Ambience Private Limited Vs ITO (ITAT Delhi)
NO ITR, NO REPLY -BUT NO LICENCE FOR 30% GUESSWORK: AD HOC DISALLOWANCE OF CONTRACT EXPENSES CUT TO 5%
Summary: The Delhi ITAT has held that the failure of contractors to file their ITRs or respond to notices issued u/s 133(6) may justify closer verification of the expenditure, but it does not authorise the AO to make an arbitrary disallowance of 30% without examining the services rendered or providing any rational basis for the chosen percentage. Considering the expenditure to have remained partly unverifiable, the Tribunal restricted the disallowance to 5%.
Facts of the case
The assessee, Ambience Private Limited, was engaged in the business of real-estate & infrastructure development.
For AY 2023-24, it filed its return of income on 31.10.2023 declaring a loss of ₹14,05,48,926. The return was processed u/s 143(1) at a loss of ₹14,00,23,611.
The case was subsequently selected for scrutiny under CASS for multiple reasons. One of the reasons was that the assessee had made substantial payments attracting TDS u/s 194C to certain persons who had not filed their ITRs.
During the assessment proceedings, the AO issued notices u/s 133(6) to three contractors to whom payments had been made. However, none of the three contractors responded to the notices.
