What did the Tribunal hold?

The Tribunal noted the assessee's agreement to produce documentary evidence and decided to remand the issue back to the AO. The AO is directed to provide an opportunity for the assessee to furnish all relevant documentary evidence.

The assessee claimed business expenses, but the AO made an ad-hoc disallowance for lack of bills and vouchers. The CIT(A) deleted the disallowance, stating the AO failed to identify defects in audited books. The revenue appealed this deletion.

What were the issues?

Whether an ad-hoc disallowance of business expenditure is justified without identifying specific defects in audited books, and whether the assessee should be given an opportunity to produce supporting documents.

DCIT vs M/S. Vindhyachal Expressway Pvt… | ITAT Mumbai 2023

Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

For Appellant: Shri Rajesh Aggarwal, Shri. Prakash Choughule

Pronounced: 10.07.2023

PER KAVITHA RAJAGOPAL, J M:

1. 1. This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals)-56 (‘ld.CIT(A) for short), u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2018-19.

2. The revenue has challenged the order of the Ld. CIT(A) deleting the ad-hoc disallowance made by the Ld. AO amounting to Rs. 2,60,72,300/- claimed as business expenses by the assessee.

The brief facts are that the assessee company is special purpose vehicle SPV incorporated as private company engaged in the construction, development and maintenance of infrastructure facility of roads, highways etc. along with maintaining toll

(A.Y.2018-19) DCIT V/S M/S VINDYACHAL EXPRESSWAY PVT. LTD. plaza. The Assessee has filed its return of income dated 31.10.2017 declaring loss of Rs. 40,09,03,61/- and had declared income from other sources amounting to Rs. 77,549/- and set off loss of current year amounting to Rs. 77,549/- against the income under the head income from other sources and had carry forward losses of current year amounting to Rs. 40,08,26,067/-. The assessee’s case was selected for limited scrutiny and assessment order dated 09.04.2021 was passed by the Ld. AO determining total loss at Rs. 37,47,53,767/- by making an addition/disallowance of Rs. 2,60,72,300/- claimed by the assessee as business expenditure on ad-hoc basis. The assessee was in appeal before the Ld. CIT(A) challenging the impugned addition. The Ld. CIT(A) deleted the impugned addition on the ground that the Ld. AO has failed to identify the defect in the audited books of account of assessee for which ad-hoc disallowance cannot be made. The revenue is in appeal before us challenging the order the Ld. CIT(A).

The Ld. DR for the revenue contended that the assessee has failed to substantiate its claim by documentary evidences such as bills and vouchers. The Ld. DR further stated that the Ld. CIT(A) has deleted the entire addition without any justification as the assessee has not submitted any of the details neither before the Ld. CIT(A) nor before the Ld. AO. The Ld. DR. relied on the assessment order.

The Ld. AR on the other hand controverted the said fact and stated that the assessee expended the said amount only for the purpose of its business. The Ld. AR also stated that the assessee has all the documentary evidence to substantiate its claim. The Ld. AR relied on the order of Ld. CIT(A).

We have heard the rival submissions and perused the materials on record. It is observed that the only issue in this appeal is the disallowance business expenditure claimed by the assessee which was disallowed for the reason that the assessee has failed to furnish supporting bills and vouchers pertaining to its claim. The Ld. CIT(A) on the other hand has allowed the claim of the assessed for the reason that the AO has not specified the defect as per the audited books of accounts of the assessee. The assessee has claimed the following expenses as business expenditure as per the audit report and the (A.Y.2018-19) DCIT V/S M/S VINDYACHAL EXPRESSWAY PVT. LTD. return of income filed by the assessee for which the Ld AO has made ad-hoc disallowance as per the following schedule:

Sr. No. Name of expenses Amount % of Amount Claimed Disallowanc Disallowed e 1 Construction Cost ₹ 8,64,000/- 20% ₹ 1,72,800/- 2. O M & Services ₹ 6,70,33,000/- 20% ₹1,34,06,600/- 3. Diesel & Electricity ₹ 75,21,000/- 10% ₹ 7,52,100/- 4. Site expenses ₹ 16,17,000/- 20% ₹ 3,23,400/- 5. Rent/hire charges of vehicle ₹ 10,62,000/- 10% ₹ 1,06,200/- 6. Guest house expenses ₹ 3,39,000/- 10% ₹ 33,900/- 7. Other operation & maintenance ₹ 6,34,000/- 10% ₹ 63,400/- expense 8. Utility shifting expenses ₹ 65,17,000/- 10% ₹ 6,51,700/- 9. Staff welfare expenses ₹ 7,20,000/- 20% ₹ 1,44,000/- 10. Major maintenance expenses ₹ 4,45,23,000/- 20% ₹ 89,04.600/- 11. Travelling Conveyance & vehicle ₹ 17,24,000/- 20% ₹3,44,800/- 12. Repair & maintenance ₹ 58,44,000/- 20% ₹11,68.800/- Total ₹ 2,60,72,300/- 7. The AO has made the said disallowance for the reason that the assessee has failed to furnish bills and vouchers in supports of its claim. During the appellate proceedings the Ld. Counsel for the assessee has fairly agreed to produce all the relevant documentary evidence in support of its claim. We deem it fit to remand this issue back to the file of the Ld. AO to extend an opportunity for the assessee to furnish all the relevant documentary evidence in support of its claim. Hence, we set aside this issue to the Ld. AO and direct the assessee to cooperate with the proceeding.

In the result the appeal filed by the revenue is allowed for statistical purpose.

Order pronounced in the open court on 10.07.2023

DCIT-14(1)(2), MUMBAI vs. M/S. VINDHYACHAL EXPRESSWAY PVT LTD., MUMBAI

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