Income Tax assessment order passed u/s 143(3) supports that party was not bogus, very much existed and carried out business – ITAT
ABCAUS Case Law Citation:
ABCAUS 3701 (2023) (04) ITAT
In the instant appeal, the Revenue had challenged the order of CIT(A) in deleting disallowance made by the Assessing Officer (AO) towards sub-contract expenditure being bogus in nature.
The respondent assessee was in the business of property development. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (the Act) by inter alia making disallowance towards sub-contract expenses on the ground that the assessee could not file necessary evidences to prove sub-contract charges paid were genuine in nature.
The CIT(A) deleted the addition on the ground that the assessee was able to file necessary evidences including return of income filed by the sub-contractor, along with financial statements and also the sub-contractor had been assessed u/s 143(3) of the Act and the Department had accepted the income declared in return of income filed for the relevant assessment year.
Before the Tribunal, the Revenue contended that the CIT(A) deleted the additions without appreciating the fact that the notice u/s 133(6) issued by the AO remained unresponsive. Further, when the inspector of Income-tax visited the address of the sub-contractee, it was noticed that no such firm was found in the given address.
It was submitted that in financial statement of the sub-contractor even the total payment made by the assessee was not fully accounted and further, except the payment from the assessee, there is no further receipts from business. Therefore, payments made to sub-contractee were not genuine and the AO had rightly made additions.
The assessee submitted that the sub-contractee company was undergoing Insolvency and Bankruptcy Code (IBC) proceedings in pursuant to a petition filed by one of the creditors and therefore no
body was available to respond to the notice by the AO.
The ITAT observed that the assessee had filed income-tax return filed by the contractee along with financial statement for relevant financial years and explained payment made to said party. The assessee also filed assessment order passed u/s 143(3) of the Act.
On the issue of mismatching payment made by the assessee and gross receipts admitted in the financial statement of sub-contractee, the ITAT noted that as explained the said difference was on account of GST/VATpayment, which had been separately accounted for in the books.
The ITAT opined that from the above, it was very clear that the sub-contractee was very much existed and also carried out business, which was evident from the fact that sub-contractee had filed income-tax returns for the relevant assessment year disclosing contract receipts from the assessee.
The Tribunal opined that in view of the facts, the observation of the Assessing Officer that the sub-contractee was a bogus entity and existed only in paper was devoid of merits.
Accordingly, the Tribunal dismissed the appeal of the Revenue.
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