TaxTMI 
TaxTMI 
2022 (12) TMI 540
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....ised therein is reproduced below: "1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. The Id CIT(A) erred in deleting the disallowance of Rs.12,40,36,185/- towards Operating & Maintenance expenses, when the Assessing Officer has clearly mentioned in the assessment order that during the search and post-search enquiries the appellant failed to furnish all the bills/vouchers, hence a detailed show cause notice was issued to the assessee company wherein all the facts relating to the bogus/accommodation entries of purchase bills/unexplained & unverifiable expenses with various vendors have been pointed. 3. The ld CIT(A) erred in deleting the addition of Rs. 4,54,98,600/- towards unexplained work-in-progress capitalized in books without appreciating the fact that a detailed show cause notice was issued covering the issues of search involving claim of non-genuine/bogus purchases/ unexplained & unverifiable expenses, as applicable to various vendors as noticed during the search and survey proceedings conducted in the group cases. 4. The Id CIT(A) erred in not following the principle laid down by the jurisdi....
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....iation of such claim of expenses in P&L a/c with etc. Accordingly supporting bills/vouchers during the search, assessee company was asked to submit bills/vouchers and other relevant supporting ledger extracts etc as applicable in support of the assessee's clam of huge expenses under civil work/ labour wok expenses for maintenance, repair and manpower related payment proofs as applicable for F.Ys 2009-10 to 2014-15. With reference to this assessee could not submit all bills and vouchers for necessary verification/ reconciliation with relevant vouchers and ledger extracts explaining the various sites involved in incurring such expenses of repair and maintenance involving unskilled labor with earth works, security supervision etc. As assessee could not submit all the details as sought in search and post search proceedings, a detailed show cause letter was issued to the assessee to submit the same in full as applicable a per 1.T.Act as claimed in the Return of Income applicable for Asst. Year 2010-11 to 2016-17. With reference to this, assessee could not submit all details as required to reconci1le with the P&«L account and relevant ledger extracts, sites/project wis....
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....tion and installation works etc. Addition: Rs. 12,40,36,185 /-. Penalty proceedings u/s. 271(1)(c) are initiated separately for submission of inaccurate particulars of income". 4. The learned CIT (A) while dealing with the issue had deleted the addition of 20% of the total amount confirmed by the Assessing Officer by holding as under: "5. I have considered the assessment order and submissions of the appellant. It is seen that the addition made by the Assessing Officer is not based on any material seized during the course of search. Apparently there is no finding as to inflation of expenses or debiting bogus expenditure by the appellant company. Further, it is seen that the appellant maintains vouches etc at various placed and on sample basis evidences were produced before the Assessing Officer. There is no specific adverse finding of the Assessing Officer. The observations are general without pointing out any specific deficiencies The appellant is a corporate which is owned/run under professional management. The estimated disallowance @20% has no basis. Considering the above, it is held that no addition is warranted and the addition is deleted". 5. Before us....
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.... and on sample basis evidences are produced before the AO and there is no specific adverse finding of the AO. The learned CIT(A) observed that the Appellant is a corporate which is owned/run under professional management and the estimate disallowance at 20% has no basis. Accordingly, the learned CIT(A) deleted the adjustment proposed by the AO. 2.1.4. The Revenue has now raised a ground before your goodself against the deletion of the disallowance made by stating that in absence of the Appellant to furnish all the bills/vouchers, a detailed show cause notice was issued wherein facts relating to bogus/ accommodation entries of purchase bills/unexplained and unverifiable expenses with various vendors have been pointed. 2.2. Submission We wish to provide our detailed submission as below against the ground raised by the Revenue in connection with the disallowance of the operating and maintenance expenses: 2.2.1. The learned AO has disallowed 20% of total expense on ad hoc basis and the ground raised by the Revenue that the bogus/ accommodation entries of purchase bills/unexplained and unverifiable expenses with various vendors have been poin....
