Partnership firm denied tax deduction for construction activities due to unexplained cash expenditure

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to deny deduction u/s. 80IB(10) for the Assessment Years 2009-10 and 2010-11 to a partnership firm engaged in construction activities. The Tribunal found that the seized documents revealed unexplained cash expenditure, not on-money receipts eligible for deduction, and the assessee failed to prove the source of income. The Tribunal dismissed the appeal, emphasizing the necessity for the assessee to substantiate the source of income for the claimed deduction and distinguishing the case from previous decisions where undisclosed income was linked to business activity.

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Issues:
The judgment involves the challenge to the order of the Commissioner of Income Tax (Appeals) regarding the denial of deduction u/s. 80IB(10) of the Income Tax Act, 1961 for the Assessment Years 2009-10 and 2010-11.

Issue 1 - Addition of Deduction u/s. 80IB(10):
The assessee, a partnership firm engaged in construction activities, contested the addition of Rs.77,50,000/- and Rs.69,12,500/- for A.Y. 2009-10 and 2010-11 respectively, disallowed by the Assessing Officer for not granting deduction u/s. 80IB(10) of the Act.

The Assessing Officer disallowed the deduction claimed by the assessee based on seized documents revealing cash transactions. The AO held the impugned amount to be unexplained cash payment and disallowed the deduction u/s. 80IB(10) due to failure to prove the source of cash payment. The CIT(A) upheld the addition, stating that the seized documents did not relate to on-money receipts eligible for the deduction. The assessee contended that the income was from a housing project eligible for deduction u/s. 80IB(10) and relied on previous decisions supporting the claim.

The Tribunal observed that the seized documents indicated unexplained cash expenditure, not on-money receipts eligible for deduction u/s. 80IB(10). The assessee failed to prove the source of income and made a fresh claim of deduction post-search action, lacking evidence to support the claim. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the appeal.

Issue 2 - New Claim Post-Search Action:
The Tribunal noted that the additional income declared by the assessee post-search action led to a new claim of deduction u/s. 80IB(10) not made in the original return. The assessee failed to substantiate that the impugned amount was business income eligible for deduction, leading to a dismissal of the appeal.

The Tribunal emphasized the necessity for the assessee to come with clean hands to claim the deduction u/s. 80IB(10), highlighting the lack of evidence supporting the source of income. The Tribunal differentiated the present case from previous decisions where undisclosed income was linked to business activity, concluding that the assessee failed to substantiate the source of income for the claimed deduction.

The Tribunal upheld the CIT(A)'s decision, dismissing the appeal filed by the assessee in ITA No. 78/Mum/2023 and ITA No. 79/Mum/2023, as the facts were identical in both cases.

Order pronounced in the open court on 28.04.2023.

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