Bogus sub-contract expense claims: only the profit element was taxed, with the addition restricted to a reasonable percentage.

Where sub-contract payments were alleged to be bogus, the completed project work and the documentary evidence of cash return against cheque payments supported only a partial disallowance, not taxation of the entire expense. The material on record justified treating part of the expenditure as non-genuine or inflated, but did not support adding back the full contract amount. On the facts, restriction of the addition to 20% of the sub-contract expense was considered reasonable, and a lower rate was not accepted because specific evidence of cash return existed in this matter.

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Issues: Whether the Revenue was justified in seeking disallowance of the entire sub-contract expense claimed to have been paid to M/s. Siddeshwari Infrastructure, or whether the addition was rightly restricted to 20% of the expenditure on the footing that only the profit element embedded in the transaction could be brought to tax.

Analysis: The assessment had treated the sub-contract payments as bogus, but the project work for which the sub-contract was awarded was not disputed as having been completed. The documentary material relied upon showed return of cash of Rs. 4.21 crores against cheque payments, which supported a partial disallowance but did not justify bringing the entire contract amount to tax. The restriction of the addition to 20% was found reasonable in the facts of the case, and the plea for adopting a lower percentage based on another matter was rejected because the present case contained specific evidence of cash return.

Conclusion: The addition was correctly confined to 20% of the sub-contract amount. The Revenue's challenge failed and the assessee obtained relief against the proposed enhancement.

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