2020 (7) TMI 459 - AT - Income Tax

Tax Tribunal Upholds Deletion of Rs. 10.24 Cr Job Work Expense Disallowance Due to Lack of Evidence by AO.

Deputy Commissioner of Income Tax Circle-1 (1), Rajkot Versus M/s Tirth Agro Technology Pvt. Ltd.

Deputy Commissioner of Income Tax Circle-1 (1), Rajkot Versus M/s Tirth Agro Technology Pvt. Ltd. - TMI Issues Involved:1. Deletion of addition made by the AO of Rs. 10,24,42,002/- on account of disallowance of job work expenses.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 10,24,42,002/- on Account of Disallowance of Job Work Expenses:The Revenue raised the issue that the CIT(A) erred in deleting the addition made by the AO regarding job work expenses. The assessee, a private limited company engaged in the business of agricultural equipment, incurred job work expenses amounting to Rs. 33,67,20,932/-. The AO questioned the genuineness of Rs. 10,24,42,002/- of these expenses, paid to various job workers.AO's Doubts and Observations:- The AO noted that the job workers were maintaining savings accounts in Union Bank of India, with the assessee acting as an introducer. Immediate cash withdrawals after cheque deposits were observed.- Statements under section 131 of the Act from some job workers indicated they were employees of the assessee, lacked sufficient machinery, and had mismatched signatures on various documents.- The AO concluded that the expenses were not genuine and disallowed Rs. 10,24,42,002/-.Assessee's Defense:- The assessee argued that outsourcing is a common practice, leading to increased turnover and reduced job work charges to sales ratio.- Payments were made through account payee cheques after deducting TDS, and job workers filed their income tax returns.- The job workers were registered under relevant acts and maintained regular books of accounts.- The assessee provided substantial documentary evidence, including income tax returns, bills, ledgers, bank statements, and statements under section 131, to support the genuineness of the expenses.CIT(A)'s Findings:- The CIT(A) found that the assessee provided sufficient documentary evidence to substantiate the genuineness of the job work expenses.- Payments were made through account payee cheques, and there was no evidence that any portion of these payments returned to the assessee.- The CIT(A) noted that the AO's basis for disallowance, such as mismatched signatures and job workers operating from the assessee's premises, were adequately addressed by the assessee.- The CIT(A) referenced various judicial precedents, including decisions by the Gujarat High Court and the Ahmedabad Tribunal, which supported the assessee's claim.- The CIT(A) concluded that the job work expenses were bona fide and genuine, and the addition made by the AO was deleted.ITAT's Conclusion:- The ITAT upheld the CIT(A)'s decision, noting that the AO's basis for disallowance was merely suspicion and not supported by conclusive evidence.- The ITAT emphasized the direct evidence provided by the assessee, such as payments through banking channels, TDS deductions, and confirmations from job workers.- The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.Pronouncement Delay Due to COVID-19:- The ITAT acknowledged the delay in pronouncing the order due to the COVID-19 pandemic and the resulting lockdown, referencing a decision by the Mumbai Tribunal in a similar context.- The ITAT extended the time for pronouncing the order beyond the usual 90 days, considering the exceptional circumstances.Final Order:- The appeal of the Revenue was dismissed, and the order was pronounced on 01/06/2020.