Ambience Private Limited vs Income Tax Officer, Ward-2(1), Delhi

PER MANISH AGARWAL, A.M.:

The present appeal is filed by assessee against the order dated 26.02.2026 passed by Ld. Commissioner of Income Tax (A)-27, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-27/10091/2022-23 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 30.03.2025 passed u/s 143(3) of the Act pertaining to Assessment Year 2023-24.

Brief facts of the case are that the assessee company is engaged in the business of real estate and infrastructure development. The return of income was filed on 31.10.2023, declaring total loss of INR 14,05,48,926/- which was processed u/s 143(1) of the Act at a loss of INR 14,00,23,611/-. Thereafter, case of the assessee was selected for scrutiny under CASS for various reasons wherein one of the reasons was that large payments were made u/s 194C to persons who have not filed their ITRs. During the course of assessment proceedings, AO had issued notices u/s 133(6) of the Act to 03 of such payees to whom payment u/s 194C were made however, no reply was received therefore, the AO was of the opinion that total expenditure incurred on account of payments made to these 03 parties of INR 1,60,83,564/- remained unverified. It is further observed by the AO that all the 03 contractors had not filed their ITRs therefore, genuineness of the transactions remained unproved. Accordingly, AO disallowed 30% of the total payment which comes to INR 48,25,069/- and the total loss was assessed at INR 13,51,98,542/-.

Aggrieved by the said order, the assessee filed an appeal before the ld. CIT(A) who vide impugned order dated 26.02.2026, dismissed the appeal of the assessee.

Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking various Grounds of appeal as mentioned in the appeal memo.

All the Grounds of appeal raised by the assessee are with respect to the of expenditure @ 30% of the contract expenditure therefore, they are taken together for consideration.

Before us, ld.AR for the assessee filed a detailed written submission and submits that AO has not pointed out any defect in the expenditure claimed u/s 37(1) of the Act as all the expenses were incurred wholly and exclusively for the purposes of business. Merely because, the payees have not filed their ITRs and had not complied with the notices issue u/s 133(6), the payments made to them were doubted and adhoc disallowance was made. Ld.AR submits that when part expenses were accepted as genuineness and the services rendered by them were not doubted and were admitted and therefore, no disallowance be made. Ld.AR further submits that arbitrarily disallowance @ 30% without basis on assumptions and presumption deserves to be deleted. For this, reliance is placed on the various judicial pronouncements which are stated in the written submissions placed on record. In the last, it is requested that the disallowance so made be deleted.

On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that AO has already allowed the deduction @ 70% of the total expenditure claimed as has been paid to the parties who have not filed their ITRs thus, the expenditure to this extent remained unverified and therefore, lower authorities have rightly disallowed/upheld the part of the expenditure claimed which order deserves to be uphold.

Heard the contentions of both the parties at length and perused the material available on record. At the outset, it is observed that it is an admitted fact that notice issued u/s 133(6) of the Act remained non-complied. Further they have not filed their return of income for the year under appeal therefore, the expenditure incurred as paid to them remained unverified. Under these circumstances, before making any disallowance, the AO should have examined the services rendered by them. However, the AO has not doubted the services rendered by them and made the adhoc disallowance of 30% out of total expenses claimed without providing any basis for such adhoc disallowance of 30% which in our considered view appears to be on higher side. The fact remained that since no compliance was made in response to the notices issued u/s 133(6) of the Act, therefore the genuineness of the payments made to them and the corresponding expenses claimed could not be verified.

Considering the entirety of facts and circumstances of the case, we hereby uphold the disallowance @ 5% and remaining disallowance is hereby, deleted. All the grounds of appeal are party allowed.

In the result, appeal of the assessee is partly allowed.