ITAT Rejects Claim for Transportation & Subletting Expenses in Railway Contract Dispute

MI PKS (JV), a joint venture between Miral Infrastructure and PK & Sons, filed its return for AY 2018-19, declaring income of Rs. 18 lakh. The JV had secured an earthwork contract from Western Railways and soon subcontracted it to PKS Technobuild Pvt. Ltd. During assessment, the AO noted that the JV had received Rs. 13.02 crore as contract receipts and passed on Rs. 12.36 crore to the subcontractor. In addition, the assessee claimed Rs. 41.48 lakh as transportation expenses and Rs. 5.19 lakh as subletting expenses. The AO disallowed both as they were unsupported by credible documents.

The NFAC upheld the disallowances, prompting the assessee to approach the Tribunal.

Main Issue: Whether the assessee was entitled to deduction of transportation expenses and subletting charges when such expenses were allegedly governed by a pre-subcontract MOU and when the subcontract terms assigned all statutory levies to the subcontractor.

Tribunal Held: The Tribunal found significant inconsistencies in the assessee’s explanation. The Tribunal held that the alleged MOU appeared to be manufactured only to justify the transportation claim. Since no work could have been carried out before the JV legally existed, the assessee’s claim of incurring Rs. 41.48 lakh in transportation expenses was held to be unsubstantiated, and the disallowance was confirmed.

The Tribunal relied on Clause 11 of the subcontract agreement, which clearly stated that all taxes, cess, charges, and statutory deductions related to the contract were to be borne by the subcontractor alone. As the Railway’s deduction of 1% labour cess and nominal charges fell squarely within this clause, the Tribunal held that these costs could not be claimed by the assessee. The AO’s disallowance of Rs. 5.19 lakh was consequently upheld. With both grounds dismissed, the appeal was rejected in full.

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