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....dicates that the same were part and parcel of the costs incurred in connection with the business of the assessee, disallowance of the same on ad hoc basis is incorrect. Therefore, expenditure incurred in the ordinary course of business, which is deductible under the provisions of the Act, shall not be disallowed on ad hoc basis without full and proper examination of the books of accounts. *Where the tax officer has not rejected the books of accounts and similar nature of expenses were allowed in the past scrutiny assessments, disallowance made on ad hoc basis is not tenable. The tax officers ought to place reliance on the audited financial statements, certified as true and fair by the statutory auditors after due verification of the deductions claimed by the assessee in the profit and loss account with the books of accounts. A summary of the judicial precedents outlining the above principles is provided vide Annexure 2 for kind reference of your goodself. Further the learned AO disallowed the expense without carefully examining the documents furnished during the proceedings. " 7. We have heard the rival contentions and perused the material ava....
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....ilable few bills / vouchers for perusal and verification as pertains to part of few months. Further, assessee contended these involve huge expenses covering huge data involving various bills and vouchers of minor expenses grouped under each site/project expenses so as to arrive at total expenses as claimed. On perusal of certain bills/vouchers as made available, it is noticeable that some of them are improperly vouched without full details such as address, recipient name, payee signature and name, full description oi maintenance/ security work involved, repairs undertaken and so on and so forth making it not amenable for complete verification with proper reconciliation of such expenses under different sites/projects undertaken by assessee during the year. Accordingly considering all these discrepancies of improper vouching coupled with non-reconciliation of each item of bills vis-à-vis each claim of expenses under these heads, it would be difficult to consider entire expenditure as claimed as supported with proper bills and vouchers as debited in P&L account. Considering these discrepancies to meet the ends of justice, keeping in view of assessee's facts of case, nature ....
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....se in hand is a search assessment where the material was found showing the unexplained expenditure incurred by the assessee. In the search proceedings it was mentioned that the assessee failed to substantiate the expenditure mentioned in the bills / vouchers. Similarly, the decision in the case of I.I.C. Systems 44 taxmann.com 169 is also not applicable to the facts of the case on hand as in the present case, the Assessing Officer has brought on record the discrepancy in the bills and vouchers on test check basis. However, he has failed to quantify the expenditure which is required to be disallowed in the absence of supporting bills / vouchers / evidence. Hence, the ground raised by revenue is allowed for statistical purposes. 10. Ground No.2 raised by the Revenue is with respect to deleting the addition of Rs.4,54,98,600/- towards unexplained work in progress. In this regard the learned DR drew the attention of the Bench to Para 4.2 of the assessment order which read as under: "4.0(ii) Disallowance of unexplained work-in-progress capitalized in books as claimed. Further, during the verification of similar expenses as above as claimed under capital work-in-prog....
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....ellant is into the business of providing passive telecom infrastructure and capitalizes the portion of certain expenditures in relation to operating and maintenance expense, interest expense etc. whenever a new tower comes into existence. 3.1.2. For the previous year 2013-14 relevant to Assessment Year 2014-15, the Appellant has capitalized certain portion of operating and maintenance expense and other expenses amounting to Rs. 96,28,868. 3.1.3. The Appellant has not deducted TDS on the expenditure amounting to Rs. 96,28,868. However, no disallowance were made under section 40(a)(ia) of the Act since no deduction was claimed while computing the taxable income in respect of capitalized work-in-progress (`CWIP). 3.1.4. The learned AO has disallowed amount of Rs. 96,28,868 for the following reasons; • Vouchers and bills were not made available to cross verify the genuineness of claim. • Expenditure of capital nature is akin to investments and same needs to be justified with supporting sources and also due adherence to the provisions of the I.T. Act including the TDS, maintenance of supporting bills and vouchers etc. 3.1.5. ....
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....osed in the balance sheet. Further, the learned AO disallowed the expenses based on the disclosure made in the audited accounts. 3.2.5. Therefore, the said amount duly recorded in the books of account cannot be considered as non-genuine/ as unexplained investment. 3.2.6. In this regard, the Appellant wishes to place reliance on various judicial precedents' wherein it was held that • under section 69, only such value of the investments may be deemed to be the income of the assessee for the financial year, if they are not recorded in the books of account. • In the absence of any corroborative evidence establishing receipts and payments outside the regular books of account, it cannot be alleged that investments have been made which are not recorded. • Unless it is first established beyond doubt that there is an investment which is not recorded by the Assessee in its books, no occasion to explain about the nature and source of the investment can arise. Summary of judicial precedents outlining above principles is enclosed vide Annexure 3. 3.2.7. In view of the above, the Appellant wishes to submit that the contention ....
