HEET BUILDERS PVT LTD.,MUM vs. ADDL/JT/DY/ACIT/ITO, NATIONA E-ASSESSMENT CENTRE, DELHI

The fact in brief is that return of income declaring total losses at Rs.1,99,52,172/- was filed on 29.10.2018. The case was subject to scrutiny assessment and notice u/s 143(2) was issued on 22.09.2019. During the course of assessment the AO noticed that assesse has deducted tax on interest amounting to Rs.89,42,956/- and on P a g e | 2 Heet Builder Pvt.Ltd. Vs. ACIT/ITO, Delhi profession of Rs.12,46,633/- which was not deposited before filing of return of income and the same has been disclosed in tax audit report. On query the assesse explain that it is engaged in the business of property development. The assesse explain that almost whole of the cost about 96.47% to the amount of Rs.9,82,98,966/- has been capitalised as WIP and only being 3.53% i.e Rs.35,96,925/- has been charged to profit and loss account, therefore, disallowance u/s 40(a)(ia) should be restricted to 30% of the expenditure debited in the profit and loss account. However, the A.O has not agreed with the submission of the assesse and added 30% of the total expenses of Rs.10,18,95,891/- which come to Rs.3,05,68,767/- as disallowance u/s 40(a)(ia) of the Act.

Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse.

During the course of appellate proceedings before us, the ld. Counsel contended that during the course of assessment and appellate proceedings the assesse has explained that it has not claimed the whole expenses in the profit and loss account, therefore, the disallowance u/s 40(a)(ia) can be made only to the extent of 30% of the expenses debited in the profit and loss account. The ld. Counsel has also filed paper book comprising copies of balance sheet and profit and loss account filed before the A.O and CIT(A) in support of its claim that expenditure were not debited to the profit and loss account. In support of his claim the ld. Counsel has placed reliance in the following judicial pronouncements:

On the other hand, the ld. D.R supported the order of lower authorities and referred the following judicial pronouncements:

Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above the assessing officer has disallowed 30% of the full expenses of Rs.10,18,95,891/- which comes to Rs.3,05,68,767/- u/s 40(a)(ia) of the Act. During the course assessment proceedings before the assessing officer and appellate proceedings before the ld. CIT(A) the assesse has substantiated with relevant evidences i.e copy of profit and loss account and balance sheet as placed in the paper book that it had only debited expenditure to the amount of RS.35,96,925/- to the profit and loss account. Therefore, disallowance u/s 40(a)(ia) of the Act @ 30% comes to Rs.10,79,078/- only. However, it is observed that neither the assessing officer nor the CIT(A) has contrary prove with any relevant material that disallowance in the case of the assesse is required to be made at Rs.305,68,767/-. After perusal of the material on record it is undisputed fact that assessee has only debited expenditure to the extent of Rs.35,96,925/- in the P. & L. A/c. In this regard we have perused the decision of Hon’ble Bombay High Court in the case of Health India TPA Services Pvt. Ltd. as referred above, wherein held that since assesse had not claimed any expenditure while computing its income chargeable to tax, as a consequence there could be no occasion to disallow such expenditure u/s 40(a)(ia) of the Act. Similarly in the decision of the Tribunal as referred supra wherein the similar view has been taken that Sec. 40(a)(ia) can be invoked to disallow an expenditure which has been P a g e | 4 Heet Builder Pvt.Ltd. Vs. ACIT/ITO, Delhi claimed as a deduction in computing the income chargeable under the head profit and gain of business or profession. We have also perused the two decision referred by the ld. D.R in the case of Ilahia Trust Vs. CIT of Hon’ble High Court of Kerala, we find that fact of the cases are distinguishable from the facts of the case of the assesse as in that case the assesse failed to prove that provision of Sec. 40(a)(ia) had no application on the payment made and claimed as expenditure whereas in the case of the assesse it has been proved with relevant material as discussed above i.e copy of profit and loss account and balance sheet, return of income that it has not claimed the total expenditure as a deduction in the profit and loss account. In the light of the above facts and finding we consider that decision of ld. CIT(A) in sustaining the disallowance made u/s 40(a)(ia) by the A.O at Rs.305,68,767/- is not justified, therefore, we direct the assessing officer to restrict the disallowance u/s 40(a)(ia) to the extent of 30% expenditure debited to the profit and loss account i.e Rs.35,96,925/- which come to Rs.10,79,078/-, therefore, appeal of the assesse is partly allowed.

In the result, the appeal of the assessse is partly allowed. Order pronounced in the open court on 10.02.2023 (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 10.02.2023 Rohit: PS

Mumbai 6. गार्ड फाईल / Guard file.