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Facts
The assessee claimed expenses written off amounting to Rs. 92,68,010/- related to goods dispatched to UJVNL, which was affected by a natural disaster. UJVNL denied receiving the material and did not approve the bills. The AO disallowed the expenses, treating them as unproven.
Held
The Tribunal noted that UJVNL denied receiving the material and did not approve the bills, indicating that the expenses were not proven. Therefore, the addition made by the AO on account of expenses claimed as written off was confirmed.
Key Issues
Whether expenses claimed as written off are allowable when the recipient party denies receipt of material and approval of bills, especially after a natural disaster.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
1. This assessee’s appeal for assessment year 2013-14, arises against the Commissioner of Income Tax (Appeals)-22 [in short, the “CIT(A)”], New Delhi’s order dated 29.04.2019 passed in case no. 50/18-19/CIT(A)-22, involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. Case called twice. None appears at the assessee’s behest. We accordingly proceed ex-parte.
3. This assessee’s appeal raises the following substantive grounds:
1. 1. That the Ld. Commissioner of Income Tax (A)-22, New Delhi was not justified to hold the addition made on account of the expenses claimed as written off at Rs.92,68,010/- without going in detail of the fact of case.
2. That the Ld. Commissioner of Income Tax (A)-22, New Delhi was not justified to hold the addition of Rs.11,34,443/- (being 5% of site expenses of Rs.96,82,175/- and payment to contract labour of Rs.130,06,697/-) 3. That the Ld. Commissioner of Income Tax (A)-22, New Delhi was not justified to hold the addition of Rs.7,66,292/- (being 10% of gross amount of 76,62,929/- on account of Travelling & Conveyance expenses).
4. That the appellate craves the right to amend/add/alter any of all grounds of appeals.
4. Coming to the first and foremost issue of business expenses claim written off amounting to Rs.92,68,010/-; we note that the CIT(A)’s lower appellate discussion has upheld the assessment findings to this effect as under: “6. Ground -3: pertain to addition on account of expenses written off Rs.92,68,010/-. During the course of appellate proceedings, the Ld. AR of the appellate submitted on this issue vide letter dated 07/12/2017 is as under: - "Addition of Expenses claimed as written off of Rs. 92,68,010/- on account of goods dispatch to M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) located in the state of Uttarakhand. In the Financial Year 2012- 13 natural disaster has been occurred in the state of Uttarakhand where the Party M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) located and Peavy loss suffered by M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) due to such disaster. That appellant claimed "expenses written off" of Rs.1,12,91,121,/ (out of the La AO had disallowed a sum of Rs. 92,68,010/-) on account of the non-completion of its project of UJVNL due to flood and out of which some goods could not be received by M/s UJVNL due to the disaster amounting to Rs. 97,44,386/-as per detail attached herewith 2 | P a g e Due to last time rush, during completion ion of assessment Proceedings the accountant of the assessee company, inadvertently taken printout from the accounting software which was un updated or unaudited. On perusal of the said un-updated ledger it is seen that the amount of Retention money has been wrongly posted, into the ledger of "expenses Write off at Rs. 90,54,964/- instead of the actual amount of balance written off at Rs. 97,44,386/- as explained hereinabove which was later on rectified by the Auditor at the time of the time of finalization of Balance Sheet. The Ld. AO had mis-understood the farts and disallowed a sum of Rs. 92,68,010/- on the basis that only 5% amount retained by M/s UJVNL. Whereas the assessee company written of the amount of invoices which were actually not accepted/received by M/s UJVNL. And therefore, requested that kindly accept the version of assessee and accepted the updated/audited ledger accounts of relevant head attached herewith. However, Ld. AO misunderstood the details and documentary evidences submitted by the appellant on account of wrong submission and wrongly draw the conclusion that only Rs. 10,29,778/-retained by the client as retention was not recoverable from client and added Rs.92,68,010/- arbitrarily in the income of appellant. The fact and circumstances have already been explained before Ld. AO during the course of Assessment Proceeding while letter dated 28/03/2016.That Ld. AO has made the above addition without considering the fact that appellant has already considered the above as its income at the time of invoicing to the client. (The appellant relied upon Rule 46A(C)) (Please refer Annexure:-4) 6.1 In the remand report the AO submitted as under: Assessee has submitted the followings documents in the form of additional evidences as under. I. Ledger account of Written off. II. It is seen that a letter dated 01.08.2013 has been shown regarding claim of Rs. 97,44,386 and pending bills of Sobla-1, SHP. In this context, it is to say that the contention of assessee was well placed before M/s UJVN Limited and vide letter dated 14.08.2015, M/s UJVNL has denied regarding receiving of any materials as per claim of the bills, the relevant portion is reproduced as under: "Kindly refer your letter no. GHPL/Comml/2015-16/Sobla/dated 06.08.2015 forwarded vide letter no. 877/DGM/Sobla dated 10.08.2015 and various earlier correspondences. In this context, it its to intimate that actual details of the bills claimed and their status has already been sent vide various past correspondences (copy enclosed). The details of bills are once again tabulated below: Sr. Invoice Date Description Amount Remarks No. No.