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....e above, the Appellant submits that the contention of AO that no evidence were furnished to justify claim is not correct. 3.2.12. We also submit that disallowance of capitalized portion of interest costs is erroneous given that the interest were paid to bank and financial institution and the same was also allowed as deduction under section 43B of the Act. Non deduction of TDS 3.2.13. We wish to submit that the learned AO erred in disallowing the entire expenditure stating that TDS has not been deducted for the aforesaid payment for the subject assessment year without considering the fact that CWIP was not claimed as deductible expense while computing the taxable income. 3.2.14. In this regard, it is submitted that no disallowance is warranted under section 40(a)(ia) of the Act towards non deduction of tax at source on capitalized expenditure since the same is not claimed as deduction while computing the taxable income. The disallowance under section 40 can only be made towards the expenditure which is claimed as deduction while computing income and cannot be made on capital expense as the same is not claimed as revenue expenditure." 1....
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....onsidering the above facts, it is noticeable that assessee has made similar claim for this A.Y. involving notional claim of provision. Hence, a detailed show cause was issued requesting information in detail along with re-working of quantum of claim made in Profit and Loss account/I.T. computation filed with Return of Income involving this issue of site restoration expenditure of provisional nature vide this office letter dated 10.04.2018. In response to same, assessee filed its submissions as called for vide its letter dated 04.05.2018. More or less reiterating the submissions made earlier For A.Y 2011-12 and A.Y. 2015-16. 5.3 After careful examination of assessee's submissions and also keeping in view the disallowances made on this issue for other A.Y.s i.e AY 2011-12 and 2015-16, assessee's claim is not acceptable as per I.T. Act in view of following reasoning: It is a fact on record that this is a clear provision which is a set aside amount for incurring in future years in the event of site restoration cost likely or unlikely to be incurred in the event of abandoning any tower sides in the interest of business. It is a fact on record that asse....
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....rately for submission of inaccurate particulars of income". 17. The learned DR has also drawn our attention to the findings given by the learned CIT (A) which is mentioned in para 7.2 of the order which reads as under: "7.2 I have considered the assessment order and submission of the appellant. The ground on which the Assessing Officer made addition is that the appellant has made only provision and not incurred expenditure. The contention of the appellant is that the liability is incurred and it is certain. The claim is as per the mandatory accounting standards and income computation and disclosure standard (ICDS). The decision of the Hon'ble Supreme Court in the case of CIT Vs. Bharat Earth Movers Ltd (supra) and in case of M/s. Calcutta Co Ltd vs. CIT (Supra) are applicable t the facts of the case and are in favour of the appellant. Addition is not justified solely on the ground that the appellant has made provision. The Assessing Officer has not brought any material on record to show that the estimation of liability made by the appellant is incorrect or not genuine. Since the liability arose on a/c of lease deeds executed by the appellant and no finding by Assess....
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....penditure till date and is conveniently creating a provision for future possible liability and claiming the same as present year attributable expenditure. This way of accounting/claims are not allowable as per mercantile method of accounting read with the provisions of the Act as it is a mere provision which is neither accrued nor an ascertained liability. Assessee's contention to treat as revenue expenditure is far stretched, devoid of merits and not entertainable as per provisions of the Act. Order of the learned CIT(A) 4.1.5. The Appellant subsequently filed appeal before the CIT(A) contesting the above disallowance, which was allowed by the CIT(A) in favor of the Appellant. 4.1.6. Aggrieved by the decision of the learned CIT(A), the Revenue has filed appeal before the Hon'ble Tribunal stating that the learned CIT(A) did not verify the reasonable certainty of the site restoration costs and not referring the matter for remand proceedings for verification. 4.2. Submission 4.2.1. We submit that the learned CIT(A) considered the submissions of the Appellant that the claim for deduction towards site restoration ex....
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.... The Appellant has created provision for site restoration cost as per the provisions of Accounting Standard (AS) 29- Accounting for provisions, contingent assets and contingent liabilities notified by the Ministry of Corporate Assets vide Notification No. 1/3/2006/CL-V dated 07 December 2006 pursuant to the provisions of section 211(3C) of the Companies Act 1956. 4.2.6. As per AS 29, a provision is recognised when an enterprise has a present obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate can be made. The terms present obligation, probable event and reasonable certainty is defined as under; "Present obligation" is an obligation if, based on the evidence available, its existence at the end of the previous year is considered reasonably certain. The accounting standard 29 defines 'a probable event' outflow to mean an event which is more likely than not to occur. Further, the provisions of the Act/ AS does not define the term 'reasonable certainty'. Accordingly one can place reliance on gener....
