2010 (3) TMI 1155 - AT - Income Tax

Contractor's Expense Disallowed as Capital Expenditure: Lack of Business Purpose Evidence

Dholu Construction and Projects Ltd., Versus Income Tax Officer, Ward 1 (4), Ahmedabad

The appellant, a Civil Contractor, claimed an expenditure of Rs. 10 lacs for business procurement and development charges. The Assessing Officer ... - Issues involved: Appeal against disallowance of expenditure for procuring contract.Summary:1. The appellant, a Civil Contractor, claimed an expenditure of Rs. 10 lacs for business procurement and development charges. The amount was paid to a party who withdrew from a tender, allowing the appellant to secure the work order at a lower rate. 2. The Assessing Officer (A.O.) disallowed the claim, stating lack of evidence for business purposes. The Commissioner of Income Tax (CIT) upheld the disallowance, citing it as not a legal liability and against public interest.3. The appellant argued that the expenditure was for business purposes and did not violate public policy. The work was awarded only after the other party refused to work at the lowest rate.4. The Departmental Representative (D.R.) contended that there was no proof of the expenditure being for business purposes. The absence of a clear agreement showing the intention of the other party to withdraw from the bidding for the payment was highlighted.5. The Tribunal referred to a decision by the Karnataka High Court, holding that the payment was a capital expenditure, not incurred for the business purpose of the appellant. The lack of evidence establishing the business purpose of the payment led to the dismissal of the appeal.6. The Tribunal concluded that the payment was capital in nature and not proven to be for business purposes. The lack of documentation showing the intention of the other party to withdraw from the bidding for the payment resulted in the dismissal of the appeal.