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Income Tax Appellate Tribunal, [ DEHRADUN BENCH “DB” : DELHI ]
Before: SHRI CHALLA NAGENDRA PRASADSHRI M. BALAGANESH
21/08/2023 सुनवाईक�तारीख/ Date of hearing : 31/10/2023 उ�ोषणाक�तारीख/Pronouncement on : आदेश / O R D E R PER C. N. PRASAD, J. M.
This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-II [hereinafter 1 referred to CIT (Appeals)] Dehradun, dated 1.12.2011 for assessment year 2008-09.
The Revenue has raised the following substantive grounds of appeal:-
“1. Whether on facts and circumstances of the case, the CIT (A) has erred in deleting the addition of Rs.2,06,40,432/- on account of material consumed for the Panipat Project by disregarding the fact that the assessee had failed to substantiate its claim for expenses with proper vouchers and supporting documents.
2. Whether on facts and circumstances of the case, the CIT (A) has erred in deleting the addition of Rs.84,07,506/- on account of material consumed on the foreign part by disregarding the fact that the assessee had failed to substantiate its claim for expenses with proper vouchers and supporting documents.
3. Whether on facts and circumstances of the case, the CIT (A) had erred in directing the AO to recomputed the allow-ability of Head Office expenses under section 44C without appreciating that some of the expenses had been claimed twice and were also not supported by proper documents/vouchers.”
In spite of issue of notice none appeared on behalf of the assessee nor any adjournment was sought. Therefore, we dispose off this appeal on hearing the ld. DR.
Brief facts are that the assessment was completed under section 144C read with section 143(3) of the Income Tax Act, 1961 (the Act) by the Assessing Officer on 24.02.2011. While completing the assessment the Assessing Officer disallowed material cost of Rs.2,06,40,432/- and expenses of Rs.1,27,48,322/-. In so far as 2 material cost is concerned the Assessing Officer disallowed on the ground that total receipts are to the tune of Rs.2,06,49,475/- and an almost matching figure i.e. Rs.2,06,40,432/- has been shown for material consumed. The Assessing Officer held that no evidence was produced to show that this material was actually consumed for the Panipat project. In respect of disallowance of expense on various heads like material consumed, other expenses, travelling and conveyance, printing charges, service charges and head office administration is concerned the Assessing Officer made disallowance on the ground that there is a double claim of expense.
On appeal the ld. CIT (Appeals) considering the submissions of the assessee held as under:- “4. The third ground challenges the action of Id. AO in disallowing the entire material cost of Rs.2,06,40,432/- on account of the Panipat Project on the ground that:- (i) Total receipts are to the tune of Rs.2,06,49,475/- and an almost matching figure has been shown for material consumed; and (ii) No evidence allegedly produced to show that this material was actually consumed for the Panipat Project. 4.1 The Id. AR has vehemently protested this action of the Id. AO through averments as under:- i) Disallowance of Material Cost amounting to Rs.2.06,40,432/- Assessing Officer has disallowed the material cost claiming it to be bogus expenses, justifying that project was towards completion and there was no need of material purchase. How can an assessing Officer decide about business exigencies and expenses that needs to be incurred. 3
Books of Accounts and vouchers were produced before the assessing officer in support of claim of expenses debited to Profit & loss account. For your ready reference we enclose copy of ledger account in respect of material purchase and few sample vouchers in support of our claim for material cost. The material cost has been properly accounted for with necessary supporting vouchers. The project was at commissioning stage and contractor has to handover the project in working condition with clause that 5% of contract price will he released only after successful handing over of project in proper working condition. In deciding whether the expenses is deductible or not one has to take into consideration questions of commercial expediency and principles of ordinary commercial trading. In applying the test of commercial expediency for determining whether expenditure was wholly and exclusively laid out for the purpose of business the reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue. In view of above facts appellant claim of expenses for material cost is justified and Assessing officer claim for disallowance does not hold good. 4.2 Subsequently on being asked about the final completion date of this project the Id. AR produced a copy of the completion certificate from IOC dated 24.01.2009 (it has been stated that this certificate was shown to ld. AO also) in which it is written that the project was completed on 15.09.2005 and it is also certified that the defects have been duly rectified in the defect liability period. It has been claimed that the material under consideration was consumed during the defect liability period. A few sample vouchers and ledger accounts of material consumed have been filed during appellate proceedings. 4.3 On a consideration of the factual conspectus of this case what is evident is that the Id. AO did not bring on record any evidence of defects regarding the genuineness of the expenses claimed with respect to the fact about their actual purchase of 4 equipments and materials and their subsequent utilization. Merely on the basis of a blanket statement that the expenditure on material is almost equal to the receipts hence the same is dubious or bogus, is not enough to arrive at a conclusion that the entire expenditure is worthy of being disallowed. Furthermore, no enquiries were ever made with M/s IOC to establish whether such material could be utilized in projects other than from where the receipts have originated. In fact it has been totally disregarded that the appellant was bound by contract to remedy any defect up to a certain point in time. Taking into consideration the entire factual matrix which includes the vouchers filed during appellate proceedings which indicate that the material has been received by IOC at Panipat refinery, it cannot be doubted that such material was actually consumed at the place where it has been claimed to have been consumed. Admittedly, these vouchers were produced before the ld. AO also but even then an adverse view was taken in the matter. The addition made is accordingly deleted.” ….. ….. …..