CT 45 30.03.2013 Mandatory 66,92,000 Mandatory spare Spare Parts list had not been approved by competent authority of UJVNL and as per concerned J.E. no material was received at site.
CT46 31.03.2013 Power & 23,42,518 Drawings were not Control approved by Cables competent authority of UJVNL and as per concerned J.E. no material was received at site.
CT 38 30.03.2013 Earthing 6,09,868 Drawings were not System approved by (Material for competent power house authority of UJVNL & yard) and as per switch concerned J.E no material received at site 4. CT 39 30.03.2013 Internal 1,00,000 Drawings were not telephone approved by system competent authority of UJVNL and as per concerned J.E. no material was received at site. Total Rs.97,44,386/- Apart of above your representative had signed "Farkati dated 02.02.2015 (Copy enclosed) for the finalization of agreement, stating that all the due payments as on date received by Gogoal Hydro Pvt. Ltd. and no further payment shall be claimed in future.
Therefore, it is humbly requested not to raise any further claim for above listed invoices to avoid unnecessary correspondence in future." As evident from above, M/s UJVNL has not admitted that any material was not received on site and accordingly the bills were not approved, however, it is apparent that bills were raised for Rs 97,44,386. It is also important to note that income offered has been written off, but since in this case only raising of bills did not prove that actual expenditure has incurred (as the receiving of material from the assessee company has been denied by M/s UJVNL), hence expenses debited in P&L A/c corresponding to this income should be disallowed and added back to the income of the assessee company.
4 | P a g e 6.2 The AR of the Appellant submitted vide letter dated 02/04/2019, on the remand report of the AO is as under:- "On perusal of the records it is seen that the appellant had debited a sum of Rs. 97,44,386/-in its Profit & Loss accounts on account of written off as per detail as under:- Date Amount Invoice no 30.03.2013 66,92,000 CT 45 31.03.2013 23,42,518 CT 46 30.03.2013 6,09,868 CT 38 Out of which, the Ld. AO had disallowed a sum of Rs. 92,68,010/- arbitrarily or illegally and even after reading of remands reports it is clear that Ld. AO has not objected to the merits of the additional evidence brought on record by the appellant, which implies that the Ld. AO has no objection on merits of the additional evidence per-se. The Ld. had considered the documents issued by M/s UJVNL. The appellant had recorded a sum of Rs.97,44,386/- in its profit & Loss account in its Turnover during the year under consideration. The assessee had not received the disputed amount of Rs.97,44,386/- from M/s UJVNL which is clear from the various documents issued by the M/s UJVNL and even the Ld. AO had accepted that the M/s UJVNL has not approved the invoices of appellant. The LD AO had not any objection in accepting the fact that the appellant had not received the disputed amount from M/s UJVNL even than he is confused to allow the alleged addition merely on the basis of that the appellant had signed "Farkati" dated 02/02/2015 for finalization of agreement stating that all the due payments as on that date (02/02/2015) received by appellant and no further payment shall be claimed in future. To clear the doubts of the LD AO few facts should be reviewed as under:- The appellant had debited written off in its books of accounts on the basis of invoices not approved by the M/s UJVNL (As clearly mentioned in documents issued and LD AO had also accepted) and therefore appellant had agreed to settle the account of the M/s UJVNL due to following reasons: - To avoid unnecessary litigation with M/s UJVNL To buy peace of mind with M/s UJVNL To retain its business with that M/s UJVNL (for its business expediency) It is therefore the appellant had forgot the old disputed amount with M/s UJVNL and to decided carry it business and signed the Farkati on 02/02/2015. The LD AO had misinterpreted or misunderstood the meaning of Farkati and arbitrarily assumed that M/s UJVNL had paid all dues of appellant even after having clear documents issued by that M/s UJVNL. The Ld AO is erred in law while not considering the letter issued
5 | P a g e by M/s UJVNL On 26/02/2014 which clearly mentioned that the invoices were not approved by the M/s UJVNL On the basis of the above discussion it is clear that the appellant had recorded the corresponding turnover in it is profit & Loss account for which claiming written off. Anel it is also cleared that the, payment from M/s UJVNL never had been received. Therefore, as per provision of Income Tax Act, 1961 if any written off made out of the income recorded in books of accounts, the same is allowable as the appellant had fulfilled all the conditions as referred in the provisions of the Act. The LD AO also mentioned in the Remand reports that M/s UJVNL has not admitted that any material was not received on site and accordingly the bills were not approved and hence expenses debited in P&L A/c corresponding to this income should be disallowed and added back to the income of the assessee company. It is respectfully stated in this regard that the assessee company had issued the invoices and the material was also handed over to the M/s UJVNL. As briefly explained in the letter dated 07/12/2017 that Addition of Expenses claimed as written off of Rs. 92,68,010/-on account of Goods dispatch to M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) located in the state of Uttarakhand. In the Year 2013 natural disaster has been occurred in the state of Uttarakhand where the Party M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) located and heavy loss suffered by M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) due to Such disaster. That appellant claimed “expenses written off” of Rs.1,12,91,121/- (out of the Ld. AO had disallowed a sum of Rs.92,98,010/-) on