INCOME TAX ACT, 19612

Section 143(3)

Assessment - Addition to income - Assessee-contractor carried out work for laying down road in a thermal power plant - Expenditure towards sub contract work disallowed by AO for want of proper bills

Assessee was a contractor, who carried out the work of road laying in a thermal power plant. AO made addition on allegation that sub contractors to whom sub contracts were assigned by assessee, were not produced before AO upon summons being issued to them. AO disbelieved sub-contract work carried out by them, and entire payments made to them were disallowed and was added back to income of assessee. Revenue was aggrieved by order of Tribunal, restricting disallowance to 10% of expenditure incurred towards subcontractors. Revenue alleged that restriction of disallowance was unjustified as assessee failed to prove the identity, credibility and genuineness of sub contractors. Held: When gross profit and net profit of relevant assessment year was compared with other assessment years, it was at higher side. Further, payment to parties in question was subject to TDS and was paid by cheques and assessee has maintained the Measurement book (M books), which was signed by the sub-contractors. Only discrepancy noticed by AO was that the payments were not supported by the bills raised by the parties and only self-made vouchers were maintained by assessee. Considering nature of work carried on by assessee, there was no question of not incurring of expenditure by assessee to carry on road work contracts and the work was mentioned in the M book maintained by the assessee and counter signed by the sub contractors. However, there was chances of inflating the expenditure for which disallowance of 10% of expenditure claimed was justified and disallowance of entire amount could not be appreciated.

Followed:Edac Engineering Ltd. v. Asstt. CIT (2014) 149 ITD 341 (Chen-Trib) : 2014 TaxPub(DT) 754 (Chen-Trib).