DCIT Vs Sanjay Gulabrai Kundalia Jamnagar Khambhaliya Highway (ITAT Rajkot)
Conclusion: AO was wrong in disallowing the entire direct expenditure claimed towards sub-contractors for stevedoring and transport services and at the same time, assessee had not proved beyond doubt that the expenditure claimed was fully genuine. Considering all these inconsistencies, CIT(A) righlyl disallowed 20% of the expenditure claimed.
Held: Assessee an individual, was engaged in Cargo handling activities and sub-contracted most of the work as he only possessed one excavator and lacked sufficient manpower and transportation vehicles. The contract work involved cargo handling of imported fertilizer for Rashtriya Chemical Fertilizer (RCF) at the Hay Bunder port of Mumbai, with the assessee working as a sub-contractor for M. Pallonji & Co. Pvt. Ltd. During the assessment proceedings, AO disallowed the entire direct expenditure of Rs. 2,30,31,923 claimed towards transportation and stevedoring on the ground that the subcontractors lacked capacity, furnished identical replies, and most payments were made in cash. On appeal, the CIT(A) held that while the AO was unjustified in disallowing the full amount, the assessee also failed to substantiate the genuineness of the entire expenditure. Hence, 20% of the expenses were disallowed. Both the Revenue and the assessee appealed to the Tribunal. It was held that assessee, despite having huge turnover, operated based on oral rate contracts with sub-contractors. Tribunal observed that the Inspector’s report suggested sub-contractors lacked the capacity to execute the contracts, implying the possibility of inflated expenditure through ‘bill-only’ parties. Tribunal held that while contracts can be executed with hired vehicles and machinery, there needs to be proper documentation, which the assessee lacked. Observing the inherent defects in the documents and explanations, Tribunal found no infirmity in the CIT(A)’s conclusion to restrict the disallowance to 20% of the expenditure. Tribunal dismissed both the appeal filed by the Revenue and the cross objection filed by assessee.
