Case Law Details
ACIT Vs Veerabhadra Minerals Private Limited (ITAT Hyderabad)
Introduction: The recent decision by the Income Tax Appellate Tribunal (ITAT) Hyderabad in the case of ACIT vs. Veerabhadra Minerals Private Limited involves the allowance of 75% of overburden removal expenditure claimed by the assessee. The dispute arose from the assessment year 2013-14, with the Revenue challenging the order of the Commissioner of Income Tax (Appeals)-11 (CIT(A)).
Background: Veerabhadra Minerals Private Limited is engaged in mining contracts, specifically in pit mining operations that require the removal of overburden and other waste materials. The company subcontracted this removal work to GVP E&C, owned by Mr. GV Pratap Reddy, the Managing Director of the assessee company. The subcontracts were further assigned to employees of Veerabhadra Minerals. The Revenue disallowed the claimed expenditure on overburden removal, citing the absence of agreements for sub-contracts, lack of PAN or bank details of subcontractors, and the need for the assessee to prove the genuineness of the expenses.
Assessment Proceedings: The assessing officer disallowed the expenditure, emphasizing the absence of agreements and the failure to provide details of subcontractors. The CIT(A), however, deleted the addition, highlighting that the assessing officer’s reliance on voluntary offerings made in previous years was unjustified. The CIT(A) noted a substantial decrease in overburden removal expenditure for the year under consideration compared to earlier years. Additionally, the turnover on account of overburden removal had been assessed in the hands of Mr. GV Pratap Reddy and his employees.
Revenue’s Appeal: The Revenue appealed, arguing that the subcontract work was a means for the assessee to transfer money to its employees, who then passed it on to unknown subcontractors without proper documentation. The Revenue contended that the burden was on the assessee to substantiate the genuineness of the expenses, especially when payments were made to the proprietary concern of the Managing Director, falling under section 40A(2)(b) of the Income Tax Act.
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