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Income Tax Appellate Tribunal, JAIPUR BENCH ‘A’, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 363/JP/2017
PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 16.03.2017 of ld. CIT (A)-1, Jaipur for the assessment year 2013-14. The assessee has raised the following grounds of appeal :-
“ 1. On the facts and in the circumstances of the case the ld. CIT (A) has grossly erred in confirming the disallowance of Rs. 71,20,843/- made by ld. AO being purchases of building material utilized in development activities alleging the same as non genuine without accepting submission made and evidences adduced. Appellant prays disallowance so made deserves to be deleted.
On the facts and in the circumstances of the case the ld. CIT (A) has grossly erred in confirming the disallowance of Rs. 10,00,000/- made by ld. AO being 50% of development
expenditure incurred by assessee towards contract work given to Kundhaliya Construction Company & Silvertech Engineer. Appellant prays disallowance so made deserves to be deleted.
3. On the facts and in the circumstances of the case the ld. CIT (A) has grossly erred in confirming addition of Rs. 55,560/- made by ld. AO u/s 69A, being difference in amount advanced by assessee to Arihant Shivenk Infra Projects Ltd. and that confirmed by the party as unexplained.
That the appellant craves the leave to amend/alter all or any of the grounds of this appeal on or before the hearing of the matter.”
Ground No. 1 is regarding disallowance of development expenditure towards road construction etc.
2. The assessee is a private limited company engaged in the business of real estate. During the year under consideration the assessee has undertaken real estate project in the name and style of “Khushi Sansar”, a township at Tonk Road, Gram Vatika, Jaipur. After purchase of land and conversion of the same for residential purpose, the assessee sold the land measuring 23,022.71 sq. yards during the year out of the total land developed by the assessee of 29,194.63 sq. yards. During the assessment proceedings, the AO noted that the assessee has debited direct expenses of Rs. 99,18,091/- under the head Cost of Material Consumed. The AO asked the assessee to submit the details of the direct expenditure booked to the Profit & Loss account. Since the development expenditure to the tune of Rs. 71,20,843 was shown as outstanding as on 31st March, 2013 and was claimed to have been paid in the subsequent year, the AO issued summons under section 133(6) to 9 parties and also recorded the statements under section 131 of the IT Act. The AO observed in the assessment order that these parties have denied to have supplied any material to the assessee and there was no response and appearance on behalf of the assessee in the assessment proceedings. Therefore, the AO disallowed the claim of development expenditure to the tune of Rs. 71,20,843/- while passing the assessment order under section 144 of the IT Act. The assessee challenged the action of the AO before the ld. CIT (A) and filed various documents including lay out map of scheme being developed by the assessee, photographs of the site of project/scheme, copy of Work Completion Certificate issued by the Chartered Engineer, copy of 90B order with WCC, copy of 90A order with WCC and NOC of electric work by JVVNL etc. The ld. CIT (A) accepted the additional evidences filed by the assessee and called for a remand report from the AO. However, after remand report, the ld. CIT (A) has confirmed the disallowance/addition made by the AO on this account.
Before us, the ld. A/R of the assessee has submitted that the assessee submitted invoices/bills in respect of the material purchased from these parties which contain complete particulars of the suppliers. All these parties have accepted the fact of carrying out the business of supply of construction material. The assessee demanded the cross examination of these parties whose statements were recorded by the AO in the absence of assessee. However, the AO has refused to allow the cross examination during the remand proceedings. Thus the statements relied upon by the AO without affording the opportunity of cross examination to the assessee is not justified. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in case of Andaman Timber Industries vs. Commissioner of Central Excise, 15 SCC 785 (SC). The ld. A/R has further contended that the AO has not doubted the fact that the assessee has actually done the development work, however, he has treated the purchases as bogus by wholly relying upon the statements of the suppliers recorded behind the back of the assessee. The ld. CIT (A) has confirmed the disallowance by ignoring all the documentary evidences produced by the assessee which includes Work Completion Certificate issued by the Chartered Engineer as well as other evidences including NOC of electric work done by JVVNL. Further, the assessee has made the payment against these purchases to all the parties in the subsequent year and the AO has not disputed the fact of payment made by the assessee through its Director Shri Umesh Gupta. Thus the ld. A/R has submitted that the assessee has produced all the bills/invoices in respect of the purchases made by the assessee from these parties.
