ITAT Allows Sub-Contract Expenses as Company Files Sufficient Evidence
The Income Tax Appellate Tribunal (ITAT), Delhi, has recently ruled in favour of a company by deleting the additions made by the assessing officer towards the subcontract expenses of Rs 14.30 crores. The Tribunal noted that the assessee company had discharged its onus of explaining the expenses.
The assessee, Paxton Infrastructure, had received Rs.14.39 crore in contract receipts for the contract awarded by M/s Era Infra Engineering Ltd. The assessee had further subcontracted the work to three different companies and incurred contract expenses of Rs 14.21 crore.
The issue started after the assessing officer disallowed contract expenses of Rs. 14.30 crore, claiming that the entire subcontract carried out by the assessee company was a fake and circuitous. The AO had accepted the contract receipts of Rs. 14.39 crore as income but denied the benefit of expenses incurred to earn that income. The CIT(A) partly upheld the AO’s order, based on the information from the MCA website. Therefore, the assessee company approached the ITAT.
The tribunal noted that the assessee had submitted evidence like work orders from M/s Era Infra Engineering and L&T Ltd., ledger accounts, bank statements showing the payment, confirmations from subcontractors, and audited financial statements. The tribunal criticized the AO for not conducting his own verification with the subcontractor.
The ITAT held that the assessee had discharged its onus of explaining the expenses, and therefore, the additions are invalid. As a result, the tribunal directed the AO to delete the additions.