ITAT Upholds Disallowance of Subcontract Expenses, Remands TDS Matter to AO
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, in one of its orders, upheld a disallowance made by the assessing officer (AO) of subcontract expenses because the assessee company did not submit enough explanations and details.
The assessee, Chamunda Electrical Pvt. Ltd had filed its return for the assessment year 2017-18 on 19/09/2017, reporting a total income of Rs 42,66,000. The case was selected for scrutiny, and a notice under section 143(2) of the Income Tax Act was sent to the assessee on 13.08.2018.
The AO had observed an increase in share capital of the company and debited ROC expenses of Rs 1,50,000/- to the profit and loss account. The assessee responded that the share capital was increased by Rs 40 lakh, and related expenses were Rs 1.5 lakh. The AO disallowed subcontract expenses of Rs. 1,21,15,000, saying that the assessee did not submit any explanation about the capital nature of these expenses. He also disallowed an amount of Rs 1,21,15,000 as the assessee could not substantiate its claim of expenses in the name of four persons. The Ao further made a disallowance of Rs 15,33,536 under Section 40(a)(ia) for non-deduction of TDS.
The assessee filed an appeal before the CIT(A), but it did not succeed. Therefore, the assessee filed an appeal before the ITAT Ahmedabad to challenge these disallowances made by the AO.
The Appeal Ground no.1 was not pressed, so it was dismissed.
In Ground No. 2, the assessee argued that all subcontractor details were submitted, and the payments were genuine. However, the ITAT observed that out of the four recipients, only one was related to a director, while the others were not related, and the explanations and details given by the assessee were not enough. Therefore, the ITAT upheld the AO’s disallowance of subcontract expenses of Rs 1,21,15,000.
In Ground No. 3, the assessee argued that 30% of all ledger purchases of material have been given the details. However, the Tribunal noted that the assessee has not provided any details about the material purchased. The ITAT remanded the case to the Assessing Officer for proper verification and directed the AO to give an opportunity for a hearing. Ground No. 3 was partly allowed. Therefore, the ITAT partly allowed the appeal of the assessee.
Case Citation: Chamunda Electrical Pvt. Ltd Vs The ACIT; (ITAT Ahmedabad); ITA No. 846/Ahd/2023; 04/11/2025; 2017-18