6. The fifth ground of appeal challenges the addition of Rs.1,27,48,322/- by the Id. AO on the ground of a double claim of expenses as well as booking of any amount as receipts against such expenses claimed. The ld. AR has averred as under:- ii) Disallowance of Expenses of Foreign part amounting to Rs.1.2748,322/- Income & expenses in relation to Foreign part is incorporated in our books of accounts on the basis of audited CP Certificate issued by Price Water House Cooper Accountant Firm in respect of Project operations outside India at Head office. The details of expenses disallowed are as under:- Material consumed: Rs.84,07,506.49 Other Expenses: Rs.50,262.96 Travelling & conveyance: Rs.1,19,138.97 Printing Charges: Rs.1,279.31 Service Charges: Rs.28,19,297.44 Head Office administration: Rs.13.50,837.76 Total: Rs.127,48.322.93 5
Against above expenses asseessee has for the year shown income of Rs.58,14,228, which assessing office while completing the assessment has overlooked. In case AO has disallowed the expenses in relation to foreign part for non-verification then these shold have been disallowed net of foreign part income. In earlier assessment also these expenses have been allowed on the basis of CPE certificate to the extent considered reasonable not completly disallowing the entire amount. Although company maintains complete accounting records but as the company has closed down its operations in India since last 1 year and almost all its staff in India has quit the employment. company is in mess in relation to its At this point for your ready reference please find enclose statement of accounts which clearly show company Foreign income & expense accountability. In nutshell we request that although expenses have been incurred for project its total disallowance is unjustifiable and either these should be disallowed net of foreign income or on some justifiable ground. 6.1 The point regarding showing of Rs.58,14,228/- as receipts from overseas operations is readily verifiable from Annexure 'E to the Profit & Loss account (copy has been placed on record). However it is seen that classification of expenses has been done as under by the auditors:- (1) Material Consumed Rs. 84,07,506.49 (2) Head Office Administration Rs. 13,50,837.76 (3) Other expenses Rs. 50,262.96 (4) Administrative and other expenses Rs. 29,39,715.72 Item no.(4) has been further broken up into Travelling and Conveyance (Rs.1,19,139/-). Printing expenses (Rs.1,279/-) and Service charges (Rs.28,19,297/-). Clearly items at serial numbers (1), (3) & (4) would be governed by section 44C of the Act for their allowability. 6.2 Regarding the action of the Id. AO in disallowing the entire quantum of expenses on the ground mentioned at pages 1 and 2 6 of the impugned order, it is held that such action not being in consonance with the facts, cannot be sustained. However, as held in paragraph no.6.1 above the AO may recomputed the allowance under this head keeping in view section 44C of the Act and the finding given in the said para. Also the amount of Rs.84,07,506.49 on account of material consumed, stands allowed.”
On careful consideration of the findings of the ld. CIT (Appeals) we observe that the ld. CIT (Appeals) considering the submissions of the assessee and evidences placed before him deleted the above disallowances and, therefore, we see no valid reason to interfere with the findings of the ld. CIT (Appeals).
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on : 31/10/2023.