TaxTMI 
TaxTMI 
2019 (4) TMI 1017
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....d. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting Rs. 79,084/- disallowed by the Assessing Officer on account of disallowance of amount debited under the head 'short and excess'. 4. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting Rs. 76,92,840/- made by the AO on account of disallowance of unexplained expenditure. 5. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in restricting the addition to Rs. 3,68,580/- (being 1/10lh of Rs. 36,85,792/-) from Rs. 7,37,158/- (being 1 /5th of Rs. 36,85,792/-) made by the AO on account of expenses claimed in P&L account. 6. (a) The order of the CIT (A) is erroneous and not tenable in law and on facts, (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal. I.T.A. No. 1827/DEL/2015 (Assessee's appeal) 1. "That the Commissioner of Income-tax (Appeals) [in short "CIT(A)"] erred on facts and in law in confirming the addition of Rs. 6,99,24,861 made by the assessing officer, being the alleged amount of contract revenue receivable from M/s. Pico Deepal....
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....alleged sale of scrap. 4.1. That the CIT(A) erred on facts and in law in confirming the aforesaid addition, without appreciating that the assessing officer had failed to bring on record any evidence to prove that the appellant had received any amount in excess of the declared value of scrap. 4.2. That the GIT(A) erred on facts and in law in disregarding the contemporaneous documentary evidences filed by the appellant, supporting the actual value of scrap sold in the assessment year under consideration. 5. That the CIT(A) erred on facts and in law in confirming the disallowance of Rs. 62,33,080 on account of hire charges paid by the appellant. 5.1. That the CIT(A) erred on facts and in law in not admitting additional documents/evidences filed during the course of appellate proceedings, which were extremely critical for judicious disposal of the appeal. 5.2. That the CIT(A) erred on facts and in law in affirming the action of the assessing officer in conducting and relying upon ex-parte enquires under section 133(6) of the Act. 5.3. That the CIT(A) erred on facts and in law in not appreciating that the aforesaid hire charges were paid by the appellant on a regular b....
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....uminium, carpets, Floorings and awnings, iron rods and sheets and tenting material fabric Rs.1,91,90,514/- 12. Addition on account of disallowance of capital expenses Rs.1,19,90,514/- 13. Addition on account of 1/5th disallowance out of expenses Rs. 7,37,158/- 14. Addition on account of disallowance of hire charges Rs. 62,33,080/- 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. Firstly we are taking up the Revenue's appeal. The Ld. DR in respect of Revenues' appeal submitted that there are 5 grounds agitated by the Revenue in the present appeal. The assessee debited an amount of Rs. 15,50,903/- as interest on late payment of service tax under the head interest which is Ground No. 1 of Revenue's appeal. The Ld. DR submitted that the Assessing Officer has rightly rejected the said claim as it is the duty of the assessee to deposit the service tax deducted within the time allowed as per the provision of the Income Tax Act. The Ld. DR further submitted that the CIT(A) deleted this amount on the sole ground that interest charge for deleted payment of Sales Tax....
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....ed in the same manner. Ground No. 1 of Revenue's appeal is dismissed. 8. As relates Ground No. 2 relating to the addition of Rs. 6,488/- on account of disallowance of additional service tax. The Ld. DR relied upon the order of the Assessing Officer and submitted that the CIT(A) erred in deleting this addition. The Ld. AR relied upon the order of the CIT(A). 9. We have heard both the parties and perused the material available on record. The amount of service tax paid by the assessee was not in the nature of penalty but represented the tax which was not collected by the assessee from its customers and was paid out of its own debited and was thus allowable u/s 37(1) of the Income Tax Act, 1961. The amount was expanded by the assessee during the course of its business and it was wholly and exclusively for the business purposes. The expenses cannot be said that the same was not related to business of the assessee as it was the duty of the assessee to deduct service tax while providing service to the customers. Therefore, it comes under the purview of business expenses and hence is rightly deleted by the CIT (A). Ground No. 2 of Revenue's appeal is dismissed. 10. As related to Grou....
