Vinod Agrawal Vs ACIT (ITAT Raipur)
Subcontract Expense Disallowance: ITAT Orders Fresh Adjudication for Lack of Independent Enquiry
Introduction
The Income Tax Appellate Tribunal (ITAT), Raipur Bench, set aside an appellate order concerning the disallowance of subcontracting expenditure of ₹35,70,000 after finding that the Commissioner of Income Tax (Appeals) had not independently verified the assessee’s submissions.
The assessee contended that the relevant receipts had already been offered to tax and assessed in the hands of the subcontractors. The Tribunal found that the CIT(A) had rejected the contention without conducting a proper enquiry or arriving at independent reasoning through verification.
Accordingly, the matter was restored to the CIT(A) for fresh adjudication and a speaking order under Sections 250(4) and 250(6) of the Income Tax Act, 1961.
Background of the Case
The assessee, M/s Vinod Agrawal, was a partnership firm engaged in the business of works contracts. For financial year 2018-19, it filed its income tax return and had its books audited under Section 44AB.
The firm declared total receipts of ₹6,36,48,579.49 and a net profit of ₹12,76,722, after payment of interest and remuneration to its partners.
A search and seizure action under Section 132 took place on 09.03.2022. Subsequently, the assessment for assessment year 2019-20 was reopened under Section 147, and a notice under Section 148 was issued.
In the resulting assessment, the Assessing Officer made an addition of ₹35,70,000 by disallowing subcontracting expenditure. The assessee challenged the assessment before the CIT(A), Raipur-3, whose order dated 30.07.2026 became the subject of the appeal before the Tribunal.
Assessee’s Plea Regarding Taxation of Subcontractors
Before the CIT(A), the assessee specifically argued that the expenditure disallowed by the Assessing Officer had been recognised as revenue by the subcontractors and offered for taxation.
The written submission referred to the income tax returns of Smt. Naina Agrawal and Vinod Agrawal HUF, which, according to the assessee, had been provided during the assessment proceedings.
The submission mentioned subcontracting amounts of ₹18,00,000 and ₹35,70,000, respectively. The assessee asserted that these amounts had been considered as revenue by the recipients and had also been assessed under Section 147.
On this basis, the assessee argued that taxing the amount again through disallowance in its hands resulted in double taxation. This contention was raised through Ground No. 7 before the first appellate authority.
CIT(A)’s Reasons for Rejecting the Plea
The CIT(A) rejected the argument that taxation of the receipts in the subcontractors’ hands prevented disallowance of the corresponding expenditure in the assessee’s hands.
According to the CIT(A), assessment of income in the recipient’s hands and disallowance of expenditure in the payer’s hands operate in different fields. The appellate authority observed that these were governed by distinct charging and computation provisions.
The CIT(A) further reasoned that the recipient’s payment of tax did not automatically establish that the payer had incurred genuine and allowable business expenditure. Deductibility, therefore, had to independently satisfy the statutory requirements.
The appellate authority also held that the plea of double taxation did not apply where amounts were taxed in the hands of different assessees under different provisions and taxable events. Consequently, the ground was dismissed.
Tribunal Finds Absence of Independent Verification
The Tribunal examined the assessee’s submissions alongside the findings recorded by the CIT(A). It noted that the assessee had specifically stated that the relevant transactions had been assessed in the subcontractors’ hands and that their tax liabilities had been completed.
The Tribunal further observed that the CIT(A) had not conclusively denied this factual assertion.
However, the appellate authority had not conducted an enquiry in terms of Sections 250(4) and 250(6). The Tribunal found that no independent reasoning had been reached through proper verification of the assessee’s contentions.
It described the findings as vague and not matching the submissions because the factual assertions had not been independently examined. The defect identified was therefore the absence of a verified and reasoned adjudication.
Directions for Fresh Adjudication
The Tribunal set aside the CIT(A)’s order and restored the matter to the appellate authority for de novo adjudication in accordance with law.
The CIT(A) was directed to pass a speaking order under Sections 250(4) and 250(6) after complying with the principles of natural justice.
The Tribunal also directed the assessee to comply with the hearing notices issued by the first appellate authority.
Outcome and Scope of the Ruling
The appeal was allowed for statistical purposes. The Tribunal did not delete the disallowance or hold that taxation of subcontractors automatically entitled the assessee to a deduction.
