: 2018-19 Airovient Fans & Systems Private Limited. 14 Security charges sample Invoices 162-163 Y Y 15 Summary of transaction carried since FY 2014-15 164 Y Y 16 Asst, order u/s. 143(3) for the AY 2015-16 165-172 Y Y 17 Common parties involved for the AY 2015-16 173-174 Y Y 2.1. The ld. A/R has averred that the assessee undertakes projects on a turnkey basis from concept to commissioning and for such commercial activities he relies on a series of the vendors and service providers to ensure that the projects are constructed and made functional. It has been averred all along that the income earned under the head ‘business and profession’ could only be made possible by incurring the expenditure which was considered unjustified on the grounds that some of the vendors did not respond to, or could not be located, when notices were issued by the AO. It was averred that the assessee has meticulously maintained necessary documents in evidence of the expenditure and had even deducted tax at source on the same. It was asserted in the end that there was nothing further that the assessee could have done to prove the genuineness of the expenditure from his side. 2.2. The ld. A/R took pains to point out that the assessee filed detailed submissions through which revenue accruing from a number of clients had corresponding expenditure with the name of some of the vendors who have been held to be bogus by the AO. In fact, the ld. A/R demonstrated one case of Map Power Infrasolutions (P) Ltd. in which details of work done along with as many as 53 items of expense have been demonstrated pertaining to this vendor, who has been treated for addition by the AO as per finding at Sl. No. 1 at page 3 of the assessment order. 2.3. The ld. D/R relied on the order of ld. CIT(A) to canvas the point that the ld. CIT(A) had fairly allowed relief on certain amounts and that is where the matter should rest.
We have carefully considered the rival submissions as also the documents placed before us. It is understood that the income under the head ‘business and profession’ would be earned by making certain relevant I.T.A. No.: 638/KOL/2024 Assessment Year: 2018-19 Airovient Fans & Systems Private Limited. expenditure. While demonstrably unjustified expenditure could be disallowed, but it is also clear that there are limits to the kind of documentation and evidences that a normal business would be expected to maintain. In this case, the assessee has adequately demonstrated that he has meticulously maintained documents and even deducted tax at source on the payments made to vendors who were associating with him in executing turnkey projects. It is felt that even the ld. CIT(A) has failed to appreciate that there are limits to the kind of evidences that any normal business entity would have with it to justify the expenditure incurred for earning business income. In this case it is felt that the assessee could not have done any better than what he has already done in terms of filing detailed documents to justify the expenditure incurred. We draw strength from two cases of the Hon'ble Calcutta High Court in this regard to show that the burden of proof on the assessee regarding proving expenditure u/s 37(1) of the Act has limits and cannot be mainly disallowed on the grounds adopted by the AO. The two cases are as follows: a) Ashok Surana vs. CIT reported in [2016] 384 ITR 267 (Calcutta) the head note of which is extracted as under: “Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Burden of proof) - Assessment year 2001-02 - When appropriate evidence has been adduced, it is not in power of Assessing Officer to arbitrarily disallow any item of expenditure on ground that sums are not verifiable.” b) PCIT vs. Paharpur Cooling Towers Ltd. reported in [2023] 150 taxmann.com 238 (Calcutta) the head note of which is extracted as under: “Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Consultancy fee) - Assessment year 2013-14 - Assessee claimed payment to a company for management consultancy services - Assessing Officer treated payment as bogus transaction and disallowed claim holding that said shell entity was non-existent at its registered address - On appeal, Commissioner (Appeals) noted that assessee had availed services of consultant in connection with contract awarded by BHEL; and that such payments were made by account payee cheques and payment included service tax on invoice and payee was duly registered with service tax department - Commissioner (Appeals) further noted that transaction took place in financial year 2012-13, relevant to assessment Page 5 of 6