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....uring the assessment proceeding. The CIT(A) has rightly taken into account all the details filed by the assessee before the Assessing Officer and after verifying the same arrived at the right conclusion that the claim of the assessee is right as the purchase of diesel from the said party was genuine. The assessee has satisfied all the three elements of genuineness creditworthiness and identity of the parties, as per the provisions of the Income Tax Act. Therefore, there is no need to interfere with the findings of the CIT(A). Ground No. 4 of the Revenue's appeal is dismissed. 16. As regards Ground No. 5 of the Revenue's appeal relating to restricting the addition of Rs. 3,68,580/- (being 1/10th of Rs. 36,85,792/-) from Rs. 7, 37,158/- (being 1/5th of Rs. 36,85,792/-) made by the Assessing Officer on account of expenses claimed in profit and loss account. The Ld. DR submitted that the Assessing Officer has rightly made 1/5th addition on account of expenses claim being profit and loss account. The Ld. DR further submitted that the assessee could not provide the name and address of the person to whom cash payments were made during the assessment proceedings. Therefore, the Assessing....
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....he assessee fail to produce evidence to substantiate the assets in questions were exclusively use for business purpose only. There was no explanation given to cash as well but after considering the overall effect. The CIT(A) has rightly disallowed 1/10th of the total motor car expenses including depreciation and telephone expenses claim by the assessee. Hence, Ground No. 5 of the Revenue's appeal is dismissed as well as Ground No. 6 of the assessee's appeal is dismissed. 19. Now we are taking up the assessee's appeal. As regards to Ground No. 1 relating to low declaration of contract amount in the contract with M/s Pico Deepali Overlays Consortium group amounting to Rs. 6,99,24,861/-, the Ld. AR submitted that in respect of M/s Deepali Design & Exhibits Private Limited (DDEPL) was a part of the consortium known as 'PICO Deepali Overlays Consortium' which was formed by an agreement dated 19.12.2009 for the purpose of obtaining contract from Organizing Committee - Common Wealth Games 2010. However, on 01.06.2010 an addendum agreement was entered between same parties and it was agreed that DDEPL will have independent scope of work and will execute the same on its own. It was als....
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....unts of the Consortium and for the recovery of Rs. 6,99,24,861 /- as per the contract with the Consortium. Pursuant to the abovementioned suit filed, assessee was granted a preliminary decree in the money suit for Rs. 4,19,05,956/- with interest at 9% per annum vide order dated 18.07.2017 passed by the Hon'ble High Court of Delhi (the claimed amount was Rs. 6,99,24,861/-). Thereafter, Assessee company received Rs. 4,19,05,956 during F.Y. 2017-18 which was accounted for in the books of account of the Assessee as it income for AY 2018-19. Copy of income tax return, computation of income, balance sheet, Profit & Loss account along with ledger account for AY 2018-19 as well as party wise details of hire charges was submitted before the Assessing Officer. While passing the Assessment order dated 21.03.2013, the AO observed that by filing the suit as well as by raising bills and rendering services against the consortium, the Assessee had claimed a right to receive the income. The AO made the addition on the basis that the Assessee by filing a suit for recovery in Delhi High Court, recognizes that the said amount was due to the Assessee. Thus, the AO made an addition of Rs. Rs. 6,99,24,86....
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....has even held that "An income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it can be said that for the purposes of taxability said income is not hypothetical and it has really accrued to the assessee". The Hon'ble Supreme Court in the case of CIT Vs. Balbir Singh Maini [2017] 398 ITR 531 (SC) have observed that the income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it be said that the purposed of taxability that the income is not hypothetical and it has really accrued to the assessee. The Ld. AR relied upon the following decisions:- S. No. Judgment Citation 1 CIT(A) Vs. Shoorji Vallabhdas & Co. (Page NO. 19-21 of CLC) [1962] 46 ITR 144 )S.C) 2 CIT(A) Vs. Mathulal Baldeo Prasad [1961]42 ITR 517 (ALL.) The Ld. AR further submitted that reliance placed on Morvi Industries Ltd. by the Ao is misplaced. The Ld. AR further submitted that the AO while passing the assessment order dated 21.03.2013, has relied on the judgment of Morvi Industries Ltd. Vs. CIT (1971) 82 ITR 835 (SC). However, a....
