Contract expense disallowance fails when documentary evidence is uncontroverted and adverse inference is unsupported

Contract expenditure could not be disallowed where the assessee produced work orders, bank statements, TDS records, contractor confirmations, ledger accounts, master data and audited subcontractor statements showing execution of the airport project and actual payment. The documentary record remained uncontroverted in remand proceedings, and the revenue did not independently verify the subcontractors or disprove the evidence. An addition founded mainly on adverse inference from MCA website data, without rebutting the assessee's material, was held unsustainable and the disallowance was deleted in favour of the assessee.

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Issues: Disallowance of contract expenses and deletion of the addition made by the Assessing Officer.

Analysis: The assessee furnished the underlying work orders, bank statements, TDS records, confirmations from the contractors, ledger accounts, master data, and audited financial statements of the subcontractors to show that the work relating to the airport project had been executed through the stated contractual chain and that payments were actually made. The evidence remained uncontroverted in remand proceedings, and no independent verification was carried out with the subcontractors to discredit the claim. The addition was based substantially on adverse inference from MCA website data, without meeting the documentary record produced by the assessee.

Conclusion: The assessee had discharged the onus of proving the contract expenditure, and the disallowance was unsustainable. The addition was directed to be deleted, in favour of the assessee.

Ratio Decidendi: Where an assessee produces cogent documentary evidence establishing receipt of contractual income and actual payment of subcontract expenses, and the revenue does not controvert or independently disprove that evidence, the expenditure cannot be disallowed merely on suspicion or adverse inference.

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