The genuineness of these bills/invoices has not been examined by the AO, even the AO has not confronted the signatures on these bills/invoices to the respective parties. Therefore, even if these parties have denied the supply of material to the assessee, it may be to protect their own vested interest. In support of his contention, he has relied upon the various decisions.
4. On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that the AO has conducted an enquiry to ascertain the genuineness of the claim of expenditure. All these 9 parties have either not responded to the notice issued under section 133(6) or denied to have supplied any material to the assessee. The assessee has not produced any material or explanation before the AO and consequently the AO has disallowed the claim of expenditure. The ld. CIT (A) has also provided one more opportunity to the assessee by calling for a remand report and after the remand report, the addition was sustained by the ld. CIT (A) based on the fact that the assessee has failed to produce these parties for verification.
We have considered the rival submissions as well as the relevant material on record. The AO has doubted the claim of the assessee and taken for verification on the fact that the development expenditure to the extent of Rs. 71,20,843/- was due but paid in next year. Thus the AO has accepted this fact that the payment was made by the assessee in the subsequent year. Even otherwise, before the assessment order was passed, the payment was already made by the assessee. The AO conducted the enquiry from these parties by calling the information under section 133(6) of the Act. Some of the parties have not responded to the notice issued under section 133(6), however, the others denied to have supplied any material to the assessee. Consequently the AO has disallowed the claim by passing an ex parte order. The details of the parties in respect of which the AO has disallowed the expenditure are as under :-
S.No. Party Name Invoice Date Amount Name of No. materials 1 Tofiq Ali Building 58 12.03.2013 7,95,000 Cement material suppliers 2 Tofiq Ali Building 59 13.03.2013 12,38,800 Greet, Bricks & material suppliers stone 3 Shri Vishawkarma 112 15.03.2013 5,95,200 Gate, Steel, Fabrication Sariya 4 Kiran Enterprises 102 10.03.2013 4,33,843 Bazari 5 Kiran Enterprises 106 12.03.2013 2,15,000 Bazari 6 Kiran Enterprises 107 15.03.2013 6,52,800 Iron 7 Tiza Trading 64 02.03.2013 3,74,000 Cement/Bazari Company 8 Tiza Trading 66 08.03.2013 3,21,000 Cement/Bazari Company 9 Tiza Trading 67 16.03.2013 24,95,200 Greet, Bricks & Company stone 10 Total amount 71,20,843 The assesseee also explained the fact that the payment was made through its Director Shri Umesh Gupta but has rejected the claim on the ground that the payment made by the Director is not acceptable and allowable under the provisions of the Act. Further, the assessee produced the lay out plan of the project, photographs of the site showing the work of development, Work Completion Certificate issued by the Chartered Engineer regarding the work completed by the assessee as well as the development work towards road. The details of the work carried out by the assessee during the year under consideration has been given in the report of the Chartered Engineer which includes road work, sewerage line work, water supply work, electricity work etc. The assessee also filed the NOC of the electric work by JVVNL. Once these documentary evidences have been filed by the assessee regarding the actual work carried out at site and the AO has neither doubted the genuineness of these documents nor denied the actual work done at the site, then merely because some of the suppliers have denied the supply of materials to the assessee, the expenditures incurred on the actual work carried out by the assessee cannot be denied in toto. It may be a case of inflating the expenditure if it is detected that the assessee has claimed some bogus expenditure or inflated the cost of purchase of material, however, the actual expenditure incurred on the development work carried out at the site cannot be denied. The assessee filed all the invoices issued by the suppliers which contain the particulars of material and complete details of the supplies including the bills and vouchers were duly signed by the suppliers. The AO has not confronted the suppliers with the bills and vouchers as produced by the assessee. Therefore, when the bills/vouchers produced by the assessee are not found to be bogus or proved to be false being not issued by the suppliers, then the mere denial of the suppliers due to their own vested interest to cover up the misdeed of not disclosing the transactions in their own books of account cannot be a ground for disallowance of expenditure. Even otherwise, when the assessee has demanded the cross examination of the parties whose statements were recorded by the AO in the absence of the assessee, then not affording the opportunity to cross examine during the remand proceedings is a clear violation of principles of natural justice and consequently the addition made by the AO based on such statements recorded at the back of the assessee and without giving the opportunity of cross examination despite the demand of the assessee is not sustainable in law. Accordingly, in view of the facts and circumstances of the case, where the actual work of development carried out by the assessee at the site is not disputed by the A.O., then the disallowance of claim in toto is not justified.