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....at assessee Company has disclosed the said receipt in the income tax return for AY 2018-19 and paid tax thereon. The Ld. AR also submitted that as per Accounting Standard 9 on revenue recognition issued by the ICAI, the main principle inter alia states "... if at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed." Therefore, the Ld. AR submitted that the Revenue cannot be permitted to tax the same income twice. The Ld. AR relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs. M/s Excel Industries Ltd. [2013] 358 ITR 295/219. The Ld. AR further submitted that Assessee was primarily involved in the business of erection of temporary structures on rental basis to various corporate/government agencies. Further, this line of business was carried on by the Assessee in the form of main supplier i.e. as a principal and the order from the business were received by the Assessee in the capacity of a principal from various government agencies/corporate. Adverting to the addendum executed on 10 June 2010, there were substantial changes compared to certain terms and conditions of the original consortium agr....
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....WG project is cash neutral and not detrimental to the revenue. The Ld. AR further submitted that Assessee company has upon receiving the amount during AY 2018-19 has paid the tax thereon and has disclosed the same in the return of income for AY 2018-19. 22. In the assessment order dated 2 March 2013 and appellate order passed by Commissioner of Income Tax Appeal dated 26 December 2014, the Ld. AR pointed out that Deepali Design & Exhibits has raised bills to M/s PICO Deepali Overlays Consortium. The Ld. AR further submitted that bills were issued only for the amount which is received and accounted for. Bill were not raised for Rs. 6,99,24,861/- for which the addition is made by Assessing Officer. This fact was never submitted before the lower Authorities nor there exist any evidence that bills are raised by Deepali Design & Exhibits in this regard during the year under consideration and in subsequent years. The fact recorded by the Authorities is incorrect, contrary to record and is purely based on surmises and presumptions. Further, without prejudice, the Ld. AR submitted that the Assessing Officer has acted arbitrarily without applying his mind in making addition in contraventi....
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....books of account of the Assessee as it income for AY 2018-19. From the records and the agreements it can be seen that these facts narrated by the assessee are correct and Revenue could not point out the new facts in the present case. The Hon'ble Supreme Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295/219 has even held that "An income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it can be said that for the purposes of taxability said income is not hypothetical and it has really accrued to the assessee". The Hon'ble Supreme Court in the case of CIT Vs. Balbir Singh Maini [2017] 398 ITR 531 (SC) have observed that the income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it be said that the purposed of taxability that the income is not hypothetical and it has really accrued to the assessee. Mere filing of the suit for recovery will not in law make it an income which has accrued. AO while passing the Assessment order dated 21.03.2013 and CIT(A) while passing the appellate order dated 26....
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....the Mercantile System of Accounting, used the same approach which was taken by him to make addition on the basis of the income arising out of the contract with the Consortium and concluded that the amount of Rs. 27,72,354/- would be recognized in the Assessee's books of accounts in the AY 2011-12. Thus, the AO made an addition of Rs. 27,72,354/- to the income of the Assessee. The CIT (A) also upheld the addition made by the AO deploying the same reasoning it referred to in respect to the low declaration of the contract amount in the contract with the Consortium. Therefore, the Assessee submits that the Revenue cannot be permitted to tax the same income twice. The Ld. AR relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs. M/s Excel Industries Ltd. [2013] 358 ITR 295/219. Addition in this regard in AY 2011-12 would be absolutely arbitrary and unreasonable as the amount itself was uncertain in the financial year 2010-11 and it will also result in double taxation. 26. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). Further, the Ld. DR submitted the Income-tax Act permits two methods of accounting - mercantile (accrual) and cash. Under the....
