2019 (9) TMI 264 - HC - Income Tax

Court Upholds Disallowance of Expenditure in Tax Appeals (2)(a)

M/s Akrati Promoters And Developers Versus Deputy Commissioner Income Tax -4, Pr. Commissioner Of Income Tax Agra And Another

M/s Akrati Promoters And Developers Versus Deputy Commissioner Income Tax -4, Pr. Commissioner Of Income Tax Agra And Another - TMI Issues:- Challenge to order of Income Tax Appellate Tribunal for assessment years 2008-09 and 2009-10 under Section 260 A of the Income Tax Act, 1961- Disallowance of expenditure under Section 40A(2)(a) for work executed through sub-contractors- Interpretation of provisions of Section 40A(2)(a) and Section 37 of the Act- Disallowance of payments made to relatives of partners of the firm- Dispute over disallowed expenditure claimed by the assesseeAnalysis:1. The appeals filed by the assessee challenged the orders of the Income Tax Appellate Tribunal for the assessment years 2008-09 and 2009-10 under Section 260 A of the Income Tax Act, 1961. The primary issue revolved around the disallowance of expenditure under Section 40A(2)(a) for work executed through sub-contractors, specifically focusing on payments made to certain individuals.2. The assessing authority disallowed the entire expenditure made to three sub-contractors, who were relatives of the partners of the assessee firm, under Section 40A(2)(a) of the Act. The Tribunal partially allowed the appeal, upholding the disallowance of a portion of the expenditure while allowing the rest. The Tribunal found that the work was not carried out by the specified sub-contractors but by other means, leading to the disallowance of 20% of the claimed expenditure.3. The dispute centered on the interpretation of the provisions of Section 40A(2)(a) and Section 37 of the Act. The assessing authority, as well as the first appellate authority, confirmed the disallowance of payments made to the relatives of the partners of the firm under Section 40A(2)(b) of the Act. The Tribunal upheld this decision, emphasizing that the payments were rightly disallowed due to the relationship between the sub-contractors and the partners.4. The Court rejected the argument that the case fell under Section 37 of the Act rather than Section 40A(2)(a), emphasizing that the disallowance was justified under the latter provision. The Court upheld the findings of the taxing authorities, stating that the expenditure claimed by the assessee was rightly disallowed considering the circumstances and the relationships involved.5. Ultimately, the Court dismissed the appeals, affirming the Tribunal's decision to disallow a portion of the expenditure claimed by the assessee. The judgment favored the Revenue, concluding that the disallowance under Section 40A(2)(a) was appropriate given the facts of the case and the relationship between the sub-contractors and the partners of the firm.