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....e on which the liability shall have to be discharged is not certain. 4.2.10. Further, the reliance is also placed on the decision of the Hon'ble Supreme Court in case of Calcutta Co. Ltd. v. CIT3, wherein the assessee had purchased land and sold them in plots fit for building purposes undertaking to develop them. When the plots were sold, the assessee undertook to carry out the development within a stated period. In its accounts, it debited an estimated sum as expenditure for the development that it had undertaken to carry out. This expenditure was disallowed. It was held by the Hon'ble Supreme Court that the undertaking to carry out development on the land imported a liability which accrued on the dates of the deeds of sale, though it was to be discharged at a future date. It was an accrued liability and estimated expenditure which would be incurred on discharging the same could be deducted from the profits and gains of the business. The difficulty in the estimation thereof did not convert the accrued liability into a conditional one. Profits or gains had to be understood in a commercial sense. 4.2.11. In the case of Rotork Controls India (P.) Lt....
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....ite restoration is not correct. The enclosed Note for approval demonstrates the incurrence of expenses for site restoration. Income Computation and Disclosure Standard (ICDS) 4.2.15. Though the provisions of ICDS are not applicable to the year under consideration, reference is drawn to the ICDS-X: Provisions, Contingent Liability and Contingent Assets wherein it is stated that provision shall be allowed as deduction subject to fulfilment of following condition. • A person has a present obligation as a result of past events, • It is reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation, and • A reliable estimate can be made. 4.2.16. As discussed in the foregoing paragraphs, the condition precedent for recognition of provision under the Companies Act and Accounting standard prescribed thereunder, ICDS as well as judicial precedents under the Act are satisfied/ complied in the present case and accordingly, the provision for Site Restoration expenses is allowable as deduction. The Appellant wishes to submit that provision created in respect....
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....ts that as per Rule 46A of the Income-tax Rules 1962, the learned CIT(A) not take into account any evidence produced under sub-rule (1) of Rule 46A unless the learned AO has been allowed a reasonable opportunity. 4.2.19. In this regard, we wish to refer to the provision of Rule 46A as captured below: "46A. (1) The appellant shall not be entitled to produce before the [Deputy Commissioner .(Appeals)] [or, as the case may be, the Commissioner (Appeals)] , any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the fAssessing Officer] , except in the following circumstances, namely :- (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where. the [Assessing Officer] has made the order appealed agains....
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....me on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered The learned CIT(A) was empowered to do so under the provisions of Section 250(4).. There may be cases where additional evidence is admitted by the first appellate authority on a request or application being made by the assessee. In such cases Sub-rule (2) of rule 46A requires the first appellate authority to allow the assessing officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy, in such a case no useful purpose would be served on performing the ritual of forwarding the evidence/material to the Assessing Officer and obtain his report and, in such exceptional circumstances the requirement of sub-rule (3) of rule 46A may be dispensed with." 4.2.22. Given the above ruling of the Hon&....
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....r goodself to dismiss the said ground raised by the Revenue." 20. We have heard the rival contentions and perused the material available on record. We find the AO in this case made the additions on the ground that assessee has not incurred any such expenditure till date and could not submit any bills and vouchers and assessee was conveniently creating a provision for future possible likely or unlikely liability and claiming the same as present year attributable expenditure. We find that ld.CIT(A) deleted the additions the reasons of which are reproduced in preceding paras. Further, the ld.CIT(A) had taken on record the additional evidence filed by the assessee during the appellate proceedings without calling for the remand report or comments from the Assessing Officer. 21. In this regard, we may refer to section 250(4) of the Act and Rule 46A of Income Tax Rules, 1963. Section 250(4) of the Act provides as under : (4) The ^81[***] ^82[Commissioner (Appeals)] ^84may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the ^83[Assessing] Officer to make further inquiry and report the result of the same to the ^81[***] ^82[Commissio....