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.... grounds of appeal raised by assesse may be dismissed. 27. We have heard both the parties and perused all the relevant material available on record. The Ld. DR submitted that the assesse follows a mercantile system of accounting where revenue and cost are recognized as and when they are incurred. Here, a right to receive arose in the hands of the assesse when the assessee concern signed an agreement with Consortium of CWG for providing electrical support for opening and closing ceremony of Common Wealth Games. But the facts are that the Assessee could only determine the exact amount payable to it when the R/A Bills were provided to it to, in turn, include it as income in its books of accounts. As per Accounting Standard 9 on revenue recognition issued by the ICAI, para 11 of the main principle inter-alia states if at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed." The payment (Rs. 27,72,354/-) for the work done in the contracts with CPWD was made through the tenth RA Bill dated 13.11.2011. Thus, the Assessee included the income in its books of accounts as income credited for the AY 2012-13. Thus, the ass....
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.... during the existence of a running business is allowable as revenue deduction:- * Hindustan Commercial Bank Ltd, In re: 21 ITR 353 (All.) * Praga Tools Ltd. v. CIT: (1980) 123 ITR 773 (AP) * CIT v. Sakthi Soyas Ltd.: 283 ITR 194 (Mad.) * ACIT v. Delhi Cloth & General Mills Co. Ltd.: 144 ITR 275 * CIT v. S.L.M. Maneklal Industries Ltd. : 107 ITR 133 * CIT v. Escorts Employees Ancillaries Ltd. : 224 ITR 28 * SCM Maneklal Industries Ltd. v. ITO: 17ITD 515 The Assessing Officer failed to appreciate that it is settled law that the Assessing Officer cannot put himself in the armchair of a businessman to decide the justification of incurring or not incurring any particular expenditure. So long as the expenditure incurred is for business purposes, the same is allowable as business deduction. The Ld. AR relied upon the following decision: * CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del.) * CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del.) * D & H Secheron Electrodes Pvt. Ltd. vs. CIT: 149 ITR 400 (MP). 29. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 30. We have heard both the parties and perused all the relevant material av....
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....which addition is made. Assessing Officer has not found iota of evidence to establish that the scrap was sold for a value otherwise as recorded in the books of accounts. Assessing Officer has made addition on estimated basis without even rejecting the books of account. In the relevant assessment year, the Assessee has claimed expenditure of Rs. 13,90,54,863/- crores on purchase of electrical items. Total amount of scrap sale credited to the P/L A/C by the Assessee amounts to Rs. 4,97,16,660/- crores. The AO estimated scrap sales to be 46% of the total expenditure on purchase of electrical cable i.e. 46% of 13,90,54,863 crores which equals to Rs. 6,39,65,237 crores. The total addition on the basis sale of electrical cable amounts to Rs. 6,39,65,237 crores - Rs. 4,97,16,660/- crores (as shown by the assessee) = Rs. 1,42,48,577 crores. With respect to the addition made in respect to electrical items, the Ld. AR submitted that the Assessee vide letter dated 11.03.2013 filed before the AO had given the ledger accounts of the parties to whom copper cables were sold. The said copper cables were sold M/s Trismaee Enterprises and M/s Arshi International India. Copy of ledger accounts of M/s....
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....ions:- (i) Pandit Bros. v. CIT 26 ITR 159 (Puni.) (ii) Bombay Cycle Stores Co. Ltd. v. CIT 33 ITR 13 (Bom.) (iii) R.B. Bansilal Abirchand Spg. & Wvg. Mills v. CIT 75 ITR 260 (Bom.) (iv) International Forest Co. v. CIT 101 ITR 721 (J&K); (v) Malani Ramjivan Jagannath v. Asstt. CIT (2007) 207 CTR (Raj.) 19. 32. The Ld. AR submitted that on one hand he has accepted the books of accounts and on the other hand he has made additions on estimated basis disregarding the actual sales; hence, any addition on estimated basis without rejection of books is not justified. The Ld. AR submitted that the expenditure incurred on purchase of the above items was duly recorded in the P&L Account. The said material was utilized in executing the contractual work for CWG 2010 at various sites. This material was primarily used as a raw material/ throughput in the process of erecting, constructing, installing/ renovating the structures and fittings. Hence, the original form of raw materials purchased underwent complete/ substantial change in its form and size as it was cut/modified/altered as per the requirement of the structure/work. The percentage of residual value mentioned in the assess....
