K vs. RC ENGINEERS PRIVATE LIMITED ,HYDERABADVS.INCOME TAX OFFICER, WARD-2(1) , HYDERABAD

Mr. Mohd. Abdul stated at the Bar that the assessee only wishes to pray for its second and third substantive grounds challenging correctness of both the lower authorities’ action declining “other expenditure” claim of Rs.78,66,670/- in the course of assessment framed on 29.12.2017 as upheld in the CIT(A)’s detailed discussion as follows :

“6…… The fourth ground of appeal pertains to the claim written off of Rs. 78,66,670/ - being not approved for reimbursement by the principal contractor and disallowed by the AO. The AO noted that the appellant has claimed the said amount under the Head other expenses and when asked the justification of the same, the appellant stated that the quantum represents the work under taken by the appellant which was beyond the regular work and was undertaken in the earlier year and it was pending certification and was shown as part of assets in the balance sheet in the earlier year. The appellant stated that the work was approved finally by the Principal contractor in the month of November, 2013 and the same has not been received up till March, 2015 hence the same is written off. It is important to note that the appellant has never offered this work and the profit pertaining to it in the return of income of the earlier year. This work executed did not find place in the "debit side" of the P & L account and also the simultaneous credit was not there in the P & L account in the form of sales or work in progress. The principal contractor having approved the work in November, 2013 as per the appellant's own admission did not find the same as part of the financials in F.Y. 2013-14 relevant to A.Y. 2014-15. As per principles "of accounting it should have been accounted for in the F.Y. 2011-12 relevant to A.Y. 2012-13 as it was part of the work executed by the appellant in pursuing a contract. The appellant thus never accounted for the same in the books of accounts as a regular receipt on account of the above, therefore, the work continued to be a balance sheet item. The appellant has now written it off without even raising the debtors and also the appellant has not brought out a case where the principal contractor has refused to make that payment. The delay in payment cannot be a cause for write off when the principal contractor has acknowledged the work done. Even on the primary principles as the same has never been offered to tax and is not part of the expenditure incurred during the year, the same cannot be allowed u/s 37(1) and the write off u/s 36(vii). Thus, the contention of the appellant is rejected, as the appellant has neither accounted or routed this sum through the profit and loss account in the 2 year of incurring, even if it was incurred for said purpose. Further, as already stated by the appellant the debtor has acknowledged the due and also has not refused to make the payment. The delay in payment cannot be a ground for writing off. In view of the same, the ground no. 4 is dismissed accordingly.”