Hence when the assessee has produced all the documentary evidences to establish the carrying out the development work and the claim of expenditure is not found to be excessive in consonance with the development work actually done at site, then the disallowance is uncalled for and the same is deleted.
Ground No. 2 is regarding disallowance of 50% development expenses on account of contract work given to M/s. Kundhaliya Construction Co. and M/s. Silvertech Engineer.
The assessee claimed expenses on account of electricity work of Rs. 20 lacs comprises of Rs. 10 lacs each from M/s. Kundhaliya Construction Co. and M/s.
Silvertech Engineer. Since the assessee did not produce the requisite evidence and details during the assessment proceedings, therefore, the AO made disallowance of 50% of the said expenditure. On appeal, the ld. CIT (A) called for a remand report and after the remand report of the AO wherein the AO has reiterated its stand of disallowance, has confirmed the said disallowance of Rs. 10 lacs being 50% of the claim of Rs. 20 lacs.
Before us, the ld. A/R of the assessee has submitted that the said expenditure was incurred relating to the development work at residential project “ Khushi Sansar”. The material was purchased from the assessee from M/s. Silvertech Engineer to be utilized in transmission of electricity such as conductors, cables, PCC poles, transmission lines, insulators and other structures etc. The assessee produced the invoices/bills in respect of the said expenditure. Therefore, the expenditure was incurred in purchasing materials as well as erection and laying down of the transmission lines including some structures by these parties. The ld. A/R has referred to the quotations/estimations being submitted by these parties which show that the material as well as services for electrification of scheme was actually procured by the assessee from the said party M/s. Silvertech Engineer, the payment of the same is not in dispute. The expenditure is genuine and verifiable, therefore, the same cannot be doubted. Further, during the course of appellate proceedings before the ld. CIT (A), the Certificate issued by the Office of Assistant Engineer (O&M), JVVNL was also submitted wherein the work of electricity work has been certified by the JVVNL after inspection and consequently the connection was to be released to the individual consumers. Thus the ld. A/R has submitted that when the assessee produced all the relevant evidence to establish that electrical work was carried out at site and the AO has not disputed the fact, then the adhoc disallowance of 50% of expenses is not justified.
On the other hand, the ld. D/R has submitted that the assessee produced the bills and vouchers as well as undated quotations without giving any break up of various items, therefore, these documents are not verifiable regarding the genuineness of the claim. There was no agreement for getting this work done from these two concerns. Accordingly, the AO is justified in restricting the claim to 50%.
We have considered the rival submissions as well as the relevant material on record. The ld. CIT (A) has accepted the fact that the assessee produced the quotations from M/s. Silvertech Engineer as well as estimation of electricity work to be done in the residential project “Khushi Sansar”. The said documentary evidence was not accepted by the ld. CIT (A) on the ground that break up of various items is not given in these quotations and estimations. Further, the ld. CIT (A) has accepted that the JVVNL has certified the completion of electrification work of the project.
However, despite all these facts, 50% of the claim is disallowed due to some irregularities in the documents produced by the assessee. It is pertinent to note that when the work is actually carried out at the site and it is also certified by the JVVNL, then even if there are some irregularities in the bills and vouchers produced by the assessee in not giving the break-up of the items, the claim of the assessee cannot be disallowed. Only in case if it is found that the assessee either made a bogus claim or inflated the expenditure then to the extent of such bogus or inflated claim can be disallowed. Once the claim of expenditure is not found to be excessive or inflated then having regard to the fact that the actual work has been carried out at the site, the claim cannot be disallowed on minor irregularities or defects in the bills/invoices produced by the assessee. Hence the disallowance made by the authorities below is deleted.
10 M/s. Kritika Township Pvt. Ltd., Jaipur. Ground No. 3 is regarding addition on account of discrepancy in amount of advance by the assessee to M/s. Arihant Shivenk Infra Projects Ltd.
At the time of hearing, the ld. A/R of the assessee has stated at bar that the assessee does not press ground no. 3 of the appeal and the same may be dismissed as not pressed. The ld. D/R has no objection if the ground no. 3 of the assessee’s appeal is dismissed as not pressed. Accordingly, the ground no. 3 of the assessee’s appeal is dismissed being not pressed.
In the result, appeal of the assessee is partly allowed.