DCIT Vs Dhar Construction Company (ITAT Kolkata)
Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has partially allowed an appeal filed by the Revenue Department against Dhar Construction Company for the Assessment Year 2018-19. The Tribunal significantly reduced a Rs 2.97 crore addition made by the Assessing Officer (AO) under Section 69C (unexplained expenditure) but sustained 10% of the disallowance due to the assessee’s failure to produce primary supporting documents like bills and vouchers.
The case originated when the AO disallowed Rs 2.97 crore claimed as expenditure by Dhar Construction Company. The AO invoked Section 69C, treating the expenses as unexplained because they involved large payments, seemingly to sub-contractors (under Section 194C provisions), many of whom were non-filers of income tax returns. The AO noted that the assessee failed to provide supporting bills and confirmations despite requests, making verification of the genuineness of these expenses difficult. However, the Commissioner of Income Tax (Appeals) [CIT(A)] had deleted the entire addition, reasoning that the non-filing status of the payees does not automatically render the expense non-genuine, and the assessee had provided explanations and deducted TDS where applicable.
Before the ITAT, the Revenue challenged the CIT(A)’s complete deletion of the addition, reiterating the assessee’s failure to provide proof. The assessee argued that Section 69C was incorrectly applied, as this section deals with the source of funds for expenditure, not the genuineness of expenditure already recorded in the books. They cited several judicial precedents, including CIT vs. Radhika Creation (Delhi HC), supporting this interpretation. The assessee also contended that the AO hadn’t specifically asked for bills in the show cause notice, violating natural justice principles.
The ITAT agreed with the assessee and the cited precedents that Section 69C was not the appropriate section for disallowing expenditure already recorded in the books of account where the issue was genuineness or verification. However, the Tribunal invoked the principle established by the Supreme Court in P.K. Palanisamy Vs. N Arumugham, stating that quoting a wrong provision does not invalidate an order if the authority possessed the underlying jurisdiction. The ITAT found that the AO did have the jurisdiction to verify the genuineness of expenses claimed under Section 37(1). Crucially, the ITAT observed that the assessee failed to produce the primary evidence – the actual bills and vouchers supporting the expenditure – before the AO and could not produce them before the Tribunal either.
Given the absence of these fundamental supporting documents, the ITAT concluded that the genuineness of the entire expenditure could not be fully verified. While rejecting the Section 69C basis, the Tribunal found that a partial disallowance was warranted due to the lack of verification. Consequently, the ITAT decided to sustain 10% of the disputed amount, amounting to Rs. 29,71,678, as a disallowance for non-production of vouchers. The remaining 90% of the addition made by the AO was deleted. The Revenue’s appeal was thus partly allowed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
