Subcontract expenditure disallowance and unexplained expense addition turned on Form 26A verification and ledger reconciliation.

Disallowance of subcontract expenditure for alleged failure to deduct tax at source was held unsustainable without verification of the newly furnished Form 26A and accountant's certificate; the matter was remanded for the Assessing Officer to examine whether the subcontractor had already included the payment in its return and paid tax. The addition for unexplained subcontract expenditure under Section 69C was also set aside because the ledger and subcontractor's accounts were stated to reconcile the total receipts, and the apparent difference arose from ignoring opening and closing balances. The Assessing Officer was directed to verify the reconciliation and delete the addition if accepted.

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Issues: (i) Whether disallowance of subcontract expenditure under Section 40a(ia) of the Income-tax Act, 1961 for non-deduction of tax at source under Section 194C of the Income-tax Act, 1961 could be sustained without verification of Form 26A and the accountant's certificate. (ii) Whether the addition under Section 69C of the Income-tax Act, 1961 towards alleged difference in subcontract expenditure was justified when the assessee's ledger and the subcontractor's accounts were stated to reflect the same total receipts.

Issue (i): Whether disallowance of subcontract expenditure under Section 40a(ia) of the Income-tax Act, 1961 for non-deduction of tax at source under Section 194C of the Income-tax Act, 1961 could be sustained without verification of Form 26A and the accountant's certificate.

Analysis: The assessee produced Form 26A and an accountant's certificate for the first time before the Tribunal, certifying that the subcontractor had included the payment in its return and paid tax. Since the Assessing Officer had no opportunity to examine this material, verification by the Assessing Officer was necessary before deciding the applicability of the disallowance.

Conclusion: The disallowance under Section 40a(ia) was set aside and the matter was remanded to the Assessing Officer for verification of Form 26A and decision in accordance with law.

Issue (ii): Whether the addition under Section 69C of the Income-tax Act, 1961 towards alleged difference in subcontract expenditure was justified when the assessee's ledger and the subcontractor's accounts were stated to reflect the same total receipts.

Analysis: The Tribunal found that the Assessing Officer considered only the payments made during the year and ignored the opening and closing balances reflected in the ledger account. On the material placed before it, the Tribunal recorded that the subcontract expenditure debited by the assessee matched the amount booked by the subcontractor and that the alleged difference was not established on the facts.

Conclusion: The addition under Section 69C was set aside and the matter was restored to the Assessing Officer to verify the ledger account and delete the addition if the assessee's reconciliation is accepted.

Final Conclusion: The appeal succeeded in part and the disputed additions were sent back for verification, with the principal relief being in favour of the assessee on the merits of the reconciled subcontract expenditure.

Ratio Decidendi: A disallowance under Section 40a(ia) cannot be sustained without examining a duly furnished Form 26A certificate, and an addition for unexplained expenditure cannot stand where the ledger evidence reconciles the alleged discrepancy.

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