2025 (3) TMI 28 - AT - Income Tax

Bogus subcontract expenses disallowance limited to 12.5% following precedent from assessee's earlier case

ITAT Ahmedabad allowed partial relief to the assessee in a case involving bogus subcontract expenses. The AO had estimated profit at 25% while CIT(A) ... Estimation of income - bogus Expenses - AO had estimated the profit derived by the assessee from the two sub-contracts @25% - CIT(A) submitted that the addition sustained by him @16% was comparable with the GP of 15.49% as disclosed by the assessee - HELD THAT:- We find that identical issue was involved in the assessee’s own case in A.Y. 2009-10 [2023 (2) TMI 1390 - ITAT AHMEDABAD] In that year, on the basis of information received from Maharashtra Sales Tax Department that the assessee had claimed bogus purchase of materials, the AO had disallowed the entire purchases, which was reduced to 25% by the Ld. CIT(A). On further appeal, the Co-ordinate Bench of this Tribunal has restricted the disallowance to 12.5% of the bogus purchases. The same basis was followed to restrict the disallowance in respect of bogus sub-contract expenses in A.Ys. 2012-13 to 2018-19. Thus, we restrict the disallowance in the current year to 12.5% of the subcontract amount as awarded by the assessee to AIL & KNRCL. Accordingly, the assessee gets part relief in the matter. The appeal in this case was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad, for the Assessment Year 2011-12. The original assessment was completed under Section 143(3) of the Income Tax Act, 1961, at a total income of Rs. 175,41,75,717. The case was reopened under Section 147 of the Act due to information received regarding booking of bogus expenses by certain entities. The Assessing Officer (AO) found that sub-contracts were awarded to certain companies without proper documentation, leading to an estimated gross profit addition of Rs. 3,78,99,863.The assessee appealed to the First Appellate Authority, which reduced the profit estimation from 25% to 16% of the sub-contract amounts. The assessee then appealed to the Appellate Tribunal, pressing only Ground No. 4.3 challenging the estimation of income at 16%. The Tribunal considered the arguments presented by both parties and noted that similar issues had been adjudicated in the assessee's own case in previous years.The Tribunal found that the AO's estimation of profit at 25% was excessive and upheld the CIT(A)'s decision to restrict the addition to 16%. Citing precedents from previous cases, the Tribunal further reduced the disallowance to 12.5% of the subcontract amount, providing partial relief to the assessee.In conclusion, the appeal filed by the assessee was partly allowed by the Tribunal, with the disallowance of bogus sub-contract expenses reduced to 12.5% of the subcontract amount. The Tribunal's decision was based on the principles established in previous cases involving similar issues.This summary provides an overview of the legal issues, analysis, and conclusions drawn in the judgment regarding the estimation of income and disallowance of expenses in the case.