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2019 (4) TMI 1017
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....of disallowance of additional service tax. 3. The Ld. 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 asses....
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....ating to CWG, 2010. 4. That the CIT(A) erred on facts and in law in confirming notional addition of Rs. 3,35,58,732 on account of income from 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 enqu....
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.... 76,92,840/- 9. Addition on account of disallowance of business promotion expenses Rs.15,50,000/- 10. Addition on account of scrap sale of electrical items Rs.1,42,48,577/- 11. Addition on account of scrap sale aluminium, 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 t....
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.... nature and as the same character i.e. of service tax. This aspect was rightly taken into account by the CIT(A) in its finding. Since, the service tax is permissible deduction the interest paid for late deposit of the same is also a permissible deduction and should be allowed 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 assesse....
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....firmed copy of its ledger account in the books of M/s Garg Road Lines along with copy of bank statement/duly reflect the payments made by the assessee on various dates of M/s Garg Road Lines for supply of diesels. All these relevant evidences were ignored by the Assessing Officer during 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 ....
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....ct the disallowance to 1/10th of the total motor car expenses including depreciation and telephone expenses claimed by the appellant. Hence, the Assessing Officer is directed to modify the disallowance accordingly, while giving effect to this order." The CIT(A) has rightly observed that the 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 1....
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....ssessee. The Assessee also wrote a number of letters to the OCCWG-2010 to ascertain the amount paid to the Consortium in relation to the work executed by the Assessee. Thereafter the Assessee instituted a suit in the Hon'ble High Court of Delhi against the consortium for the rendition of accounts 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 ag....
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....Income accrues to the Assessee and become includible in his hands when the legal right to receive the same vests with the Assessee whereby the payer of the income become lawful debtor of the Assessee. 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. 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....
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....d. AR submitted that assessee was granted a part decree in the money suit for Rs. 4,19,05,956/- with interest at 9 Percent per annum (the claimed amount was Rs. 6,99,24,861/-). The said judgment and decree was partly executed on 08.03.2018 pursuant to which assessee company has received Rs. 6,60,02,809/-. The Ld. AR submitted that 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 for....
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....bmission, the Ld. AR submitted that entire contract value is treated as income under the mercantile system, then the amount of Rs. 6.99 not recoverable under the current disputes and exigencies (which is pending before judicial forum) could be treated as bad debt under section 36(1)(vii) of the Act. The cash system adopted for CWG 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 ....
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...., 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. 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 amoun....
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.... recognition should be postponed." The Ld. AR further submitted that 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. The AO, based on the fact that the Assessee followed 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 b....
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.... in ITA No 2483/Del/2013 for AY 2005-06. Submissions regarding provisions of section 145(2), Section 5 of Income Tax Act, case laws on mercantile method of accounting and accounting principles regarding recognition of revenue. The Ld. DR submitted that these submissions of the Revenue may be considered along with oral submissions in this regard and the 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 ra....
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....s deduction. It is also humbly submitted that the contract was still in existence even after the opening ceremony concluded as the contract of the assessee included both the opening as well as closing ceremony. In the below mentioned case it was observed that incurring of business promotion/ publicity expenditure wherein the expenditure has been incurred 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 bus....
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.... structure/work. Assessing Officer made the abovementioned addition on the ground that the purchase made by assessee of several items were of such nature that either they have multiple use or have substantial resale value. Assessing Officer arrived at the minimum resale/ scrap value of the above items and made the impugned addition without providing any 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. 4,97,16,6....
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....books of accounts. Also, no reason has been given for not accepting the value recorded in the books for scrap sale. That there was no evidence that any sale of scrap, over and above what was shown by the Assessee, was ever made by the Company and such sale could not be presumed in absence of any evidence of sale of scrap outside books. Hence, the order is non-speaking order. The Ld. AR relied upon the following decisions:- (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....
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....en suppressed by the Assessee, in absence of any corroborative piece of evidence the addition is liable to be deleted. 33. Without prejudice CWG project work was peculiar and first of its kind undertaken by the assessee. Though primarily items like Generator sets, Electric cables' etc, were supplied in Jawahar Lal Nehru stadium, numbers of other items were also supplied at various games - venues situated in different parts of the city. It is 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....
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.... order of the CIT(A). 37. We have heard both the parties and perused all the relevant material available on record. Assessing Officer made the abovementioned addition on the ground that the purchase made by assessee of several items were of such nature that either they have multiple use or have substantial resale value. Assessing Officer arrived at the minimum resale/ scrap value of the above items and made the impugned addition without providing any 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 ....
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.... issue to the file of the Assessing Officer and after verifying all the evidences produced by the assessee take a cogent view and give a proper reason as to whether this addition sustains or not. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 4 is partly allowed for statistical purpose. 38. As regards to Ground No. 5 in respect of disallowance of hire charges to the extent of Rs. 62,33,080, 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 K....
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.... with respect to the non-delivery of notice u/s 133(6) of the Act to M/s Arun Khullar & Co., it is submitted that the address of M/s Arun Khullar & Co. at the time of the delivery of notice was in the process of shifting to its new address. Upon the return of the undelivered notice, the AO neither made an effort to issue notice/summons at the old address of M/s Arun Khullar and Co. nor did he resend the notice at the new address of the company. It is further that the AO never confronted the 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 transa....
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....te the above transaction. The AO disallowed 1/5th of the expenses which came to Rs. 7,37,158/- (1/5 of 36,85,792/-). CIT(A) upheld the addition made by the AO, however, it found that the disallowance made by the AO at 1/5th was high and it restricted the disallowance to 1/10th of the total expenditure claimed by the Assessee i.e. Rs. 3,68,579/-. The Ld. AR submitted that the A.O while passing the Assessment Order u/s 143(3) of the Act for AY 2012-13 disallowed 1/5th of Telephone expenses, Repair & Maintenance of motor vehicle & Depreciation expenses etc. However, the CIT (A) u/s 250(6) of the Act while passing an order for AY 2012-13 after examining the book of accounts and the entire voucher produced by the assessee, deleted the addition in this regard. It is noteworthy the department has accepted the stand of CIT(A) and no appeal is made in this regard. The Ld. AR further submitted that the AO while passing an order u/s 143(3) for AY 2013- 14 has not made any addition in this regard. Therefore, the AO in subsequent years has accepted the stance of the assessee and has not made any addition. The Ld. AR relied upon the judgment of Hon'ble Gujrat High Court in the case of Sayaji Iro....