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.... a known fact that immediately after the conclusion of the games, there was a lot hue and cry in the public and media. Several Government agencies initiated investigation/ probe on the conduct of OCCWG- 2010, vendors/suppliers and contractors associated with the conduct of the games. This sudden development immediately after the conclusion of the games heavily impacted the work of dismantling and recovery of installed material from various sites and substantial time was spent in attending to various government agencies involved in probe. Thus, at this juncture theaspect of the recovery of the entire material/supplies made by the assessee company was superseded by the action of facing the above said various authorities for a length of time has resulted into short recovery of material from site. 34. Without prejudice to the above, most of the material utilized in the work is in the nature of consumables like nails, screws, fevicol, etc which has no scrape value. After the completion of the CWG event, the structures were dismantled/ broken and the remnant was collected in the best possible manner in a very short time frame and under tight schedule, so that some salvage value could b....
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....y basis of addition nor confronting the documents on the basis of which addition is made. Assessing Officer has not found iota of evidence to establish that the scrap was sold for a value otherwise as recorded in the books of accounts. Assessing Officer has made addition on estimated basis without even rejecting the books of account. In the relevant assessment year, the Assessee has claimed expenditure of Rs. 13,90,54,863/- crores on purchase of electrical items. Total amount of scrap sale credited to the P/L A/C by the Assessee amounts to Rs. 4,97,16,660/- crores. The AO estimated scrap sales to be 46% of the total expenditure on purchase of electrical cable i.e. 46% of 13,90,54,863 crores which equals to Rs. 6,39,65,237 crores. The total addition on the basis sale of electrical cable amounts to Rs. 6,39,65,237 crores - Rs. 4,97,16,660/- crores (as shown by the assessee) = Rs. 1,42,48,577 crores. With respect to the addition made in respect to electrical items, the Assessee vide letter dated 11.03.2013 filed before the AO had given the ledger accounts of the parties to whom copper cables were sold. The said copper cables were sold M/s Trismaee Enterprises and M/s Arshi Internation....
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....2,33,080, the Ld. AR submitted that during the year under consideration, the Assessee has got the stage fabrication work done aggregating to Rs. 62,33,080/- for various venues. In this regard payment was made to M/s Arun Khullar & Co. for the various works executed by M/s Arun Khullar & Co. The same expenses were claimed by the Assessee in the P & L Account. During the course of assessment proceedings, notice u/s 133(6) of the Act was issued to M/s Arun Khullar & Co. However, because of change in the address of M/s Arun Khullar & Co. and the entire shifting process, notice issued was returned back undelivered. In light of the same, Assessing Officer doubted the genuineness of the transaction undertaken between Assessee and M/s Arun Khullar & Co. No further opportunity was provided by AO to prove the genuineness of the transaction undertaken. The AO passed an assessment order making addition on account of unexplained purchase/ sale with respect to Hire Charges paid to Khullar & Co. During the course of appellate proceedings before CIT(A), Assessee Company submitted the following documents: * declaration of M/s Arun Khullar & Co. certifying its present address as '22/5 CH Chatur S....
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....e Assessee that the notices u/s 133(6) was not delivered to M/s Arun Khullar & Co. The assessee during the appeal proceedings before CIT(A) has submitted that the assessee was never asked to produce the Mr. Arun Khullar by the AO and if an opportunity would have been given, the assessee would have produced Mr. Arun Khullar or his representatives. It is submitted that the AO committed a breach of the principles of natural justice by not allowing the Assessee Company to produce the Mr. Arun Khullar proprietor of M/s Arun Khullar & Co. 39. Without prejudice to the aforementioned, in the absence of any incriminating material jeopardizing on record that would jeopardize the genuineness of the transaction, the AO disallowed the genuineness of the transaction merely of the basis of the fact that the party transacted with was not produced. No other supporting or circumstantial evidence available to the AO was considered neither by him nor by the CIT (A) in appeal. The Ld. AR relied upon the decision of the Bombay High Court in the case of Commissioner of Income Tax-1, Mumbai v. Nikunj Eximp Enterprises (P.) Ltd. [2013] 216 taxmann.com 171 (Bombay). 40. The Ld. DR relied upon the Assess....