The decision requires the CIT(A) to verify the assessee’s factual submissions and provide independent reasons before deciding the dispute afresh. The allowability of the subcontracting expenditure remains open for adjudication.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
PER PARTHA SARATHI CHAUDHURY, JM The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals), Raipur-3, dated 30.07.2026 for the assessment year 2019-20 as per the grounds of appeal on record.
2. Brief facts in this case are as follows:
“3. Brief Facts of the Case: – The appellant, M/s Vinod Agrawal is a partnership firm duly constituted and engaged in the business of works contracts. The assessee firm filed ITR for FY 2018-19 and get its books audited u/s 44AB of the Act. During the FY 2018-19 the appellant has declared total receipts of Rs.6,36,48,579.49/- and net profit of Rs.12,76,722/- after payment of interest and remuneration to the partners.
A search and seizure action were conducted u/s 132 of the Income Tax Act, 1961 on 09/03/2022. Subsequently case of assessee for AY 2019-20 was reopened u/s 147 of the Act. Notice u/s 148 of the Act was issued under clause (i) of Explanation 2 of section 148 of the IT Act, 1961 as per which AO is deemed to have information in possession, which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year. Notice u/s 148 of the Act was issued on 118.11.2022 after taking due approval from the Pr Commissioner of Income tax (Central), Bhopal u/s 151(i) of the IT Act. In the assessment order AO has made addition of Rs.35,70,000/- on account of disallowance to sub- contracting expenditure.”
3. It is also further noted in the order of the Ld. CIT(Appeals) itself that the assessee had made following submissions before the First Appellate Authority:
“5.5 Ground No. 7: Through this ground assessee raised that disallowance made by the AO is recognized as revenue in the sub-contractors and thus causing double taxation and supplied the written submission as under:
The Ld. A.O. during the assessment proceeding has provided with the ITR of e subcontractors Smt. Naina Agrawal and Vinod Agrawal HUF wherein the alleged subcontractor expenses Rs.18,00,000/- and Rs.35,70,000/- has been duly considered as revenue and offered for taxation by Smt. Naina Agrawal and Vinod Agrawal HUF and same has also been assessed by the authority u/s.147 of the Act. However, the Ld. A.O. has erred in taxing again it in hand of the assessee which is double taxation and not acceptable.”
4. That in the finding of the Ld. CIT(Appeals), it was held and observed as follows:
“I have carefully perused the submission of assessee and find that appellant’s contention that the impugned receipts have been assessed in the hands of the alleged subcontractors and, therefore, sustaining the addition would amount to double taxation is equally untenable.
The assessment of income in the hands of the recipient and the disallowance of expenditure in the hands of the payer operate in different fields and are governed by distinct charging and computation provisions. Taxability of receipts in the hands of one person does not automatically confer deductibility of corresponding expenditure in the hands of another person. The allowability of expenditure must independently satisfy the statutory requirements prescribed under the Act.
Even assuming that the recipient has offered the receipts to tax, such assessment merely determines the tax liability of the recipient in respect of receipts declared by him. It does not establish that the payer has incurred genuine and allowable business expenditure. The doctrine of “double taxation” has no application where the same amount is subjected to tax in the hands of different assessee under different charging provisions and on account of different taxable events. Accordingly, the plea of double taxation is rejected. Thus, ground of appeal is not tenable and is dismissed.”
5. The assessee has clearly written that so far as assessments in the hands of the sub-contractors are concerned, as per their relevant assessments, tax liabilities have been completed for the said transaction. That at the same time, the Ld. CIT(Appeals) had also conclusively not denied this fact that as per assessment of income in the hands of recipients, tax liability has been completed. There is no enquiry done by the Ld. CIT(Appeals) in terms with Section 250(4) & (6) of the Act. The First Appellate Authority had rested her findings on the submissions put forth by the assessee without following mandate of the Act and no independent reasoning has been arrived at through proper verification. The findings of the Ld. CIT(Appeals) are vague and is not matching with the submissions put forth by the assessee since there has been no independent enquiry by the First Appellate Authority regarding contentions assailed by the assessee.
6. In view thereof, the order of the Ld. CIT(Appeals) is set aside and matter is remanded back to her file for denovo adjudication as per law and the said authority shall come up with a speaking order in terms with Section 250(4) & (6) of the Act after complying with the principles of natural justice. The assessee shall also comply with the hearing notices issued by the First Appellate Authority.
7. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on 21st day of October, 2026.