account of the non-completion of its project of UJVNL due to flood and out of which some goods could not be received by M/s UJVNL due to the disaster amounting to Rs. 97,44,386/- as per detail attached herewith. Due to last time rush, during completion of assessment Proceedings the accountant of the assessee company, inadvertently taken printout from the accounting software which was un updated or unaudited. On perusal of the said un-updated ledger it is seen that the amount of Retention money has been wrongly posted into the ledger of "expenses Write off at Rs. 90,54,964/- instead of the actual amount of balance written off at Rs. 97,44,386/- as explained hereinabove which was later on rectified by the Auditor at the time, of finalization of Balance Sheet. The Ld. AO had mis- understood the facts and disallowed a sum of Rs. 92,68,010/-on the basis that only 5% amount retained by M/s UJVNL Whereas the assessee company written of the amount of invoices which were actually not accepted/received by M/s UJVNI. And therefore, requested that kindly accept the version of assessee and accepted the updated/audited ledger accounts of relevant head attached herewith. However, Ld. AO misunderstood the details and documentary evidences submitted by the appellant on account of wrong submission and wrongly draw the conclusion that only Rs. 10,29,778/- retained by the client as retention was not recoverable from client cand added Rs. 92,68,010/- arbitrarily in the income of appellant. The fact and circumstances ha ve 6 | P a g e already been explained before Ld AO during the course of Assessment Proceeding while letter dated 28/03/2016.That Ld. AO has made the above addition without considering the fact that appellant has already considered the above as its income at the time of invoicing to the client. It is also requested that kindly let us know if any further information/documents required to reach end of justice Finding: 6.3 I have perused the assessment order, submission of the Ld. AR of the appellant and the documents submitted. It is submitted that the appellant has booked revenue of Rs.92,68,010/- against the supply and services rendered to UJVN Ltd. The UJVN Ltd. has not approved the bills raised and denied the payment. It is submitted that the assessee company had issued the invoices and the material was also handed over to the M/s UJVNL. It is explained by the AR vide letter dated 07/12/2017 that addition of expenses claimed as written off of Rs.92,68,010/- on account, of Goods dispatch to M/S Uttarakhand Jal Vidyut Nigam Limited (UJVNL) located in the state of Uttarakhand. In the Year 2013 natural disaster has been occurred in the state of Uttarakhand where the M/s Uttarakhand Jal Vidyut Nigam Limited (UJVNL) and heavy loss suffered by M/s Uttaradhand Jal Vidyut Nigam Limited (UJVNL) due to such disaster. That appellant claimed "expenses written off of Rs. 1,12,91,121/- (out of the AO had disallowed a sum of Rs.92,68,010/-) on account of the non-completion of its project of UJVNL. 6.4 I have carefully examined the finding of the AO in the assessment order, remand report and the submission of the Ld. AR. There is no dispute that the bills were raised, however the same where not found proper by UJVN LTD. (a government of Uttarakhand enterprise). The reason for non-approval of the bills are specific that no material was received at site, drawings were not approved by the competent authority etc. These facts shows that materials or services were not received by the UJVNL. When the party itself denied receiving of material from the appellant or the services provided were not acknowledged by the UJVNL, then expenses on this account debited in P&L account can not be allowed. The AO has given categorical finding in the remand report. No contrary material is placed before me by the Ld. AR. I do not find any infirmity in the finding of the AO, therefore the addition made on account of the expenses claimed as written off Rs.92,68,010/- on account of Goods dispatch to M/s Uttarakhand Jal Vidyut Nigam Limited (UJVNL) is confirmed. In the result, the ground appeal is Dismissed.
We have given our thoughtful consideration to the assessee’s pleadings and Revenue’s vehement submissions reiterating their respective stands. We make it clear that both the learned lower 7 | P a g e authorities’ respective detailed findings as well as the Assessing Officer’s remand report have considered the assessee’s evidence thereby concluding that the recipient party M/s. Uttarakhand Jal Vidyut Nigam Limited “UJVNL” had neither issued any such order nor they received the corresponding material form the assessee; in the relevant previous year. Meaning thereby, the assessee has failed to prove its case that the corresponding material items got washed away in 2013 flash floods. That being the case, we find no merit in the first and foremost substantive ground which is hereby rejected going by the CIT(A)’s above detailed discussion.
Next comes the assessee’s latter twin substantive grounds seeking to reverse both the learned lower authorities’ action inter alia disallowing 5% of site expenses, payments to contract labour and 10% of the travelling and conveyance expenses, involving varying sums, respectively. We see no reason to accept either party’s stand(s) in entirety as these are routine business expenses in the assessee’s regular business activity wherein no abnormality is noticed in the lower proceedings. The fact also remains that it has failed to plead and prove the same so as to discharge its onus before the learned lower authorities.
Be that as it may, it is deemed appropriate in the larger interest of justice that a lumpsum disallowance of 2% only relating to the assessee’s site and contract labour expenditure and 5% of traveling and conveyance head; respectively, would be just and proper with a rider that the same shall not be treated as a precedent. Necessary computation shall follow as per law.