2026 (2) TMI 361 - AT - Income Tax

Disallowance of subcontractor payments overturned where prior assessment acceptance and banking evidence supported genuineness

Disallowance of payments to sub-contractors was overturned where the tribunal found prior acceptance of the same subcontractor payment in the earlier ... Disallowance of payments made to the sub-contractors - Genuineness of expenditure - as alleged assessee could not substantiate with documentary evidence regarding the quantitative work done by the sub-contractors and one of the partners in his statement recorded u/s 132(4) during the course of search at his business premises had admitted that the firm is generating cash by inflating the expenditure through the payments to the sub-contractors. HELD THAT:- A perusal of the questionnaire issued along with notice u/s 142(1) of the Act for assessment year 2020-21, assessee has made payment to Sanjay Chandrika Shah during assessment year 2020-21. We find the AO in the order passed u/s 147 r.w.s. 143(3) of the Act for assessment year 2020-21 has not made any disallowance on account of payment to the above sub-contractor meaning thereby he has accepted the genuineness of the payment to the said sub-contractor. We, therefore, find merit in the argument of assessee that when the Assessing Officer himself has accepted the genuineness of the payment to the sub-contractor Sanjay Chandrika Shah in assessment year 2020-21, he could not have disallowed the sub-contractor payment to the said party in assessment year 2021-22 by doubting the genuineness within a gap of one and half months. So far as the other two sub-contractors, both have responded to the notice issued u/s 133(6) by the AO by giving various details and since the payments have been made by the assessee through proper banking channels and the sub-contract payments to the above 2 parties are not substantial, therefore, considering the totality of the facts of the case and considering the fact that the Assessing Officer in the remand proceedings has himself admitted the genuineness of the sub-contract payments in respect of other parties, therefore, we are of the considered opinion that no disallowance is called for in respect of the above 2 sub-contractors. We, therefore, set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the disallowance. Appeal filed by the assessee is allowed. Issues: Whether the disallowance of subcontractor payments of Rs. 20,46,468 upheld by the First Appellate Authority is sustainable, and whether the disallowance in respect of each of the three subcontractors (Archana Sandip Atkare, Sanjay Chandrika Sah, Shri Govinda Earthmovers) should be deleted or reduced.Analysis: The Tribunal examined the Assessing Officer's findings, the remand report, and the additional evidence submitted by the assessee. For Sanjay Chandrika Sah, it was noted that the Assessing Officer had accepted similar payments in the preceding assessment year (order dated 15.03.2025) and made no disallowance, whereas the remand report dated 29.04.2025 doubted genuineness; consistency across assessment years militated against reversing acceptance within a month and a half. For the other two parties, the Tribunal observed that both responded to notices under Section 133(6) with details, payments were made through banking channels, TDS was deducted, the amounts were not substantial relative to the assessee's declared income, and the partner's earlier incriminating statement had been retracted; given the CIT(A)'s deletion of the large majority of disallowances and the AO's admission of genuineness for other subcontractors, the total disallowance for these two parties lacked sufficient basis.Conclusion: The disallowance of Rs. 2,52,525 in respect of Sanjay Chandrika Sah is deleted. The disallowance in respect of Archana Sandip Atkare (Rs. 3,43,050) and Shri Govinda Earthmovers (Rs. 14,50,893) is also deleted. The assessee's appeal is allowed.